Here is my current portfolio:
+27.9% since inception on November 5, 2013.
Here is my current portfolio:
+27.9% since inception on November 5, 2013.
Maybe I didn’t make clear the results of my odd lot play with Bridgepoint Education. It worked out well in the end. I earned something like a 6% return in two or three weeks. Of course, the return amounted only to about $120 in profit, but still..
Since then I have made one more investment in the stock market: buying shares of Innovative Food Holdings (IVFH). I got this idea from Ian Cassel of MicroCapClub. I had watched several of his ideas appreciate greatly and quickly and I kept kicking myself for being too hesitant to follow him. International Commercial Television (ICTL) and AeroGrow (AERO) are up 100% or 200% or more since I noticed him touting them within the past couple months. So anyway, I did a little research on IVFH and decided not so much that I understood the business and liked it, but that a bet on Ian is a smart bet.
Innovative Food is up about 50% since I bought it a few weeks ago.
My portfolio’s total return is something like +19% since I began investing a few months ago. Of course, I do not have much money invested and have only taken a total of three positions (two currently: BKUTK and IVFH). Moreover, I have been roughly half in cash over that time.
For my next move I plan to follow Ian again. I am currently considering a stake in BioSyent (BIOYF) or CoStar Technologies (CSTI), both Cassel/MicroCapClub ideas. The first is a Canadian niche pharmaceutical company and the second is a seller of video surveillance systems.
I have also begun to contemplate selling Bank of Utica so that I could take not one, but two more Cassel-inspired stakes. However, it’s a bit risky to get all one’s ideas from the same source. They could all go kerplunk at the same time – maybe for the same reason they’re all rising at the same time. At this point though, it does appear to be worth the risk.
Once again, here is a rough picture of my portfolio:
1/3 Bank of Utica
1/3 Innovative Food Holdings
Last thing: another non-Cassel inspired idea that I missed out on recently was MAXXAM Inc. (MAXX). This was a crazy deal on book value that has more than doubled since it was profiled on Nate Tobik’s site. I read their most recent annual and quarterly results/discussion and found that there was even more hidden value than Nate described in his article. But I thought, Well this is just too illiquid and the CEO seems like a bad guy.. at least that is what everyone else is saying about him..
So I passed, and it has more than doubled in the few weeks since then.
Happy investing everybody!
Have the guts to admit what you know: Mr. Market wears no clothes.. sometimes.
When the Bridgepoint Education odd lot tender first came to my attention, I hesitated. I had never done an odd lot arbitrage before and so I was a little too fearful. Hence, I watched the stock trade at $17.76 while I wrote about the opportunity on November 20, and I didn’t pull the trigger. BPI shares proceeded to rise and I thought I had missed my opportunity. But I continued to think about this “special situation” and the likelihood that it could sour. And in the meantime BPI shares dropped back down to levels where I could make around $100. I told myself that if I could make $70 or $80 after trading fees, that I would get into the deal.
Indeed, that’s what happened. On Thursday, December 5, the shares closed at $18.19, leaving about $130 of pre-fee profit (gross margin?). I frantically wrote a $1,000 check and drove over to my local Fidelity office to deposit it by 5pm, closing time. (I didn’t have enough money in there to buy 99 shares of BPI without selling BKUTK, which was not happening.)
December 6 was the last possible day to buy BPI shares in time to tender them on December 11, because it takes three days for the trade to settle. When the market opened yesterday (Dec 6) I watched BPI shares move around a little. With it trading at $18.26, I bid for 99 shares at $18.20. Within a couple of minutes I had my shares.
So here is how the trade should go down:
Fri 12/6: Buy BPI 99 @ $18.20 + $7.95 commission = $1,809.75 cost basis
Wed 12/11: Sell BPI 99 @ $19.50 – $38.00 voluntary reorganization fee = $1,892.50
Profit = $82.75
Return = +4.6% (in three trading days)
Then I will have an extra $82.75 to buy other appealing stocks.
It’s just too bad I didn’t buy my shares at $17.76 a couple weeks ago. I could’ve made an extra $44..
Disclosure: I am long BPI thru Wed 12/11 and then I am getting out of this dud of a stock just like all the insiders who are selling most of their stakes lately.
On November 25, Taro Pharmaceutical announced it will be buying back about 5% of its shares in a Dutch auction. There is an odd lot provision in the offer.
The range at which shares may be bought back is wide: from $84.50 to $97.50. The price at close November 29 was $95.00. That means the spread (at the highest end of the offer) is 2.6%. That’s not huge compared to the other odd lot tender offer I am aware of at the moment: Bridgepoint Education (BPI), which has a 5.4% spread despite having tightened a lot since I profiled it.
