South of Wall S...'s  Instablog

According to The Sunday Times, Odyssey Marine Exploration (OMEX) will be hired to recover the HMS Victory for the UK's Maritime Heritage Foundation. A successful recovery of this wreck is significant as the reported 4 tons of gold aboard is valued at more than 3x's the current market capitalization.

Why the HMS Victory matters

1. $775M (£500M) in gold coins are believed to be aboard the ship according the the article.
2. Between the SS Gairsoppa and the Victory, $1B of gold and silver is now in Odyssey's 12 month recovery pipeline.
3. Management credibility is furthered as investors have labeled this a 'show me' story. They've built a pipeline - its time to execute.
4. 4 tons of gold coins and an emerging deep sea mining interest have transformed Odyssey into an emerging resource play for metal bulls.

Catalysts

1. The Supreme Court hears the Black Swan case, which opens the door to a settlement with Spain in the case (including the Sussex?).
2. A Robert Frasier deal is added to the recovery pipeline for 2012. If the Merchant Royal has been found - hold on.
3. Neptune Mining. The thesis for owning the stock has always been that the Mining business was worth multiples of the market cap - over a 5 year period. We're 2 years in and management's latest presentation - indicates their investment is now worth north of $75M. As this unfolds, investors will recognize the value of the mining interest.

With a short interest of over 12 million shares, there is the potential for a squeeze.

Odyssey Marine is a long position on our Even Driven List. I am long OMEX
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Disclosure: I am long OMEX.

1. iPads and iPhones don't run on Intel chips, they run on ARM and the future isn't bright as Apple has been buying ARM design companies:  PA Semi and Intrinsity
2. Apple may merge iOS with Mac OS X with Macs based on an A6 processor in 2012
   
3. The Ultrabook initiative was in response to INTC learning that Apple may pull the plug Link
4. This arti­cle from a MSFT vet sums up the challenges for INTC
5. HP is entering the ARM server space with Calxeda. As a reminder, HPQ is INTC's biggest customer 
6. Intel became an ARM licensee when they acquired Infineon's baseband business
7. As Goldman Sach Analyst James Covello points out: "Five of the last six times that Intel has raised capex more than 25% yoy, gross margins declined the following year. The average decline has been more than 700 bp."  You don't own these names when GMs start to decline.
8. Nomura shows the performance relativel to the S&P since 2000, pointing out that in both the year of and following increased CAPEX the stock underperforms the S&P 500.
   
9. INTC has negatively pre-announced 3 times in the last 6 quarters.  
   
10. INTC will likely have flat/negative revenue growth in '12 
11. Book Value is in the $9 range, including $3+ of cash.  The stock will graviate toward this level
    

The front page of today's Money and Investing section of the WSJ ran an article titled: Dividend Stocks Become the Heroes.

Dividend-stock fans say the unusually strong performance is likely to last as long as volatility driven by Europe's debt crisis and the global economic fits and starts continues to grip financial markets. Stocks that pay steady dividends tend to fall less than others when times are tough.

I completely disagree with this rationale, the trade is over.  Not to mention making INVESTMENTS (not trades) should not be on the basis of "hey, I won't lose a lot." 

This is a fad that money managers are hiding in to retain assets and in the process have been pushing up the valuations.  In fact, most of these defensive/no-growth names trade at a 20% premium to the S&P.  But this 'strategy' is an easy sell to retail investors - hence the push by managers and the Street - who create/sell products around this conventional wisdom. Why? Because that is what retail is buying. Bottom line - its too late. The chart in the article reinforces my point.

Sanford Bernstein research analyst Toni Sacconaghi was referenced in this weekend's Technology Trader section of Barron's, making the following point with regard to Apple potentially having $100B of cash on its balance sheet by the end of March:

If Apple were to retain that cash balance but return 50% of free cash flow to investors, it would allow the company to pay a 5% annual dividend and still grow its cash reserves by $20 billion per year

I'd rather own Apple than a utility yielding 5% - whether they pay out the cash generated or not.  The point is that chasing dividend yields despite valuation is idiotic. Let management decide on whether to allocate capital back into their business or pay a dividend.  And if you don't trust management to make the right decison, you shouldn't own the stock.

More on this to come.