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Paulo Santos

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  • Enphase: Strong Story, Strong Growth And Decent Valuation Make For Substantial Upside
       • Tue, May. 13 TAN, ENPH 15 Comments

    Summary

    • Enphase is a beneficiary both of the general trend towards solar energy, and the trend within solar energy towards microinverters.
    • Furthermore, while Enphase has done well in Q4 2013 and Q1 2014, Q1 2014 was actually penalized by bad weather.
    • Enphase is also exhibiting strong operational leverage, which makes profitability likely in the short term and strong earnings growth likely right afterwards.
    • All of this is available at a sensible valuation, with earnings estimates having 100% upside for 2015, and the stock probably following on the same magnitude.
  • Apple Is Acquiring A Fad - Not Quality - And That Is Troubling
    Fri, May. 9 SKUL, ZNGA, AAPL 296 Comments

    Summary

    • Apple is acquiring Beats for $3.2 billion.
    • A check of Beat's history shows it likely that it's mostly just slapping a celebrity name into an OEM product.
    • So Apple is buying a fad, not audio quality. Apple could have easily bought audio quality instead, so buying a fad is troubling.
    • The acquisition itself is not really material for Apple's prospects, but the decision behind it is troubling and seems to show Apple is on the wrong track.
  • Tesla's Customer Deposits, North American Demand And The Will To Believe
    Thu, May. 8 TSLA 362 Comments

    Summary

    • The thesis that U.S. deliveries for the Model S peaked remains in force.
    • This is so in spite of Tesla talking about 10% sequential growth in North American net orders.
    • This is also in spite of growth in customer deposits.
    • This fact means that Tesla's 2014 35,000 deliveries estimate is in danger. Unless China/UK/Japan spring a large surprise, such an estimate would probably require growth in the U.S.
  • Soros And The Second Coming Of The Dark Fiber
    Wed, May. 7 AMZN, CSCO, FB 18 Comments

    Summary

    • As with the dotcom bubble, today we're seeing an investment boom in technology, part of which can be explained by Soros' theory of reflexivity.
    • This means that as the bubble goes away, which seems to already be happening, a good part of that technology demand will also go away.
    • In the present case, the "dark fiber" of today seems to be cloud services, so Rackspace and Amazon.com are particularly vulnerable to this dynamic.
  • Independence Holding: Prime Beneficiary Of The Self-Insurance Trend
       • Tue, May. 6 AMIC, IHC 10 Comments

    Summary

    • Obamacare leads to an incentive for smaller firms to use self-insurance more extensively.
    • Using more self-insurance leads to more demand for medical stop-loss insurance.
    • Independence Holding is a large provider of medical stop-loss insurance and thus a prime beneficiary of this trend.
    • Furthermore, Independence Holding is taking other measures which should lead to higher profitability, and there's a sign that the strategy is working, leading to strong growth in profitable business.
  • A Brief Look At Orocobre
       • Tue, May. 6 RBEIF, OROCF 2 Comments

    Summary

    • Orocobre is another credible junior lithium mining company.
    • Indeed, Orocobre promises to have much lower costs than RB Energy, given its production process. And this claim is believable.
    • Unfortunately, valuation work done in this article shows that Orocobre is not incredibly cheap, either, even if its claims are credible.
    • Furthermore, with several companies promising to add large supply to the lithium market in 2015, there's a chance that supply will actually outstrip demand in 2015.
  • A Brief Look At RB Energy
       • Wed, Apr. 30 ROC, RBEIF 6 Comments

    Summary

    • Tesla and other EV and PHEV vehicles are set to lead to greatly increased lithium demand..
    • It might make sense to look for lithium producers, given the expectation of such demand..
    • With large capitalization producers already reflecting the optimism, I will try to analyze promising juniors that are about to initiate lithium production..
    • RB Energy is one such credible junior. I thus build a 2015 and 2016 earnings model for the company..
    • Unfortunately, the earnings model shows RB Energy to be fairly valued with realistic assumptions, while still bearing a few risks which would call for a more significant discount..
  • The Latest Developments In The Amazon.com Saga
    Mon, Apr. 28 AMZN 172 Comments

