SIN Picks

Taking Profits in Monster Worldwide (MNST)

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January 31, 2008 | SIN Picks | Author Asif

On a day when the Dow is up 140 points or 1.1% as I write this, Monster Worldwide (MNST) is down over 6% ahead of its earnings release this evening. Reflecting economic conditions, Monster Worldwide’s January employment index declined 9 points to 160 from 169, representing the third straight monthly  decline leading to a downgrade of Monster Worldwide by Deutsche Bank analyst Jeetil Patel. Anticipating slowing job growth, we picked up $30 March 2008 put options on Monster Worldwide back in September as mentioned in the Hedging Your Bets section of the September 2007 investment newsletter.

These puts are now up almost 125% and I think it is prudent to close this position ahead of the earnings call today and because we are less than 2 months from options expiration. There have also been increased buyout rumors with former chairman and CEO Andrew McKelvey’s voting stake cut to 7.4% from 31% following an options backdating settlement. Hence I believe at this point the risk of holding on to these options far outweighs potential future gains and I will be closing this position both in the SINLetter model portfolio as well as my personal portfolio after this blog entry is published. The closing price of the day will be used as our selling price for the model portfolio.

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End Of Year Portfolio Readjustment

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December 31, 2007 | SIN Picks | Author Asif

As the last trading day of the year approaches, I am going to make some final portfolio changes by selling two winning positions, selling two losing positions, opening one new position and increasing the amount of cash in the portfolio to approximately $45,000 or 20% of the overall portfolio. These trades will be finalized utilizing the end of trading day prices on Dec 31st and the online model portfolio will be updated late that day.

I am going to close our short position in luxury RV manufacturer Monaco Coach (MNC) for a gain of about 28% in less than four months. Monaco was mentioned as one of five potential short opportunities in the September 2007 edition of SINLetter. Since this is a short position, the maximum possible gain from it is 100% (unless you utilize margin). I don’t expect Monaco to go bankrupt and in light of a couple of recent events, I think covering this position would be wise. Another RV maker Fleetwood Enterprises (FLE) posted better than expected quarterly results in early December and this provided a temporary boost to the entire RV sector. While I think the housing downturn is far from over, Monaco’s decision to buy back $30 million of its stock (representing more than 10% of its market cap) implies that management believes the stock is undervalued at this point.

I am also selling our $50 LEAP puts on ex-homebuilder St Joe (JOE) for a gain of approximately 122%. As some of you may realize, these puts were posting a gain of over 220% just a few days ago and given all the bad news about double digit home price declines in Florida, I expected the price of St Joe, which owns vast tracts of land in Florida, to decline further. However Fortune magazine’s decision to feature St Joe as one of its best stocks for 2008 lit a fire under the stock and helped it post a gain of over 24% in just two weeks. While I still believe in the bearish case for St Joe as outlined in this blog post on One Family’s Blog, our options expire on January 18th and I am going to book the 122% gain now.

One of the key reasons I am writing this blog entry just ahead of the next newsletter that is due out on January 1st is because I want to sell Airspan Networks (AIRN) for tax loss reasons and Dec 31st is my last chance to do this. I wanted to give Airspan Networks until the end of 2007 to see if the company could recover from the loss of its biggest customer Yozan but after holding the stock for over two years and watching it lose almost a third of its value, I think it is time to close this position and register the painful loss. I still believe that WiMax has excellent potential and 2008 will be the breakout year for the technology. Our position in Airspan’s competitor Alvarion (ALVR) will hopefully help us benefit from this trend. Despite the competition from Cisco (CSCO) after its acquisition of Navini Networks, if things improve at Airspan in 2008, one could consider reinitiating a position in Airspan again provided you wait at least 30 days to avoid the wash sale rule.

I am also selling our position in Ambassadors Group (EPAX) for a loss of approximately 37.95%. For the first few months we owned travel company Ambassadors Group, the stock performed very well but dropped off the cliff in October when it announced that bookings for 2008 had unexpectedly dropped 30%. I believe that the nearly 50% drop in price the stock suffered in a single day was unwarranted but given the gloomy outlook for the economy in 2008, I doubt the stock will post meaningful gains anytime soon and have decided to take the loss.

I am also starting a new position in Japanese electronics giant Canon (CAJ) as I believe that the stock is significantly undervalued at these levels. Canon took a hit earlier this year on account of the weak Yen as mentioned in this stocks that almost made the cut blog entry. The stock fell once again in recent weeks after a Japanese newspaper reported that the company will post a lower than expected increase in profits for 2007. The paper attributed this drop in earnings to an accounting change at Canon but the odd thing is that Canon had already announced this accounting change and its impact on earnings weeks before the newspaper brought it up again. Canon’s announcement that it is likely to increase its dividend by 10% in 2008 (pushing the dividend yield to over 2%), is probably an indication that all is well with the company and I am going to start a position in Canon by purchasing 200 shares of the company.

Wishing all of you a happy and prosperous 2008.

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Scaling Back on Suntech Power (STP)

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November 8, 2007 | SIN Picks | Author Asif

I am scaling back on our portfolio pick Suntech Power (STP) by selling a little over a third of our position or 150 shares. As mentioned in the November investment newsletter I was planning on scaling back on our position or adding protective put options on Suntech to the portfolio. Due to high volatility, the puts are very expensive and hence I have decided to scale back on our position and book a profit of roughly 175% on our purchase last August. Even with the recent run-up, which has seen the price of Suntech more than double year-to-date, Suntech’s performance does not match the more than 250% gains that Chinese competitor Trina Solar (TSL) has racked up or the more 300% gains in California based SunPower Corporation (SPWR) year-to-date.

