- Corporate remorse is rare, as it usually involves "other people's money," but individuals may have remorse, particularly in markets such as this, if remaining fully invested.
- Increasing buy out and initial public offer activity occurring as the market is near or at all time highs may be a cause for concern if also exposed to external events.
- Investor disappointment or dashed expectations can have severe repercussions for stocks buoyed by those expectations, but individual stocks suddenly in correction territory may be attractive.
Back in 2007 there was a sign that most mere mortals failed to recognize or understand as they stood in the path of peril.
A messenger delivered such a sign some seven years earlier, as well, and did so again last month.
The messenger was old, perhaps as old as the universe itself and his words and actions did foretell of the dangers that awaited, yet they were not appreciated as such, not even by the messenger, who may also have served as the executioner.
The proposed acquisitions of Chris-Craft and Dow Jones, in 2000 and 2007, respectively, were among the signs of market tops preceding terrible plunges that each saw the sacrifice of a generation of investors, some of whom are still said to be hiding as they await some sign of safety to begin investing once again.
The re-appearance of the messenger should give them some pause before considering a return to the action.
However, in a strange kind of way the "all safe" sign may have been delivered this week, as Rupert Murdoch, whose timing with his large previous acquisitions has been exquisite in its accuracy for coinciding with market tops has now sent a counter sign.
Barely a month ago, for those believing in the power of Murdoch, it was ominous that he would have proposed a buy out of Time Warner (NYSE:TWX), but this week that offer was revoked, perhaps offering a respite to investors fearing another plunge from what may be destined to be a market top.
While many are speculating as to the reason for Murdoch's change of heart, could it be that he has come to the realization that his offering price was just too high and that history, which has a habit of repeating itself, was poised to do so again?
Probably not, as once you get the taste, it's all about the hunt and it shouldn't come as a surprise if Murdoch either regroups, as the world appreciates that Time Warner's share value is far less without Murdoch's pursuit or as he seeks a new target.
As far as the revocation of the offer being a counter sign, this past week didn't seem to receive it as such, as market weakness from last week continued amidst a barrage of international events. A little glimmer of hope on the Russian-Ukraine front, did, however, allay some of that fear.
But Murdoch wasn't alone this week in perhaps having some remorse. Sprint (NYSE:S), which never really made an overt bid for T-Mobile (NYSE:TMUS), did however, overtly withdraw itself from that fray, just as T-Mobile was thumbing its nose at the French telecommunications company, Illiad's (ILD) bid.
Walgreen (WAG) may have had a double dose of remorse this week as it announced that it would buy the remainder of a British drug store chain but would not be considering doing a tax inversion. They may have first regretted the speculation that they would be doing so as they undoubtedly received considerable political pressure to not move its headquarters. Seeing its shares plunge on that news may have been additional cause for remorse.
While Murdoch may have significant personal wealth tied to the fortunes of his company and may have a very vested interest in those shares prospering, that may not always be the case, as for some, it may be very easy to spend "other people's money" in pursuit of the target and be immune to feelings of remorse.
But it's a different story when it's your own money in question. "Investor's Remorse" can have applicability in both the micro and macro sense. We have all made a stock purchase that we've come to regret. However, in the larger sense, the remorse that may have been felt in 2000 and 2007 as Murdoch flexed his muscles was related to the agony of having remained fully invested in the belief that the market could only go higher.
When we see the potential signs of an apocalypse, such as increasing buyout offers and increasing numbers of initial public offerings while the market is hitting new highs, one has to wonder whether remorse will be the inevitable outcome. An Italian recession and the German stock exchange in correction may add to concerns.
Philosophically, my preference has long been to miss an upward climb to some degree by virtue of not being fully invested, rather than to be fully engaged during a market decline.
A drop of 10% seems like a lot, but it will seem even more when you realize that you must gain 11% just to once again reach your baseline. Having been that route I believe it's much easier to drop 10% than it is to gain 11%. Just ask anyone who now own stocks that may have suddenly found themselves officially in "correction territory."
As I get older I have less and less time and less appetite for remorse. I would assume that Rupert Murdoch feels the same, but he may also have a sense of immunity coupled with the secret for immortality, neither of which I enjoy.
As usual, the week's potential stock selections are classified as being in Traditional, Double Dip Dividend, Momentum or "PEE" categories.
This week's selections include a number of recent targets and perhaps sources of remorse that may now find themselves better suited for those spending their own money, rather than that of other people.
Time Warner shareholders have been on a rollercoaster ride over the past three weeks as they saw a plunge on the same order as an initial surge in that time span. They may be experiencing some remorse for their leadership not being willing to consider Murdoch's overture. The revocation of the offer, beautifully timed to dampen the good news of Time Warner's earnings perhaps helped to limit any upside gains from earnings and adding to the feeling that Murdoch was the key to attaining "fair value," even if that fair value may now no longer represent a premium to the initial bid.
However, with shares now back to their pre-offer level, which admittedly was at the then high for the year, the option premiums are quite high, reflecting the potential for more action. The challenge is knowing in which direction.
In the case of T-Mobile, it was a whirlwind week seeing an offer from abroad which wasn't taken very seriously by anyone and then seeing the presumptive acquirer drop out of the game.
It's hard to say who if anyone would have had any remorse, certainly not its out front CEO, John Legere, but no doubt shareholders experienced some, as shares plummeted in the belief that suitors were dropping like flies.