In pure dollar terms, what is the difference in these two odd lot tender offers’ profit potential? You can buy 99 shares of each, so this benefits the higher priced Taro stock.
99*$97.50 – 99*$95.00 = $247.50
99*$19.50 – 99*$18.50 = $99.00
So the TARO offer is better in pure dollar terms but you will have to set aside almost $10,000 worth of capital. And on top of that, the $97.50 price is not guaranteed. The Dutch auction format could bring that price down a bit, though I am not sure how likely that is since I have just begun looking into deals like this. I can’t estimate the most likely price.
I will not be playing the TARO odd lot tender offer. I wish I had played the BPI offer when I first became aware of it, but I was too hesitant, having never done one of these deals before. And quite frankly I just started investing in the stock market and currently own only one stock: Bank of Utica.
I don’t have near enough money to buy $10,000 worth of TARO stock. The spread is too tight to be appealing especially given the unguaranteed offer price. Of course, I could buy, say 20 shares and make $50.. before trading fees. What might those trading fees be? $7.95 to buy through Fidelity, $38.00 Voluntary Reorganization fee, and $7.95 to sell = $53.90. About all I could afford to buy would be those 20 shares, so I would actually end up losing money even under the best case scenario! Even the dumbest of investors wouldn’t consider that deal LOL.
So far the lesson I have learned from watching these two odd lot tender offers is that you have to be ready to act quick. I hesitated and lost a promising opportunity. I could still make about $50 putting up $1,830 (for a couple weeks) on the Bridgepoint deal, but it seems just a bit too risky for only $50.
For the past few weeks, ever since I got into Bank of Utica, a very low-volume stock, there has been a seller patiently discarding shares at $420. I watched the Ask stay at $420 all this time as he unloaded about 600 shares. Finally, today, his Ask is gone and has been replaced with someone asking $427.
Hopefully BKUTK shares have been transferred into the hands of those who want them, and the price can appreciate now. We’ll see what happens next week.
Disclosure: I am long BKUTK
On November 13 Bridgepoint Education (BPI) announced it would buy back up to 19% of its shares outstanding for $19.50 per share. Furthermore, the tender offer included a provision giving priority to odd lot holders who tendered all of their shares.
If the offer is oversubscribed, non-odd lot holders wishing to sell out will be forced to hold onto some of their shares, but odd lots will be taken out entirely at $19.50.
This presents a potentially appealing arbitrage opportunity for the small investor.
Shares jumped about 8% to $18.30 immediately after the announcement of the offer, but have come down to $17.76 at the time of this writing.
The tender offer expires at 5pm Eastern time on December 11.
So the idea here is to buy 99 shares of BPI and lock in the odd lot priority sale. What kind of a return is this? Well, $19.50 / $17.76 = 1.098, so we’d be getting a 9.8% gain in three weeks (before trading fees, more about that later). The drawback is that the amount you can invest is limited to.. $17.76 X 99 shares = $1,758.24. And the profit will come out to $172.26 (pre-fees, again).
The chief issue I haven’t mentioned yet is the possibility of the deal being rescinded. If that were to happen, then you could get stuck holding 99 shares of BPI that you might not want without a buyer and guaranteed price on the other end!
People have different ideas about Bridgepoint, which I should mention has as its chief business Ashford University, an online university like Strayer or University of Phoenix, and it is not the purpose of this post to analyze Bridgepoint’s business in detail.
I will say this: Bridgepoint has plenty of cash on its balance sheet (and no real debt) so they are certainly capable of buying the stated shares back.
The business itself may be in trouble. BPI’s competitors have had to lower prices recently and the thought is that BPI will have to follow suit. The shares were trading at $16.86 before the tender offer was announced. Were you to buy at $17.76 and the tender offer canceled and shares drop back to where they were (maybe a too rosy scenario) that would mean a loss of $0.90 per share on 99 shares, or $89.10. Put another way: a loss of 5.1%.
The thing is: how likely is it that the buyback will not happen? That is the question that one really must grasp if they are going to try to make money on odd lot tender offers.
I am a novice at this, so all I can do is make an educated guess: it is quite unlikely that this deal will not happen.
Leaving that question, let’s look at the final demon in play: trading fees. Here, too, I have not been able to get entirely satisfactory answers about how much it will cost to make this trade happen. Nevertheless, let’s say your broker charges you $7.95 per trade, as Fidelity does. To buy and sell the “odd lot” will cost $15.90. On top of that, Fidelity lists an extra fee in its schedule of fees called Voluntary Reorganization. From what I can gather this applies to our odd lot tender, since we are voluntarily selling our shares back to Bridgepoint Education.
