Long Ingram, Short Tech Data Paired Trade Idea
My latest column is up at RealMoney.
I think a long Ingram Micro (IM) and short Tech Data paired trade can take advantage of differences in valuation regardless of what happens next in business spending.
While the two companies tend to take turns outperforming one another, over the last five years and since the market peak in early 2000 their cumulative performance is nearly identical. This time around, I’d expect both companies’ P/E multiples to converge, perhaps to 10 times estimated 2009 earnings. To budget in the possibility of further estimate cuts, I am also using the lowest estimate on the Street.
At 10 times the Street-low estimate of $2.38, Tech Data could see a further drop of nearly 30% from current levels. Ingram, meanwhile, could see a 20% share price rise if it were to trade at 10 times the 2009 low estimate of $1.86.
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