{"id":1196198,"date":"2020-07-16T09:08:01","date_gmt":"2020-07-16T14:08:01","guid":{"rendered":"https:\/\/oilandgas-investments.com\/?p=32633"},"modified":"2020-07-16T09:08:01","modified_gmt":"2020-07-16T14:08:01","slug":"overstock-a-unique-preferred-share-with-leverage","status":"publish","type":"post","link":"https:\/\/juniorminingnews.com\/?p=1196198","title":{"rendered":"OVERSTOCK \u2013 A Unique Preferred Share With Leverage"},"content":{"rendered":"

Overstock (OSTK \u2013 NASD)<\/strong><\/span> has been a big winner for subscribers at sister-site at www.investingwhisperer.com<\/a>.\u00a0 I bought the stock in early May at $13–after the stock had already tripled from the bottom.<\/p>\n

Overstock briefly broke the $50 barrier on July 12, making it close to a 4-bagger – in only a couple of months \u2013 and I think can it can go much higher (to see exactly how much, see my math at the bottom).<\/p>\n

Overstock is an online retailer like Amazon (AMZN-NASD) <\/strong>and Wayfair (W-NYSE)<\/strong><\/span>, and their traffic and sales numbers are rapidly increasing in 2020\u2014hence the big move in the stock.\u00a0 But they also own a majority position in a crypto-currency trading platform they call tZERO\u2014which has also been VERY successful.<\/p>\n

Independent analysis shows\u00a0 that security tokens listed on tZERO accounted for 95% of all security token trading in May and 75% of the total value traded.\u00a0 Overstock management added that trading volumes were up 46% from the prior year in May.\u00a0<\/p>\n

tZERO is officially the powerhouse in the security token arena \u2013 but unfortunately the arena remains incredibly small and underdeveloped.<\/p>\n

Both online shopping and crypto have been big bull themes during the pandemic, so it makes sense that OSTK-NASD would be a great investment\u2014but even I was surprised that it went from $3 – $50 in two\u00a0 months!
\u00a0<\/p>\n

The Most Unique Preferred Share In The World<\/strong><\/span><\/h2>\n

But there is another way to play Overstock that is both safer (for small positions) and more levered.\u00a0 How can that be possible you ask?\u00a0 It\u2019s an investment can give you all the upside of the stock but with a significant discount to the current price.<\/p>\n

OSTKO is the symbol of Overstock\u2019s digital <\/strong>preferred dividend.\u00a0 It is currently trading at around a 40% discount to the stock.<\/em><\/p>\n

This is a preferred stock.\u00a0 It has the same rights as the common and pays a small dividend \u2013 Overstock paid a 16 cent dividend to OSTKO holders the past 3 years.<\/p>\n

All else being equal, you would expect the preferred to trade at a premium<\/em> to the common.\u00a0 Of course, things are never equal and in this case what you are seeing is a liquidity discount in the security stemming from a mismatch of buyers and sellers.<\/p>\n

OSTKO was originally spun-off to existing shareholders of Overstock.\u00a0 Each shareholder of OSTK received 1 Series A-1 preferred stock for each 10 shares they owned.\u00a0\u00a0 So it truly was 10% dilution.<\/p>\n

Overstock had their own reasons for distributing OSTKO shares. One was that then-CEO Patrick Byrne thought it was a way to stop or catch people shorting his stock.\u00a0 You can\u2019t borrow a digital certificate.<\/p>\n

Another was\/is that they saw it as a way to onboard investors to their own tZERO trading platform.\u00a0<\/p>\n

Here\u2019s the catch: OSTKO is only supposed to be traded via Overstock\u2019s tZERO platform.\u00a0 \u00a0It is written right into the language of the SEC filings.\u00a0<\/p>\n

There is an over-the-counter market in the stock, but it is thin and not really supposed to exist. \u00a0But it does!\u00a0 I bought 2000 shares at $12.50 a while ago through my Canadian full-service broker.<\/p>\n

Overstock and tZERO have already sent out letters to brokers explaining that the security should only trade through the tZERO platform and no where else.<\/p>\n

But trading through tZERO has its own problems.\u00a0 Right now, there is only one broker-dealer that taps into tZERO \u2013 a small, obscure firm named Dinosaur Financial Group\u2014owned by a relative of an executive of tZERO.<\/p>\n

The ticker started trading in May of 2020.\u00a0 But it has not been easy to trade.<\/p>\n

If you want to own OSTKO you need to register with Dinosaur Financial.<\/p>\n

I went through the process of signing up.\u00a0 They do as good of a job as anyone to streamline the process, but it is still a pain. You must fill out their paperwork.\u00a0 Upload your identification.\u00a0 Figure out a way to transfer cash.<\/p>\n

