According to the company's profile on Reuters, World Acceptance Corporation "… is engaged in the small-loan consumer finance business, offering short-term small loans, medium-term larger loans, related credit insurance and ancillary products and services [...] through 1,137 offices in South Carolina, Georgia, Texas, Oklahoma, Louisiana, Tennessee, Illinois, Missouri, New Mexico, Kentucky, Alabama, Wisconsin, and Mexico. The Company serves individuals with limited access to consumer credit from banks, credit unions, other consumer finance businesses and credit card lenders."
WRLD competes in the small-loan consumer finance sector which includes pawn shop companies like Fast Cash (FCFS), Cash America (CSH), EZcorp (EZPW) and payday lenders like Advance America (AEA). The average loan of WRLD is $1,180 and has
]]>World Acceptance Corporation (WRLD) is a small cap company that Mr. Market forgot to take along during the rally, leaving an opportunity for investors searching to buy a high quality company at a bargain price.
According to the company's profile on Reuters, World Acceptance Corporation "… is engaged in the small-loan consumer finance business, offering short-term small loans, medium-term larger loans, related credit insurance and ancillary products and services [...] through 1,137 offices in South Carolina, Georgia, Texas, Oklahoma, Louisiana, Tennessee, Illinois, Missouri, New Mexico, Kentucky, Alabama, Wisconsin, and Mexico. The Company serves individuals with limited access to consumer credit from banks, credit unions, other consumer finance businesses and credit card lenders."
WRLD competes in the small-loan consumer finance sector which includes pawn shop companies like Fast Cash (FCFS), Cash America (CSH), EZcorp (EZPW) and payday lenders like Advance America (AEA). The average loan of WRLD is $1,180 and has
To illustrate, we ran a screen. We began with stocks that appear undervalued relative to both free cash flow and earnings growth, with P/FCF below 15 and PEG below 1. These are considered fair value levels for most companies, so stocks with ratios below these levels may be undervalued.
Then to analyze these companies' profitability, we ran DuPont analysis. DuPont analyzes profitability by breaking up return on equity (net income/equity) into three components:
ROE
= (Net Profit/Equity)
= (Net profit/Sales)*(Sales/Assets)*(Assets/Equity)
= (Net Profit margin)*(Asset turnover)*(Leverage ratio)
Because increases in net margin and asset turnover are considered good things, DuPont focuses on companies with these positive characteristics: Increasing ROE along with,
•Decreasing leverage, (i.e. decreasing Asset/Equity ratio)
•Improving asset
]]>Profitability is one of the most important parts of stock analysis, but how do you compare profits between companies? One idea is to use DuPont analysis on return on equity (ROE) profitability.
To illustrate, we ran a screen. We began with stocks that appear undervalued relative to both free cash flow and earnings growth, with P/FCF below 15 and PEG below 1. These are considered fair value levels for most companies, so stocks with ratios below these levels may be undervalued.
Then to analyze these companies' profitability, we ran DuPont analysis. DuPont analyzes profitability by breaking up return on equity (net income/equity) into three components:
ROE
= (Net Profit/Equity)
= (Net profit/Sales)*(Sales/Assets)*(Assets/Equity)
= (Net Profit margin)*(Asset turnover)*(Leverage ratio)
Because increases in net margin and asset turnover are considered good things, DuPont focuses on companies with these positive characteristics: Increasing ROE along with,
•Decreasing leverage, (i.e. decreasing Asset/Equity ratio)
•Improving asset
You can find all the active deals listed below in our Merger Arbitrage Tool that automatically updates itself during market hours.
Deal Statistics:
Total Number of Deals Closed in 2012 | 52 |
Total Number of Pending Deals | |
Cash Deals | 36 |
Stock Deals | 9 |
Stock & Cash Deals | 7 |
Total Number |
Merger activity dropped last week with two new deals announced and five closing. We did some interesting spreads last week when Motorola Mobility (MMI) dropped intra-day to $37.08 after Google (GOOG) announced plans to sell a Galaxy Nexus Android phone by Samsung. The spread on this $40 all-cash deal jumped from over 3% to over 6% and I used the drop to start a position in my personal portfolio as mentioned on my Twitter feed. The spread has once again narrowed to 3.33% but still represents potential annualized gains of 19.62% provided the deal closes by the end of Q2 2012.
