Investor Intelligence

news and notes

2006-01-24T18:27:00.000-06:00

Int'l Game Tech. (IGT) has been on fire of late. Co. reported very strong quarterly #s. Particularly impressive were gains in ARPU and non-machine sales. Here's the Mark Sellers interview where he discusses IGT {Note I am long IGT}

JP Morgan has been pushing Tweeter (TWTR) hard prior to its earnings report tommorrow. Stock could move $1 either way on a beat or a miss. I'm hoping for a beat and a run into the $7's to short into. Also, something on TWTR that I believe I failed to mention earlier is that the auditors noted weaknesses in financial controls in their most recent 10k.

My favorite confectionary co. is coming back to me. Wrigley is down to about $64 now from $70ish a few months ago. Another 10% move lower and I'll be very interested.

A new Greenblatt idea: IMS Health (RX) is a medical information service provider. Here's a presentation to get you started. Co. will report Q4 and FY05 on 1/31.

A new short idea: Cosi Restaurants (COSI): Co. has very aggressive expansion plans and very poor expense control. Take a look.

my newest position -- Overhill Farms (OFI)

2006-01-21T09:36:00.000-06:00

OFI is a stock that came across my radar screen via VIC. Before I begin, note that OFI is a microcap stock and my track record with stocks in this area is poor. But these mistakes have been in the sexy sectors -- biotech, medtech, any tech. One difference here is that OFI is decidedly unsexy. OFI manufactures frozen food products (entrees, meal components, soups, sauces, poultry,meat, fish). The current share price is $3.66, market cap of $55 million. FY05 sales were $162.6 million.

Here's what I like about OFI:

Sales were up 21.4% in 2005

Income statement ratios moving in the right direction (05 vs. 04)--GM% at 12.2% vs. 10.7%, SGA% at 4.8% vs. 6.0%, Op margin 7.3% vs. 4.7%.

Panda Restaurants and Jenny Craig are OFI's two largest customers (combined 50% of business). Both have been growing smartly.

OFI's move into a new maufacturing facility seems to have been behind the op. expense improvement at the co. OFI still has excess capacity at that plant to "grow into."

Possibility of re-financing of debt--OFI has a 10/31/06 note that carries an interest rate of 13.5%. Re-financing that debt (maybe to the 7% range) would make a big dent in the int. expense that shows up on the income statement.

OFI is pretty cheap--They earned $0.24 in 2005 (15x trailing) and I think that number can move materially higher based on the discussion above--sales growth at the 2 large clients, op expense improvements, debt refinancing.

OFI insiders hold about 20% of the shares.

Risks:

Client concentration (Panda and Jenny Craig). Also airlines are a big piece of the pie. This is a bit disconcerting due to many airlines deciding to cut back on in-flight meals. However, OFI has managed to keep this part of the business around $30 million in the past 3 years.

Not much volume--20k or 30k per day

The re-financing doesn't happen.

OFI had hired Piper Jaffrey to explore alternatives for the co. The risk here is that Piper's recommendation, if followed, might be suboptimal to the shareholders.

The Holy Grail of Value Investing

2006-01-21T09:32:00.000-06:00

What is it? I don't know. Where is it? Maybe it's in Seth Klarman's "Margin of Safety." No, I decided not to fork over the $700 for this mysterious tome; my library is going to snag me a copy. I'll let you know if I come across any nuggets. I'm also just getting into Thorton O'Glove's "Quality of Earnings." So far, so good.

Get thee to the VIC!

2006-01-18T21:03:00.000-06:00

VIC stands for Value Investor's Club. As I've mentioned before, upon registration, guests can access VIC member posts on a 45 day delayed basis. If you're searching for some unique stock ideas, I highly recommend signing up (it's free, just do it). Ideas are very well researched and professionally presented. As a matter of fact, yesterday I initiated a position in a co. I initially read about on VIC. The company is Overhill Farms (OFI). A more detailed write-up on OFI will follow, but for now, here are some other VIC ideas that might make some sense:

Discovery Holdings (DISCA) is a recent spin-off from Liberty Media. It's main asset is a 50% stake in Discovery Communications (TLC, Discovery Channel, Travel Channel, Animal Planet). These are some of the most popular stations that are not yet part of a media conglomerate (e.g. Time Warner). Besides VIC, the armchair analyst has a nice write-up on DISCA.

Femsa is another co. that I'm interested in (FMX). The co. has 3 units (a massive and very profitable Coca Cola bottling unit, a brewery unit and also a convenience store unit). Here's a corporate presentation to get you started.

the Bear Case on Tweeter (TWTR)

2006-01-16T18:40:00.000-06:00

I have previously mentioned Circuit City (CC) as a short opportunity around $25 but I think Tweeter (TWTR), in the $6's is a more compelling idea with a medium term (6m-2yr.) time frame in mind. Tweeter is a consumer electronics retailer that caters to the mid-high end shopper. Market cap of ~$150mm, FY05 sales of $795mm.

Before we get to the bear case, what do longs hang their hats on?

Gross Margins have increased nicely over the past 3 FY's (34.3% in '03, 38.9% in '04, 39.5% in '05). GM improvement is due in part to a greater focus on installation services and parts & accessory sales.

Q4 of FY05 saw SSS up 10%

Recent positive analyst comments -- JPM sees SSS gains up mid-upper single digits in 2006 and expenses coming under control. The analyst also notes that TWTR is cheap compared to Best Buy or CC on a price/sales basis. Finally, JPM sees the HDTV upgrade cycle as a big benefit to TWTR.

Before I start with the bear case, note that my belief is that the market in general (and specifically certain retailers) will come under pressure in 2006. I think TWTR will suffer from a gradual slowdown in the U.S. consumer.

Bear case:

GM% has been increasing nicely, but so are selling expenses and G&A. Selling expenses have moved up from 30.1% in 2003 to 34.1% in 2004 to 36.5% in 2005 and G&A has moved up from 6.0% in 2003 to 6.7% in 2004 to 6.8% in 2005. I think part of the selling expense ratio deterioration stems from the increased focus on home services/installation. Sure this provides a GM lift, but TWTR pays for it in selling expenses. On the G&A side, the deterioration here might be due to having these corportate expenses spread over fewer stores--which brings us to the next point....

Stores are closing. 176 were open at FY end 2004 and 159 were open at FY end 2005 (net 17 closed). Because of this, I don't put that much weight on the JPM comment that SSS growth should be ok next year. It sure as hell better be! You just removed 17 dumpy stores from the store base.

Weak balance sheet--TWTR had $1.3mm in cash and $39.2mm in working capital at the end of FY05. Of the co's credit facility ($90mm in revolving credit loans and $13mm in term loans), all but $15.3mm has been drawn down. Int. expense has hurt and will continue to hurt the inc. st.

Even if you don't include the restructuring charge from 2005 ($16.5mm), operating loss still widened to $30.6mm from $20.9mm the year before. OCF flow for the year was minus $26.7mm.

Couple of Red Flags:

Accounts Rec. were $17.8mm in 2004 vs. $28.2mm in 2005 (up 58%) while sales were up 4%.

Sale-Leaseback transaction -- This type of transaction involves a co. selling an asset to another party and then leasing that asset from that party. So it enables the seller to get an asset off the b/s and generate some cash up front. For TWTR to make such a move makes sense; they're hardly flush with cash. So TWTR decided to enter into a sales-leaseback transaction with its Rhode Island store with (drumroll) the Chairman of the Board of TWTR! The co. mentions in the footnotes that they had independent valuations of the property. But I still have an uneasy feeling here. Did TWTR do all they could to maximize the value they rec'd for this property?

Store closing arrangement--I think this stinks too. As mentioned earlier, TWTR closed several stores in FY05. So the co. had to get out of leases, restructure leases, etc. And who did TWTR turn to for these RE services? Gordon Brothers. And who runs Gordon Brothers? The Chairman of the Board's brother. Super. Longs can't like that.

It's difficult to come up with a price target for TWTR because all of the earning's based metrics don't apply. My guess, based on strong competition from BBY/CC/WMT and even SHLD, a weakened U.S. consumer, a faltering b/s and a bloated expense structure is the $3 range. I would not be surprised to see shares in that vicinity by the end of 2007.

{Note that I have no current position in TWTR or Best Buy or CC}

PSPT on a roll

2006-01-14T12:02:00.000-06:00

PeopleSupport (PSPT) has been on a tear of late. The analysts all have good things to say (see here, here, here and here) about the Philippines based outsourcer. Plus the co. recently made a smart acquisition of a transcription co. to better utilize their new corporate facility.

{Note that I am long shares of PSPT}

IPO's I'm following

2006-01-14T11:51:00.000-06:00

If you have some time on your hands, check out these two S1's from traffic.com and Chipotle Mexican Grill. I wouldn't be surprised if Chipotle, in particular, spikes 20% on day 1.

Two picks from Greenblatt's Magic Formula

2006-01-14T11:33:00.000-06:00

As I mentioned before, I'm not willing to chuck all the research that I do to follow Mr. Greenblatt into the promised land. But I'm not willing to dismiss his high ROC/high earnings yield formula, either. Here are two stocks that I find interesting that pop up at magicformulainvesting.com

Holly (HOC) is an independent refiner ($2B market cap). It processes heavy crude and has had very strong spreads in recent years. Basically, the bet here is that spreads will stay wide and HOC might eventually be taken over by a giant like VLO. Here's a presentation if you're interested.

Hewitt Associates (HEW) is a business services co., another midcap ($3B). What intrigues me here is that HEW is the leader in HR BPO, that is Human Resources Business Process Outsourcing. HR BPO is an area that is expected to grow smartly over the next five years. Just think about all of the administrative tasks that your HR dept performs at work. Could someone else perform those tasks better and at lower cost? I think so. HEW grew its HR BPO business significantly through it's acquisition about 1.5 years ago of Exult. Right now, HEW's business is roughly 2/3 HR BPO and 1/3 consulting services. The problem is that the HR BPO unit is growing faster than consulting and carries lower margins (results in lowering of corporate margins). HEW management thinks this will be alleviated as the HR BPO long-term contracts mature. The stock hasn't really done anything for years, but based on HR BPO demand and increasing (hopefully) margins here, HEW is worth a look. I'm looking for sub $25.

