107Sid

Paired Trade: Sell DineEquity, Buy Hormel

Your headline sees sell DIN, as part of a paired trade. A paired trade implies shorting the stock which one is recommending as a sale.


On Jul 10 07:41 AM Alan Brochstein wrote:

> I don't believe that I recommended shorting DIN. I know the story
> well enough to share my idea, but I want to admit that I haven't
> fully researched DIN (as I have done for HRL). That allows the reader
> to quickly realize I may be missing something, which is always the
> case anyway!
>
> I do feel comfortable pointing out valuation differences that seem
> extreme to me as well as highly contrasted approaches to capital
> allocation.
>
> While this isn't a sell XOM buy CVX type of pair that is so obvious
> that even Ethel would see it, both companies are involved in the
> same "food chain". As I mentioned, I expect a continued move by consumers
> from the restaurant to the grocery store, and I can't think of too
> much of a better testing ground than IHOP or Applebee's, given their
> low-end appeal.

Paired Trade: Sell DineEquity, Buy Hormel

Alan! Alan! At least you admit that your knowledge of DINEequity is limited and essentially you're shooting from the hip. In the past four months the stock has increased more than five-fold and you could have made the same arguement back in March when the stock was selling for less than $6 a share.

While the stock can obviously go down (as all stocks can) especially after enjoying big run, do your homework and you'll be able to figure out why it had the big pop. CEO Julia Stewart had done a marvelous job since taking over the old IHOP which she successfuly turned around and put on a new growth path. Prior to joining IHOP she had been head of operation at Applebee's and knew the company inside and out when she had IHOP acquire it on a highly levered basis, financing it via debt. Since then she has not only made progress in repositioning Applebees (which is not fully completed yet), but has been selling-off company operated units to franchisees, not only igniting important streams of franchise fee income, but generating cash from the sale of these units to reduce the debt.

Julie Stewart is a proven winner; don't sell her short.....especially when you admittedly are not that familiar with the company.