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Chris DeMuth Jr.
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Chris DeMuth Jr. is the founder of Rangeley Capital LLC. Rangeley is an investment firm that focuses on event driven, value-oriented investment opportunities. Rangeley Capital and his value investing forum, Sifting the World (StW), search the world for misplaced bets. Rangeley exploits them for... More
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  • Pairs Forum 52 comments
    Jul 28, 2014 3:27 PM | about stocks: RVP, UNIS

    What are your favorite pair trades? For the sake of this forum, I am interested in any pairs that are historically correlated and have a catalyst to diverge in the future.

    Long Retractable Technologies, Inc./Short Unilife Corp

    Mine? To kick off the conversation with something bold and - I hope - lucrative, I propose that you consider buying RVP and shorting or writing calls on UNIS.

    Coincidentally, the prices per share of these two equities are fairly similar. One can buy RVP for under $3.00 and can short UNIS or write $2.50 calls on it in order to collect premium. If you write December $2.50 calls on UNIS, you will collect at least $0.40 while you wait on this spread to diverge. What is the spread worth? RVP-UNIS currently = $0.20. I would be interested to hear others' opinions, but my view is that RVP-UNIS = over 50x that spread by the end of the year. Do your own work and ask any questions below. Also, please add your own candidates for best pair trades.

    RVP's VanishPoint

    UNIS' Unifill

    There are superficial similarities to the product area and the shares have been somewhat correlated over the past quarter. As of today, Monday, July 28, 2014, UNIS' market capitalization is almost three and a half times RVP's. I submit that relationship will change dramatically in the second half of 2014 to the benefit of RVP and/or the detriment of UNIS. I discuss RVP in further detail in tomorrow's Stocks to Watch. Due to threats of litigiousness as well as general unpleasantness, I will limit my comments on UNIS, but I encourage you to take a close look and reach your own conclusion on its value.

    Tuesday, September 30, 2014 Update

    (click to enlarge)

    It is reasonable to expect that UNIS will eventually be worthless. At the same time, RVP is probably worth at least $12 per share. So far so good.

    Disclosure: The author is long RVP.

    Additional disclosure: Chris DeMuth Jr is a portfolio manager at Rangeley Capital, a partnership that invests with a margin of safety by buying securities at deep discounts to their intrinsic value and unlocking that value through corporate events. In order to maximize total returns for our partners, we reserve the right to make investment decisions regarding any security without further notification except where such notification is required by law.

    Stocks: RVP, UNIS
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Comments (52)
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  • grendelbane
    , contributor
    Comments (381) | Send Message
     
    My first thought was RGR and SWHC.

     

    But, looking at the chart, they don't even look like they are in the same industry. Part of the time, anyway.

     

    Plus, I have no idea of what would serve as a catalyst for divergence. Seems like they diverge plenty as it is.

     

    Obviously, I use the Thomas Edison approach to problem solving. I will give the pairs approach some more thought tomorrow.
    28 Jul 2014, 08:20 PM Reply Like
  • grendelbane
    , contributor
    Comments (381) | Send Message
     
    Channeling the ghost of Thomas Edison, I now have 3 pair trades on Harvest.

     

    Long SWHC/Short RGR

     

    Long F/Short GM

     

    Long PEP/Short KO

     

    Several well known names. I feel like Benedict Arnold for shorting RGR! I may buy one of their .45s to soothe my grief.
    30 Jul 2014, 08:12 PM Reply Like
  • Chris DeMuth Jr.
    , contributor
    Comments (10649) | Send Message
     
    Author’s reply » It would be the right thing to do. You could reinvest the long SWHC/short RGR profits in a .45. If you need more ammo, you could buy 1 share of Alliant Techsystems Inc (NYSE: ATK) and short 2.2272 shares of Orbital Sciences Corp (NYSE: ORB) to create the “ATK Sporting” spin-off and invest the profits in their Winchester ammo.
    30 Jul 2014, 08:20 PM Reply Like
  • Chris DeMuth Jr.
    , contributor
    Comments (10649) | Send Message
     
    Author’s reply » Incidentally, ATK Reports First Quarter FY15 Operating Results: http://bit.ly/1lfMy3w
    31 Jul 2014, 09:10 AM Reply Like
  • grendelbane
    , contributor
    Comments (381) | Send Message
     
    Well, I guess you could say my 3 classic pairs portfolio worked. I didn't lose as much as the market did.

