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Special Situations and Arbs
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I am an experienced individual investor who has been trading merger arbitrage stocks and options since the 90's. I am a writer with a Master of Science from Northwestern University and I truly enjoy writing articles about the stock market. I try to look for opportunities where the odds are in my... More
  • The Ten Least Wanted List 15 comments
    Jan 18, 2014 4:48 PM | about stocks: EGO, AUY, RGLD, POT, MOS, ANF, DGX, LH, GCVRZ, CTB

    NOTE:I WROTE THIS ARTICLE DEC 31. A FLU AND WORK STUFF HAVE KEPT ME BUSY AND I REALIZED TODAY I HAD NEVER PUBLISHED IT. IT IS MY TOP TEN STOCKS LIST/TURNAROUNDS FOR 2014. WHILE SOME HAVE MOVED ALREADY I PLAN ON HOLDING THESE STOCKS FOR AT LEAST SIX MONTHS IF NOT LONGER.

    It has been a sensational year in the stock market for most. A worst of breed drug store is up 332%. A electronics retailer that was rumored to be heading toward chapter 11 when it was trading in the 11's back in January is now above 40. A high school junior who is all of 16 years old bought some Twitter calls last Thursday (actually his mother bought them since he is underage) and by the time he was eating his baloney sandwich for lunch he had already cashed out with a double.

    But not every stock was a Tesla this year. Some were actually down if you can believe it. So with gains across everybody's board, those rare equities in the red have been the perfect tax loss candidates.

    Stocks are sometimes sold for tax losses but you wouldn't know it by their prices. Fresh buying often eats up at least some of the end of year supply. This creates the January effect. 2013 Winners get sold after New Year's Day pushing the taxable gain out an additional 12 months. Some 2013 losers get bought by value investors, some by those who sold them in December and some by those who follow strategies such as the Dogs of the Dow, or the January Effect.

    I have compiled a top ten list of stocks that not only missed the boat in 2013 but they were thrown overboard. But these stocks are good swimmers and in 2014 they just may be able to swim with the tide. If we knew in advance that 2014 was going to be a repeat of this year we could just buy Berkshire or Google or an index fund and go fishing. But since losses are possible buying stuff that has already been creamed could give a shorter fall out of the window should 2014 turn into 2011 or yikes 2008.

    1 and 2)EGO and AUY-Quick what is the most hated investment in the market today? GOLD. Is there even another justifiable answer? Well yes actually: Gold stocks. If the kid who trades twitter options can pick juniors he could make 1000% or so if the Gold market turns around in 2014. But since we want to be conservative let's pick two mid sized producers who have strong management teams and relatively low all in costs. EGO and AUY are longtime holdings of one of the top gold funds, Tocqueville Gold Fund and one of the top Gold newsletter writers, John Doody. EGO trades at 5.52, just 17 cents shy of its 52-week low and nowhere near the 22-plus price it traded at two years ago. AUY was more than 20 a year ago and now trades at 8.48, just above its 52-week low. Gold stocks doubled in a month and a half in late 2008.

    3)CTB-The deal with Apollo is dead. What a waste of time and resources for all involved. It is the first step in healing. Cooper has a joint venture in China that needs to be patched up. Maybe Cooper buys the JV out. Maybe the Chinese JV buy Cooper. They tried to once before. More likely feelings are too damaged and the JV is unwound. All three good options for Cooper. Is there any bad news left for Cooper to announce? Earnings. Once they figure out the JV's numbers they will post last quarters financials. Does anyone think they will be good? NO. A chunk of the company didn't sell a single Cooper tire in the last 6 months. Will that news send shares down? Unless it is brutal probably not. Today's announcement of the deal break couldn't. The stock was up on volume. If one was short they likely would have covered at least some today. The bad news was out so why stay in. Shorts covered, longs added. The stock is trading in the low 24's right about where it was before the merger was announced. In the meantime the stock market has had a heck of a second half, including autos and Goodyear Tire has doubled in the last eight months.

    4 and 5)MOS and POT-The Fertilizer stocks got hammered in late July on news of the Potash cartel falling apart. The damage was roughly 30%. Both have recovered a bit but are still way closer to the lows than the previous highs. These are large institutionally owned stocks. Perfect choices for tax loss selling. And for early 2014 buying.

