Plow and Core

Quick updates on a buy and a sell from late Friday

By Travis Johnson, Stock Gumshoe, June 27, 2016

I noted on Friday that I had added to my Douglas Dynamics (PLOW) holdings following their recent acquisition of Dejana… so I should note that this morning, ratings agencies gave PLOW a little slap on the wrist for their term loan — it is a leveraged company, so they downgraded the term loan by one step because the term loan is now larger, but kept the overall “probability of default” rating for the company the same. In my opinion they are more at risk from exogenous shocks now (like a recession, or sharper decline, because they have a bit more debt), but less at risk from a bad year for internal or weather reasons (because the company is more diversified in many ways than it was a couple years ago).

And in the other update that hit my portfolio, most of my position in Coresite Realty (COR) was called away on Friday — as I’ve mentioned a few times, I sold covered call options on this one a while back with a July expiration, and a counterparty felt compelled to get into the shares a few weeks before the expiration date so they called my shares away. That’s probably just a calculation on their part that they might as well get in two weeks early so they get the 53 cent dividend (the shares go ex-div on June 28 for their next quarterly payout).

I still own a very small position, and I’ll most likely be looking for moments of weakness to build that position back up either by picking up shares piecemeal or selling puts if the prices seem reasonable, I still like the company and its record of extraordinary dividend growth, but still think it’s at a pretty stiff valuation that assumes such growth is going to be perpetual. Though in the wake of Brexit, it looks like a much safer bet than a lot of investments — perspectives change in the course of a few months. I may also check into some of the other data center REITs, there are a couple others that also have appealing growth prospects.

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