Portfolio Updates June 14, 2007

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June 14, 2007 | SIN Picks | | Author Asif

It appears that our Salesforce.com (CRM) Jun 2007 $40 Put Options were badly timed and have lost most of their value over the last month. As mentioned in the June investment newsletter,

“earnings were actually hurt by the millions of dollars in stocks options they had to expense and the stock dropped more than 5% the following day. However the options did not move much and I made the fatal mistake of holding on to them. The stock then took off on news about a partnership between Google (GOOG) and Salesforce.com, which now appears to be nothing more than hype. It looks like founder and CEO Marc Benioff’s marketing genius also rubs off on the stock of Salesforce.com. At its current price of $47.25, the stock is way too high for our $40 put options to be worth anything and I am glad I only allocated 0.5% of the portfolio to this position”

If you get a chance, check out this very interesting blog post titled Siebel 2.0: The end of Salesforce.com that appears to reflect some of my thoughts about the risks Salesforce.com faces going forward. At any rate, our put options are likely to expire worthless tomorrow and I am going to sell them at the closing price today to register a loss in the portfolio. I also hold these options in my personal portfolio and will suffer the same steep loss.

The symbol for the January 2008 put leaps on the trucking company YRC Worldwide (YRCW) changed from YBQMG.X to YUXMG.X and I have updated the model portfolio to reflect this change. While our put leaps on YRC Worldwide and homebuilder St Joe (JOE) are still in negative territory, I am going to continue holding them to hedge our long portfolio.

The put options on mortgage lender Countrywide Financial (CFC) are once again registering a gain of over 14% after spending some time in negative territory over the last few weeks. Less than three months ago these options were up a whopping 188% and I regret not taking profits like I did when I sold our put options on bankrupt subprime mortgage lender New Century Financial for a gain of  850%. The CEO of Countrywide Financial sold $156.3 million worth of stock over the last year and with the probability of an interest rate cut that could help the housing market appearing bleak, I expect the recent weakness in Countrywide to continue.

Children’s apparel maker Gymboree (GYMB) did take the breather I was expecting and the stock appears to be attractive at these levels. I am purchasing 200 shares of Gymboree for the model portfolio after the close of market today. Fitness equipment and apparel maker Nautilus (NLS) is also looking very attractive at these levels and I am starting a position in Nautilus in both the SINLetter portfolio and my personal portfolio. I am purchasing 500 shares of Nautilus for the model portfolio after the close of market today. You can find my thoughts about Nautilus in the following blog entries,

I am also encouraged by the importance management is giving to the apparel division at Nautilus and the decision to open a Pearl iZUMi store in the Woodburn Company Stores location was a great idea. The Woodburn Company Stores outlet is a popular shopping destination and is located between Portland and Salem, which recently became the second largest city by population in Oregon. I have also noticed better product placement of the Nautilus Bowflex line of home gyms in Costco stores recently.

To finance the purchase of both Gymboree and Nautilus, I am going to sell our position in Intel (INTC) for a profit of over 22% since we added it to our portfolio in July 2006. These changes to the portfolio will be reflected after the close of market today and will be based on the closing price.

Portfolio Updates June 14, 2007



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Comments

  1. hyennah
    June 14th, 2007

    I was very surprised when you didnt take the profits in countrywide finance options.. I know you are a long term investor, but when trading options shouldnt we start a position with some limits on mind?

    Btw, thank you for the great picks…my portfolio is now close to 60% your picks…and they are all doing really well so far.

  2. Asif
    June 15th, 2007

    There were a couple of reasons I did not sell. I did not expect the subprime mortgage meltdown to get contained so quickly and was very surprised to see Countrywide almost escape the bursting of this housing bubble unscathed. I was also preoccupied with a few commitments and was "out of sync" with the markets for a few weeks .

    If I had limits in mind while starting positions, I would have sold the puts on New Century long before they registered a gain of 850%, which was well beyond my expectations. But I agree with you that while dealing with options that have short expiration dates, it is best to be agile and this was a lesson well learnt.

