In the two months since my last post my portfolio is down over $1,000 - that's a lot relative to the total size. Meanwhile I invested all my excess cash two months ago so now I just watch as all the companies I own fall seemingly endlessly (with the possible exception of Western Sizzlin') and I have no cash to invest in them.
I'll go over a few of them plus some other options I'm looking forward to using at some point.
Overstock.com
Overstock has gotten utterly massacred since the last post. Worse maybe it should have fallen a little bit but not near as much as it has Wall St. has taken advantage of an extremely small amount of bad news to shoot it down.
There are two main bits of news here:
Byrne said the Gross Margins would be down
Jason Lindsey resigned
First, while Byrne said gross margins would be down, because of higher ad spending, he also remarked that they were experiencing good growth during the holiday season. That this would send the stock down makes absolutely no sense.
Upon, hearing the gross margin would be down because of higher ad spending, the first thought to enter my head was not, "Oh $#!+ lower gross margins," instead it was, " Oh, thanks captain obvious."
Byrne has repeatedly talked about new commercials they would be airing, including one where they had to close down an entire free-way to record it. Well, doesn't logic tell us that if they would be airing new commercials, then they would probably have to spend more money then they had, which would mean margins would be down.
'Pundits' all over wrote about how Overstock's margins and how it was a step back when all they needed to do was pay attention and this would have come as no surprise. More surprising, however is the fact that these comments alone sent the share price down more than $20 per share.
Secondly, I won't argue that losing Jason Lindsey is bad for the company that would be illogical. Instead I see this as a semi-good sign.
I don't believe Lindsey would leave the company again if it was crap, he knows his stuff - which is obvious from the conference calls - and I think he left this time because he knew Overstock could run well without him now.
Add these two bits together and Overstock trades at just $13.32 per share down from a high over $39 it reached less than a quarter of a year ago. This is a 66% decline in just a few months, and on the news that I addressed in the paragraphs above.
Yes, I do believe its utter non-sense. Overstock now trades at a .35 multiple of sales, which means they earn well more than twice their market price in sales. Sales that Byrne acknowledged had grown well during the holiday season.
They still have an amazing business that doesn't seem to be recognized by anyone other than Arne Alsin.
I'm not recommending anyone do this, but the move I would love to use here is to buy calls on OSTK that way when they report and go up 50% in a week - shorters covering should push it higher. Unfortunately, according to Scottrade a 35 year-old investor with a few months experience can trade options but a 17 year-old investor with four plus years isn't old enough.
Sears Holding
This one will be shorter since I haven't been following it as long, also it will be more of a rant.
Sears has fallen with the rest of the retail industry over the past year or so and also Herb Greenberg named Lampert the worst CEO of the year despite the fact he's not a CEO, and Sears and Kmart are performing a lot better than they would have had Lampert not gotten involved.
In 2003 when Lampert started buying Kmart it was about to file for bankruptcy and Sears was approaching the same fate very quickly.
After Lampert took control of Kmart he sold a bunch of real estate to pay down debt and buy Sears.
Now Sears is making over a billion in operating cash each year, and has ~$1.7 billion in cash compared to no Long-term debt, the only retailer who can claim that.
Still it trades for a fraction of its liquidation value and is run by a guy who Wall St. seems to have forgotten has earned 29% a year and was a huge factor in AutoZone’s turnaround.
K-Swiss
Not a whole lot as changed here, I'll go over the valuation.
K-Swiss has $8.13 in net cash per share - this is helped by the fact they have no long-term debt - which makes their EV/Share $8.82. They made $1.44 in cash flow per share which puts their EV/FCF ratio at 6.125 which is criminal for this company.
Even though K-Swiss's domestic business fell a lot over the past year their operating margins are still around the industry average, and they still earned 15% on capital, which is good for businesses hitting their stride.
Management also proved they are focused on the long-term by not discounting any shoes even though their earnings were falling; though this may have affected short-term growth rates long-term the margins and returns will remain healthy.
McGraw-Hill
No deeply held grievances here, but I am doing a 10 page research report on this company for English, so eventually I'll have a pdf up on it.
Mutual Funds
I've been thinking about possibly diversifying my portfolio by investing in a value fund to go along with the different companies I own.
So far the best fund I've seen is the Tilson Dividend Fund. I saw Matt Richey speak a CGI conference and have read their write-ups on Value Investor Club. The fund's NAV is down over the past few months with the rest of the market which I think gives one a good opportunity to invest in well selected undervalued companies.
Sunday, January 06, 2008
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3 comments:
re: ksws,
the valuation does look "criminal" but that is based on past numbers. no new products until at least june/july (possibly later, according to their last conf. call) coupled with an almost certain recession will not be good for them. I'd sell and revisit in July.
Mike,
Have you ever looked at Advocat or Zunicom? You might like them. thx for your blog...very helpful. I've posted some stuff on my site:
Zunicom's valuation:
www.valueinvestingplanet.com/uploads/zncm.ob
Overview of Advocat:
www.valueinvestingplanet.com/uploads/avca.amit.pdf
I've been following Overstock on and off for an year now. Its stock price is definitely run by speculators.
Buying calls on an earnings call is pure speculation. I think you shouldn't have said that (not that anyone would blindly follow that). There is a big difference between buying a stock on the basis for expected improved performance, and buying a time-limited option in the hope that the better news shows up NOW. Overstock may improve but it can take time.
The way I look at it, the market has good reason to doubt Overstock for the time being. They need to start posting profits--or at least get close to it--or else no one is going to give it the thumbs up. I think the big test is, not the recent Christmas period, but this full year. With an impending economic slowdown, I'm curious to see if Overstock actually picks up market share. If OSTK actually offers cheaper prices, it should do better than the competition (eg. Wal-mart posted good numbers recently whereas the higher-end stores didn't). If you look back to the early 2000's, OSTK actually did well while the economy was in a recession because it offered low prices to consumers who were price conscious. OSTK is much bigger now so it isn't quite the saem situation, but I wonder if it may do better than the competition if shoppers pay more attention to their cash.
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I'm just a newbie like yourself--much older though--so it's just one man's opinion but... as for you trying mutual funds, you probably shouldn't do it unless you can find one that you is really good. It seems to me that your goal is NOT to make money, but to learn to do it on your own. If that is your goal, a mutual fund may detract from your learning.
I suspect your portfolio is small. If that is indeed the case, then the amount of money you gain or lose is not a big deal. Yes, it toally sucks but you will make more money later on in life.
I see a lot of so-called stock pickers and value investors keep a huge chunk of money in, say, Berkshire Hathaway stock (I'm not talking about those who use it as a "quasi-cash" holding but those who permanently invest in it). What's the point of doing that? Letting Buffett manage your money defeats the purpose of one trying to do it themselves.
I think you should consider a fund later on when you figure out if you are cut out for this stuff or not. Or when you have large sums of money that you really don't want to lose.
Anyway, I'm older (30) and just started investing a few years ago, and that's what I'm doing. Trying on my own and then if I feel like I can't do it, then consider a fund or some other lower-risk approach. The advantage for people like me--and you--is that our portfolio isn't large so we can try stuff on our own and losses arn't the end of our lives.
(Now, I'm assuming you are ok with losing some of your capital. If you can't lose it (say you need it for school, or some future need), then disregard what I said and consider a lower-risk approach, such as a diversified fund or something... but I stand by my words for anyone trying to LEARN investing. No better way than trying on your own.)
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