User 279557

Paired Trade: Sell DineEquity, Buy Hormel

One other thing, the suggestion that you could get a locate on UA or ISRG is absolutely silly.

UA has been special for some time and ISRG is a somewhat recent add to the overvalued lists, but certainly since your May 8 pair trade rec.

Paired Trade: Sell DineEquity, Buy Hormel

I like this trade for reasons Alan outlines and, in particular, this company is going to be terribly difficult to delever in an operating environment with declining margins.

While 107Sid raise good points, the reality is that under performing units are, well, under performing. From a cash flow stand point, the sale of the units need to realize a PV > WACC to make sense. I don't see. If she unloads performing units, will she cannibalize future earnings stream for short-term health of the company? and, will it make it harder for the company to hit historic CF and multiple targets?

Lastly, I don't care how great of an operating manager she is; operating leverage will only be as strong as the economy even for low end / trade down restaurants.

One major (!) problem with Alan's analysis is that you can't locate the stock and a synthetic short had an implied cost of borrow of roughly 12%. OUCH.

The Dangers of Timing the Market

Your sources are dubious at best. Any article that mentions dollar cost averaging as a legitimate investing methodology is incredibily naive at best and should be considered malpractice.

Sources:
- George M. Constantinides. “A Note on the Suboptimality of Dollar-Cost Averaging as an Investment Policy.” Journal of Financial and Quantitative Analysis. XIV, June 1979, pp. 443–50.

- Kirt C. Butler and Dale L. Domian. “Risk, Diversification, and the Investment Horizon.” Journal of Portfolio Management. Spring 1991, pp. 41–47.

- Richard E. Williams and Peter W. Bacon. “Lump Sum Beats Dollar-Cost Averaging.” Journal of Financial Planning. Volume 6, Number 2, April 1993, pp. ?

- John Greenhut. "Mathematical Illusion: Why Dollar-Cost Averaging Does Not Work"