Showing posts from March, 2012

IB Net Payout Yields Model

Interesting IPOs This Week

 (note: This article was originally submitted to Seeking Alpha. Due to the delay in publishing some of the info is slightly outdated, but still useful) The Week of March 26 is chock full of IPOs with several of them providing interesting investment opportunities. Naturally the key being the pricing terms and the ability to get in on the IPO or in the after market at a reasonable price. A perfect example was yesterday's IPO of Annie's (BNNY) . The stock priced at $19 and opened over $31. Though it closed near $36, investors in the after market saw very little of the gains today and face a ton of risk. Not an ideal combination. In a lot of cases, the key to IPO stocks is to just follow and wait for opportunities in the future. Remember that most of these companies coming public have bright futures. Its just a matter of matching up the valuation with the growth opportunity. Unlike existing public stocks, investors haven't had an opportunity to listen to the executives via qu

More Developments At Sears Holdings

Never a dull moment with the Sears Holdings (SHLD) stock. As mentioned in several previous posts, Sears has finally begun the process of externalizing brands [See article: Externalizing Brands Could Be Major Catalyst For Stock ] and monetizing assets. Today came news on both fronts. First, reports began flying around that Sears has placed Lands End up for sale at a price tag of nearly $2B. Second, it announced that DieHard has finally released an alkaline version of its very popular automotive battery. Lands End Sale Of course, the market is spinning this potential sale as a desperate move for cash which couldn't be farther from the truth. In fact, shorts should be very concerned if Sears can reach any price close to $2B. Part of that cash could be use annihilate any remaining float making it impossible to cover any remaining shorts [See article: Impossible To Cover ]. According to a CNBC report , Sears would like to continue to license the retailers goods to sale at its

Huge Positive Close For OCZ Tech

At one point today, OCZ Technology (OCZ) was down more than 5% to below $7 before a massive end of day rally. This stock has been a major conundrum since completing a secondary at $9 to raise over $100M. The stock even hit $10 around that time. Even worse is that the market has been consistently rising during that period. Management had previously hinted that if the company needed to raise cash it would be due to significant orders that required more cash for operations. Absent any big deal announcement since the secondary, it appears that investors have become disenchanted with this story. Analysts expect the company to have wrapped up nearly 100% revenue growth for FY'12 and follow that up with a 35% revenue growth for FY'13. The stock currently trades at a 13 forward PE though the 5 year growth rate is over 22%. That number even appears low considering the growth rate. On the technicals, the stock closed right around the 200ma. Being so oversold, the stock is due for

Rest Of World Shale Gas Potential Plunges

As the US shale boom produces a bounty of dry gas and now even oil, the promises of a shale gas revolution in Europe and China is fading quickly. It may still happen, but it might take a decade to develop different techniques as the methods that worked in the US clearly aren't going to work in places such as Poland where population density and harder rocks make it a more complex and costly endeavor. The shale boom had great promise in helping Poland and the rest of Europe lessen dependence on expensive Russian supplies. Instead, the Polish Geological Institute recently cut the estimated gas reserves by 85 percent. Now before even starting, major US corporations like Exxon Mobil (XOM), Chevron Corp (CVX) and ConocoPhillips (COP) are faced with doubts about whether the drilling will ever be feasible even if the gas does exist. This is a far cry from the scenario in the US where the technologies have already proven. Read full article at Seeking Alpha. Disclosure: Long COP. Pleas

The 'Seeking Alpha' Indicator: 3 More Promising Stocks With Less Than 100 Email Alerts Followers

As discussed in this article last week, the 'Seeking Alpha' indicator provides a new insight into the popularity of individual stocks amongst active investors. The original 2 stocks discussed, Velti (VELT) and Green Dot (GDOT) , have already seen some large increases in followers. In fact, Velti has already exceeded the 100 follower level showing that the stock is suddenly garnering investor attention. After some more research, we've found 3 more appealing stocks that surprisingly have less than 100 followers. By the way, it wasn't overly hard to find unappealing small caps with under 100 followers. Read the full article at Seeking Alpha. Disclosure: Long AER and RDWR. Please review the disclaimer page for more details.  Stone Fox Capital   Stone Fox Capital holds an allocation of 10.4% in $AER in his Opportunistic Arbitrage Investment Model Stone Fox Capital holds an allocation of 11.2% in $RDWR in his Opportunistic Arbit

