Archive for December, 2005

• Good Fashion Sense
  Eddy Elfenbein, December 26th, 2005 at 6:23 pm

  One of the best-performing industry groups of last 10 years has been retail apparel stores. I have to admit that this is one phenomenon I never saw coming. It’s also interesting to note that oftentimes, great investments are necessarily from great inventions. Sometimes, just building a better mousetrap is all you need.
  Just look at the long-term charts of stocks like Abercrombie & Fitch (ANF), Chico’s FAS (CHS), Christopher & Banks (CBK), American Eagle Outfitters (AEOS) and Urban Outfitters (URBN). They’re all been big winners. Plus, there are some promising up-and-comers like True Logic (TRLG) and Aeropostale (ARO).
  So who’s next? Make way for Steve and Barry’s:

  Almost everything at Steve & Barry’s — jeans, jackets, hats, athletic pants, cargo shorts, hooded sweat shirts — costs $10 or less, an obvious delight for holiday shoppers. But retailers across the realm, from mass-merchant discounters to higher-end clothiers, are also starting to take notice, retail experts say.
  In the garment industry, Steve & Barry’s fits into an emerging category of “extreme-value retailers who go to off-the-beaten-track marketplaces like Madagascar where they can really get tremendous deals,” said Lois Huff of Retail Forward, a consulting firm in Columbus, Ohio.
  They cater to tightfisted customers “looking for something that’s ‘good enough’ — decent quality at a great price,” Huff said. “There’s a huge shift in many consumers toward that kind of a mind-set.”
  “When somebody discovers a Steve & Barry’s they feel like they’ve found a store that understands and embraces their needs,” echoed Marshal Cohen, chief analyst at market research firm NPD Group Inc. “So what if the color is a slightly different shade of blue! At this price I can buy five of them!”

  They’re not public yet, but this is one to watch.

• Merry Everything!!
  Eddy Elfenbein, December 24th, 2005 at 6:03 pm

  
  I want to thank all my readers for their support. Have a wonderful holiday season and a happy, healthy and profitable New Year!
  – Eddy

• Patrick Byrne Goes Off His Meds
  Eddy Elfenbein, December 24th, 2005 at 4:20 pm

  Jeff Matthews nails Patrick Byrne, the loopy CEO of Overstock.com. (Via The Stalwart).

• Morgan Keegan Downgrades Bed Bath & Beyond
  Eddy Elfenbein, December 24th, 2005 at 3:57 pm

  Here’s the bearish case from Morgan Keegan:

  We are lowering our rating to Underperform from Market Perform based on valuation and risks to near-term results. We are raising our fiscal year 2006 earnings-per-share estimate to $2.08, predominantly driven by the company’s announcement that it will complete its $400 million share repurchase in fiscal 2006.
  Bed Bath & Beyond issued another predictable earnings report last night, although sales growth on a total and comparable basis missed our estimates. Bed Bath & Beyond reported third-quarter earnings per share of 45 cents, in line with our estimate and the company’s guidance issued Sept. 21.
  Citing an “extreme” promotional environment, the company reiterated fiscal year 2005 earnings-per-share guidance of $1.89, in line with our estimate but two pennies below the current consensus estimate. The company issued initial guidance for fiscal year 2006, with the underlying assumptions producing earnings per share in the range of $2.08 to $2.10. The guidance is above our prior fiscal year 2006 earnings-per-share estimate of $2.03 but lower than the consensus estimate of $2.19.
  The company will lap a tougher comparison in its February quarter, with same-store sales growing 5.1% in fourth quarter of 2004. We believe the discounters in general, and Wal-Mart in particular, could hurt Bed Bath & Beyond’s fourth-quarter results with their aggressive focus on a broader home assortment this holiday season.
  Our discount cash flow (DCF) model indicates a fair value for Bed Bath & Beyond shares of $30. We expect the stock to trade down significantly in today’s trading session, but believe there will still be substantial downside potential. The stock closed at 20x our 2006 earnings-per-share estimate of $2.08.

• WSJ on Gazprom
  Eddy Elfenbein, December 24th, 2005 at 3:52 pm

  
  Here’s a sample of the Journal‘s look at Gazprom, the Russian natural gas giant.