While Legere talks a boisterous game and did all he could to close the door to any future with Sprint, the reality is that T-Mobile needs both spectrum and cash and Legere needs a "sugar daddy" and one with lots of patience and tolerance.
For anyone willing to get in bed with T-Mobile, the good news is that they can have John Legere. The bad news is that they get John Legere.
But for a short term trade, suddenly T-Mobile is in correction territory and as long as there may still be prospects of capital appreciation, the option premiums are very enticing.
Walgreen shares fell nearly 15% on news that it wasn't going to do a tax inversion, which seems far more than appropriate, as shares had their major ascent about 6 months ago long before most had ever heard of tax inversion.
I've been waiting for a while for Walgreen shares to return to the $60 level and the current reason hardly seems like one that would keep shares trading at that low level. Some recovery over the past two days doesn't dampen the attraction to its shares.
Target (NYSE:TGT) certainly should have experienced some remorse over the manner in which its data security practices were managed. In Target's case, they put an additional price tag on that remorse that reversed the recent climb in shares, but was just really part of the obligatory dumping of all bad news into a single quarter to honor the ascension of a new CEO.
I've owned Target shares for a while waiting for it to recover from its security breach related price drop. Uncharacteristically, I haven't added to my holdings as I usually do when prices drop because I haven't had the level of confidence that I usually want before doing so. Now, however, I'm ready to take that plunge and don't believe that there will be reason for further personal remorse. With an upcoming dividend, I don't mind waiting for it to share in an anticipated pick up in the retail sector.
I've certainly had remorse over my ownership of shares in Whole Foods (NASDAQ:WFM). While its co-CEOs are certainly visionaries, they have been facing increasing competition, are engaged in an aggressive national expansion and have one CEO that tends to make inopportune comments reflecting personal beliefs that frequently impact the stock price.
To his credit John Mackey has expressed some regrets over his choice of words in the past, but recently there has been little to inspire confidence. A recent, albeit small, price climb was attributed to a rumor of an activist position. While I have no idea of whether there's any validity to that, Whole Foods does represent the kind of asset that may be appealing to an activist, in that it has a well regarded product, significantly depressed share price and leadership that may have lost touch with what is really important.
Mondelez (NASDAQ:MDLZ) may or may not have any reason to feel remorse over adding activist investor Nelson Peltz onto its Board of Directors and to his decision to stop seeking a merger deal with Pepsi (NYSE:PEP). Investors, however, may have some remorse as shares suddenly find themselves in correction over the past month.
That price drop brings Mondelez shares back into consideration for rotation into my portfolio, especially if looking for classically "defensive" positions in advance of an anticipated market decline. With an almost competitive dividend, a decent option premium and the possibility of some price bounce back the shares look attractive once again.
DuPont (NYSE:DD) and Eli Lilly (NYSE:LLY) are both ex-dividend this week and there's rarely reason to feel remorse when a dividend can make you feel so much better, especially when well in excess of the average for S&P 500 stocks. Lilly's recent fall in the past two weeks and DuPont's two month's decline offer some incentive to consider adding shares at this time and adding option premiums to the income mix while waiting for the market to return to an upward bias.
Cree (NASDAQ:CREE) reports earnings this week and is always an exciting ride for a lucky or unlucky investor. It is a stock that either creates glee or remorse.
My most recent lot of shares came from eventually taking assignment of shares following the sale of puts after the previous earnings report, thinking that they couldn't possibly go down any further in a significant manner. I don't have any remorse, as I've been able to generate option premium revenue on having rolled the puts over and then having sold calls subsequent to assignment. I may, however, have some remorse after this coming week's earnings.
The option market is once again looking for a significant earnings related move next week. For the trader willing to risk remorse a 1% weekly ROI may be achieved at a strike level 12% below the current price. For those less tolerant of risk, if shares do drop significantly after earnings, some consideration can be given to selling out of the money puts and being prepared to manage the position, as may become necessary.
Finally, how can you talk about remorse and not mention Halliburton (NYSE:HAL)? From drilling disasters to adventures in Iraq Halliburton really hasn't needed to be remorseful, because somehow it always found a way to prosper and move beyond the "disaster du jour."
In hindsight, it seems so perfectly appropriate that for a period in time its CEO was future Vice President Dick Cheney, who didn't even express any remorse for having shot a good friend in the face.
That's the kind of leadership that we need in a company being considered for its worthiness of our personal assets, because we are capable of remorse and are pained by the prospects of engaging in it.
With some recent price weakness, as being experienced in the energy sector, now appears to be a good time to take advantage of Halliburton's price retreat and save the remorse for others.
Traditional Stocks: Halliburton, Mondelez, Target, Time Warner, Walgreen, Whole Foods
Double Dip Dividend: DuPont (8/13), Eli Lilly (8/13)
Premiums Enhanced by Earnings: Cree (8/12 PM)
Remember, these are just guidelines for the coming week. The above selections may become actionable, most often coupling a share purchase with call option sales or the sale of covered put contracts, in adjustment to and consideration of market movements. The overriding objective is to create a healthy income stream for the week with reduction of trading risk.
Disclosure: The author is long CREE, TGT, WFM. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article. I may buy/add shares or sell puts in CREE, DD, HAL, LLY, MDLZ, TGT, TMUS, TWX, WAG and WFM