Carrizo Oil and Gas Heading to 80% Oil

This stock was crushed today, down over 5% at the close. On top of that Carrizo Oil & Gas (CRZO) is down over 33% from last years high. The main issue is that the market still sees it as a natural gas play, but clearly the company has already moved to mainly oil. Per the interview below on Mad Money , the CEO reconfirms that the company is already 60% oil and will hit 80% oil by the end of the year. The most interesting part of the interview was the prediction that 2013 revenues could hit $750M with the current rig count. Incredible considering analysts forecast something in the $600M range and considering the company just sold a large chunk of Barnett Shale production. Also worth noting is that the company will be throwing off cash in 2013 though the CEO wants to add rigs once the company reaches that level. All in all very positive news about a stock I was becoming concerned about. Considering the oil focused stocks have recently hit new highs and especially trade above

Data Hungry iPads

Wireless providers around the world and especially in the US face a major issue with the massive data consumed by the new high resolution screen of the iPad3. According to the below Bloomberg video, users are blowing through data usage plans in only a couple of days. Wow! The real key is whether AT&T (T) and Verizon (VZ) can charge more for higher usage. More spectrum and capital spending will be needed to keep up with exploding demand, but what the industry really needs is pricing that keeps up with technology. Either develop a way to exponentially expand capacity or charge more for high data usage to slow down demand on the network. As mentioned by Derek Kerton, principal analyst at Kerton Group, users need to be pushed into using Wi-Fi when available such as at a coffee shop or even at home. At this point in the development of the industry, the goal can't really be to limit the wireless use of the iPad, but rather a wiser use of the available tools realizing that wirel

Australia Iron Ore Exports Set to Rise Over 50% By 2017

According to this Reuters report on CNBC, iron ore demand is set to grow at 11% through 2017. Wait, didn't stocks initially plunge today due to fears of slower demand in China for iron ore? Talk about a confusing market with conflicting currents in the news. The actual news from BHP Billiton (BHP) today was that demand from China was "flattening" or otherwise growing in the mid single digits versus the double digit growth of the past decade. Slower growth, but still growth. How this is news was beyond me. Everybody should know by now that China wants slower growth. Stocks like Alpha Natural Resources (ANR) are down some 75% since early 2011 peaks. The market has already harshly punished this met coal producer to the extreme making the initial 6% drop further signs of a bottom. Remember that met coal is used with iron ore to produce steel. So now basically within 24 hours the media is spinning out reports of massive growth in iron ore demand and the expectations f

Hewlett-Packard's Dwindling Buyback Was A Telling Warning Sign

Hewlett-Packard (HPQ) spent the first half of 2011 buying back a ton of stock amounting to a decent percentage of the outstanding shares. A signal typically that a company has a lot more free cash flow and cash on hand than the market is giving the company credit for having. Unfortunately, this buyback pace didn't last even though the stock steadily declined in the 2nd half of 2011. So why did the buyback dwindle if the stock didn't gain in value? Nothing worse than a company that buys high and doesn't buy low. It can be argued that with a new management team coming in that it was just a change of strategy not a signal of a change in fundamentals. This is possible as Meg Whitman became CEO in September 2011, but she was a board member since January 2011. Read the full article at Seeking Alpha. Disclosure: Long TRV and WLP. Please read the disclaimer page for more details. 