Monetary Myopia

2006-01-14T11:28:00.000-06:00

The Economist takes el jefe to task.

"The deepest flaw in Mr Greenspan's policy towards asset prices is its asymmetry. If the Fed always cuts interest rates when asset prices tumble, but never raises them when they soar, then investors will be encouraged to take bigger risks. That makes bubbles more likely. The Fed was right to ease when the stockmarket bubble burst, to avoid repeating the Bank of Japan's mistake in the 1990s. But such “mopping up” should be a last resort, not a concerted strategy that cushions the bursting of one bubble by inflating another—since 2002, in housing."

Bull vs. Bear (Faber vs. Gave)

2006-01-14T11:23:00.000-06:00

Financial Sense has put up an interesting discussion between Dr. Doom and Louis Vincent Gave on the outlook for 2006 and beyond. As you might expect, their disagreements center on the health of the U.S. economy.

Paul Kasriel puts out his latest

2006-01-14T11:20:00.000-06:00

Here is the January Economic Outlook, "Mission Accomplished.

Paul thinks we get to 4.5% FFR on 1/31 and the Bernanke cuts will begin in September.

3 Commentaries

2006-01-08T13:23:00.000-06:00

Stephen Roach tries to put 2005 behind him, Dr. Hussman shares some thoughts on 2006 and Jim Willie is, as usual, mad as hell.

portfolio notes--ASFI, STZ

2006-01-07T09:27:00.000-06:00

Asta Funding (ASFI) seems to have shaken off it's post-earnings malaise and is back near $30. This week, the co. announced very strong purchases from Q106.

Constellation Brands (STZ) reported a pretty strong q (solid organic sales growth) but shares slid on it's muted full year outlook. However, with the strong market this week and some positive analyst notes, STZ came back strong on Friday.

(note that I am long shares of ASFI and STZ)

Review of Greenblatt's new book

2006-01-07T09:08:00.000-06:00

I just completed Joel Greenblatt's popular new book, "The Little Book that Beats the Market." It's a pretty breezy read as far as finance books go. His formula, which makes a lot of sense to me, is to buy high quality (defined by high returns on capital) co's at bargain prices (defined by high earning's yields). Applying his formula would have worked very well over the past 17 years on small, mid and large cap companies. Plus the model decile fall-off is in order. By that I mean that the highest rated stocks that fall in Decile 1 outperform those in Decile 2, those in Decile 2 outperform those in Decile 3 and so on.

That said, I'm not going to rely on the Greenblatt Magic Formula as my investment research panacea. There are a few shortcomings that I see (and that Greenblatt also recognizes). First of all, the ROC metric is backward looking. If ROC is so important, I care more about what it's going to look like over the next few years. Secondly, just because Decile 1 outperforms Decile 2, it doesn't mean that all stocks in Decile 1 are exceptional. With these points in mind, I still think it's worthwhile to use magicformulainvesting.com as a screening device. Go to the site and find a few dozen stocks to dig into further for posible investment.

Stephen Roach reviews

2006-01-03T19:15:00.000-06:00

some lessons learned in 2005.

Good recap of a talk that Greenblatt gave

2006-01-02T11:25:00.000-06:00

at a NY Securities Analysts meeting.

a new position, White Mountains (WTM)

2005-12-30T15:27:00.000-06:00

A few months ago, I had written about White Mountains Insurance Holding Co. (WTM). Today, I decided to take the plunge and picked up shares at $559, or about 1.6x book value. Below are some comments from WTM's Q3 10q:

Book value at $345/share, down $14 seq. but up from $320 a year ago.

One Beacon (P&C unit):

Specialty lines -- combined ratio at 124 (24 loss ratio points due to hurricanes)
Personal lines -- combined ratio of 81 vs. 92 ly; net premiums down 26% in Q305 vs. Q304; I like to see this, it shows discipline. Co. cites unfavorable markets in NY and MA.

WM Re (reinsurance)
Whopping 156 combined ratio (63 from Katrina and Rita) for Q305 vs. 122 for Q304; gross written premiums down 10% yoy (again, shows discipline), Management notes that pricing is firming for reinsurance.

Esurance (online unit) -- 83% growth in net premiums; loss of $6.5mm pretax (a bit surprising, Esurance was pretax profitable in past q's). Expense ratio increase more than offsets positive claim frequencies.

Investment unit--inv. income up 33% in Q305 vs. Q304.

So why did I go long?

I view two big negatives in the quarter as non-recurring. WTM took big hit from it's Montpelier stock holdings and also lost $186mm after tax from Katrina and Rita (vs. $84mm from hurricanes in Q304). Of course, hurricanes will return next Fall but I doubt that the season will include a Katrina or Rita.
WTM practices what they preach in terms of underwriting discipline (not focused on just writing new business to grow premiums)
Insider buying has been occurring.
Low beta name.
WTM's investments are concentrated in short duration securities. As s-t rates rise, these securities, once they mature, will re-price at higher rates.
Post Katrina/Rita, pricing will firm.

John Makin's

2005-12-30T09:54:00.000-06:00

take on what the Fed might do in 2006.

a few quick notes

2005-12-29T09:36:00.000-06:00

Goldman is out with some positive comments on Consellation Brands (STZ) today. For Q3, they see strong organic growth -- Mondavi charges tapering off into Q4 -- investors becoming more comfortable with quality of earnings. Valuation still attractive.

I'm thinking about Circuit City as a short if it can get to $25. In terms of operations and merchandise, I think CC has improved in recent years, but it's still a consumer electronics retailer (plenty of competition, slim margins). If the US consumer ever comes back to earth, the $0.97/share in EPS that analysts peg for next FY might be a stretch. Even if CC somehow gets to $0.97, valuation should cap the upside (25x at $25/share)

Provided nothing dramatic happens over the next few days, I'll be picking up some Tortoise Energy (TYG), a closed-end MLP fund. TYG yields almost 7% and trades at a 10% discount to its NAV at the end of Q3. Here are the most recent conf. call slides.

A couple of other names I'm looking at --Coke (KO) was brought to my attention by a successful value manager, decent div. yield, sits near 52 week low. I'm a contrarian so I'll take a look. Lions Gate Films (LGF) -- I like their strategy of putting out relatively inexpensive films targeted at niche audiences. They made a mistake with the "Usher movie" and shares were punished. I have a lot more to dig into here.

Tax benefits from Stock Options

2005-12-25T10:32:00.000-06:00

I've just about finished Charles Mulford's "Creative Cash Flow Reporting." One issue that he discusses in the book is the tax benefits that firms get on stock options. Essentially, co's get an expense deduction on their tax return that is equal to the market price of the shares less the exercise price of the option. Mulford argues that this and other items should be removed from Operating Cash Flow to come up with a more sustainable OCF number. For many technology firms, this stock option benefit is no small number. For example, in the year 2000, 40% of Microsoft's OCF came from tax benefits related to stock options.

Cadbury Schweppes (CSG)

2005-12-19T20:08:00.000-06:00

I've previously written about the merits of gum/confections co. Wrigley (WWY). Even though I remain positive on the company, I'm not sure that, at current valuation levels, the risk/return is significantly in my favor.

Another confectionery giant that I've started to look at is Cadbury Schweppes of the UK. CSG has ADR's so trading this name won't be a problem. 2004 sales were 6.7 billion pounds with operating profit of 916 million pounds (13.6%). Market cap is about $19.1B and CSG pays a 2.5% yield. At today's close of $37.40/ADR, CSG trades at about 14x consensus 2006 EPS.

The data that I reference below comes largely from the CSG 1H05 report and also the co's most recent business update pr.

In the 1st half of 2005, sales came in at 3.1B pounds, up 6% yoy and op. margins came in at 14.4% vs. 14.5%.

Americas Beverage is the 2nd largest operating segment at CSG with 1h sales of 770mm pounds (up 5% yoy) and op margins of 29.1% (off 30bp yoy). The big carbonated brands here are 7up and Dr. Pepper. Carbonate share in the US was up 70bp in the 1H -- margins down due to heavy promotional support of brands. Launching new non-carbonate drinks (Mott's Plus, Diet Snapple drinks)--marketing spend up more than exp. here too. Sales of bevg. to Mexico up 20% (Penafiel water brand).

Americas Confectionary is the 4th largest op. segment with 1h sales of 457mm pounds but it is also the fastest growing (sales up 14% in 1H, margins up to 13.3% from 12.2%). Key brands here are Halls, Dentyne, Trident. US sales up 12%, Lat Am up 20%) Logistics/IT issues resolved.

Europe, Middle East, Africa (EMEA) is the largest segment (962 million in revs +6%, 12.8% op margin - down 100bp in 1H05). Plagued by weakness in developed Europe. Africa, Eurasia, Middle East had sales up 14% and Russia was up 19%

European Bevgs is a segment that CSG has struggled with (in 1H, sales up 2%, op profit off 2%). This segment is on the block -- transaction expected to close in early 2006 for 1.27 B pounds.

The final op. segment is Asia Pacific. 1H05 revs of 491mm pounds, up 7% yoy, op margins up from 9% to 9.2%. Cadbury chocolate in India has 72% market share (up 200bp). Leading gum share in Malysia, relaunched Cadbury dairy milk in China in 2H2004

2004-07 growth plan

Sales up 3-5% constant currency, ex-acq -- in pr, CSG said that they will be near high end for full yr. 2005

Underlying op margin growth of between 50-75bp per year constant currency (in 2005, op margins won't increase by this range -- heavy investment in brands, fuel, in 06, this should be better)

FCF of 1.5B pounds in four year period ending in 2007

I think CSG's plans for success make sense and are similar to those of WWY, namely, grow sales in the developed markets in the low-middle single digits, invest in your brands and earn high margins. In the developed world, the name of the game is volume growth. So in places like China and Turkey and Malaysia, CSG will establish their brands and set up opportunities for margin expansion.

Speaking of Turkey, CSG will acquire a further interest in the #2 confection co. there. This will allow them to establish a hub in the fast growing region and will also allow CSG to shift some supply of gum (that will make it's way to the EMEA) to a lower cost location.

