11 New Shorting Opportunities for 2009 11 comments
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Happy New Year all! With the new year comes the possibility of a strong bear market rally, which brings with it the potential to profit from the same companies whose fundamentals and macro situation led them to be profitable short candidates in 2008. While I don't give trading advice, I do want my subscribers to be aware that a sharp increase in a weak company's share price does not necessarily make that company stronger.
Keep in my mind the 12 months that I held on to my GGP bear trade. This company had several major price run ups that pushed the position into deep drawdowns, which enabled me to double up on the position without incurring significant option premiums and paying much less for short stock positions. I was able to do this because I had conviction and confidence in my research. If the research is followed consistently over an extended period of time, there should be enouch profit and confidence for the average follower to easily endure drawdowns and adverse market movements with confidence and aplomb! Remember, once you break 100% in net profits, you should be playing completely with the house's money!
I say this because I don't want the less experienced subscribers to mistake my fundamental valuation style for that of an active trader. I can't predict the future, but I am very good at analyzing the present. With those thoughts in mind, I wish you to remember that I believe 2009 will see quite a few company failures, starting with retailers in the first and second quarters as banks wait for the holiday revenues to finish being counted.
On that note, we have finalized the Consumer Retail shortlist and identified five companies (of the original 16 shortlisted) as the most overpriced in fundamental terms, hence could see further correction in their share prices in the coming months. Below, you can find the companies that were culled from the shortlist (I removed the actual picks out of the list, and will start issuing reports on them within a week and a half for paying subscribers). I have highlighted some of the rejects in red in the table below, for they may be of interest to somebody.
We performed a historical trend analysis of all the 16 companies initially shortlisted, cut down from over 500 found in the scan, and came up with 4 strong candidates. Unfortunately, two of them were very thinly traded with no underlying options, thus representing too much risk for my tastes. I am keeping them on the back burner as a speculative trade in the case of a major market move to the upside which should minimize my risk. The other two should have a forensic report ready for paying subscribers in a week or two. Keep in mind that we have not looked into any qualitative aspects in the shortlist below.
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| Revenue Growth (%) | Net Income Growth (%) | Operating Cash Flows | ||||||
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| Current Price | Q108 | Q208 | Q308 | Q108 | Q208 | Q308 | Q108 | Q208 | Q308 |
| Alaska Air Group (ALK) | 25.5 | -1.6% | 110.9% | -39.8% | -585.1% | -171.9% | -435.3% | 34.4 | 104.1 | 141.0 |
| Allegiant Travel (ALGT) | 41.8 | 31.9% | -1.2% | -11.2% | 102.7% | -72.6% | 84.5% | 43.8 | 29.7 | 26.4 |
| AmeriGas Partners LP (APU) | 28.0 | 34.5% | -46.8% | -1.8% | 144.8% | -106.6% | 132.7% | 28.2 | 103.0 | 180.2 |
| Children's Place (PLCE) | 23.2 | -40.3% | 84.5% | -39.0% | -133.4% | 0.1% | 23.2% | (1.2) | 143.1 | 111.1 |
| Churchill Downs (CHDN) | 37.2 | -26.2% | 172.8% | -44.5% | -112.1% | 3821.3% | -91.6% | 44.5 | 85.0 | 74.6 |
| Costco Wholesale Corp (COST) | 53.7 | 7.3% | -2.0% | 39.0% | 25.1% | -10.0% | 34.8% | 853.4 | 1,763.2 | 2,176.2 |
| Omnicare Inc (OCR) | 22.1 | 0.1% | -0.6% | 3.4% | -244.2% | 22.9% | 56.8% | 142.3 | 228.6 | 331.9 |
| O'Reilly Automative (ORLY) | 28.1 | 6.9% | 9.0% | 57.8% | 14.1% | 20.4% | -25.8% | 118.9 | 215.5 | 289.3 |
| Owens & Minor (OMI) | 37.6 | 0.2% | 2.4% | 0.9% | 7.8% | -2.4% | 7.0% | 108.4 | 79.0 | 123.6 |
| Walmart Stores (WMT) | 55.3 | -11.3% | 107.6% | -50.1% | -26.2% | 114.1% | -51.5% | 3,705.0 | 9,983.0 | 10,173.0 |
| Wynn Resorts (WYNN) | 44.3 | 9.5% | 6.0% | -6.8% | -28.6% | 482.2% | -81.2% | 138.3 | 338.8 | 488.8 |
I am also preparing reports on more European banks and insurers. This is going to be a bad year for the UK and the Eurozone! Paying subscribers should have a lot of info and ideas to digest in the next few weeks.
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This article has 11 comments:
"Keep in my mind the 12 months that I held on to my GGP bear trade. This company had several major price run ups that pushed the position into deep drawdowns, which enabled me to double up on the position without incurring significant option premiums and paying much less for short stock positions."
Translation- You were totally WRONG.
It is a good thing you are not a professional translator. Look at the share price in the chart from 12 months ago, and look at the share price now. Explain to me how you come up with this statement when the share price drops 95% after someone has shorted it, please!
The negativity is thick and rampant in the comments section of SA, which probably inhibits those who truly have something to contribute from participating. This guy Paul Price doesn't even make sense in even the most elementary sense, yet still spouts negativity. I think he may need a hug!
