Fund Manager Peter Siris's Longs and Shorts

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 |  Includes: BONT, BWLD, CAKE, CHCG-OLD, CPKI, CSR, GSI, PAG, PFCB, RICK, RRGB, SONC, VCGH
by: SA Eli Hoffmann

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

A Fresh Eye on China Stocks -- and Strip Clubs by Andrew Bary

Summary: Guerrilla Partner's Peter Siris looks to buy undervalued under-followed stocks, and short overvalued over-hyped stocks.

His longs:

  • Over-the-counter China stocks can't be bought by Chinese investors, and are largely unknown to local investors. While Shanghai companies are going for 40-50x earnings, U.S.-listed shares are only 8-9x. Three picks: China 3C Group (OTC:CHCG-OLD) -- China's Best Buy. It turned its inventory 50 times in Q1. China Security & Surveillance Technology (CSCT.OB) -- the leading Chinese surveillance player in a county that now mandates surveillance at every nightclub, internet cafe, bar, and many city streets. General Steel Holdings (GSHO.OB) -- earnings should go from $0.40 this year, to $1.50 and $2 in 2008 and 2009.
  • Retail: Car dealers like Sonic (NASDAQ:SONC) and United Auto Group (NYSEARCA:UAG) [which changes this week to Penske Automotive Group (NYSE:PAG)] should benefit from dealership consolidation. Nordstrom (NYSE:JWN) and Bon-Ton Stores (NASDAQ:BONT) are filling voids left by Federated's morph into Macy's (NYSE:M); Nordstrom is picking up Federated's abandoned high-end business, and Bon-Ton is capitalizing on local branding and merchandising.
  • Night clubs: Industry leaders VCG Holding (PTT) and Rick's Cabaret (NASDAQ:RICK) enjoy 90% gross margins and 35-40% pre-tax profits. Zoning restrictions and stigma provide huge entry barriers to competitors.
Shorts:
  • Casual restaurants like P.F. Chang (NASDAQ:PFCB), Cheesecake Factory (NASDAQ:CAKE), Red Robin Gourmet Burgers (NASDAQ:RRGB), Buffalo Wild Wings (NASDAQ:BWLD) and California Pizza Kitchen (NASDAQ:CPKI) are growing too fast (15-40%/year] and their multiples [20-30x earnings] are so inflated that Americans will have to eat 28 meals-a-week out by 2011 to justify them.

Related Links: Red Robin Gourmet Burgers: The Early Bird Catches the WormOptimistic on Rick's Cabaret , But Cautious In Short-TermA Per Store Comparison of United Auto and Its PeersThe Cheesecake Factory: Better For My Wallet Than My Waist