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Strategies & Market Trends : Z PORTFOLIO
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To: pz who wrote (5514)10/21/2000 2:38:42 PM
From: DanZ  Read Replies (1) of 11568
 
There are several plausible explanations for the decline in FNV.

1. Some mutual funds may have strict rules that prohibit them from holding securities in a company whose debt is rated below a certain level. When Moody's reduced Finova's debt to BBB, it may have triggered some fund selling for this reason.

2. Some funds have rules that require them to liquidate a position whenever it falls x% from their entry point, no matter what the reason. This is a mechanical trigger and they aren't allowed any flexibility.

3. The stock has been below $5 long enough that it is no longer marginable. There could be selling from those who had to sell it or don't want to use the value of other securities to cover 100% of the Finova.

4. Tax loss selling.

5. Selling to move funds into stocks that someone thought might move up more in the short term.

I seriously doubt if bankruptcy in in the cards for this company. I don't know as much about Finova as Ron, but they have a reasonably strong balance sheet and there are too many block buyers in the stock to think that bankruptcy is a concern. If the five issues above have contributed to the decline in FNV, the stock will eventually rebound and represents an outstanding value. Of course the market could be discounting something really bad that we don't know about. I just doubt that's the case here. It might be worthwhile to call the company's CFO to see if he has an opinion on what the market is saying. The biggest buyer or seller in the short term isn't always right in the long term.

Dan
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