    Summary

    • The most recent Amazon.com earnings report led to another round of earnings estimates cuts.
    • These cuts happen because the earnings estimates are based on faith, not a realistic model of Amazon.com's business.
    • Amazon.com is doing all it can to stop the earnings erosion, but the moves Amazon.com is taking will probably create a revenue growth problem next, while not improving earnings much.
    • Shipping costs continue their upward trek, and thinking that Amazon.com can stop them by launching its own delivery network makes no sense, either.
  • A Weird Strategy For Investing In Blyth
       • Fri, Apr. 25 BTH 17 Comments

    Summary

    • Blyth presents an interesting opportunity, even when we ignore the potential for recovery or a short squeeze.
    • This opportunity has to do with the high short rebate, along with high covered call yield, together with a still-decent business and high levels of net cash.
    • However, a past transaction sours valuation and makes the preposition riskier than it would otherwise be.
  • Crude Headed Lower Again
    Mon, Apr. 21 USO 52 Comments

    Summary

    • Crude is seeing record long speculation again.
    • At the same time, fundamentals are turning unfavorable for long speculators.
    • The fundamentals point to an increase in U.S. production, inventories above average and Libya restoring exports. Ukraine is not a large producer and Russia is not going to lose production.
    • These factors put together mean that crude will likely trade lower in the weeks and months ahead.
  • Amazon.com Is Doing Its Very Best To Increase Earnings
    Thu, Apr. 17 FDN, PNQI, AMZN 58 Comments

    Summary

    • Amazon.com has taken a massive number of measures to shore up earnings.
    • Earnings estimates didn't move on these measures, so it's now less likely that earnings guide downs are required.
    • On the other hand, these measures have an impact on revenue growth, whose estimates have also not moved. This makes it likely that Amazon.com will guide down on revenue growth.
  • Delticom: The Amazon.com Of Tires
       • Tue, Apr. 15 DTOOF 16 Comments

    Summary

    • Delticom is an unknown ecommerce leader in the e-retailing of tires in Europe.
    • Ecommerce of tires has inherent advantages, and is thus likely to continue to grow. Indeed, it grew even during a difficult 2013 for replacement tires.
    • Delticom had depressed FY2013 earnings due to a cheap acquisition of an aggressive competitor. FY2014 is likely to be better both due to the acquisition and due to market recovery.
    • Yet, Delticom is available at a decent valuation multiple, having sidestepped the dotcom euphoria that struck the market in the U.S.
  • Apple Faces A Problem And Increasing Prices Will Make It Worse
    Mon, Apr. 14 AAPL 374 Comments

    Summary

    • Apple is rumored to be asking $100 more for its latest iPhone 6.
    • This is a problem, because Apple has lost its ecosystem advantage and its phones are already too expensive.
    • While the larger display is welcome, a larger price will make the share problem larger at a point where Android is already dominating.
    • There seems to be no way out for Apple. Either it sacrifices margins or volume, and both are bad outcomes.
  • Going Over Walter Energy
       • Sat, Apr. 12 ANR, WLT 143 Comments

    Summary

    • Walter Energy is a pure play on metallurgical coal.
    • Metallurgical coal has the worst near- and mid-term prospects in the coal market.
    • Walter Energy has low liquidity, is burning cash and has high insolvency risk.
    • At this point and barring signs of improvement in the metallurgical coal market, I see no point in risking long positions in Walter Energy.
  • Whole Foods Market Faces A Short-Term Threat
    Thu, Apr. 10 WMT, WFM 83 Comments

    Summary

    • Wal-Mart has announced an initiative to sell discounted organic food.
    • This is relevant because pricing is the one obstacle to selling more organic food. At the same price, most people would choose organic.
    • Furthermore, this initiative is made using the Wild Oats brand, with which part of Whole Foods Market's clientele might be familiar.
    • This move is thus negative for Whole Food Market, threatening either its sales volume or pricing/margins.
  • Back To Neutral On General Motors
    Wed, Apr. 9 F, GM 23 Comments

