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In this edition of the Alpha Letter, we cover:
Stocks: Short sellers are eyeing Clover Health. Is a short squeeze coming?
Real Estate: New York commercial real estate isn’t dead, thanks to Big Tech
Crypto: Why did Dogecoin fall 25% on Doge Day?
Best -performing stocks over the last 5 days
Last week, we put out a short note on Clover Health (CLOV), noting its high short interest. Clover had a rough couple of months after Hindenburg Research published a report on February 4th alleging that the company didn’t disclose an ongoing DOJ investigation related to overbilling Medicare.
Clover fell nearly 60% from its December 2020 peak, but may have bottomed out. It remains one of the most shorted companies in the market at an estimated 43% short interest.
I found a detailed due diligence post on r/WallStreetBets that explains the Clover bull thesis. In summary, the poster says that nearly every share available to short is being shorted right now.
While the initial short interest of 144% reported last Friday turned out to be inaccurate due to a data error, the writer of the WSB report notes that the current reported short interest of 43% is too low. According to their calculations, the effective short rate is 75% after factoring in all 87 million shares held by insiders and controlling investors.
For those unfamiliar with the term, short interest is usually measured in terms of the float, or the number of shares available day-to-day for trading. While there are tweaks needed to calculate the exact rate, in general short interest is the number of shares being shorted divided by the float.
Many thought NYC commercial real estate was dead - but that may not be the case.
According to a report in Jacobin Magazine, Big Tech companies like Amazon and Netflix are swooping in to grab up underpriced office space in Manhattan.
Tech companies aren’t giving up on New York for two main reasons:
First, they need to remain competitive in luring top talent, much of which is still in the NYC area.
Second, the greater NYC region is vital to companies that count on physically reaching consumers, like Amazon, Uber, and DoorDash.
The article also explains how companies like Amazon are taking advantage of the dip in real estate prices to open new New York distribution centers.
If you’re bullish on New York commercial real estate, one recovery pick to look into is WeWork and its expected SPAC merger, BOWX. WeWork is priced far below its 2019 valuation from when it almost went public the first time.
While the company was definitely overvalued then, it may have been beaten down enough to make it a good play if you’re expecting co-working demand in NYC and other cities to surge.
WeWork is heavily concentrated in New York and California; 52% of their locations are in the two states. Of their 267 locations, 78 are in New York.
Did someone say un-levered real estate in New York City?
Check out J.W. Mays (“MAYS"). Here is a brief run down:
Market cap of $56 million
Enterprise value of $58 million
Owns seven un-levered commercial real estate buildings
Large “hidden” asset called “Fulton Street” (9 Bond Street/Fulton Street, Brooklyn, NYC) is a 380,000 square foot building, 90% owned by J.W. Mays in rapidly gentrifying area. Comparables suggest this asset could be worth north of $100 million.
Six other commercial real estate assets could collectively be worth $50-100 million based on comparable transactions.
Rents at all commercial real estate assets are substantially below going market rates.
J.W. Mays has traded substantially below its asset value for decades. The company is ran by an older man who doesn’t spend much, if at all time in the office. Investors have hoped for years that rents at the building on Bond Street would increase. Every year a new tenant is up for renewal the rents have languished going market rates.
This lack of discount to the true asset value will likely persist until the CEO exits or passes away. There isn’t anything shareholders can do as the management team controls over 47% of the outstanding shares. But if you have a long-term view (which you should with all things real estate) owning J.W. Mays could prove to be a solid long-term investment as these assets will not stay undervalued forever.
Why did Doge fall on Doge Day?
Dogecoin saw a historic rise over the last week. It went from $0.09 on April 13 to a peak of $0.45. Twitter users and Redditors were hyping up “Doge Day” on April 20th, saying that the cryptocurrency would skyrocket.
So why did Doge decline more than 20%?
It can be summed up by the old trading adage: Buy the rumor, sell the news.
When everyone expects the price of an asset to go up due to a certain event, the buying happens as soon as that rumor starts going around. If most or all of the market knows that Doge is going to increase on 4/20 then people will front run that activity.
By the time 4/20 actually comes around, who is left to bid the price up?
Sure, there will be a few laggards buying. But those bids were far outweighed by the people who bought in the preceding days now trying to unload their positions.
What’s the next Dogecoin?
On Monday, we put out a newsletter that included our take on the next Dogecoin. Twitter has been abuzz with SafeMoon, a new alt-coin that aims to reward long-term holders by charging a tax to sellers that gets redistributed to holders.
While we personally don’t recommend buying SafeMoon because of its lack of a real-life use case and pump and dump nature, it could be worth looking at if you want a high risk-high reward YOLO trade.
SafeMoon’s chart since it was created in mid-March.
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