Let’s say all those fees do indeed have to be paid (which I’m not really sure about).
$7.95 + $7.95 + $38.00 = $53.90 in trading fees
Now our profit has been cut down to $118.36!
Now our gain is only 6.7%… in three weeks.
Let’s annualize and compound it for fun: a 209% gain on the year.
The fact that this is a short-term rather than long-term gain could mean higher taxes and that could further cut into the gain…
And you get the picture.
The chief hole in my analysis is that I don’t know how likely it is that Bridgepoint would back out of this tender offer. I do feel confident saying that it’s quite unlikely, but I don’t have a good feel for just how “quite unlikely.”
A lesser (and last) hole in my analysis is that I don’t have a good idea of what I think Bridgepoint is worth — just in case I were to get stuck holding the shares. But since this is an arbitrage, that is not that important.
Not much of note transpired since the end of fiscal 2013 (on June 30, 2013). The potential turnaround has not really borne visible fruit yet. Revenues are still down (26%) from last year’s quarter. Income from continuing operations was essentially $0 (actually ever-so-slightly positive, but essentially $0).
So what did I note?
It looks like the opportunity to buy Pro-Dex at an attractive price is going to be with us for another three months. That’s good for me, because I’m still not comfortable enough with this company to pull the trigger and buy. Maybe I’ll get there before next earnings call ;-D
UPDATE 11/14/2013: On its first trading day since the earnings release, PDEX traded no more than twice its average volume. It rose $0.10, or +4.6%, getting as high as +8.3%, at which point I began to think I had lost my opportunity to get in at a really good price!
The insignificant volume increase tells me that the earnings release didn’t change people’s theses: ”Not much of note transpired.”
I have read through the most recent Village Super Market 10-K over the past couple days. (I’m a slow reader.) Let me summarize my thoughts now.
I’ve liked Village for a long time. It operates about 30 ShopRites, mostly in New Jersey, and it is indeed my grocer of choice here in Northern New Jersey. A lot of people think the grocery business is a slow-growing, boring one, but I’m not so sure.
Over the past ten years, Village stock has risen by 443% vs. a 69% gain in the S&P 500.
Anyway, the 10-K..
I must admit I am a little more cautious about investing in Village after reading the 10-K. Underfunded pensions, expansion into Maryland, profit dropping from the prior year… these are some of the things that stuck in my head.
On the positive side, I came away from this reading with a deep belief that Village will be around and viable for a long time to come. They have fended off Walmart spectacularly in my opinion, and being rooted in Northern NJ (where about 2/3 of their stores are) gives them a natural competitive advantage. It is hard for competitors to develop land in this densely populated part of the nation. Also, the ShopRite name is deeply trusted in these necks of the woods.
The Sumas family who runs Village seems very competent to me. Others have remarked that they are not using enough leverage, as is frequently the case with family-run, family-controlled businesses. I’m not too worried about that. (Where I am concerned about that is with Bank of Utica!)
The key here is going to be how the new mega ShopRites that Village is opening perform. The newest one just had its grand opening yesterday:
New ShopRite in Cedar Knolls: Not your typical supermarket experience - an article from MorristownGreen.com
They’re trying to sell higher-margin cooked foods in their new Village Food Garden concept, which was begun recently in the remodeled Livingston store.
I might hold off on investing in VLGEA until I can get a view on how these new stores are doing.
I’d also like to get more visibility on the two Maryland stores they acquired from SuperFresh a couple years ago. I believe these are money losers so far, and that they said they are not meeting their targets in the 10-K.
Also just found this while hunting around for information on the new Morristown/Cedar Knolls/Hanover store:
I bought Bank of Utica (BKUTK) yesterday at $420. Since then, we’ve had a full day of trading and my transaction is still the last one to have gone down in the micro-cap bank’s stock. The illiquidity is a bit annoying because I keep checking to see if it’s moved, and not only has it not moved, but no one has even bought or sold one share since 3:15pm yesterday! Nevertheless, I am deeply satisfied with my purchase, even knowing I may have to wait two or three years for the price to appreciate. Hell, the price may never appreciate.. but I believe that to be unlikely.
So what’s going on with the stock right now? We’ve got a buyer looking for five shares at $415.50 and a seller looking to offload 563 shares at $420.00 (the same seller I bought from yesterday). I tried to get the seller to come down but he wasn’t budging. I eventually capitulated and bid $420 and got my shares immediately. It just seems dumb to me to hang out at $412 or $415 or $418 when BKUTK is still such a good buy at $420, $430, $440… $480…
What if the price pops tomorrow and this guy who won’t pay more than $415.50 misses out on all opportunity to get into the stock anywhere near where he wants it? That is the thinking that got me to stop dicking around and pull the trigger. The spread of $4.50 is equal to 1.1% of the stock’s current price of $420. If you’re getting into a stock and 1% is such a big deal to you, you probably shouldn’t get into that stock in the first place.
