Shorting Winnebago, Realty Income: Not a Good Idea

I mentioned Winnebago (WGO) as a possible short. Their reports disclose a large potential liability (>$100MM) for repurchase of recreation vehicles. I asked investor relations whether that dollar amount was the total dollar amount of vehicles they could be required to repurchase, or if it was calculated as the maximum loss they could incur (repurchase price minus resale price) if forced to repurchase them? Turns out it is the former, which is not as bad. They only had $20,000 in losses from these repurchases in fiscal 2009. This is the type of trade I have to be careful about because I think that RVs are obscene, but clearly tons of people don't.

I also mentioned Realty Income (O) as a possible short. This is an Ackman idea. They do seem to have a bad tenant mix - lots of freestanding buildings with mom&pop tenants. However - unusual for a REIT - they seem to have no secured debt whatsoever. No mortgage debt, no secured bonds. Presumably, they can lever up and stick it to the unsecured bondholders by mortgaging the properties, which would allow them to keep raising the dividend. Also the whole hedge fund herd is going to short it, and then be covering whenever their gold positions sell off. Blah. I like my Regency Centers (REG) pair trade better.

So, while both of these could be decent shorts - I mean, I wouldn't buy them - I'm holding out for something better.

Comments

[46goat:]

RVs are obscene ? I don't own one and never have, but calling them obscene offends even me, a non-owner. I assume you object to their "carbon footprint". I object to arrogant know-it-alls looking down their nose at people who are living their dream.

Oct 30 11:04 AM

[Old Trader:]

Re: RVs being "obscene"....I've found it helpful to be agnostic in my investing, meaning I try to keep my personal/political views from governing my investing/trading.

Oct 30 11:46 AM

[joe3rd:]

The RV comment got attention but the good analysis of O is what I appreciate. Been following the stock for more than a year and am hopeful the shorts (if they are out there) drive it into the ground (pardon the pun) so I can back up the Prius and load up. Meanwhile please keep the RV barbs coming. It's a good way to anger Middle America into going out and buying that Winnebago, which in turn will pump up my oil stocks even further :-)

Oct 31 01:21 AM

[davidbdc:]

O probably was overpriced when it hit $26/$27 but it wasn't like it was out of this world overpriced. They have a pretty decent track record IMO and some of those mom-pop businesses have been in operation for a long time with lots of loyal customers.

While I think there are better REIT's to be buying currently, I also think there are better REIT's to short than O. I can't see it going much below $20 unless there is some real bad news coming from the economy. Good luck.

Oct 31 05:13 PM