A safer speculation in the risky market?

The stock market is quite shaky and volatile at the moment and this will for sure continue at least in the next 2 months till the US presidential election is done. For trading purpose, buying and holding is likely risky as the market turmoil can easily wipe out your positions. In such an environment, one sometimes has to go out of the norm to find something that may not be so risky in this risky market. I think I may have found one.

 

Caesars Entertainment (CZR), a Las Vegas-based company, is a gaming giant with dozens of operations across the world. But it got serious problems in the past few years, leading to filing in January 2015 one of the most complex U.S. bankruptcies with $18 billion of debt. Needless to say, the stock got decimated and crashed from its peak of $25 to $6 at the lowest. Understandably, when a company is in a state of bankruptcy, stockholders value could very well go down to zero. But savvy investors may make good money from bankrupted companies when they get in at the right moment. I think we may see the right moment now. CRZ just announced that it has reached a deal with major creditors. In other words, the fear of going out of business is virtually gone and the major downside risk have been removed. Think about it, when the company was facing a real bankruptcy crisis, the stock didn’t go much below $6. Now the situation has drastically improved, the upside potential should be much greater than the downside, right? We have seen the worst, as such even a volatile market will not likely make it “more bad”. There are two main factors that make me a bit more confident to make this call:

• Tell you a secret how to just the overall risk of a company: looking at its bond prices. As I said before, bond holders are the savviest investors, much smarter than the stock investors, sort of speaking. They are usually the first ones to smell the risk of a business. When Caesars filed for bankruptcy early 2015, its bonds were traded below $0.2 (a 80% crash). Now it has recovered by over 300%, traded close to $0.7. In other words, the smart bond investors are telling us the most dangerous time for CZR is over.
• Then comes to the technical part. I really like how the CZR chart looks like at the moment. I think it is poised to move significantly higher from here around $7. I’m looking for double or more in the next 12 months.

Of course, even if I’m right , don’t expect a straight line up but expect a lot of volatility. And I may very well be wrong as usual. The most obvious indicator that I’m wrong is when CZR goes down below its all time low, i.e. below $6. That should be the exit point for this speculation.