You can find all the active deals listed below in our Merger Arbitrage Tool that automatically updates itself during market hours.
Deal Statistics:
Total Number of Deals Closed in 2012 | 52 |
Total Number of Pending Deals | |
Cash Deals | 36 |
Stock Deals | 9 |
Stock & Cash Deals | 7 |
Total Number |
We began by screening for stocks paying dividend yields above 2% and sustainable payout ratios below 50%. We then screened these names for those with high liquidity, with current ratios above 3. The current ratio is current assets/current liabilities, so ratios above 3 indicate the company has at least 3 times the liquid assets to cover their short-term liabilities.
We then screened for strong profitability as well, by running DuPont analysis. DuPont analyzes profitability by breaking up return on equity (net income/equity) into three components:
ROE
= (Net Profit/Equity)
= (Net profit/Sales)*(Sales/Assets)*(Assets/Equity)
= (Net Profit margin)*(Asset turnover)*(Leverage ratio)
Because increases in net margin and asset turnover are considered good things, DuPont focuses on companies with these positive characteristics: Increasing ROE along with,
Do you prefer stocks paying part of their return in dividend income? For a closer look at interesting dividend stocks, we ran a screen.
We began by screening for stocks paying dividend yields above 2% and sustainable payout ratios below 50%. We then screened these names for those with high liquidity, with current ratios above 3. The current ratio is current assets/current liabilities, so ratios above 3 indicate the company has at least 3 times the liquid assets to cover their short-term liabilities.
We then screened for strong profitability as well, by running DuPont analysis. DuPont analyzes profitability by breaking up return on equity (net income/equity) into three components:
ROE
= (Net Profit/Equity)
= (Net profit/Sales)*(Sales/Assets)*(Assets/Equity)
= (Net Profit margin)*(Asset turnover)*(Leverage ratio)
Because increases in net margin and asset turnover are considered good things, DuPont focuses on companies with these positive characteristics: Increasing ROE along with,
EPS growth (earnings per share growth) illustrates the growth of earnings per share over time. EPS growth rates help investors identify stocks that are increasing or decreasing in profitability. This profitability metric is generally a key driver in the price of the stock as it directly correlates to the profitability of the company as a whole.
The Net Margin is a profitability metric that illustrates, by percentage, how much of every dollar earned gets turned into a bottom line profit. This is just one of many profitability metrics used by investors and analysts to better understand what the company is being left with at the end of the day. Generally, a firm that can expand its net profit margins over
]]>Do you prefer companies with the strongest of profits? Further, are you looking for undervalued stocks? Keeping this idea in mind, we ran a screen you might be interested in.
EPS growth (earnings per share growth) illustrates the growth of earnings per share over time. EPS growth rates help investors identify stocks that are increasing or decreasing in profitability. This profitability metric is generally a key driver in the price of the stock as it directly correlates to the profitability of the company as a whole.
The Net Margin is a profitability metric that illustrates, by percentage, how much of every dollar earned gets turned into a bottom line profit. This is just one of many profitability metrics used by investors and analysts to better understand what the company is being left with at the end of the day. Generally, a firm that can expand its net profit margins over
We ran a screen with this idea in mind, beginning with stocks that are rallying above their 20-day, 50-day, and 200-day moving averages. We screened these stocks with upward momentum for those with low volatility over the last month, with average intra-day trading volatility under 2% for the last month (meaning on average, these stocks have traded within 2% ranges each day over the last month).
Then to find those stocks with strong profitability, we also ran DuPont analysis on return on equity (ROE) profitability on these stocks. DuPont analyzes profitability by breaking up return on equity (net income/equity) into three components:
ROE
= (Net Profit/Equity)
= (Net profit/Sales)*(Sales/Assets)*(Assets/Equity)
= (Net Profit margin)*(Asset turnover)*(Leverage ratio)
Because increases in net margin and asset turnover are considered good
]]>Do you worry about risk when choosing among stocks? One idea is to consider a stock's recent trading volatility as a measure of risk.
We ran a screen with this idea in mind, beginning with stocks that are rallying above their 20-day, 50-day, and 200-day moving averages. We screened these stocks with upward momentum for those with low volatility over the last month, with average intra-day trading volatility under 2% for the last month (meaning on average, these stocks have traded within 2% ranges each day over the last month).
