Reports over the weekend about the possible merger of OfficeMax (OMX) and Office Depot (ODP) are welcome news for the Covestor Focus Value and Opportunistic Value models. On February 20, the news became official: Office Depot will acquire its rival in a $1.17 billion bid to take on market-leader Staples (SPLS), according to Bloomberg.
OfficeMax has been the top holding of both models for the past few months because we believed it was greatly mispriced by an irrational market.
The following table compares the valuation of related office product retail stores prior to the merger news. You can clearly see that OfficeMax is the most undervalued of all. Now that the merger is on track to go through, we believe the valuation of OfficeMax can be properly restored to fair market value.
| Price/Earning | Negative | Negative | 2.1 | 24.8 |
| Price/Earning/Growth | Negative | Negative | 0.19 | 2.26 |
| Price/Sales | 0.36 | 0.12 | 0.13 | 0.44 |
| Price/CashFlow | 16.72 | 8.28 | 1.78 | 16.14 |
| Price/Book | 1.4 | 1.9 | 0.93 | 3.54 |
| Return on Asset | 0.26% | -1.22% | 11.73% | 6.3% |
| Return on Equity | 0.49% | -6.95% | 55.16% | 14.69% |
Disclaimer: Currently we hold Officemax stocks in our client portfolios as well as our Covestor Focus Value, Opportunistic Value, and Enterprise Value models. We may sell the positions 72 hours after this article is published if these positions appreciate substantially. Opening accounts of Analytic Investment Management LLC’s models through Covestor is not personalized investment advice, and Analytic Investment Management LLC does not take Covestor clients’ personal financial needs into consideration. Investing in the financial markets involves risk, including the risk of principal loss. Don’t invest with money you can’t afford to lose. Information in this report is in no way intended as personalized investment advice and should not be interpreted as such. Past performance is not necessarily indicative of future results. Performance results do not take into account any tax consequences. Focus models are concentrated portfolios with less than 20 positions. Concentrated portfolios carry significantly more risk than diversified portfolios and may not be suitable for every investor.
The investments discussed are held in client accounts as of February 20, 2013. These investments may or may not be currently held in client accounts. The reader should not assume that any investments identified were or will be profitable or that any investment recommendations or investment decisions we make in the future will be profitable.