  MOSCOW — Russian President Vladimir Putin signed a long-awaited decree removing all curbs on foreign ownership of shares of OAO Gazprom, the world’s biggest natural-gas company, a move that will turn it into one of the world’s leading emerging-market stocks.
  This event, which investors have been anticipating for years, provided a fitting climax to a bullish year that has seen Russia’s main share index soar by 80%, beating most other markets. Under the old rules, foreigners could buy only London-listed American depositary shares in the state-run gas monopoly. Those traded at a premium to shares traded in Moscow, and foreign ownership of Gazprom was capped at 20%.
  The changes will eliminate long-held concerns of Western money managers, making Gazprom a must-have stock for big funds. It is unclear how much this will affect Gazprom’s price, as anticipation of Mr. Putin’s decree was factored into the stock.
  “This is a landmark event for the whole of our capital market,” said Dmitry Medvedev, Gazprom chairman and Russia’s deputy prime minister. Share liberalization will attract “world-class foreign investors” into the company and allow Gazprom to join “the elite club of the biggest companies” as measured by capitalization, he said.

  Yesterday was a fairly quiet day on Wall Street. The S&P 500 gained 0.04% and our Buy List rose 0.10%. Our best stocks were CACI (CAI), Frontier Airlines (FRNT) and Brown & Brown (BRO). Even the long weekend, the market will be closed on Monday.

• Blue Line Jumps 11 Percent
  Eddy Elfenbein, December 23rd, 2005 at 12:46 pm

  
  OK, it’s Friday. This is for my all technician friends. Here’s the big story courtesy of The Onion:

  Blue Line Jumps 11 Percent
  NEW YORK–Excitement swept the financial world Monday, when a blue line jumped more than 11 percent, passing four black horizontal lines as it rose from 367.22 to 408.85.
  It was the biggest single-day gain for a blue line since 1994.
  “Even if you extend the blue line’s big white box back many vertical lines, you won’t find a comparably large jump,” said Milton Vogel, a senior analyst with Merrill Lynch. “That line just kept going up, up, up.”
  The blue line, which had been sluggish ever since the red line started pointing down in April, began its rebound with an impressively pointy 7 percent rise Friday. By noon Monday, it had crossed the second horizontal line from the top for the first time since December.
  Ecstatic investors are comparing the blue line to the left side of a very tall, steep blue mountain.
  “It’s a really steep line,” said Larry Danziger, a San Jose, CA, day trader and golf enthusiast. “I stand to make a tremendous amount of money as a result of the steepness of this line.”
  “It looks like the line’s about to shoot out of the box,” said Boston-area investor Michael Lupert, enjoying a glass of white zinfandel on the bow of his 30-foot yacht. “I’m definitely going to keep a close eye on this line as it continues to move to the right.”
  Despite such bullishness, some financial observers are urging caution.
  “Given this line’s long history of jaggedness, we really should take a wait-and-see approach,” Fortune magazine associate editor Charles Reames said. “And even if this important line continues its upward pointiness, we must remember that there are other shapes, colors, numbers, and lines to consider when judging the health of the economy.”
  Reames also warned that the upward angle of the line, which most analysts agreed was approximately 80 degrees, may have been exaggerated by the way the graph was drawn.
  “The stuff that’s written along the bottom of the graph is all squished together, making the line look a lot more impressive than it is,” Reames said. “Had that same stuff been spread out more, the line would have looked a lot less steep.”
  Still, most U.S. investors found it hard to contain their enthusiasm as the blue line shot up sharply, outperforming the green line, the yellow line, and even the thriving dotted purple line.
  “Typically, the blue line rises or falls no more than 10 in a day,” said Beverly Hills plastic surgeon Dr. Jeffrey Gruber. “But Monday, it went up an astonishing 41–and during a time when we have a big red slice showing on our pie charts, no less. We live in a truly remarkable time.”

  I’m long blue. In other news, Brown & Brown (BRO) is at a new high and Frontier (FRNT) is back over $9.

• BW on How to Build Your Own Hedge Fund
  Eddy Elfenbein, December 23rd, 2005 at 8:26 am

  It isn’t that hard.

