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Private investor with extensive global management & investment experience with leadings MNCs predominantly in Asia. Financially independent investor and portfolio manager based in an Asian commercial capital. My contrarian investment strategy is LONG / SHORT equity with a 3-5 years... More
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  • Alaska Air Group - Ikarus Rising II, Quo Vadis?

    Following my recent article "Air Alaska Group (NYSE:ALK) - Ikarus Rising " ( )

    the expected decline failed to set in with the stock continuing its upsurge unabated.

    In the light of this continued rise and additional bullish calls it would seem that my initial analysis of the stock and my conclusion have been incorrect and therefore I have had to reconsider my earlier assessment and SHORT rationale.

    Ikarus seems bound to rewrite his own history in that this time he will actually reach the sun and beyond, completely unharmed.

    Therefore the conclusion for me is to rescind my earlier bearish call on this stock and become decidedly bullish urging investors to back up the truck with this highly promising stock.

    All ratings agencies and the media coverage and last not least the forever surging price all go to confirm my new conviction

    "When the facts or change, I change my mind ", is a famous quote by John Maynard Keynes.

    Not so fast. I was just kidding!

    As mentioned earlier, the stock is now in the very final stage of an unprecedented exponential upsurge.

    A look a stock market history, comparisons with industry peers and other high flying success stories will help keep things in perspective and your mind keenly fixed on the prize.

    Case in point: Netflix (NASDAQ:NFLX)!

    Supported by strong financials, spectacular top and bottom line growth and soaring subscriber numbers and its unique business model, the stock had been on a tear with share price appreciation accelerating sharply from January 2010 onwards.

    Yet in a daring contrarian stance, prominent hedge fund heavy hitter Whitney Tilson had made NFLX his fund's biggest bearish bet supporting it with a well founded compelling short thesis


    However, what happened only 2 months later was really puzzling indeed.

    In February of 2011,following the announcement of yet another record quarter by NFLX, Tilson made an abrupt about face and quoting Sir Maynard Keynes (above quote) openly renounced his bearish stance.

    While covering his huge SHORT position he made it clear at the same time that he was not recommending the stock either and in doing so left investors somehow in limbo about the action they should take following his important move.

    What had precipitated his sudden change of heart and mind?

    An aphorism of Warren Buffet might offer an explanation:

    " To invest successfully does not require a stratospheric IQ, unusual business insights or inside information. What is required is a sound intellectual framework for making decisions and the ability to keep emotions from corroding the framework ".

    My conclusion here is that the emotions triggered by the results and most notably the continued upsurge (and other pressure) actually did corrode the earlier intellectual framework.

    Behavioral investing teaches that when emotions take over both in extreme bull and bear phases, rational investment decision making not longer applies.

    Following the covering of his SHORTS the share price declined to $204 in March only to resume its violent upward surge all the way to $304 in July 2011 i.e. another whopping 50% in only 4 -5 months.

    Even a seasoned hard-nosed guru like Mr Tilson must have had his moments of doubt and pain, firstly when being forced to cover his SHORTS at a substantial loss and secondly when realizing that his original SHORT thesis would have worked out perfectly well only 4-5 months later, when NFLX finally did take an epic fall cratering almost 80% all the way down to $66.

    Nothing is more convincing than a rising stock price for making bullish calls and strong LONG cases.

    In my view the only groups making bullish predictions about ALK at this stage are rating agencies, consultants, banks and writers. What they all have in common is that they have no stake in the game and not an inkling of accountability.

    Those with stakes in ALK are the insiders and they have been busy selling off their holdings for quite a while already.


    Stocks have a tendency to overshoot at both ends. This is what is happening with ALK at this stage. Similar final surges took place with NFLX,GMCR and APAGF before the inevitable and ugly collapse.

    All of them were relatively cheap on a valuation basis in case one would want to use this argument for a bullish case for ALK. Contrary to high-tech and biotech stocks with definite USPs and thus very high growth potential, ALK remains a cyclical and an airline with modest, unspectacular growth prospects if any.

