A recent goal given the precarious market conditions is to
think about potential new approaches to increase short term expected returns to
support a longer term value portfolio based on commonly available under
appreciated metrics. One potential area for opportunity may be with short term
company specific stock demand driven by a growing outsized shorts as a percentage
of float coupled with strong balance sheet, flat to rising sales, improved
valuation versus historical measures and a stock price crushed by the market.
Since some of the stock candidates have a strong financial position these shorts may soon feel the
need to begin realizing some of their profits. If the miscalculated risk opportunity exists it may
not exist for long. This situation may have company and industry specific head
winds but the overreaction on the downside may present a short term buying
opportunity based on the growing odds of attracting new buyers in the short
term to balance out the overreaction to perceived risk not supported by
fundamentals. Hence as value heretics ( given our short term focus :) )we want
protection against the worst case scenario forcing us to have an eye on the
balance sheet. So over the next let's say 1 - 12 months there is little chance
of a blowup as the process plays out in a hopefully short term win. Part of my
thought was the growing probability for short term stock demand that would be
far greater than near term selling pressure. Possible specific stock demand increase could
come from tired or uncertain shorts covering based on profit taking, insider buying, less than expected negative
news, contrarian/deep value investors being attracted to the large price
drop/overreaction and outsized improved current versus historical valuation.
For some of these ideas the sound financial position gives us the extra short
term downside protection to play out this process. But in some cases we may want
further downside protection by including other factors overlooked by sellers of
the stock. And in other ideas the main attraction may be more of pure mean
reversion with less supporting balance sheet protection.
Those quickly selected 5 stocks in "Value Investing
Heresy, OSTK, KRO,RSH,HTCH,NPK: Click for quotes need further explanation.
Price on Post Date
KRO : $15.79
OSTK:$ 6.91
RSH: $3.84
HTCH: $1.46
NPK:$69.77
Table from "Value
Investing Heresy" posted on
Gurufocus.com on 07/02/12
This post will be finished tomorrow along with other ideas
that fall within the thesis of this
post.