Investors Too Focused On Apple's Dividend

Today Apple (AAPL) announced a new dividend (the company last paid one in 1995) and the stock surged 2.7% to close over $600 for the first time. So why didn't Apple announce a dividend years ago if this was going to be the price reaction? Well, mainly because the stock really jumped when news started hitting the wires that Apple sold 3M of the new iPad3s over the weekend. This makes the iPad3 the strongest launch yet and further proof that the dividend announcement will and always should be overshadowed by product innovation and sales. That is until the stock is no longer an exciting, growth company like Intel (INTC) or Microsoft (MSFT) now. The dividend news honestly is not that significant and ironically it might just lead to more sales. What do you think Apple shareholders will do with a $10.60 yearly dividend? Possibly load up on more Apple products. So while the dividend news doesn't move the needle for this stock it might just help the economy as it funnels roughly

The Benefits Of Fast Growing Beverage Makers Over Coca-Cola

A few days back, an interesting debate took place over whether investing in Coca-Cola (KO) or gold was a better long-term investment. Jim Grant made the point that gold had been the better investment since 1996, against an argument by Warren Buffett. Grant suggested that Coca-Cola was now the better option. That comment just about shocked me as he pointed out that it has a current PE of 19. Slow growing Coca-Cola with a $160B market cap is a value? Read the full article at Seeking Alpha. Disclosure: Long SODA. Please review the disclaimer page for more details. 

Stat of the Day: Consumer Sentiment Remains Tepid

Even with the stock market booming and employment improving, consumer sentiment as reported by the University of Michigan remains very tepid. The March report came in at 74.3 this mornings which was slightly below the prior 75.3 level. It was also below the consensus levels of 76. Either way these numbers remain at the high end of the range for the last few years as the chart below shows. Still this is significantly below historical levels showing how pessimistic consumers remain. The main culprit is supposedly gas prices though most consumers are benefiting on the flip side from lower natural gas prices for utility expenses. The net impact to wallets is probably flat for consumers though the media focus is always on gas prices. Not to mention consumers don't readily see nat gas prices. Most likely pay their monthly electric bill without any notice of the fuel charge. Now the key is whether sentiment has hit the top end of the range or whether a breakout can finally occur. A

The 'Seeking Alpha' Indicator: 2 Promising Stocks With Less Than 100 Email Alerts Followers

Most investors dream of finding the next big stock. The one that will double, triple or even quadruple in the next few years. One key to success has always been finding the fast growing stock still undiscovered by the market. One with huge growth potential that the market has ignored. Focusing on the number of analysts covering a stock was always a key highlight of whether the investment community had discovered a stock yet. If the stock was only covered by 2-3 analysts, then one could expect the market reach to grow exponentially as the stock got bigger and attracted more analysts. Read the full article at Seeking Alpha. Disclosure: No position mentioned. Please review the disclaimer page for more details. 

OCZ Tech Collects $109M On Offering

Today's news on the closing of the secondary and the exercise of over-allotments shouldn't be that big of a deal, but the stock is down 5.5% now. Hard to tell the reason for the selloff other than maybe the over-allotment was partially exercised. This is possibly seen as a negative in the market though I don't see this move as surprising. The secondary was for $9 and the stock is selling below those levels. Why take that deal when the open market is cheaper? OCZ Tech (OCZ) remains a leading provider of high-performance solid state drives (SSDs) for computing devices and systems that remains in very high demand. The company will presumably use these funds to land a very large customer though the company has yet to verify or deny. That might also be the cause of the selloff. Traders might be fleeing the stock considering the secondary has been closed and the speculated major deal has not been announced. Sure appears like a buy the dip scenario though our models are

Weatherford: A Good International Oil Services Play

Weatherford International (WFT) provides the unique opportunity to invest in an oil services play reporting record revenue and EBITDA numbers while trading well off all-time and 52-week highs. This company also provides an ideal investment in a company highly focused on the international oil service markets and domestic oil. Mostly avoiding the domestic natural gas slowdown by having a North American focus of 80% oil based. It provides this opportunity due to numerous hiccups with financial reporting, mainly focused on a continued problem with accurately reporting taxes. International Focus The four major domestic oil service companies include Baker Hughes (BHI) , Haliburton (HAL) , and Schlumberger (SLB) . As the Figure 1 below shows, all of the domestic oil service provides have a diversified mix with at least 40% of revenue focused on international markets. The key for Weatherford is that outside of $100B industry leading behemoth Schlumberger, it has the highest international expo

Navistar: Cheap Enough Yet?