    The more the share races to unprecedented highs the more bullish I get about being bearish.

    The song remains the same: Ikarus won't change history and escape his fate .

    Ultimately he is doomed to crash into the sea.

    Expect the stock to reverse course anytime soon.

    Grab this unique SHORT opportunity now.

    Disclosure: I am short ALK. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

    Tags: NFLX, ALK, short-ideas
    Mar 20 9:21 AM | Link | Comment!
  • AEP Industries - Soaring Sputnik Sputtering !

    Net sales of AEP Industries (NASDAQ:AEPI) of the first quarter of fiscal 2013 decreased to $267.1 million from $267.6 million (-0.2%) for the first quarter of fiscal 2012.

    Net income surged to $ 6.9 million from $0.3 million i.e. a whopping almost 20 fold increase with net income per share jumping to $1.25 from $0.06 almost 21 fold.

    The five-year period from 2008 to 2012 saw net sales continuously rising to a total $ 1.153 million with profitablilty failing to increase in lockstep with the rising top lines.

    Based on an improving outlook the shares had embarked on a stellar rise since November of 2011 almost tripling from $24.3 to $69.9 by October 2012. After a short retreat to $51.3 in December of 2012 the stock resumed its upward surge all the way up to an unprecedented high of $75.4 on March 2013 in anticipation of the latest blow out quarter results.

    Most of the analysts and rating agencies rate the stock a buy and the general media coverage is almost unanimously positive and/or inconclusive (" Is AEPI a cash machine?", "Why AEP Industries may be about to take off ", The secret reason why AEP's Industries' earnings are awesome "etc.).

    Making positive predictions on the back of soaring shares is fairly easy because there is nothing more convincing than a rising stock price.

    The discerning contrarian investor with a critical mind however will highlight the following red flags of this "continuing success story ":

    1. Stalling top line growth

    The latest quarterly results could indicate that the earlier years of fast growth or the anticipation thereof might finally be coming to an end.

    2.High debt to equity ratio

    The high ratio of almost 3 would indicate that the company has been more aggressive with using debt to finance growth than 85% of its peers in the container & packaging industry.

    In case of a business slowdown, highly leveraged companies in general and for AEPI in particular the high level of debt might quickly become a serious burden when debt servicing is required making it much more vulnerable than its peers.

    3. Short interest and insider sales

    Short interest has jumped markedly by 200% compared to a year ago while inisder sales show no significant increase yet at this stage.

    4. Stock price upside potential

    After the huge run-up and more than fourfold increase the stock price has seen from November 2011 until YTD 2013 additional upside looks very limited indeed.

    Following the publication of the latest quarterly results and despite a huge jump in net profits,the stock only magaed to eke out marginal gains with the emphasis being on "eke out and marginal" and not on gains.

    If you really think the stock will continue its exponential trend unabated you are falling for the extrapolation ad infinitum fallacy.

    5. Recurring boom bust pattern emerging

    An examination of the stock chart over an almost 3 decades' horizon all the way back to 1986 reveals that similar surges in price had taken place before already on 3 different occasions in the past. The stock had touched then all-time highs of $55,$ 59 and $55.3 in December 1996,May 2001 and December 2006 respectively.

    There is a clear recurring pattern emerging here!

    In each of these cases the climaxes reached after fast and powerful upsurges all proved extremely short-lived.

    The mad frenzy that had violently pushed the stock up to insane levels evaporated as quickly as it had been created taking the stock back down with it to significantly lover levels.

    With history repeating or at least rhyming as Mark Twain put it one can safely expect a recurrence of the same pattern from the now all-time historical highs.


    Remember the old adage that those who don't know their history (stock market history) are doomed to relive it.

    It is NEVER different this time!!!

    Based on the above findings and my experience the stock has run its course and potential additional upside is therefore extremely limited.

    Expect AEPI to reverse course and fall dramatically any time soon.

    Be quick to grab this SHORT opportunity now!

    Disclosure: I am short AEPI. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

    Tags: short-ideas
    Mar 20 8:15 AM | Link | Comment!
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