    I am glad to hear that SINLetter picks have done well for you. If possible, please share your non-SINLetter positions with the rest of us on the forums like a subscriber did in the post A Basket Of Stocks.

  3. deep
    June 16th, 2007

    Asif,

    I was researching Nautilus (NLS) and noticed that 36% of floats are short..do you know what is the bear case?

  4. Asif
    June 16th, 2007

    Deep, the short interest in Nautilus has been very high for quite some time and I have been trying to figure out the reason behind this. The short ratio on the company fell from over 20 in April to 12 in May, which is still a very high number.

    There are two possibilities. I have heard that some folks on Wall Street do not hold the current management team in great esteem and this could be on account of the number of times management has guided downwards after issuing earnings and revenue forecasts.

    The second possibility is that some large players may be accumulating call options and selling the stock short to hedge their position. Consider the fact that the volume on the Jan 2008 $10 call options was 1,030 on Friday.

    With Sun Capital boosting its stake in Nautilus to 6.6%, I am inclined to put my money on the second possibility. You can check out Sun Capital’s current private and public holdings here.

    Voluntary Disclosure: I purchased Nautilus for my personal portfolio on Friday, a day after this blog entry was sent out to subscribers.

  5. Kevin Keohane
    June 17th, 2007

    Happy Fathers Day Asif,

    One question I had regarding the recent picks of NLS and GYMB is that you bought NLS for your own portfolio, but yet, put $2000 more into GYMB for the monthly pick. What led you to that action? I’ve watched NLS for sometime and it has seemed somewhat frustrating at times. I do agree with a lot of what you say about GYMB and in my mind would think less risk and more potential reward with vs NLS.

  6. Asif
    June 17th, 2007

    Happy Fathers Day to you too Kevin.

    I put $2,000 more into Gymboree because as you mentioned, I see it as a less risky play than Nautilus. The reason I picked Nautilus was because I believe that most of the bad news related to a weak housing market (and lower Bowflex sales) is already priced into the stock and because of its current focus on apparel and commerical gyms. I also like its 3.1% dividend yield, while Gymboree does not pay a dividend.

    I am planning on picking up both Gymboree and Nautilus for my personal portfolio. While I sell positions in the SINLetter portfolio to fund new purchases, I often do not sell these positions in my personal portfolio for tax reasons and because I can infuse more cash into my personal portfolio from time to time to fund new purchases. Infusing more cash into the SINLetter portfolio would make tracking returns a whole lot more complex than it already is.

    I am still holding on to many old SINLetter picks such as Intel (INTC), Nokia (NOK), Philips Electronics (PHG) and Pfizer (PFE) as well as partial positions in RCM Technologies (RCMT), CMGI (CMGI), VA Software (LNUX) and Medifast (MED). After the recent sale of about 40% of my position in RCM Technologies (RCMT), I had enough cash on hand to buy Nautilus. I will probably sell other positions or infuse more cash to buy Gymboree in my personal portfolio in the near future.

  7. Khaled
    June 24th, 2007

    Nautilus

    ———–

    1-some past interseting job posted

    -a Lead Financial Analyst that his role developing relationships with investment banker and private equity firms & taking a lead role in conducting financial and strategic analysis of merger and acquisition opportunities.  could that for a Nutrition deal?

    -The reason behined new Pearl Izumi ERP although the group has n a new ERP? why not for Nautilus Apparel? New HR manager for Pearl izumi? is their a spin off after they  gain apparel & footwear experience after Lauching  the Nautilus Apparel and other?

    also Pearl Izumi is for running and cycling, Nautilus is a pure fitnes compamy (equipment, apparel and Nutrition)

    2-SEC Approves Changes To Short-Selling Rules

    is that affect the Short selling in Nuatils soon?

    http://www.nasdaq.com/aspxcontent/NewsStory.aspx?cpath=20070613%5cACQDJON200706131417DOWJONESDJONLINE000808.htm

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