To further generate cost savings in Europe, CSG will begin building a new gum factory in Poland in 2006 and is also currently investing $30mm pounds in a plant in Mexico (supply moving south from higher cost Canadians).

To sum it up, I like the business, the stock isn't too expensive. It's a defensive idea with a decent dividend. In the next 3 yrs, sales growth of 5% and op margin expansion of even 50bp annually sounds pretty good to me. I don't have funds available at this time but I'll likely do some juggling if we approach $36.

one more post on Asta Funding (ASFI)

2005-12-18T09:50:00.000-06:00

Interesting chart from the 10k. From this, it looks like the purchase price for an avg. portfolio is recovered in a 1-2 year period.

PORTFOLIO PERFORMANCE (1)

The following table summarizes our historical portfolio purchase price and cash collections on an annual vintage basis since October 1, 2001 through September 30, 2005.

                                                                # of Weighted
                       Cash Collections  Total Collections      Average Days
Purchase    Purchase     Including Cash    as a Percentage     Held During First
Period      Price(2)       Sales (3)      of Purchase Price      Year Acquired
------     ----------       --------       -----------------   -----------------

2001       $65,120,000    $93,785,000             144%                119
2002        36,557,000     50,703,000             139%                183
2003       115,626,000    132,758,000             115%                 81
2004       103,743,000     93,910,000              91%                170
2005       126,023,000     39,762,000              32%                181

(1) Total collections do not represent full collections of the Company with respect to this or any other year.

(2) Purchase price refers to the cash paid to a seller to acquire a portfolio less the purchase price refunded by a seller due to the return of non-compliant accounts (also defined as put-backs).

(3) Cash collections include: collections from our third-party collection agencies and attorneys, collections from our in-house efforts and collections represented by account sales.

Greenblatt's Value Investors Club (VIC)

2005-12-17T14:33:00.000-06:00

Value Investors Club is a message board site that limits it's membership to 250 members. To join the club, you need to present a well-reasoned "value" idea to a VIC panel. If they accept your idea, you can become a member and are able to post to the site and read the ideas in real time. For the rest of us, through sign up, we can access the board on a 45 day delay. Check it out.

the Asta Funding (ASFI) adventure, part 2

2005-12-17T14:03:00.000-06:00

more excerpts from the ASFI cc.....

on portfolio sales (more on this later):

  If we have paper that's got a value to it or a better
 value to it we're not going to sell that paper. The resale
 market has always been after this company. The company has
 been selling paper for `99 and we stopped selling it and
 we started picking up selling paper again in '03, '04,
 '05. It's a business strategy that works very well for
 this company by not having a large overhead. It gives us
 another avenue to let the paper go rather than just keep
 recycling it with collectives.

Kara Murphy: 

So would it be safe to say in '06 then that you would
expect to have like the same proportion of sales to
purchase this?
 

I honestly couldn't tell you that. You know, again we'll
look at the portfolios and analyze them and see how old
they are, how many times they've been worked and whether
or not it makes sense to sell the paper, if it's
opportunistic or not. Price certainly does fit into that
because we don't give this stuff away. But again we are
getting prices that we feel are acceptable to us and it's
for paper that we really don't want.




on the new bankruptcy law:

It's been (unintelligible). Much better than expectations.
We did not expect the influx of portfolios being brought
to market as quickly as they have been. That's part of the
reason why we've been able to step up this quarter's
purchases to its, you know, that the level we have an
anticipate closing on some other material transactions
shortly. That's why we increased our credit facility.


Despite the very strong Q4 and FY05 report, a few
analysts (Stephens and American Growth) are both
concerned with the stepped up pace of portfolio
resales (38% of collections).  I think what they're
worried about is the sustainability of resales and
how best to model their impact going forward. From
a P&L standpoint, it's much easier to figure out
the eps impact when Asta purchases a portfolio for
3 cents and winds up collecting 7 compared to a
situation where it buys a portfolio for 3 cents,
collects 3 cents and then sells the paper off for
an additional 4 cents.  In the latter situation,
the earnings gains should be higher because the
costs on collecting that last 4 cents are avoided.
In general, I think this resale issue is overblown.
I haven't seen any indication that Asta has been
buying paper for 3 cents and re-selling it for 2
cents.  I'm on board with Gary Stern's comments
that Asta will continue to be opportunistic with portfolio
sales going forward.

In summary ASFI executed nicely in Q4 and FY05 and
continues to validate it's outsourcing business model.
Plus, FY06 is already off to a strong start in terms
of new portfolio purchases.  And finally, like I thought,
ASFI FY06 (ends Sept.) EPS estimates are up to $2.50.
Right now, we're only 11x that figure.  I'm staying put.


{note that I am long ASFI shares}

the Asta Funding (ASFI) adventure, part 1

2005-12-17T13:21:00.000-06:00

ASFI did a good thing in making it's Q4 and FY2005 cc transcript available through an 8k. If you're interested in ASFI and have 15 minutes, I'd recommend checking it out. While you're at it, give the 10k a look too. Below are some of the key excerpts from the cc.

on industry changes:

we have seen a lot of activity in our space
due to a variety of factors, including a change
in the bankruptcy laws and anticipated increases in
minimum payments on credit cards by the issuers.
Both of these have led to increase charge-offs
and have enabled us to make significant purchases
during the first quarter of fiscal year 2006
and have greatly increased our pipeline.We also
anticipate closing on more purchases in the year
future.

on ASFI's purchasing philosophy:

Firstly, Asta typically bids on
larger portfolios to reduce competition and given the
larger size of the portfolios, it enables us the
flexibility to use our various strategies of collecting to
the maximum.

Secondly, every portfolio is different. We scrub or
analyze each portfolio prior to purchase and implement
proprietary techniques to estimate how well the portfolios
could perform. The bottom line, pricing a portfolio for
purchase is the number one key to successful profits in
our business.

And although our blended rates are not in a consistently
tight range, that does not mean we are struggling with our
purchases, actually, on the contrary. We find that our
success in the last several years is due to our
disciplined approach to purchasing our portfolios and
making sure that whatever we invest in has a solid chance
of returning superior results to our investors.

on the collections process:

Asta mitigates
turnover risk and the risk of hiring and managing hundreds
of thousands of collectors by outsourcing a vast majority
of its collections with a network of collection agencies
and law firms that the company has developed over many
years. We have excellent relationships with these firms
and the results have been excellent whether it be credit
card or telecom paper.

While their job is to collect, let me emphasize that it is
our duty to continually monitor the collection process. We
are in touch with our network of servicers on a consistent
basis, making sure the process is going smoothly, and that
each and every firm is working the paper up to our
expectations.

Asta, due to its flexible business model, has the ability
to act quickly and move paper around. In the normal course
of business, we usually move paper from one group in our
network to another and continuously do that process in an
orderly fashion to maximize results. This moving usually
occurs within a six-month period and usually at around six
months, which is the industry norm.

on capacity of outsourcing firms to handle more ASFI business:

we select the people we do business with.
Actually all of our people, all of the services, law firms
and agencies, constantly ask us for more paper. They have
excess capacity.

With that being said, (there are) probably another 30
groups that we know of that have - we've known for a long
time that would love to do business with us. It's our
choice and we pick and choose who we do business with.

We've been doing this for many, many years. And we're also
loyal to the people that do a good job for us. And, you
know, we set the standards on how they should collect. We
try to be open minded with them and we constantly monitor
them.

Economist reactions to the Fed's 25bp move today

2005-12-13T19:05:00.000-06:00

Courtesy of The Big Picture.

Kasriel on the state of US Households

2005-12-13T19:02:00.000-06:00

"With some analysts estimating that $2 1/2 trillion of household debt will be repriced upward next year because of the increase in interest rates, the household-debt-service ratio is bound to climb to new highs." more

Asta Funding (ASFI) on fire

2005-12-13T18:44:00.000-06:00

Great news from ASFI today. The co. beat it's Q4 numbers on the top and bottom lines. Also, Asta mentioned increased paper availability in light of the new bankruptcy laws and is off to a strong start in FY06 in terms of purchases.

The analysts should have good things to say on Wed. and I wouldn't be surprised to see FY06 estimates taken up to $2.50+ from the current consensus of $2.40.

I'll listen to the cc this weekend and will have more to say then.

The deal is off for now (STZ and VN.TO)

2005-12-13T18:41:00.000-06:00

The Motley Fool has a pretty good recap of the events that transpired. Also note that Vincor closed on Tuesday at $29.60, well below STZ's most recent offer of C$33-35. Well done Vincor management. To me this looks like a simple case of execs doing all they can to save their skin, shareholders be damned.

Stephen Roach's latest

2005-12-12T18:46:00.000-06:00

A bit too optimistic on Japan? and Capex cycles in a global economy

Paul Kasriel

2005-12-12T18:43:00.000-06:00

also thinks the Fed will be done at 4.5% in his December Economic Outlook.

Happy days are here again

2005-12-12T18:36:00.000-06:00

It's hard to get more negative than Marc Faber on U.S. stocks and the U.S. economy. But even if he does take things to the extreme, I do agree with the idea that a 4.5% fed funds rate is as far as we go. And if that level coincides with consumer weakness or deterioration in the housing market, I think monetary policy could switch to very accomodative very quickly.

John Hussman

2005-12-11T17:58:00.000-06:00

is one of the sharpest fund managers around. If fact, Value Line puts him in the top 1% of all fund managers by risk-adjusted returns. He puts out a weekly note that is worth your time.

A play on Chinese dairy consumption -- American Dairy (ADY)

2005-12-11T17:33:00.000-06:00

Before I begin, note that ADY is very thinly traded (sometimes in the hundreds of shares/day) and has a small market cap.

ADY($6.69/PCX) is one of the largest processors of milk in China under the Feihe brand. The co. is expanding rapidly with 2002 sales of $12.2 million and earinings of $0.3 million and projected 2005 revs of $65-$70 million and earnings of $11-12 million.

This co. is on my watch list mainly due to the current depressed levels of per capita daily consumption of dairy in China and the prospects of improvement in this metric as Chinese disposable income continues to advance. Currently, China consumes 11kg of dairy per capita vs. a world avg. of 100kg (US at 266kg).

