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Bret Jensen
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Daily columnist for Real Money Pro at TheStreet.com. Manage Small Cap Gems which is monthly newsletter with my top 20 small cap selections. Currently offering half off annual subscriptions at http://www.investorsalley.com/small-cap-gems-details/. Chief Investment Strategist (CIS) for S.A.M... More
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  • Time to BID farewell to Sotheby's?
    Overview: Sotheby’s, together with its subsidiaries, operates as an auctioneer of fine and decorative art, jewelry, and collectibles primarily in the United States, the United Kingdom, China, and France. The company operates in three segments: Auction, Finance, and Dealer.
     
    Valuation: Sotheby’s has more than quintupled off its lows of the market nadir of March 2009. It trades at approximately 35 times this fiscal year’s consensus earnings of 95 cents a share and 25 times next year’s consensus earnings of $1.42. It also trades at 4.5 trailing revenues and a five year high of price to cash flow and 4 times book value. It had negative operating cash flow in 2007 and 2008.
     
    Key Red Flags:We are concerned for several reasons about the near term prospects for stock price appreciation for BID:
    1.       This has been a very cyclical stock over the last six years. It has had earnings ranging from $3.25 in 2007 to a negative 10 cents in 2009. 35 times projected earnings and/or 10 times peak earnings seem like an excessive amount to pay for a stock with this type of earnings variance.
    2.       Insiders have sold approximately 40% of their total shares over the last six months
    3.       The stock is selling for 25 times its average earnings over the previous six fiscal years
     
    Technical outlook: BID is trading over 40% its 200 day moving average 
     
     
    Price Target: Given the cyclical nature of this company’s business model, 12-15 times next year’s earnings of $1.42 seem like a more reasonable valuation. Price target of $17-$22.
    Recommendation:
    Conservative to Medium risk investors: Avoid
    High Risk investors: Short
    Very aggressive traders: Sell Jan 11 35 naked calls at $4.50. 
     
     


    Disclosure: Short BID
    Tags: BID, Short Ideas
    Apr 06 7:40 PM | Link | Comment!
  • Time to pick up the Phone?
    Overview: Vodafone Group Plc(NASDAQ:VOD) is the world's leading mobile telecommunications company, with a significant presence in Europe, the Middle East, Africa, Asia Pacific and the United States through the company's subsidiary undertakings, joint ventures, associated undertakings and investments. VOD has traded in a fairly narrow range over the last year.
     
    Prognosis:  The stock price has not done much in the last 18 months, and has increased much less than overall market. However, we believe the stock is ready to outperform the market over the next 12 to 18 months. We based this on the following:
    Valuation: VOD is selling for approximately 9.5 times anticipated earnings this fiscal year. The stock also has a dividend of around 6%. It is trading at low end of its five year range based on Price/Earnings, Price/Sales, and Price/Cash Flow.
    Catalysts: There are several factors that we believe could provide support and impetus for a higher stock price in the near and medium term:
    1.       Exposure to Emerging Markets: Vodaphone has significant exposure to the faster growing emerging markets, notably India. It also owns 3% of China Mobile(NYSE:CHL)
    2.       Verizon Wireless: VOD owns 45% of Verizon Wireless. This stake has not paid a dividend since 2005 as it has used cash flow to pay off debt. That debt should be retired by end of this year. This could result in a substantial annual dividend going forward in near future to VOD, a spinoff, or merger; none of which seems to be priced in the stock. David Einhorn of Greenlight Capital recently highlighted this is greater detail.
    3.       Sector Rotation: Telecom with Utilities and Consumer Staples have been the poorest performing sectors since the market nadir of March 2009. As the overall market slows it astonishing ascent or pullbacks, this sector should receive additional investor inflows due to its solid dividends, substantial cash flow, and defensive nature.
    Technical outlook: VOD is trading solidly over its 200 day moving average.
     Chart for Vodafone Group plc (<a href='http://seekingalpha.com/symbol/vod' title='Vodafone Group plc'>VOD</a>)
     
    Recommendation(s): We believe stock should be trading at a more appropriate 11-12 times this year’s projected earnings of $2.48. Given stock’s prospects and high dividend yield; our target Price is $28-$30, up from current price of $23.36.Good buy and hold candidate.


    Disclosure: Long VOD
    Tags: VOD, Telecom
    Apr 05 9:42 AM | Link | Comment!
  • Time to sell Salesforce(CRM)?
    Overview: Salesforce.com, Inc.(NYSE:CRM) provides customer and collaboration relationship management  services to businesses and industries worldwide. The company also offers a technology platform for customers and developers to build and run business applications. The company has experienced rapid revenue increases as its on-demand/subscription model has been very successful and it is the market leader in its space. This has propelled the stock price to triple in price over the last year.
    Prognosis: Although the outlook for continued revenue increases look to be solid for the foreseeable future as the company is in the vanguard of firms surfing the on-demand subscription model wave, we believe the stock has gotten ahead of itself and if vulnerable to a significant pullback in the near term. We based this on the following:
    Valuation: CRM is selling at approximately 120 times trailing earnings as well close to 60 times predicted earnings for the current year. In addition, the stock is priced at over seven times sales and while projected annual sales growth(18%) over next two years is impressive, it is less than its growth in the recent past. Balance sheet is solid with net cash of close to $10/share. However, the stock also sells at approximately 55 times Enterprise Value/EBITDA and nine times book value.
    Key Red Flags: We are concerned for several reasons about the near term prospects for stock price appreciation for CRM:
    1.    Increasing competition: This is a lucrative space for other major software firms to target including Microsoft, SAP, and Oracle. SAP will have a launch of a new product in this area sometime in the 2nd or 3rd quarter of this year and is looking more and more to small and medium sized businesses for their growth. This could impact sales and/or margins going forward depending on success of the product.
    2.    Cash Flow: While Net income has grown over 400% over the last two years, operating cash flow has only grown a little over 30%
    3.       Insiders: There have been over 200 insider transactions over the last six months, and they have all been “Sells”. In addition, S&P estimates stock based compensation expense for 2010 of 89 million and for 2011 of 110 million. To put that in perspective, the company had net income of a little over 80 million for its most recently completed fiscal year
    Technical outlook: The stock price seems stretched from a technical perspective as well. It has struggled to get above the $75-$76 level over the last few months. This is the same price point that is approached and failed at back in Sept 2008 prior to Lehman.


    Chart for Salesforce.com (<a href='http://seekingalpha.com/symbol/crm' title='salesforce.com, inc.'>CRM</a>)
     
     
    Recommendation:
    Conservative to Medium risk investors: Avoid
    High Risk investors: Short
    Very aggressive traders: Sell Jan 11 naked calls. Two that I would look at from a risk/reward perspective are the 80 strike price at $7.60 or the 85 strike price at $5.60.


    Disclosure: Short CRM out of the money naked calls
    Tags: CRM, Short Ideas
    Apr 04 10:06 AM | Link | Comment!
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