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stock gyrations and valuations ?2

11:48 06-Feb-19

The market has rebounded more or less as expected, which is often a good time to do a little portfolio adjustment.  Accordingly, it seems appropriate to mention that Ebix has announced that a "renowned" North American compliance firm has validated the remediation of its material weakness in internal controls.  Shares are close to my current fair value estimate.  They could easily rise further, but management leaves a bit of a bad taste in my mouth.  Even so, I think it is smarter than AMSC's which issued more underwhelming guidance and a vague road map, especially where India is concerned.  The government shutdown also has affected progress and may do so again.  The takeaway for both stocks is that elections matter and the uncertainty deserves to be priced in.

If one is looking for other options to raise capital, I see CVA as slightly overvalued now, on the back of a Goldman upgrade that echoes my analysis from over two years ago.  M&A or other new deals of that sort, possibly in the Philippines, is the only reason I see to hold shares.  A shift toward better value and yield, like CTL, VOD (upgraded by BoA this morning), BGCP, or GMLP could make sense, especially if CVA continues to rise.  There is still room for growth stocks like CUI and WPRT as well, though the market shift toward safety and income, as exemplified by the latest AES pricing, makes them much riskier.  These other stocks might also belong on the buy lists:

• ABB: the update on what it will be doing in the wake of the grid segment sale is coming up at the end of the month, followed by the annual dividend in early April. 
  
• CWEN(A): I think shares are oversold even while recognizing that substantial risk of PPA contract renegotiation remains, despite the recent FERC statement.  Still, selling like this often sees some bounce after options expiration, and it should be many months before the dividend is actually affected, if it is at all, though we'll also be waiting that long for any real clarity.
• RESN: as mentioned here the stock is seeing some short covering ahead of MWC on the 25th.  The net rebate rate recently spiked to over 20% and is still in the teens.  The race between revenue and dilution remains a big concern, but one thing that was made abundantly clear in the MTS call last night is that 5G is becoming real right now.  Resonant should be on the leading edge of the associated revenue, and the call confirmed once again that optical backhaul will follow.
  

Speaking of fiber... Judging from all the questions, most of you are aware of the Citi's redux of Guggenheim's downgrade.  It is immaterial to me; all I care about is the dividend being maintained, and the rest will eventually sort itself out.  Nonetheless, here is a token effort to give the people what they want in terms of short-term projections based on options open interest:

Jan'21	Jan'20	July	April	March	Feb 15	Feb 8	Strike	Feb 8	Feb 15	March	April	July	Jan'20	Jan'21
3	0						3						2485	509
	0						4						1204
8	0						5						1678	269
0	4	0	0	0	24		8		0	0	0	71	7014	93
		0	56	0	0		9		0	5	160	1060
910	513	170	33	0	0	0	10	0	27	403	253	2286	7115	5565
		1	108	0	36	0	11	0	155	341	145	139
		92	99	10	0	0	12	0	1893	35	1178	14,171
442	696	2168	261	100	2050	0	13	31	547	419	843	6566	7437	955
		137	531	395	132	47	14	2625	2315	849	2516	836
					219	496	14.5	1628	1444
665	4532	3120	2753	1073	10,569	2013	15	1033	5692	1179	21,673	737	8257	1179
					12,086	1502	15.5	401	794
		4008	6549	1552	5079	839	16	50	1024	214	3116	2975
	5639	16,101	4861	1036	6644	119	17	0	206	125	2770	576	8007
1500		4114	1966	229	1631	119	18	0	59	1	3560	300		230
		4614	1840	13	249	12	19	0	56	0	6804	349
1040	6636	3502	4221	46	614	0	20	0	1	81	2724	299	5023	873
		495	2413	0	21	0	21	0	0	91	72	88
1112	1833	139	3320	0	0	0	22	0	0	64	898	157	3830	1300
		184	1137	0	0		23		0	70	155	123
		183	4978	0	0		24		0	0	456	102
489	4065	75	2869		0		25		0		105	110	7398	57
		0	1247				26				5	62
1163	1391	35	95				27				92	103	680	15
			1307				28				11
			70				29				114
138	1446		97				30				201		1886	136
251	979						35						1128	54

One subscriber commented about the perfidy of these downgrades coming right before earnings.  He's almost right; the downgrades were timed ahead of options expiration, for max pain.  CTL looks like the quintessential battleground stock and you should already know which trench I'm in.  As long as management is in there too, with another unequivocal payout commitment one week from today, I think even the short term pain will be limited. 

The business fundamentals always matter, though, and I see plenty of room for further gyrations surrounding other long-term expirations in April and possibly July.  Upside seems more likely than downside unless we see a particularly bad earnings report, but I've already noted that I can't completely rule that out for next week.  Let me close with a reminder that all of this is guesswork, and certainly subject to change as there was options trading volume across most of the date and price spectrum yesterday.  My own solution to activity like this, which I've consistently presented, is to avoid buying more than I would be willing to hold for the long-term at virtually any price.

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