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I love a good trade and on occasion, I will pick a stock that is deeply oversold to buy for both a short term trade and a long term holding. I think shares of Central European Distribution Corp. (CEDC) are setting up perfectly for a short term trade and a long term hold.
Central European Distribution Corp. shares are trading at $10.43. These shares have a relative strength index of 27, which indicates the shares are very oversold. CEDC is a leading beverage distribution company, based in Pennsylvania. The 50 day moving average is $16.04 and the 200 day moving average is $22.32. Earnings estimates for CEDC are $1.02 per share in 2011, and $1.52 for 2012. The 52 week range is $10.42 to $39.95. Book value is stated at $22.19.
What's going on with CEDC? It reported earnings, which disappointed the market and shares dropped off a cliff, from about $23 down to around $10. Some analysts downgraded the stock after this earnings report and many shorts climbed aboard, which only further punished the stock.
Here is why I am buying CEDC:
The stock market almost always overshoots to both the upside and the downside with stocks. To make a point, CEDC was trading for about $40, not too long ago, and now it's almost trading for $10. Just as this stock was too high at $40, it is now way below fair value, at close to $10. These are the kind of opportunities I love to trade and invest in. The market loved this stock at nearly $40 and now it hates it at $10.....perfect.
This company makes and distributes alcoholic beverages for many emerging market countries such as Poland, Hungary and the Russian Federation. It distributes approximately 700 brands of alcoholic beverages, including wine, beer, as well as non-alcoholic beverages. This company deals with some very well known brands such as: Jim Beam Bourbon, Campari, Jagermeister, Remy Martin Cognac, Guinness, Corona, Budvar, E&J Gallo wines, Carlo Rossi wines, Sutter Home wines, Metaxa Brandy, Cinzano, and many others.
The beverage business provides steady revenues in both good times and bad. There is plenty of future growth potential in the countries CEDC serves and with oil prices well over $100, there are plenty of reasons for an oil rich country like Russia to be consuming the types of premium beverages CEDC offers. With CEDC's brand portfolio and emerging markets exposure, it would not be surprising to see a major beverage company buy CEDC outright.
Insiders at CEDC are taking advantage of this newly created bargain, two directors recently bought in:
William Shanahan purchased 20,000 shares on March 11, for about $12.60 per share, and this was about a $250,000 investment. Markus Seiger purchased 2,000 on March 7, for about $12.50 per share, and this was about a $25,000 investment.
Both directors nearly doubled their stakes in CEDC with these purchases. You can see those insider buys reported here.
Citigroup (C) has a buy rating on CEDC and a price target of $17 per share. Citigroup had a price target of $38 per share on CEDC previously but cut it to $17 after CEDC missed on earnings.
These shares have been weak, so I am scaling into this position. I purchased shares twice today, and I am hoping to buy more tomorrow, maybe even cheaper. I will probably buy at two different times tomorrow as well. I plan to sell some of these shares when CEDC bounces to what I expect will be around $11.50 to $12 in the near term, and over $14 in the mid term, followed by $20+ in the long run. With the RSI indicating these shares are very oversold a sharp snap back rally could occur at any time as bargain hunters and shorts start to cover. At $10.43, these shares are being given away in my opinion, time to load up.