Navistar (NAV) makes commercial trucks, buses, step-vans, diesel engines and chassis for motor homes. Otherwise, the company focuses on the large motor vehicle sector. This stock provides one of the most compelling valuations in the market today, if the company can hit financial goals. That remains a big 'IF' for this company considering the recent disaster of a Q1'12 reported just last week. Hence the question on whether the stock is cheap enough to buy considering the constant inability to hit targets. The last 4 quarters have seen 3 profits misses all by at least $.15. These misses have caused 2013 earnings estimates to plunge from $8.13 only 90 days ago to $6.52 now. The most pessimistic analyst is already down at $5 showing a growing distrust with the ability to hit targets. Read the full article at Seeking Alpha. Disclosure: No positions mentioned. Please review the disclaimer page for more details. 

Investment Report - March 2012: Opportunistic Levered

This model gained a solid 21.4% in February versus 4.1% for the benchmark S&P 500. This model typical outpaces the major indices by a large margin in up periods and last month was no exception. Since the end of 2011, this model has been running on the theme that the majority of stocks would retrace the losses experienced since the July 2011 levels. In essence, our theory all along has been any losses since that time period were from irrational fear of a second financial collapse that the Europeans were unlikely to allow. Naturally this fluctuates on a case by case basis where any individual stock could move a lot higher or lower depending on circumstances since then. This conviction has allowed us to hold onto a highly leveraged portfolio and see significant gains this year as stocks like Apple (AAPL) , Dicks Sporting Goods (DKS) , Liz Claiborne (LIZ) , and Radware (RDWR) all reached those July levels by February. Other stocks like Manitowoc (MTW), Sears Hold

Short Interest Remains Incredibly High At Sears Holdings

Anybody half way following the market this year has to know that Sears Holdings (SHLD) has had a tremendous run this stock. The stock is up over 150% for the year, leading the S&P 500. Oddly though according to the Bloomberg report on Sears remains 2nd in the list of highest short percentage. The data is only as of Feb 29th so maybe a few shorts covered during last weeks rally. Another important point is that Bloomberg lists the equity float as 36 million shares. This number could be considerably lower when adding a few mutual funds that control shares unlikely to be sold to the public. It's possible that most stocks have similar fund holdings so at least the comparison is likely apples to apples giving a great starting point for more research. From the list below, Sears has an incredible 34% of the float short. This continues to highlight my theory that the large purchase by Chairman Eddie Lampert and the subsequent aggressive moves on monetizing assets has set off t

Investment Report - March 2012: Net Payout Yields

This model gained a solid 4.9% in February versus 4.1% for the benchmark S&P 500. As typical of this conservative model it tends to gain alongside the market on the way up and outperform during periods of weakness. Trades February was a slightly more active month for this model with 4 trades mainly switching out of two positions with reduced yields for two positions with attractive yields. Gilead Sciences (GILD) and Banco Itau (ITUB) were both sold during the month. Gilead Sciences is a leading biotech firm that greatly reduced their stock buyback program in order in purchase Pharmasset. This virtually eliminated the net payout yield as the company confirmed on the Q4’11 earnings call leading us to selling the stock as it surged on earnings. See blog post for more details. This was very fortunate for the model as either luck or the reduction of the buyback foretelling weakness ahead, the company announced disappointing drug information just a couple of

Monster Worldwide Breaks Downtrend

Anybody following the general market and especially this blog already knows about the CEO placing this company up for sale. See previous article on this blog with a link to an article I wrote for Seeking Alpha for more details. Today the stock for Monster Worldwide (MWW) is up another 4% mainly with the general market. Possibly though the technicians are jumping on board as the stock has finally broken a couple of downtrends the last few days. For numerous valuation reasons, it's very logical for the stock to continue pressing above $10 prior to any deal announcements. The biggest risk to price is the next earnings report in April when the attractive balance sheet and brand meets the weak earnings situation. Until then, I'd expect the stock to remain in an uptrend. The biggest question could possibly be whether to cash out if the stock hits in the $12-13 range prior to a deal or wait it out for a possible $15+ as a few analysts suggest might be possible in a deal. For n

One Monster Of A Premium In Store?

