B*A*R*R*O*N*S GAME Long - Short Edition.....

S

stonedinvestor

Well third time is a charm. We finally got the good issue, filled with both long and short ideas...

Dear Alan wastes some space with a Pres Bush State Of The Union recap , he kind of glossed over a thought I've been having about the market slowly coming to terms with the financial impact of this stupid war. Alan uses a word " cavil " which I had never heard of. It means make petty objections. My god what a great word! I often have been dealing with cavil with my wife. More precisely- she is accusing me of cavility on numerous occasions...Alan is calling for $750 gold and $50 floor on oil. Or was it $50 an oz of gold and $750 a barrel of oil?

Streetwise column notes bearish option volume hit a two month high thursday and we had our largest one day loss since late nov. What happened the last time? Up 4%! The column goes on to point to a low in the markets being set in Feb or March.

First piece a bust piece on Ethanol, stks picked on include ADM, PEIX, VSE, etc the usual bunch. This is true I think and I would include the grain trade as ripe for a fall: the MON and BGG's of the world. In my view, there's some shorting to be done in here . One stock they surprisingly didn't mention is Xethanol (XNL) which had only a mere up 40% week on the AMEX... Yikes! I feel like we can stop the short search right here... but let's move on.

Roundtable time! First up. Meryl Witmer. Mixed feeling about Meryl> to me she is dangerous because she does some out of the box thinking that attracts me and those stocks don't do so well. There was in prior years a sugar substitute- Splenda play out of UK Pope and something, a food biotech- Syngenta .. both took me down. But she has some good calls too> CHAP steel being her best last year .

Meryl likes 4 stocks, the first is UK traded FKI a logistics/materials-handling company, yawn. Next up, Navistar which is being threatened with delisting to the pink sheets. Meryl goes out on a limb and predicts $69 a share from $38! Mario Gabelli chirped in that he's one of the biggest shareholders. She also takes some flak for the pick but undaunted she continues that Navistar could be acquired. Next up Kaiser Aluminum an emerge from bankruptcy co with now no debt> these plays usually work out well. Meryl came to play folks. Last up Oh looky one I like Texas Industries... She makes all the points I did on an earlier thread on ET and as I did came up with $78-$100 a share. It's $70 now. Folks we may have to put our BUY hats on and place some 07 bets here!

Mark Faber brings nothing to the table> long a bunch of commodity crap and Singapore stocks you have to buy over there. Oscar Schafer picks FLML a SI favorite but also a bad taste stock- I was dicking around for a few cents - and not getting filled on a limit order & and then watched it run very, very, very far away from me-- that was at $17. It's $31 now- FLML is drug delivery technology and it's tech is the real deal. SHIRE, interesting pick great company but some generic challenges, Avis Budget Group-- never been a good business model - renting cars-- Sally Beauty Holdings. A Canadian Energy play and Tesco.

Up steps my boy Fed Hickey, we can count on his negativity to find us a short. His short candidates: RIMM, Apple (atta boy!) LAM Research & Heelys.
Typical stonedinvestor problem here I'm immediately drawn to the Heelys idea a blow out fad that is fading and being outlawed in many venues, but of course something like LAM might give a better plunge. LAM has high exposure to memory makers..

Mario Gabelli Mr. Blabalot! I've never been impressed with this guy, he always seems to talk his book from ridiculously low cost basis.. Libertymedia every year- give him credit that dog finally got it's act together. This year Mario likes: Cablevision (I don't) Group Danone - been in this several years ago when I started loving Volvic Water they are volvic but that's a fraction of their business- a very well run company. International Flavors & Fragrances- I like this call when these perfume plays get it right they seem to really motor... Waste management - Garbage stock - literally. GATX they lease railcars. Lastly of course he sucks up to John Malone's latest- Liberty Media Capital a 39% owner of DirectTV.

Well, as I suspected pt 3 of the roundtable was the best of the bunch!

Next up a bullish piece- I think- on Altria, I couldn't finish it, it's $87 bucks what am I gonna do buy 100 shares?

Next technology week looks at some Tech Newbies-- Yum! Acme Packet APKT I have never heard of this stock is up 67% from IPO. Yowsa! But down fractionally if you or me bought it. Humm. So it pays to get in on the offering huh? That's not exactly news Mr. Technology Week! The column then highlights an upcoming IPO CLEARWIRE. This is a WiMax play and all I can say is yes, yes, yes, Where do I get some? They don't answer that but when it prices I will put in for it, why not try?--it's Craig McCaw. Other Internet builders in the pipeline Intellon (just sounds like a winner-an internet over the power line play I believe- and I love those ) & Sourcefire (network security). Lastly Veraz Networks. Similar to the above mentioned ACME packet that started it all. That's a lot to put on your IPO bulletin board but really if you can get some of any of these IPO's at the offering price- I don't see how you couldn't make $> Good list.

We're getting our monies worth out of this weeks Barons! And I was just about to not renew because of the smaller format.