Then to find those stocks with strong profitability, we also ran DuPont analysis on return on equity (ROE) profitability on these stocks. DuPont analyzes profitability by breaking up return on equity (net income/equity) into three components:
ROE
= (Net Profit/Equity)
= (Net profit/Sales)*(Sales/Assets)*(Assets/Equity)
= (Net Profit margin)*(Asset turnover)*(Leverage ratio)
Because increases in net margin and asset turnover are considered good
The Current ratio is a liquidity ratio used to determine a company's financial health. The metric illustrates how easily a firm can pay back its short obligations all at once through current assets. A company that has a current ratio of one or less is generally a liquidity red flag. Now this doesn't mean the company will go bankrupt tomorrow, but it also doesn't bode well for the company, and may
]]>Do you like stocks that pay dividends? Company liquidity is an important consideration in any stock analysis. Liquidity gives a company the ability to make big acquisitions if it sees investment opportunities, a cushion for future lulls in demand, and most importantly, it keeps a company's doors open. Are these the types of stocks that you're looking for? Do you prefer companies with strong profits? If the answer is 'yes', here are some interesting ideas to get you started.
The Current ratio is a liquidity ratio used to determine a company's financial health. The metric illustrates how easily a firm can pay back its short obligations all at once through current assets. A company that has a current ratio of one or less is generally a liquidity red flag. Now this doesn't mean the company will go bankrupt tomorrow, but it also doesn't bode well for the company, and may
We began by screening stocks paying dividend yields above 2% and sustainable payout ratios below 50%. We then screened for those that appear undervalued relative to earnings growth, with PEG below 1.
Finally, we ran DuPont analysis on these stocks to find those with strong sources of profitability over the last year.
DuPont analyzes profitability by breaking up return on equity (net income/equity) into three components:
ROE
= (Net Profit/Equity)
= (Net profit/Sales)*(Sales/Assets)*(Assets/Equity)
= (Net Profit margin)*(Asset turnover)*(Leverage ratio)
Because increases in net margin and asset turnover are considered good things, DuPont focuses on companies with these positive characteristics: Increasing ROE along with,
•Decreasing leverage, (i.e. decreasing Asset/Equity ratio)
•Improving asset use efficiency (i.e. increasing Sales/Assets ratio) and improving net profit margin (i.e. increasing Net Income/Sales ratio)
Those companies that
]]>Do you prefer stocks that pay handsome dividend income? For a closer look at dividend-yielding names, we ran a screen.
We began by screening stocks paying dividend yields above 2% and sustainable payout ratios below 50%. We then screened for those that appear undervalued relative to earnings growth, with PEG below 1.
Finally, we ran DuPont analysis on these stocks to find those with strong sources of profitability over the last year.
DuPont analyzes profitability by breaking up return on equity (net income/equity) into three components:
ROE
= (Net Profit/Equity)
= (Net profit/Sales)*(Sales/Assets)*(Assets/Equity)
= (Net Profit margin)*(Asset turnover)*(Leverage ratio)
Because increases in net margin and asset turnover are considered good things, DuPont focuses on companies with these positive characteristics: Increasing ROE along with,
•Decreasing leverage, (i.e. decreasing Asset/Equity ratio)
•Improving asset use efficiency (i.e. increasing Sales/Assets ratio) and improving net profit margin (i.e. increasing Net Income/Sales ratio)
Those companies that
This is a short version of a presentation that was given at NYU Stern School of Business this week. I would like to credit Amit Bapat, a Stern MBA student, for working with me on the presentation and providing the majority of the Discount Cash Flow analysis. All tables and figures are either author's calculations or taken directly from SEC filing, unless noted otherwise.
After I wrote this article last week, EZPW reported somewhat disappointing Q2 2012 results on April 19. The stock plunged over 13% the next day. Ironically, some of the inventory issues related to the price of gold were already anticipated in this article. With the price of forward P/E around 9, little net debt, and a still very respectable top line and bottom line growth of over 15%, EZPW is very attractively priced. However, there are some serious legislative threats and governance issues which should
]]>Summary:
This is a short version of a presentation that was given at NYU Stern School of Business this week. I would like to credit Amit Bapat, a Stern MBA student, for working with me on the presentation and providing the majority of the Discount Cash Flow analysis. All tables and figures are either author's calculations or taken directly from SEC filing, unless noted otherwise.
