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  • Dr. Kellegro Initiates Short Sale of 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
    Tags: JAS
    Jun 21 12:56 PM | Link | Comment!
  • Dr. Kellegro Initiates Short Sale of DBRN
     Dr. Kellegro initiates opinion of DBRN 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.

    DBRN is now in the mature stages of its cyclical upturn, appreciating near 500% from its low in 2008 to its most recent high in 2010. 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.

    Both insider’s and substantial shareholders in the stock are realizing that the risk/reward equation has shifted as the CEO recently made one of his largest sales in recent memory with a $4 million sale in common stock. This was followed by sales from the likes of Bob Olstein, a long-time value manager and George Soros who completely disposed of his position in the stock.

    Short interest in the stock has been declining steadily, as illustrated in the chart below:

    A substantial short squeeze has taken place, which aided the equity price in its near parabolic move since its lows in late 2008. This has taken a substantial number of short sellers out of the marketplace and they are only now beginning to reemerge. The annihilation of short sellers is an essential component to an upward cycle reaching its maturity phase, as the markets rarely give away free lunches without inflicting the maximum amount of pain unto the group of investors who are the most susceptible…in the most recent case, short sellers. The burden of pain will now shift to long side investors.

    The fascination with various measures of valution is an effort in futility with respect to cyclicality, as valuation has little influence within the overall cycle. The cycle is purely driven by psychology, which influences the stock price in various stages. Therefore, no valuation measures or fundamental data pertaining to business performance will be mentioned here, as it is irrelevant.

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



    Disclosure: short dbrn
    Tags: ASNA
    Jun 21 12:55 PM | Link | Comment!
  • A Long Opportunity For Those So Inclined

    MRVC

    Dr. Kellegro’s filter for potential long opportunities within the portfolio is so rigid that most opportunities fall between the cracks and are left for the vast number of investors who prefer to be net long rather than net short.

    One such opportunity that came up during my weekend marathon of research is MRVC. One of my primary drivers behind consideration of a long position within the portfolio is whether or not shareholder activism, at any level, is taking place within the company. MRVC passes this primary test with flying colors, as there are a few respected and notable value investors that are buying up the stock at its current discount prices.

    Two investors of note that have been participating in buying up shares and are also members of the board are Senor Charles Gillman and Dr. Kenneth Stein. Senor Gillman is with Boston Capital Group and Dr. Stein is with Spencer Capital. Both of these are deep value driven funds.

    The company has appreciated substantially from its lows below .50 cents in 2009 and is now sitting close to $1.50. During the heyday of the technology revolution in 2000, MRVC was a darling amongst traders…myself included. It continued to be a darling all the way through 2007 or so, despite having destroyed the wealth of many an investor. I, personally, knew of many dedicated groups of investors who were clinging onto the stock thinking that it would have them retiring in style…alleviating all worries for the second half of their lives.

    Alas, it was not so…and the last remaining retail worms were rinsed away as a result of the high pressure blast that was the crisis of 2008. They are now gone for good and as such, the stock is now free to rise and achieve its true value.

    The fundamentals of the sector are very promising as bandwidth and the rapid transfer of vast amounts of information is a staple of today’s information driven society. FNSR, for example, has seen an appreciation of 1000% in the less than two years. Same industry…different stock. Want further proof? Check out the charts of JDSU, OCLR, AMCC. Again same industry, all close to 1000% gainers over the past couple of years. MRVC is setting up to do something similar.

    The fundamentals of the company are much less important, as a thorough fundamental analysis of a company that has depreciated greater than 90% over the last decade will rarely point to anything positive. However, from an industry, activist and psychological standpoint…all signs point to higher prices over the next 12-24 months.

    Again, for those so inclined…a potential gem. As Dr. Kellegro will not participating here, I only ask that you donate a portion of your profits from this investment to your favorite pub after a long night of debaucherous behavior.

    Signed: the always philanthropic Dr. Kellegro



    Disclosure: None
    Tags: MRVC, FNSR, JDSU, OCLR, AMCC
    Jun 20 4:34 PM | Link | Comment!
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