Risks (in addition to those listed at the top of the post):
--majority of production concentrated in NE province in China (800 mi. drive to Beijing)
--ADY enters into contracts with small farmers for milk (might be limited supply, pricing risks)
--large multinationals moving into China. This has already happened with varying degrees of success. Likely that more JV's set up in the future.

For some reading material on ADY, see this most recent pr,
this company presentation,
this analyst initiation,
and the most recent SEC filings.

if you've read Stephen Roach

2005-12-06T20:12:00.000-06:00

you've heard much of this before, but these 5 risks shouldn't be ignored in 2006.

Constellation Brands (STZ) and Vincor update

2005-12-06T19:36:00.000-06:00

I just pulled 3 different analyst notes on STZ and Vincor. Note that all 3 notes are a few weeks old, published before the C$33-35 announcement.

Deutsche Bank--overweight--TP $30

question STZ pursuit of VN. Provincial regulations to worry about. DB says STZ indicated that much of VN would not be integrated, Canada as a stand-alone business. DB worried about lack of dd done by Constellation.
STZ has the debt capacity to make a deal happen
Benefits (selling, procurement, distribution, management) not as obvious as they were with Mondavi.
DB conducts survey of 20 wine distributors

sales trends remain healthy, up mid-high single digits
wholsalers worry about gas prices
see price increases coming in early '06
trend developing of consumers trading up from $7.99-$9.99 to $10.99+ segment
STZ continues to add many SKUs. Retailers starting to get fatigued

Financial statement review

inventory turns slowing -- due largely to Mondavi
receivables turns also area for improvement

RBC Capital Markets -- outperform on Vincor

RBC believes that VN's various brands could be consolidated into an existing business of a variety of players to generate sign. higher contribution
A transaction will ultimately happen, north of C$31.
Consolidation of VN brands ex-Canada into STZ platform could reduce SGA by $45mm annually.
take-over basis valuation indicates range of C$36-$41 for VN

National Bank Financial -- sector perform on Vincor

forecasts revs of $738mm in FY06 and $780mm in FY07, EBITDA margin of 16.1% in FY06 and 17.6% in FY07
Vincor's arguments against the "inadequate" bid

VN claims that Sands offered C$36 plus for co.
VN CEO counters claims that VN lacks scale or brands to compete internationally

in US, VN revs up 17% vs. 8% for STZ (all TTM ended 9/30)
in UK, VN's share of the top 20 increased to 11% whereas STZ's declined
in Australia, VN has largest domestic share of $10-$15 range

VN's Return on Sales and ROA is higher than STZ's
Why VN deserves a Mondavi like multiple

Sales CAGR (June 96-Dec 04)--+20% VN, +7% Mondavi
EBITDA CAGR (same)--+23% VN, +2% Mondavi

NBF thinks STZ would pay C$37-$40 for VN resulting in 1.5%-2.6% earnings accretion
Smart for STZ to bid now--other players preoccupied with acq. of their own, if VN improves in 2006, price will go up.

{note that I am long shares of STZ}

How Porter can help you

2005-12-04T19:59:00.000-06:00

In Strategic Management courses, Michael Porter is a name that frequently pops up. Take a look at this diagram and write-up of Porter's 5 forces. I find it helpful to go through this kind of industry analysis when I'm looking into co's that might make it into my portfolio.

reasons for the Asta Funding (ASFI) slide

2005-12-04T15:53:00.000-06:00

I recently picked up this note from Brean Murray(BM) dated 10-18-05. BM has a strong buy on Asta, TP=$38.

Some have questioned Asta's use of a regional auditing firm (Eisner LLP of NY) instead of one of the big national names. BM notes that Asta has used Eisner for 10 years and the co. has been in business for 40. I'm not particularly worried about a regional auditor. Didn't Enron and Worldcom use the big national firms?

ASFI's revenue and expense recognition policies are not the same as competitors. The reason for this is that the ASFI business model is different (95% of their portfolio purchases are outsourced).

There are concerns that the balance sheet is illiquid and Asta will have a tough time making future portfolio purchases. BM dismisses this. ASFI has $1.9 million in cash, $20.9 million in OCF from the first 9m of 05 and an $80 million credit facility.

Some on the Street are accusing Asta of "flipping" paper for a quick profit and leaving value on the table. BM points out that selling some paper has been a part of ASFI's strategy, usually after working on the paper for 2-3 years.

There is conjecture that ASFI has been blacklisted by some sellers of bad debt. BM hasn't heard this but admits it's a serious charge. Evidence contradicts this claim -- purchases up 11% yoy.

Critics point out that ASFI has been purchasing more telecom paper of late and are inexperienced in this type of collection. BM's checks don't indicate problems with telecom collections.

I decided to take a look at operating cash flow and operating income statistics at ASFI to get a better comfort level with the earnings quality of the firm. Admittedly, there is more to earnings quality measurement than this, but OCF and OI should grow at similar rates over time (Note: it's also useful to come up with "sustainable" OCF and OI measures, something I might attempt at a later date). I would hate to see OI shoot up 30%/yr and OCF up 5%/yr. Let's see how ASFI stacks up. I'm looking at 9 month periods here from 2003, 2004 and 2005.

9m 2005 OI=37.0
9m 2005 OCF=20.9

9m 2004 OI=26.4
9m 2004 OCF=11.5

9m 2003 OI= 12.3
9m 2003 OCF=6.4

If you look at the longest time comparison (9m '03-'05), OCF is up 226% and OI is up 200%, somewhat assuaging my fears on Asta's accounting.

{note that I am long shares of ASFI}

To my visitors

2005-12-02T16:25:00.000-06:00

Thanks for stopping by. I hope you find something interesting on this site. If you have any questions or comments, please leave a comment or send an email to steibt@yahoo.com. In November, we received a record number of visitors (following a record month in Oct.). How do I know this? Statcounter tells me. If you author a blog or are a small web publisher, I recommend that you check out statcounter. They provide a fairly large set of website tracking statistics. Plus their basic package is free.

In John Makin's Dec. Economic Outlook,

2005-12-02T16:19:00.000-06:00

he covers some reasons for the dollar's strength.

Roach calls for a China slowdown in '06

2005-12-02T16:09:00.000-06:00

"In my view, the die is now cast for a significant slowing of Chinese GDP growth in 2006. At work is likely to be a downturn in

China

’s all-powerful investment cycle, driven by an important and surprising contraction in bank lending."

I hope the answers.com (ANSW) rally continues

2005-11-29T18:41:00.000-06:00

Speculative juices might even drive ANSW through $15 or $20/share. If it gets to $15, I'll seriously consider a short.

ANSW is a small tech co. (market cap $90 million) that operates the answers.com website. Their claim to fame is that a user can get to the information they're seaching for in 1 step instead of the 2 steps it takes with the traditional search engines (e.g. yahoo, google). So if you type in "Warren Buffet" into the answers home page, you'll get this page instead of a list of relevant web sites. The co's revenues come through advertising -- on the Buffet page, note the Google paid search links in the middle and toward the bottom of the page and also shopping.com links on the right side.

Here are a few reasons why a short might work out:

1. General vs. targeted info-- Looking at the Warren Buffet page, answers.com does a pretty good job at providing some general information. But what if I want to find Berksire holdings or Buffet's involvement with the AIG scandal? I think getting this data would be much easier through google.

2. Expensive--Using some generous assumptions, I see breakeven in 1H2007 and a dime in pretax income/share for full year 2007. Right now, we're 120x that number.

3. Dillution--This is understandable for an early-stage growth co. but it still needs to be mentioned. In the most recent 10q, ANSW had 7.1 million shares outstanding vs. 4.9 million at the end of last year. More to come.

4. Operating margin improvement--I could see the co. leveraging SG&A through time, but I question how much pull ANSW has with it's chief marketing partner, Google. Even if ANSW page views/paid search clicks ramp nicely, can one say that the cut (in % terms) that GOOG pays to ANSW will increase over time? I'm not so sure. What if GOOG wants an even bigger cut? All ANSW could do is take it or try to transition over to yahoo. Of course, outside of the paid search arena, ANSW might target more advertisers like shopping.com.

5. Growth--How big can ANSW get? What kind of sequential growth rates can we expect over the next several quarters? This (from the 10q) would concern me if I were long:

Our average daily queries during the first, second and third quarters of 2005 were approximately 900,000, 1,780,000, and 1,770,000 respectively. Traditionally, there is less Web activity during the summer months, especially in July and August, and this impacted our third quarter 2005 average daily queries

I understand the seasonality but should queries be going down from Q2-Q3 at this stage of the game?

Joel Greenblat

2005-11-28T18:25:00.000-06:00

is a pretty famous value investor with an impressive long-term track record. Joel just put out a book that's received critical praise called "The Little Book That Beats the Market." From what I can tell, the two criteria that Joel looks for in stock selection are high after-tax ROIC and high earnings yield (low P/E). To screen for stocks using this criteria, go here.

Stephen Roach

2005-11-28T18:22:00.000-06:00

covers the case of the missing petro-dollars. Plus, if you can't get enough yield curve discussion, scroll down to the middle of the document.

The Big Picture

2005-11-28T18:19:00.000-06:00

scolds those who are careless with Holiday sales data.

Looking for some foreign equity exposure?

2005-11-26T11:24:00.000-06:00

A good place to start is adr.com.

A review of Ben Graham's work

2005-11-26T11:21:00.000-06:00

Graham was one of the father's of value investing and a mentor to Warren Buffet.

Focus Investor on Accounting Red Flags

2005-11-26T11:04:00.000-06:00

Here are 13 accounting shenanigans to watch out for. For a comprehensive review of this subject, see Mulford's "Financial Warnings."

a short idea--Hansen Natural (HANS)

2005-11-22T18:59:00.000-06:00

Hansen Natural (HANS) -- Co. has shown very strong revenue and eps growth recently, solid margins, exceptional ROE. So why think about shorting? First valuation looks a bit full. There are only 2 analyst estimates available, but right now we're at 23x 2006 eps ($3.21). And the $3.21 doesn't look like a gimme to me (up 32% yoy). Secondly, the majority of HANS business comes from Monster Energy drinks. If Monster sales slide, look out below. And finally, with the remarkable numbers that HANS has recently put up, I have to think that a response from Red Bull (energy category leader) is forthcoming. Also, I think KO and PEP will likely make a much stronger push into this area. Though the energy drink market is a niche market for these giants, it's worth pursuing due to its comparative growth profile. Huge short position here so HANS could continue to get bid up. I'll take a closer look around $85.