After I wrote this article last week, EZPW reported somewhat disappointing Q2 2012 results on April 19. The stock plunged over 13% the next day. Ironically, some of the inventory issues related to the price of gold were already anticipated in this article. With the price of forward P/E around 9, little net debt, and a still very respectable top line and bottom line growth of over 15%, EZPW is very attractively priced. However, there are some serious legislative threats and governance issues which should
We began by screening small-cap stocks for those with low trading volatility over the last month, under +/-2%. This means that on average these stocks have been trading within a +/- 2% range over the last month.
We then ran DuPont analysis on these names to find those with strong sources of profitability. DuPont analyzes profitability by breaking up return on equity (net income/equity) into three components:
ROE
= (Net Profit/Equity)
= (Net profit/Sales)*(Sales/Assets)*(Assets/Equity)
= (Net Profit margin)*(Asset turnover)*(Leverage ratio)
Because increases in net margin and asset turnover are considered good things, DuPont focuses on companies with these positive characteristics: Increasing ROE along with,
•Decreasing leverage, (i.e. decreasing Asset/Equity ratio)
•Improving asset use efficiency (i.e. increasing Sales/Assets ratio) and improving net profit margin (i.e. increasing Net Income/Sales ratio)
Those companies that
]]>Do you worry about volatility when considering stocks? If so, we ran a screen keeping this idea in mind.
We began by screening small-cap stocks for those with low trading volatility over the last month, under +/-2%. This means that on average these stocks have been trading within a +/- 2% range over the last month.
We then ran DuPont analysis on these names to find those with strong sources of profitability. DuPont analyzes profitability by breaking up return on equity (net income/equity) into three components:
ROE
= (Net Profit/Equity)
= (Net profit/Sales)*(Sales/Assets)*(Assets/Equity)
= (Net Profit margin)*(Asset turnover)*(Leverage ratio)
Because increases in net margin and asset turnover are considered good things, DuPont focuses on companies with these positive characteristics: Increasing ROE along with,
•Decreasing leverage, (i.e. decreasing Asset/Equity ratio)
•Improving asset use efficiency (i.e. increasing Sales/Assets ratio) and improving net profit margin (i.e. increasing Net Income/Sales ratio)
Those companies that
Profits are the primary source for a company's dividends, so a profitability analysis should be top on the list. To illustrate this, we ran a screen on stocks paying dividend yields between 1-7% (yields beyond 7% may be unsustainably high) and payout ratios below 50%. The payout ratio is dividend per share/earnings per share, and the lower the ratio the more sustainable the dividend.
To check for strong profitability, we screened these dividend stocks using DuPont analysis.
DuPont analyzes return on equity (net income/equity) profitability by breaking ROE up into three components:
ROE
= (Net Profit/Equity)
= (Net profit/Sales)*(Sales/Assets)*(Assets/Equity)
= (Net Profit margin)*(Asset
]]>Many investors rely on dividends as a source of income, so if you're considering dividend stocks for this purpose, it's important to check that a stock's dividends are sustainable. If a company is currently paying higher dividends than they should, investors might see their dividend get cut.
Profits are the primary source for a company's dividends, so a profitability analysis should be top on the list. To illustrate this, we ran a screen on stocks paying dividend yields between 1-7% (yields beyond 7% may be unsustainably high) and payout ratios below 50%. The payout ratio is dividend per share/earnings per share, and the lower the ratio the more sustainable the dividend.
To check for strong profitability, we screened these dividend stocks using DuPont analysis.
DuPont analyzes return on equity (net income/equity) profitability by breaking ROE up into three components:
ROE
= (Net Profit/Equity)
= (Net profit/Sales)*(Sales/Assets)*(Assets/Equity)
= (Net Profit margin)*(Asset
To illustrate this, we ran DuPont analysis on highly undervalued stocks, with PEG below 1 and P/FCF below 15. DuPont analyzes return on equity (net income/equity) profitability by breaking ROE up into three components:
ROE
= (Net Profit/Equity)
= (Net profit/Sales)*(Sales/Assets)*(Assets/Equity)
= (Net Profit margin)*(Asset turnover)*(Leverage ratio)
It therefore focuses on companies with the following positive characteristics: Increasing ROE along with,
•Decreasing leverage, (i.e. decreasing Asset/Equity ratio)
•Improving asset use efficiency (i.e. increasing Sales/Assets ratio) and improving net profit margin (i.e. increasing Net Income/Sales ratio)
Companies with all of these characteristics are experiencing increasing profits due
]]>There are many ways to interpret a company's profitability numbers, so finding the best way can be a difficult task. One of the most popular profitability measures among analysts is DuPont analysis of return on equity profitability. This breaks down the sources of profits into those that are preferred and those that aren't preferred.
