Thursday, February 02, 2017

January 2017 Performance

January was a rough month due to my Rite-Aid position. I took another stab at it based on the news that closing was imminent, but now it looks like it will be an eternity before / if it ever closes. I bailed out of my position Rite-Aid (Ticker: RAD) position with a ~ 15% loss. The toughest part of trading / investing is being rationale about losses and just not hope a losing position will come back. Looking back it was the right decision as Walgreen (Ticker: WBA) came back with a cut in the buyout price. If I held on, my loss would have doubled to ~30%+. Obviously, the Rite-Aid position negatively impacted my January performance, resulting in a loss of ~ 4.50% for the month. Actually not bad, considering that I had a relatively large position in Rite-Aid and was down over 10% at one point. The Rite-Aid arb play is definitely one for the books…

I’m entering February with the following special situations / merger arb plays: Ariad Pharmaceuticals (Ticker: ARIA), Actelion (Ticker: ALIOY), Wafergen Biosystems (Ticker: WGBS), and Kate Spade (Ticker: KATE). (1) Ariad Pharmaceuticals – I’m playing this one via short Puts. I see this as a relatively low risk play as Takeda is acquiring the company via a tender offer. Takeda just received anti-trust approval for the deal and everything seems to be falling in place for the completion of the tender offer on February 15th. (2) Actelion – A large deal as J&J is acquiring Actelion for $280 in cash plus the R&D spinout. This deal is anticipated to close by the end of Q2. The price just took a little hit with French regulators recommending to physicians to stop prescribing Uptravi due to patient deaths. I like the risk reward here. (3) Wafergen Biosystems – The company should be announcing Q4 revenue numbers soon, which will determine the final buyout price. So it’s wait and see… Finally (4) Kate Spade – Potentially looking at several strategic acquirers, looking at a price in the low to mid 20’s.

I’m looking at better risk management as Rite-Aid demonstrated my weakness in this area. Looking forward in seeking out profitable special situation plays in the upcoming year...


2017 Performance Year to Date = -4.50% with the running monthly returns as follows:

January -4.50%

Monday, January 02, 2017

2016 Performance

It’s time to reflect on my performance for 2016. The year started off a bit weak, did well mid-way through the year and under performed as the year ended. My net gain for the year was 14.61%, which slightly beat the major indexes (S&P 500 = +11.96%, DOW = +13.42% and NASDAQ = +7.50%). I give myself a grade of a C for my 2016 performance. I executed some poor trades as the year ended, which adversely affected the performance results. I also see these as sloppy trades as I tried to generate additional returns, but did not totally consider the potential risks such as Tronc (Ticker: TRNC) and Rite-Aid (Ticker: RAD).

Overall the Special Situations / Merger Arb plays definitely helped my portfolio as my major long holdings essentially under performed the market. My three largest long holdings and the 2016 returns of each are as follows: Constellation Brands (Ticker: STZ) (+7.63%), Visa (Ticker: V) (+0.60%) and Apple (Ticker: AAPL) (+10%). I still plan on holding these for a while as they all generate substantial free cash flow, which in the long run should support higher stock prices.

I am entering the New Year with the following Special Situation / Merger Arb Plays: WaferGen Bio-systems (Ticker: WGBS) (~ 9% position), Actelion Pharmaceuticals (Ticker: ALIOY) (~14% position) and Kate Spade (Ticker: KATE) (~8% position). WaferGen is the most intriguing one as the takeout price is based on 2017 revenues and I anticipate hearing some preliminary Q4 numbers soon. Actelion looks like is has a good chance of getting taken out by J&J (Ticker: JNJ) or Sanofi (Ticker: SNY) so there will definitively be some news flow on this deal by the end of January. Finally, Kate Spade has put itself up for sale and I’m looking for a price in the low to mid 20’s.

Looking back at the past five years of performance results, I start to wonder when it would be a good time to transition a good chunk of my portfolio to an index strategy. At times, managing an active the portfolio can get quite hectic. For now, I still really enjoy actively managing my portfolio, but I can see myself transition to an index portfolio at some point. When? Maybe when I retire?