With a price/sales ratio of 10.59, a forward P/E of 43.19 and demand slowdown in Germany, which represents more than half of Suntech’s revenue, it may be prudent to take some profits off the table. Beyond scaling back on your position or buying protective puts, a third option for those who have a very strong stomach and are convinced that this rally in solar stocks cannot continue would be to actually short stocks of Chinese solar companies like Trina Solar (TSL). While our recent short position in luxury RV manufacturer Monaco Coach (MNC) has done well, this is a highly risky strategy to apply to a high growth sector like alternative energy. Check out this excellent article for a well reasoned bear case on Suntech Power by One Family’s Blog.

The actual sale price will be based on the closing price of the day and the SINLetter model portfolio will be updated accordingly.

Full Disclosure: Suntech is currently the largest position in my personal portfolio and I will sell part of this position today after this blog entry is sent out to subscribers.

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Gymboree Beats Estimates, Increases Forecast

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August 23, 2007 | SIN Picks | Author Asif

Children’s clothes retailer and our June investment newsletter pick Gymboree (GYMBreported results last night that not only beat net income estimates by four cents a share, the company also raised its full year 2007 forecast to $2.50 to $2.53 per share from an earlier forecast of $2.42 to $2.46 per share. Overall sales increased 20%, same-store sales increased 5% and even gross margins increased when compared to the same quarter last year.

Compare this with results from competitors Children’s Place (PLCE) and Carter’s (CRI) who reported losses for the second quarter citing a challenging retail environment and lackluster sales at Carter’s OshKosh division. In fact Children’s Place lost more ground today after cutting its profit outlook and mentioning that its Disney licensing agreement may be in jeopardy. Children’s Place has lost almost 40% of its value over the last two months.

Given these results, one would have expected Gymboree to open much higher today but unfortunately this was not the case. The stock not only dropped in after hours trading yesterday, it also opened lower today. I can only attribute this to a generally weak retail environment and the fact that the stock was up 4.85% yesterday in anticipation of quarterly results. Investors were probably also not pleased with the company’s forecast of low to mid single digit sales growth at stores that have been open for at least one year (same-store sales is an important retail metric). With a challenging housing market dampening the binge buying habits of consumers, the retail environment is indeed challenging and I applaud Gymboree for forecasting growth in this period of uncertainty. It looks like investors eventually saw the light of day and the stock is now up 1.73%.

A subscriber wrote to me this morning asking if I planned on staying the course with Gymboree. I told him that based on the results this morning, I see absolutely no reason for selling our position and plan to continue holding it both in my personal portfolio and the SINLetter model portfolio for the near future. From a valuation perspective, this company which has no debt on its balance sheet, still looks very attractive to me. The key risk to monitor is consumer spending and investors have outstanding visibility when it comes to retailers like Gymboree as they report sales results every month.

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Was Strangling Apple (AAPL) A Good Idea?

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July 25, 2007 | SIN Picks | Author Asif

Apple (AAPL) beat analyst estimates by not one or two cents, but by a full twenty cents when it reported earnings that grew 73% this evening. The company reported earnings of $818 million on revenue of $5.41 billion, which grew 24% when compared to the same quarter last year. While iPod sales grew 21%, the number that caught everyone’s eye was the 33% growth in Macintosh computers. There has been a lot of speculation in the past that iPod sales would eventually help Apple improve sales of its computers but it is ironic that this is happening at a time when the company has dropped ”computer” from its name and is now known just as “Apple Inc” instead of “Apple Computer”.

Apple sold 270,000 of its new iPhone device in the last two days of June, which happens to be a much higher number than the 146,000 activations reported by AT&T (T) yesterday. This may have to do with the fact that activations of iPhones are not done at an AT&T store but from an iTunes account at home. The iPhone that I bought as a gift last week was not activated until a day later. If investors are not impressed by the sale of over quarter million iPhones in just two days, I have no idea what would impress them. Apple plans to sell about 1 million iPhones in this quarter and about 10 million in 2008. It would be interesting to see if Apple can achieve this number given the price of the phone, the two year contract required and the exclusive deal with AT&T.

After jumping all over the map, the stock closed up $12.92 or 9.4% to $150.18 in after hours trading. If the stock posts a similar jump in the regular trading session on July 26th, the trade I mentioned in my blog entry titled Getting Ready To Strangle Apple would be very profitable. The call options should more than double in value while the puts would drop a lot but still retain some time value as expiration is more than three weeks away. I have seen stocks react to an event in a certain way during after hours trading and in a totally different manner in the following regular trading session.

Based on the reaction tomorrow, I will post an update to this blog post about my plan of action. Since the market has generally been weak, I will most likely sell the calls and the puts to complete the trade. Another alternative would be to sell an equal number of puts and calls (3 of each from the model portfolio), while retaining the extra call in hopes of further gains over the next three weeks.

Update 7/26/2007:  It appears that Apple did jump in the regular trading session as well but not as much as in after hours trading. The stock is trading up roughly $10 or over 7% as I write this update. The rally in Apple shares has been somewhat subdued by yet another drop in the market with the Dow Jones down more than 200 points thanks to disappointing new home sales and tightnening credit. The strangle we used is only slightly profitable at this point but the overall trade is up around 18% thanks to the extra call we purchased. I am going to sell both the puts and the calls and complete the trade by using the closing price at the end of trading today.

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