What are you buying today?

[formthirteen]

This week: BMREBAMR, SFTBY, and SPLK. Starter positions...

Edited June 29, 2021 by formthirteen

[Every Banana Counts]

JD

[Castanza]

VZ

[villainx]

I added to my ERII recently.  

 

Assuming most folks here don't know much about this company, one thing they do is pressure exchange devices for desalination plants.  Partly due to the reliability and simplicity of their devices, It's suppose to be a solid, slow growing business (minimal recurring service and replacement biz, in other words).  They also have a speculative side hustle in developing the PX tech for hydraulic fracturing that they've been trying to bring to market forever/since many years ago when I first invested (ie, it's being tested, it's seeking approval, it's in another stage of testing, etc).  My understanding is that products help with efficiency and the related cost savings for many industrial type processes.

 

The latest news is that they are adopting the same tech for CO2 refrigeration.  It follows more closely with the solid, slow growth business of the desalination biz.  But the main thing is greatly expanding their TAM.  This presentation explains better:   https://youtu.be/Pjz03LSzhTM

 

Anyway, not exactly a value pic, but ... I just wanted to contribute something here.  Also welcome any (and especially) criticism!

[RichardGibbons]

On 4/9/2021 at 10:45 AM, RichardGibbons said:

I rolled these calls over in to UAN AUG $50 calls. The original calls cost $2.60 and I sold them for around $19.

My belief that Canadian capital gains taxes might increase on April 19 played a role in the decision to make the trade right now.

 

In an attempt to prove that pigs get slaughtered, I rolled most of the UAN Aug $50 calls into November $60/$65 calls. However, I increased the number of calls by a third, and did it by legging several times so that there was no additional cash outlay (though some additional short-term risk).

 

This is about a 1,650% return since my first UAN options post here, but I think it's still a decent speculation. If fertilizer prices hold at current levels, which seems possible, then the MLP could distribute $25+ of cash flow in a year. Under that scenario, it's hard to see the units remaining in the $60 range.

 

[Gregmal]

^ "I dont post ideas often, but when I do, they're many baggers in like 3 months"....awesome trade. 

 

If I may ask, is the inspiration for the trade company specific, industry specific, or macro? Maybe all the above? Very bullish on these type of trades right now as I think the backdrop is perfect. 

[RichardGibbons]

TL;DR: A mental model I picked up 30 years ago allowed me to recognize an opportunity based on other peoples' analysis, and I used options to reduce risk. Luck also helped.

 

Back in 1992, when I was trying to learn investing, I read a book about why gold stocks are the best investments. Even then, I figured out that what they were saying wasn't that smart, that generally commodity stocks suck. But the one thing that stuck in my head was the idea of operational leverage in commodity companies.

 

Basically, it's the idea that if you're looking at a commodity business, when the cycle turns up, if the costs of production don't increase, basically 100% of the revenue falls to the bottom line. And in that scenario, you actually don't want to own the lowest-cost business. You want to own the highest cost business, the one that was staring at bankruptcy, because at the bottom, that business will be priced on its tiny or non-existent earnings.

 

So, while the low-cost producer might see its profits double or triple in the upswing, the high-cost producer could see its profits go up 20 times. So the high-cost producer's shares should do much better.

 

I've been sitting on that model for close to 30 years, never having used it (generally buying stocks on the basis of value, growth, or quality). But then in reading message boards, I heard about UAN, and read a bunch of people's analysis about the business. I tried to kill the idea because it seemed so ridiculously undervalued after the operational leverage kicked it, but I couldn't kill it.

 

The options seemed like the way to go because generally I don't want to own commodity businesses long term, and if the thesis was correct, it ought to move fairly quickly. Plus, that operational leverage cuts both ways--if fertilizer plummets (like lumber) UAN should get killed. So, I saw long options as a way of reducing risk on my speculation (with the downside being options are bad with companies that make large, unpredictable distributions.)

 

That said, it's worth noting that almost everything has gone right, which obviously is not normal. UAN's fertilizer is mainly used for corn. Brazil's corn crop has been demolished, USA has had droughts, China also had a bad harvest and has been buying corn (and hoarding its own fertilizer), so corn is high. That increases demand for fertilizer. And there have been various production problems, and yesterday a fertilizer producer just asked for fertilizer anti-dumping measures to be instituted against Russia.

 

As a result, while fertilizer always peaks in the spring and resets to low prices in the summer, this year summer pricing has been higher than spring. So there's been a fair amount of luck (though it's insensitive to phrase it that way. My "luck" likely means some food-insecure people somewhere in the world will be suffering.)

[Gregmal]

Good stuff. Thanks for sharing. Probably one of the best top to bottom trade setups and executions Ive seen on here. Amazing how a metaphorical tool from the tool belt thats been unused for 30 years can be pulled out and utilized but thats the beauty of always reading/learning. 

[hasilp89]

thank you for sharing that @RichardGibbons i remember you mentioning this on the stelco page, but very interesting to hear how you traded it with options. kudos on the investment.