     

    Depending on which index you use to measure the market.

     

    It was a good day to test some thing, anyway. Lots of fun!
    31 Jul 2014, 04:56 PM Reply Like
  • Richard Humphrey
    , contributor
    Comments (75) | Send Message
     
    I track a few dozen multi-leg ETF spreads. They can be slower moving than individual pairs, but I don't have to worry too much about someone buying out an entire country overnight.

     

    I'm currently building a long in this:
    .9 * EWN - 1.61 * EWC - .31 * GMF + .69 * EEM + .52 * DJP

     

    http://bit.ly/1qUDIjo
    (Daily bars)

     

    Cointegrated and stable for the past 3 years, but in a complete freefall the past few months.
    4 Aug 2014, 05:34 PM Reply Like
  • The Protagonist
    , contributor
    Comments (2482) | Send Message
     
    What is this?
    14 Sep 2015, 05:54 PM Reply Like
  • Barinder Sangha
    , contributor
    Comments (127) | Send Message
     
    Chris, do you think the $340.5M award to RVP from BDX will be treated as taxable income? My research indicates that there is a distinction between the tax treatment of antitrust recoveries for lost profits and for injury to capital, and that the former gets taxed and the latter does not.
    4 Aug 2014, 09:14 PM Reply Like
  • Chris DeMuth Jr.
    , contributor
    Comments (10649) | Send Message
     
    Author’s reply » I think that you are correct.
    5 Aug 2014, 07:13 AM Reply Like
  • earljr1
    , contributor
    Comments (518) | Send Message
     
    I haven't found anything discussing attorney's fees in detail. Are they paying as they go or are we looking at a 30% contingency fee?

     

    Sorry if already discussed--I missed your Stocks to Watch comments and can't seem to find them now.
    5 Aug 2014, 12:56 PM Reply Like
  • Barinder Sangha
    , contributor
    Comments (127) | Send Message
     
    Here is a link to the SA Stocks to Watch article: http://bit.ly/1klwuSy
    5 Aug 2014, 07:14 PM Reply Like
  • earljr1
    , contributor
    Comments (518) | Send Message
     
    Also, I can't find the preferreds traded anywhere. I assume they are privately held? If not, and they are selling at big a discount, they could be very free money.
    5 Aug 2014, 01:00 PM Reply Like
  • 433963
    , contributor
    Comments (53) | Send Message
     
    Long Gazprom/Lukoil, Short XOM
    12 Aug 2014, 10:44 PM Reply Like
  • Chris DeMuth Jr.
    , contributor
    Comments (10649) | Send Message
     
    Author’s reply » Oooo. I like that idea. Good one.
    13 Aug 2014, 12:34 AM Reply Like
  • bazooooka
    , contributor
    Comments (3684) | Send Message
     
    Great idea. I do like RVP and think it has a decent chance of being a double or triple (or more) with little downside.

     

    I assume this is the meat of this trade since it is easy and practical to deploy.

     

    Whereas, UNIS can only make one a max of 100% although is a near certain penny (or sub penny) stock someday. However, "someday" often comes too late when you have high borow cost and buy-in risk for us small timers.
    14 Aug 2014, 04:21 AM Reply Like
  • earljr1
    , contributor
    Comments (518) | Send Message
     
    Is anybody following the legal proceedings closely on this one? Anything happening?
    22 Aug 2014, 01:47 PM Reply Like
  • bazooooka
    , contributor
    Comments (3684) | Send Message
     
    Selling UNIS calls has been mildly rewarding. Shorting has been more spotty and high rebate.
    13 Sep 2014, 05:37 AM Reply Like
  • earljr1
    , contributor
    Comments (518) | Send Message
     
    Looks like we may have a runner this morning. Supposedly a federal judge rejected BDX on a retrial.
    1 Oct 2014, 09:30 AM Reply Like
  • Barinder Sangha
    , contributor
    Comments (127) | Send Message
     
    Now we wait for treble damages.

     

    Thanks for the idea Chris. Very profitable thus far.
    1 Oct 2014, 08:32 PM Reply Like
  • Chris DeMuth Jr.
    , contributor
    Comments (10649) | Send Message
     
    Author’s reply » You're welcome. Unless there is a problem in my arithmetic (always possible) there is still substantial upside between the RVP market cap and the amount that BDX has reserved for this judgment and is likely to pay.
    2 Oct 2014, 07:06 AM Reply Like
  • J Boogie
    , contributor
    Comments (13) | Send Message
     
    Where is the best place to go to see court rulings?