BKUTK is the first stock I have ever bought. I have been researching stocks and teaching myself about the market for the past five or six years. I always thought that the profit motive behind business was immoral and so I never inquired into the markets. But then at about age 27 I was working in a warehouse, working kind of like a dog, and still not really quite being able to make ends meet: I thought there must be a better way, and my mind opened up to owning a business rather than simply working for one. I read the hokey book Rich Dad, Poor Dad and my mind really began to open up. Then I read a McGraw-Hill book about starting a business, and that was frankly kind of boring.
But I continued to follow my intellectual curiosity and burgeoning dreams of owning the excess revenue of a business concern, and I got a subscription to the Wall Street Journal. I also looked into buying foreclosures, but I had no money saved and not much of a work and credit history. I never believed people on infomercials who said that you could buy a house with bad credit and no money down. (And no job?) I thought they were like dark ninjas, out just to take advantage of desperate people like myself watching TV so late that the best thing on was real estate infomercials.
In 2009 I registered an LLC with the hopes of creating a profitable group of little, niche websites. I would sell advertising on the sites, either through Google Adsense or Amazon’s affiliate program.
I had been writing articles for other people who were doing the same thing, and the writing didn’t pay very well (1.5¢/word after I developed some trust with clients) and was time-consuming and boring and.. hard work! As far as I can remember, it cost about $125 to register the LLC in New Jersey. I built a couple free sites using the Blogger platform and wrote some one-page articles for Hubpages, where you can split the ad revenue take with them in exchange for tying your articles to their more established website.
I started to get a trickle of money coming in, and I learned the value of picking profitable niches and targeting web visitors who were just in the last stage of research before buying. I also learned that making money online is not as easy as it seems! It takes work, which is the whole thing that one is trying to get away from by starting their own business so frequently!
Anyway, I didn’t mean to go off on such a tangent but that is a little of my journey to Bank of Utica stockholder. I think it’s a good story, an honest one. I am currently in the process of deciding where to make my next investment. Two stocks are in the lead in my mind right now: Village Super Market and Pro-Dex. But I have many more stocks I find attractive right now, too. It’s just a matter of reading some 10-K’s, 10-Q’s, reading other online commentators thoughts, and doing some critical thinking of my own. I’m not in a rush. I’m confident that Mr. Market will continue to serve up irrationally priced stocks, especially in the nano- and micro-cap spaces, which I find a particularly fruitful spot to look for bargains.
I’ll keep you posted.
Disclosure: I am long BKUTK
Last night I listened to Ruby Tuesday’s most recent conference call, the one where they announced an 11.4% drop in same-store sales: not so good!
The reason I’m looking at RT in the first place is because they’re selling at a significant discount to book value:
book value = $498M
market value = $362M
Discount = 27%
Nevertheless, if you’re gonna buy RT you’ve really got to believe they can turn this around.
RT earned $45M in fiscal 2010 and $47M in fiscal 2011. It broke even in fiscal 2012 and it lost $39M in fiscal 2013, which ended with the quarter prior to the quarter I referenced above. That most recent quarter entailed a $22M loss.
Things are clearly F’d up.
On the conference call the CEO (a new hire from Darden, I believe) kept returning to talking about Ruby Tuesday;s new menu items: pretzel burger, flat breads — these are what he seemed most excited about. I gotta admit: I didn’t get too excited about them. I think Ruby Tuesday has a bigger problem than its menu. Really, it’s all just American food. Do people really go to RT for the menu? Maybe they go for a somewhat cheap chain-restaurant sit-down meal. In that respect, the new menu items, which are priced slightly cheaper than the old ones, may help.
But I think their problem is not so much about what food they’re serving. I’m not really sure what it is. The CEO said that the whole casual dining industry had taken a hit and he did do significant blaming of the economy. I haven’t checked how other similar restaurants have fared, such as Darden. Maybe he was telling the truth: maybe everyone got hammered by more or less 11% that quarter. It seemed hard to believe for me, though, that all of a sudden all casual restaurants could get hit so significantly.
Despite all this, RT definitely merits a look — because of how cheap it is. You can buy $1 of equity for 73¢. It’s a company I will keep following because it could swing up nicely at the first hint of a successful righting of the ship.
The CEO seemed competent and especially honest. He didn’t dodge any analyst questions. He was very revealing which was nice to hear. It’s nice when you’re trying to get a handle on a company and the CEO is talking plainly and honestly about the situation. He definitely didn’t make any positive promises about the future!