Friday, November 30, 2007

J.Crew and Harrah's = $$$

Sometimes you need a strong conviction to hold a stock that is tanking. I built up a position in J.Crew with purchase prices ranging from $41 to $54. The stock was in the dumps with the softness in the retail sector. I had a strong conviction with this stock and it was simply due to the fact that they sell great merchandise. Yesterday, the company released blow out earnings of $0.42 per share versus street estimates of $0.36. Revenues increased 21% and same store sales increased 8%. These are amazing numbers in a soft retail environment. This stock is a keeper and it’s up, up and away. The stock closed up 19% today.

What else am I doing these days? I’m just playing it safe with the spreads in some of the recent mergers. One of the merger play is Harrah’s, which is being acquired by Texas Pacific Group and Apollo Management for $90 in cash. This deal is expected to close in January pending the completion of regulatory approvals. The stock is around $88, which would generate a 2.2% return in two months or an annualized return of 13.6%. Investors are worried that the mortgage credit crisis may affect this deal, which is totally nonsense. If they simply take the time to read the regulatory filings, they’ll see that this is a solid deal and financing is not a concern.


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