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Keryx Biopharmaceuticals (NASDAQ: KERX) As Part Of My Portfolio

KERX is one of the more interesting stock in my portfolio– and it is also a growth stock that has the potential to be a multi-bagger.

What is a multi-bagger? “A multibagger is an investment that has gained several times its original value. Each “bag” represents your entire original investment. So if you invested $5,000 in a stock and your holding is now worth $10,000, you have a two-bagger.”- Motley Fool

My Entry Price For KERX

I sold put option for KERX back in January 2016 and was exercised– and that resulted in me owning the stock at $4.

Including the premium that I have gained so far after i received the stock, my average buying price for KERX is now around $3.7.

The price as of 4 June 2016 is $6.28.

What Happened On 2 June 2016

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KERX Up 12% 2 June 2016

(Image source: Iphone Stocks App)

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13D Filings Showing The Baupost Group Had 42.53% Stake In KERX

(Image source: 13D Filings by The Baupost Group)

On 2 June 2016, I was surprised when I saw KERX capital appreciated as high as 14-15% during trading hours– so I did some research and found out that Seth Klarman’s Baupost Group filed with the Securities and Exchange Commission under a 13D filing disclosing that it had a 42.5% stake in KERX– up from the previously disclosed stake of 34.6% on October 14, 2015.

What The Market Thought Happened

The market reacted positively to this news and assumed that since The Baupost Group stake in KERX had increased, that meant that Seth Klarman (CEO of The Baupost Group) is very confident of the company and had perceived the company as still being undervalued– that is why they increased their stake, right? Well, read on.

What Really Happened

Basically, what happened was that The Baupost Group did not buy more shares and the increased stake was wholly due to the adjustment of the convertible senior notes— that it had already owned which was worth $125 M.

However back then, KERX did not have enough authorized shares to convert the notes to shares– that changes when on May 25, 2016, KERX stockholders approved an amendment to the Issuer’s Certificate of Incorporation to increase its authorized share capital by 50,000,000 shares– hence, increasing The Baupost Group stake from 34.6% to 42.5%.

Take a look at the excerpt from the 13D filings by The Baupost group:

“On May 27, 2016, the Issuer announced that at the Issuer’s Annual Meeting of Stockholders held on May 25, 2016, its stockholders approved an amendment to the Issuer’s Certificate of Incorporation to increase its authorized share capital by 50,000,000 shares of Common Stock. As a result of the increase in the authorized share capital, the Notes became convertible only into shares of the Issuer’s Common Stock. Based on the initial conversion rate, the $125 million aggregate principal amount of Notes is now convertible into 33,422,459 shares of Common Stock.”

In Conclusion

Technically The Baupost Group did indeed increase their stake in KERX– but it was not from buying more shares and hence, it cannot be assumed that there is an increased confidence that KERX is still undervalued from Seth Klarman– however, I believe that the market thinks otherwise– that is why there was the spike of 11.87% on 2 June.

That is because when a hedge fund disclosed that they had increased a stake in a company, the market thinks it’s because the hedge fund feels that the stock is currently undervalued and therefore it is a good buy.

On 3 June however, the market might have realized their mistake, hence, there was the correction of 6.13%.


Disclosure: I am long on KERX. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. 


To read more about Keryx Biopharmaceuticals click here.

Important: Please read my disclaimer.


 

 

CHRIS LEE SUSANTO

CHRIS LEE SUSANTO

Founder

Hi, my name is Chris and I am the founder of Re-ThinkWealth. A blog that focuses on personal finance self-improvement, investments, and investor psychology.

Since early 2015, I manage money for my family and invests it in Singapore and United States equities and options achieving above market return.

I use Value Investing and Options Selling strategies used by Warren Buffett (World’s richest investor) coupled with the core theory of inversion. Inversion meaning that in every investing idea, we have to scrutinise on why it would fail.

This will result in us being more conservative, and being conservative is the key to protecting and growing wealth in the long run.

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