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Out of Adient (ADNT)

May 20, 2019

I don’t usually trade stocks; my holding periods tend to be counted in years rather than months. But every once in a while I’ll somehow get saddled on a bucking bronco… in this case Adient. The shares lost something like 80% of their value in 2018. I was lured in to buy a position in late 2018/early 2019 at around $17 a share only to see the share price rise to almost $26 by late February then crash back to my purchase price by early March. You never know how LOW a stock can go so I liquidated my position with no loss and no gain, still convinced in the long run there is value in this company. When the share price fell below $14 in late March I was tempted back and reestablished a position. Once again shares went on a tear and peaked around $25 in late April. With a 70%+ capital gain, the company about to report 1st quarter earning (I was pretty sure Adient earnings would be lackluster as fixing a large global organization takes more time than anyone imagines) and  what I consider a precarious economic situation for the automobile sector, and parts manufacturers in particular, I felt it was time to sell and this time lock in a profit.

As of mid-May the shares are back under $18. Is it time to reestablish a position? I still think the company is undervalued at current levels, but we need to see some signs of improvement in revenues and above all the bottom line before Mr. Market’s opinion will change. Of course, if we wait for those improvements Mr. Market will price in the improved outlook and the shares will bounce well over the April highs. But before I reestablish a position I want to see how low the share price will go. The March lows were lower than the December lows. Will we have new lows that are below the March lows? If so, the trend is still down. On the other hand, if we make new lows around the $14 or $15 level then perhaps we might see the share price gradually improve with the health of the business… I like gradually, not bucking bronco ups and down.

In the meantime we get to see how the overall economic situation plays out. A recession will dampen demand for automobiles which, in turn,  will trickle down to seat manufacturers. Given the distinct possibility of a trade war leading the US into recession, perhaps a ‘wait and see’ attitude is best unless ADNT shares lure us back with a super discounted price.

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