     

    Thanks.
    2 Oct 2014, 11:45 PM Reply Like
  • Chris DeMuth Jr.
    , contributor
    Comments (10649) | Send Message
     
    Author’s reply » We have people who work for us who attend all of the trial and send us the documents. Sorry, but I don't really know how else to track the cases. Hopefully someone else can jump in with a solution.
    3 Oct 2014, 12:10 PM Reply Like
  • Barinder Sangha
    , contributor
    Comments (127) | Send Message
     
    J,

     

    You need to make a PACER account to access the records and archives on the The Eastern District of Texas, United States District Court website. The case number for the pertinent retractable technologies v. becton dickinson & co suit is 2:08-cv-00016.

     

    I believe the PACER service is free unless your usage exceeds $15 per quarter.
    3 Oct 2014, 03:38 PM Reply Like
  • J Boogie
    , contributor
    Comments (13) | Send Message
     
    Thanks a lot.
    3 Oct 2014, 04:18 PM Reply Like
  • Barinder Sangha
    , contributor
    Comments (127) | Send Message
     
    Judge Davis has ruled in favor of RVP for ~340M + some attorney's fees (TBD) + injunctive relief related to BDX's false advertising.

     

    Thanks again for the great idea, Chris and congratulations on your Outstanding Performance Award for your GPT article.
    11 Nov 2014, 08:25 AM Reply Like
  • Patent Plays
    , contributor
    Comments (976) | Send Message
     
    Spot on Chris.

     

    You called this one well. Still after todays ruling http://bit.ly/1xf4GVg

     

    There's a tremendous upside left to run here.
    11 Nov 2014, 10:24 AM Reply Like
  • earljr1
    , contributor
    Comments (518) | Send Message
     
    I never would have thought of this one without you Chris. Great find. It may even be a good prospect for best idea for 2015.
    11 Nov 2014, 10:27 AM Reply Like
  • Chris DeMuth Jr.
    , contributor
    Comments (10649) | Send Message
     
    Author’s reply » Thank you, earljr1.
    11 Nov 2014, 10:36 AM Reply Like
  • Lil' Oaty
    , contributor
    Comments (15) | Send Message
     
    I'm not a legal expert, but it seems to me that the 340 million is assumed to be awarded based on the latest legal document, right? So i guess my question is, why isn't it trading for at least 12 dollars right now, what am I missing?
    11 Nov 2014, 10:57 AM Reply Like
  • Ruerd Heeg
    , contributor
    Comments (1211) | Send Message
     
    My thanks too for this great idea, that is working out so well!

     

    I suppose it is possible for Becton to appeal, but the verdict proves once more that this is a very strong case. Other proof is the reservation Becton already made on its balance sheet in 2013. When looking at the negotiation dynamics I suppose a settlement for 80-90% of the total award, including the 50% lawyer costs, is likely.
    11 Nov 2014, 12:22 PM Reply Like
  • Chris DeMuth Jr.
    , contributor
    Comments (10649) | Send Message
     
    Author’s reply » Judge Davis issued an order on three RVP Post-Trial Motions. Two sealed motions remain. Judge Davis indicated that, the “$340,524,042 BD must pay is a sufficient monetary sanction in this case.” For my part, I agree that is sufficient. “RTI’s relief—trebled damages and an injunction—is adequate for its injury.” I hope that readers reach the same conclusion.
    11 Nov 2014, 01:53 PM Reply Like
  • Chris DeMuth Jr.
    , contributor
    Comments (10649) | Send Message
     
    Author’s reply » One that might be worth considering is long PETM / short FRPT.
    11 Dec 2014, 05:36 PM Reply Like
  • Chris DeMuth Jr.
    , contributor
    Comments (10649) | Send Message
     
    Author’s reply » One that might be worth considering is short LPHI / long TLI (on the LON exchange): http://bit.ly/1wPY11f
    18 Dec 2014, 01:35 PM Reply Like
  • Ruerd Heeg
    , contributor
    Comments (1211) | Send Message
     
    Is long IMOS and short 8150.TW a good pair?

