Long TAM S.A (TAM) With Short S&P Hedge

Brazilian TAM S.A (TAM) Offers Solid Upside On Robust Free Cash Flow Yield – Currently Holding A Long Position In TAM With S&P Hedge – Original Idea Posted 06/12 Seeking Alpha By Shiraz Lakhi

With a 22.9% free-cash-flow-yield cushion, TAM offers strong upside, despite the current downturn in the airline industry. Operating within the major airlines industry (Brazil), TAM generates a current free-cash-flow of $462.8 million (based on trailing 12 month data), with an enterprise-value of $2.02 billion. The free-cash-flow-yield (FCF/EV) is hence a strongly bullish 22.9%. Additional metrics in favor of TAM include a low price/cash ratio of 2.98, return on equity (ROE) of 47.87% (based on trailing 12 month data), a low price/sales ratio of 0.48 (consensus bullish), and a low (relative to industry) debt/equity ratio of 4.28. I am long TAM, with a dollar-neutral hedged short position in the S&P index ETF (symbol: SPY), in anticipation of TAM outperforming the S&P – by Shiraz Lakhi.


Long Computer Sciences (CSC) With Short S&P Hedge

Computer Sciences Corporation (CSC) Vs S&P 500 Index (SPY) Offers Opportunity For Market-Neutral Hedged Pair Trade – Original Alert Posted 06/12 Seeking Alpha By Shiraz Lakhi

I am currently long Computer Sciences Corporation (CSC) with a dollar-neutral short S&P (SPY) hedge, wagering on CSC outperforming SPY over the next 4-6 weeks. Computer Sciences operates within the information technology services industry, and currently generates a free-cash-flow of $1.01 Billion (based on trailing 12 month data), against an enterprise-value of $6.61 Billion. The free-cash-flow-yield (FCF/EV) is a healthy 15.3%, offering significant upside potential. Additional data in favor of CSC include a low PEG ratio of 0.91, low price/book of 0.76, a book-to-market of 1.32, and analyst mean target of $43.85 per share – by Shiraz Lakhi.

The Long Stock/Short S&P Pair Trade

How To Minimize ‘Directional’ Risk, By Entering ‘Long’ The Undervalued Stock, And Simultaneously  ‘Shorting’ The S&P 500 Index – By Shiraz Lakhi.

There are two ways of trading stocks – either ‘single-directional’ (long-only, or short-only) speculative positions, which anticipates a selected stock moving in a particular direction along with the rest of the market, or a ‘comparative’ position, which anticipates a selected stock ‘outperforming’ the general market as whole (such as the S&P 500 index).  The latter, provides an advanced, market-neutral method of trading, which wagers on the stock doing ‘better’ than the S&P index, irrespective of whether the particular stock moves up, down, or sideways…

For the investor who wants to advance beyond the conventional, single-directional speculative (‘long-only’ or ‘short only’ positions) trade, and more critically, protect his/her position against the broader market directional risk (corrections, crashes, prolonged negativity), the long stock/short S&P pair trade provides resolve. The strategy involves taking a ‘long’ position in a stock the trader believes will increase in value, while taking a simultaneous ‘short’ position in the the S&P 500 index ETF (symbol: SPY)…

More popularly coined pairs trading, this particular strategy (entering long the stock and shorting the S&P) wagers on the stock ‘outperforming’ the S&P index. Put simply, the investor is not concerned about whether the selected stock will move up or down, but how it will do ‘relative’ to the overall market (S&P). By entering a long position in stock X (preferably one which exhibits robust fundamentals, such as a high free-cash-flow yield, amongst additional undervalue metrics) and simultaneously entering a short position in the S&P index, in exactly the same dollar value (in other words, if you enter long $30,000 XYZ stock, you would short $30,000 SPY), investors can establish a ‘dollar-neutral’ market-hedged position.

Effectively, no matter which way the overall market moves, whether it corrects, crashes or rallies, direction is of no relevance. In a pairs trade, the single point of focus is purely whether stock X will outperform the S&P. If both the stock and the S&P fall, as long as the stock declines less (in percentage terms) than the S&P, the trade results in a profit. If both the stock and the S&P rise, as long as the stock rallies more than the S&P, the trade results in a profit. Only if the stock ‘underperforms’ relative to the S&P does the trade result in a loss. The objective is, over time, the fundamentally superior stock will tend to outperform the market (S&P index).

Wishing you every success in your trading… and good spirit…

Shiraz Lakhi – Independent Investor/Entrepreneur