WHEN VALUE MEETS MOMENTUM

UPDATE: 6/1 sold the rest at 11.99, due to market conditions, +3.5%


UPDATE: 5/25/2011 8:10AM, so far I have sold a tiny piece up 5% on 5/19, and today I sold another very small piece pre market up 6.2%

 

Central European Distribution Corporation is one of the world’s largest vodka producers and Central and Eastern Europe’s largest integrated spirit beverages business with its primary operations in Poland, Russia and Hungary.  This stock could be one of those stocks that was once in favor, fell out of favor, and now could get back in favor.  CEDC was a $75 dollar stock in 2008, now is trading a shade over $11.00.  The company has a market cap of $838 million dollars, enterprise value of about $1.9 billion, which makes it to some an extremely cheap stock.  However, the company has only about $120 million dollars in cash and $1.3 billion dollars in debt, making it cash poor.  But, that has not deter 3 directors from buying $591k dollars worth of stock in the last 3 months, and to boot in the last 3 days director Shanahan Williams bought another 20,000 shares all above $11.  CEDC  reminds me of SuperValu and Dean Foods, two companies that were beaten down over the last couple of years to a point where their stocks got to a level which were consider a great value by some big time hedge fund players.  In their last quarter total net sales increased by approximately 4.6%, or $6.9 million, from $149.8 million for the three months ended March 31, 2010 to $156.7 million for the three months ended March 31, 2011.  The bottom line is, that CEDC like SuperValu and Dean Foods has a viable business that probably won’t go away.

Here is what led me to the stock today:

  1. As of 10:00am this morning the stock was up over 4% on increasing volume, any stock that is up over 4% in one day could be said that it has momentum.
  2. The stock has been coiling lately and the volume on the up days has been greater than the volume on the down days.
  3. Value and momentum is great combination.  When a stock that is consider a value stock catches momentum it can appreciate in value very quickly, take a look at TA, DF, SVU.
  4. The stock is threatening to close above its 50 day moving average for the first time since January 2011, possible change of character.
  5. Insider buying.

WHEN VALUE MEETS MOMENTUM

 

“Momentum also can be a catalyst to value, i.e., an indicator of when deep-value stocks begin to turn around.  Data confirm that value stocks that have been long-term losers but have high recent momentum (6-12 months) will go on to outperform by an even wider marging (Asness 1997, Grinblatt and Moskowitz 2004).”—Momentum Investing by Thomas J. Moskowitz

POSITION: LONG CEDC, as of now the stock is no longer up 4%, I would wait until it is to initiate a position, allow the momentum in the stock to prove itself.


 


The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.


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