Time to be fearful?

The best time to be fearful is when others are greedy, and with that in mind I reduced my Sears Holdings position yet again.  Specifically, I sold my 10 SHLD Jan 2015 62.50 contracts for $11.30 (for total proceeds of $11,288).  You'll recall I purchased these back in July at $3.65 per contract (here's the post: http://mevsemt.blogspot.com/2013/07/more-sears.html), so it was a very profitable 4 months!

Questions?  Comments?  Email mevsemt@gmail.com.

Easy Come, Easy Go...

Well folks, this is going to be short and sweet...

Similar to my previous post, SHLD has continued its steady march upward.  So today I trimmed my position yet again.  Specifically, I sold 10 SHLD Jan 2015 $60 contracts at $11.70 (for a total proceeds of $11,688).  Given that I bought these contracts less than a month ago at $2.95 (http://mevsemt.blogspot.com/2013/08/call-me-crazy.html) this was a nice little gain!

Questions? Comments? Email mevsemt@gmail.com

Know when to hold'em?

For those of you keeping track, you know I've recently been buying a lot of SHLD LEAPS.  Then, much to my surprise and delight, SHLD went on a tear starting in late August.  Today it went up over 12%... on no news whatsoever!

Now I know SHLD is ripe for a short squeeze, and it seems like we're in the middle of one right now (~90 MM shares are held by long-term owners and index funds, ~16 MM are shorted, and there are only ~106 MM shares outstanding, hmmm...).  However, the truth is I have no idea how to trade around this type of thing, and with the run-up SHLD has become a significant % of my portfolio.  So today I let prudence take over, and sold both my SHLD Jan 2015 $72.50 and $85.00 LEAPS, for proceeds of $3,438 and $4,681, respectively.

Now it's not like I'm bailing on SHLD, after all I still hold the common, as well as the Jan 2015 $60.00 and $62.50 LEAPS.  Rather, today's transactions were more about managing my portfolio's composition, keeping an eye on risk, and holding my temperament in check.

Questions? Comments? Email mevsemt@gmail.com.

Call Me Crazy...

You know, it isn't easy being a value investor, and this is especially true when you blog about your picks in real time.  After all, just about anything I buy has significant "headline risk," and is likely in the midst of some sort of turmoil.  In other words, I have to be willing to look dumb now with the hope of being right later.

So what's new?  Well, I'm not just waxing philosophical on a Monday afternoon.  In fact, this post is to alert my readers that I bought more SHLD options today.  Specifically, I bought 20 SHLD Jan 2015 $60 contracts for $2.95 (for a total outlay of $5,919).

Now I can almost hear the collective groan through my screen, "oh geez mevsemt, not more Sears!"  But here's the thing, SHLD has a decent margin of safety.  I'm mean they've got real estate, brands, Lands' End, 51% of Sears Canada, owned inventory, etc.  Of course they also have things on the other side of the balance sheet (like that pesky pension), but suffice it to say I think the assets far outweigh the liabilities.

There's also another interesting dynamic that could be going on here (warning: the following is idle speculation).  First, Eddie has been selling/trimming everything in his hedge fund except Sears, and I think he personally owns somewhere around +30 MM shares.  Concurrently, Bruce Berkowitz (a long time supporter of Eddie), has recently been accumulating Sears, and is now up to roughly 20 MM shares.  Hmmm... 50% of SHLD in friendly hands... could Eddie be winding down his hedge fund?

And ultimately, even if Eddie has no intention of quitting the hedge fund business, SHLD still represents an opportunity to invest alongside an incredibly talented investor and businessman at a reasonable price, and these situations don't happen everyday...

Questions? Comments? Email mevsemt@gmail.com

Buy Mortimer, Buy?

Well, this may look kinda silly given my previous post, but today I bought 10 SHLD Jan 2015 72.50 contracts at $4.14 (for a total outlay of $4,152).  Here's why...

First, Sears dropped significantly after releasing earnings, and as a result the price of these contracts also fell quite a bit.  Additionally, compared to the SHLD options I recently sold, these new options have much more time until expiration.  They also make up a smaller % of my portfolio, which means there's less portfolio risk overall.  And lastly, as I mentioned previously, I'm still very optimistic about SHLD's future.  Wish me luck!

Questions? Comments? Email mevsemt@gmail.com 

Just Some Minor Tweaks...

Well folks, this post will be short and sweet.  As always, I post anytime I buy or sell a stock, so this is just to keep my readers in the loop on the transactions I made Friday.  

Specifically, I sold my SHLD Jan 2014 55 (50.42 post adjustment) and Jan 2014 85 (80.42) call options, for proceeds of $16,621 and $1,158, respectively (my cost basis for these were $4,012 and $4,362).  In conjunction with this sale, I purchased 20 SHLD Jun 2014 65.42 contracts for a total outlay of $8,819.

