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Tim Travis is CIO of www.optimitrading.com and is CEO of T&T Investment Management L.L.C. Tim currently possesses the series 3, 7, 63, and 65 licenses, and he works actively in the field of investment management. Both Optimi Trading and T&T Investment Management L.L.C are investment firms... More
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  • Lecuadia (LUK) Naked Put Recommendation 0 comments
    Jul 2, 2010 12:38 PM | about stocks: LUK
    June 18th LUK Naked Put
    JUNE 21, 2010 BY optimitrading.com


    1.)    Symbol: LUK


    2.)    Company Name: Leucadia

    3.)    Market Cap: 5.3 billion

    4.)    Enterprise Value:  7,402.2

    5.)    Book Value: 4567.9

    6.)    Tangible Book Value: 4,495.5

    7.)    TTM 2010 Net Income: 881.8

    8.)    2009 Net Income: 550.3

    9.)    2008 Net Income: (2,535.4)

    10.)  TTM 2010Free Cash Flow: (147.7)

    11.) Debt/Equity: .36

    12.) Shares Outstanding:250 Million

    13.) Target Price Range: $27.40 or 1.5 times current book value

    Investment Rationale:

    Leucadia is a holding company led by Ian Cumming and Joseph Steinberg who have compounded book value by double digit rates since 1979. They are known as some of the smartest value investors in the business and have proven themselves to be very able stewards of shareholder capital. Valuing Leucadia is a much different process than most investments because really it is an investment holding company. Currently Leucadia has quite a bit of exposure into iron and copper from their investment in the Cobre Las Cruces mine. They also are heavily weighted in the financial sector with extremely large investments in Jefferies (JEF) 28% of the outstanding shares, and Americredit (ACF) where they own 25% of the outstanding shares. Leucadia recently invested in a joint venture with Berkshire Hathaway to purchase CAPMARK out of bankruptcy which gives them a huge and potentially profitable footprint in the commercial loan servicing business. Leucadia has demonstrated a consistent track record of working in shareholders best interest including in 2008 when they sold shares of their own stock when it was trading at approximately 3 times book value, to raise capital for its major investments in ACF and JEF which have been the major contributors to the company’s success over the last couple of years. At this point in time most of Leucadia’s investments seems to be fairly valued in our estimation but if we have the opportunity to buy Leucadia at close to book value we feel there is very little risk because in addition to their investments they have a huge income tax credit stemming from a goodwill write-down that they are carrying over, and it is very unlikely that they would have to pay taxes on their profits over the next couple of years.

    Investment Strategy:

    Sell 1 January 2011$20 puts for $1.65 a piece.

    Target profit: $165

    Max Risk: $1,835

    Break Even: $18.35

    Target profit % on max risk: 9%

    Annualized target profit%: 15%

    Days till expiration: 219

    Margin Requirement: $261.60

    Target profit % on cash required: 63%

    Primary Risk Factors:

    A prolonged bear market would likely cause a decline in their existing investments but it would also provide them with the ability to take advantage of new opportunities. Both Ian Cumming and Joseph Steinberg are getting older and because a major premise in the investment in Leucadia is based on their investment prowess there is a risk that their successors will not have the same acumen. 

    Disclosure: Long LUK, Short LUK puts
    Stocks: LUK
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