Let me ask you this \u2013 who do you think has the most reason to sign up to Dinosaur right now?<\/p>\n

You got it \u2013 holders of OSTKO.\u00a0 First, you have funds that can\u2019t hold the security in the first place \u2013 it goes against their compliance.\u00a0 Second, you have investors who do not really know or care what this extra security is that they have been issued so they are content to turn it around for a quick buck.<\/p>\n

But potential buyers of OSTKO?\u00a0 Few and far between.<\/p>\n

The result \u2013 a 40% discount to the common \u2013 and a significant arbitrage (arb) opportunity.\u00a0<\/p>\n

Again, there is no real difference between the preferred and the common.\u00a0 Same rights, including voting.\u00a0 \u00a0And like I said, the preferred is higher on the capital structure.<\/p>\n

I think that very rich arb will close sometime late this summer, after Dinosaur has signed up all the OSTKO shareholders they can.\u00a0 The owners of Dinosaur–being close to Overstock–also own a lot of OSTK and it’s in their best interest to have that arb disappear and have OSTKO trade at par.\u00a0 Dinosaur will just open up trading to everybody and stop insisting they use tZERO.\u00a0 Like I said, the black market is already alive and well in OSTKO. <\/em><\/p>\n

That’s a $15\/share jump coming this summer if I’m right!<\/p>\n

And during their Analyst Day, Overstock announced that two new broker-dealers had signed up to tZERO (no names yet), so liquidity could generically increase.<\/p>\n

IF<\/em> tZERO gains traction, investors win twice.\u00a0 First, the liquidity discount of OSTKO will disappear.\u00a0 Second, Overstock shares are going to do well because Overstock owns ~80% of tZERO.<\/p>\n

I have been in and out of Overstock a few times over the last year and it has been a wild ride.\u00a0 I bought the stock for the blockchain potential and for the turnaround in e-commerce that has been years in the making.<\/p>\n

The first time I bought was last summer, shortly after then-CEO Patrick Byrne first announced the idea of a digital dividend.\u00a0 Byrne\u2019s motive at the time was as much to squeeze the shorts as promote his digital trading platform.<\/p>\n

He succeeded, turning the potential for a non-shortable digital dividend into a short squeeze that caused the stock to go to $30.\u00a0 Of course, then the SEC stepped in and said the deal was a no-go<\/em>.\u00a0 Byrne sold his stock, fled the country and is now living on a beach in Bali, Indonesia.\u00a0 \u00a0We sold too.<\/p>\n

I looked at the new management team with healthy skepticism at first, but I have been pleasantly surprised.\u00a0<\/p>\n

CEO Jonathan Johnson has put together a rapid turnaround of the e-comm business while tZERO CEO Saum Noursalehi seems to have righted the ship on the crypto side.\u00a0 They pulled the digital dividend through the SEC hoops, something Byrne was not able to do.<\/p>\n

(Compushare does have a deal with the company where they hold custody (“deal with the book”) of the OSTKO, but officially it’s Dinosaur.\u00a0 They will not lend out any certs for shorts.\u00a0 You can’t short penny stocks or OTC stocks for the most part, so this is not that different.)<\/p>\n

The e-comm business is really the lynchpin for the stock.\u00a0 This business has seen a huge boost from stay-at-home shoppers.\u00a0 At the company\u2019s analyst day in mid-June, Johnson said that \u201cApril and May sales were up over 120% year-over-year\u201d.\u00a0 He called the state of the business \u201cphenomenal\u201d, and so far the numbers are bearing that out.<\/p>\n

Overstock excels in home furnishings.\u00a0 It is a big market with a $67 billion TAM\u2014Total Addressable Market.\u00a0<\/p>\n

Not surprisingly, it is a market where online penetration is quite low \u2013 about 42% – and this is up from only 23% a year ago.\u00a0 The overall market (both online and bricks & mortar) is growing at a 16% annual clip.
\"\"<\/a><\/p>\n

Source: Overstock Analyst Day Presentation<\/em><\/p>\n

Even though e-commerce sales are strong, Overstock is growing even faster. They are taking share.<\/p>\n

Probably the most important takeaway for me from Overstock\u2019s Analyst Day is that their e-comm site is finally driving free traffic again.\u00a0 For the last 3 years Overstock has had a tough time driving free traffic to their site.\u00a0 Free traffic really means search and search means Google \u2013 Overstock saw their Google search ranking plummet beginning in 2017.\u00a0 At one point in 2018 their keyword rankings had fallen by \u00be!\u00a0<\/p>\n

It is hard to run an online business when your free traffic is in precipitous decline. But that has changed.\u00a0 In 2019 Overstock finally stabilized their free traffic and in 2020 so far it is up HUGE!
\"\"<\/a><\/p>\n