So what's the logic here?  Well, I always get nervous when options are within a year of expiration, and the transactions I made Friday effectively "rolled" the expiration date 5 months forward.  Additionally, these transactions increased my cash position by roughly $9K, bringing my portfolio to 42% cash.  By the way, at the risk of sounding like a broken record, this is exactly what I want with the market bumping up against new highs.  

So what's next?  Well, it occurs to me that I haven't bought a "new" company since 2011.  Essentially, over the last 15 months I've basically just been "harvesting" gains or tweaking existing positions.  Admittedly, this is pretty boring stuff, but someone's got to do it ;).  

In the meantime, I'll keep looking for new opportunities.  If you know of any, I'm all ears!

Questions?  Comments?  Email mevsemt@gmail.com 

Here we go again...

I'll tell you what - owning Sears Holdings is not for the faint of heart.  

In the last year, we've seen the spinoff of Orchard Supply, a rights offering for Sears Hometown, and the partial spinoff of Sears Canada.  A small handful of stores/lease-rights were sold (for almost half a billion dollars), and a number of other stores have been closed down.  Sears's Chairman, Eddie Lampert, has purchased roughly 7 million shares for his personal account (representing 6-7% of the company).  Yet, at the same time, we've seen the core retail operations continue to flounder, with no turnaround in sight.  

Recently, in an interview with Fortune, Bruce Berkowitz (one of my favorite investors and the largest owner of Sears behind Eddie) said "the value of Sears would be over $160 a share if the land on its books was fully valued."  He then went on to say "I think Eddie Lampert will end up being one of a few unbelievable case studies on what it means to be a long-term investor."  Here's the link to the full interview: http://finance.fortune.cnn.com/2012/11/26/bruce-berkowitz-fairholme/?source=yahoo_quote.

Anyway, I continue to be optimistic about Sears (depending on your perspective, feel free to replace the word "optimistic" with stubborn, foolhardy, etc.).  So, on Friday I took advantage of the stock's recent decline and bought 20 contracts of the Jan 2015 $85 LEAPS at $1.87.  Including commissions, this cost me a total of $3,759.  Wish me luck!

Questions?  Comments?  Email mevsemt@gmail.com

He who rides a tiger is afraid to dismount...

That Chinese proverb just about sums up my feelings on Sears Holdings, which has been on an absolute tear in 2012.  Nonetheless, after much deliberation (and honestly, angst), I decided to trim my position once again.  Specifically, on Friday I sold my remaining 25 contracts for the Jan 2013 $95 options at $6.80, generating proceeds of $16,986 (I'd sold the other 10 contracts in February 2012 for proceeds of $1,239).

For those of you following my blog, you know I first bought these particular options all the way back in November 2010.  Between then and August 2011, I added to my position 3 more times (click on the "zz Sears" label to the right to read about all my Sears transactions).  When all was said and done, I'd invested $14,592.  Then came December 2011, which was not kind to Sears investors.  In fact, as of 12/31/2011, my 35 contracts were worth $210 (that's no typo, my $14.6K investment had shrunk to two hundred bucks!).  Now, less than 3 months later, those same 35 contracts have been sold for total proceeds of $18.2K!

But why sell now, after all things are just getting interesting?  Well remember, I'm not selling out of Sears, but rather just trimming my position.  In fact, back in December when things were looking really bleak, I bought $18,329 of stock plus an additional $4,012 of Jan 2014 $55 options.  So, given my significant exposure to Sears from these purchases, I could no longer justify holding options that were both 1) out-of-the-money and 2) had less than a year until expiration.

Questions?  Comments?  Email mevsemt@gmail.com

Quick Update

Yesterday I sold 10 Sears Jan 2013 $95 call options at $1.25 per contract.  If you've been following the stock, you know it's taken off in 2012.  In fact, between my call options and common stock, Sears was roughly 12% of my total portfolio coming into the year.  Before yesterday's transaction, it had gone up to 22%.  So do I think Sears is overvalued?  No, not by a long shot.  However, since it had become the single largest position in my portfolio, I figured the best thing was to be prudent and trim it back a little.

Questions?  Comments?  Email mevsemt@gmail.com.

Another Real Estate/Housing/Construction Stock... Really?!

Between Sears and St. Joe you might've thought I had plenty of exposure to real estate/housing/construction and I'd be looking elsewhere for opportunities.  If so, you're probably right about the "plenty of exposure" but you're wrong about the "looking elsewhere," as today I bought 125 Jan 2013 $12.50 call options on Masco (MAS) for $0.45 per contract.  In plain English these LEAPS give me the right to buy 12,500 shares of MAS on or before January 19, 2013 for $12.50 a share. 

