As of now, I have long positions in QNTM and MXTR and short positions in WDC and of course, APM. I have also shorted MXTR puts with strikes of 5 and 7 1/2 at various expirations. I covered my KMAG shorts, left some money on the table.
The valuation disparity between MXTR and WDC is striking. If I forget, make sure to remind me to post some comparables later.
The dynamics are easily rational if you think how Wall Street works. WDC is a basket case; every analyst has a sell, ahem, I mean hold, on it. Since they're making noises about returning to profitability, one day, buy side is getting in in anticipation of analyst upgrades. MXTR and Hyundai, on the other hand, needed some bankers to float an IPO, a secondary, and some derivative notes. The bankers put out the buys (note that MXTR is the only HD stock that Merrill follows), management goes pounding the road show circuit, and the company defers an expense here or there to make sure the numbers are pretty. The buy side bites (although for MXTR, they didn't initially. The secondary went off without a hitch.) Then the hype dies, the deferred expenses come due, and the inevitable disappointment occurs. The stock gets downgraded, the buy side dumps.
Which leads us to LK rule #2: Never, ever, ever, buy a secondary offering. |