Stephen Roach's latest

2005-11-22T18:39:00.000-06:00

Hardly a Flat World

went short on AMZN on Monday

2005-11-22T18:35:00.000-06:00

at $47.57. Here's a prediction. We'll see the $30's by the end of 1H06. If you want to get caught up to date with AMZN, check out their cc transcript over at seeking alpha.

AMZN rebound is an opportunity

2005-11-19T16:13:00.000-06:00

Previously, I had posted on issues that AMZN faces and why it might make sense to take a short position. Since then, Amazon reported their Q3 results and investors bailed sending shares sharply lower. However, in recent weeks, shares have bounced along with other tech names and also upon Amazon's inclusion in the S&P 500 index. Here are some bearish points taken from the co's cc and 10q on why a short around $48 might make sense:

int'l sales growth (approx 45% of the business) is decellerating rapidly, from 52% in Q304 to 26% in Q305. Domestic growth did accelerate in Q305 vs. Q304 (15% to 27%). Note though that on a worldwide basis, Harry Potter added 2.6% of growth.
net shipping costs for the quarter were $47 million vs. $41 million in Q304. It will be interesting to see what this looks like in Q405, the 1st 4th quarter with Amazon Prime (Amazon Prime gets members free express shipping for a year for $79).
Technology and Content expense way up-- $121 million vs. $69 million. Much of this expense is taken in the NA segment driving operating margin down 64bp to 6.4%
big range given for Q4 guidance -- revs 2.86B - 3.16B (up 13%-24%) and GAAP op. income of $135-210 million (down 17%-up 29%). The midpoint of this guidance for each metric implies operating margin contraction in Q4.

Joachim Fels of Morgan Stanley,

2005-11-19T13:26:00.000-06:00

much like Paul Kasriel of NTRS, has his eye on the yield curve. Fels brings up the "R" word for 2006-07.

Paul Kasriel reviews the Greenspan Legacy

2005-11-16T19:01:00.000-06:00

I like Charts 4 and 13. Nice job, Al!

picked up some Asta Funding today (ASFI)

2005-11-15T19:20:00.000-06:00

As shares approached my $24 buy-in point, I decided to get back into ASFI, the distressed consumer receivable co. I'm comfortable paying 10x FY06 EPS. I recommend that readers do some further dd into ASFI. Competitors include AACC, PRAA, ECPG.

Constellation (STZ) and the Vincor bid

2005-11-15T19:14:00.000-06:00

Constellation Brands (STZ) put out an 8K today giving an update regarding their hostile takeover attempt of Vincor of Canada. I agree with STZ when they state that Vincor management is not doing their part to maximize Vincor shareholder value. If that is their objective, why disclose confidential information to certain parties and not STZ? The STZ bid expires in about two weeks, so this should be interesting. Also, Goldman Sachs posited that a Vincor acq. might add 10c to 2007 EPS (not sure what purchase price they are assuming).

{note: long shares of STZ}

Aptimus (APTM) WHAAAAT!!?!?

2005-11-15T19:01:00.000-06:00

APTM put out it's 10Q today and, what do you know, more bad news. Shares were off 12% today.

As part of our assessment, we have recently determined that there exist strong indicators of material weaknesses in internal controls over financial reporting that require remediation, primarily due to our insufficient finance and accounting staffing levels. In addition, concerns over general computer controls may exist due to the limited time available to analyze, remediate, test and season the documented controls now in place. Our management must also demonstrate effective entity level controls in respect to the overall control environment. In the past, our management has focused on efficiency in implementing and effecting company-wide policies and procedures. If entity level controls are not uniformly and consistently observed, a material weakness may result.

Our procedures are ongoing, and we continue to asses our observations to determine which observations, if any, are deficiencies and whether any deficiencies constitute significant deficiencies or material weaknesses, either individually or in the aggregate. We are also actively implementing certain changes to our internal controls to remediate the identified potential deficiencies, including retaining outside experts to assist in certain reporting matters, hiring additional accounting and finance staff and continuing education of personnel. Management has discussed these matters with Moss Adams and our audit committee, and we are taking appropriate steps to remediate these items and otherwise to enhance the reliability of our internal controls over financial reporting. The timely outcome of all remediation efforts will be considered by management when assessing the effectiveness of our internal controls over financial reporting at the end of fiscal 2005.

The above was pulled directly from the 10Q. Problems with controls, eh? So Mr. Choate, Mr. Wade and Mr. Wrubel, let's recap. You miss Q2. You guide down significantly for Q3. You guide down again (once again significantly) for Q3. You publish a 10Q and discuss possible weaknesses in internal controls. What's next? I'll tell you what should be next. You put out a PR announcing your top 100 publisher sign-up. And each of you, in a sign of your strong confidence in APTM's future and in a show of solidarity with shareholders, purchase 10,000+ shares of APTM on the open market. We're waiting.

new move -- went short Schwab (SCH) yesterday

2005-11-15T18:34:00.000-06:00

Yesterday I went short shares of Charles Schwab (SCH) at $16.01. Here are some of the reasons why I made the move:

Continued pressure on the individual investor segment from below (E-trade and Ameritrade) and above (MER, GS, LEH, MWD, JPM, C)
Growing importance on banking to EPS. I question Schwab's experience in managing interest rate risk in a rising rate environment. A bit late to get into mortgages? Also banks are typically valued at forward multiples quite a bit lower than SCH's 2006 multiple (~10 vs. 22 for SCH)
Fee structure. SCH has long been criticized for its complex fee structure and they have made some steps to correct this. This makes sense, but one side effect is reduced fee income. See today's news.
Expenses are too high on their funds. For example, SCH's money market fund charges 0.6% vs. 0.3% at Vanguard. They'll keep this going as long as they can, but compression is likely if not inevitable.
I don't forecast rosy returns for the stock market in 2006. Minus 10% or worse would put a serious dent in Assets Under Management (AUM) and in SCH's share price.
Valuation is out of whack. I think 15X an '06 EPS number of $0.70 ($10.50) is more than fair.

IGT Q4 recap

2005-11-13T14:34:00.000-06:00

The Motley Fool does a good job at recapping IGT's 4th quarter. Below are some additional notes from the cc:

$762.4 mm in CFO for FY05, up 16% from FY04
742 machines lost from Gulf (Katrina)
At the end of the quarter, 800 Star Wars units installed, 2200 Fort Knox and 600 Party Time.
FY06 Pipeline -- Billionaire, Soul Train, Wheel of Fortune (Penny)
500 lease operated games this q in Mexico
In Q4, 29,700 intl units. 18,500 of these are in Japan (Terminator and Winning Post are both successes in Japan)
In FY05, 91,400 int'l units, up 37% over FY04
IGT is #1 in New Zealand
placed some units in Buenos Aires, Argentina this Q
options expense will be approx. 2 cents/quarter in FY06
cash on hand $688 mm vs. $767 mm last year.
23 million shares remain authorized for buybacks
DSO's flat at 73 days
Inventory turns will remain at 3.5-4.0 in 2006
Commercial field trials will commence soon for server based gaming (6 or so throughout 2006)
Server based gaming will not have meaningful fin. impact until FY2008
no Japan shipments in Q106, all Japanese shipments in Q2-Q4
more intros into Japan this year (4 vs. 2 in FY05)
3-5% price increases in 2006
not much happening to date with Intelligent Table System partnership with PGIC and Shuffle Master.

{note that I am long shares of IGT}

the attack on OATS

2005-11-13T11:52:00.000-06:00

As an OATS short, I think it's a worthwile pursuit to track WFMI's expansion plans. As I've stated before, I think this increased competition in OATS markets is underappreciated by many of the OATS analysts/longs. Here is an excel schedule that provides some detail into WFMI's existing store base. From this schedule, it appears that in the past 3 months, 3 new WFMI stores opened that will compete directly with 3 existing OATS stores. Bear in mind that these stores will be bigger and most likely more productive than the OATS stores in these locations.

OATS Existing Store
New WFMI Store
WFMI store sq. ft.

Upper Arlington, OH
Dublin, OH
74,000

Omaha, NE
Omaha, NE
61,000

West Hartford, CT
West Hartford, CT
47,000

Plus the WFMI expansion is only picking up steam. As of 11/9/05, WFMI announced 64 stores in development compared to OATS' 16. Finally, WFMI stores in development average 55,000 sq. feet compared to 30-35,000 sq. feet of new OATS stores.

Stephen Roach turns bullish

2005-11-12T15:47:00.000-06:00

on Old Europe, especially Germany.

Paul Kasriel issues

2005-11-10T18:37:00.000-06:00

the NTRS November Economic Outlook

"....because consumer spending has been accounting for over 70% of real GDP starting in 2001, no growth in real consumer spending implies very slow growth in real GDP in the fourth quarter."

IGT reports Q4 results that don't disappoint the Street

2005-11-10T18:34:00.000-06:00

What do you know! Particularly strong in int'l segment. I'll listen to the cc soon. PR here.

Thank you Mr. Morgan--JPM upgrades Sysco (SYY)

2005-11-08T18:27:00.000-06:00

And the analyst at JPM isn't just a cheerleader. Not long ago, he had been underweight on SYY. I hope that he called the bottom. Link

APTM cc notes

2005-11-06T09:30:00.000-06:00

APTM reported Q3 results that were in-line with their revised guidance. PR here. Notes from the cc below:

3.9 million in revs, $0.00 in EPS for Q3
Advertiser quality initiatives largely complete -- terminated/re-negotiated terms with promotional sites.
high margin email marketing business down in q, might re-structure in 2006
12 million core impressions in Q, similiar levels to Q2 2005. Up 70% yoy
Added 1 top 100 publisher. Will announce in coming weeks.
Need to grow sales and business development staff further
Enhancement -- offer presentment linked to previously "learned" information about person. For example, a master's offer would be presented to those with undergraduate degrees.
No new guidance. No shock there.
John Wade, CFO will depart when a new CFO comes on board (searching for one now) -- no accounting issues here, personal issues
92% of revs related to web site network, 8% to email (down 50% seq.)
Mix shift in web site network continues with softer, less promotional publishers
in Q3, $1 million in Sales+Marketing expense (up significantly). Will keep hiring in this area.
Fixed costs in q of approx. 850k, up from approx 825k last q.
$10.3 million in cash and st investments
Employees: 33 in sales+ mark, 9 in tech., 5 in G&A
Seeing significantly better conversion through feedback options
Key categories for APTM (education, pharma, auto, fin. svs, consumer products)

I remain long here. Even with the decision to cut out the promotional sites this quarter, core impressions remained flat. I still look to 2006 for APTM to get more top 100 publishers involved. Announcement of the 1 top 100 site could be a catalyst for further signings. At this point, still very difficult to get a handle on 2006 revs/eps. Revs could be $15-$40 million and EPS could be $0.20-$1.00. Hopefully as we get into '06, these ranges will narrow significantly.

