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(B)(N) WDC Western Digital Corporation

March 16, 2014
Sell on the next bounce, if there is one.

Sell on the next bounce, if there is one (they say).

Drama. They say that there are five stocks that are going down because they might not go up after a “bad bounce” (The Street, March 14, 2014, Do You Own These 5 Toxic Stocks? Watch Out!). Check it out but that information is too much for us to handle and two of them, Western Digital Corporation and Melco Crown Entertainment Limited, are in the Perpetual Bond™ and gave us a staggering +124% last year and don’t show any signs of leaving despite the memo.

Two stocks don’t make a portfolio (please see below) but we’re also running about 90% of the market in the S&P 500 and the NASDAQ 100 in the Perpetual Bond™ right now in a fragile market that could be damaged by a “bad bounce” or a “foot fault”. Or something.

Nor is there much drama in the fundamentals although Melco Crown has recently adopted a new dividend policy that will pay about $0.12 per share this year and up to about 30% of their earnings in future years which is about par for most dividend-paying stocks (Globe Newwire, February 25, 2014, Melco Crown Entertainment Announces Adoption of New Dividend Policy).

Exhibit 1: Bad Bounce Fundamentals – March 2014

Bad Bounce Fundamentals - March 2014

Bad Bounce Fundamentals – March 2014

(B)(N) Bad Bounce - Risk Price Chart - March 2014

(B)(N) Bad Bounce – Risk Price Chart – March 2014

Between the two of them, Western Digital and Melco Crown, the market gave up $22 billion and +124% last year and the Chart on the left indicates that they are still “undervalued” in the usual sense that the demand for these stocks exceeds their supply at the current prices. That’s why the prices are so high.

Nor are we blind-sided by that fact; our estimate of the downside due to the demonstrated price volatility is as much as minus (14%) in the next quarter but that’s easily dealt with using our usual stop/loss policies; in other words, we always expect a “bad bounce” and market surprise and are not surprised if we get one. Please see Exhibit 4 and 5 below.

Exhibit 2: (B)(N) Bad Bounce – Prices & Portfolio – March 2014

(B)(N) Bad Bounce - Prices & Portfolio - March 2014

(B)(N) Bad Bounce – Prices & Portfolio – March 2014

Exhibit 3: (B)(N) Bad Bounce – Portfolio & Cash Flow Summary – March 2014

(B)(N) Bad Bounce - Portfolio & Cash Flow Summary - March 2014

(B)(N) Bad Bounce – Portfolio & Cash Flow Summary – March 2014

(Please Click on the Chart to make it larger and again if required.)

Exhibit 4: (B)(N) WDC Western Digital Corporation – Risk Price Chart – March 2014

(B)(N) WDC Western Digital Corporation

(B)(N) WDC Western Digital Corporation

Western Digital began to trade above the price of risk at much lower prices of $40 in 2012 and it’s been in the Perpetual Bond™ ever since with our usual stop/loss policy that might sell us out – force us to take profits, so to speak – but we always have the option of buying it back at lower prices if it’s still trading above the price of risk.

The current price of risk is the Risk Price (SF) at $66 and substantially below the current stock price of $80 which is protected by a stop/loss at $73 and we might move it up to take advantage of any market uncertainty about what they might like to pay for this stock this year.

Exhibit 5: (B)(N) MPEL Melco Crown Entertainment Limited – Risk Price Chart – March 2014

(B)(N) MPEL Melco Crown Entertainment Limited

(B)(N) MPEL Melco Crown Entertainment Limited

Melco Crown began to trade above the price of risk at $15 in 2012 and is currently at $40.

Our estimate of the price of risk is the Risk Price (SF) of $31 and we have a stop/loss at $35 which we invite the market to offer us and we’ll be pleased with either a good bounce or a bad bounce, thank you very much.

Go ahead, make us an offer.

Go ahead, make us an offer.

Investors-at-large demonstrate daily, even hourly, that they have no idea what a stock price is, could be or should be. They just pay the going rate. The “stock price” is the price of risk because that’s the price at which we can expect to get our money back – 100% capital safety – and a hopeful but not necessarily guaranteed return above the rate of inflation. Anything else is just a number.

For more information on “risk management” and additional references to the theory, please see our recent Post, The RiskWerk Company Glossary.

And for more on what risk averse investing has done for us this year, please see our recent Posts on The S&P TSX “Hangdog” Market or The Wall Street Put or specialty markets such as The Dow Transports & Utilities or (B)(N) The Woods Are Burning, or for the real class actionLa Dolce Vita – Let’s Do Prada! and It’s For You, Dear on the smartphone business.

And for more stocks at high prices, The World’s Most Talked About Stocks or Earnings Don’t Matter – NASDAQ 100. And for more on what’s Working in AmericaBig OilShopping in America or Banking in America, to name just a few.

Postscript

We are The RiskWerk Company and care not a jot for mutual funds, hedge funds, “alternative investments”, the “risk/reward equation” and every other unprovable artifact of investment lore. We have just one product

The Perpetual Bond
Alpha-smart with 100% Capital Safety and 100% Liquidity
Guaranteed
With No Fees and No Loads on Capital

For more information on RiskWerk, please follow the Tags or Categories attached to this Letter or simply enter Search for additional references to any term that we have used. Related data may be obtained from us for free in a machine readable format by request to RiskWerk@gmail.com.

Disclaimer

Investing in the bond and stock markets has become a highly regulated and litigious industry but despite that, there remains only one effective rule and that is caveat emptor or “buyer beware”. Nothing that we say should be construed by any person as advice or a recommendation to buy, sell, hold or avoid the common stock or bonds of any public company at any time for any purpose. That is the law and we fully support and respect that law and regulation in every jurisdiction without exception and without qualification to the best of our knowledge and ability. We can only tell you what we do and why we do it or have done it and we know nothing at all about the future or the future of stock prices of any company nor why they are what they are, now. The author retains all copyrights to his works in this blog and on this website. The Perpetual Bond®™ is a registered trademark and patented technology of The RiskWerk Company and RiskWerk Limited (“Company”) . The Canada Pension Bond®™ and The Medina Bond®™ are registered trademarks or trademarks of the Company as are the words and phrases “Alpha-smart”, “100% Capital Safety”, “100% Liquidity”, ”price of risk”, “risk price”, and the symbols “(B)”, “(N)” and N*.

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