Took a position in this steel company following the Trump Victory.
Bought at $8, took profit on 35% of my position at $11, leaving a cost base of the residual position at $6.80.
Post the results, the stock has gone all the way back to $8 – still in overall profit due to the sale higher up – but what should you do now?
You’re original view on the name has changed completely or following the results, you think this is wrong company to own – exit.
This is a long term position – and you think the stock can go to $20 – this where the real profit lies –not in the first trade, which is just protect yourself from the ‘swings with wide arcs’ as Bill Miller puts it, so you can realise the gain over the long term. So, leave the current position but exit at the STOP of $6.80 – below which you will actually start losing money – important to observe the stop – sold FitBit at $9 and $SPWR at $10 – on stops [losing no money] – look where they are now!
Last option is to Buy back the sale on the first trade – i.e. go back to your original position and hope the stock will go back to $11 – the new average price is now $7.20 [as the first trade profit is locked in] – so you have raised you’re stop by buying more stock – but if you are right you could repeat the first trade!…Again this choice, assumes you like the stock long term.
You’re decision depends on whether you think the stock is oversold or sell off is temporary. You should listen to the earnings call following the results.
2CentView likes this company long term and sees the fair value at $10 – so it seems the stock is just oversold – Credit default swaps have not moved as much as the stock – if there is a recovery in the steel industry and the industry is protected from cheap imports – then this is a good value play in the hope US Infrastructure will be rebuilt using US made steel!
2CentView bought back the position sold at $11 for $8 and now has a stop of $7.20. Fair Value = $10. Take profit target = $10. Will keep a core position unless the stop gets hit.[Went for option 3]
As the market continues a hugely volatile ride, stick to your stops and move part of your portfolio back to cash.
Stocks are long term investments, but managing volatile markets is tough.
You can do nothing and hope for a pull back – but what if this was 2008 where the market dropped more than 50%?
2CentView strategy is build low cost positions by taking profits (Look at $NFLX today) so you do not have to capitulate core positions for some time – but do sell new trading positions when they hit the stop.
Wait for the market to stabilize and look at it as an opportunity to either get in the same trading position lower down or another positions which can offer better risk/rewards.
2CentView stops hit in $AKS and $GM and opened trading in position in $GOOG (FV=590) ahead of results.
4 things all working together have really hit the market – EBOLA scare, potential recession in Germany with Russia situation not improving, war with ISIL in IRAQ And Syria and China growth concerns.
However, lower oil prices should be good – it may imply deflation which is good for Bonds – but also means consumers have more to spend spurring growth – it is almost like a tax cut!
So when EBOLA is under control and Germany decides to focus less on balancing its budget but add stimulus the market will start to turn again – not sure when this will be – but will be within the next few months.
Tweet 2Centview if you need a FV for any stock you like.
If you got in at 10,50 look to exit and re-evaluate.
If you decided to wait, look for credit to tighten first.
Trading on 2015 P/E of 5.8 times stock does look cheap
Last tweeted these names back in February 2014.Goldmans called the potential rally in steel stocks correctly and
$X has had an amazing 45% run since end of July to $40.
$AKS has consolidated above $10, but may have further upside based on FV’s below.
$X FV=35 (17% 5Y Growth Rate) PX=40
$AKS FV=17 (16% 5Y Growth Rate) Px=10.5
$AKS has 50% more potential upside relative to $X.
Buy at 10.50, Take Profit Target $15.5, Stop 7.5
OR Wait for for AKS to consolidate above $11, then buy with TPP=$16 stop $8.
OR Wait for Credit Default Swaps to tighten in $AKS to under 300bp. The Credit is still a bit wide $AKS but has rallied 100bp since August, then pull the trigger if the stock is below $11.50.
2CentView has a core position in $AKS, and looking to add a trading position.
Approaching the $23 stop on US Steel, FV lower at $25 now.
$AKS – FV=15, so could re-enter at $6 if you sold at $8. Credit Default Swaps still imply debt is too high at $AKS – hence why stock is trading at such a discount to Fair Value.
If the CDS drops to below 400bp with Stock below $7 it is worth buying…
but investors not in love with US Steel stocks at the moment, even with the prospect of commercial and retail construction growth.
$AKS outperforming $X but this was certainly the more riskier of the 2 stocks, given cost of debt levels being twice as much as $X. Cost of Debt now come in nearly 100bp, which partly accounts for the better performance of $AKS. Take profit at 8 (FV=8.5) if you got in below 6.
I took more conservative position in $X which is also doing well but less risk. Higher the risk greater the reward – but also more to lose on the downside.
So don’t always think about the returns – think about the risk you are taking versus your return [ technically known as the Sharpe Ratio!]
$AKS has more potential upside by high debt levels – CDS Spreads in the 800 area indicates there is still high leverage/default risk.
Better opt forr US Steel, $X where FV=37 so still good upside potential, but lower debt levels CDS Spread = 400bp. If you think the US Steel market will recover, buy $X, tp=$35, stop $23 for 2:1 RR. Look at the stock prices in mid 2008 just before they fell off a cliff!
I’ve set the alert! CDS Has also tightened, although still junk.
$X and $AKS up over 30% in past 2 months. $AKS FV=$9 $X=37 – so more upside. Check charts