Wild Oats (OATS) Q3 cc notes/commentary

2005-11-06T08:44:00.000-06:00

After listening to the past few OATS cc's, CEO Perry Odak continues to come across as one of the most arrogant and condescending CEO's around (not quite in Patrick Byrne territory but close). OATS is in the fast growing natural food/organics segment. Don't you fools understand this? Adjusted EBITDA growth for non-Southern CA stores on Tuesdays was +14%. 14% man, don't you get it!!

Below are my notes from the cc along with comments in italics:

Total sales for the q up 11.1% yoy, SSS up 6.1%
Total sales for the 9 mo. period up 9% over the 9 mo. period in 2004
Fuel price impact--visits down, basket size up
The traditionals are expanding into organic/natural segment. This increases awareness. This has been the official OATS spin for awhile now. Competition is always a positive.
Putting up signs in store to say that mercury levels are safe in fish. Super!
1 new Henry's in the q
16 new stores somewhere in development for 2006-7. We'll see how many of these actually open in 2006-7.
Henry's store sales comps will be tough next q -- heavy promotions last q4. More excuses.
Strong growth in private label, up 40% yoy. I give OATS credit here. PL makes a lot of sense--GM% expansion opportunities.
Breakeven EPS in Q3, for the first 9 mo. of 2005, EPS is negative 1 cent. The turnaround is complete.
4-7 cents EPS guidance for full year 2005.
8% growth in square footage yoy. This is below their stated 10% sq. footage growth target. Meanwhile, WFMI grew sq. footage by 13% in their prior q.
Full year SSS should be at high end of 3-4%
in Q3, comp. weekly customer count down 0.8% and comp. basket size up 7%.
Sales per sq. foot at $438 vs. $432 last year
GM% at 29% in Q3 vs. 27.5% in Q304. Should be close to 30% run rate by end of year.
Direct store expenses at 22.3% of sales vs. 23.1% of sales in Q304
SGA% at 6% in Q vs 6.2% in Q304
$51 million in cash
Capex for 1st 9 months of 2005: $19.2 million vs. $41.5 million 1 year ago. Not doing enough to expand the store base. Big bad WFMI is a-comin'
8 new stores this year vs. 12 last year.
Odak states that somewhere in the low-20's is the number of stores that need re-locating or enlargement. 2 planned for 2006. Take your time.
Real Estate approach--focus on dense markets (e.g. 3 stores in development in FL)
new stores will be 30-35k sq. feet
CEO Odak will be there through 2006 and into 2007 at least. I'm find with that.
When asked why sq. footage growth target not higher, Odak blames hurricanes. Tough to find contractors. Wonder if WFMI will feel the same way when they report this week.
When asked about impact on OATS of recent WFMI openings in OATS markets, Odak says that awareness actually helps OATS in these markets. Odak only presents part of the story. If a market that OATS operates in is a $5 million market, WFMI's entrance into it might take the total market to $6 million. But the "rob" effect on OATS sales of a new strong entrant into the market can't be ignored.

{Note that I am currently short shares of OATS}

new position -- long Sysco (SYY)

2005-11-04T16:02:00.000-06:00

I picked up some shares of Sysco (SYY) today at $30.11, very close to the 52 week low. Here's what I like:

I like to buy quality on the cheap. I'm much more interested going long on stocks near 52 week lows than 52 week highs.
Based on historical valuation, shares are cheap
30+% ROE and 2% dividend
SYY has their eye on the ball in terms of operating expenses. In their mrq, fuel costs hurt the co. but I am confident that RDC initiative will pay off over next few years in impacting operating margins positively.
Clear industry leader -- US Foodservice is a distant second
Secular trend of Americans eating a greater % of their meals away from home intact.
0.4 beta, a defensive name

I wouldn't be surprised in the least to see SYY touch $36 in the next 12-18 mo. I see downside to $28.

Very interesting post from Makin at AEI

2005-11-03T19:11:00.000-06:00

Makin lays out the potential stock market and GDP gains that Japan stands to gain through postal privatisation.

Asta Funding (ASFI) continues to slide

2005-11-01T18:44:00.000-06:00

Here's a profile that I wrote some time ago on ASFI. I will very likely go long at $24, or about 10x FY06 EPS.

Mr. Kasriel's latest from NTRS

2005-11-01T18:38:00.000-06:00

The More Things Change, The More They Stay the Same

Stephen Roach discusses

2005-11-01T18:32:00.000-06:00

the growth of the Indian consumer.

Here's an Indian stock idea for you to take a look at (no, not CTSH, WIT, INFY of SAY):

HDFC bank (ticker: HDB)

PeopleSupport (PSPT) Q3 review

2005-10-30T09:32:00.000-06:00

After listening to the PSPT cc, I remain in the bullish camp. My notes are below. If you see any inaccuracies, please leave a comment at the bottom of this post.

16.3 million in revs, up 37% yoy and 11% seq.
16% operating margin (I believe this is pro-forma, ex-MIPS, stock option expense)
$50 million in cash
Q4 is a seasonally weaker period for PSPT
Client concentration: Top 3 last year were 69% of revs, now they are 60% of revs.
31 total clients
Quadrupled accounts receivable management business (off a low base)
Verticals

Travel and Hospitality is largest vertical
Reps are certified as travel agents, competitive advantage
Clients include Expedia (up 15% yoy) and one of the largest hotel chains
Reps focus on cross-selling, up-selling

Telecom

Signed leading VOIP provider (Vonage maybe?) as a top 5 client
Also signed other VOIP clients
Inphonic also a small client in this space

Technology

Earthlink -- focused on sales/tech support/customer service
Resigned contract through early 2007
Network Solutions another client in this vertical, signed through 2006

Financial Services

E-Loan is a client here
Consumerinfo.com (Experian) is one PSPT's big clients, revs up 70% yoy, contract through mid-2006, automatic renewal

New clients

1 potential significant client signed in quarter (significant=potential for $1 million annual revs)
Several $5 million+ clients in the pipeline
Total pipeline = 250+, 30 are at advanced stage
Of the 30, many are in financial services (money center banks)

Attrition rates are falling, 7% in 2Q05, now at 4% in Q305
Move into new PSPT center in Manila has gone smoothly
A/R business up 400%, still less than 5% of business, 200 employees
PSPT is looking at acq. in back office BPO, want acq. to be accretive in 6 mo.
SGA % to sales flat yoy
60% of seats in new PSPT center built out in 2005. Remaining 40% will be built out in 2006.
$8.5-9 million in capex in 2005
1st 9 mo. of 2005, OCF = 14.3 million, FCF = 8.6 million
No debt
3,780 employees in Q2, 4,079 employees in Q3
Utilization rates: 68% in Q205, 77% in Q3, should be at similar levels to Q3 in Q4.
Guidance Q4: $15.3-15.8 million in revs, pro-forma EBIT of 1.6-1.8 million
DSO's in the mid 30's
CEO not particularly interested in share buybacks, back office BPO acq. in Phillipines is his focus
PSPT attracting larger sized prospects, longer sales cycles

{Note that I am long PSPT shares}

NIC Inc. (EGOV) recap of the Q

2005-10-29T10:40:00.000-05:00

courtesy of Stifel Nicolaus.

I agree with many of the analyst's points and would be more interested sub $5. Here's what I like:

strong recurring revenue stream.
EGOV hasn't lost any states up for re-bid
pipeline appears full, CA might put out RFP soon
strong OM% expansion, solid FCF generator
~$50 million in cash
strong same state growth, particularly in non-DMV appications. This growth on the non-DMV side also serves to diversify revenue stream
potential for larger contribution from hunting/fishing licensing business

Jim Puplava is working overtime

2005-10-29T10:31:00.000-05:00

at financialsense.com putting out another Storm Watch Update, "The Two Bens." Take a look.

2 Bernanke skeptics

2005-10-27T19:17:00.000-05:00

Peter Schiff from EuroPac Capital and Jim Grant of Grant's Interest Rate Observer (2nd article is in NY Times, registration req.)

portfolio/watch list notes

2005-10-27T18:37:00.000-05:00

I closed out my one remaining MSO short position today around $19. None of my accounts have any MSO positions currently. Martha, you've served me well. AMZN failed to impress with its Q3 and outlook and shares are off sharply this week. AMZN never got to my $47 short sell target, so I missed out here. Oh well. Distressed debt co. ASFI has come in quite a bit lately from $32+ to $26.64. A couple more bucks and I'll take a very hard look. CBI (my energy infrastructure idea) got destroyed today (off 20%) on recent news that the CFO retired and earnings were delayed. Again, one to keep an eye on.

The latest from Mr. Kasriel at NTRS

2005-10-27T18:34:00.000-05:00

The Fed: No way out?

Bond king Bill Gross

2005-10-27T18:32:00.000-05:00

put out his November 2005 Outlook today.