    6)GCVRZ- Ok this isn't a stock but a CVR. Unlike stocks (not counting bankruptcy) this could go to zero. 100% loss. Actually it is almost there. The FDA has denied/delayed approval of Lemtrada, a promising MS drug. Sanofi, the owner of the CVR is appealing. The CVR would have been paid $1 per unit if approval had been granted by the end of Q1, 2014. Still there are other milestones within reach for the CVR. $2 will be paid in the event net sales for Lemtrada total $400 million or more on a global basis during specified periods following product launch. The drug has been approved in more than 30 countries and has a real shot at hitting this milestone even without the US. At a current quote of 32 cents that would be more than a six bagger. The FDA's decision is just a day old so in late January when the 30-day period of waiting to buy back a losing stock expires there is likely to be renewed buying. Should Sanofi feel like they will achieve the 400m milestone they would be wise to buy back some of the outstanding rights in a dutch auction like they did back in October, 2008.

    7 and 8)LH and DGX-Another sector that didn't join the party in 2013 was the laboratory testing companies. Perhaps the two strongest are Lab Corp and Quest. Lab Corp lowered guidance earlier this month and the stock fell to the bottom of its range in the mid 80's. DGX is weaker, just off its 52-week lows. These companies make a lot of money and are way out of favor. DGX has a PE of 11, LH 's PE is 15.

    9)ANF-The second half of 2013 saw teen retailers sell off. ANF went from 54 to 32. Looking at a five year chart of ANF 30 has held 10 times giving it extremely solid support.

    10)RGLD-Perhaps the best of the royalty companies. potential leverage offered by mining companies without several of the risks inherent in mining companies. Investing in royalty companies provides upside without several of the risks inherent in mining companies. The stock has gone from 80 to the mid 40's in 2013.

    Themes: Top ten list 2014 Stocks: EGO, AUY, RGLD, POT, MOS, ANF, DGX, LH, GCVRZ, CTB
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Comments (15)
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  • Wilson Wang
    , contributor
    Comments (857) | Send Message
     
    On CTB, the Chinese JV and the management has been making amends. My sources tell me both sides have been meeting to make sure something like this doesn't happen again in the future. All the Chinese want is reassurance that CTB won't stab them in the back again in the future. Compromise should be the final result.
    18 Jan, 05:19 PM Reply Like
  • Special Situations and Arbs
    , contributor
    Comments (587) | Send Message
     
    Author’s reply » Nice job Wilson. Good info. I wonder how they will be able to placate the Chinese in terms of a future sale of the company. Because it is fact that Cooper is willing to sell and may want to sell. What happens when another suitor offers $35 at some point?
    18 Jan, 05:32 PM Reply Like
  • Wilson Wang
    , contributor
    Comments (857) | Send Message
     
    Well, the Chinese management won't stop CTB from selling itself unless it's to a acquirer that is using risky financing.

     

    So the point is, if it's a well established international company that's doing this deal with all cash or a little leverage, I'm almost certain they won't reject it. Albeit there will be some complaining due to management changes, but other than that from what I'm hearing, it's progressing along.
    18 Jan, 05:52 PM Reply Like
  • Special Situations and Arbs
    , contributor
    Comments (587) | Send Message
     
    Author’s reply » Great. What makes SA great is that there are knowledgeable people in different industries or countries or stocks that share. Thanks!
    18 Jan, 06:25 PM Reply Like
  • PICOLOMINI
    , contributor
    Comments (634) | Send Message
     
    I have been following the GCVRZ case, your hint to Sanofi buy back is very helpful. Looked also at Potash but more interested in ALLRF .
    Your observation makes me reconsidering! I like RGLD, steady as it goes
    25 Jan, 05:53 AM Reply Like
  • Special Situations and Arbs
    , contributor
    Comments (587) | Send Message
     
    Author’s reply » Thanks Picolomini.....Betting on turnarounds can be treacherous GCVRZ is longterm, RGLD is a slave to Gold price to a large degree. I am likely to add to POT Monday or Tuesday.
    25 Jan, 10:29 AM Reply Like
  • bazooooka
    , contributor
    Comments (2880) | Send Message
     
    SSnA,

     

    Do you have a link tracking these picks. I think you will do well when we look back next year (assuming no broad market breakdowns).
    10 Mar, 03:25 AM Reply Like
  • Special Situations and Arbs
    , contributor
    Comments (587) | Send Message
     
    Author’s reply » Bazooooka-I don't have an excel program setup for these. I of course do track these since I own somewhere between most of these and all of these. It is funny as I look at the article today I remember the flu I had in December since I am currently dealing with a worse one now. This winter has been nasty. I never get sick yet twice this winter...yikes.
    I felt like these stocks have some downside protection since they had been beaten up pretty bad in 2013 and live in unloved sectors (Gold, Potash, Retail, Lab companies). Several of them have given multiple opportunities for entry....like ANF, POT, EGO, AUY. So far so good.
    10 Mar, 10:14 AM Reply Like
  • jaginger
    , contributor
    Comments (562) | Send Message
     
