Two Reasons To Buy Sallie Mae Before Everybody Else Does

Two reasons to buy Sallie Mae ((SLM) $42.86):

First, the odds on your money are pretty good here in the low forties $42.86; Stop loss at 40.50, and upside as much as 15% to 20% through next July. You may get it a dollar or two cheaper, but don’t wait since the short covering rally in financials has begun in earnest, and all boats will be lifted once Citigroup ((C): $35.00) makes a definitive bottom this week (see my post on short covering in financials from Tuesday).

Second, the chance that a bid for the company will be resuscitated would make purchasing this stock worthwhile, even if the deal was priced well below the original offer.

Sallie Mae, a favorite short of mine (2003 through 2005) seems like a low risk call option, with downside protection in the way of a multi-year low, and plenty of support provided by the two factors mentioned above. Of course, you could always pair this long with a short on First Marblehead ((FMD): $34.99), which offers little upside (lot of stock overhang up here), and, from my perch, a stock worth something in the ballpark of mid to low 20's.

Comments

[farkus:]

Wow, that's some cogent analysis! Buy Sallie because it's been down a long time, they may get bought out, and it is probably due to go up along with the other financials. Man, you're good!

2007 Nov 07 11:25 AM

[Wayne:]

FIG Trader, What's your reasoning on the valuation of FMD? With the increasing higher education demand, tuition rise and the upcoming 2008-2009 loan residuals, FMD actually has intrinsic value of $55

2007 Nov 08 04:39 PM

[Wayne:]

FIG Trader, What's your reasoning on the valuation of FMD? With the increasing higher education demand, tuition rise and the upcoming 2008-2009 loan residuals, FMD actually has intrinsic value of $55

2007 Nov 08 04:39 PM

[FIG trader:]

There is big demands for BMW's and their price is going up as well, but not sure who will pay for them. That thesis about unstoppable demand for education is the weakest one (I've heard it before; ) Go to my blog as far back as December 2006, and follow the thread of arguments. Its a financial, like it or not (and regardless of what the "pom-pom" crowd says, it will trade at relative multiple of book, vis a vis its forward ROE, one which will approach its cost of capital. I said it was a short in the 50's; Downside from here? Well who knows; If they can knock C down to 2002 levels, they could take this well below the mid 20's target price, under certain market conditions. I now expect the financials to rally strongly rather soon, once all big names cbust completely, so I would be careful right here. yet, it could breakdown like the rest any day. Just stay away from it, and short it on rallies to previous highs

2007 Nov 11 10:29 AM

[fxtrader07:]

now, you could re-write your article on sllie simply using the bear-case closed article that you wrote on fmd and just exchange fmd for slm.
hm, how would that sound.?
i appreciate short articles, but not articles like the wo mentioned, that are simply short on substance.

2007 Dec 13 08:44 AM

[FIG trader:]

Fortunately, I had stop loss at $40.00 (for long only); No case needs to be made. Bad call, I admit it. Trying to get greedy with the same names I have been right with. However, if you take the long short SLM/FMD..........

2007 Dec 14 09:28 AM