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Strategies & Market Trends : Value Investing

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To: Grantcw who wrote (40533)	12/11/2010 10:51:46 PM
From: E_K_S	Read Replies (1) of 78673

Hi cwillyg - I currently do not have any covered calls on SVU and probably will not initiate any position any time soon. I believe the company is undervalued by at least 35% and it's quite possible to see a private buy out (for all or part of the company) w/i the next six months if the company remains at the current price level. That's based on a $12.00/share take out offer at the minimum. Therefore, I would not consider doing any covered calls unless the stock trades at or near $12.00/share. One can also make an argument that the stock could be valued at a $17.00/share price (or higher) when looking at Price/Sales, PE and/or considering the possible value in their company owned real estate. I probably will just hold and collect the dividend now yielding 4%. If I were to establish a covered call position I would write an option out so that I captured the next dividend (ex dividend Nov 29...next dividend around March 1) so I would sell the March or April 2011 calls. It appears that a lot of the option activity are for the out of the money calls near $12.00/share. I think that management will eventually do something to pay down their huge debt like selling off more stores & company owned real estate. Maybe a "packaged" private sale made up of stores in a particular region w/ the distribution & warehouse arm remaining as a separate division. I am not so sure that the pieces are worth more than the total but there is definitely value in their assets (especially their real estate). I am not too sure that any type of refinancing will help the company as they are pretty much already levered way too high especially if sales turn down. This is one that you hold and wait for investors to recognize the hidden value in the company. With all the cheap money floating around (ie QE1 & QE2), there is no better time to take this company private. EKS

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