    Good news for $CTB today.
    14 Mar, 02:57 PM Reply Like
  • Special Situations and Arbs
    , contributor
    Comments (587) | Send Message
     
    Author’s reply » Yes.....Looks like the merger nightmare is mostly behind them....
    14 Mar, 04:26 PM Reply Like
  • Special Situations and Arbs
    , contributor
    Comments (587) | Send Message
     
    Author’s reply » Big day for LH and DGX today....all lab companies actually....very positive Medicaid ruling.....this could mean the bottom is firmly in for these stocks
    26 Mar, 04:18 PM Reply Like
  • Special Situations and Arbs
    , contributor
    Comments (587) | Send Message
     
    Author’s reply » With tax time here and the year almost 30% done I thought I would check in on my top 10 stock picks for 2014......

     

    *9 of 10 are positive on the year
    *5 of 10 are up double-digits or more
    *2 of 10 (RGLD,GCVRZ) are up 40% or more
    *AUY is the only one in the red, being down 24 cents.

     

    Now what?

     

    I am a big believer in seasonal patterns. I am macro bearish for the next two quarters. Here's what I think of the ten stocks at this point:

     

    EGO-Slave to price of Gold. Stock hasn't acted well. All in cash costs under $1000 Gold and good management have me waiting for this to turn. The wait may be a while and the eventual climb up could come from lower levels.
    LT:BUY ST:HOLD

     

    AUY-Street doesn't like bid for Osisko. In a go-go Gold growth environment AUY might have gone up significantly on the news but in our current conservative Gold stock world spending is often frowned upon. Like EGO, this is likely going higher but the next few months could be dicey.
    LT:BUY ST:HOLD

     

    CTB-Everyday gets us one day away from one of the most botched attempted buyouts. It is like after a divorce there is a period of catching one's breathe, taking it day by day and getting back to normalcy. Stock chart has been building a long base. Should hold up better than most in downdraft and buyout or rumor of one wouldn't be unreasonable to expect before year end.
    BUY

     

    MOT/POT-Both have formed nice bases the past 6 months. More upside than downside. Should hit high end of lowered revenue guidance. POT rumored to be bought by BHP. Not sure I believe that.
    BUY on dips

     

    GCVRZ-Risky one here. Lemtrada application resubmitted. Sanofi bought back some rights at average of 78 cents. Good to be on same side as company. They have more info than anyone else. I'm thinking we print at least $1 in 2014.
    BUY

     

    LH/DGX-The hated lab companies have rebounded nicely so far. Both are ahead by double digit percentiles. There is still a ton of pessimism in these shares. Good opportunity to sell OTM puts on them. This is one of the only group's that missed the five year bull market.
    Sell Puts

     

    ANF-Good start. But teen retailers smell. Only a true contrarion would be in these names. I'm not bullish on the group at this point. I am out of ANF. I do have a small position in ARO, thinking it is so bad that they might get taken out. Sycamore is as smart as it gets when it comes to retail.
    SELL

     

    RGLD_The royalty companies are my favorite way to play the Gold miners. Less risk and plenty of reward. If Gold were to have another down leg and RGLD were to fall back 20 points or so this would be the stock I would add to.
    HOLD and BUY aggressively if Gold plummets toward 1000
    16 Apr, 01:05 AM Reply Like
  • PICOLOMINI
    , contributor
    Comments (634) | Send Message
     
    excellent picks and performance. I donĀ“t play options, which one would you consider a straight play, buy and sell after some more appreciation ?
    26 Jul, 02:16 AM Reply Like
  • Special Situations and Arbs
    , contributor
    Comments (587) | Send Message
     
    Author’s reply » Thanks Picolomini.....I was going to post an update....9 out of 10 are positive with $AUY just a few cents down....$CTB, $EGO, $RGLD are up significantly

     

    I continue to like most of the selections.....sometime next week I will update and state where I believe there is still a lot of value

     

    I am more proud of the PRO article I wrote last year on Hubbell. The idea has played out just as I thought it could. I hope others profited from it along with me
    26 Jul, 02:28 AM Reply Like
  • PICOLOMINI
    , contributor
    Comments (634) | Send Message
     
    Suspense is killing me :-)
    26 Jul, 02:33 AM Reply Like
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