Bookkeeping: LDK Solar (LDK) v Alpha Natural Resources (ANR)

Submitted By Trader Mark
Alpha Natural Resources (ANR) has retreated a good 15 points since this AM's piece, while Cleveland Cliffs (CLF) has held up (bounced actually a bit) from where I bought it. Now the case is ridiculously compelling to add to ANR to play the arbitrage of the deal - as a reader (and all you emailers point out) So maybe I lucked out because instead of paying up near $120 this AM (where the arbitrage was still in ANR's favor) I bought CLF instead. Sometimes it is better to be lucky than good. Preferably both ;)

Short on cash, I've cut back on LDK Solar (LDK) here - selling 200 of 500 shares after a nice run this past week from low $30s to $39s. This reduces the position to 1.0%. I like the action in LDK Solar but we have such a quick gain here, and the stock is bumping up right against the 200 day moving average - frankly if it pops above the $39s this is a screaming buy, but with cash scarce we have to make hard decisions. Too many opportunities being presented. I've decided to cull this gain and buy into a great opportunity. (note - this chart shows it differently than the chart I use)

I've thrown the $10K from LDK into more ANR - my goal is to (virtually) own 5%+ of this new combined entity (hah). Then I can put one of my readers on the board to cause a ruckus and make Cliffs Natural Resources sell itself off to a steel maker north of $175. Just call me Icahn Jr. ;)

As we wrote this morning, the benefit with the ANR purchase is a potential counterbid offer but even if no such offer, the market is putting no credence in the offer at Alpha Natural Resources price of $103s, so I'm switching over and adding ANR here at what I consider a gift price. The stock gain today pushed up our stake in this name from 4.6% to 5.1% of portfolio, and this purchase pushes it up to 5.8% of portfolio.

I do want to stress there is a potential we get a movement away from commodities for a bit - we talk about this almost every month i.e. "the death of commodities". If one is completely risk averse one could feel the need to leave the space. For those who believe in the long term story, the pattern has been to buy into the selling and within 4-8 weeks your stocks are materially higher. If you don't have conviction you will be shaken out by CNBC, trust me. Or Barron's or any pundit/magazine/person who has missed the move in this group the past 3+ years. I suppose one day this pattern stops working but until then, we'll continue to exploit it. Although it does cause short term pain for a few weeks sometimes. And truly where are you going to put your money for the long run after the dead cat bounce happens in casinos, retailers, financials, housing, etc.

As you can see from what I'm doing, I'm mostly moving money from "strong" (or neutral) to "weak". This is actually my preferred style but this market has provided little opportunity to do this over the past year... either everything moves up, or everything down - very little sideways action and very little trends that last for weeks or heck, months in a row. I've found the markets of 2007 and 2008 strange - there seems to be a new rule where each day only certain sectors can work, and when those work, other sectors must be destroyed. Very rarely does everything work to the upside. Sometimes these sectors literally change by the hour, or at most a few days. If these trends lasted 2-3 weeks they would make for excellent trend trades, but nowadays 2-3 weeks is considered 10 years the way hedgies move in and out of stocks.

I still believe there is another leg down in this correction to go, but will happy to be incorrect.

Long LDK Solar, Alpha Natural Resources, Cleveland Cliffs in fund; long Alpha Natural Resources, Cleveland Cliffs in personal account

Did you like this article?