Big Reversal In Alpha Natural Resources

After a not so surprising weak Q4'11 report, coal miner Alpha Natural Resources (ANR) started trading down nearly 5% today. It didn't take long for the stock to reverse and is now trading up nearly 3%.

It really isn't worth focusing on the earnings report. Alpha Natural is a long term trade on the increasing demand for met coal in countries like China and India. The low cost of natural gas is having a dramatic impact on thermal coal pricing and demand placing serious margin pressure on Alpha Natural. Since it is all temporarily, it just isn't worth the effort. Nat gas prices will eventually rise and China appears to be storming back. Normalized earnings will be the key going forward.

More importantly today was the major reversal that has a tendancy to signal a bottom in the stock. With the major support now put in around $20, longs have a basis for being more aggressive. If the stock can break above the channel around $22.50, longs will get very aggressive.

Disclosure: Long ANR. Please review the disclaimer page for more details. 

Fund Flows Turn Slightly Positive For Equity Funds

For the week ending 2/15/12, the flows into long-term equity funds were $11.9B according to the Investment Company Institute. The kicker though is that the majority of the funds still went into bonds with only $35M flowing into domestic equities.

Along with straight bond funds that have been averaging over $7B in the last month, hybrid funds are hot. Hybrids invest in both bond and equity funds suggesting that investors still favor a high mix of bonds.

Over the last 5 weeks, equity funds have had positive flows for 3 of the weeks. Still the flow percentage for equity funds remains around 10%. Suggesting that even one of the strongest rallies ever to start a year isn't enough to draw investors back into the market.

These number put into question the investment sentiment numbers. How can investors be wildly bullish on equities if the fund flows are so benign. If anything, the suggestion is that bond investors remain overly bullish. The correction should be in bonds. 

See below table from ICI:


                      1/18/2012    1/25/2012    2/1/2012    2/8/2012    2/15/2012
Total Equity    -480              1,157    -1,698    3,640    1,043
     Domestic    -801                 834    -1,807    1,936    35
     Foreign        320    323    108    1,703    1,008
     Hybrid       1,262    2,624    2,196    2,491    2,660
Total Bond      5,989    7,674    7,491    7,054    8,196
     Taxable      4,246    6,503    5,865    5,314    6,463
     Municipal    1,743    1,170    1,626    1,740    1,733
Total                 6,771    11,454    7,989    13,184    11,899



    

Sears Squashes Shorts

With some 30% of the float short, it shouldn't be that shocking to see any hint of good news send Sears Holdings (SHLD) 20% higher as it did today.  With Q4'11 earnings, Sears announced the sale of 11 prime mall locations for $270M. Combined with a rights offering and spin-off of the Hometown and outlet for $400-500M, Sears has plans to quickly raise liquidity by $1B.

So while all the market experts focus on yet again disappointing earnings, Sears squashed the shorts that continue to fail to realize the substantial assets the company controls. For whatever reason, investors continue to forget that the valuation of a company should be the net assets plus the discounted cash flows or earnings.

In the case of Sears, most people agree that future cash flows are a big question market, but most of those people continue to ignore the vast unencumbered real estate holdings and valuable brands.

The reason for the huge jump today is that the add liquidity and especially the ability to sell so few stores for so much cash caught many shorts off guard. Many thought the company could be headed to bankruptcy. Not so fast says Chairman Eddie! Apparently many a trader missed those $160M shares purchased by Eddie when the stock slumped to $30 on liquidity fears. He has already doubled his money in just a few months.

Now I wonder if Eddie will have the cash to finish some share buybacks to further reduce the float and squeeze even more shorts. As long term investors have known for a long time, Eddie had a plan to begin monetizing these assets and the theory was that he'd wait until the float had been shrunk very low. With his big purchase, now appears to be the time.

Highlights from the announcements today:


Real Estate Transaction

• definitive agreement for the sale of eleven Sears full line store locations to General Growth Properties for a purchase price of $270 million. ($24.5M/store - though reportedly the HA property went for $250M alone)
• transaction is expected to close in the next 45 to 60 days
• stores will continue to operate as Sears locations into 2013 with final closing dates to be determined and announced later this year.
• though includes a Hawaii store, the list also includes stores in IA, OK, TN, and UT.

 Separation of Hometown and Outlet Businesses

• separate its Sears Hometown and Outlet Businesses and certain hardware stores through a proposed rights offering that is expected to raise approximately $400 million to $500 million.
• rights will entitle holders to purchase shares in the combined Sears Hometown and Outlet Stores businesses and certain hardware stores and will be transferred to holders of Sears Holdings common stock.
• Edward S. Lampert, Chairman of the Board of Directors of Sears Holdings and Chairman and Chief Executive Officer of ESL Investments, Inc. (together with its affiliated funds, ESL), has advised us that ESL, which is Sears Holdings' largest shareholder, intends to exercise its subscription rights in full at the anticipated valuation, subject to the successful completion of the transaction process. 

Q4'11 Earnings

• Just click the link and read the report. Too ugly to repost!

Links to other blog posts and Seeking Alpha articles on SHLD:

Sears Holding: Impossible To Cover
Is Sears Holdings Finally Turning Into A REIT?
Sears Holdings Externalizing Brands Could Be Major Catalyst For Stock
The Death of Sears Holdings Is Awfully Premature




Disclosure: Long SHLD. Please review disclaimer page for more details. 

Nasdaq 4,000?

After investing through the 2000 investment bubble, its interesting to see an analyst on CNBC talk about the Nasdaq surging through 3,000 (closed at 2,933 on Wednesday) all the way to 4,000. After the crash from over 5,000 to the 1,000s it seemed like reaching back to those lofty levels might not even happen in my lifetime. Ok, I'm not really that old so I knew it would happen at some point.

Now 4,000 wouldn't really approach the peak back in 2000, but it should be close enough to really spark the small investor back into the market. Of course, most of the gain could just be achieved via a large increase by mega stock Apple (AAPL) to $650 or $700. Too lazy to do the math, but Apple makes up a large percentage of the NAZ.

Below is the video on CNBC:






Disclosure: Long AAPL. Please review the disclaimer page for more details. 

Chart of the Day: Gafisa

After a horrible 2011, this Brazilian homebuilder has had a surprising start to the new year. Gafisa (GFA) was virtually left for dead as 2011 ended, but the market has probably gotten the biggest shock to see Gafisa rally big time.

Similar to the move in Brazilian wireless provider NII Holdings (NIHD), the chart below shows a much improved technical position from the start of the year.  Not only has the downtrend been broken, but the stock shows signs of breaking out to the upside. Looks like roughly a $1 higher at $7.5 will be the key resistance level.

With all the interest rate cuts in Brazil towards the end of 2011, it really shouldn't be a big surprise that Gafisa at the very least has regained momentum. Looks like much more room to run as well as the stock has only returned to mid November levels.

Stone Fox Capital (position sizes as of 2/17/12)

Stone Fox Capital holds an allocation of 3.6% in $GFA in his Opportunistic Arbitrage Long Only Investment Model

Stone Fox Capital holds an allocation of 3.9% in $GFA in his Opportunistic Arbitrage Investment Model


Disclosure: Long GFA. Please review the disclaimer page for more details.