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Xin He's  Instablog

Xin He
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Founder of Turnbeta blog. I look for value stocks and growth stocks that pay off well in long term. I am also a contrarian investor that look for low risk high return opportunities.
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  • LNDC Is Cheap!!! Weather Problem? Don't Worry!

    LNDC becomes a very good bargain as its earnings dragged down by bad weather this year.

    Disclosure: I am long LNDC.

    Tags: LNDC
    Nov 25 7:59 AM | Link | Comment!
  • What Hurricane Sandy Brought After It Hits

    Super storm Sandy had a direct hit into the hearts of some retail stores. Among the victims, there are some undervalued stocks lying on the beach Sandy left behind. The first one I am going to recommend is the Children's Place (PLCE). Investors have abandoned the Children's Place (PLCE) recently. Shares price dropped more than 15.5% on Thursday last week on cut earnings for 2012. Management now sees full-year 2012 EPS of $3.10-$3.15, down from previous $3.20-$3.30.

    According to CEO Jane Elfers, Hurricane Sandy had a devastating impact on the business and the company will roll out more promotional activities to clear out the redundant inventories. Hence, the discounts will have an impact on the 2012 earnings. Now with the new adjusted earnings, PLCE has a 12 times forward P/E ratio and no long-term debt.

    There are some facts made me a contrarian investor in this stock.

    1. Balance sheet is strong. Although the storm destroyed one of the stores, gross margin will bounce back soon due to the fact comparable sales had grown 1.1% before the storm hit.

    2. E-commerce is growing rapidly for PLCE. 2012 Projected e-commerce revenue is about 10% of the total revenue. The company launched Canada e-commerce site April 2011.

    3. The cut on earnings is not so much a big deal. Look at the numbers, it's about 4-5% down from the previous earnings. Even with a third of its total sales areas affected by Sandy, the company can still manage to maintain decent earnings for 2012.

    4. PLCE operated more than 1,102 stores, as of October. Only one store has been completely damaged. Remember this is a one-time incident so we don't expect another hurricane hit any soon. (Maybe some other big storms will hit, but they certainly don't hit annually like a clock.)

    5. PLCE is expanding into other countries or less natural disaster risk areas. According to the fact sheet, Canada stores and E-commerce contributed 23% sales by channel in 2011.

    6. PLCE is very good at showing in-store experience and inventory control. No need to say, the brand name is one of the best among competitors.

    PLCE is well positioned to take the hit from Sandy. The Children's Place targets middle class in the U.S and Canada and they are going to open and operate more stores in high salary areas where natural disasters are going to happen more frequently than inlands.

    The next one I am going to recommend is Bed Bath & Beyond (BBBY). BBBY may be a little different from PLCE in this super storm incident. Sandy may have a little positive side to BBBY. E-commerce giant Amazon (AMZN) has lunched home furnishings website Casa.com. This action forces BBBY to invest more into e-commerce sooner than it expected. Raising cost is a common issue among retail stores these days. E-commerce with stores combined seems to be the best way to fight off the problems. BBBY also had actions to acquire smaller retail stores along with unique products and distributions. These actions are positive moves to reinforce recent business market shares. BBBY's market position is already fairly stable in terms of revenue and profit margin. Its gross margin and operating margin is higher than PLCE. PLCE has a gross margin around 35-38%, and operating margin around 3-5%. BBBY's gross margin is around 40% and operating margin around 16%. Needless to say, BBBY's RoE is an impressive 25% plus. The forward P/E ratio for BBBY is around 10-11 times. The company has no debt and nearly $1 billion cash or cash equivalent.

    Here are some points I want to list out:

    1. BBBY has strong balance sheet and earnings. Looking forward, the company is going to achieve stable low-single-digit growth though e-commerce, store expansion and potential acquisitions.

    2. Scott Black from Delphi Management added shares in BBBY after the 17% plunge after Q2 report in the summer.

    3. Housing market is bouncing back slowly.

    4. Stock repurchase is still ongoing. This is a company that achieved growth since 1993…stock repurchase makes perfect sense if the board thinks they are going to continue to grow.

    5. The company is not afraid of investing into e-commerce. (According to 2011 annual reports, the company is going to invest more into the IT departments for ongoing IT initiatives)

    6. The company has been able to finance its own operations and expansions by generated cash flow. Unlike Best Buy (BBY), this company deals with traditional house products, e-commerce will mostly toward low gross margin products. As for Best Buy, e-commerce giant Amazon (AMZN) is stealing high gross margin items like cellphone and tablets from it.

