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After a recent meeting of the Federal Open Market Committee (FOMC), Dr. Bernanke told us that the Fed would be keeping rates at or near zero for at least the next two years. This action was taken mostly in response to the worsening EU credit crisis. Dr. Ben expects that crisis to continue for 2+ years. Likely this means that the U.S. economy will remain weak. It will be without a healthy EU trading partner. However, Dr. Ben did not say the U.S. would go into recession. In fact big U.S. corporations are flush with cash. Almost all have cut their payrolls and expenses to the bone due to the last recession. It is unlikely we will see huge layoffs from here. This makes it much less likely we will see a new recession. If we have one, it is likely to be a shallow one.

To me this means that the internet discount travel companies such as Travelzoo Inc. (TZOO), Expedia Inc. (EXPE), Ctrip.com International Ltd. (CTRP), and Priceline.com Inc. (PCLN) should do well. The hotels, airlines, cruise ship companies, etc. will all be struggling to fill their vacancies. They will all give great deals to Priceline.com, etc. in an effort to fill those vacancies. Their customers be motivated to spend as little as they can in an effort to save for a rainy day. Slow growth in the U.S. and Europe most likely means good growth for internet discount travel agencies.

While the slow down likely means that these companies, especially Priceline.com, will continue to get great deals from hotels, etc. This has not stopped investors from selling these stocks right along with all of the others in the market. The following table shows their behavior during the downturn and some of their fundamental financial data. The data are from TDameritrade and Yahoo Finance.

Stock

PCLN

TZOO

EXPE

CTRP

3 month Top

$552.15

$90.80

$32.89

$47.54

3 Month Bottom

$441.55

$31.45

$26.21

$35.36

% Fall

20.0%

65.4%

20.3%

25.6%

Current Price

$503.47

$33.45

$28.03

$38.50

% Rebound

14.0%

6.4%

6.9%

8.9%

PE

35.70

N/A

18.03

33.42

FPE

17.14

16.31

12.57

N/A

1 Year Average Analysts’ Target Price

$642.18

$87.80

$33.61

$49.22

Possible % Gain

27.6%

162.5%

19.9%

27.8%

Average Analysts’ Opinion

2.1

1.4

2.5

2.3

Estimated EPS % Growth in 2011

67.80%

N/A

15.30%

N/A

Estimated EPS % Growth in 2012

29.80%

N/A

13.80%

N/A

5 Year Estimated EPS % Growth per annum

26.03%

27.33%

12.10%

23.79%

Beat or Miss Amount (mrq)

+$0.58

-$0.09

+$0.06

0.00%

Market Cap

$25.06B

$550.62M

$7.69B

$5.54B

Enterprise Value

$23.68B

$510.35M

$7.04B

$4.93B

Beta

1.14

1.53

1.91

1.64

Cash per Share

$39.17

$2.45

$8.35

$4.25

Price/Book

12.59

14.59

2.67

5.34

Price/Cash Flow

32.42

579.01

12.62

--

Short Interest as a % of Float

6.42%

79.97%

8.88%

6.93%

Total Debt/Total Capital (mrq)

21.85%

0.00%

35.31%

--

Quick Ratio (mrq)

--

--

--

--

Interest Coverage (mrq)

40.00

--

8.84

--

Return on Equity (ttm)

42.67%

-4.23%

16.05%

19.05%

EPS Growth (mrq)

121.89%

50.26%

27.67%

11.17%

EPS Growth (ttm)

25.16%

-119.50%

16.42%

33.72%

Revenue Growth (mrq)

43.69%

33.65%

22.74%

19.83%

Revenue Growth (ttm)

38.90%

25.68%

17.42%

33.59%

Annual Dividend Rate

--

--

$0.28

--

Gross Profit Margin (ttm)

65.71%

93.19%

79.61%

78.10%

Operating Profit Margin (ttm)

27.56%

7.68%

20.90%

35.39%

Net Profit Margin (ttm)

19.75%

-1.22%

12.16%

33.49%

Of thee above PCLN is the clear powerhouse. It fell quickly with the overall market, but it has bounced right back. Jeffrey Saut, chief market strategist at Raymond James, on Wed. Aug. 24, 1011 predicted a 13% rally similar to rallies in 1978 and 1979. If he is right, Priceline.com will rise a lot further with the market in this bounce phase. Then it will rise even higher. It is a powerhouse that just continues to grow. EXPE looks solid, it should likely rebound some more as the market goes up. Ctrip.com is the Chinese counterpart of PCLN. The Chinese will bid this up. TZOO is the real wildcard. It had a 65% fall. If it meets analysts’ average 1 year target price, it will have a 162% price gain within a year.

