Anytime we buy a stock we ask ourselves, "what do we know that the market isn't factoring in?" After all, a stock trade is a two way transaction. Just as the buyer believes the stock will rise, the seller, in theory, believes the security being sold has attained full value.
While we discuss our investing philosophy comprehensively in future articles, the thought process of, "why are we getting such a good deal on this stock?" sets a great backdrop for a quick update to our Alpha-Rich article on Digirad (NASDAQ:DRAD).
Specifically, post blow-out earnings, reported on November 1st, we were surprised shares didn't go dramatically higher. On November 5th, an explanation became clear. According to a 13-D filed by Red Oak Fund, in the 3 days post earnings, they sold an astounding 535,160 shares, or 24.53% of the volume.
Red Oak had been involved in a proxy contest with Digirad earlier in the year, and with a healthy profit, it was time to move on. Fortunately, for those interested in establishing a position in Digirad, Red Oak's sales have created what we believe is a very short-term ceiling on shares, and a wonderful entry point.
Below is our calculation for how many shares Red Oak still owns, assuming they comprised 20-30% of trading volume from November 6-8.
By our calculations, Red Oak still holds between 113,000 and 246,000 shares. Assuming trading volume remains strong, Red Oak should be fully out of the position, as soon as today. We anticipate a steady move higher for shares of Digirad once they are done.
Disclosure: I am long DRAD.