     

    IMOS is 8150.TW plus some cash. Last Spring I figured that IMOS is about 10% cheaper than 8150.TW.

     

    Or is the spread too small, so is it too expensive to short 8150.TW without a near term catalyst?

     

    I think the gap has even widened since then. I suppose the difference will decrease some time, for example because of buybacks by IMOS.
    18 Dec 2014, 03:58 PM Reply Like
  • Chris DeMuth Jr.
    , contributor
    Comments (10649) | Send Message
     
    Author’s reply » I am more familiar with IMOS than I am with TW. IMOS makes sense to me as a long and the pair might make sense.
    18 Dec 2014, 04:01 PM Reply Like
  • Ruerd Heeg
    , contributor
    Comments (1211) | Send Message
     
    Maybe now it is a better pair trade: the gap has widened.
    3 Feb 2015, 10:56 AM Reply Like
  • Richard Humphrey
    , contributor
    Comments (75) | Send Message
     
    Nuveen announced today a plan to convert a couple of their closed end funds, CTF and CFD, into ETFs. They currently trade at large discounts to their net asset values (though it has decreased with the news of the planned conversion). If approved it's expected they will trade in line with their NAVs.

     

    http://yhoo.it/1w650ze

     

    I'm looking at CFD long against a basket of commodities or another broad commodity ETF such as DBC.

     

    Or, if one thinks commodities are due for bounce simply going long CFD provides exposure at a discount (assuming conversion to an ETF).
    19 Dec 2014, 10:48 AM Reply Like
  • bazooooka
    , contributor
    Comments (3684) | Send Message
     
    $1 dollar below NAV again. If it goes into the 11s might be a nice pickup. http://bit.ly/17GlOZO
    14 Jan 2015, 01:55 AM Reply Like
  • Ruerd Heeg
    , contributor
    Comments (1211) | Send Message
     
    Asia Pacific Wire & Cable Corp (APWC) is a netnet and is traded for less than 0.25 of its book value. As most companies at such a low valuation the company doesn't pay a dividend.

     

    Charoong Thai Wire and Cable (CTW on Stock Exchange of Thailand) is a similar company. Charoong is traded for about 1.2 times book value and pays a dividend of about 5%.

     

    But there is more.

     

    APWC owns slightly more than 50% of Charoong Thai Wire and Cable (CTW on Stock Exchange of Thailand). APWC's stake in Charoong is worth more than twice as much as APWC's market cap!
    26 Feb 2015, 08:06 AM Reply Like
  • Chris DeMuth Jr.
    , contributor
    Comments (10649) | Send Message
     
    Author’s reply » That is the most promising idea I've read about all day. My pulse is literally quickening. Off to look into this more deeply.
    26 Feb 2015, 08:17 AM Reply Like
  • Ruerd Heeg
    , contributor
    Comments (1211) | Send Message
     
    This one is maybe too obvious but it is certainly actionable:

     

    Micron is relatively cheap compared too its competitors. I have never understood why it seems to be still cheaper than Sandisk. So that could be a pair, but I consider the difference between the long and the short too small.

     

    I think the NAND business will see steady growth. Currently most PC's and laptops still have hard disks but that won't be the case for ever. In fact, the next laptop I will be buying (I hope to find time to set up a new laptop this year) won't contain a hard disk and will still have twice as much storage as my current laptop. Despite the enormous quality difference it won't cost (much) more than my current laptop did either.

     

    So it is reasonable to predict that from next year hard disk sales will fall. Of course there will still be a need for hard disks, in the cloud, and maybe a big single hard drive in every home. But still I think these hard disk manufacturers (Seagate, Western Digital) will face hard times. I am not sure which one is the best to short, Seagate or Western Digital. I guess Seagate, but both should be a good hedge against a long position in Micron.
    1 Mar 2015, 08:17 AM Reply Like
  • Ruerd Heeg
    , contributor
    Comments (1211) | Send Message
     
    I saw your empty piggy banks article, which gave me some more insight into pair trades.

     

    I am reading the article of Thorpe http://bit.ly/1DLvWeT

     

    Normally maximum expected growth limits the size of a Kelly bet. Thorpe writes/proves that if you have a good long/short pair to trade then the size of your bet can be unlimited, so your leverage can go up and your expected gain is higher. But it is difficult to find good pairs. These empty piggy banks can be good short candidates for pair trades.

