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Tom Armistead
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I'm a well-informed retail investor and post on SA in order to expose my thought process to critical examination and comment from readers. It makes me a better investor. I'm particularly proud of bullish macro articles posted in 2009 and later, in which I presented ideas that encouraged me to... More
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  • Intel: Updating My Opinion

    Back in December last year I took a somewhat unorthodox look at Intel (NASDAQ:INTC) and liked what I saw:

    With shares trading at $24 at the time, I split the difference between the market's price and my $46 indication and decided to invest on the basis shares would hit $35 by the end of 2015.

    2Q 2014 earnings were a beat and raise, with additional buybacks for a kicker. The stock made it up over $33 after hours, and at this point the situation is moving much faster than I was looking for.

    So, is there a way to get from here up to the $46 that looked so farfetched at the end of last year? The answer is yes, if you think they will ever make any money in mobile. As of the latest report, they had lost $2 billion for six months in the Mobile and Communications segment. Contra-revenue, in part. Annualized, that works out to 78 cents a share.

    TTM earnings are $2.02, using the just completed 2nd quarter. Add 78 cents, under the assumption they at least stop losing money on mobile, and you are at $2.80 per share. Applying the company's five year average P/E of 14.1, $39 comes into view. It's easy to get up over $40, if you think they might actually make money in mobile, or command a higher P/E.

    After putting this through the blender, I'm investing on the basis that shares will reach $40, again by the end of 2015. As always, a quarterly review is needed, to track developments by segment.

    Disclosure: The author is long INTC.

    Jul 16 6:53 AM | Link | 7 Comments
  • Responding To The Bad News On Coach

    Coach (NYSE:COH) tanked on the analyst/investor day presentation. My position was long Jan 2016 35 calls and short Aug 2014 52.5 calls. I rolled the Jan 2016 calls down to 30, bought back the 52.5 calls and sold Nov 38 calls.

    Before taking action, I listened to the presentation, or more accurately, viewed the slides and listened to the sections that were of interest to me. I also browsed a few articles and the comment stream here on SA.

    Giving management two years to do the turnaround, the end result might be EPS of $2.50 and a share price of $40, with the market expecting them to grow 7% going forward, in keeping with the segment of the luxury goods market they are in. I got the 7% from the presentation, that's what they think is out there for the industry through 2018.

    Over the years, management has done a good job creating value, as can be verified by the growth of sales, EPS, shareholder's equity, etc. Closing 20% of stores, and doing what they have to do to bring down inventory, update the store format, and appeal to a younger demographic, improvement can be expected. Management has the financial resources and the determination to take strong action to address the problems.

    It's possible they won't be able to restore the lost cachet, or to retain the existing customer base while transitioning to a look that will be more current. The brand has been cheapened by excessive flash sales and it will take a while for corrective action to restore perceptions. I think it's more likely they will succeed than not.

    In the meantime, I can earn premium selling calls, and if it goes over $38 in November I will be both surprised and pleased.

    The loss incurred riding the stock down to the current level is a sunk cost. In the meantime, I think I can make money from where it is.

    Disclosure: The author is long COH.

    Jun 20 3:37 PM | Link | 11 Comments
  • Sticking To My Knitting

    As the market hugged the flat-line after rallying on the FOMC announcement, I started conducting a portfolio review, to see if there were any changes I should be making.

    I started by sorting by forward PE. As a group, the stocks I own are at about 13.5 on this metric, some higher, some lower. Coke (NYSE:KO) was the highest, but after reviewing its history it's priced pretty much where it has always been, with management making encouraging remarks and pulling on various of the levers. My position, LEAPS covered calls, reflects my opinion, I'm happy to sell at $43.

    Next up was Altera (NASDAQ:ALTR). After adjusting for excess current assets, forward PE is 13.9, and this situation possibly has a lot of pop.

    PepsiCo (NYSE:PEP) is also expensive on that basis. Looking at my position, I added to it back in February when it unaccountably tanked on very decent earnings. I have a nice profit on the additional shares controlled, and elected to bring it back to normal size, booking a profit.

    That got me looking at position size, and Intel (NASDAQ:INTC) had gotten a bit oversize, due to the stock making a move and I have been bullish on it, calling for $35 when it stood at $24. So at $30 I took some profits, and brought it back to normal size.

    Finally, I bought an in the money vertical call spread on AAR Corp (NYSE:AIR). It comes up on a screen I have for the strategy, where I compute adjusted PE (or forward PE) based on excess current assets. It's cheap on that basis, and has enough volatility to make the options potentially profitable.

    Disclosure: The author is long KO, ALTR, INTC, AIR.

    Tags: KO, INTC, ALTR, AIR
    Jun 19 10:58 AM | Link | 1 Comment
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