The Long and the Short of it All
July 15, 2009
We are presenting a list of companies which we believe are currently mispriced, based on our estimate of fair value, by the market. We develop our fair value ranges by projected free cash flow out one year and estimating an appropriate FCF multiple based on our assessment of risk and the strength of the balance sheet.
Cisco Systems [CSCO: 23.82, -0.1101 (-0.46%)] Recent Price $17.04 Value Range 21.86 – $38.41
Cisco Systems, Inc. designs, manufactures and sells Internet protocol (IP)-based networking and other products related to the communications and information technology (IT) industry, and provides services associated with these products and their use. Read more
McDonald’s New Angus Burger – A Green Shoot?
July 10, 2009
I’m sure quite a few eyes rolled when reading the title of this article. “Green Shoot” has been thrown around the financial media incessantly over the past few months, to the dismay of many. The thought that a new menu item at McDonald’s [MCD: 61.72, +0.24 (+0.39%)] is a glimmer of hope for the economy is, admittedly, a little preposterous. While I don’t believe the the 1/3 pound premium sandwich signals a recovery, it does say something about the future of consumer spending. If there is one company that knows a little something about the everyday consumer, it is McDonald’s.
Things Turning Around at Rick’s Cabaret: It’s Time To Buy
June 16, 2009
Our favorite purveyor of adult fantasy, Rick’s Cabaret International (NASDAQ: RICK) reported results May 12th, and there appears to be good news on the horizon.
I am recommending immediate purchase of shares in Rick’s stock at or around $6-7 per share, and in fact I added to my position at $6.90 on May 13th.
Readers of my Twitter feed were able to take advantage of my real-time buy alert as well as a weak stock market to grab shares of Rick’s at a fantastic price, as the company’s results while not stellar, show marked improvement and portend greater things ahead. Read more
Restaurant Stocks: A Lot of Hot Air
June 12, 2009
Out of the restaurant companies that I am covering, 3 of the names were on my radar screen late last year, with a formal recommendation of Chipotle’s “B” [[CMG-B]] shares at around $45 per share in my Top 5 Stocks for 2009 article. Read more
The Netflix Story Is Done
May 31, 2009
Today I covered my short position in Netflix [NFLX: 55.86, -0.53 (-0.94%)] at $39.90 per share. The total amount shorted was for a 1/2 position out of a full position, accounting for about 15% of my portfolio. Those that follow me on Twitter received this update today as I made the transaction. By the time some of you read this post, I will have already exited the position because my stop limit order was triggered, so I advise you to subscribe to my Twitter feed that can be sent to your phone via text message or email for any actionable alerts that I will first post there before writing about in these pages. Read more
Teen Retail: Sell in May, and Go Far, Far Away
May 24, 2009
We all know consumption is the most prominent victim of this recession. Not only do we have to deal with soaring unemployment and tightening credit, but also the behavioral shift in America of spending less as a percentage of income. Obviously these factors are going to disproportionately hurt the sub sectors with the highest priced goods, or those considered the most discretionary such as luxury cars, high-end women’s clothing, etc. One sub-sector that will surely feel tremendous pain, however, is teen retail. Read more
Get in the Zone, AutoZone
May 21, 2009
Due to the weak economy, Americans are resorting to keeping their vehicles longer, leaving automakers like General Motors [GM: 0.00, N/A (N/A)] and Ford [F: 7.75, +0.30 (+4.03%)] struggling with new car sales. One statistic shows that the average age of vehicles has increased by over 40 percent since the 1960s in the United States, while Americans’ incomes have increased more than new car prices over the same time period. This being said, many people who keep their older cars have to maintain them by going to auto parts stores to purchase necessities such as new batteries or alternators. One of the industry leaders is AutoZone, Inc. [AZO: 140.32, +0.11 (+0.08%)], which is shown in their stock price in the past six months. AutoZone will continue to flourish through the summer months because they are the industry leader and their online demand has increased amidst the decline in new auto purchases. Read more
Stocks For An Economic Recovery – Discretionary
May 20, 2009
The Consumer Discretionary sector is one of the more intuitive sectors, with earnings driven by consumer spending. The consumer-led nature of this recession has driven discretionary stocks south, with households cutting spending and increasing savings rates (to 3.6%). The companies that have faired the best over the 18 months have been those with strong balance sheets and large market caps that offer less discretionary product lines. Sub-sectors that have performed especially well are discount restaurants, discount retailers and education services. Subsectors hardest hit, on the other hand, include specialty stores, automotives, publishing, and gaming. Some of these sub-sectors, particularly automotive and publishing, have inherently flawed business models whose recover-ability is questionable. Others have been pulled down by their ultra-discretionary product lines as consumers cut big ticket items. Left in between are companies that offer products discretionary in nature but without the big-ticket price tag. These companies were heavily discounted as investors sold out of anything discretionary in a flight to safety. When looking at stocks for an economic recovery, these companies offer the best opportunities to take advantage of any upside on their beat up valuations. The natural sub-sector choices would be department stores, casual dining and apparel retail. However, since the market rally at the beginning of March, valuations have run away for most of these companies. Read more
Is China Detroit’s Lifeline?
May 17, 2009
HONG KONG SPECIAL ADMINISTRATIVE REGION, People’s Republic of China – As deep as the U.S. auto industry’s financial crisis seems to be, there may actually be a fairly simple solution. Sell out to China. Nearly a decade ago, I warned that Detroit’s Big Three – General Motors Corp. [GM: 0.00, N/A (N/A)], Ford Motor Co. [F: 7.75, +0.30 (+4.03%)]and Chrysler LLC – had better learn to speak Chinese if they wanted to survive. I’ve repeated that warning many times since. Now, it appears that the idea is finally entering mainstream thought. China may well be Detroit’s lifeline. From some – chiefly those who don’t understand that Detroit has largely failed to make a passing grade in an increasingly global economy – my warnings have attracted a lot of criticism. That’s unfortunate, because by adopting such a defensive posture, these critics have missed the real point I was making: Chinese companies would initially have no interest in taking over Detroit, but over time would likely demonstrate a deep interest in acquiring key parts of the U.S. auto sector “value chain” that could support the expansionist efforts of their domestically produced brands. Read more
Stocks For An Economic Recovery – Financials
May 14, 2009
Searching for the largest beneficiaries of a potential economic recovery in the financial sector, it is very difficult to determine who will gain first. Many expect large commercial banks to perform well during the recovery; I am against this thought. I would argue that the U.S. banking system will go through a much longer period of re-structuring and re-capitalization which will take at least the next decade to fully sort out. Looking at the current environment, it is best to invest in areas with the least amount of regulation and sustainable fee revenue generation. Keeping this in mind, the best play is Visa, Inc. [V: 79.67, +0.08 (+0.10%)]. Read more
