Time to consider closing FLEX/CLS pair trade at a nice profit.
Last Wednesday, I suggested a pair trade, noting that FLEX's stock price was less than 15% higher than CLS. I would expect FLEX stock price to trade 30-50% higher than the CLS stock price.
Here is the excerpt suggesting the pair trade:
My current comments on relative valuations of FLEX versus CLS:
As usual the volatility in this sector leads to some strange short-term relative valuations. FLEX gave up 30% from the highs hit close to the time of my post, and today CLS traded as little as a 5 point premium to FLEX (only about 13%). This is in spite of FLEX's greater earnings per share and the likely higher growth rate for FLEX.
I think it would be a good time to short CLS and buy FLEX when the stock price differential is less than 15%. I expect that as FLEX's faster growth prospects become apparent, FLEX will open back up to a 30-50% premium over CLS shares. This is what I was referring to in
my post today, when I said:
"In fact, if FLEX tries to drop below 40, I consider it a preferable buy to SCI at 38-40, especially so for the long term. I already see FLEX as mis-priced relative to some of its peers."
I don't think anyone could construe my March 16 post as recommending purchase of FLEX at over 48-50 per share. I usually post my trades in the EMS sector, unless its some sort of pair trade, or hedging trade. Today, I did buy FLEX at 44, and I did short one of the EMS stocks as a pair trade. Right now CLS is a prime candidate to short versus FLEX.
Well with FLEX at 50 1/2 and CLS at 38 1/2, now FLEX has opened up to over a 30% premium over CLS, and now might be the time to consider reversing the pair trade, and covering the CLS short. You make 15% on the pair trade, and if equal dollar amounts of FLEX and CLS were bought and shorted respectively, there was no capital invested, although the trade would use up margin for most of us. But there was zero net margin interest charges. Enjoy.
Paul
|