As we wrote back on Monday, the official announcement of Monster Worldwide (MWW) hiring an advisor was a promising sign. The CEO had mentioned on the 1st that the stock was too cheap and that the company would seek a strategic deal to enhance shareholder value. Then on the 2nd, Oppenheimer questioned the true seriousness of a deal causing the stock to sell off. Not too surprising to see some doubters as Monster is always rumored as a buyout candidate. A rumor that so far has not come true. This time though appears different. Monster has actually acknowledged the interest and followed through with the hiring of an advisor. Possibly suggesting that some of the rumors in the past came from executives unhappy with the stock price and contemplating a deal. Read the full article at Seeking Alpha. Disclosure: Long MWW. Read the disclaimer page for more details. 

Copper Market Remains Tight

Dr. Copper continues to attract plenty of debate regarding the future. The bulls point to the fast declining inventories at the LME long followed as the leading inventory indicator. The bears will point to the fast increasing supplies at the Shanghai Futures Exchange warehouses suggesting that China demand is slowing. It's very possible that both opinions are correct and the truth is somewhere in the middle. Codelco, the leading copper producer in the world, shared some interesting thoughts on the copper market as it revealed the plans for spending a record $4.3B this year on increasing output. So why is the largest copper producer spending to increase production if the worlds largest copper user is slowing down? Naturally because the company sees a tight market partially due to strong demand and also due to weak supply. Codelco expects copper production from its mines to actually decline this year. Highlighting the ultimate problem with any bears of copper. If demand just s

Brazil Slashes Interest Rates For Fifth Time

It wasn't surprising that Brazil slashed interest rates for the 5th time tonight, but it was a little surprising to see a 75 basis point cut. One needs to understand though that Brazil still maintains one of the highest interest rates in the world after this cut to 9.75%. This even after 275 basis points of rate cuts in the last 6 to 7 months. After a 2.7% GDP print for 2011, its just natural that the interest rate would drop from such lofty levels. What is ironic is that the original surprise cut back in August last year was so criticized. Just imagine now if the central bank hadn't started so soon. This economy might be headed to a recession if not for the fast action. One also needs to understand that interest rate cuts take up to 9-12 months to have an impact on the economy to a great extent. The original cut was only some 7 months ago. Though this does further highlight the typical problem with rate cuts. The Brazilian central bank has already made 5 rate cuts before t

The Defense Sector Yields Too Much To Ignore

Nothing like taking a financially strong sector combined with fears of cutbacks to provide for some exciting yields. With major government budget cutbacks expected in the US, the defense sector went through a few rough quarters in 2011. Investors feared the worse. At the end of the day though, the companies remain strong and according to a Bloomberg report, most of the top dividend yielding stocks in the Capital Goods sector belong to the defense sector. Read the full article at Seeking Alpha. Disclosure: Long LMT and RTN. Please read the disclaimer page for more details. 

Where Is The Free Cash Flow At Equinix?

As a telecom industry veteran, I'm all too familiar with companies that build data centers and networks for the future. All too often, service providers spent billions on networks that needed to be upgraded by the time they were installed. These companies always promised huge earnings in the future. Massive free cash flows were always around the corner once this feature was added or this connection made. Unfortunately, the competition always had the same plan leading to quick margin erosion and evaporating profits. While reading the Q4'11 earnings conference call transcript for Equinix (EQIX) , this statement in the opening remarks by CEO Stephen Smith got me thinking back to the internet bubble years. Read the full article at Seeking Alpha. Disclosure: No positions mentioned. Please review the disclaimer page for more details. 

