Some Thoughts on the Impact of Stock Offerings in Your Holdings

This morning GMCR priced a primary offering of 5MM shares at $67.25, a discount of less than 1% from last night's close. Thus far today the stock has only traded higher. That kind of enthusiasm for an offering is exactly what we want to see in one of our positions.

Juxtapose this reception to the horrid reaction to STEC's secondary offering yesterday. (A secondary offering is when locked up shares are sold as opposed to a primary where fresh shares are brought to market. The primary is dilutive. The secondary increases the float but doesn't dilute.) In spite of not brining any new shares to market investors bailed on the stock. Underwriters had to price the offering nearly 8% below the previous closing price. The lack of institutional support for a winning stock is a cautionary sign.

Clearly the market has been disturbed by STEC’s not raising forward estimates and the selling of large shares by insiders. We don’t think STEC’s fundamental outlook has changed and believe the uptrend could well be saved. But we felt compelled to take some profits in the name yesterday.

We are prepared to add back provided we see a convincing turn in the stock. This morning STEC gapped higher with the market but then traded below yesterday’s low. It has found support at the July 16th gap fill. Whether it can mount a convincing turn here or will trade back towards its 50 MA remains to be seen. We’ll be monitoring the action and post further recommendations under our write up of the stock.