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Annotated article summary from this weekend's Barron's; receive all our Barron's summaries by signing up here:

INTERVIEW: Exploiting the Soft Spots in a Bull Market by Sandra Ward

Summary: Barron's interviews Mark Roberts, Founder of Off Wall Street Consulting Group, who focuses on shorting weak companies, but will take long positions when he feels the wind's at his back.

Short picks:

  • Mohawk Industries Inc. (NYSE:MHK) -- see Seeking Alpha's in-depth analysis of this short and Roberts's outlook for housing and homebuilders.
  • Fossil Inc. (NASDAQ:FOSL) -- its watch brand (its highest margin product) is becoming irrelevant. The fashion watch industry is crowded, and people who bought watches now use their cell phones and MP3 players to tell time. Street expectations of increased gross margins in 2007 are unlikely. 103 days of inventory makes markdowns inevitable. He forecasts EPS $1.30 vs. estimates of $1.45, and has an $18 target (vs. $28 now).
  • Healthways Inc. (NASDAQ:HWAY) -- the company uses insurance-claim data to identify people with chronic disease and steps in to insure them. They bank on helping them to manage their diseases, thereby saving money. But recent Medicare pilot studies have failed to show that disease management saves money. The Street calls for EPS of $1.50 and $2.04 in 2007-8, but Roberts projects $1.39 and $1.64. His target is $33 (vs. $46 now).
Long picks:

  • SAIC Inc. (SAI) -- the largest pure-play federal IT services company. More than half of its 44,000 employees have hard-to-obtain security clearances, allowing it to grab the lion's share of government intelligence contracts. Its recent (Oct.) IPO is giving employee-owners their first chance to cash out, dragging prices down. Its business model allows it low capital expenses and high cash flow. Price target: mid 20s.
  • Republic Airways Holdings Inc. (NASDAQ:RJET) -- the company provides long-term fixed-fee outsourcing to airlines such as United and Delta. Its model makes earnings more predictable than traditional airlines, and it has no fuel-cost, fair price, or passenger load risks. At 10x current earnings, the stock trades for $19. Current target: mid 20s.
Related Links: Barron's Recommends FossilAn In-Depth Look at SAI Inc's IPO • Previous Barron's interviews I, II, III

Source: Mark Roberts: Three Shorts, Two Longs to Boost Your Portfolio