In TZOO’s case it missed estimated earnings fairly badly in its latest quarterly report (Yahoo Finance), but it is still making good money. The shareholder’s filed a class action suit against it as the result of its dramatic recent fall. They alleged the company made misleading statements in the time immediately preceding TZOO’s fall. It fell 31% on the earnings announcement day alone. TZOO claims the suit is frivolous. Cramer chimed in to badmouth TZOO; but Motley Fool disagrees with him. However, it has been growing revenues. One is inclined to believe that profits will follow as they have been recently. TZOO now has approximately 80% short interest. Given that fundamentals are fair to good, this stock’s price will in all likelihood benefit from a short squeeze as the overall market rises for Three reasons. First TZOO will rise because it seems it should given its current growth pattern and its recent fall. A snap back rally is the most logical course. Second Benchmark Co. analyst Frederick Moran says that TZOO is seeing a spike in demand in its Local Deals unit in August following a slight moderation in July. Third this is the kind of situation that HFT traders like to take advantage of. They can make much better than their normal profits by engineering a short squeeze in this stock. Therefore it seems likely that this will happen. Plus with 80% short interest there will be a significant number of investors who decide to cover in an upward moving market. Of course, the overall market likely has to rise in order to discourage the shorters before even the powerful HFT traders will try a short squeeze. The recent announcement of a share repurchase program by TZOO aid the short squeeze scenario. If TZOO plans to buy back 500,000 shares of a total outstanding 16,500,000 shares, this should apply significant pressure on shorts to cover.

Let’s look at the 2 year charts of each for some technical direction.

The two year chart of PCLN is below:


(Click to enlarge)

PCLN has had a strong uptrend over the last two years. Even the recent large move down in the overall market could only very temporarily disrupt this. PCLN likely has more bounce to come if the market continues upward. Then it likely has further upside to go after its recent consolidation phase. It still seems a great investment with good growth and reasonable valuation for its high growth rate.

The two year chart of TZOO is below:


(Click to enlarge)

TZOO is oversold in its slow stochastic sub chart. It is at a large area of technical support in its main chart. If the company has been telling the truth about future prospects, I would expect this stock to bounce sharply upward from here. The stock is at $33.45. The 200-day SMA is at $55.15. One would normally expect TZOO to move up at least to its 200-day SMA before going up further or falling further. There is also resistance at approximately $50 that might put a near term top on gain, but this should go up if the overall market does.

The two year chart of EXPE is below:


(Click to enlarge)

EXPE has been in only a very mild uptrend over the last two years. Since March 2011, it has been in a good uptrend until the recent overall market downturn. It is near oversold levels. It seems reasonable to buy this for an upward bounce on an expected overall market bounce upward. It is still above its 200-day SMA, which shows good strength. It has been expanding worldwide while maintaining still good earnings numberr Still it is not PCLN.

The two year chart of CTRP is below:


(Click to enlarge)

The CTRP chart has been flat for most of the last two years. This echoes a lot of Chinese stocks, which generally have not performed well over the last two years. I don’t see a near term impetus for this to change. Therefore I would refrain from investing in CTRP at this time, even though it may continue to bounce in the near term.

Taking any of these trades, except perhaps PCLN, really requires an overall market rebound upward. Jeffrey Saut of Raymond James, Abby Cohen of Goldman Sachs, and many others think the market has already priced in more than is likely to happen. They see the market going higher from here. The SPY chart seems to be reinforcing this belief. It seems to have put in a near term double bottom.

We will have to wait to see the effect of Hurricane Irene and at the end of the coming week the NonFarm Payrolls number to know whether this upswing is going to continue in the near term. Barring truly horrid hurricane damage from Irene, the market seems likely to keep bouncing upward. The overall news has been so bad lately, that a mere hurricane can be shrugged off as unimportant. The economic news this week could change the market direction, but otherwise upward seems a reasonable call.

Good Luck Trading.

Source: Bernanke Says Traveling Cheaply Will Be 'In' For At Least Two More Years