So the stock got up above $10 last week, which put the warrants briefly at $5.16. But now, I imagine, an awful lot of people are – understandably – choosing to sell or exercise their warrants rather than come up with cash by the July 19 conversion deadline.
(If someone bought 10,000 warrants at 40 cents each, that was $4,000. Exercising them at $5 each would require sending their broker $50,000. Many will prefer to take their profit and run.)
As a result, you have what may be an interesting tug of two conflicting forces . . . and a different opportunity may loom.
Tugging in one direction is the weight of all this warrant-exercising. The warrants are exercised and then, a lot of the time, the shares are immediately sold. Selling drives down the price of the stock.
(Even if you sell, rather than exercise, your warrants, chances are you’re selling them to a market-maker who exercises them and sells the stock himself. I assume this is why the warrants now sell for a nickel below their intrinsic value. Basically, you give up that nickel for the convenience of having someone else worry about exercising the warrants. That someone else, if he does this for five million warrants, makes five million nickels without any appreciable risk, and even on Wall Street, every $250,000 helps.)
Tugging in the other direction, I like to think, may be a mutual fund manager or two who see this old-line dredging company as an attractive long-term holding in which they’d like to acquire a few million shares.
So they are thinking to themselves (maybe), ‘we are looking for this stock to be $15 in a year or two, and don’t want to miss the chance to buy it . . . but with all this warrant-exercising, if we play our cards right, we may be able to buy it cheaper between now and July 19.’
And we who own the warrants are thinking to ourselves (maybe), ‘we have to sell by July 19, but what’s the best time? Will the stock just go down, down, down until July 19 and then snap back on the 20th?’
And the fund manager may be thinking, ‘yeah, when the selling stops on the 19th, the price will snap back, so I’d better buy it on or before the 19th.’
And the other fund manager may be thinking, ‘if another fund manager might be buying before the 19th, I’d better buy before the 18th and beat him to it.’
So the first institutional investor may be thinking, ‘I don’t want to be beat to it, I think I’d better just try to buy 100,000 shares a day whenever it’s under $10.’
So you and I may be thinking, ‘don’t rush to sell as the price drops . . . it could well snap back by July 19th . . . unless everybody else thinks so, and it crashes on the 19th because so many people waited til that day to exercise and sell.’
So the fund manager may be thinking . . .
And so it goes.
But my point is that it might not be imprudent for someone who can afford to invest in stocks to place a standing order to buy shares at $7.50 or $8, on the chance that, at sometime between now and July 19, as this dance continues, you get some. Of course, even if you do, it could just keep falling. Stocks are risky. But my guess is that it’s more likely to be $10 or $15 than $4 or $5 a year or two from now, so snagging some at $8 could make for a nice investment.
Stephen Gilbert: ‘Swing-A-Way? The world’s best can opener is the Rosle. It cuts through the weld (or whatever) that holds the top to the can, leaving no sharp edges, and accumulating no gook on itself. This is the Berkshire Hathaway (circa 1984, when I bought it) of can openers.’
Mike Maughan: ‘Huh? When you cook like a guy, you don’t use a swingaway. You by God use the P-38 on your key ring. What’s a P-38? Try this link.’
Nicholas Altenbernd: ‘Paul Potts wins! And here’s the finale.’
Watch the video (Matt Damon! Bono! Bill Frist!) and consider signing up. It’s free.
Michael Moore’s SiCKO opens Friday. Run don’t walk. This movie is going to be huge – and have a huge impact. At the screening I attended, 1500 people were on their feet cheering through the entire credits.