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Update: Taro Pharma

A quick update on my Taro Pharma holding, as I’ve received a few requests about it.

I recently sold all my Taro holding. It was a very tough position to sell. The stock is up over 90% since I initially bought in Aug ’11. In the same time period, S&P 500 has given a negative 1% return. So the return on Taro has worked out very well.

The company is cheap on valuation basis, so selling at these prices was tough. Although the risks associated at these prices were something I couldn’t quite understand.

With a buyout offer at $24.50 and the stock trading at anywhere from 50-100% premium to the offer. I can’t understand why anyone would buy the shares at more than $24.50. Unless you are very certain that the offer price will be increased or the company will stay public, it seems too risks to buy the stock for more than the buyout price.

Second, there is a good chance that the buyout offer could drag out more. It has already been 7 months since the offer was made. The BoD has hired i-bankers to look at the offer price but still no results. Plus, Sun Pharma is known to be patient. So I see a decent risk of the offer just staying open and dragging on. I still feel that Sun Pharma will likely increase the buyout price, but I just don’t know when and by how much. So it is harder to hold onto something when you can’t get your arms around the key variables.

In this market, I’m able to find companies that are selling at cheap valuations with plenty of upside. Also these companies do not have the same risks that I see with Taro. So I decided to sell as the risks between holding Taro Pharma and what I can find in the market was compelling.

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Categories: Updates
  1. zvi
    June 7, 2012 at 5:19 am

    can you tell us how many shares did you sell?

    • paras
      June 7, 2012 at 10:08 am

      Zvi,

      It wasn’t many shares, compared to the daily volume. Although it was a big position in my portfolio.

  2. b
    June 7, 2012 at 7:12 am

    nicw work on Taro. What are some of the other ideas you are finding? Any updated thoughts on Yukon Nevada? Thanks.

    • paras
      June 7, 2012 at 10:12 am

      As for YNG, things are going well. I just read a research report in which it states that YNG has been doing 450 oz/day production for the last 16 days in May. At that rate the company is hugely cash flow positive. So if it is true and YNG can produce that number steadily then the shares will jump substantially.

      As for other opportunities, I bought shares of JC Penney’s. There is plenty of discussion online about JCP. I think you have a CEO who is one of the best retailer around. His long-term plan for JCP is very compelling. Plus his short-term plan to cut out expenses and overhead will pay huge returns to shareholders. You also have plenty of real estate assets that JCP owns, so that protects the downside.

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