     

    In hindsight, WHX would have been a good short leg for an oil pair trade, but now I suppose it's too late.

     

    I think it's not too late to profit from PDL BioPharma on the short side, if there is a good long leg to balance with. PDL BioPharma is also (likely) an empty piggy bank.
    2 Mar 2015, 04:03 PM Reply Like
  • Ruerd Heeg
    , contributor
    Comments (1211) | Send Message
     
    After reading that paragraph in Thorpe's article I see pairs everywhere: long EZPW, short CACC.
    3 Mar 2015, 02:54 AM Reply Like
  • connellybarnes
    , contributor
    Comments (551) | Send Message
     
    Nice article by Thorpe! I am a big fan of Kelly betting. I remember during my wedding celebration, I kept explaining cool derivations of Kelly betting fractions to my family members. And yeah, if you can lop off any negative returns in your return distribution, or reduce correlations sufficiently, Kelly betting will happily tell you to go all in on everything.
    4 Mar 2015, 07:22 PM Reply Like
  • Ruerd Heeg
    , contributor
    Comments (1211) | Send Message
     
    Eternity Investment (764:HK, http://bloom.bg/1G6vZp6) is an extremely undervalued net-net with a market cap op about 400 million HKD.

     

    It owns about 70% of EDS Wellness (8176:HK, http://bloom.bg/1G6w24k). EDS Wellness market cap is about 460 million HKD. But loss making EDS Wellness seems to be extremely expensive with a PB of about 10!

     

    It seems that Eternity Investment is trying to reduce its stake in EDS Wellness by diluting it, but I'm not sure what exactly is happening:
    http://bit.ly/1G6w24o

     

    and

     

    http://bit.ly/1G6w24q
    2 Apr 2015, 04:54 AM Reply Like
  • Ruerd Heeg
    , contributor
    Comments (1211) | Send Message
     
    In other words: company A is a net-net and owns 70% of company B. So company A might be a good long that could be hedged by shorting company B.

     

    Company B has a PB of 10 and is making a loss. How can a non-profitable company (B) with PB=10 that sells beauty equipment and products not be a good short?

     

    In case anyone has its doubts about the short thesis: company A is trying to reduce its stake by diluting company B. So company B is creating extra overvalued shares and selling them to other investors than company A.
    3 Apr 2015, 09:43 AM Reply Like
  • Clint Edgington
    , contributor
    Comments (355) | Send Message
     
    where are you getting a borrow on EDS?
    3 Apr 2015, 09:48 AM Reply Like
  • Ruerd Heeg
    , contributor
    Comments (1211) | Send Message
     
    Clint, thanks, for your comment. I don't have money to implement this. But I now see the problem. Because 70% of company B is owned by company A company B (50 million USD market cap) trades highly illiquid and probably no shares can be borrowed.
    3 Apr 2015, 10:19 AM Reply Like
  • Clint Edgington
    , contributor
    Comments (355) | Send Message
     
    I wasn't really critiquing; it's just the first thing I look at since I don't use sophisticated prime brokers. Rather than do a bunch of research to realize I can't implement- I now look at implementation first for unique thoughts like this...
    3 Apr 2015, 10:38 AM Reply Like
  • United Value
    , contributor
    Comments (281) | Send Message
     
    Retractable Technologies, Inc. (NYSE MKT: RVP) announced that on April 20, 2015, the Supreme Court of the United States denied the petition for a writ of certiorari by Becton, Dickinson and Company ("BD") relating to its Rule 60(b) motion in the portion of Retractable's case against BD addressing patent infringement claims.
    The patent claims were severed from Retractable's other claims against BD in 2008. The other portion of the case in which the District Court granted Retractable a final judgment for $352 million plus other relief is not directly affected by the recent Supreme Court ruling.

     

    Let's hope this is an omen of good things to come.
    21 Apr 2015, 12:13 PM Reply Like
  • Chris DeMuth Jr.
    , contributor
    Comments (10649) | Send Message
     
    Author’s reply » Long: http://bit.ly/1BQ1ix4 http://seekingalpha.co... vs. short: http://bit.ly/1J0PUD2
    18 Aug 2015, 06:14 AM Reply Like
  • Chris DeMuth Jr.
    , contributor
    Comments (10649) | Send Message
     
    Author’s reply » UNIS hit a new 52-week low
    31 Dec 2015, 02:13 PM Reply Like
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