by Travis Johnson, Stock Gumshoe | January 11, 2019 10:14 pm
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What is the different between a warrant and an option?
The basic concept is similar — a call option gives you the option to buy a stock at a set price before a set date, and a warrant gives you the right to buy a stock at a set price before a set expiration date. They can differ in many ways, though, partly because warrants are individual agreements with a company and aren’t managed by an exchange — they can be subject to odd limits (in the fine print) like repurchase rights by the company, and companies will also sometimes offer to change the terms to encourage people to exercise warrants (and therefore give the company some money). They also are typically for longer periods of time, sometimes several years (five years is a common term for SPAC warrants, though there’s no standard), and warrants usually start out as being for either a full share or a half share, while options contracts (almost always) trade only in blocks of 100 shares.
Listed options are standardized and run through the exchange (CBOE, etc.), which gives you some steady rules and a lack of surprises — options will also adjust for special dividends or similar corporate actions, and warrants may or may not adjust (it depends on the terms of the individual warrant). It also gives you some assurance that your broker knows what to do with your holdings — most brokers will automatically exercise your call options if you forget about them and they’re about to expire in the money, for example, but that won’t happen with warrants. Warrants can and do expire worthless if the investor happens to forget about them and doesn’t exercise or sell them before the expiration date.
I see American Tower referenced under topics but do not see it in the article. Any insights on AMT as it relates to 5G?
AMT is the blue chip in the space, best diversification but also the highest valuation and a relatively low dividend.
Travis, what do you mean by a “forward yield”? You stated that COR’s forward dividend yield is 5%. I just calculated the yield based on the current price and found it to be slightly under 5%, so I can accept a yield of 5%. I consider the 5% yield as the “current” yield, not a forward yield, because it is based on the current price of $92.54. What do you mean by forward yield, how do you calculate it, and do you value it over the current yield?
That’s my estimate of the forward yield, incorporating a conservative guess about the size of the May and December dividend increases I expect we’ll see in 2019. Not guaranteed, of course, dividends and dividend increases are never guaranteed, but I don’t think my forecast is at all aggressive.
Thanks for your many “rich” articles with great insight and knowledge. I realize you indicated “HOLD” for Crown Castle, but I’m just a little puzzled about it even being on your list based on its Payout Ratio being > 100% (1.125/1.07) and its P/E being 100%. From various investment guidelines I’ve read, these are not good indicators. Thanks again for your wealth of knowledge.
I had a stop loss order in for Ligand as sort of a “disaster” price if the narrative really falls apart, given my assessment that I thought $140 was a natural stopping point but that the next stopping point wouldn’t be until $70-90 per share, and that stop order triggered on the Citron report today (I had it flagged for a 20% drop from $140, which would have been $112, but the stock fell so fast that this tranche sold at close to $100).
The Citron short analysis was not particularly earth-shattering, particularly because I value the stock primarily based on the continuing royalty revenue from Promacta and Kyprolis, but he does call attention to the fact that their potential milestone income (which is the only thing that can really create revenue growth for them in the near future, beyond the hopefully steady growth of Promacta and Kyprolis) is very concentrated in their weakest partners — including Viking, which they spun out a while back, and Roivant, which licensed their most advanced internal drug recently.
So, the long connection to Ligand is done for now in the Real Money Portfolio — I still like the Promacta royalty, which continues to surprise on the upside, but if there’s no investor enthusiasm for Ligand’s future beyond Promacta and Kyprolis, the odds are not good that they’ll be able to keep the very high valuation they’ve enjoyed in recent years. Sometimes a story stock sees enough negative coverage, in a scary enough market, that a change to the story is enough reason to change a position — the reasonable Grant’s short analysis was the first sign of that, and the more aggressive Citron piece is the second indication. I won’t wait for more confirmation of a change to the “story” than that. The total return for my Ligand holdings ended up being 236%, which is reasonable though far from the maximum return the stock could have provided had I been wise (or prescient) enough to sell near the top.
