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John Petersen is executive vice president and chief financial officer of ePower Engine Systems, Inc., a company that has developed, built and demonstrated an engine-dominant diesel-electric hybrid drivetrain for long-haul heavy trucks that promises fuel savings of 25 to 35 percent depending on... More
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  • Tracking XIDE Since July 2008 9 comments
    Mar 8, 2012 10:20 AM | about stocks: XIDEQ

    A number of readers have asked recently whether I'm still bullish on Exide Technologies (XIDE) and I thought I'd share my current thinking in a brief Instablog. The following graph shows my calculated 10-, 20-, 50- and 200-day volume weighted moving average prices for Exide since July 2008 when I started writing about investing in the energy storage sector. While the price is not quite at the 5-year low of $2.29 for the 10-day WMA it's darned close.

    The thing with Exide is that it's at a bare bones valuation right now. The darned stock trades at 60% of book value and a measly 8% of sales. They are facing some headwinds but with market expectations this low it won't take much for the stock to double or triple. Exide is currently a $2.90 stock, but it's been an $11.70 stock in the last twelve months.

    Exide has $514 million in working capital and $426 million in equity. I see no meaningful risk that it will go out of business and that sets up a dynamic where the worst case scenario is sideways movement while the best case could be a strong move to the upside. I like those odds!

    I don't pay much attention to US weather conditions, but temperatures in Europe this quarter were brutally cold and just as a warm Q-3 hurt Exide's business in Europe a glacial Q-4 should help Exide's business in Europe.

    Over the last four and a half years I can identify three different runs where Exide gained more than 100% over the course of a few months. If your objective is to buy low and sell high now seems like an opportune time to position your portfolio.

    Stocks: XIDEQ
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  • H. T. Love
    , contributor
    Comments (19531) | Send Message
    I'm in agreement John.


    I'll be using call options, I think, to get there.


    My thinking is that since Exide tends to trade directionally with the S&P 500, if one believes a correction in the S&P is on the horizon a very good entry for either the equity itself or the options should appear.


    If one believes no correction will appear, then now is a good entry point.


    Last time I was in, I bought the equity, sold $10 covered calls. The stock ran to $9.9x and retraced and I made out like bandit.


    One of my "Lucky Strikes", so to speak.


    I wish I could do that more often. But I'm spotty on that so far.


    8 Mar 2012, 10:43 AM Reply Like
  • 481086
    , contributor
    Comments (3431) | Send Message
    My "boat anchor" comment was a bit of wry gallows humor. Hey, some people talk to their plants, I talk to my stocks. I know, I know, but it gets me through... In any case, I'm not cutting my shares loose. Sooner or later, the weighing machine's gotta get its vote. ;)
    8 Mar 2012, 10:47 AM Reply Like
  • H. T. Love
    , contributor
    Comments (19531) | Send Message
    481086: Sell some out-of-the money call options to rake some premium while you wait.


    I've been doing this a couple years on a bio-tech I've been holding and they are about paid for just from the premiums from shorting the calls.


    8 Mar 2012, 10:57 AM Reply Like
  • 481086
    , contributor
    Comments (3431) | Send Message
    HTL, definitely something for me to consider... but would that not limit my upside though, if they were to run and get called away? I guess it all depends on how long a wait it turns out to be..
    8 Mar 2012, 03:11 PM Reply Like
  • H. T. Love
    , contributor
    Comments (19531) | Send Message
    Yes, upside could be limited. The critical thing is to know what you are willing to accept, the time-frame in which any up-move could occur and the magnitude of that potential move.


    The most import thing is to be aware of "time decay". The intrinsic value is zero while pps is out of the money. It's all time premium and volatility premium. Time decay is slow at first and decays rapidly as expiration approaches.


    If you've guessed right, you can buy back (close your short positions) with a profit.


    Your caution is warranted as it's not always easy to guess right on direction, magnitude and time and/or decide that missing some of the upside is comfortable for you.


    If you've tracked it closely and know it's patterns, it helps. But even then a "White Swan" event could pop up and ruin your plans.


    The best scenario is to recognize a near-term top and short at that time. The normal "waves" of up and down, combined with time-decay, should offer an attractive exit point. Since you don't *have* to hold until expiration, your risk is mitigated, even allowing a quick small-loss exit if you see it start to move against you.


    Having some fixed "save your a$$" exit plan price point would be the trick initially. I've also used a strategy of only shorting 1/2 my shares. That way if I've guessed wrong, I still get the upside on the half I kept unexposed.


    The Options Industry Council has a lot of educational stuff on-line that gives other strategies that give you profit regardless of direction of a move and even if there's little movement.


    But I wouldn't use those until you've gotten comfortable with some of the simpler strategies.


    8 Mar 2012, 05:34 PM Reply Like
  • festein
    , contributor
    Comments (78) | Send Message
    I have an analyst report (5 March) analysing their bonds - and it's damning;
    "company's management is weak, the business strategy is reactive, and the quality of its assets and earnings are rapidly deteriorating. More importantly, we are afraid that this process is irrevocable...Ask any experienced industry expert - the reaction will be: "these guys don't know what they're doing." "


    Personally, I'm no where near as pessimistic as this (although i do think they've got an uphill battle staying up with JCI - (capex for AGM anyone??) and actually share John's opinion re the short term, but just wanted to bring this forward so that people get a sense of both sides of the argument.
    8 Mar 2012, 03:00 PM Reply Like
  • John Petersen
    , contributor
    Comments (30629) | Send Message
    Author’s reply » I'd love to see the report if you can share it jlp at ipo-law dot com
    8 Mar 2012, 03:05 PM Reply Like
  • 481086
    , contributor
    Comments (3431) | Send Message
    I'm thinking that if they can hold out long enough for AGM sales for SS to start to ramp, their situation and prospects will start to appear stronger. They announced plant hirings in Kansas and Georgia, they're closing up the Bristol Tennessee plant to curb costs.. Maybe it's a pipe dream, and certainly the present is white knuckle time for them, but with trends working in their direction (albeit slowly) and their low current price, if they can indeed survive these straits, the future holds much promise. Medium risk, very high reward is how it seems to me.
    8 Mar 2012, 03:09 PM Reply Like
  • 481086
    , contributor
    Comments (3431) | Send Message
    Also, if I recall correctly, there are also still some supply/demand issues in play with respect to tontine funds, no?
    8 Mar 2012, 03:13 PM Reply Like
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