    I like BBBY's position in the market right now and it's not the first time that institutions downgrade it to "neutral" rating. People who worried about BBBY turning into BBY certainly missed some important points I mentioned above.Super storm Sandy had a direct hit into the hearts of some retail stores. Among the victims, there are some undervalued stocks lying on the beach Sandy left behind. The first one I am going to recommend is the Children's Place (PLCE). Investors have abandoned the Children's Place (PLCE) recently. Shares price dropped more than 15.5% on Thursday last week on cut earnings for 2012. Management now sees full-year 2012 EPS of $3.10-$3.15, down from previous $3.20-$3.30.

    According to CEO Jane Elfers, Hurricane Sandy had a devastating impact on the business and the company will roll out more promotional activities to clear out the redundant inventories. Hence, the discounts will have an impact on the 2012 earnings. Now with the new adjusted earnings, PLCE has a 12 times forward P/E ratio and no long-term debt.

    There are some facts made me a contrarian investor in this stock.

    1. Balance sheet is strong. Although the storm destroyed one of the stores, gross margin will bounce back soon due to the fact comparable sales had grown 1.1% before the storm hit.

    2. E-commerce is growing rapidly for PLCE. 2012 Projected e-commerce revenue is about 10% of the total revenue. The company launched Canada e-commerce site April 2011.

    3. The cut on earnings is not so much a big deal. Look at the numbers, it's about 4-5% down from the previous earnings. Even with a third of its total sales areas affected by Sandy, the company can still manage to maintain decent earnings for 2012.

    4. PLCE operated more than 1,102 stores, as of October. Only one store has been completely damaged. Remember this is a one-time incident so we don't expect another hurricane hit any soon. (Maybe some other big storms will hit, but they certainly don't hit annually like a clock.)

    5. PLCE is expanding into other countries or less natural disaster risk areas. According to the fact sheet, Canada stores and E-commerce contributed 23% sales by channel in 2011.

    6. PLCE is very good at showing in-store experience and inventory control. No need to say, the brand name is one of the best among competitors.

    PLCE is well positioned to take the hit from Sandy. The Children's Place targets middle class in the U.S and Canada and they are going to open and operate more stores in high salary areas where natural disasters are going to happen more frequently than inlands.

    The next one I am going to recommend is Bed Bath & Beyond (BBBY). BBBY may be a little different from PLCE in this super storm incident. Sandy may have a little positive side to BBBY. E-commerce giant Amazon (AMZN) has lunched home furnishings website Casa.com. This action forces BBBY to invest more into e-commerce sooner than it expected. Raising cost is a common issue among retail stores these days. E-commerce with stores combined seems to be the best way to fight off the problems. BBBY also had actions to acquire smaller retail stores along with unique products and distributions. These actions are positive moves to reinforce recent business market shares. BBBY's market position is already fairly stable in terms of revenue and profit margin. Its gross margin and operating margin is higher than PLCE. PLCE has a gross margin around 35-38%, and operating margin around 3-5%. BBBY's gross margin is around 40% and operating margin around 16%. Needless to say, BBBY's RoE is an impressive 25% plus. The forward P/E ratio for BBBY is around 10-11 times. The company has no debt and nearly $1 billion cash or cash equivalent.

    Here are some points I want to list out:

    1. BBBY has strong balance sheet and earnings. Looking forward, the company is going to achieve stable low-single-digit growth though e-commerce, store expansion and potential acquisitions.

    2. Scott Black from Delphi Management added shares in BBBY after the 17% plunge after Q2 report in the summer.

    3. Housing market is bouncing back slowly.

    4. Stock repurchase is still ongoing. This is a company that achieved growth since 1993…stock repurchase makes perfect sense if the board thinks they are going to continue to grow.

    5. The company is not afraid of investing into e-commerce. (According to 2011 annual reports, the company is going to invest more into the IT departments for ongoing IT initiatives)

    6. The company has been able to finance its own operations and expansions by generated cash flow. Unlike Best Buy (BBY), this company deals with traditional house products, e-commerce will mostly toward low gross margin products. As for Best Buy, e-commerce giant Amazon (AMZN) is stealing high gross margin items like cellphone and tablets from it.

