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Monday, February 6, 2023

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Trade of the Day #2 (maybe) – GNW

Genworth has been a huge winner since being spun out of GE 2 years ago but the opportunity today may be huge. The company just blew through its all time high of $33.42 and is currently sitting at about $35.

It was surprisingly announced Tuesday evening that Genworth would be added to the S&P 500, replacing the disgraced Calpine Corporation, at the close of today’s trading.

The stock flew up yesterday on the announcement but then dropped back down as GE announced they were going to be selling 1/3 (38M shares) of their stake in the company . They actually said they are selling all their shares but not all today but the headlines read that GE is dumping their position so the stock drove back down.

I expect GEs sale today to keep the price down but they said that today is the only day this year that they will sell. The average volume of Genworth is 3M shares a day with yesterday trading about 9M. Institutions generally own about 60% of an S&P company so they need to pick up 13% more of GNW stock or 60M shares, a lot more than GE is going to unload! As a rule of thumb, (60M – today’s trading – 38M) /6M = # of days this stock will rise until the S&P funds have enough. That may be 2 or 1 or none but I don’t think today will be as heavy as yesterdy as many funds will be hoping for GE shares tonight. The ones that miss out will have to scramble tomorrow.

This gives GE a great chance to get out at the top but the fact that they are holding onto 80M more shares indicates they think they can still do better.

I will be looking for an entry point today but GE will be selling tonight, I believe for today’s closing price so anything can happen. If we are very lucky the stock will look like BCRX did yesterday, with a slow, steady ascent.

It is possible that the stock will sell off heavily at the day’s end, in anticipation of GE flooding the market so the whole trade may have to wait. If the shares are really in short supply, there will be many opportunities to enter this trade.

The stock was up to $36 in after hours Tuesday but dropped due to the GE announcement yesterday and is up to $35 again in pre market today. GE should also benefit from all this (I own that one) but it is a very slow mover so I don’t expect much.

A big win for GNW should also benefit MET, which is a much stronger insurance company trading at nearly 1/2 of AIG’s valuation.

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