To illustrate this, we ran DuPont analysis on highly undervalued stocks, with PEG below 1 and P/FCF below 15. DuPont analyzes return on equity (net income/equity) profitability by breaking ROE up into three components:
ROE
= (Net Profit/Equity)
= (Net profit/Sales)*(Sales/Assets)*(Assets/Equity)
= (Net Profit margin)*(Asset turnover)*(Leverage ratio)
It therefore focuses on companies with the following positive characteristics: Increasing ROE along with,
•Decreasing leverage, (i.e. decreasing Asset/Equity ratio)
•Improving asset use efficiency (i.e. increasing Sales/Assets ratio) and improving net profit margin (i.e. increasing Net Income/Sales ratio)
Companies with all of these characteristics are experiencing increasing profits due
We ran a screen on stocks paying dividend yields above 1% and sustainable payout ratios below 50%. We then screened for those with strong company liquidity, measured by current ratios over 3. Liquidity can support a dividend payment when a company's profits temporarily dip.
Finally, we ran DuPont analysis on the names to find those with strong sources of profitability.
DuPont analyzes return on equity (net income/equity) profitability by breaking ROE up into three components:
ROE
= (Net Profit/Equity)
= (Net profit/Sales)*(Sales/Assets)*(Assets/Equity)
= (Net Profit margin)*(Asset turnover)*(Leverage ratio)
It therefore focuses on companies with the following positive characteristics: Increasing ROE along with,
•Decreasing leverage, (i.e. decreasing Asset/Equity ratio)
•Improving asset use efficiency (i.e. increasing Sales/Assets ratio) and improving net profit margin (i.e. increasing Net Income/Sales ratio)
Companies with all of these characteristics are experiencing increasing profits due
]]>Do you prefer stocks that pay part of their return in dividend income?
We ran a screen on stocks paying dividend yields above 1% and sustainable payout ratios below 50%. We then screened for those with strong company liquidity, measured by current ratios over 3. Liquidity can support a dividend payment when a company's profits temporarily dip.
Finally, we ran DuPont analysis on the names to find those with strong sources of profitability.
DuPont analyzes return on equity (net income/equity) profitability by breaking ROE up into three components:
ROE
= (Net Profit/Equity)
= (Net profit/Sales)*(Sales/Assets)*(Assets/Equity)
= (Net Profit margin)*(Asset turnover)*(Leverage ratio)
It therefore focuses on companies with the following positive characteristics: Increasing ROE along with,
•Decreasing leverage, (i.e. decreasing Asset/Equity ratio)
•Improving asset use efficiency (i.e. increasing Sales/Assets ratio) and improving net profit margin (i.e. increasing Net Income/Sales ratio)
Companies with all of these characteristics are experiencing increasing profits due
We began by screening for dividend stocks, with dividend yields above 2% and sustainable payout ratios below 50%. We then screened these names for those with strong sources of profitability, as measured by DuPont analysis.
DuPont analyzes return on equity (net income/equity) profitability by breaking ROE up into three components:
ROE
= (Net Profit/Equity)
= (Net profit/Sales)*(Sales/Assets)*(Assets/Equity)
= (Net Profit margin)*(Asset turnover)*(Leverage ratio)
It therefore focuses on companies with the following positive characteristics: Increasing ROE along with,
•Decreasing leverage, (i.e. decreasing Asset/Equity ratio)
•Improving asset use efficiency (i.e. increasing Sales/Assets ratio) and improving net profit margin (i.e. increasing Net Income/Sales ratio)
Companies with all of these characteristics are experiencing increasing profits due to operations and not to increased use of financial leverage.
Interactive Chart: Press
]]>Do you prefer stocks that pay part of their return in dividend income? For ideas on how to start your search, we ran a screen.
