Monthly Archives: January 2012

RSH guides down

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After the close today RSH announced that they were cutting their guidance for the quarter to .11 to .13 versus street expectations of .37/share.

The stock has traded down 20% or so on the news.

Furthermore and perhaps more disappointing, the company has suspended their buy back, which was a big part of the story for me.

On the positive side, revenues increased approximately 6% for Q4 YoY.

On the negative side, gross margin for the quarter is expected to be 35% compared to 41% a year ago – this margin compression is not a surprise as the company shifts toward lower margin wireless products.

The company said, “The decrease in gross margin in the 2011 fourth quarter, compared to the 2010 fourth quarter, reflects a shift in mix within mobility sales towards certain lower margin smartphones and mobile devices; a higher percentage of mobility sales in the overall revenue mix, largely driven by the Company’s expansion of Target mobile centers; and the impact of a more promotional holiday season.”

And further blamed the disappointing results on under performence of the Sprint postpaid wireless business.

Time for some soul searching here.. to sell or not to sell.

OSTK – Worth a ride on coat tails?

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I came across OSTK on the monthly value contest on Guru Focus.

At first glance it is an immediate pass for me… I mean, the company doesn’t have any history of making money, and quite frankly i don’t know how to value a company without a (semi) consistent earnings history.

However, after noting who owns the stock, I decided to make a note to keep an eye on it.
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Short Idea – Rail Roads

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Personally, I don’t have any shorts, and I’m not really all that interested in them at this time. I much prefer the idea of buying undervalued businesses and just waiting for Mr. Market to come around. However, many of my clients use shorts as a way to smooth out their portfolios – especially when the market feels extended as it does now. Their longs are generally buy and hold deep value names that they do a deep diligence dive on, and their shorts are generally short term trading ideas.

Lately I’ve been pitching the rail roads as a basket short. The rail roads have been on a tear since late September. The bull case is tied to an American manufacturing resurgence and the fact that for the first time in a long time the rails have pricing power due to industry consolidation.

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PETS – Quarterly update .19/share vs .16 estimates

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PETS reported Q3 EPS of .19/share vs. estimates of .16/share and .20/share last year. Revenues were $50.5M vs estimates of $44.7M and 12% higher than last year’s Q3 sales of $45.1M.. They acquired 150,000 new customers in the latest quarter, and saw reorders increase by 8% for the quarter YoY.

The company repurchased 118,000 shares during the quarter for approximately $1M.

If there is one complaint – and there shouldn’t be – it is that margins were squeezed due to aggressive pricing and higher ad spending. As I pointed out in my original write up http://www.chasingbrucegreenwald.com/2011/11/30/the-stock-has-fleas-but-the-business-doesnt-pets/, the company can still generate impressive returns on equity with tightened margins.

The stock traded up as much as 20% this morning as the 24% short interest scrambled to cover. While part of me was tempted to sell above $13 and lock in some profit, I have decided not to.

PETS is still a short term hold for me, and I am under invested as it is. I don’t see a need to generate a tax event only to sit in cash when PETS is yielding almost 5% for me.

My original thesis was that the market had over reacted to increased competition from online upstarts and big box retailers, and that the vets (with 67% of the market) would be the real losers of market share, not PETS.

That thesis remains intact, and while margins have contracted, the business remains able to generate high returns.

SSW – Special Situation – Closing out

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SSW issued a press release confirming the conclusion of their tender offer for $15. Given that the tender offer was subject to pro-ration the spread remained wide throughout the process. Additionally, an odd lot provision of 99 shares or less guaranteed the tender for small holders. I was able to participate on a total of 198 shares through 2 different accounts, although my second lot of 99 was not as profitable as my first because it took a little while to get the second account set up. While the money hasn’t hit my accounts yet, there is a contra indicator in them and I expect to see the cash in the next 48-72 hours.
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100 Ways to Beat the Market #26

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One blog that I try to follow is Greg Speicher’s Ideas for Intelligent Investing. In particular, I have been enjoying his “100 Ways to Beat the Market” series.

His latest http://gregspeicher.com” title=”post”>post is one that especially resonated with me.

I especially liked that he went past the idea of a stock “simply” doubling in 5 years being equal to 15% annualized returns and touched upon different ways that this might happen. My default way of thinking is finding a quality business and buying at 50% of intrinsic value with no expectation for growth but full expectation that Mr Market will close the gap between intrinsic value and market value.

I don’t know why. It is just very easy for me to think that way. Probably because its just easier to value a business that isn’t growing. Mohnish Pabrai has commented that a steady state business should be worth about 15x its earnings, so if you buy it at 10x, you’re in good shape. Thats pretty much the Shiller PE at work. Pretty easy.

Greg points out that paying a fair price for a stock that grows 15% a year will get you a double as well. Of course I know this already, but it is harder for me to think this way so it was good to see that strategy in black in white. It is something I will have to be more aware of as I continue to develop my investing style.