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Tuesday Value Overview

August 09, 2011 | About:
The S&P 500 moved 103.88 points today. So much for efficient markets. Today we’ve got another jab at AOL (AOL), a great way to play a low-risk merger with Blackboard (BBBB), some insider trades for Olympic Steel (ZEUS) Emerson Electric (EMR), MEMC Electronic Materials (WFR), and Legg Mason (LM). We close with another great Rick Santelli rant.

Yesterday only a few stocks were up. Today only a few down. AOL was one of the more spectacular ones, sliding more than 25%. Not surprisingly, Huffington Post hasn’t helped much in the financials. There were a slew of earlier reports about how Arianna Huffington was destroying the company, and had Tim Armstrong’s support while doing it. Now we’ll have some numbers to back that up. Remember when Armstrong bought $10 million worth of stock back in February? It’s only worth about $5.3 million now. This is no value stock unless it gets down near its cash level, which would still be quite a fall.

Whopper Investments has a piece up at GuruFocus about a good merger-arb opportunity. Blackboard is being bought out by a private equity firm at $45 per share in cash. All of the recent stock market volatility caused some selling pressure and there is a very good low-risk spread right now. Even with today’s jump up you’ve got an 8% spread for a transaction that will close by the end of the year. Shares were slightly above $44 for a month until last week. This is how I would play it. Buy a position three times larger than what you would like to keep until the close. Then when the stock gets back to the $44 area, sell 2/3rds of it and let the rest go. If all goes to plan and the stock gets back to where it should in the next few weeks, you’ll bag a 5.5% for that short period. You can then put that money back to work. For the rest, you’ll have a safe holding until it closes.

Yesterday I noted there were a lot of insider trades. Today the filings came in heavy again. Could it be that insiders may actually buy at a market bottom for once? This tells me that the markets are so detached from company fundamentals that even insiders are able to figure it out. There are a few interesting ones. Look at ZEUS, which is a steel company that Chuck Royce owns 13% of; EMR, which counts Bill Frels and Tweedy Browne as big holders; and WFR, which has large ownership stakes by Arnold Schneider and Arnold Van Den Berg. One more: Legg Mason had savvy investor and director Nelson Peltz make some large buys over the past week.

Finally, here’s CNBC’s Rick Santelli on leadership yesterday. Hat tip to DynamicHedge.



Disclosure: No positions

About the author:

Steven Kiel
Steven Kiel is the president and chief investment officer for Arquitos Capital Management, a Virginia-based investment management firm. He is a graduate of George Mason School of Law and a captain in the Army Reserves. He manages two spoke funds, The Freedom Fund, a value-oriented portfolio, and The Hayek Fund, a portfolio dedicated to free market principles. He can be contacted at steven.kiel@arquitos.com or through the firm's website at www.arquitos.com.

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