Dad’s Dollar Diary #7: Adding Light to My Lands’ End

lands-endDear Diary,

This is a follow-up to my posts Can Lands’ End Right Its Ship? and Stranger Things in Store for Lands’ End and the Man in the High Castle. I recently made some trades to add to my long position. My trades and comments are now being updated on the Dad’s Investment Journal page.

July 14, 2016 (LANDS END INC): We initiated a position in LE at $16.38. I will add more if it drops significantly ($10 or below)–I don’t have to catch the bottom here and I don’t want to be investing a ton of money by dollar-cost averaging down since this is not one of my forever stocks that I am all in on. But my thesis is that it is a brand with direct sales to the consumer and a great candidate for acquisition by AMZN or similar retailer, so it’s a short/medium-term trade I am making over the next couple years. See my full analysis–Can Lands’ End Right Its Ship?.

July 29, 2016 (LANDS END INC): I thought about adding to our position when the stock dropped into the$14’s. While I thought the stock would go back up, I decided not to buy more because I wanted to save some of my ammo for another day. Lands’ End is not a forever stock in my mind. With a mature company, I really look hard at the cashflow from operations. I want a company that consistently churns out loads of cash every year (a la Warren Buffet). Lands’ End does not fit this bill. But I do like Lands’ End as an undervalued stock with the potential for a big upside premium as an acquisition target. So I look at Lands’ End as a short to medium term trade (1-2 year time frame). In addition, my current mindset is also being tempered by the fact that I think the market is a bit frothy and would not be surprised if we see a market correction in the next few months. So I’m not that eager to load up on more speculative long positions. In fact, I’m trying to find some short positions to hedge the potential market correction–like loading up on Sears puts when the price pops up into a favorable short range for me. So, for Lands’ End, I’m not just loading up on it even though I feel like it might be a good price to get some more of it (as I would with one of my forever stocks). In hindsight, this was near the bottom so it would have made a great short term buy and then sell when it popped up to $19 giving you a quick 30+% profit.

August 31, 2016 (PUT LANDS END INC $15 EXP 03/17/17): I sold LE March 2017 $15 puts for $1.15/share in my account when LE was trading around $17.75, a day before they were due to release their earnings. I did this to position myself to either collect some options premiums or to allow myself to buy more at a lower stock price. It was a riskier-type trade to do before earnings, but that is also when the premiums for the options would also be higher. Since I was going to be the seller of options, that worked in my favor. I was considering buying OTM $20 calls as well since the net cost between them would have been a few cents per share. This would have been a more aggressive play and one that makes sense to me because having the calls provides me with the upside in case Lands’ End shoots up. But I don’t fully trust Lands’ End to perform yet, so I didn’t want to take that risk on buying calls. Anyways, I took the safer bet by just writing puts and collecting some premiums for now. I think it will be choppy, so I can be patient and watch the stock for additional dips.

September 1, 2016 (LANDS END INC): Lands’ End released their earnings and they looked pretty ugly, but the stock jumped up. Go figure. In their earnings call, they did announce that they will be selling some of their Lands’ end Canvas and Sport product lines through Amazon. This is positive news for my position that Amazon would be the perfect acquiror for Lands’ End. I’ll be looking for signs that the Lands’ End/Amazon relationship is working and expanding (e.g., higher sales, positive news releases, expansion of products with Amazon, etc.) and looking for opportune times to add to my long position. See my post Stranger Things in Store for Lands’ End and the Man in the High Castle.

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