Recommendation Update: Expect A 19% IRR For Bank Of America, But With More Downside Risk [View article]
Just an update on returns about 11mths out on my bank stock recommendations. Overall, my recommendations performed well with my top picks outperforming my hold recommendations by about 51% on average over this period. As a reminder, I recommend investors own C & JPM and high risk tolerance investors also own BAC (avg return 74%). I was less positive on WFC and USB (avg return 23%) as I felt there was less upside there given their valuations at the time. Also just for context the S&P over that period was up 28%. I've summarized the returns below (which includes dividends, but assumes they were not reinvested in the stock):
TOTAL RETURN (6/12/12 - 5/16/13), not annualized C = +85% BAC = +80% JPM = +56% WFC = +30% USB = +15%
Thanks for everyone's feedback & comments when I initially published.
Forget The Warrants, Just Go Long Bank Of America For The Best Risk / Reward [View article]
Thanks for your questions orthokneepa.
Yes, I did account for the warrant strike price being adjusted down with dividend payments.
And yes, based on the way I did my math, I took into account the leverage inherent in the options.
Hadn't actually looked at the results of this recommendation in awhile, but assuming you bought on the close of the next day following publication of this note this is how you would have done at least through today (on a total return basis, assuming divs aren't reinvested):
TOTAL RETURN (5/17/12 - 5/16/2013) BAC = +94% BAC Series A = +80% BAC Series B = +11%
So at least through today owning the stock produced a better return than owning either warrant. Having said that, what I think made the stock more compelling at the time of recommendation was that the upside potenial return profile looked decent but maybe even more importantly the downside risk was much more limited than the warrants (should my positive view on the stock prove incorrect). Hope that's helpful.
Lululemon: Quality Issues More Extensive Than Reported [View article]
Great analysis.
Was wondering if you have a sense for the approximate % of total pant sales that groove pants represent? I think you noted that management disclosed that their black Luon pants were 17% of total pant sales. Just trying to size up what kind of impact we'd be talking about if there was a long-term impact to sales of this item.
Takeaway From Nvidia's Investor Day [View article]
Nice write-up Kevin. I think you hit on all of the major take-aways from NVDA's analyst day. I think investors are still unappreciating the impact of this buyback announcement. Plus given that the the firm has significant cash reserves, this buyback authorization could always be increased if the stock takes a step back on PC-related issues. Basically the excess cash could provide support to the stock and as the buybacks are excuted the stock will begin to look cheaper on a P/E-basis. Obviously investors that are following the stock closely already adjust their valuation for this excess cash, but casual investors and those using screening tools can often overlook this "hidden" value. Hopefully as the P/E comes down, NVDA will screen better and drive up interest. Anyway, thanks again for the nice write-up.
Wireless Tower Firms Call On Moats To Succeed [View article]
Quick question--In your switching cost paragraph you said it would cost a carrier 20x monthly rent in switching costs. Implying a 1.7yr payback period. Then later in the same paragrahp you say the cost would be $40k to get $200/mth of savings implying a 17yr payback period. Which is correct? Thanks, Chris
Forget The Warrants, Just Go Long Bank Of America For The Best Risk / Reward [View article]
Hey pone, fair point, I used the term a little losely. In a later article I believe I was a bit more careful with my terminology. Hope this article is more helpful - http://seekingalpha.co...
Intel: There's Certainly A Bull Case [View article]
Ashraf, thanks for another very good article. I'm not super familiar with the semiconductor space and a few of these terms went over my head, would you be able to recommend a intro type paper on the semiconductor space? Would just like to get my head around some of the terms, players, and history. Appreciate it.