Source: Overstock Analyst Day Presentation<\/em><\/p>\n

This is SO important.\u00a0 If you don\u2019t get free traffic then you have to pay for it, which is expensive.\u00a0 The bump in free traffic has led to significant new customer adds:
\"\"<\/a><\/p>\n

Source: Overstock Analyst Day Presentation<\/em><\/p>\n

New customers mean sales and if those customers are free that means better margins.\u00a0
\"\"<\/a><\/p>\n

Source: Overstock Analyst Day Presentation<\/em><\/p>\n

The e-commerce business has gone from questionable viability to a growth story.<\/p>\n

tZERO remains the wildcard.\u00a0 They are sitting on a huge opportunity.\u00a0 They have first-mover advantage in the trading of a wide range of assets.\u00a0
\"\"<\/a><\/p>\n

Source: Overstock Analyst Day Presentation<\/em>
\u00a0
tZERO has a pipeline of over 200 issuers.\u00a0 These aren\u2019t just public companies looking to trade on a different exchange.\u00a0 What tZERO is attempting to do is disrupt trading markets by adding assets that previously could not be traded.\u00a0 Stuff like: real estate funds, non-trade REITs and private asset companies.<\/p>\n

Overstock also owns equity in a portfolio of blockchain companies.\u00a0 Their Medici subsidiary companies span the spectrum of banking, identity, capital markets, even voting.
\"\"<\/a><\/p>\n

Source: Overstock Analyst Day Presentation<\/em><\/p>\n

How high do I think Overstock can go?\u00a0 Well, there is a good chance that OSTK could do $1 billion in revenue this quarter.\u00a0 Not this year\u2014this quarter.\u00a0 That would be a $4 billion annualized run rate.\u00a0<\/p>\n

Could a fast growing, debt free tech stock on NASDAQ trade at 5x sales?\u00a0 I would say yes.\u00a0 That is a $20 billion market cap. There are 50 million shares out on Overstock.\u00a0 $20 Billion \/ 50 million = $400 per share<\/em><\/strong>.<\/p>\n

Four hundred dollars.\u00a0 Now clearly, that is the pie-in-the-sky number.<\/p>\n

If Overstock does that, OSTKO will follow.\u00a0 And eventually that liquidiy gap will close.<\/p>\n

Add to all this the optionality of the tZERO platform and the blockchain portfolio of companies and there is a lot to like here.\u00a0<\/p>\n

Another 10-bagger might be asking a lot, but stranger things have happened.<\/p>\n

And for retail shareholders who might only buy 1000-5000 shares, OSTKO is not only a safer way to play the rise, but has more leverage.\u00a0 It is a truly unique preferred.
\u00a0<\/p>\n

\u00a0<\/p>\n

Keith Schaefer<\/p>\n","protected":false},"excerpt":{"rendered":"

Overstock (OSTK – NASD) has been a big winner for subscribers at sister-site at www.investingwhisperer.com.  I bought the stock in early May at $13–after the stock had already tripled from the bottom. Overstock briefly broke the $50 barrier on July 12, making it close to a 4-bagger – in only a couple of months – […]<\/p>\n","protected":false},"author":19,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"site-sidebar-layout":"default","site-content-layout":"","ast-site-content-layout":"","site-content-style":"default","site-sidebar-style":"default","ast-global-header-display":"","ast-banner-title-visibility":"","ast-main-header-display":"","ast-hfb-above-header-display":"","ast-hfb-below-header-display":"","ast-hfb-mobile-header-display":"","site-post-title":"","ast-breadcrumbs-content":"","ast-featured-img":"","footer-sml-layout":"","theme-transparent-header-meta":"","adv-header-id-meta":"","stick-header-meta":"","header-above-stick-meta":"","header-main-stick-meta":"","header-below-stick-meta":"","astra-migrate-meta-layouts":"default","ast-page-background-enabled":"default","ast-page-background-meta":{"desktop":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-gradient":""},"tablet":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-gradient":""},"mobile":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-gradient":""}},"ast-content-background-meta":{"desktop":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-gradient":""},"tablet":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-gradient":""},"mobile":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-gradient":""}},"footnotes":""},"categories":[528],"tags":[],"_links":{"self":[{"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=\/wp\/v2\/posts\/1196198"}],"collection":[{"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=\/wp\/v2\/users\/19"}],"replies":[{"embeddable":true,"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=1196198"}],"version-history":[{"count":3,"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=\/wp\/v2\/posts\/1196198\/revisions"}],"predecessor-version":[{"id":1206680,"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=\/wp\/v2\/posts\/1196198\/revisions\/1206680"}],"wp:attachment":[{"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=1196198"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=1196198"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=1196198"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}