Edited July 1, 2021 by hasilp89

[villainx]

Ditto for being a very nice explanation.

[RichardGibbons]

Thanks, everyone, for your kind comments.

 

It's worth noting that for me, it's not yet worth a victory lap because it's still speculative and could still turn into a mediocre trade. I took out about a 100% profit when I rolled the options the first time, but nothing the second time.

If the stock reverses, there's a chance that the entire position ends up worthless and I'd be left with the 100% gain. (And that might look like a nice win, but I think it's not worth buying out-of-the-money options if your goal is only a 100% gain. It's way too hard to win over 50% of the time with long OOTM options.)

[fareastwarriors]

Picked up some APTS last few days.

 

Currently burning money at Disneyland... Should be long $DIS !

 

Happy Independence Day weekend you animals. 

Edited July 2, 2021 by fareastwarriors

[John Hjorth]

@fareastwarriors,

 

Enjoy!, & Happy Independence Day weekend to you, too!

[SafetyinNumbers]

Congrats. Really impressive execution.

 

I have been looking to speculate on options more as I come across stocks that seem unreasonably cheap but also have liquidity. I normally trade in illiquid securities like ELF.TO and ATTO so I am perhaps out of my depth.

 

I purchased RCII call spreads Dec 70-80 for a net debit of 75-90 cents. I think I am unusually bullish on the economy than most investors in consumer finance / retail but the stock seems unusually cheap. At $55 it trades at 8.5x 2022E consensus. They are paying down debt faster than expected from a large acquisition they did in February meaning they could announce share buybacks in August or November. I figure the December calls give good coverage.

 

Breakeven would be about 11x 2022E estimates which is a far cry from 8.3x now but I think there is a view that the economy is rolling over which might be true but it's not in the numbers yet and doesn't fit my narrative. Management has a history of beating numbers and analysts have decent growth built in but they are hedging with their targets. The average target is is $70 or 12.4x 2021E EPS. Presumably, that will roll forward to 2022E EPS of $6.47 (which might be too low) by December and result in a target above $80. 

 

Will anyone care, I don't know for sure but buybacks would be real demand for the shares and systematic quants usually like price target and estimate increases.

 

This is a good tweet thread:

 

https://twitter.com/BreachInletCap/status/1409960007077175299?s=20

 

I'm only risking 0.1% of capital on this trade. A full investment position for me would be 2% so this strategy if it reaches it's maximum profit would provide a return equivalent to the shares going to $85 by December expiry. I haven't done these sorts of trades before but I'm short on capital and I'm trying to be creative! In all likelihood I will lose all of my premium but I like my odds.

[cubsfan]

DFH - $21.95 .... starting position. Dream Finder Homes - SunBelt!

Edited July 6, 2021 by cubsfan

[maplevalue]

NTDOY starting position. Seems to be reasonably valued and also acts as a nice hedge if COVID takes longer than the market expects to go away.

[fareastwarriors]

 FRPH and NPSNY

[Spekulatius]

Added to my tracker of  Prosus $PROHY today and added to $VNT.

[Monsieur_dee]

2 hours ago, Spekulatius said:

Added to my tracker of  Prosus $PROHY today and added to $VNT.

 

Any reasoning why prosus on the Amsterdam exchange was up 2% & the ADR trading otc were down almost 5%? 

 

 

[Spekulatius]

19 minutes ago, Monsieur_dee said:

 

Any reasoning why prosus on the Amsterdam exchange was up 2% & the ADR trading otc were down almost 5%? 

 

 

Prosus traded yesterday ( and it traded significant down) in Amsterdam when the US markets were closed. So today’s move in the US followed Amsterdam’s move yesterday.

[Monsieur_dee]

6 minutes ago, Spekulatius said:

Prosus traded yesterday ( and it traded significant down) in Amsterdam when the US markets were closed. So today’s move in the US followed Amsterdam’s move yesterday.

Thank you! 

[Castanza]

$SONY and $NTDOY

 

thanks @maplevalue

 

edit: $PSTH 

Edited July 7, 2021 by Castanza

[Gregmal]

3 minutes ago, Castanza said:

$SONY and $NTDOY

 

thanks @maplevalue

 Bro you cant to do that. The Asians are uninvestable. Them Japanese folks are terrible allocators and the Chinese are out to steal from Americans!

 

Jokes aside Im a big fan of SONY as well. Lot of different, interesting stuff going on there. 

[Castanza]

5 hours ago, Gregmal said:

 Bro you cant to do that. The Asians are uninvestable. Them Japanese folks are terrible allocators and the Chinese are out to steal from Americans!

 

Jokes aside Im a big fan of SONY as well. Lot of different, interesting stuff going on there. 

Agreed and it seems pretty damn cheap to me. 2.5x book 20x. FB is cheap and it’s trading at what 7.5x book 30x? Same with NTDOY. 
 

 

[Lance]

BABA

 

Thanks

Lance