Lee Enterprises - Squeeze Central
Glen is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Well, for the last month, the shorts have been paying me 25% annualized borrow rates to borrow my Lee Enterprise (NYSE: LEE) shares so that they could maintain their short position. It must have really been dreadful from their perspective to know that Lee Enterprises recently reported blockbuster numbers while at the same time is coming out of Chapter 11 Bankruptcy like I forecasted here, here and here. I received a phone call last night asking me how excited I was. Apparently, I am supposed to be excited about one of my largest holdings surging over 30% yesterday? Who knew.
Frankly, the short position is still very strong. As of Dec. 30, 2011, the short position was still around 10% of the float. Charlie, that hurts! When will the shorts learn that you can't short a profitable company down below a P/E of 1 that has a better case for coming out of bankruptcy at a sprint than it does having its equity wiped out. Do the shorts not understand that Chapter 11 is a prepackaged bankruptcy and is differentiable from Chapter 7?
Lee Enterprises made 32 cents this last quarter and is still priced at $1.50. They made even more than that, 38 cents adjusted! Is it going up from here? You betcha! Mary Junck has caught a lot of unnecessary flack in the last year. To all of the haters out there, your hating days are over. Congratulations, Mary. At $1.50, there is still significant upside back to where Lee Enterprises used to be trading before we even were approached by the bankruptcy scare. That's where I am betting this is going. 100% returns from here seem reasonable to forecast and that is what I am betting on.
From the short perspective, positive momentum backed by positive news is their worst nightmare. Effectively, if they have not covered at all since Dec. 30, they are down $5M. If they wait for another 100% upside, they are down another $7.5M. As much as I hate losing money, people who short companies tend to be even more aggressive with their loss cutting because the downside for shorters is theoretically infinite. How much upside do I think is here? $6 is where I'd start looking at things from the short side, and even there I'd hesitate simply because I see a lot of positive developments in the pipeline. In my opinion, management has proven their worth and I'd like to keep them around for a while.
Cheers to Mary, congratulations. You probably don't receive enough positive feedback.
To the longs or soon to be longs, be sure to reference leerefinancing.com. It's an excellent resource and they even give proforma financial statements that in my opinion not only can be counted on but also should be used to develop your investment thesis. I see a lot of upside from here and, I'd simply have a hard time driving towards any near term downside catalysts except for the standard "the price has come up too far, too fast" which has less to do with actual intrinsic valuation and more to do with crowd dynamics and herd mentality.
The Motley Fool has no positions in the stocks mentioned above. Glen has long positions in LEE Enterprises for himself, his family, and his investors. It is presently greater than 25% of his portfolio and has been for several weeks. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.