Gyroscopic Investing

Here's a play I'm making in my VP. Olin (OLN), they are technically a materials sector company, however, only 70% of their revenue comes from "materials" / chemicals. 30% of their revenue comes from Winchester, which is their wholly owned ammo subsidiary.

Look at OLN versus VAW, which is the Vanguard Materials Sector ETF over the last year. OLN essentially tracks the ups and downs except is slightly underperforming.

Q4 earnings gets released in late January 2013. I have a strong hunch they will significantly beat estimates based on political fear of gun/ammo bans. Look at Smith and Wesson (SWHC) and Ruger (RGR) over the last few months. Olin has not experienced any shifts in stock price related to gun fears.

However, at 30% of their revenue, it's a significant contributor to the stock price. I believe people have simply forgotten about OLN when considering the gun stock craze, and Q4 earnings will be a happy surprise. Especially after today's school shooting. There's another 2 weeks in Q4 for ammo sales to increase further.

Additionally, I don't know specifics, but I'd bet Winchester is backordered significantly (SWHC is backordered by $300M of orders they can't fulfill... and their total market cap is only $600M). While backorders are not immediate revenue, if on the Q4 earnings call they announce a higher than expected level of backorders, it could send the stock price higher.

Finally, the Materials sector has been hit pretty hard over the last several months, so if you believe in reversion to the mean, then the other 70% of OLN that's materials-based could see a nice boost itself.

I expect a 5% to 15% gain in OLN over the next 6 weeks. Share price is 21.44 right now. My price target is at or above $23 by January 31st. Let's check this thread at that time and see how I did.

I think the big move into indexing assures that there will continue to be some opportunities for active management. Not every stock deserves to trade nearly as uniformly as they do.

I think wall street made the connection today because material stocks are up and OLN is participating in the sell off in RGR and SWHC.

I just sold my OLN at a loss a few weeks ago.  I'm done with individual stocks, much easier on my psyche.

Something interesting is that a lot of people are dumping SHWC and RGR simply because they don't want to be seen holding the stock (state pensions) and be perceived as tasteless. I think the sell off of these stocks has more to do with the stock than the underlying companies. Regulation is still a big risk though.

melveyr wrote: Something interesting is that a lot of people are dumping SHWC and RGR simply because they don't want to be seen holding the stock (state pensions) and be perceived as tasteless. I think the sell off of these stocks has more to do with the stock than the underlying companies. Regulation is still a big risk though.

I made a 6% gain on SWHC and RGR earlier this week in one day on a small speculation within my VP. I forgot which day, I think it was Tuesday afternoon where they had been hammered since Friday, I bought into both thinking it was underpriced.

Then the next morning, they opened like 5% up and then closed like 8% up for the day. I wound up making 6% because I didn't want to be greedy.

Still going long on OLN for their Q4 earnings. I'm about a net-0 position on the cost basis because I bought a bunch more recently. Ammo sales have been going gang busters this last quarter. Hell... I might want to buy more OLN tomorrow if it's still down a bit.

TripleB wrote:

melveyr wrote: Something interesting is that a lot of people are dumping SHWC and RGR simply because they don't want to be seen holding the stock (state pensions) and be perceived as tasteless. I think the sell off of these stocks has more to do with the stock than the underlying companies. Regulation is still a big risk though.

I made a 6% gain on SWHC and RGR earlier this week in one day on a small speculation within my VP. I forgot which day, I think it was Tuesday afternoon where they had been hammered since Friday, I bought into both thinking it was underpriced.

Then the next morning, they opened like 5% up and then closed like 8% up for the day. I wound up making 6% because I didn't want to be greedy.

Still going long on OLN for their Q4 earnings. I'm about a net-0 position on the cost basis because I bought a bunch more recently. Ammo sales have been going gang busters this last quarter. Hell... I might want to buy more OLN tomorrow if it's still down a bit.

It's interesting how customers are going crazy buying the products while wall st is selling the shares.

Can you imagine running a teachers union pension and having the stock be in your portfolio? Those PMs are going to sell regardless of the facts because they can't be seen holding the stock. Things like this could cause a discrepancy between price and value.

Take a look at ammo prices on the secondary market right now. They are up approximately 1.5x to 3x the prices they were two weeks ago.

Q4 is going to be HUGE for OLN.

As far as discrepancy between price and value, you're on the nose. Which is why I made 6% in one day

Damn good thing I'm killing it in my VP because my PPs been losing about 0.1% every day for the last 6 weeks.

OLN at 23.76 now and earnings report is tomorrow morning at Stock Market open. Approximately 11% gain over the last month since I first posted on it. This would be a good time to sell for the cautious speculator because no one knows what earnings will do tomorrow. If you want to speculate further, roll the dice on earnings tomorrow, like me