Monster Worldwide Follows Through On Hiring Advisor

A day after Oppenheimer questioned whether Monster Worldwide (MWW) was serious about selling the business, news leaked after the close that it had indeed hired investment bankers. Clearly this doesn't mean a deal will be done, but it shows the intent does exist. To step back a little, Monster's CEO had made an announcement at a conference earlier last week suggesting the company was looking for strategic alternatives to boost the stock price. The stock sprang up nearly 20% that day, but quickly settled back down as reality set in helped by Oppenheimer. Trading should be interesting tomorrow and the rest of the week. The stock remains very cheap and any real intent to sell the company could likely fetch numbers back towards the July level of $13-15. SunTrust analyst Tobey Sommer suggests an acquirer could ring out $100M in costs savings from reducing redundant management, marketing, and general administrative expenses. It has long been suggested that Monster has a bloated

The 400% Man

Image has an interesting story about a college dropout in Utah that has a successful fund. Very interesting to see a guy that is successful is this business by picking strong companies for the long term instead of attempting to make a dime every minute on every bit of information. What I really like is how the guy spends most of his time reading and very little creating spreadsheets or detailed plans. To an extent, this reminds me of myself. Constantly read articles on Seeking Alpha or numerous other media outlets where somebody has gone into an incredible effort to forecast the future numbers for XYZ company. While useful, investing still comes down to more of a science than a precise equation. For example, John Paulson & Co. just spent months compiling detailed information in order to persuade Hartford Financial (HIG) management on how to split the company up and provide the necessary liquidity for the 2 separate units. That information was so detailed that it almo

Energy Price Comparison

Great picture comparing the price of the 3 main energy options: coal, nat gas, and oil. Not only does this chart show current prices, but also the futures for each item. It is worth noting the higher prices of natural gas in the future. The price increases substantially over current prices. Unless coal sees a similar rise in the future, all the power stations converting to nat gas will cause higher utility prices down the road. Especially in case where coal plants are being closed. Maybe great for the environment, but I seriously doubt consumers will agree when they get bills during a brutally cold 2013 winter. Just guessing.

Could the S&P 500 Hit 1,700 This Year?

Of course not. Why would the market ever breakout to new highs? Aren't the financial markets headed for collapse? According to Laszlo Birinyi, president of Birinyi Associates, in this CNBC report the possibility really exists for a further 24% increase this year to 1,700. The good news is that just about every market pundit has blown off this view that the possibility increases. A 35% gain in the markets is far from unprecedented especially when the year began with sub par valuations. According to Birinyi, this is just a continuation of the bull market began back in 2009. According to him, this run looks similar to the 1982 and 1990 runs. Neither is likely to be repeated, but for any investor to dismiss the possibility would probably be reckless. Especially considering any break of current levels ushers in a return to old highs in the 1,500s. A further break of that would likely lead to nice gains beyond the old high leaving 1,700 as a likely stop. Laszlo has been bul


Both Liz Claiborne (LIZ) and SodaStream (SODA) reported earnings (see previous post on SODA earnings) prior to the open on Wednesday that disappointed the street with both stocks dropping dramatically for the day. Liz Claiborne reported earnings that generally met estimates, but with the stock around 52 week highs it wasn't too surprising to see a dip with the company not beating estimates. SodaStream easily surpassed estimates and guided much higher on '12 numbers. LIZ dropped 6%, SODA dropped 14%. A strange thing happened during trading today. Liz Claiborne turned around and soared 13.5% to new 52 week highs over $11. The stock is now ahead roughly 7% since earnings. SodaStream though fizzled as the day moved along and ended slightly down for the day leaving investors hanging onto a nearly 15% loss now. What gives? SodaStream keeps growing at a fast clip and trades at very cheap forward PE compared to it's 35% earnings growth for 2012. Liz Claiborne on the other h