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Sold position in Oil States International/Civeo

July 7, 2014

I really hate to trade equities; After all, I style myself a value investor. Yet that’s just what I’ve done here. I purchased Oil States Int’l in mid May just before the month-end spin-off of Civeo, and now less than 2 month’s later I’ve sold it for a gain of about 23%. Given that my time horizon is supposed to be long term, why sell now? There is a reputable activist, Jana Partners, the one who originally pushed for the spin off, who is now trying to coax CIVEO management into adopting a REIT structure for the company. That surely would increase Mr. Market’s valuation of Civeo, or so most commentators believe. Perhaps it’s true but I have a hard time swallowing that a change in the tax structure of a company alters its intrinsic value. And that’s what I care most about.
Simply put, I sold because the two halves of OIS reached my price target. I really didn’t expect the two halves to be repriced in such a short time. I think what’s happened here is that Mr. Market in general has gotten a bit giddy  and the price of all shares has been bid up considerably in the last couple of months. So I’m not attributing the runup to the new split structure (well, maybe just a little bit) but rather to Mr. Market being a bit punch drunk at this point. There may indeed be significantly more value in the two parts of OIS than Mr. market is willing to pay for today, but I really don’t have the expertise to determine that. I thought buying the company before the spin-off was like shooting fish in a barrel, a classic Greenblatt situation where the ownership constituencies for the two pieces were so different that the combined entity was being mispriced. Now that the shares have been repriced to what I consider a more likely level, any further repricing will require some OPERATIONAL improvements… and those can take time. I’m content to sit with a 23% gain in 2 months rather than waiting a year or more for a 50% repricing.. but maybe I’m wrong.

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