I recently bought JOE at around 20 bucks a share. The stock price is falling like a rock throughout the year. But things are getting interesting. I am not going to comment here about the underlying valuation of the company but just about the stock itself.
As of today(11/17/10) in millions
Total outstanding shares : 92
Total shares sold short : 21.6
Average daily volume : 2
Days to cover short at this volume : 18
Now this stock is liked by long term value oriented investors who I can speculate would not be selling the stock at these prices. Most likely they will be buying more. Lets find out who these people might be
1) Fairholme Fund : 27 (including holdings in privately managed funds besides Fairholme fund)
http://www.thestreet.com/story/10890674/1/berkowitz-to-einhorn-thank-you.html?cm_ven=GOOGLEN
2) THS Partners: 4.8 ( long term long only investors)
http://www.thspartners.com/philosophyprocess/process/
3) Third Avenue Management: 2.2 ( there is no way they will be selling)
4) Royce & Associates: 3.1 (Again a value investor that might not sell)
5) Janus Capital Management: 10.3 ( JOE is held in Janus Contrarian fund. I am not confident about them but since they are also value oriented fund I may speculate that they wont also sell at these prices)
Hence,
Total stocks not available in market for trading = 27+4.8+2.2+3.1+10.3 = 47.4
Assuming all of the above is true, 21.6/(92-47.4) = 48% of the float is sold short.
If the short interest rises further or if the stock price falls further it will be a good trade to buy some out of the money CALL options on this stock expiring in 6 months or so.
What do you think ?
I am not sure how many shares David Einhorn have shorted. If its a big position then IMO he should start covering soon.
As of today option expiring in Mar 18, 2011 to buy JOE at $17.5/share is selling for $1.7/contract
Very good analysis. I think it is a good idea to buy call options. But may be something expiring in more than 6 months. June 11 and Jan 12 are expensive.
ReplyDeleteSome of the MFs might sell at the end of the year for tax reasons encouraging more shorting. I think we will see something credible and clear at the end of first quarter next year. Unless JOE allows Fairholme to buy more. This is very interesting.
True. If JOE allows fairholme to buy more and fairholme does buy a significant portion then this may end up like Volkswagen-Porche story.
ReplyDeletehttp://www.reuters.com/article/idUSTRE49R3I920081028
But since management has very little stock ownership and fairholme can force them to make tough cutbacks, they might not be so willing to let fairholme increase its ownership.
Interestingly David Einhorn was also short VW stock and got really burned by the squeeze.
ReplyDeleteLets see if he is right this time.