PSPT reports

2005-10-26T18:33:00.000-05:00

and shares climbed AH. I'll have more to say about this in the near future, but for now, here's the PR. I particularly like this section on revenue diversification:

"During the most recent quarter, seven clients each generated over five percent of our revenues, three of which generated over ten percent of our revenues. Three of these seven clients were signed in 2004, including two travel and hospitality divisions of a Fortune 500 company, as well as a leading VoIP telecommunications provider."

notes from the CSGP Q32005 CC

2005-10-23T10:46:00.000-05:00

$34.3 million in revs, up 4.4% seq. and 20% yoy
$0.06 in EPS, includes one-time charge for research center closure
$128 million in cash
Avg. annualized new contract value YTD 05 $7,757 vs. $7,698 for YTD 04
52% of sales growth for the Q comes from new customers
1,510 new customers YTD, 538 new customers in Q3 -- the 538 is down sequentially
20% response rate from 90 day free trial to prospects in existing markets, CSGP is hoping for big conversion of these trial users in Q4 and 2006
"For Sale" listings soar on website (+61% YTD), the "For Sale" listings are bundled with Property and Comps.
renewal rate 93.2% in Q305 vs. 91.2% in Q304
NRB Retail database integration complete in next 3-4 weeks, May 06 NRB product offering
Expansion program (21 new markets) -- 90% of this area is canvassed. CSGP currently serving 6 of the 21. Pushed back 2 of 21 from Q3 to Q405
Ad-hoc work and advertising revenue (5% of total revs) was weaker than expected in Q.
Gross Margin% should decline in Q405.
Inside sales force group growing rapidly (more junior) and outside sales force size remains flat.
CFO Frank Carchedi puts a marker for equity based compensation per quarter in 2006 at $2 million. Co. moving away from stock options and toward restricted stock grants.

One stat from the press release that I found interesting: 2005 YTD operating margin, after adding back the 1x charge is at 5.5%. 2004 YTD operating margin is also 5.5%. 30% operating margins should be here soon.

shorting Amazon.com (AMZN)

2005-10-22T10:41:00.000-05:00

I believe that the recent run in AMZN shares from the mid-30's to $46 is nearly done. I'll be going short in the $47's. Here's why:

Gross Margin issues

AMZN has committed indefinitely to free shipping promotions and recently introduced it's Amazon Prime discounted shipping program. For H105, net shipping cost was 2.8% of sales compared to 2.7% in H12004. I see it as difficult if not impossible to make marked improvements to this figure by pulling back on free shipping without significantly impacting the top line. It's customers are addicted to the drug and if AMZN stops dealing, their customers will find another provider.

AMZN's international business is growing at a quicker rate than it's domestic business. If GM% stays where it is on the domestic side and international side, this will pressure the consolidated GM% because intl gm's are 400 bp worse than domestic (2Q05).

As Mark Mahaney from Citigroup notes, AMZN's Q2 improvement in GM was largely due to it's other line (co-branded credit card sales, third party sales). I definitely question the sustainability here.

Competition

Off the top of my head, I can think of the following on-line retailers that compete with AMZN on a variety of products: Yahoo (through search results and through Yahoo Shopping), EBAY, Shopping.com, Overstock.com, Google (through search and through Froogle), Buy.com. Plus the online/offline big box retailers are also competing hard for their share of the consumer's paycheck.

Valuation

AMZN analysts present their earnings estimates in proforma fashion. GAAP 2006 EPS consensus is more likely around $0.80. That's almost 60x where we are now. I think that's out of line for a co. that will have issues driving NA and int'l GM's higher, difficulty in driving the domestic rev growth rate higher and also has to deal with unrelenting competition. For a short, I see the downside to around $51 and the upside back down to around $35.

Costar Group reports

2005-10-20T18:36:00.000-05:00

{I am currently short shares of CSGP}

Revs for the Q in-line, eps a penny short. Guidance for Q4 calls for revs in-line and a penny upside in EPS. Still think valuation is absurd and don't believe regional expansion will support 25%+ intermediate top-line growth rate. I think 10-15% topline CAGR over next 3 years is more realistic. I also still question the analysts who feel that 25%+ operating margins for CSGP are in the bag (9% in the q if you add back the restructuring charge). From my brief look at the pr, I didn't see any mention of the famously high client retention rate. Must've slipped. I'll listen to the cc this weekend and report back with more detail then.

Bull vs. Bear on Constellation Brands (STZ)

2005-10-18T19:00:00.000-05:00

In the bear corner is JP Morgan. Some JPM thoughts:

worried about Vincor acq. attempt, Vincor doesn't fill out any missing holes in STZ portfolio. Also STZ hasn't conducted due dilligence and Mondavi acq. is still being integrated
approx 30% of STZ business is in UK, UK Consumer weakening, fragmented manuf. base in UK creates comp. environment.
Australian wine glut pressuring prices in Australia and in UK
worried about strong US grape harvest on the back of Aussie glut
upside from beer will have less of an impact in H2

Our bull comes from DA Davidson:

on Vincor, STZ stated that acq isn't "must have" but that they were happy to take part in bidding
in the MRQ, on an apples-to-apples basis, wine sales up 10%. Monkey Bay, Twin Fin, Mondavi, Ruffino contribute.
Beer up 9% in MRQ compared to a flat to down beer market
Spirits sales only up 2%. Temp. slowdown, should be back up to 3-5% for full year.
GM% at 29.9%, up 190bp from last year
OM% at 16.5%, up 120bp from last year
paying down debt gets debt to 2.9B at year end
Strong pricing on wines going into holiday season -- fewer markdowns, reduced promotion

Here is the latest on STZ's attempt to acquire Vincor.

Apache (APA) Analyst Review

2005-10-18T18:27:00.000-05:00

Bear Stearns and Citigroup each commented on the Analyst meeting that APA held on 9/22. Some thoughts:

APA thinks returns from drilling are far better than returns from acquisitions in this market
APA has 35 million acres worldwide in core areas
Capex for 2005 raised to $3.4B from gt $3B
Priorities for cash usage

Reinvestment (drilling or acq)
Debt repayment
Dividend increases
Cash build for future acq.
Share buybacks

APA hedging approx 5-10% of 2006 production
Core Areas

GOM--short-lived assets, cash cow, many E&P's are abandoning region but APA believes its exploitation expertise is an asset. Highest rates of return to co. In 2004, 29% of production, 21% of reserves
Central--long-lived domestic assets, low F&D costs, sustainable growth, 12% of production/23% of reserves in 2004.
Canada--top of the list of coal bed methane (unconventional) producers in Canada. Good progress on agreement with XOM, extended to 600k acres, 18% prod/25% reserves
Egypt--Lots of potential, plans to increase production in Bahariya from 9910 bbls/day in 2006 to 75k/day in 2010. 17%/12%
North Sea--looking at acq in this region, good job at cleaning up Forties. 11%/9%
Australia--7%/9%, most active driller in the Carnarvon Basin.

Both Citi and BS are at Outperform on APA with TP's of $82 and $85 respectively

Davenport Equity and Bear Stearns on IGT at G2E conf.

2005-10-17T18:19:00.000-05:00

conference held in Sept.
120 new titles introduced, 70% of which will be ready for casino floors in 6 months
casino operators/slot managers excited about server based gaming, not sure how IGT will work the pricing
Both Dav. and BS see few near term catalysts for IGT shares
IGT targeting server based gaming beta test (1 or 2 with 20-150 machines at each site) by yr. end
Dav doesn't think Q3 numbers ($0.31 in eps) will be a slam dunk. Co. sees 28 cents.

I agree with Fleckenstein

2005-10-17T18:14:00.000-05:00

when he pegs Bernanke to be our next Fed chair. I see Bernanke as a second-rate Greenspan. And given what I think of Easy Al, that ain't too good.

an old friend -- Petsmart (PETM)

2005-10-16T16:42:00.000-05:00

PETM is a name that I had some success with in the past that has re-appeared on my radar screen.

Basics: recent price -- 21.66
Market Cap -- 3 billion
TTM sales -- 3.6 billion
ROE--around 20%
forward eps est -- 1.38
52 wk. range -- 21-36
stores--700+

Background:

There are basically 3 different parts of the pet supply market. The first, where PETM and Petco (PETC) compete, is the national chain pet supply segment (~25% of the total market). The second segment consists of warehouse clubs, discounters and supermarkets and the 3rd segment is made up of mom & pop pet supply shops. With American Pet Products Manuf. Assoc. calling for 5% market growth, a strong retailer like PETM believes that they still have a long way to go in terms of store expansion (up to 1400 stores in the plan).

What I like:

Industry structure -- With only PETC to worry about in its segment, I see PETM as stealing market share, particularly from mom and pop as the store expansion plans continue.

Pets as humans -- There are more than 100 million dogs and cats in the U.S. and many treat them as they would a child. This humanization trend yields increased spend/pet.

Pet Services growth -- Pet services, like PetsHotel and Doggie Day Care, are high margin and are expected to grow 20%+ in the future. Right now, services is about 7-8% of sales.

Loyalty program -- PETM just launched PetPerks, it's loyalty program for customers. Hope to learn more about customer behavior and be able to segment different customer groups. PETM will then allocate marketing $ accordingly.

Store updates -- PETM will continue with it's successful Eagle 2 remodeling program in 2006-8.

Vaulation-- Consensus calls for PETM to earn $1.38 next year, 16x today's price. I consider that inexpensive for what I feel is a 15% lt grower. Over the next 12-18 months, I see downside to about $19 and upside to $28

What worries me:

PETM recently took down EPS and SSS guidance blaming gas prices (impacted store traffic) and a weak consumer.

Aggressive store expansion -- Don't know if this is bad per se, but co. plans to open 70 net new stores in 2005 and 100 net new stores in 2006.

Operating issues -- Need to watch whether or not new Illinois DC causes any operational hiccups.

New ad campaign -- from "Mart to Smart" rolled out in Sept. Again, I'm not implying that this will be a disaster but advertising plus store expansion plus supply chain initiative will put pressure on operating expenses. Want to see if PETM execs can get operating margins going in the right direction in 2006.

Why not PETC?

There are a few reasons why I prefer PETM to PETC. PETM has a stronger focus on services, has stronger operating margins and inventory turns and a better debt/equity ratio. PETC has also guided for weaker SSS growth compared to PETM. PETC does trade at a slight forward PE discount to PETM but the difference is not significant.

Barry Ritholtz writes for the Big Picture

2005-10-15T08:56:00.000-05:00

The site's certainly worth a look. Here he offers his take on inflation data.