So what does Masco do?  Well they've got five segments which I'll list below (it's OK if you cringe a little, I did too):

1. Decorative/architectural products (including Behr paint)
2. Plumbing (including Delta faucets)
3. Cabinets & related products
4. Installation and other services
5. Specialty products

As you may have guessed Masco's operating performance has been horrendous over the last several years.  Revenue has fallen about 40% from the peak, and FCF has fallen from $1.1 B to $225 MM.  So why did I buy today?  Well, it's my belief that these horrible results, dire outlook, etc. are more than priced into the stock.  Further, the company's management has done a great job of cutting costs and right-sizing the business - the fact that they're still FCF positive is actually pretty good. 

My hope is the economy manages to stay out of a deflationary spiral and we see housing rebound in a year or two.  If this is case, Mr. Market's manic depressive mood around Masco should change as well, and the stock could easily climb to the mid-teens.  Looking at my investment checklist (http://mevsemt.blogspot.com/2010/08/investing-checklist.html) this stock meets most of the criteria - insider buying, 52-week low, guru buying, discount to Morningstar & my fair value, high degree of leverage on the options, and asymmetric payoff all fit here (althoug insider and guru buying is a bit light). 

To give you an idea of the upside I'll take a haircut to Morningstar's fair value of $22 and assume the stock gets to either $15 or $17.50 at expiration.  The cost of these LEAPS was $5,656 and if MAS hits $15 they'll be worth $31.3K.  If MAS hits $17.50 they'll be worth $62.5K.  Can you say asymmetric?!

Lastly, on a cautionary note I should stress that this is a very speculative bet.  In the past some of these have really paid off (SD and NRG) and others completely flopped (EXC and so far SHLD).  I have no idea how this one will turn out, but I personally feel the risk-reward is worth it.  Wish me luck!

As always I'm available for questions and appreciate comments.  Email mevsemt@gmail.com.

Selling EXC

I'm doing a little bit of spring cleaning, and after reviewing my portfolio I decided to throw in the towel and sell my EXC 2012 options.  The thing with options is you either win big or lose big, and after the fact your either look really smart or really dumb - in the case of EXC it's definitely the latter.  To summarize, I acquired these options in May of 2010 (click the "zz Exelon" label to the right to see the posts) for a total outlay $4,123.  My proceeds from today's sales is... wait for it... $528... ouch!

Oh well, I guess stupid is as stupid does.  Next time I'll have to remember to only buy stocks that are going to go up ;)

Questions?  Comments?  Email mevsemt@gmail.com

Finally!

Today I was finally able to sell the remaining 25 NRG LEAPS in my portfolio.  All things considered this was a very successful "trade" - in less than 3 months my investment of $6,071 turned into $17,486 (all figures are after commissions).  In a way this is very reminiscent of Sandridge (http://mevsemt.blogspot.com/2011/02/sold-sd-call-options.html), i.e. the stock popped and I couldn't resist locking in my gains.  However, like Sandridge, it may turn out I'm selling way to early and leaving a ton of money on the table, I guess only time will tell...

Anyway, for reference here are the posts from when I made the purchase: http://mevsemt.blogspot.com/2011/02/new-purchase.html and http://mevsemt.blogspot.com/2011/02/nrg-order-filled.html.

Here's why I made the purchase: http://mevsemt.blogspot.com/2011/03/so-why-nrg.html.

And finally here's where I've previously sold: http://mevsemt.blogspot.com/2011/05/selling-some-nrg.html and http://mevsemt.blogspot.com/2011/05/still-selling.html.

Still selling...

This is going to be a quick post - today I sold 64 NRG LEAPS at prices between $1.75 and $1.80.  Since I sold 11 contracts yesterday (http://mevsemt.blogspot.com/2011/05/selling-some-nrg.html) I'm now left with 25 in my portfolio - hopefully I'll be able to sell these at similar prices over the next few days.

Selling some NRG...

For those of you following NRG you've probably noticed it's been on quite a run.  Personally, I tend to get a little nervous whenever a stock is bouncing around its 52 week high, so today I placed a limit order to sell 50 NRG 2013 $30 LEAPS at $1.70 (as of this writing it's been partially filled at 11 contracts, leaving me with 39 left in the order and 89 left in my portfolio).  Anyway, I'll do a more in-depth write up as time permits (and of course I'll do a quick post each time more LEAPS get sold).

Questions?  Comments?  Email mevsemt@gmail.com.

I too like to live dangerously...

I just purchased 5 additional contracts (bringing my total to 25) of SHLD Jan 2013 $95 LEAPS at $4.50 for a total outlay of $2,258 (including commissions).  Wish me luck!

A Short Analysis

First, a disclaimer: this post should be put in the "food for thought" bucket and really wasn't part of my thought process when I bought SHLD LEAPS.  Nonetheless, I hope you find it interesting...

