SD and warrants - I get very worried any time there's talk of a "no brainer". I've had many times in the past that I thought something was a no brainer . . . and more often than not it turned out I was the one with no brains. ha
I own both SD and the WW warrants, but nothing is a no brainer.
While everything looks rosy at the moment, we have no way of knowing how much of the current natural gas price is speculation. In the next couple of months, gas could go to $6 or $13. Neither would surprise me. Putin invaded Feb 24, SD share price was a little over $12 and natgas was around $4.60. I'd have to guess that the war was at least partially responsible for the near doubling in both prices. Who knows, a lot of this may have been the equivalent of everyone running out and buying toilet paper at the beginning of the lockdowns.
The whole energy complex could turn negative in the short term. Starting to hear a lot more stories about real demand destruction. And Europe's gas storage is filling at the fastest rate on record.
Even though my guess is this is a long term bull market for energy and commodities, even if that's correct you can still have sharp draw-downs or little bear markets within longer term bull markets.
I'm not predicting it, but if Putin and Zelensky were to declare some sort of peace, oil and gas (and their stocks) might fall 10-25% overnight as a knee-jerk reaction.
An additional consideration on the warrants is that it's possible there are two major constituencies who don't want to see them get exercised: the company, and the current shareholders (of whom Icahn is the largest, and he ain't no dummy). The company will have to issue about 20% new shares if the warrants are exercised. That will dilute the earnings by 20%. The company basically already has a cash problem -- they've got too much of it and are talking about dividends or buybacks. Yes, they'll get like $290m in cash if the warrants are exercised, but unless they've got some accretive $400m acquisition they've got their eye on, what good does the cash do them? The company might have to turn right around and do a tender offer for 20% of its shares, so that was just a big waste of time and money for the company. If the share price is close to the strike price around the expiration date, maybe that would be a time to announce some bad news and the price moves a little lower.
None of this is meant to sound negative, but just to bring attention to the idea the everything has risk -- nothing is a no brainer.
LMB and its warrants seemed like a no brainer too. The only reason I didn't own them is because I was equally convinced the price was moving higher and when it got above where I felt comfortable buying it, I just stopped paying attention to it because I figured it would never come back down to my buy price again. Wrong-o! It's only in hindsight that we might all say the offering at $12 killed the rally. At the time, I think most of us viewed that offering as just the opposite: "These institutions know what they're doing. If they're buying at $12, you know they think company is worth a lot more!"
So I, for one, am not gonna get too cocky. The stock price is still a long ways away from the lowest warrant strike price of $41.34. Plus we've just had four up days in a row. That's a pretty long extension up with no pullback.
There's plenty of pluses that have already been mentioned by others and I hold a nice position. But I've found it's usually best to consider the potential downsides as well.
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