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  • Why The Best Investment In Salesforce Is None At All [View article]
    But the question to ask is this: how long should capital be tied up waiting for the inevitable? The short thesis for CRM, while valid in theory, has been argued for years already, with little to show for it except occasional pullbacks; CRM is less than $2 away from all time highs as of this writing. Another point that should be noted is that the comparison with Enron, Worldcom, etc... serves to highlight our point about the need to remove hyperbole from the debate. Enron and Worldcom committed pure accounting fraud, and misrepresented their financial condition to shareholders and regulators. And this misrepresentation was not just their CEO's talking about "adjusted EPS." The financial statements were falsified, something that is not happening at CRM. The company's GAAP losses are easy to see for anyone who looks at the company's 10-Q or 10-K filings,. Talking only about non-GAAP EPS may not present the full picture of what is going on at CRM, but it is not fraud in the Enron/Worldcom mold
    Mar 8, 2013. 04:22 PM | 1 Like Like |Link to Comment
  • In Defense Of First Solar: Post-Earnings Decline Creates A Long-Term Buying Opportunity [View article]
    A few things should be clarified. First Solar issued concrete guidance for Q1 2013, which came in below consensus. Concrete guidance for 2013 will be provided at the company's analyst day in April, and while the company said the 2nd half of 2013 is likely to be weaker than the first, the company will also discuss its longer-term outlook, which is were we believe the opportunity lies. We also think it is important to highlight comments made by CFO Mark Widmar regarding the long-term margin profile, and the opportunities that the company has on that front. While 2013's second half is forecast to be weaker than the first, there may be margin strength that could potentially help mitigate some of the weakness.
    Feb 28, 2013. 02:19 PM | Likes Like |Link to Comment
  • Buy Xerox: An Undervalued And Underappreciated Capital Deployment Opportunity [View article]
    While we are bullish on XRX at this point in time, a takeover is, for the time being, unlikely. Xerox is in the midst of its transformation, and buyers are unlikely to be willing to make an offer until it is fully complete, as there are many moving parts at Xerox right now. And even then, with a market capitalization of around $10 billion, any deal for the company would be a big undertaking
    Feb 28, 2013. 02:11 PM | 2 Likes Like |Link to Comment
  • Buy Xerox: An Undervalued And Underappreciated Capital Deployment Opportunity [View article]
    In our view, it is not a fully equivalent comparison. With Canon, investors need to evaluate many more nuances, such as the effects of a falling yen; YTD the yen has fallen almost 6%, and CAJ has fallen over 8% ( Furthermore, CAJ has much more exposure to industrial markets, as well as personal and professional cameras.
    Feb 27, 2013. 09:13 AM | Likes Like |Link to Comment
  • Buy Xerox: An Undervalued And Underappreciated Capital Deployment Opportunity [View article]
    We own shares of all 3 companies, and believe that the comparison is apt, the reason being that IBM and Cisco both went through prolonged periods where the market doubted their future ability to grow. And both companies eventually proved the markets wrong; IBM was able to succesfully move away from a dependency on commodity hardware (through moves such as the divestiture of its PC business), and Cisco has been able to show that it will not be easy for competitors to dislodge it in the networking business. Xerox, on the other hand, is still going through this period of doubt, but we believe that in time, it will also overcome this. Another thing to remember is that while Xerox may not be where Cisco and IBM are today, neither is its multiple. Cisco trades at over 11x 2013 EPS, and IBM trades at almost 12x. Xerox, however, trades at just over 7x as of this writing.
    Feb 27, 2013. 09:10 AM | 1 Like Like |Link to Comment
  • Buy Xerox: An Undervalued And Underappreciated Capital Deployment Opportunity [View article]
    Apologies for the oversight, the relevant corrections have been submitted.
    Feb 27, 2013. 09:05 AM | Likes Like |Link to Comment
  • Herbalife: Examining FTC Data And Potential Action [View article]
    192 complaints in 7 years is an enviable track record in terms of Herbalife's size. As we noted in an earlier comment, that translates to between 0.0274 and 0.056 complaints per 1,000 distributors (depending on where rounding occurs). A level of 0.0274 would be in line with a company such as American Express, which we included due to the ease of data regarding its level of complaints. Our point in including this in our article was to make the argument that the mere presence of FTC complains (or complaints to another government agency) is not a sign of illegitimacy or a lack of integrity, as some critics of Herbalife claim. Any company that deals with ordinary consumers, such as Herbalife or American Express, will likely have dissatisfied customers who wish to express their displeasure to the FTC, or the CFPB (which has taken the lead on financially related consumer complaints).

    A local Kentucky station did a story ( on Fortune Hi-Tech and noted that the local Better Business Bureau had received over 40 "recent complaints" regarding the company, but does not specify the definition of recent.
    Feb 5, 2013. 06:18 PM | Likes Like |Link to Comment
  • Herbalife: Examining FTC Data And Potential Action [View article]
    American Express reports in its latest 10-Q for Q3 2012 (its 10-K has not yet been filed) 51.8 million total "cards in force" as of the end of Q3 2012 Capital One does not disclose the explicit size of its card base in its SEC filings, but rather discloses the total amount of credit card loans. For American Express, 870 complaints in 10 months works out to 1,044 complaints per year on an annualized basis. Herbalfie has around 500,000 distributors in the US, and 192 complaints over 7 years equates to 27.43 (let's round up to 28) complaints per year. For Herbalife, that works out to 0.056 complaints per thousand distributors per year (it the number falls to 0.0274 if unrounded). For American Express, 1,044 complaints spread over 51.8 million customers is equivalent to around 0.02 complaints per 1,000 customers. On a relative basis, it is true that American Express receives fewer complaints. But, that section of the article was not meant to argue that legitimacy of Herbalife based solely on a low number of claims. Rather, it was meant to show that the mere receiving of claims does not serve to deligitamize a company, as some critics of HLF have claimed. We included Capital One and American Express not to argue that they treat customers poorly, but because statistics on the number of consumer complaints they received were readily available due to Consumer Financial Protection Bureau statistics.