• Private Equity Strikes Again
  Eddy Elfenbein, December 23rd, 2005 at 7:19 am

  This time, they’ve come for Tommy Hilfiger (TOM).

• WSJ: Foreign Firms Bailing Out
  Eddy Elfenbein, December 23rd, 2005 at 6:08 am

  This morning’s WSJ has a disturbing story on C1. It looks like more foreign-based stocks are being scared off by Sarbanes-Oxley:

  This month, the Securities and Exchange Commission opened the door for foreign companies to bail out of their U.S. stock listings. Next year, several fed-up companies will indeed bolt.
  More worrisome is that fewer firms want to list here to begin with. That’s bad news for individual investors looking to buy the best foreign companies: In the future, they may find their options getting narrower.
  At the center of all this: Sarbanes-Oxley. That 2002 legislation put tougher accounting rules on U.S. companies — and applies to many foreign ones. Basically, any foreign firm with more than 300 U.S. shareholders must use these rules.
  Foreign companies lobbied to be excused from the rules, and the SEC apparently has relented. It has proposed allowing foreign companies to deregister with the SEC if they meet certain thresholds, such as U.S. investors owning no more than 5% of the stock.
  Not that many foreign firms should exit if this proposal, as expected, becomes official. Cathleen McLaughlin, who represents several foreign companies as a partner at Allen & Overy in New York, expects only a couple dozen companies to take the SEC up on its offer.
  Those that do, she says, will be primarily lesser-known Latin American and Asian companies that don’t have active trading in their U.S. shares anyway. In the 1990s, many companies sought the prestige associated with a Big Board or Nasdaq listing. But for some, the trouble and costs of complying with Sarbanes-Oxley now outweigh the benefits of a U.S. share.
  Yet if popular names like Nokia and Toyota Motor are sure to stay, the tougher U.S. regulations may be deterring the latest crop of foreign companies from listing here in the first place. Many are turning instead to the rival London Stock Exchange, where regulatory burdens are considered less onerous. In 2000, foreign companies raised $16.9 billion in new listings in New York and London, with the U.S. claiming 89% of that total, Citigroup says. This year, London grabbed 88% of that business.
  Most companies opting for the U.K. also have entered the U.S. private-placement market, which lets them sell a dollar-denominated U.S. security without being accountable to Sarbanes-Oxley or SEC regulations. More bad news for the little guy: These unlisted shares are available only to professional fund managers.

• JetBlue, You’re On Notice
  Eddy Elfenbein, December 23rd, 2005 at 4:40 am

  OK, I’m making an official announcement:
  JetBlue (JBLU), you’re on notice.
  You got that? You’re on frickin notice pal.
  After today’s close, the stock will split 3-for-2 for the third time in three years! Yet the stock has done jack. Um, aren’t splits for stocks that have gone (what’s the word)…up?
  Sorry JetBlue, this just can’t be allowed. I’m writing a letter to someone.
  I don’t get why they’re splitting so much. At least do us the favor of doing something first. Like make a lot of money. It’s as if they’re trying to make their investors feel richer via a press release. “Hey, we have more crap at a crappier price! BFF!”
  Since the last 3-for-2 split, the stock is down about 33%. So the market kinda did its own split. JBLU is basically where it was when it went public three-and-a-half years ago. If you remember, this was the fad stock of Oh Three.
  Yes, I know. I’m beginning to sound like Napoleon Dynamite (freakin’ idiot!) but this could only happen on Planet Wall Street. This is why America thinks we’re insane people who have all gone crazy. It’s a bad sign when management pays more attention to the share price than to its business. Just worry about business, and the stock will follow. It ain’t magic.
  Stock splits do nothing for a stock. You’re no poorer or richer due to a split. It’s that simple. Companies say they split to increase liquidity. Ok, fine. You can do that by a 4-for-1 split like every decade or so. Not one a year.
  If JetBlue was going to do three 3-for-2’s, why didn’t they just go public at a lower price? It’s not like investment bankers have spines. But this makes no sense. They’re not fooling anyone. You hear me JetBlue, you’re on notice!
  If you do one more split, you’re no longer on notice. Then…you’ll be dead to me.
  You hear me, JetBlue! Dead!!