Sears is a pretty controversial stock; some view it as a collection of assets (real estate, brands, inventory, Sears Canada, etc.) and believe it's trading at a sum-of-the-parts discount, others think of it as a slowly-but-surely failing retailer with virtually no chance of a turnaround (which has created a huge short interest).  I invested in Sears b/c I'm part of the first group, yet I totally understand the second group's perspective... HOWEVER, what I don't understand is why anyone would short the stock.  Here's why:

• A small group of VERY patient long-term investors control a huge % of the stock and are unlikely to sell at anything close to current prices.  This group includes ESL, Fairholme, the Tisch family, and probably some others (ex. Francis Chou). 
• Under Eddie Lampert SHLD has been a serial repurchaser of stock, and as long as the stock stays under $100 there's no reason this won't continue.

So where does this leave us?  Click on the image below to find out. 

As you can see, if Eddie keeps repurchasing shares at this pace the short interest quickly becomes 100% of the remaining "free" float!  Hmmm... I'm no expert, but it feels like something's gotta give. 

At this point you may be wondering "so what?"  Well (and this is pure speculation), IF this dynamic is indeed setting the stage for a massive short squeeze, a high stock price can be a very useful tool in the hands of an experienced capital allocator.  Check out this article and maybe you'll notice some parallels, http://www.chicagotribune.com/business/chi-0411190237nov19,0,6287747.story

Lastly, for reference here are the previous posts I wrote when I was buying the LEAPS: http://mevsemt.blogspot.com/2010/11/transaction-alert-sears-holdings-2013.html and http://mevsemt.blogspot.com/2010/12/more-sears-leaps-in-eddie-we-trust.html.

Questions?  Comments?  Email mevsemt@gmail.com.

So why NRG?

Well I'm finally getting around to my NRG write-up, sorry for the delay!  Anyway, here's why I like NRG:

• I think the stock is cheap at $20 a share: EV/EBITDA and FCF yield are quite attractive plus the value of NRG's assets (i.e. power plants) alone could support a stock price in the high $30's.
• NRG's CEO, David Crane, is considered one of the best in the business.  Additionally, he is aligned with shareholders as he owns a significant amount of stock/options (many of which are out of the money).  

And here's why I purchased LEAPS instead of common stock:

• NRG has significant balance sheet leverage (i.e. debt): the more leverage a company has the harder it is to determine its fair value.  However, a high degree of leverage can really boost returns when things work out well.
• NRG has significant operating leverage: profitability for IPP's are highly dependant on commodity markets.  If the price of natural gas goes up (which is by no means guaranteed), NRG's revenue and profitability will go right up with it. 
• At $0.60, the LEAPS were cheap.  When buying out-of-the-money options I look for asymmetrical risk/reward situations.  In the case of NRG, if the stock goes to the mid to upper 30's I'll make a 10x return, if the stock goes to the low 40's I could make a 20x return, which IMO is well worth the risk.

So where does this leave us?  In short, NRG is a potentially cheap stock with quality management.  However, its high level of financial and operating leverage make its future very uncertain - the upside potential is significant but the downside risk is still very real.  Luckily for us the LEAPS were cheap, thereby creating an opportunity with decent odds and a very asymmetrical risk/reward if things go our way.

Questions?  Comments?  Email mevsemt@gmail.com.

NRG Order Filled

It looks like the rest of my order for NRG 2013 $30 LEAPS went through (for a total of 100 contracts).  All in all this order cost just under $6,100.  I'll try to do a write up later this week or maybe this weekend (if time permits). 

Questions?  Comments?  Email mevsemt@gmail.com

New Purchase

On Friday I placed a limit order for 100 contracts of NRG Jan 2013 $30 LEAPS at $0.60, but unfortunately it's only been filled on 5 contracts (thus far). 

I'll keep this order open and hopefully I'll be able to get it 100% filled.  However, rather than write a separate post each time I get another couple of contracts, I'll just post when the order closes (either b/c it was filled or canceled).

Questions?  Comments?  Email mevsemt@gmail.com

Sold SD Call Options

On Friday I sold my Sandridge call options, which have appreciated nicely since I purchased them a little over 5 months ago (here's my original post: http://mevsemt.blogspot.com/2010/08/fool-me-once.html ).  Specifically, I bought 50 contracts for $1.07 (or a total cash outlay of $5,387) and sold them at $3.65 (for proceeds of $18,211), netting me a profit of just under $13K. 

Interestingly enough, while my gut tells me Sandridge OPTIONS aren't a good risk/reward bet after their recent appreciation, I still think Sandridge STOCK is undervalued and could have a much better risk/reward profile.  Earlier this year I also sold HAWK, so my portfolio is about 40% (or $54K) in cash.  This being the case, I'm considering buying SD common stock, especially if it pulls back.  Other stocks on my watch list include CSCO, NRG LEAPS, JOE, BAC, and ESI... stay tuned.

Questions?  Comments?  Email me at mevsemt@gmail.com