Yellow Media - Bottoms Up - 1000%+ Return Upside
Glen is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Prepare your Trumpets
Occasionally in life you find an opportunity so great that you can't sleep. That's the case for me and Yellow Media (NASDAQOTH: YLWPF.PK). I want to take an entire article and dedicate it to a story about how I am going to make 1000% owning a phonebook company that everyone has given up on. What we have, ladies and gentlemen, is a company that is slated to make over $0.40 in EPS next year, according to analysts, and has a price of less than $1. The Debt/Ebita ratio is extremely low coming in at 2.5x ballpark.
The Slow Melt Up
This stock has only received downgrades and shorting. That is until the end of last year after tax-loss selling dried up. Now, prepare for the process that I've seen and called before. This is what you call the slow melt, when a stock bottoms. The first thing that happens is that volume goes down and people stop selling. And it starts to just lay dead and usually flattens out as the sellers eventually run out of shares to sell. Around new years, it laid dead for a week or two and now, value speculators start coming in. Boy, there is a ton of value here. These value speculators try to act like they are wimps but in reality, they want as much as they can get. It’s the slow melt.
Series 1 Preferreds / Series A Preferreds
The A series will likely get converted to common sometime next year but no earlier than April. They will qualify for a dividend in March. The conversion rate is 12.5 common shares for each A series preferred as long as the common shares trade below $2.10, so there is a conversion bonus. The A's are trading at roughly 10:1 right now. There is an outside chance the A series will be rolled into a new series of preferred shares. If that happens then, in my opinion, it will lift the value of all preferred shares. We will likely find out by early February what management will do.
This is what I am bulking up on. They are a cheaper way with less risk to buy into the commons assuming that they are eventually converted to common shares. This is what I expect, but I don't mind being bought out for par value and 1000% gains. I just don't expect this. I expect the conversion, meanwhile the company has suggested that they'll do the buyout.
An Analyst Report Under My Microscope
Here's the report. This guy's analysis is not far from what I get with 15% decline in print and 10% growth in online. The stock is still worth at least a dollar after 40% dilution. The thing I always notice about analyst reports is that their worldview is so small. I doesn't make sense to say, these other old media companies in my sector are cheap so this should stay cheap too. It should be, hey, all these media companies I cover are cheap and should go higher.
Glen Bradford's largest position is Yellow Media. He owns commons, preferred series 1, preferred series 2 and preferred series 3 and makes a market in all 4 as well to provide liquidity on US an Canadian exchanges.