2016 Performance Year to Date = +14.61% with the running monthly returns as follows:

January -5.47%
February -3.50%
March +7.51%
April +0.84%
May +6.34%
June -2.6%
July +12.2%
August +6.57%
September +1.94%
October -5.49%
November -1.59%
December -1.3%

Annual performance for the past five years is as follows:

2012 +61%
2013 +44.61%
2014 +29.47%
2015 +33.48%
2016 +14.61%

Tuesday, December 20, 2016

Bought Rite-Aid

I took off my positions in Actelion (Ticker: ALIOY) (-7.18%) and Valspar (Ticker: VAL) (-0.74%) generating some small losses. These were not large positions (~4% in each), but Actelion essentially hit my loss limit and Valspar looks like it will take a bit longer to close (end of Q1). I did not like the risk profile when compared to Rite-Aid (Ticker: RAD), which just  announced the store divestiture to soothe the FTC’s concerns. I initiated a position in Rite-Aid (yes, once again!) at an average price of $8.60. This looks like it has a very good chance of closing by the extended merger end date of 1/27/17. The divestiture of the stores to Fred’s (Ticker: FRED) really de-risked this merger arb play in a big way. I am looking at a potential net gain of ~4.5% (~41% annualized assuming a close by 1/27). Yes, this is a large position…

I’ve learned that position sizing in relation to the potential risk is very important. Even though I took losses in Actelion and Valspar, they were relatively small... The Rite-Aid risk reward is just too good to pass up.

Friday, December 16, 2016

Bought: Actelion and Valspar

I entered two new special  situations / merger arb positions today: Actelion (Ticker: ALIOY) and Valspar Corp (Ticker: VAL). I went in relatively small as both are ~ 4% positions. I believe Sanofi (Ticker: SNY) is motivated to get the deal done with Actelion and it looks like an agreement with the Fed is close regarding Sherwin Williams (Ticker: SHW) proposed acquisition of Valspar. In addition to these two new arb plays, I have Wafergen (~9% position), which I hope to hear some preliminary Q4 numbers in ~ 3-4 weeks or so. Wafergen’s (Ticker: WGBS) buyout price will be based on its 2016 revenues. I’m also looking to get back into Rite-Aid (Ticker: RAD) once again… Getting more busy on the merger arb front as the year comes to an end.

Tuesday, December 06, 2016

Sold Virgin America

I closed out my position in Virgin America (Ticker: VA) today at $55.75 after the wires reported that an agreement was imminent with Alaska Air (Ticker: ALK) and the DOJ. I was able to generate a net gain of 1.54% (~19.23% annualized return) with the position that was initiated on 11/08/16. This position was no longer attractive assuming a year end close. Now looking into other hairy arb plays…

Friday, December 02, 2016

November 2016 Performance

November was another difficult month for my portfolio as the Presidential election negatively affected several of my large holdings such as Constellation Brands and Visa resulting in a loss of 1.59% for November. Constellation Brands (Ticker: STZ) sold off because all of a sudden there will be less people drinking their Mexican beer and a tariff will be implemented for their imports. Umm… I think not, Constellation Brands will do just fine as their products are gaining market share everywhere in the US. I doubt any tariff will be implemented for beer manufactured in foreign countries. If this was the case, all of the major beer producers will be impacted and will lobby hard to ensure this does not happen. Just doesn’t make sense for the beer biz… it’s like forcing Anheuser Busch to manufacture Bud in Mexico and calling it an American beer.

It’s hard to give a rational explanation as to why Visa (Ticker: V) sold off, but it’s probably a risk on trade for the financials. Financials that take on the risk of lending will do well under this administration. I would say that Visa was a safe haven and investors sold to redeploy into more risky financial assets.

Both Constellation Brands and Visa are long term holds for me. I have no intention of selling any of these two for a long long time…

Now some merger arb plays, I’m still very heavy in Virgin America (Ticker: VA) and really hope this one gets wrapped up by year end. I initiated a position in Wafergen (Ticker: WGBS) (~ 9% position) after the shareholders approved the buyout from Takara Bio. The final buyout price of Wafergen will be determined once the annual revenues for 2016 have been finalized. The company should be able to easily do $9 million in revenues, which would equate to ~ $5.00 payout. Any additional revenues will equate to a higher payout to shareholders. The company is guiding $10 to $12 million for the year. I believe $10 million is very doable for this company.

Finally if anyone wants some lunch money, check out the WebMD Health (Ticker: WBMD). There is a tender offer for $55 with an odd lot priority (less than 100 shares). The tender expires on 12/15/16.

Performance Year to Date = +16.12% with the running monthly returns as follows:

January -5.47%
February -3.50%
March +7.51%
April +0.84%
May +6.34%
June -2.6%
July +12.2%
August +6.57%
September +1.94%
October -5.49%
November -1.59%

Tuesday, November 08, 2016

Bought Virgin America Again

I was premature in selling Virgin America (Ticker: VA) yesterday. After I sold news filtered out that there was a settlement in place with Alaska Air (Ticker: ALK) and the DOJ. Alaska Air is now working to resolve the Alioto ambulance chaser lawsuit. This merger arb play still presents a very nice risk reward opportunity. I re-entered my position this morning at an average price of $55.91. I’m still modeling a close by the end of November.