We began by screening for dividend stocks, with dividend yields above 2% and sustainable payout ratios below 50%. We then screened these names for those with strong sources of profitability, as measured by DuPont analysis.
DuPont analyzes return on equity (net income/equity) profitability by breaking ROE up into three components:
ROE
= (Net Profit/Equity)
= (Net profit/Sales)*(Sales/Assets)*(Assets/Equity)
= (Net Profit margin)*(Asset turnover)*(Leverage ratio)
It therefore focuses on companies with the following positive characteristics: Increasing ROE along with,
•Decreasing leverage, (i.e. decreasing Asset/Equity ratio)
•Improving asset use efficiency (i.e. increasing Sales/Assets ratio) and improving net profit margin (i.e. increasing Net Income/Sales ratio)
Companies with all of these characteristics are experiencing increasing profits due to operations and not to increased use of financial leverage.
Interactive Chart: Press
In order to choose stocks that are cheap but are at low risk of bankruptcy, we need a quantitative predictor of credit risk. Fortunately, the Altman Z-Score can help distinguish value investments from value traps.
The Altman Z-score places companies into three groups: "safe" (Z-score > 2.99), "grey" (Z-score between 2.99 and 1.81), and "distressed*" (Z-score < 1.81). This metric is surprisingly useful for identifying bankruptcy risk in the coming year. Atlman's method of segmenting companies uses fundamental (financial statement) data and market capitalization only. Beyond credit risk prediction, companies with higher Z-scores have been shown to outperform companies with lower Z-scores, in aggregate.
Altman Z-score was recently calculated for hundreds of companies with P/E multiples under 10 as of March 2012. Low P/E companies which scored in the "safe" zone are presented with below:
Ticker |
Company |
Here's a list of low price to earnings stocks with "safe" Altman Z-scores
In order to choose stocks that are cheap but are at low risk of bankruptcy, we need a quantitative predictor of credit risk. Fortunately, the Altman Z-Score can help distinguish value investments from value traps.
The Altman Z-score places companies into three groups: "safe" (Z-score > 2.99), "grey" (Z-score between 2.99 and 1.81), and "distressed*" (Z-score < 1.81). This metric is surprisingly useful for identifying bankruptcy risk in the coming year. Atlman's method of segmenting companies uses fundamental (financial statement) data and market capitalization only. Beyond credit risk prediction, companies with higher Z-scores have been shown to outperform companies with lower Z-scores, in aggregate.
Altman Z-score was recently calculated for hundreds of companies with P/E multiples under 10 as of March 2012. Low P/E companies which scored in the "safe" zone are presented with below:
Ticker |
Company |
We began by screening for stocks paying dividend yields above 1% and sustainable payout ratios below 50%. We then screened for those with strong liquidity, which can help support a dividend when profitability lags, with current ratios above 3.
Finally, we screened for stocks seeing significant net institutional purchases over the current quarter, indicating institutional investors such as hedge fund managers expect these names to outperform.
Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the top six stocks mentioned below. Analyst ratings sourced from Zacks Investment Research.
We also created a price-weighted index of the stocks mentioned below, and monitored the performance of the list relative to the S&P 500 index over the last month.
]]>Do you prefer stocks that pay reliable dividend income? For ideas on how to start your search, we ran a screen.
We began by screening for stocks paying dividend yields above 1% and sustainable payout ratios below 50%. We then screened for those with strong liquidity, which can help support a dividend when profitability lags, with current ratios above 3.
Finally, we screened for stocks seeing significant net institutional purchases over the current quarter, indicating institutional investors such as hedge fund managers expect these names to outperform.
Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the top six stocks mentioned below. Analyst ratings sourced from Zacks Investment Research.
We also created a price-weighted index of the stocks mentioned below, and monitored the performance of the list relative to the S&P 500 index over the last month.
As an alternative to buying shares in target firms, individual investors could search pending deals for option plays that could capture the deal spread. To keep things simple, deals based largely or solely in cash were chosen so that target deal prices are fixed. A survey was taken of pending all-cash deals on March 9, 2012, to see if any option plays could provide attractive ways to play each takeover:
Symbol | Target Company | Deal | Takeover Date | Options Market | Option Play |
EP | El Paso Corp. | Cash + Stock | 6/30/2012 | Yes | Married Put |
Venoco, Inc. | Cash |
Individual investors hoping to capitalize on merger arbitrage (definition below)* strategies can elect to buy shares in target firms. Investing in target equity, or the "long side" of merger arbitrage is not arbitrage in the sense of riskless return, but has historically offered alpha for investors. Not every deal will go through, but most have.
