Taking a Bath

I sold off about half my CVS stake early this morning after seeing their Aetna merger might get reversed by Judge Leon.

US District Richard Leon — who warned lawyers at a little-noticed hearing last week that they may want to cancel their summer vacation plans — looks like he is setting the stage to reject the mega-merger on concerns that it could raise prices and kill choices for consumers, sources told The Post.

I am sure that narrative is likely to drive lots of investor uncertainty, which will likely have the stock re-testing recent lows, as all the projects from the investor day & all that jazz mean zero if the company which is being restructured to synergize then ends up having to desynergize (is that a word?) and rip itself apart. Most likely the sort of worst outcome there won’t happen, but the headline risk will probably pull the stock down about another 5% to maybe even 10% from here.

I still have a decent sized exposure to CVS, but no reason to carry a Godzilla size position in a beaten down security that is facing a fresh round of headline risk ahead of other rounds of headline risk tied to the upcoming election.

On the upside, I offset much of the losses from the above errant play by exiting a decent sized PETS position shortly after open today. I sold something like 5400 shares into the morning ramp without really moving the price as the momentum was headed up, and then it slid later in the day.

I also had a bit of a position in WY that I sold after the ex-div date. The stock was sold at a slight loss but the dividend was between double & triple the loss, so I am fine with that & I kind of want to lighten up exposure to the market after the recent run it has had, especially as I have had a few fiascos to deal with outside of the market & the constant distraction of the market probably wasn’t helping my productivity elsewhere.

I am probably somewhere around 95% cash now. Have a small position that is up in Disney, small position that is up in Apple & then a few beaten down ones in CVS, WBA & SKT.

I might start buying some lower beta beaten-down value stocks of the type recommended in Sure Dividend in my Vanguard account & view those as more long-term positions vs something to trade in and out of. Value investing is all about being able to eat pain in the short term until sentiment approves. The odds of finding a bottom when trading beaten down stuff is low, but if you hold enough positions for a long enough time & stay away from absolute garbage like Sears the value stuff will definitely outperform the market in a downturn & can give you much of the upside in an ongoing expansion.

I’ll probably wait at least another week or two to do much because with the recent run the market has had it will probably consolidate for a bit given the morning open & afternoon pullback today.

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