I own DVN and was doing well until the recent volatility caused me some sweaty moments. With small-caps, every now and again you see a monster sell-down in price on almost no volume. I'm getting better at buying very aggressively when a stock I know well does this, although in the case of DVN I already had my full allocation. I can think of 4-5 stocks straight off the top of my head that have dropped 20%+ when the price was already cheap and then watch the stock rebound sharply.
We think DVN has been volatile thanks to no news flow about the sale of the company since August. During that time, we understand a lot of parties have expressed interest in the business and a tender process has been underway. But without any actual news from the company itself, investors would understandably be flighty.
The profit guidance was on balance positive and is consistent with improved conditions. Note, my reason for buying in the first place was a big discount to NTA and a turn-around in positive news. The proposed sale of the business was good fortune. But the main driver for the share price in the short term now is a potential sale and the company anticipates a result, if any, will be completed by the end of the CY. So not long now.
Should the sale fall over, DVN is still trading well below NTA and conditions look okay. So while the price will probably fall, I don't anticipate it being a disaster. On the upside, there could be as much as 30-40c. So on a current price of $1, that continues to look pretty attractive to me.
Kristian
Disclosure: own DVN
How desperate a seller is LEI? Will they sell at the big discount to NTA just to clear their stake? The bidders know that they have a motivated seller and may take advantage of this with low ball offers. Also, there has been a cloud over DVN's NTA and whether it may need to be written down further. I hold DVN but bought at much lower levels and am not so bullish at these levels.
ReplyDeleteGood question, and yes it is possible they would sell at a big discount. I doubt the DVN board would be happy to sell the whole company at a big discount though - they have a duty to all shareholders and not just LEI. I think new management have taken a very big broom to NTA already so I'm not sure there is much, if any, more write-downs in NTA to come. I'm not a buyer at these levels - a holder, so I tend to agree with you.
ReplyDeleteThanks