    It should also be noted that FTC complaints can often be directed not at Herbalife, but at its distributors, who, while dependent on Herbalife for their own business, may or may not adhere to the company's standards at all times, and therefore give third parties reason to file a complaint with the FTC
    Feb 5, 2013. 06:05 PM | 3 Likes Like |Link to Comment
  • Herbalife: Examining FTC Data And Potential Action [View article]
    Consumer laws differ from country to country, and because the FTC issues a ruling does not mean that it will have merit in other countries, which may have different regulations. As for the Belgian case, it is important to note that while Belgium is part of the EU, the supra-nationalism of the EU does not extend to internal consumer protection laws which are still under the purview of each member state, not the European Commission or European Parliament. Any case against HLF in the EU will have to be tried on the basis of the applicable countries consumer laws, which may differ from those of Belgium.
    Feb 5, 2013. 02:58 PM | 1 Like Like |Link to Comment
  • Herbalife: Examining FTC Data And Potential Action [View article]
    This article's focus was on FTC complaint data, and the possibility of FTC action, not HLF's core business. It was a response to a specific event (the New York Post's article about the data it received from the FTC), and Herbalife's scope to buy back stock.

    That being said, there are other factors to consider. On retention, HLF is steadily working to improve that, and recorded a retention rate of 52% for its sales leaders in Q3 2012 versus 48.9% in Q3 2011 (total active sales leaders rose by 22.1% on a global basis, including 15.2% growth in North America) ( As we've noted in prior articles on HLF, the SEC has already investigated the company twice, and both times closed its investigation without filing any complaints or charges against the company. As for the FTC, we have steadily maintained that it should not take 3 decades for the agency to uncover a pyramid scheme of this size. And if all it has is 192 complaints over 7 years, that is a solid track record for a company of HLF's size.

    Regarding new markets, Ackman himself has argued that HLF is simply entering new markets to cover up the collapse of business in mature markets. But then how can US sales be growing at almost 16% last quarter ( As we noted in a prior piece on HLF, sales have been growing in the US by an average of around 15% over the last 8 year. In addition, volume points in North America, HLF's oldest division, grew by 13.6% in Q3 2012. The company is entering new markets so that it can continue to grow its revenues and profits, not to cover up a collapse in the United States or other mature markets.

    HLF's margins, which reflect the pricing of its goods and the cost of doing business, are not out of line with its MLM peers. In Q3, its operating margin was 15.82%. NuSkin's was 15.65%, Avon's was 4.16% (reflecting the internal issues Avon is facing), Usana's was 13.08%, and Tupperware's was 15.75% (they've already posted Q4 earnings). HLF's margins are not outrageously higher than those of its peers. As for the company's financials, the assessment of $2 billion in debt as manageable was provided by B. Riley & Co. The company's existing debt is not due until 2016, and as operating cash flow and EBITDA continue to grow, the company will have more room to take on new debt to fund any potential buybacks.
    Feb 5, 2013. 12:41 PM | 4 Likes Like |Link to Comment
  • Clearwire: With DISH Entering The Fray, A Higher Offer From Sprint Is On The Way [View article]
    This is Clearwire's SEC filing outlining its merger with Sprint, standard issue regulatory filings. Incrimentally, this does not alter the landscape vis a vis Dish/Clearwire/Sprint. Clearwire's board continues to "recommend" the Sprint offer, while again choosing not to draw down Sprint's financing, thereby keeping the Dish deal open. The real question that needs to be answered is what exact date will the special meeting of CLWR investors be held to vote on the Sprint deal.
    Feb 1, 2013. 07:17 PM | Likes Like |Link to Comment
  • Bebe Stores: Unloved, Undervalued, And Set To Rally [View article]
    So far, it appears that compensation details for bebe's new CDO have not been disclosed. But for their new CEO, annual salary is set at $900,000, with a maximum bonus of 100% of salary, assuming performance targets set by the board are met ( Birkhold's compensation package also includes other arrangements, such as life insurance and reimbursement of relocation costs
    Jan 29, 2013. 04:10 PM | 1 Like Like |Link to Comment
  • In Defense Of Apple: Battling The Mounting Hysteria [View article]
    At $700, Apple traded at around 15-16x earnings, hardly hysterical levels. Microsoft trades at 15x, Cisco trades at under 14, and IBM trades at around 14 as well. Google trades at over 23x, so even at $700, Apple was not that expensive relative to other Tier 1 tech companies.
    Jan 25, 2013. 06:08 PM | 5 Likes Like |Link to Comment
  • In Defense Of Apple: Battling The Mounting Hysteria [View article]
    In Q1, there were some temporary issues relating to new product ramps, particularly with regards to Mac sales. But as iPad mini's become a larger part of Apple's overall sales mix, and should a lower-priced iPhone become a reality, margins could very well continued to be pressured; offsetting this is the fact that the market for such goods is larger than Apple's existing market
    Jan 25, 2013. 01:22 PM | 2 Likes Like |Link to Comment
  • In Defense Of Apple: Battling The Mounting Hysteria [View article]
    Apple has a pattern of releasing truly new products every 3 years, and 2013 is the year that this pattern implies a new category. With around 11 months to go, there is still ample time for Apple to release a new category
    Jan 25, 2013. 12:34 PM | Likes Like |Link to Comment