Seeking Alpha
Profile| Send Message| ()  

Well she don’t like it when it’s cut n’ dry
And don’t like me makin’ future plans
She don’t want me tryin’ to pin her down


She ain’t about to give an inch of ground, no

Well she can take me for a little ride


Just as long as she drive me home
Around the block, maybe once or twice

And then some lovin’ wouldn’t that be nice

I won’t, but I want it
Oh, what a fool believes
I got her in my sight
But just outta reach

Here we go around
Run, run around

- Van Halen

It is hard not to look back on the trading days since August 3, 2011 and not feel like we are getting the “run around.”

Here are the 9 last trading days:

  • August 3, 2011 – S&P 500 1260.34
  • August 4, 2011 – S&P 500 1200.07 -60
  • August 5, 2011 – S&P 500 1199.38 -1
  • August 8, 2011 – S&P 500 1119.46 -80
  • August 9, 2011 – S&P 500 1172.53 +53
  • August 10, 2011 – S&P 500 1120.76 -52
  • August 11, 2011 – S&P 500 1172.64 +52
  • August 12, 2011 – S&P 500 1178.81 +6
  • August 15, 2011 – S&P 500 1204.59 +26
  • August 16, 2011 – S&P 500 1192.76 -11

The difference between August 4 and August 16 is only 8 points but “she took us for (more) than a little ride” along the way. But “just as long as she drives (us) home” and we are properly hedged to take advantage of the drive, we will be alright.

Dark Horse Traders’ Hedge was able to take advantage of the dips to close some short positions at a profit and added Kronos Worldwide (KRO) as a long near the bottom. Another old friend that we have been “Around the block (with), maybe once or twice” just blew away earnings and for many reasons is ready to add as a long position again.

Telecom Argentina, SA (TEO) was recommended at $16.38 on July 1, 2010 the first time around the block. On October 27, 2010 we recommended closing the position at $24 in “funeral for a friend.” Like all Hollywood movies these days nothing or no one is gone forever and so TEO is back. Fortunately we are able to enter TEO at about the same price we left it at in October 2010, $23.79. There are many reasons to like TEO at this time which we should review. The first is the dividend yield of 6.3% which in today’s low interest rate environment is enough to catch our attention. The forward annual dividend yield is a staggering 9.6% and with operating cash flow of $1.01 billion and leveraged free cash flow of $464 million we should be secure. Additionally the company reported earnings August 2 that were +41% year over year. The six analysts following TEO are expecting $2.83/share for 2011 and $3.03/share for 2012. At Tuesday’s closing price of $23.79 we are able to capture the earnings for a Forward P/E of 7.85 PLUS the 9.6% dividend yield which we like very much. Not that we need any other reasons to want to add TEO as a long at this time but the fact that the majority of the earnings are earned outside the U.S. isn’t a bad notation given the “run around” we have been experiencing domestically.

Recommendation:

Buy TEO at the market, Thursday August 18, 2011

Source: Long TEO While We Get the Run Around