So this weekend I enjoyed my favorite pastime. Reading & thinking about and analyzing "the market" (mostly single stocks, but also big picture stuff).
I came across 3 interesting names:
- Herbalife
- Domino's Pizza
- Blackberry
Very very short analysis
No full blown analysis here, just some quick thought that led me to note down these names:
Herbalife came to my attention because I was browsing some earlier notes I made on investment ideas and found a bullet point saying "Short Squeeze Herbalife?" with a hint to the article that made me write this note. I looked into the details again: John Paulson (activist investor) has a major stake in the company, Bill Ackmann (another activist investor) just gave up on his turnaround ideas after losing BILLIONS (with a B!) of dollars on his investment (stock dumped 90% while he was on it). Then, and that was the decisive idea, more than 30% of the company's shares are sold short! And litigations, some still running, some already ruled upon.
So we here have a stock, that got hit hard (90% down), where high class investors got frustrated and leave the stock, while a "2nd generation" hops on, that has still a huuuuge short interest even though it's already fallen so hard and we have settled lawsuits that take out uncertainty.
For my taste this is ideal territory for a highly asymmetric chance! The company is so hammered and so much negatives are out there the probability for news that would further the negative sentiment is very low. On the other hand nearly all other outcomes must be on the positive side. And if that holds true and the stock starts to move upwards just a little bit, it sets in motion a very profitable cycle, because shortsellers will start to cover, creating demand for the stock, that will cause prices to rise, which will cause more shorties to cover, which creates more demand for the stock etc.
The good old short squeeze is a real possibility.Always on the search for dividend payers outside of the USD realm I read something about Domino's Pizza being a British company and just jotted down the name for further research. I only barely remember that I heard/read some positive sentiment towards this company last week, but totally don't remember what it was all about.
Blackberry was noted down also on the basis of an article showing that the company is morphing from it's former focus on business mobile phones into an IT service company or something, meddling with the Android OS, making it more secure or something. This was interesting, because the company also has heavy negative sentiment above it's head, being "dead" for most (retail) investors. This "Phoenix from the ashes" article made me make that note.
Fast forward to Tuesday.
So all this reading/thinking/analyzing happened on Sunday. I had these 3 names written down for further research or action right in front of me. When I looked up Herbalife I was surprised that they jumped like 10% on Friday with some articles mentioning this jump being a result of slightly better outlooks/numbers than expected and shortsellers needing to cover (DUH!). Then on Monday the stock jumps 4% again (YUCK!).
Then came Tuesday (today). I zap into Bloomberg TV and the first thing I see is "Market Movers". Guess What! Domino's Pizza being at 1st place with a more than 10% jump. (HALLELUJA).
Of course this all is a bit sad. On the other hand it shows that some of my reasoning might not be all that bad ;-)
This is no financial advice. Everything written in this article is for entertainment and educational purposes only.