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  • Priceline running ahead of itself

    Following the recent earnings call, Priceline (PCLN – $153) surprised analysts by earning $2.02 a share up 30% from a consensus estimate of $1.75. Sales were up 17.5% to $603.7, analysts were expecting $574 million.

    CEO Jeffery Boyd said, “Despite a difficult economic climate, leisure travel demand for the summer peak season has been stronger than expected, driven in part by the availability of compelling discounts.”

    More recently Citigroup slapped a price target of $185 and Barclays followed with $180. Year to date PCLN is up 108.36% from a low of 73.65 and is currently trading at an all time high of $153. Where was Citigroup and Barclays when Priceline hit its low in November? It is quite easy to upgrade and initiate coverage once momentum has built up on a stock rather than making a call when the outlook seems bleak. Should an investor choose to follow these calls a return of 20% and 17% will be garnered should the price targets be reached.

    The contrarian in me chooses a bet against these targets. From a macro perspective the economy is not doing that great and it seems oil is headed back towards $100 (currently $74). Unemployment is still at 10% with no improvement in site and more importantly the boost in GDP from the stimulus package will slowly begin to vanish by the end of this year.

    As with the economy I expect Priceline to stall. The trade, sell call Jan10@185 for a premium of $5.50. Initial margin requirement of $2,050.00, proceeds of sale $550.00, for a requirement of $1,500.00. This yields a 36% return annually or approximately 80% for five months. The stock will have to move higher by 24% to breakeven at $190. A close below $185 on Jan and the option expires and the premium is yours. Given the rise in equities over the past few months and the dreary macro outlook I entered into this trade today.

    'Disclosure: Short Calls'

    Aug 26 9:15 AM | Link | Comment!
  • 9 Takeaways from Nouriel Roubini

    Nouriel Roubini is a professor of economics at the Stern School of Business at NYU and the chairman of Roubini Global Economics. Mr. Roubini received a doctorate in international economics at Harvard University. In 2005 he was quoted as saying "home prices are riding a speculative wave that would soon sink the economy". Many ignored him back then, today he is a sage. The below are 9 takeaways from his recent article from Forbes,(Stop Asking When The Recession Will End):

    • Positive GDP growth may become evident in the second half of '09
    • Recovery will be closer to U shaped than V or W
    • Policy measures such as cash for clunkers will raise real GDP growth in the third quarter of '09, this is a temporary boost to growth
    • Inventory adjustments and stimulus impact will be over by mid 2010, this may cause a double dip recession.
    • Sustained economic recovery must come from private demand
    • This is the most severe recession since the 1930's
    • New sources of growth must emerge, until then growth will be below potential for many years
    • Productivity has been a leader due to labor cuts and increase labor hours not innovation or productivity investments as it should
    • Productivity growth will remain under pressure for the foreseeable future


     

    Aug 20 8:59 AM | Link | 2 Comments
  • KKR Financial Holdings LLC to increase by as much as 48%?

    KKR Financial Holdings LLC (KFN - $2.85) 50 day SMA crossed above the 200 day SMA at $2.82. This is known as a "golden cross" to institutional traders (market movers). When the 50 day crosses below the 200 day this is called a "death cross". A stock trading above its 200 day SMA is looked at as healthy with an upward projection, the opposite is true for the inverse. These moving averages are also used for support and resistance levels. Many times when a 50 day SMA meets the 200 day SMA the stock heads back where it came from meeting its resistance or support level.

    Most recently FBR Capital Markets upgraded KKR to outperform with a PT of $4.00. Since March 31 following the improvement in the credit markets, management was able to enter into deals that alleviated certain CLO triggers that were trapping cash flow. These CLO's (Collateralized Loan Obligations) are special purpose vehicles with securitization payments in the form of different tranches. All this means is that these payments are pooled together and passed on to the owners of these tranches similar to collateralized mortgage obligations. Although the current price might seem cheap compared to its book value investors should consider the significant risks in the capital/credit markets prior to investing. KKR continues to make investments in the same vehicles that caused its stock price to drop to .40 : commercial real esate loans, debt securities, asset-backed securities, corporate loand and debt securities.  Sounds to me a 48% drop is in the cards just as much as a 48% increase.

    DISCLOSURE - No position

    Aug 13 8:26 AM | Link | Comment!
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