They'll do a great job opening up a whore house.
They don't have to look anywhere else, they've got plenty working for them already.
What price to buy Lehman?
- Thread starter Cutten
- Start date
They'll do a great job opening up a whore house.
They don't have to look anywhere else, they've got plenty working for them already.
Ok I'm going to start buying this stock now for a trade. Just picked up an initial position at $4.28, and will average once if it gets into the $2-3 range.
1) Bankruptcy check - I never buy a stock I think has a decent chance of imminent bankruptcy. I think LEH avoids this (10% chance or lower of BK IMO) because of i) access to Fed funding (which BSC didn't have) and ii) a readily saleable asset (Neuberger-Berman)
2) Sentiment extreme - there is loads of fear on this stock, and quite a bit in the market in general.
3) Analyst downgrade - these frequently make short-term trading lows in a stock that has fallen heavily
4) "Great New Pattern" (praetorian2) - stock down hard multiple days on huge volume.
5) Inherent value - their asset management division, even at firesale prices, is now worth more than their stock quote.
6) Cramer contrary indicator - â[CEO Richard] Fuld had a chance. The chance is gone with Korea [Development Bank],â Cramer said. Talks with KDB have reportedly fallen through. âI don't think anyone else is interested.â
7) ET contrary indicator - there has been a flurry of negative posts here about the stock going to pink sheets etc. Whereas when it was at $20 a couple of weeks ago, no one posted a thing.
In other words, I see this as a classic panic selling extreme, and think the chance of a bankruptcy or "takeunder" as small enough to be worth the risk.
There IS still a risk it could go to $0 overnight, so I am not going to risk a huge amount on this trade. This is also a short-term trade, 2 weeks tops would be my holding period. If I'm right then the stock should rebound within 3-4 trading sessions. Let's see how it goes.
1) Bankruptcy check - I never buy a stock I think has a decent chance of imminent bankruptcy. I think LEH avoids this (10% chance or lower of BK IMO) because of i) access to Fed funding (which BSC didn't have) and ii) a readily saleable asset (Neuberger-Berman)
2) Sentiment extreme - there is loads of fear on this stock, and quite a bit in the market in general.
3) Analyst downgrade - these frequently make short-term trading lows in a stock that has fallen heavily
4) "Great New Pattern" (praetorian2) - stock down hard multiple days on huge volume.
5) Inherent value - their asset management division, even at firesale prices, is now worth more than their stock quote.
6) Cramer contrary indicator - â[CEO Richard] Fuld had a chance. The chance is gone with Korea [Development Bank],â Cramer said. Talks with KDB have reportedly fallen through. âI don't think anyone else is interested.â
7) ET contrary indicator - there has been a flurry of negative posts here about the stock going to pink sheets etc. Whereas when it was at $20 a couple of weeks ago, no one posted a thing.
In other words, I see this as a classic panic selling extreme, and think the chance of a bankruptcy or "takeunder" as small enough to be worth the risk.
There IS still a risk it could go to $0 overnight, so I am not going to risk a huge amount on this trade. This is also a short-term trade, 2 weeks tops would be my holding period. If I'm right then the stock should rebound within 3-4 trading sessions. Let's see how it goes.
Good analysis Cutten.
Edited to add:
Out of interest - what is your target with the trade? Yesterday's low price of $6.93 ?
The only area where I disagree is that I would put a higher probability on a takeunder / bankruptcy.
Because of the distress in the stock price, bidders for Neuberger-Berman and/or the entire company are now in a position to make a lowball offer. How low? 1.35 to $2.70 as per my previous post. I agree that the company isn't all CDOs, however in a firesale situation, the likelihood of the company being bought at 5 to 10% of book value increases.
Edited to add:
Out of interest - what is your target with the trade? Yesterday's low price of $6.93 ?
The only area where I disagree is that I would put a higher probability on a takeunder / bankruptcy.
Because of the distress in the stock price, bidders for Neuberger-Berman and/or the entire company are now in a position to make a lowball offer. How low? 1.35 to $2.70 as per my previous post. I agree that the company isn't all CDOs, however in a firesale situation, the likelihood of the company being bought at 5 to 10% of book value increases.
I bought 300 at 4.25. Will be buying more if it is lower.
It depends on the outcome I guess e.g. how much do they get if they get a sale, or they get a bid for the whole firm.
I don't disagree that BK is more likely - I am just referring to it happening in the next week or so. If it happens in a month or two, I'll be out by then anyway. I'd say 10% chance in the next 1-2 weeks, beyond that then yeah it's more likely.
IMO if they do *anything* that clears up the uncertainty, then the stock will soar. I think $10 at least, and quite possible $12-15. If no corporate action occurs in the next few days, it could go lower or maybe rally a bit anemically, but even that could be good for a move to $6-8.
The main negative is that the VIX is not yet at crisis levels (30+), and if the S&P hits 1200 or goes lower, LEH will get hit along with that. Hence why I'm only about half long right now. I expect to take a bit of heat on the trade, that's for sure. But my experience with these trades is if you wait for the absolute low, often you get some news and it rallies without you. No pain no gain etc.
Depending where the options open, they might offer a better risk-reward opportunity.