    Summary

    • General Motors has closed the performance differential to Ford as predicted.
    • General Motors has also seen its EPS estimates be revised lower as predicted.
    • With my formed thesis having fully played out, I am now going neutral on General Motors as a consequence.
  • Going Over Alpha Natural Resources
       • Wed, Apr. 9 ANR 42 Comments

    Summary

    • Alpha Natural Resources is exposed both to metallurgical coal and thermal coal.
    • Metallurgical coal seems destined for a long slog of unprofitability.
    • Thermal coal has favorable near-term prospects, and stagnant long-term prospects.
    • Alpha Natural Resources has insolvency risk, but it's not a near-term problem.
    • Putting it all together, Alpha Natural Resources might be a buy on an insolvency scare, but doesn't look like a long-term investment right now.
  • Final Estimate For Amazon.com Q1 2014 Revenue Growth
    Tue, Apr. 8 AMZN 67 Comments

    Summary

    • ChannelAdvisor reported March 2014 "same store sales," with Amazon.com showing better than expected.
    • The better showing leads me to increase estimates for Q1 2014 revenue growth.
    • While the new estimates still imply a miss, the miss is much smaller, and there's even the chance Amazon.com will meet consensus revenue growth estimates.
    • On the other hand, it's still likely that revenue growth guidance for Q2 2014 will be disappointing, both due to the ebook accounting change and due to an Amazon.com move.
  • We Have March Numbers For Tesla And A Prediction For The First Quarter
    Thu, Apr. 3 TSLA 292 Comments

    Summary

    • Massive deliveries in Norway during March make it likely that Tesla will meet or exceed its Q1 deliveries guidance. I estimate 6,700 deliveries for Q1.
    • This comes at the cost of Q2, though, as the deliveries have been achieved partly due to shorter delivery times.
    • This means that Q2 will likely have flat-to-lower deliveries versus Q1, excluding China. This might be apparent when Tesla reports Q1 and guides for Q2.
    • All the numbers continue to be consistent with peaked deliveries in the U.S.
  • Canterbury Park: Some Hidden Value, But Valuation Not Very Compelling
       • Wed, Apr. 2 CPHC 1 Comment

    Summary

    • Canterbury Park Holding Corporation operates a racetrack and card casino near Minneapolis.
    • This business is steady, has two positive catalysts but the valuation is not very compelling.
    • Still, there are two hidden assets which might make Canterbury Park Holding Corporation interesting if the equity becomes available at a cheaper valuation.
  • Blood In The Streets, It's Time To Buy Russia
    Fri, Mar. 28 RSX, RSXJ 322 Comments

    Summary

    • Russian stocks were cheap even before the Crimea situation.
    • The Crimea situation made them cheaper still, and made for obvious capitulation.
    • Given the fundamentals of Russia's economy, the massive discount seems unwarranted, and this seems like a good place to buy Russian stocks.
    • The RSXJ ETF, for a variety of reasons, seems a good way to establish a long position in Russian stocks.
  • The $127 Billion Market Asteroid
    Wed, Mar. 26 QQQ, SPY, IWM 60 Comments

    Summary

    • Bubbles usually end with supply.
    • Supply has already been running strong with a stream of IPOs and secondaries, but 2 events stand to make it even larger: The Alibaba IPO and WhatsApp.
    • This can then combine with record margin debt to provide for large, concentrated selling which is bound to have significant market impact.
  • Let Me Sway You Over
       • Tue, Mar. 25 AAMC, RESI, SWAY 15 Comments

    Summary

    • SWAY is in the same business as RESI/AAMC.
    • SWAY has more experience, is more advanced in the business and has better systems.
    • Yet, SWAY trades at a much lower valuation than RESI/AAMC.
    • The logical conclusion would be that investors would be better served by investing in SWAY than in RESI/AAMC.
  • Somewhere In Europe, 100 Model S' Destroy A Myth
    Thu, Mar. 20 TSLA 810 Comments

