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Chris, I read Barron's on-line and on prodigy, but the magazine is
better. You get a lot more info than they print in these electronic
summaries. In fact, I think that is true of all on-line magazines.
Yes, long Pep and short KO is an example of a paired trade and, IMHO,
a fairly good one right now with Pep a fallen angel and KO priced like
they are King Midas. That is what I call a direct paired trade in
that they are competitors. I also like to do misdirected paired trades
like long Pfizer, short United Healthcare. They can be more rewarding
but they are also riskier. I value stocks through a proprietary
valuation system I've developed over the years. Basically, there is
nothing that special about the formula I use. It is the inputs that
make it work or not. You have to input an eps growth rate for the
next 5 years, ditto for the index you compare against, a future beta,
and, very importantly, a risk free interest rate. I tend to do them
in two ways for longs: most likely case and worst case. If I find a
stock that looks like a value even in the worst case over the next
5 years, I buy it. However, this system doesn't work for biotechs or
other cos. operating on hopes and dreams. I have no one sale price
in mind. It is a moving target. For example, if I expect the co.
to grow eps at 30 percent a year for five years,
but the stock is up 50 percent in six months, I first check to see if
I need to change any of my inputs. If not, I will take at least some
of my money off the table. I don't want to short Kellogg's under $70.
I am hoping they have a good eps report so it can get wayyy overvalued
again. I would not buy a call for protection as this is a fairly
boring stock. It is like buying life insurance on a Galapagos tortoise.
I'll never live long enough to collect it. -g- MB |
