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  • Dr. Kellegro Initiates Short Sale of JAS 0 comments
    Jun 21, 2010 12:56 PM | about stocks: JAS
     Dr. Kellegro initiates opinion of JAS and has commenced short sale activities in the common stock of the company.

    The common theme of Dr. Kellegro’s investment philosophy is based on cyclicality within various sectors. The issue of cyclicality is more prevalent in some sectors as opposed to others. One such sector where cyclicality exerts the most dominance, with few exceptions, is speciality retail.

    As such, the speciality retail space is rife with opportunities for astute short sellers to capitalize on the propensity towards reversion to the mean type moves within specific equity issues.

    Management within companies are not immune to being influenced from the bullish behavior in their stock prices and become extremely susceptible to making significant mistakes as their comfort zone increases due to faith in the price momentum of their stocks.

    Management will typically take the position of accelerating the opening of new stores; becoming distracted with new ideas that end up being detrimental to both the top and bottom line; making unnecessary additions to staff and management; and increasing inventory due to unrealistic expectations or understanding of the cyclical nature of the specialty retail industry.

    This leads to a slow accumulation of “poison darts” that puncture the skin of the company and slowly plant the seeds of its cyclical downturn as it marches ever higher.

    JAS has reached the mature stage of its respective cycle as it has risen nearly 500% off the lows made in 2008. The cycle has lasted nearly two full years, which falls in line with the average length of such a cyclical move with small to mid cap stocks within the specialty retail space. The risk/reward equation from both a price and time perspective favors short sellers from this date forward.

    Insider selling has picked up substantially over the past few months as all types of senior officers within the company have been taking advantage of the upward cycle to liquidate their holdings. Most notably, the CEO of the company made his largest sale of stock over the past few years in April.

    JAS is in the business of selling merchandise relating to arts and crafts. This is a business with very little in terms of a barrier to entry, as large scale super stores such as Wal-Mart and Target are increasingly active in offering their customers merchandise that rivals what JAS carries at much cheaper prices.

    While not influencing the cyclicality of the stock, this increase in competition creates long-term problems for the company in terms of overall revenue and contraction of margins.

    The company is highly susceptible to the economy, as spending on arts and crafts is highly discretionary. As such, JAS is a company that is dependant on the government led expansion of the economy continuing.

    Given Dr. Kellegro’s bearish outlook for future growth, JAS fits into the portfolio very well, as a pure play on an increasing likelihood of economic disappointment.

    Dr. Kellegro has initiated a short position in JAS and will be eager to add to the position should the stock price move higher in the coming months.



    Disclosure: short JAS
    Stocks: JAS
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