After reviewing the recent Advance Auto Parts (AAP) financial results that were released on November 11th, I was impressed by the same store sales growth of 4.7% that AAP was able to capture within this economy. With a quick scan, AAP competes in many aspects of my value scorecard and I will continue to evaluate this firm as a potential purchase of some common shares for my next investment.

In addition to the value scorecard, I reviewed the other competitors in this industry to see what other value plays are out there, including AutoZone Inc. (AZO) and O'Reilly Automotive, Inc (ORLY). The one metric that seems to show some variation in this competitive set is the cash conversion cycle. If you are not familiar with the cash conversion cycle, here is the definition (per Wikipedia):

As my portfolio is 100% cash from the recent trade of the BARE Covered Call, I was on the hunt for the next investment. I was able to uncover this next hidden gem by running my value scorecard screen, to find out this stock passes the majority of my value stock metrics.

EZCORP Inc. (EZPW) acquires, establishes, and operates pawnshops and credit services shops. These shops function as sources of consumer credit and as value-oriented specialty retailers, primarily selling previously owned merchandise. The company makes non-recourse loans secured by pledges of tangible personal property, and imposes a pawn service charge as compensation. This charge is calculated on the dollar amount and duration of the loan. The company operates more than 280 pawnshops and 334 payday loan stores.

On my way of finding the next equity to invest in for my portfolio, it was very difficult to find any candidates that meet many of my value requirements for a long term investment. But with the screening and initial analysis that I completed, I was able to come across a great small to mid cap company that has excellent free cash flow (FCF).

Bare Escentuals, Inc. (BARE) is a company with a market cap of just over $1 Billion and trades on the Nasdaq. While completing my value scorecard (see below), this company (like many others) has seen a decrease in sales and income due to the recession. What really stands out in this scorecard is the FCF of $79.3MM in the last twelve months, representing a FCF Yield of 12.1%. Adjusting for the recent stock appreciation, the FCF yield is 7.5%, well within the 2 times range of the 10 year T-Bill.

Having my GPS device stolen caused me to look a little deeper into the Garmin (GRMN) business model. Looking at the Garmin inventory days of supply metric, it is directing me to slower sales growth going forward.

In the past 5 years, GRMN's stock price (Exhibit 1) has provided a nice return for long-term investors from the late 2003 period. More recently, GRMN's stock price has been on a decline being driven by significant competitive issues, difficulty maintain prices, and erosion of gross margins (reference Exhibit 2).

Inventory DOS (Days of Supply) is a commonly used indicator in the retail industry often anticipating future sales increases for the firm. Under Armour, Inc. (UA), designs, develops, markets, and distributes performance apparel, footwear, and accessories for men, women, and youth primarily in the United States and Canada.

When looking at the historical inventory supply of UA, you will notice that this trend has recently been increasing in the last few quarters, from 121 days at March 30th, 2007 filing to 171 days at December 31st, 2007. This 41% increase in inventory is not uncommon to UA, seeing that they experienced similar increases last year. But what is puzzling is that, this recent build is lasting longer then the previous year, us a "seasonality" claim to explain the movement.

As I read through the latest 10-Q submission from Amazon (AMZN) representing the 3rd Quarter of 2007 results (see conference call transcript), I notice that the company's sales story is exhibiting accelerating revenue growth.

Summary Points

Looking at the community sentiment of Yahoo Finance, I find Trump Entertainment Resorts Inc. (TRMP) on the “Bullish” section of the list. This intrigued me, similar to some of the excitement surrounding a craps game offered in the casinos…

After doing some of my homework, it appears that TRMP is worth a short-term bet, if your portfolio can handle the volatility that comes with it...

That was a perfect up and down for the duration of the Home Depot (HD)/Lowe's (LOW) pair trade…about 10 days. To provide you a background, here is my first post on the Home Depot and Lowe’s pair trade that I initiated as of the close on August 31st.

As my first post highlights, the target price ratio for the pair was 0.873 (LOW/HD). On September 10th, the pair closed at a ratio of 0.880; HD at $33.81 and LOW at $29.76, resulting in a 3.6% return after commissions in 10 days. On an APR basis, this trade results in a 131% return, not too bad.

Don't believe everything you hear. Going into Labor Day weekend, all I heard was the "September is the worst month for the US equity markets". With so much noise in the system, I needed to check the facts for myself.

As the blood runs in the streets for the housing market, the current Home Depot (HD)/ Lowe's (LOW) pair trade offers your portfolio a hedged opportunity.

Before I get into the details, Exhibit 1 is a company overview comparison chart.

Just in case, here are the first two links for the entire NTRI Covered Call Trilogy:

Post 1
Post 2

Just recently, I had an opportunity to listen to the 2nd Quarter earnings call from Blue Nile. With all of the good news out of NILE and looking at the stock performance over the last year (Exhibit #1), I was intrigued to see how this stock stacked up against Tiffany, the name of all diamond names.

Exhibit #1. 1-year Stock Chart

The earnings release was not well accepted by the Street, setting up a potential 670 incremental basis point gain* for the long-term shareholder.

Three reasons to consider writing a covered call on the pre-announcement date of July 24th, 2007:

1) Although revenue growth is still positive and strong, it is on a downward slope
2) NTRI option premium are rich driven by the historical volatility
3) Analysts are getting better at forecasting this growth company, providing a smaller opportunity of significant upward revisions.

Some Financial Facts:

- Price to Sales multiples of 9.4x on 2006 sales and 4.7x on 2007 sales
- Price to Earnings multiples of 51.6x on 2006 income and 25.8x on 2007 income
- Cumulative Net Income from 2003-2006 equal to $78.3 million; resulting in a cumulative Free Cash Flow from 2003 to 2006 to $(2.6) million..putting a significant amount of faith in the management with the re-investment.

Here are the top three reasons why I like WILC:

1. Emerging Market stock at a decent value with some additional growth opportunities in the US.

Anadarko (APC)
Capital One Financial (COF)
Centex (CTX)
Devon Energy (DVN)
MetLife (MET)

As I always look to capture a return on my subscription investment, I decided to research and purchase one of the five stocks recommended by David Williams. My selection is Capital One Financial, due to the stability of the equity over the last five years with additional appreciation opportunity.

Here are the main reasons I like to stock, in order of significance:

Employing acquisition strategy to diversify product portfolio into high profit margin businesses

Free cash flow yield of 10.8% on a trailing twelve month basis for 2006, and 20.1% in 2005

Cash per share of $2.46 or 15.5% of current market cap

Price to Book Value of 0.6 times

Well recognized brand equity and quality

Spinach scare puts equity into an oversold position

Keep a close eye on these items that might make you slip on their peel:

In this post, I will provide my completed value scorecard for each of the 10 stocks in the Hidden Values Alert portfolio and highlight the best and worst financial aspects of the equity.

In summary, here are some of the major highlights of my research:

1. Waiting for more production to come on-line. Here is an excerpt from the 2006 Q3 10-Q filed with the SEC:

“Demand for Willamette Valley Vineyards Pinot Noir and Pinot Gris continues to exceed available inventories.”