Next up a real neg take on Motorola and my cousin works there so I have not the slightest problem shorting this one! And I've been thinking along that direction anyway- having placed bets on Nokia.

There's a large list of IPO's in the middle of the paper and the heading is IPO's Catch Fire. If this had been on the cover I would of sold my whole portfolio monday.

Neg piece on BMC software > short list.
Poss piece on Diamond Offshore> $81 bucks!

An article about the Euro version of dogs of the dow is interesting but it's easy enough to find lousy stocks over here.

CHART Time: and boy China Mobile pops out in a good way.< CHL>. Chicago Bridge & Iron too almost bought that a few months ago at $27 it's just popping @$30 now up $3 for the week. That looks like a BUY now. Career Education is there > it's just a matter of time before yours truly is in this stock, I can feel it- I don't know why I've just been gradually talking myself into the paid education space. All this regulatory stuff clears up and the end of 07'... when do they move? CECO is just about to break above 200 day... I'll get killed watch.

Lets wrap it up folks, interesting LONG ideas from this weeks barons> Navistar, Kaiser Allum & Texas Ind. , FLML, SHIRE, DA, International Flavors & fragrances, China mobile, CECO , Chicago Bridge & Iron. Sweet List!

Short Ideas: XNL / LAM Research / Heelys / MOT / PEIX / BGG / MON / BMC....
 
any idea why BARRONS does not invite CRAMER to their round table ? I am sure their readership would be "huge"

in those issues

:p
 
If you notice they don't mention him at all! It's like CramerWorld doesn't exist. I agree we could create a much more free wheeling roundtable by putting a trouble maker like Cramer on with some big thinkers like Fleckenstein, I think that's his name- the guy with the long hair who's negative all the time.
 
Barrons seems dumb. They put COP on the cover right after a 35% 3 month runup last month and called it the cheapest large cap on planet. It of course then falls 15% in a few weeks. Made for a nice short fell at $74.80 though :p

I canceled my subscription in 2003 after they wrote a similarly stupid full page article on brokererage sector and said to SELL GS because its PE was a point or 2 higher than the others. That was when GS was around $70.

Seems like when Barrons editors try to use their own analysis they really screw up bad.
 
The first 2 weeks we made $1000 plus each. Then we had a $400 return issue and a $300. I'm hoping the declining totals are due to market conditions and not methodology!
 
Building a Short Case against Heelys
with the help of the 10Q detective. >>>

On December 8, 2006, “wheels-on-a-heel" footwear designer Heelys, Inc. (HLYS-$32.74) priced 6.425 million shares at $21, a 23.5% premium to its suggested IPO price of $17.00 per share.

Shares “heelied” down Wall Street, as investors bid up the stock 55.2% in its first day of trading, excited about the Company’s growth prospects in domestic and international markets

Heelys sells a dual-purpose shoe that has a removable wheel, which allows the user to seamlessly change from walking or running to skating by shifting their weight to the heel. Users can also transform HEELYS-wheeled footwear into comfortable street shoes by removing the wheel.
The footwear, sold under the marketing slogan "Freedom is a wheel in your sole," is targeted to boys and girls between six and fourteen years of age, particularly those who associate themselves with youth action sports.
The wheeled shoes, which retail from $59.99 to $99.99, come in three categories—Single-Wheel, Two-Wheel, and Grind-and-Roll, and in a variety of colors—and can be found at sporting goods retailers, specialty shoe retailers, and select department stores.

Financial Analysis

In the first nine-months of this fiscal year, net sales increased 303.1% to $117.1 million, from $29.1 million for the nine months ended September 30, 2005. Unit sales of HEELYS-wheeled footwear increased by 2.9 million pairs, or 316.2%, to 3.9 million pairs for the nine months ended September 30, 2006.

For the nine months ended September 30, 2006, 85.9% of net sales were from domestic retail customers, as compared with 81.0% for the nine months ended September 30, 2005. Domestic net sales increased $77.1 million, or 327.8%, to $100.6 million for the first nine-months.
Internationally, net sales increased $11.0 million, or 198.2%, to $16.5 million. This increase was primarily the result of increased sales to distributors in Canada, the United Kingdom, Ireland and Argentina/Brazil/Chile, partially offset by decreased sales to distributors in Japan and Spain/Portugal.

*In my view, at $32.74, or 35 times estimates earnings of $0.94 per share, Heelys’ stock already discounts a strong fourth-quarter.

Heelys run out of the blocks comes on the heels of other strong specialty retailers and sportswear retailers (aimed at the youth market) IPOs in the last two years. Looking at these “lifestyle-trends” peer comparables, however, risk-reward does not favor establishing new positions in Heelys:

COMPANY SYMBOL/
PRICE 2007
P/E EV/REV
(TTM)
Heelys, Inc. (HLYS) 34.8x 5.7
CROCS, Inc. (CROX-$43.53) 21.3x 5.9
Under Armour, Inc. (UA-$50.80) 52.9x 6.2
Zumiez, Inc. (ZUMZ-$29.52) 33.2x 3.05
Volcom, Inc. (VLCM-$29.30) 20.1x 3.30
Note. HLYS -- PE is FY '06/ Enterprise Value/ Revenue (EV/REV) based on 2006 est. of $160.3 mill.


