Closed out of Cigna. Adding to DVMT, AOBC, and TMUS.

The Cigna deal looks like it will not be going through, so I sold at a minor gain. Valuations for Cigna look too rich relative to comps, and it seems more likely that CI management will attempt to acquire WellCare or Humana rather than try to sell CI again. By most accounts, Cigna and Anthem management were not on the friendliest of terms. This is just my sense of the matter. Humana on the other hand is still cheap and sitting on a lot of cash which could be returned to shareholders. Same story with WCG. I think both look compelling at these prices.

I doubled my T-Mobile position after news that Ajit Pai will likely be the new FCC head. Mr. Pai is about as free-market as it gets. From his previous comments, I believe he is fully captured by telecom and cable lobbyists. This should be really bad news for net neutrality, and good news for mega mergers in the telecom and cable space. So shed a tear for your cable and phone bills, and buy TMUS, DISH, and perhaps CHTR to offset your pending rate increases.

I would expect at least 2 buyout offers for TMUS in 2o17. DISH will probably be bought eventually, but the company is going to keep showing investors bad numbers in the earnings reports. I think better entry points will present themselves as rattled investors shake loose of the stock due to the legacy business’ declining trajectory. I could also be wrong about any selloff, so I have a small position in DISH at present. Sprint is probably spinning up for another TMUS effort as I type.

Charter or DISH could be targets for Verizon. Pretending to be Google is not working out well for VZ, and they have not focused on simply being a good carrier for so long that they risk losing a lot of customers. With net neutrality less of a threat there is less need to try to compete as a search and advertising company. VZ management should dump or renegotiate the Yahoo deal and start looking at carrier-related M&A instead. AT&T appears to have its hands full getting the TWX deal approved, and seems fairly well-positioned for the next few years. With AT&T and Comcast making MVNO moves, VZ will at some point have to get back to being a provider.

Michael Dell recently exercised DVMT options worth about $7.4 million. I added to my position last week. There still looks to be a good 15-20% left for the stock to squeeze upwards to approach parity with VMW.  It would make sense for Dell to eventually buyback the tracking stock entirely, simply to save them the nuisance of SEC filings. With VMW trading at $82, a fair value for DVMT would be around $65-70.

As Seeking Alpha authors have mentioned previously, American Outdoor Brands’ CEO purchased 55,000 shares (roughly $1.1m) in the open market from January 9th-17th using a 105b-1 trading plan. This is typically a passive monthly instruction to purchase a standard allotment of shares. I can’t think of a more bullish sign for the stock. Except of course, when a company’s CFO also makes open market stock purchases like Jeffrey Buchanan did around the same time for 10,000 shares using a similar plan.

So we can assume that AOBC management believes the stock is undervalued. Because of the plan type, we can also assume that they don’t believe the trading multiple will improve much this year. I added a little and plan add more over the year alongside management, but there doesn’t seem to be any rush, and RGR‘s late-February earnings report often drives AOBC in sympathy.

I’m still uncomfortably waiting to find out if the RAD deal goes through. We should get clarity by the end of the week. The negative reports so far have been unconfirmed rumors, but I haven’t added yet. At a >25% spread it’s getting very tempting to buy more though…

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Author: secondhandstocks

The genesis for this blog stems from a Marine buddy and I came back from Afghanistan with more money than knowledge, and heedlessly tossed our hats into the stock market ring. A few months later, I remember discovering the classic book The Intelligent Investor by Graham and Dodd, and ravenously devouring my first introduction to value investing. That framework - with some generous additions by Seth Klarman, and Joel Greenblatt among others - guides my investment philosophy. I spent five years working in the intelligence field, both in the Marine Corps and then for a government agency after that. I speak Arabic and Pashto, have programming and analysis experience, and enjoy investing in technology companies as a hobby. I also spent a year on Wall Street working on a #1 Ranked Institutional Investor team, before deciding that that the Sell-Side was not for me.

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