The Upcoming Long, Hot Summer

by admin on April 28, 2009


Back when I was a teenager, we had movies like "Friday the 13th" and "Nightmare on Elm Street" to horrify and scare us and our peers. Today, we have the meltdown of US (and Canada) automobile industry. Apparently, the latest deal on the table has the US government getting 50% of the automaker, the unions getting 39% and ten billion to cover health insurance/pension liabilities, and the bondholders getting a swap of bonds for the remaining 10%.

Well hey, if I was a bondholder, I think I would be sorta underwhelmed with that offer, but who am I to judge?

But for me, the big surprise of 2009 is not that the automakers are lurching towards bankruptcy but that nobody in prepress has gone belly up (as of yet). I mean, who remembers Crosfield, Scitex, and Creo? And remember  the 1990s and early 2000s were good years for the prepress/printing industry!

I don't think back east the advertisers are knocking themselves over to place full cover ads in Car & Driver, and last time I checked, the newspaper business wasn't looking so hot.

So, it might be fun (in a morbid kind of way) to check the stock price of the major prepress vendors against the put price six months from now. Now in case you didn't know, when you sell a "put" on a stock, that means you sell the option to sell the stock a certain point in the future. So let's say you have one hundred shares of Big Beefy corporation currently valued at $10.00. You are able to sell puts at 50 cents a share that expired in December 2009. You get 50 bucks up front. Now if December comes along and the share price is $10.00 or $15.00, then nothing happens and you keep the $50. But if the share price has dropped to $9.00, then you lose 50 cents. Because what has happened is that back when you sold the put, somebody in the market used that put to short-sell your stock to somebody at $10.00. Now if the stock has dropped a buck, then they will want to fulfill the contract by buying the stock from you at $9.00. It's a forced sale.

Anyhow, the put price is basically what the market thinks of the future prospects of the stock, and therefore the company. It is by no means a perfect indicator (duh), but a large put price is a definite hint that tough times may be coming. So, without further ado, let's have a look:

1. Xerox: Stock price at $5.66. Put price for October 2009 at 5.00 is 60 cents

2. Agfa: Stock price at $1.66 euros. No put price is listed, but latest financial news is here.

3. Hewlett-Packard: Stock price at $35.50. Put price for November at $35.00 is 90 cents.

4. Kodak:  Stock price is $3.80. Put price for October 2009 at 2.50 is 40 cents.

5. Heidelberg: Stock price is 5.10 euros. No put price listed.

Conclusion: HP looks solid, with a put price for November that about 3% of the current stock price. Kodak and Xerox look very volative, with current below-water put prices that exceed 10% of the current stock price. Put it this way, an investor could make 20% on the stock price year-over-year, just selling puts as long the stocks just maintained their current value.

Heidelberg and AGFA trade on European markets, so I wasn't able to find any futures data on them. But I was bit surprised to see AGFA trading at 75% off it's yearly high. Interesting to see Heidelberg has jacked up from 3 euros to 5 euros just in the last two months.

Who is going to go bankrupt this summer? I don't know, but I find it interesting that a lot of the financial news releases are hinting that the upcoming quarters are going to be better than the last one. I'm pretty skeptical about this.

P.S. This is not an advisory to buy or sell any stocks, as I am not a licensed investment advisor. If you want advice on which stocks to buy, go talk to one of those guys because they have done such an awesome job of advising Joe Q. Public about stocks over the last few years (heavy sarcasm).

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