Forget The Warrants, Just Go Long Bank Of America For The Best Risk / Reward [View article]
Thanks another. I haven't rerun my analysis but volatility is down quite a bit for the mkt overall since May so it wouldn't surprise me if the BAC warrants look more attractive now, but I'll reserve judgment until I've run the numbers. As for Citi, I've done a similar analysis on their warrants before and I have generally opted to pass because they are just too far out of the money. It is possible that over the next 7 years or so the stock could cross the strike price, but it's a pretty serious long shot and I'd feel more comfortable just betting on the stock in Citi's case in particular.
4 Key Trends Pressuring Zynga's Business--And The Numbers To Back It Up [View article]
Thanks Killer Whale. Glad you enjoyed the article. I think Zynga did a great job of being very aggressive early on, figuring out how to leverage FB's social network to grow the popularity of their games, and monetizing earlier (and more aggressively than peers), the problem long-term, at least as I see it, is that the firm competes in a market with essentially no barriers to entry and limited upfront capital to get involved. It's very difficult to predict the ultimate winner in those types of businesses. Having said that with about $2 of cash on the B/S, shorting ZNGA at this level is a tough, unless you're of the view that the firm will swing to negative cash flow generation in the near-term and not recover.
Dell's Stumble Offers An Attractive Entry Point [View article]
I have not. Not because of any great insight though. I understand the headwinds both companies face, which are very real, but these are the kind of stocks I like. My thesis is pretty simple--both firms have clean balance sheets, cheap valuations, and the market is pretty negative on them. I can't say for sure if they'll eventually make it or not, but if I buy a basket of stocks that look like this (e.g. strong B/S, cheap valuations, with very negative sentiment), my belief is that on average the market has gotten overly negative on them. Time will tell if they're both duds or not, but for the time being, I'm sticking with them.
LinkedIn's Q2 2012 Earnings Showed A Significant Growth Slowdown, But Most Analysts Missed It [View article]
Hey graucho, glad you enjoyed the article.
You're certainly correct that getting the timing right on LNKD is very tricky and the firm has put up a series of very strong quarters that have been painful for the shorts like me. But given the steep valuation, I think with even with another year of beats, the stock is likely still overvalued.
I also agree that the revaluation of FB & ZNGA (and other high-flyers) could serve as a catalyst to pressure analysts to revalue LNKD. The way it'll happen is that as analysts continue to update their comp sheets, LinkedIn's valuation will begin to look like more and more of an outlier. I do believe that they'll continue to put up better growth numbers than many peers, but if the valuation disparity gets too big, more analysts will feel comfortable initiating a sell recommendation.
As for the $50 target price, I arrive at that using a three scenario approach. In my bear case the stock is worth about $3, in my base case about $30 and in my bull about $100. I use a weighted average approach. But like you said, should the stock really come under pressure from the shorts it could easily overshoot to the downside.
As for the float, while it was reasonably low when the firm first completed its IPO the float has increased substantially driven by the secondary offering, insider selling, and VCs redistributing shares to LPs. Yahoo! now estimates the float to be 85mm shares out of 113mm (fully diluted).
Why Zynga's Real-Money Gaming Opportunity Is Smaller Than The Bulls Believe [View article]
Thanks for your comments ricksgeiger. So if I understand you correctly, you're saying the real money opportunity comes not from say a dedicated poker game, but instead a poker game (or other gambling game) inside another game? That's a pretty interesting concept. So taking that concept under consideration how would you modify my numbers? Do you think it might double my estimates for the amount of money being wagered? I realize that it would be a bit of a new concept, so wondering if you have a way I might be able to ground that idea in some actual numbers? Even if it's only ballpark, would be helpful to understand if we're talking an order of magnitude difference, or just a minor step-up.
Also, since you're a gaming lawyer, would love to get your opinion on the EA vs Zynga lawsuit? There's been a fair amount of debate on whether The Ville actually infringes on the sims. I'm not a lawyer so my opinion doesn't carry a whole lot of weight, but I'd be very interested to hear your take, if you've looked at the case.
