INTERVIEW: Hard Times Ahead at the Mall by Sandra Ward
Summary: Barron's interviews Shawn Kravetz, who runs Esplanade Capital, which has earned 16.6% after fees over the last five years. Key points:
- Normally a retail bull, Shawn's underexposed to the sector because he foresees a slowdown in consumer spending if interest rates rise and people spend their spare cash to keep a roof over their heads. He likes Tween Brands Inc. (TWB), which does business under two names: Limited Too is "the most unheralded specialty-retailer growth story out there." Square footage will rise by 5% over the next couple years, and operating profits are 20%. Its smaller brother, Justice, has only 184 stores to Limited's 570, but it's opening another 100 this year, and will contribute 1/3 of earnings by 2008. Shares ($41) should climb towards $54-60.
- Solar is a huge growth area, up 50% in 2006 and likely another 50% in 2007. Evergreen Solar's (ESLR) String Ribbon technology allows solar manufacturers to use less silicon (of which there is a severe shortage), giving it a 20% cost advantage. As earnings grow, shares ($8) could hit $15-25 on increased earnings, share buybacks, and a possible buyout.
- Investors are focused on PayPal's (owned by eBay Inc. (EBAY)) web payments, and assume that Western Union's (WU) business is doomed. But many WU customers don't have web access, and margins on WU's business are stellar. At 17x 2008 earnings, the stock "is just too cheap."
- Amazon.com's (AMZN) current value is excessive; Kravetz is short the stock. To make it cheap, margins would have to triple, which is unlikely considering the ease of online price comparison.
Related Links: Cooling Off: Solar Stocks Feeling the Cramer Effect • Where is the Solar Industry Headed? • The Long Case for Western Union: Like Wiring Money Into Your Portfolio • Amazon: Time to Book Profits - Barron's • What's Driving Amazon's Stock Price?