    Summary

    • Yet another piece of evidence shows that demand for the Model S is not as strong as speculated. In this case, 100 speculative cars for sale in Germany.
    • Having inventory cars for immediate delivery is incompatible with supposedly being production-constrained.
    • Tesla does have a one-off card it can play in Q1 2014, if it were to shorten delivery times, which seems to be happening.
    • But this again compromises Q2 2014, which looks to be flat at best (excluding China), not because of production but because of peaked demand.
    • Finally, there are some worrying negative signs emerging regarding Model S reliability, though this requires further confirmation.
  • Tesla: The Baird Is Singing A Strange Tune
    Wed, Mar. 19 TSLA 329 Comments

    Summary

    • Baird published a research report increasing Tesla's price target to $275 per share.
    • In this same research report, Baird, in close contact with Tesla's management, provides estimates for Q1 and Q2 2014.
    • The estimates provided by Baird are well below the Street consensus and again imply peaked deliveries in existing geographies for the Model S.
    • Peaked Model S deliveries right now are incompatible with longer-term projections for the Model S and thus call into question the long term story and value.
  • Alphatec: An Update
       • Wed, Mar. 19 MDT, NUVA, ATEC 5 Comments

    Summary

    • Alphatec has resolved its legal troubles, but cast in stone a $49 million loss;
    • At the same time, Alphatec has contracted financing which carries 16.8% dilution;
    • Valuation can be supportive of somewhat higher share prices, given Alphatec's growth story is favored both by the aging and obesity trends.
  • Elecsys Corporation: An Update
       • Sun, Mar. 16 ESYS 3 Comments

    Summary

    • The latest quarter saw a significant revenue growth slowdown, but this was misleading;
    • The slowdown occurred in the low-margin EMS segment, leaving the all-important proprietary segment growing at an accelerated pace;
    • Still, with the stock having moved so much, valuation is no longer as enticing;
    • The more expensive valuation together with some risk for the next quarter from the end of a Saudi contract leaves me neutral on the name.
  • Here's How The Amazon.com Quarter Is Looking In Terms Of Revenues
    Fri, Mar. 14 AMZN 95 Comments

    Summary

    • ChannelAdvisor has just reported February 2014 "same-store sales."
    • These imply that Amazon.com continues to be on track to miss revenue expectations for Q1 2014.
    • Together with the ebook accounting change losing its grip, these also imply Amazon.com should be on track to miss revenue guidance for Q2 2014.
  • Tesla: We've Got Some Numbers For February
    Mon, Mar. 10 TSLA 730 Comments

    Summary

    • The thesis that U.S. deliveries of the Model S have peaked remains unchanged.
    • New data for February 2014 European sales confirms European sales are running sluggish as well.
    • Barring a Chinese surprise, Tesla seems on track to have trouble beating its Q1 2014 deliveries guidance.
  • Alphatec: Lawsuit Loss Creates Buying Opportunity
       • Sun, Mar. 9 ATEC 14 Comments

    Summary

    • Alphatec is cheap and acts in the growing spine surgery segment which is helped both by the aging trend and the obesity trend;
    • Alphatec got cut in half in the last month due to having lost a lawsuit;
    • However, the cost from this lawsuit is not final, Alphatec might have ways to avoid taking the loss without compromising most of its business;
    • And even if Alphatec does take the less, such outcome is also positive due to lower ongoing costs and becoming an attractive acquisition target.
  • Anecdotal Evidence - Gold And Cigarettes
    Fri, Mar. 7 BTI, GLD, LO 23 Comments

    Summary

    • Anecdotal observation shows the emergence of many new e-cigarette stores, some taking the place of former gold-buying stores;
    • E-cigarettes have many advantages over traditional tobacco, so are likely to take away significant market share. The new stores indicate an acceleration of this trend;
    • Big tobacco is entering the e-cigarette segment, however this segment is more fragmented and lower margin than traditional tobacco, so the shift will be negative for big tobacco.
  • 3 Thoughts On Ukraine
    Mon, Mar. 3 GD, LMT, RTN 69 Comments