Three Short Ideas: Standard Pacific, Under Armour and Trump Entertainment

Last week, I posted on three stocks that look interesting for potential purchase Mitcham Industries, Key Technology and New Frontier Media, that I am currently conducting due diligence on. Although, I do not actively short in the portfolio, here are three stocks for which I consider there to be significant downside risk to their stock price over the next several months.

1) Standard Pacific (SPF)$5.13: I continue to be of the opinion that this will be the first large homebuilder (several smaller ones have already done so) to potentially be forced into reorganization due to issues with covenants and the company's high degree of leverage. The company operates in many of the most difficult housing markets (Florida, Arizona, California, Nevada, Colorado) in the country.

2) Under Armour: (UA)$34.57: The company recently reiterated annual sales growth, however, my own models show a good chance that they will not be able to meet their expectations as sales growth continues to slow. I personally like the products, but at current valuations the stock is still a bit expensive, especially considering the fairly high odds that the company will not be able to meet current growth expectations over the next 1-2 years.

3) Trump Entertainment Resorts (TRMP)$2.71: In my opinion, Trump's casino resorts are outdated as compared to other local casinos in the area such as Borgata, the company is saddled with an extremely high debt load (debt/equity of over 7) and the Atlantic City gaming market is getting hurt by the recent introduction of gaming in Pennsylvania, continued competition from Delaware and the potential smoking ban in New Jersey.

To take a look at holdings in my portfolio please go to: www.vestopia.com/danw. My investment philosophy is long-term oriented, but I was able to have a very strong April outperforming the Russell 2000 Index by over 6% on the heels of very strong earnings releases and positive news on one of the healthcare holdings, and have started off May with strong returns due in part to the acquisition of Moldflow in the portfolio.

Comments

[Ames Tiedeman:]

TRUMP is on so many short lists. Why can this company never get it right?

2008 May 08 10:06 AM

[Dan Jacome:]

40% of UA float is short (7 days to cover) so on any good news, stock could ramp and you could get long until you see a 7-8MM share trade day....

2008 May 08 06:14 PM

[seeksome:]

UA is going to move in the oppisite direction UP! For UA gear below wholesale please visit: seeksomething.com

2008 May 09 05:04 PM

[Ex15:26:]

Good call on SPF. Wish I had seen this article before to spur me on to look more deeply and research the company. I'll keep it on a watch list and well as begin evaluation of UA.
EX

2008 May 10 02:53 PM

[Dan Weiss:]

Seeksome, I like UA as a company but this is simply a valuation call as well as due to potential inventory issues at the company going forward.

2008 May 10 03:28 PM

[Dan Weiss:]

Ames, TRMP has thus far been unwilling to change with the times and improve and modernize the resorts. The company is also highly leveraged to the Atlantic City market which is facing increased competition from nearly every state around NJ. In addition, the company is highly indebted thus increasing the overall risk .

2008 May 10 03:30 PM

[David Schawel:]

What a copy-cat, weak evaluation of StanPac. Have you even looked into their debt covenants? Do you know what kind of stance and flexibility the banks have? Just because a builder is doing bad, doesn't mean it can't generate the cash to cover interest payments. I'd be interested if you had any substantial data and/or logic to back this "fluff" call.

2008 May 11 10:39 PM

[User 193185:]

I think UA is going to see lots more growth ahead. I have been monitoring their website and noticed that a number of their shoe sizes are sold out! Nike's status at the top of the U.S market could be in jeopardy in about 5 years.

2008 May 14 10:34 AM

[Regicider:]

User 193185, I love your highly analytical insight. Nike's position as #1 in the global market is in as much jeopardy as your title of dumbest post on SA.

2008 May 28 04:21 PM

[Dan Weiss:]

So far so good on all three of these short ideas. My target on shares of TRMP is 0 while I anticipate that SPF will flirt with bankruptcy (I am not yet going to make the call that they will actually be forced into reorganization as this is highly dependent on when the housing market improves). As for UA, my target based on my own valuation models (I think analyst expectations are still too high) would put the stock in the mid to high teens.

2008 Jun 26 04:57 PM

[Dan Weiss:]

All three names have shown material losses since the post although the decline in UA is a bit less then I would have expected. I would continue to be bearish on all three names although at $0.19 TRMP may be worth covering even with a $0 target.

2008 Dec 30 10:21 PM