David White

Two Calculated Risks Possibly Worth Taking

It is really weird writing to another David White. However, the salient point with LDK's 11.3M shorted shares is that the average volume is about 2M shares/day. You might presume this would go up if the market rallies. LDK is a fundamentally sound investment (PE=4, FPE=3, PEG=.1, etc.). It ill attract attention if the market rallies. There is some reason to believe that the market will rally due to the Obama stimulus package. Further if the market rallies, one might expect oil to rally (on a better expected economic outlook). Actually oil is currently positioned to rally even if the market does not rally demonstrably. It was up Friday, and it is up again today. A rally in energy would likely push solar stocks upward, as they are part of the energy complex. If LDK starts to rally demonstrably as a part of a general market/energy rally, it should rally faster with a Beta of 1.3. Also the shorts, if they see this, will want to close out their positions near the beginning of the rally. That way they will get maximum value out of their shorts. If all of the 2M shares traded on average were buys due to short covering, it would take about a week for the shorts to cover completely. What is more likely to happen is that the volume on LDK will go up in a rally without even adding in the additional buys due to short covering. This likely means that the short covering will take place over a two week period. If the market/energy rally does occur, LDK could be pushed up an average of 1 pt per day for 2 weeks. This might well double the stock price. LDK would still have quite reasonable multiples at that point (PE, FPE, and PEG). Therefore there is no real reason that this should not happen. The question of whether Mr. Peng's shares should technically count as part of the float is really a moot point. They will likely not be traded. That means that the buying will have to come from a much smaller pool of shares. According to TD Ameritrade this "float" number is 32.8M. This number can be found in TD Ameritrade by selecting the Research and Ideas tab. Select the "Stocks" tab. Then specify LDK as the stock you want to look at. Once you are looking at the LDK data, select the "Fundamentals" tab. Scroll down in the resultant data until you find "Share Information". The float will be the topmost value in this column.

I really think people should be a little more dilligent in their search of information in TD Ameritrade before essentially calling someone else a liar. I have also copied a defintion of free-float from the Web below:

In the calculation of free-float, two types of shareholding are excluded; firstly shares held by interested parties and secondly long term, strategic shareholdings of a significant portion of the issued shares.


Interested parties:

Management and Board members: Shares owned by a company’s management or Board of Directors are not included in free-float. Similarly, shares owned by persons related to or affiliated with the company’s management or Board of Directors are not included in free-float.
Corporations: Shares held by a company itself as treasury shares (or in some equivalent form) are not included in free-float. Note that, as the Exchange does not currently include treasury shares in total market capitalization of the company, treasury shares are excluded from the base upon which the free-float is calculated. Please refer to the example below for further guidance.
Employee Share Ownership Plans (ESOPs): Shares held by a ESOT, even if not allocated to underlying beneficiaries, are not included in free-float.


Strategic shareholdings

Private or public shareholdings with investment objectives that indicate those holdings are not likely to be available to be traded in the market due to their long term investment horizon.

Individuals: Free-float generally includes shares owned by individuals not included in the definition of Management and Board Members above. However, significant shareholdings held by individuals that are strategic in nature should not be included in free-float. There is a rebuttable presumption that any holding of 5% or more in the capital of an issuer held by any individual and corporation, other than an institution acting for its clients, be considered a long term strategic holding.
Governments: Shares owned by governments and affiliated entities where the investment objective indicates that it is strategic should not be included in free-float (e.g. the Government’s 20% holding in Aer Lingus Plc).
Government agencies and government-related investment funds: The investment objective of the agency / fund will determine whether the shareholding is strategic and therefore not included in free-float.
Investment funds, mutual funds or unit trusts: Shares owned in investment funds, mutual funds and unit-trusts are included in free-float.
Pension funds: Generally, shares held by pension funds (including shares of a company for whose employees the fund has been established) are included in free-float unless there is a strong indication that the holding is strategic.
Venture capital funds: Shareholdings are included in free-float unless the investment is strategic in nature.
Banks / Lenders: Shareholdings by such entities are included in free-float if the investment is non-strategic in nature.
Nominees or trustees: Nominee or trustee registered shareholdings are classified as strategic or non-strategic based on an analysis of the beneficial owner of the shares.
Insurance companies: Shareholdings are included in free-float unless the investment is strategic in nature.
Lock-up periods: Shareholdings that are subject to lock-up periods are not considered to be free-float during the lock-up period. When the lock-up period expires, the shares are classified as free-float or non free-float based on the nature of the shareholder and is subject to standard free-float rules.
Others: Inclusion in free-float should be based on analysis of the strategic or non-strategic nature of the holding.