Recommendation Update: Expect A 19% IRR For Bank Of America, But With More Downside Risk [View article]
TOTAL RETURN (6/12/12 - 5/16/13), not annualized
C = +85%
BAC = +80%
JPM = +56%
WFC = +30%
USB = +15%
Thanks for everyone's feedback & comments when I initially published.
Forget The Warrants, Just Go Long Bank Of America For The Best Risk / Reward [View article]
Yes, I did account for the warrant strike price being adjusted down with dividend payments.
And yes, based on the way I did my math, I took into account the leverage inherent in the options.
Hadn't actually looked at the results of this recommendation in awhile, but assuming you bought on the close of the next day following publication of this note this is how you would have done at least through today (on a total return basis, assuming divs aren't reinvested):
TOTAL RETURN (5/17/12 - 5/16/2013)
BAC = +94%
BAC Series A = +80%
BAC Series B = +11%
So at least through today owning the stock produced a better return than owning either warrant. Having said that, what I think made the stock more compelling at the time of recommendation was that the upside potenial return profile looked decent but maybe even more importantly the downside risk was much more limited than the warrants (should my positive view on the stock prove incorrect). Hope that's helpful.
Lululemon: Quality Issues More Extensive Than Reported [View article]
Was wondering if you have a sense for the approximate % of total pant sales that groove pants represent? I think you noted that management disclosed that their black Luon pants were 17% of total pant sales. Just trying to size up what kind of impact we'd be talking about if there was a long-term impact to sales of this item.
Thanks for the thoughtful write-up.
Takeaway From Nvidia's Investor Day [View article]
Wireless Tower Firms Call On Moats To Succeed [View article]
Forget The Warrants, Just Go Long Bank Of America For The Best Risk / Reward [View article]
Intel: There's Certainly A Bull Case [View article]
Intel: There's Certainly A Bull Case [View article]
No Chance Of Intel Inside The iPhone: Is Intel's Mac Position Safe? [View article]
Forget The Warrants, Just Go Long Bank Of America For The Best Risk / Reward [View article]
4 Key Trends Pressuring Zynga's Business--And The Numbers To Back It Up [View article]
Dell's Stumble Offers An Attractive Entry Point [View article]
Dell's Stumble Offers An Attractive Entry Point [View article]
FD: I'm currently long both DELL & HPQ.
LinkedIn's Q2 2012 Earnings Showed A Significant Growth Slowdown, But Most Analysts Missed It [View article]
You're certainly correct that getting the timing right on LNKD is very tricky and the firm has put up a series of very strong quarters that have been painful for the shorts like me. But given the steep valuation, I think with even with another year of beats, the stock is likely still overvalued.
I also agree that the revaluation of FB & ZNGA (and other high-flyers) could serve as a catalyst to pressure analysts to revalue LNKD. The way it'll happen is that as analysts continue to update their comp sheets, LinkedIn's valuation will begin to look like more and more of an outlier. I do believe that they'll continue to put up better growth numbers than many peers, but if the valuation disparity gets too big, more analysts will feel comfortable initiating a sell recommendation.
As for the $50 target price, I arrive at that using a three scenario approach. In my bear case the stock is worth about $3, in my base case about $30 and in my bull about $100. I use a weighted average approach. But like you said, should the stock really come under pressure from the shorts it could easily overshoot to the downside.
As for the float, while it was reasonably low when the firm first completed its IPO the float has increased substantially driven by the secondary offering, insider selling, and VCs redistributing shares to LPs. Yahoo! now estimates the float to be 85mm shares out of 113mm (fully diluted).
Why Zynga's Real-Money Gaming Opportunity Is Smaller Than The Bulls Believe [View article]
Also, since you're a gaming lawyer, would love to get your opinion on the EA vs Zynga lawsuit? There's been a fair amount of debate on whether The Ville actually infringes on the sims. I'm not a lawyer so my opinion doesn't carry a whole lot of weight, but I'd be very interested to hear your take, if you've looked at the case.
Thanks for you comments!