@Notsosmart: This author doesn't make predictions. Predictions are for soothsayers and wizards. I am an investor with a staff of very talented analysts and forensic accountants. If you would like to see how I did for 2008, I happen to have it laid out it full detail. See boombustblog.com/index... for results YTD to 11/17/08 as compared to all major hedge fund categories, broad market indices, people who actually make predictions and the Wall Street bank analysts on both a risk weighted and an absolute basis.
See boombustblog.com/index... (scroll down towards the bottom) for a granular accounting of each of my researched positions with a date stamp on each one.
GGP happened to be one of the most well research positions, with at least 1,000 pages of research behind it. As explained in the article above, thorough research gives you the courage to trough into adverse market movements.
@ notsosmart: I have no agenda. I sell the research because it got too time consuming and laborious to give it away for free. I gave it away for free for about a year before I started charging. There is still plenty of opinion available on my blog for free. The stuff you see on SA is simply a subset of the free stuff that I offer on the blog.
I do agree with you (not necessarily the terminology "predictions", since I feel trying to predict the future is a waste of time) in that all commentator's posts should be accompanied by their track record. The blog's static research model has finished the year at approximately a 100% return. A fairly competent investor could have beat that number by closing out the positions when they hit the perimeters of the valuation band indicated in the research. My proprietary account finished the year at several time that of the static blog research model.
There are plenty of examples of the research available in the first link, above.
As I have stated in the previous comment, there is a lot of negativity on SA, which often hampers the type of serious dialog occurs on my blog. I have started responding because I see it is improving a little. There are a few of my blog subscribers who post to SA, see seekingalpha.com/user/...
seekingalpha.com/user/...
seekingalpha.com/user/...
seekingalpha.com/user/...
seekingalpha.com/user/...
etc.
Notice how they are mostly very highly rated commenters! I have no problem with people disagreeing with me, or even not liking me, but ad hominem attacks simple weaken SA as a whole for it prevents the more relevant and contributory content from coming forth, both through the authors and through the commenters. Just my unsolicited opinion.
See what my blog's patrons have to say: boombustblog.com/index...
C
I don't think you're an investor based on description, I think you're a trader?
With all the respect, this is an attempt at cheap advertisement. Why not do the respectable thing and advertise.
Also, you continually say you don't make predictions, so what are saying?? Some stocks are overvalued, there are peaks and troughs, etc. - so what's new??
Markets are down in 2008 and around 20% in October alone - even I got the first "inclination" at the beginning of 2008, but didn't think it would be so bad.
There are probably a lot more short opportunities in 2009 then 11, in fact any stock around the $30/40 in major indexes is fair game. Considering what has happened to the major companies like GE, AIG, GS, GM, F, etc., it would not take much to turn $40 stocks to $10 /20.
I feel compelled to reply to your remarks. First, thank you to addressing me with all due respect. At first, I frowned at your comments regarding my post as cheap advertising, but then looked at the edits that were made (not by me) and tried to look at it from your perspective and I can see where you may get that impression. I implore you to take a look at the original article on my blog as it was submitted: boombustblog.com/index...
It is titled, "The new year brings new, and possibly less competitive shorting opportunities" and was intended to inform my blog readers that I still believe that many opportunities exist and that they may be less competitive due to the bear market rally that I expected to kick in (which apparently has kicked in). These new opportunities are still in my lab and will be released in a week or two. The readers of my blog follow me regularly, and most of them are paid subscribers, so there is no need to "advertise". This post was simply an update post to let them know what is coming down the pike and give them some info on the companies that I ejected from my short list but may still be of interest.
With the change in title, I must admit that it does sound more leading than intended when I penned it, which is why I would not put a title such as that on this article.
Alas, and in my defense, those "new" titles are the creations of the Seeking Alpha staff and not Reggie Middleton. I do not wish to denigrate the editors and would love to stay on their good side, but this is not the first time the meaning or flavor of an article has been altered by edits that were not mine and after looking at the edit from the perspective of "who" I must admit that I see his point. Look at the energy that I must expend defending and explaining this!
Now, on to your other comment. I am not making predictions, I am expanding on my previous analysis. GE, AIG, and GS had outsized balance sheet exposure and valuations as compared to the broad market, not to mention were not critically analyzed by most (most likely due to their brand name status) thus were prime candidates for shorting and outsized share price depreciation (I rode GS down from $180 to the $50s). I analyzed GS and GE in detail on my site. If you do a search for the ticker and the term "Forensic" you should be able to find some free reports. You cannot compare the failure of these companies to potential drops in the market as whole. Despite there name brand status, they were fundamentally weaker than the broad market as a whole. I have to request that you delve into my work to find out "what's new". It is a bit too much to go into in the comments section, but as I come out with the European banking and insurance opinion and the US retail stuff soon, there should be a lot to talk about.
This had nothing to do with predicting the future. All I did was take a strong, forensic look at the present and realized what was on the books was out of whack with current earnings environment and macro situation. Notice how there is no talk of bottoms, double tops, etc. The companies were simply overvalued, insolvent, or laden with counterparty and credit risks.