    I like BBBY's position in the market right now and it's not the first time that institutions downgrade it to "neutral" rating. People who worried about BBBY turning into BBY certainly missed some important points I mentioned above.

    Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in BBBY over the next 72 hours.

    Tags: BBBY, PLCE
    Dec 06 6:55 AM | Link | Comment!
  • The IMAX Rises

    It is without a doubt that many of you have watched The Dark Knight Rises. It has surpassed the $100M global box office in 557 IMAX theatres worldwide after its 7th week of release. IMAX theatres contributed about 10% of The Dark Knight Rises' total worldwide gross box office. Despite of the shocking shooting at Aurora premiere, The Dark Knight Rises still has made itself the best all time 2-D opening in history. Christopher Nolan is the first director to use IMAX (IMAX) cameras in such a Hollywood blockbuster. We probably won't see IMAX cameras becoming a standard format for most films due to the high cost associated with the using of the 70mm IMAX cameras, however, we will see the trend of more famous directors, such as Nolan, employ the use of the IMAX cameras.

    Next year, we will have a new Star Trek movie, Star Trek Into Darkness, which will be partially shot with IMAX cameras. Hunger Games: Catching Fire, which will be released November next year, will also be shot with IMAX cameras. The famous Steven Spielberg, who has never shot a feature film using IMAX cameras, is now considering using IMAX cameras for Robopocalypse. In addition, we also have The Hobbit trilogy in IMAX format and not to mention that James Cameron's Avatar 2 and Avatar 3, which are also to be digitally remasterd into IMAX format for sure.

    According to Boxofficemojo.com, foreign market contributed about 58.3% of the total gross box office for The Dark Knight Rises. For the new spider-man movie, The Amazing Spider-Man, its foreign market box office contributed 65% of the total gross box office. In addition to the larger domestic network, the international market is, nonetheless, also a vital part of the IMAX box office. The international popularity is the reason why big theatre owners keep signing contracts with IMAX. IMAX needs to build more theatres internationally to cover the untouched audiences.

    The biggest Chinese theatre company, Wanda, just acquired AMC Theatres for 2.6B dollars. Wanda now is the largest cinema owner in the world. It's not a surprise that Wanda will install more IMAX theatres in the future since the boss Wang Jian Lin expressed his ambition to make more acquisitions in the future. IMAX and Chinese filmmaker HuaYi Bros just signed a new partnership deal to bring more Chinese movies into IMAX theatres. Hollywood moviemakers are bringing Chinese elements to attract more Chinese audiences into the theatres because it will make the movies culturally acceptable. More importantly, these films will be categorized as "co-production" movies, which regulations indicate Hollywood will be able to take up to 43%-45% of the total box office, as compared to 25% if it isn't. The new Iron Man movie, Iron Man 3 has a few famous Chinese casting crews on the list, and if it's lucky enough, it will be imported into China as a "co-production" movie.

    IMAX has been using Joint Ventures business model starting a few years back, this business strategy splits the operating cost from movie theatres and brings more revenue for IMAX. Unfortunately, this strategy will have a relatively high fixed cost at the beginning. We will know that fixed cost will only impact the business in the short-term. When the theatre network is large enough, new installations will only make a minor impact on the income statement.

    Just like Marvel and Disney (DIS), IMAX can invest in movies as well. Marvel owns copyrights and intellectual properties of many superheroes. IMAX, on the other hand, owns a large theatre network worldwide. IMAX is able to figure out where big screens are more popular and which movie genre on IMAX had big times. This crucial advantage may help IMAX to invest in potential blockbusters. There are few movies filmed by IMAX cameras every year, these movies are the potential targets to do co-productions. This strategy will not only provide extra opportunities to have the IMAX brand name implanted, but also grabbing more revenue from these movies.

    IMAX can even have its private equity fund for better leverage. China does not allow financial derivatives in banking system whatsoever, nevertheless, the fund market is booming right now. There are funds specifically for movies. IMAX right now has no any production or investment plans but it's not a bad idea to raise fund from the rich Chinese and invest in Hollywood movies. After all, it is a win-win situation.

     

    Disclosure: I am long IMAX.

    Tags: IMAX, Long
    Sep 24 9:06 PM | Link | Comment!
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