I will keep an eye on the stock, and if it falls further still I might again be tempted to get on board for that strong Promacta royalty cash flow. The stock should not fall to anywhere near Citron’s $35 target or Grant’s $20 target, but if we drop another 20-30% I”ll be paying attention and looking at the numbers again.
Blood in the water. Next will be SEC and then they will be done. Imagine everyone is shorting now. That is one brutal report, especially 15-19 where some of their partners don’t seem to exist.
https://citronresearch.com/wp-content/uploads/2019/01/The-Smoking-Gun-on-Ligand-Pharmaceuticals.pdf
https://www.prnewswire.com/news-releases/former-california-deputy-attorney-general-and-special-prosecutor-with-johnson-fistel-launches-investigation-into-ligand-pharmaceuticals-investors-suffering-losses-encouraged-to-contact-firm-300779634.html
The lawsuits like that will crop up everywhere, though probably won’t mean anything — that’s just lawyers trying to put together a class action. I wouldn’t short at $100, just don’t think the optimistic narrative is likely to be able to fight through the rational short arguments that are taking hold. It has been possible to make a really reasonable short argument for LGND for 5+ years now, but revenue growth and the appealing business model were enough to overcome that, but ilgiven the lack of obvious growth potential over the next couple years the sentiment shift is easier to make to the short side, I would guess. We’ll see, that’s mostly a “feeling” about sentiment, which means it’s a guess and could easily be wrong.
Hi Travis,
Do you have stop-loss order for all the stocks in your portfolio or only selective stocks based on the risk ?
I watch stop losses for all my stocks, but don’t follow them mechanically — I take them far more seriously for momentum stocks than for stocks whose current valuation I can easily justify. And I often sell in tranches, just as I buy — so I sold most of my LGND shares a few months ago when a stop first hit, then was prepared to start nibbling again but set a new risk number in my mind and sold the rest when that was hit. Selling is not something I’m terribly good at, sadly, so I do try to have some discipline with stop losses.
Travis: Kudos for selling part of the position when things looked good and for sticking to stop loss discipline for the rest. This situation reminds me a lot of Enron, which spent the year 2001 stair-stepping down from 90 to zero. The chart is a thing to behold: 4 or 5 times it hit what seemed like a reasonable bottom and bounced nicely, only to repeat the process a couple of months later, each time with a lower low and a lower high. All along the way there were reasons to believe that their “fundamental business” was sound, and that all the problems with financial shenanigans and regulators would go away. I don’t know if LGND is going to zero, but defending lawsuits from shareholders and regulators and covering the losses of shareholders could easily cost a lot more than all of the royalties they might collect from Promacta et al. Caveat emptor on this one.
Bought into LGND on Christmas Eve, and if it wasn’t for occasionally reading about your strategies including stop losses, I would have lost a lot more after it tanked this past 16th. Travis, thanks not just for your stock teasers and breakdowns, but also your insight into managing a portfolio with discipline.
Thanks for the kind words, the basic truth is that selling is a lot harder than buying for most people, and that goes for institutional investors, too… there was a study recently that found a group of institutional traders bought well but would have been better off selling at random than picking their exits.
I should have followed you Travis on the stop loss on Nvida. Absolutely agree with you on the difficulty of having an exit strategy and actually following it. I went through this during the last recession and let my foolish emotions get in the way. Still have not learned my lessons.
As a long term member, let me add my two cents to this discussion note this is my first entry in perhaps 3 years. I am not an investor, I am trader, I only deal with price and volume, due to handling a family members portfolio I have become more involved in fundamentals than the normal wait, hope and pray of investors. I highly recommend DividendChannel for fundamentals, personally I stay away from recommendations only because this is the only business where they can sell and buy inventory that in most cases is non existent. Dividend Channel is my go to for REITS, BDC’s, CEF, ETF, etc.. for a fundamental approach. This would satisfy your queries regarding AMT, IRM, CONE, CCI, etc..although I would highly recommend a two prong approach with technical analysis and fundamental after all you are competing in a zero sum game with much faster computers than yours.
Thanks for the input, Mark… please keep contributing!
Travis,have you heard Matt McCall’s pitch on”Quantum
Class “ battery. Would you look it over. James Maclin