As an alternative to buying shares in target firms, individual investors could search pending deals for option plays that could capture the deal spread. To keep things simple, deals based largely or solely in cash were chosen so that target deal prices are fixed. A survey was taken of pending all-cash deals on March 9, 2012, to see if any option plays could provide attractive ways to play each takeover:
Symbol | Target Company | Deal | Takeover Date | Options Market | Option Play |
EP | El Paso Corp. | Cash + Stock | 6/30/2012 | Yes | Married Put |
Venoco, Inc. | Cash |
On Friday the accelerated uptrend continued with S&P futures again trading up. We appear to continuously be eating away at that resistance around the 1368 level in the futures and a blow through could spell impending doom for those who continue to be short the market. The consumer sentiment number continued to climb today and new home sales numbers were also very good.
The spot CBOE Volatility Index (VIX) was again taken to the woodshed today opening at 16.68 and trending down to 16.42. This was most likely re-pricing of volatility going into the weekend. Again volatility ETF's (VXX) and 2x volatility (TVIX) took it on the chin earlier with VIX futures down big before reversing toward the end of the trading day as shown below.
Yesterday
March VIX futures 20.45
April VIX futures 23.25
May VIX futures 24.70
Today
March VIX
]]>VIX - Market Sentiment
On Friday the accelerated uptrend continued with S&P futures again trading up. We appear to continuously be eating away at that resistance around the 1368 level in the futures and a blow through could spell impending doom for those who continue to be short the market. The consumer sentiment number continued to climb today and new home sales numbers were also very good.
The spot CBOE Volatility Index (VIX) was again taken to the woodshed today opening at 16.68 and trending down to 16.42. This was most likely re-pricing of volatility going into the weekend. Again volatility ETF's (VXX) and 2x volatility (TVIX) took it on the chin earlier with VIX futures down big before reversing toward the end of the trading day as shown below.
Yesterday
March VIX futures 20.45
April VIX futures 23.25
May VIX futures 24.70
Today
March VIX
We ran a screen on stocks paying dividend yields above 2% and sustainable payout ratios below 50% for those with strong company liquidity, with current ratios above 3. We then screened for those seeing significant net institutional purchases over the current quarter, indicating institutional investors such as hedge fund managers expect these names to outperform.
Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned below. Analyst ratings sourced from Zacks Investment Research.
We also created a price-weighted index of the stocks mentioned below, and monitored the performance of the list relative to the S&P 500 index over the last month. To access a complete analysis of this list's recent performance, click
]]>Interested in stocks paying dividend income but don't know where to start? Here are some ideas on how to begin your search.
We ran a screen on stocks paying dividend yields above 2% and sustainable payout ratios below 50% for those with strong company liquidity, with current ratios above 3. We then screened for those seeing significant net institutional purchases over the current quarter, indicating institutional investors such as hedge fund managers expect these names to outperform.
Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned below. Analyst ratings sourced from Zacks Investment Research.
We also created a price-weighted index of the stocks mentioned below, and monitored the performance of the list relative to the S&P 500 index over the last month. To access a complete analysis of this list's recent performance, click
We screened the financial sector for stocks that are being highly shorted, with float shorts above 10%. We then screened for those with the optimism of the "smart money," with significant net institutional purchases over the current quarter.
Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the top six stocks mentioned below. Analyst ratings sourced from Zacks Investment Research.
We also created a price-weighted index of the stocks mentioned below, and monitored the performance of the list relative to the S&P 500 index over the last month. To access a complete analysis of this list's recent performance,
]]>Despite 2011 being a rough year for the financial sector, many names have rallied significantly since the turn of the year. For ideas on how to search through the sector, we ran a screen you may find interesting.
We screened the financial sector for stocks that are being highly shorted, with float shorts above 10%. We then screened for those with the optimism of the "smart money," with significant net institutional purchases over the current quarter.
Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the top six stocks mentioned below. Analyst ratings sourced from Zacks Investment Research.
We also created a price-weighted index of the stocks mentioned below, and monitored the performance of the list relative to the S&P 500 index over the last month. To access a complete analysis of this list's recent performance,