Action & Board sports apparel retailer Volcom illustrates what happens when yellow flags begin to fly. On May 11, 2006, one of Volcom’s largest customers (accounting for about 25% of revenue), casual apparel maker Pacific Sunwear (PSUN-$19.67) announced that same-store sales and net income were lower in its 1Q:06. From May to August, PSUN shed about 30.4% in market value—and in sympathy, Volcom’s stock price dropped about 47.2% in market value!

Heely’s current stock price could look cheap, however, if management executes on its promise to increase domestic distribution by expanding the number of stores in which its wheeled footwear is sold (by existing retail customers and by adding new retail customers). If sales double in 2007 and the Company can continue to throw off net margins of 15%, Healy’s share could increase another 50% in value. Conversely, If Sports Authority cuts back... Splat!

Other Investment Risks & Considerations

If consumer interest in HEELYS-wheeled footwear or wheeled sports activity products in general declines, the Company would likely experience a significant loss of sales and would be forced to liquidate excess inventories at a discount, which would have a material adverse impact on its business and operations.

Vulnerability Due to Customer Concentration. For the nine months ended September 30, 2006, Journeys and The Sports Authority accounted for 11.6% and 11.0%, respectively, of net sales. Success is contingent upon the willingness and ability of these retail customers to market and sell Heelys products to consumers.

The Company has commissioned Boss Technical Services, an independent sourcing agent, to help the Company identify and develop relationships with manufacturers of its footwear products (and provides quality inspection, testing, logistics and product development and design assistance).

Manufacturer Bu Kyung Industrial-So. Korea, (owned by one of the owners of Boss Technical Services) Something smells fishy! produced almost all of HEELYS-wheeled footwear until May 2006. Commencing in May, when demand for HEELYS-wheeled footwear products outstripped the capacity of this independent manufacturer, management used additional independent manufacturers to produce HEELYS-wheeled footwear.

The company faces risks, too, from an increasing number of counterfeit shoes being sold in the U.S. For example, a recent lawsuit against Levy Marketing accuses the company of selling knockoffs of the Heelys to ''kiosk retail outlets in various malls'' throughout the country.

The 10Q Detective notes that the Company is having trouble penetrating shoe markets in the Far East (surprise?). For example, a Korean firm sells a one-wheel roller shoe knockoff called “Heatys.”

In some Asian countries where Heelys has sought patent protection, however, third parties have challenged the validity, enforceability and scope of its patent rights. For example, the Japan Patent Office issuing an opinion in February 2006 that Heely’s Japanese patent was invalid. (The Company has filed a lawsuit with the Intellectual Property High Court in Japan, in June 2006, and plans to file a Trial for Correction in the Japan Patent Office to attempt to overturn the prior opinion).

Additionally, a third party recently commenced a proceeding to invalidate Heely’s patent on the "Roller Shoe" in Taiwan.

There is also product-liability risk. According to published reports, there are Heely bans in many public buildings, malls, school hallways and playgrounds. This is big!

In addition, the Boston group World Against Toys Causing Harm Inc. (W.A.T.C.H.) placed Heelys on the top of its annual "10 Worst Toys" list for 2006, citing safety concerns that the wheeled-sneakers are marketed to children who are unprepared for their associated risks.
Look for liability insurance costs to continue to rise with sales.

One rarely mentioned risk--HEELYS-wheeled footwear could become subject to import tariffs in the United States. The U.S. Customs and Border Protection currently classifies the product(s) as a skate, and as such the Company does not pay import duties to the United States. However, many in the House and Senate are calling for trade protection—especially from countries in Asia—
If the classification for HEELYS-wheeled footwear changed and HEELYS-wheeled footwear became subject to an import duty (as high as 20 percent ad valorem), it might be difficult to pass these costs—to compensate for any such duty—onto the consumer.

>> On the initiation of coverage front on 1/17 they rolled in: Bear Sterns Ourpreform $40 PT. Wackovia gave it only a market preform and no PT I guess they are out of the running for the secondary! And JP Morgan sees significant chance for upside with an ovcerweight no PT. All of these seem to have goosed the stock another $5. Is HLYS ripe for a fall to $32?
 
Kaiser looks good folks! Had an up 81 cent pre trade so Meryl's comments had some pull. Next year growth looks like 105% vs -5% for industry. The Gov has taken their pensions off their hands, stk came in a bit for a secondary at $61.25. Don't really see anything wrong with this pick outside of it's tough to get a real PE to compare to group.... Looks good a very strong possibility.
 
Career education pops over 200 day! CECO.
What did I tell you folks! Only probablem is I'm not in yet! Give me time.

FLML gaps up $1.87 or 5.9%! Getting a big boost from the roundtable.

NAV is up $1.43 or 3.4% and TXI is up $1.24 or 1.7%

So we are watching KALU / CECO / FLML / NAV for our long idea....
 
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