Excellent article from Jim Puplava on our Energy Crisis

2005-10-15T08:45:00.000-05:00

There is No Plan B

Here's an interesting excerpt covering a point that I was unaware of:

Demand for refined petroleum and natural gas products is projected to continue to grow. However, these refined products are going to get more expensive due to environmental regulations. Robert Bryce at World Energy Monthly is forecasting that $5 diesel fuel is coming soon. “The surging cost of diesel over the next 12 to 18 months will be caused by new regulations, capacity constraints throughout the midstream and downstream, and soaring demand.”[5] According to Bryce beginning next June, American refiners will have to reduce the amount of sulfur in their diesel from 500 parts per million (ppm) to 15 ppm. In addition beginning in January of next year refiners must also reduce sulfur in gasoline from 90 ppm to 30 ppm.[6] This is the biggest change to motor-fuels since leaded gasoline was phased out three decades ago.

Bryce is predicting major disruptions in the ultra-low sulfur diesel (ULSD) market as a result of these new EPA mandates. The mandates add additional blends of gasoline to the already myriad blends required by different state, city, and federal environmental regulations. Now refineries will have to make up to 50 different blends of gasoline. These different blends will require special segregation in storage and shipping. Segregation of the different fuels will require more tanks and special pipes since they can’t mix different environmental blends of gasoline. That means more costs for refineries, which translates into higher costs for consumers.

All of this takes place next year when the US energy industry will still be making needed repairs to our damaged energy infrastructure as a result of the last two years of storms. Moreover, the US now imports over 1.1 million barrels of gasoline a day to meet demand. In the case of ULSD it is doubtful whether foreign refiners like Venezuela will make the added EPA changes to their refinery mix. US EPA standards are far stricter than those of Western Europe, Asia, or Latin America. Refiners could decide to ship their diesel outside the US in order to avoid the heavy costs of compliance. At the same time foreign exporters could refuse to comply with US EPA standards. Therefore the US may not be able to rely on foreign imports to meet its growing demands. Meanwhile demand will continue to grow for diesel fuel as many US and foreign car manufacturers are adding diesel engines to their product line due to better fuel efficiencies. What we have here is the classic case of the wrong policy at the wrong time. If you’re upset over $3 gasoline, you better buy some Zantac, because $4 and $5 gasoline is not too far away.

John Makin from the AEI

2005-10-13T19:32:00.000-05:00

publishes his Economic Outlook for October.

"More broadly, the loss in growth momentum that appeared during August (prior to Katrina) probably reflected an underlying tension in the U.S. economy. A 1 percentage point growth drag from persistent increases in energy prices has been offset by a 1 percent growth boost from household equity extraction out of the housing sector that, in turn, helped to support consumption. As energy prices have continued to rise and activity and prices in the housing sector have weakened, the net effect has been slower growth."

Any buying opportunities amidst the sell-off (PSPT, MMM, XRAY, SYY, VITA, oil/natgas)

2005-10-12T18:29:00.000-05:00

It's tough to be a long. Believe me, I know. See APTM. But maybe the sell-off presents us with some opportunities. Here are some of the names where fresh money might be allocated:

PSPT--pretty severe beat down over the last month or so. Co. reports in about two weeks. PSPT has a lot of cash on the b/s for its market cap. We'll see how the co. guides on the upcoming cc, but I think you're getting a 20-25% grower over the next few years at an '06 PE of 12. {currently long PSPT}

MMM -- Investors have shunned MMM after the CEO left and also on fears that ROIC may have peaked. Some may also see MMM as a proxy for U.S. economic health. The last point is only partially true as MMM derives 50%+ of sales outside the U.S. ROIC fears largely stem from the CUNO (water ind.) acquisition that I like and think will pan out over the long-term. At $70.38, you get a 2.4% dividend yield. Plus MMM is well known for it's strong R&D efforts. I'm thinking hard about 3M here, no current position. FYI, here's a recent 3M presentation.

XRAY is the world leader in dental consumables, a pretty steady market in the US and W. Europe with stronger growth in Asia. Good R&D effort here, many annual product introductions. Many ops for acq. (industry consolidator), beta of minus 0.1. I'll consider going long here around $50.

SYY is the foodservice giant that seems to have bounced a bit at $31. Another low beta name with good prospects, high ROE, decent dividend with div. growth potential. Like it around $29.

VITA is another small cap growth stock (gasp!) that I've followed and written about previously. Stock got up to about $4.30 in the past month but now sits at $3.90. Successful with current lineup of VITOSS/VITAGEL product lines. Huge op for Cortoss with VCF. 50% top line grower for something like 9 straight q's. Maybe they'll get a profitable q next year. Will take a hard look around $3.60.

Oil/nat gas stocks (E&P plus oil services plus infrastructure) are still very much on my radar. Sell-off has been pretty abrupt in the names that I follow. Should nat gas prices come in a bit and oil prices dip into the low 50's, 15%+ moves to the downside would not be a surprise. If this scenario comes to pass, I'd have to re-evaluate, but stocks on the top of my mind are XTO, UPL and APA on the E&P side and BHI and BJS on the oil services side, and CBI on the energy infrastructure side. I do belive that any downward moves in commodity prices would be demand driven. I'm a "peak oiler" and don't believe that there is much we can do on the supply side. Do a search for Matt Simmons for more on peak oil.

Happy thoughts from Dr. Doom

2005-10-12T18:25:00.000-05:00

The latest from Mr. Faber.

Two moves today -- APTM and STZ

2005-10-07T19:13:00.000-05:00

Yesterday I wrote briefly about APTM huge disappointment in Q3 and stated that I might pick up some more shares sub $11. Well I certainly got my chance and did add to my position at $7.84!! $11 is a distant memory. I picked up a few things from the CC the co. hosted today that I'd like to share. In general, CEO Choate and new president Wrubel did a good job at talking me off the ledge. Maybe my BS meter is broken, but they came across well on the call.

APTM has aggressively purged the lower quality publishers from it's network
One of the top 100 web sites has gone live (hope it's #9 and not #99). Could be significant rev. opportunity. PR could follow on this in the next few mo.
First time I heard APTM mention leads that provide phone # so that advertiser can follow up with a call (high priced leads obviously, but I question the volume).
I think I finally understand DRO vs. the feedback loop. Basically DRO works on the front-end to place the offer in the most appropriate place (where it can generate a response). The feedback loop works to aid the advertiser with conversion (i.e. purchase of the advertiser's product/service). So APTM and the advertiser hope to answer," of these responders to my offer, who will convert on the backend."

As I've said before, I still believe in this space and in APTM but due to recent blunders, the street is not going to give APTM anything until it can put together a few decent quarters. Wouldn't mind seeing Wrubel and Choate do some insider buying at these levels.

FYI: Here is what I originally wrote about APTM a few months back

On STZ, the co. reported a lukewarm quarter and offered somewhat weak guidance. I picked up some shares at $22.94. I think investors are worried about another expensive acq. at this time (Vincor). If STZ can manage to pick up Vincor at a decent price or not pick them up at all, still see this touching $30 sometime in 2006. Imported beer brands are strong and Mondavi opportunities in Europe are ripe for the picking.

The NTRS team issues it's Oct. Outlook

2005-10-07T19:10:00.000-05:00

Paul Kasriel expects FFR declines to resume in 2H2006.

What will a new Fed Chair mean to the market?

2005-10-07T19:08:00.000-05:00

Mr. Roach discusses in his Friday posting.

Chicago Bridge and Iron (CBI)

2005-10-06T21:25:00.000-05:00

CBI has been on my radar for several months now and has recently sold off pretty hard (intraday it was off 9%+). CBI business focuses on our growing needs for increased energy infrastructure. I'm going to try to be patient here, but at $23-25, I'll take a hard look. Here are the slides (pdf's) of a recent CBI presentation to give you a more solid background into the co.

Pain-- APTM disappoints again

2005-10-06T21:19:00.000-05:00

Haven't I been down this road before with SONT? Aptimus put out a pr today taking down guidance for 2005 for the second time and announcing the resignation of their CFO. Way to go guys. As much as this hurts and as stupid as this may sound, I might pick up some more shares sub $11 tommorrow (if we get there). I still believe in the model and feel it's much too early to give the thumbs down to Wrubel and his (and Choat's) push to add top publishers to the network. $11 entry might make sense to those with a multi-year holding period.

Harley Davidson (HDI) – A Contrarian Opportunity?

2005-10-06T21:09:00.000-05:00

HDI has gotten hammered over the past few months, closing today below $45. That’s well off the 52 week high of $62. Here are a few of the items weighing down Harley at the moment: worries about the 2006 models, recent weak sales/profit growth, higher interest rates, a deteriorating credit profile in Harley Davidson Financial Services, weak pricing for used bikes, worries about 2006 unit shipments, gas prices, an overburdened U.S. consumer. Plus Bank of America decided to downgrade HDI today sending shares down 6% on strong volume.

Though I still need to dig into the filings further, the contrarian in me likes the way this is shaping up. Harley is still the king in their motorcycle segment. Who are the competitors, Yamaha or Honda? I see them as more of the crotch rocket makers. And I think this classic motorcycle segment is in good shape due to the baby boomers set to retire who will likely flock to the open road. I wouldn’t be surprised to see HDI turn in 7-8% top line and 10-12% eps growth p.a. in the next few years. I can see them continuing to boost the dividend (yield now at 1.3%) and buying back shares in droves. ROE is strong here and HDI is currently trading at a rare discount to the S&P 500. Finally, respected value manager Bill Nygren of Oakmark has HDI as one of his top 25 holdings in the Oakmark Fund. I’ll post more here after conducting more research, but right now, I wouldn’t be surprised to see HDI in the mid-50’s in the next 1-2 years.

{post written on Wednesday}

Martha Stewart (MSO) - the beautiful slide continues

2005-10-06T21:07:00.000-05:00

Today I covered two MSO long put positions (Dec 05). Maybe I could enjoy the ride for a few more weeks, but with these options, obviously time is not on my side. I still have some MSO shares short in another account that I'll consider closing out in the mid-teens.

what's up with PSPT?

2005-10-04T19:04:00.000-05:00

PSPT has been on a pretty steady slide lately (on pretty good volume) but I still picked up some more shares around $7.80 last week. I've posted in the past on why I like PSPT here and here.