Why I'm Buying Trump Entertainment

I rolled the dice on Trump Entertainment Inc. (TRMP) last week, by taking a small stake in the company, and buying it at $10.30.

The recent fire sale over the past month almost gives the stock the appearance of a value play. I say "almost," because the company is losing money, and the casino business is not what it used to be in Atlantic City. All this negativity was highlighted by the Associated Press, and other local newspapers writing to fuel speculation as to whether or not Donald Trump, can somehow manage to take two public companies bankrupt within a 10-year period.

For many Wall Streeters, this would be a delicious way to spend a couple of years watching someone as arrogant as Mr. Trump be made infamous for his inability to oversee a public company reach success, or even mediocrity, for that matter.

I view Donald Trump as a guy you either love or hate, and most of the people I know possess the latter for him.

But the bottom line is when looking at TRMP right now, even if you loathed him, and wanted to see him fail through the bankrupting of his proud Trump casino empire, it becomes an issue of can it happen, and will there not be any more money to be made on the long side of this stock before it would fall to the pink sheets.

Certainly, the deal talk, or the lack thereof, surrounding this stock impacted negatively the price action as much as the negative news articles surrounding the current casino environment taking shape in Atlantic City.

Sometimes, I find rumors, and tabloid news to be the best backdrops for contrarian plays, particularly if they ignite a gigantic move in a stock price one way, or the other. In this particular case, I find the news to be even more interesting, and skewed because it is concerning not just another down-on-its-luck casino operator possibly seeking a buyer, but rather, a pompous, almost villainous icon of all that corporate greed, and excess represents. So, with each negative story, and downward tick suffered by the stock, many folks cheer as they associate it with the certainty of Mr. Trump's imminent date with failure.

I have found this entire news barrage on Mr. Trump to create the right burning building for me to walk into and take a stake. When it comes to investing in TRMP, I look at it this way. It is nothing personal. He is what he is.

Liking or hating him has nothing to do with the fact that Morgan Stanley (MS), still has millions sunk into the company. Not to mention, Morgan Stanley has purchased several tracts of land around Trump's properties. Morgan Stanley's involvement is not the only reason to get in but it is comforting to know they are still committed by capital, and not choice. This makes it harder for MS to walk away.

Also, the fundamentals are not exactly favorable, but the company is addressing this by laying off staff, and continuing renovation projects to upgrade the properties. Sure, the slots in Pennsylvania are hurting Atlantic City initially, but I foresee a time when Atlantic City uses its natural location along the beach as travel, and tourism currency to attract gamblers, and families much like Las Vegas has been doing so well for the last 10 years.

With the efforts being taken by other gaming corporations to beautify the pier and build more sites in the area, it appears that Atlantic City finally gets it. This is exactly why TRMP will get it. Because, after all it is still about location, location, location.

Right now the stock is priced at a little over $300 million. There is debt, but you have three properties valued at probably close to a $1 billion. Something has to give. The stock also has a 32% short interest on it and most of the analysts covering it hold the stock in little regard.

Finally, Mr. Trump is looking for a deal. His rumored asking price of $22 was a little steep, but that was when the stock was trading at $18. At $10 anything in the teens will represent a tidy gain. So for me, I am investing in his ability to make a deal or generate even a remote possibility of a deal.

Unlike most of the other folks following this stock, it is for me nothing personal.

Disclosure: The author owns TRMP.

TRMP 1-yr chart:

Comments

[joyofyoga]

Yeh, there is debt: $1.3 billion compared to the $1 billion value. That is the issue.
If the debt were lower than the value, that would be a no brainer.

[kurt walter]

Trump + Gaming = Bankruptcy .. how many times are people going to invest in this scenario? Trump seems to make out. Investors get torched. Forget this stock.

[bobbyjoe]

Your equity stake is worth nothing unless TRMP becomes profitable or someone wants to buy it. The land and MS's investment mean absolutely nothing. MS may get its money back in the event of a bankruptcy. Shareholders are entitled to NOTHING.

So what are the odds of profitability? And who'd want to buy it?

Without the answers to those questions I wouldn't touch this stock.