Was that the bottom?

I wrote on March 11th that I had thought we had hit bottom. On March 10th, the S&P established a double-bottom, and the market rallied off of that bottom on the 11th.

One week ago, the market did break through that bottom, as news of Bear Stearn's fire-sale bailout rocked the markets. However, markets recovered from that shock, and actually ended last week positively.

Today, the major indexes are up multiple percent on news of the higher-priced BSC buyout, CIT financing, better-than-expected home sales, and just good feelings. One can almost feel the fear slowly trickling out of the market - and if they don't want to go by feelings, the VIX, often called the "fear indicator" (but actually a measure of options volitility) has fallen from an intra-day high of 35 last Monday to 25 today.

Thankfully, the pathetic-performing financial in my portfolio have begun to pick up some lost ground - Countrywide has moved from $4/share last Monday to over $6 today. (As I love pointing out, Countrywide is in the process of being purchased by Bank of America - at this time, that deal would close at $7.80 based on BAC's share price). I added 30% more CFC at $4.44, and I sold off that block at $6.20 today. I'm holding the rest until the merger close or, at least, the arbitrage gap starts to narrow.

I also bought CIT at $9.90 in the pre-market today as I thought they'd announce good news about financial backing; they didn't even have to announce anything to be up about $3 today. I have an itch to sell now and take my nice daily gain, but I think I'll use my seemingly well-timed entry as a basis for a long-term investment. After all, CIT has fallen from about $60/share, and until recently, its business was not tainted by the subprime fiasco.

I missed out on Freddie and Fannie - I thought were good vehicles to play a housing/economic recovery because of slightly less danger due to their quasi-government status. Both were trading near (or below) $20 last Monday; both are above $30 today.

One of the most interesting aspects about this rally is the depth of companies participating in it. It may be short covering (which I never regard as a bad thing), but many general market laggards are performing, or even outperforming, the overall indexes as they rally. For example, Buffalo Wild Wings, a company that I regard as undervalued, continued to slide and suffer as the markets fell in January, February, and March. However, starting last Tuesday, BWLD reversed the trend, and share price has increased from $20 to $26 in the past four sessions. (Note: The increase is partly due to an analyst upgrade). Crocs and eBay, two more laggards, are both up 15% percent in the last week.


I'm not 100% certain that the market won't face pressure in the coming days, weeks, or months, but the combination of technicals (double bottom, higher lows), data (housing numbers, Fed opening discount window, BSC bailout) and mentality may just mean that the bottom is in.



"I trade with TradeKing: $4.95 stock and options trades, plus lots of tools. It's simply the best way to invest. Click here to find out more."

Doubling up on CROX; NTRI stock losing weight

Crocs released earnings after the bell, and even though estimates came in largely in-line, the stock tanked after hours. Margins were down (partially due to having to air-mail goods to retailers after the Mammoth sold out during the holiday season), but profits came in right around the street's consensus.

CROX reaffirmed the full-year forecast, which is for $2.70 EPS. After-hours, the stock was trading around $27.

CROX grew revenues 99% in Q407... and will continue to grow (at a slower pace) throughout 2008, especially as they release their clothing line.

It's unfathomable to buy such growth potential at a 10 P/E. When the earnings originally came out, I thought that these might have been the earnings that firmed investor confidence, as BWLD's were last week. That wasn't the case.

Once again, just like BWLD, I got in a little to early (in the mid-30s for CROX). I doubled my position today at $28. But investors are discounting another cheap growth stock too heavily, and CROX should take off soon.

Also, after the bell, Nutrisystem reported earnings and guidance that didn't please the street. The stock has lost about 70% of its value since the summer, when it traded around $70/share. It ended the after hours session at $18, after trading below $17 for a period of time.

The bad NTRI news? 2008's earnings look likely to decrease from 2007's numbers, and negative earnings growth certainly isn't a good thing. Nutrisystem blames this on difficult macroeconomic conditions, which is a convenient albeit reasonable excuse.

It should not be ignored that NTRI's lowered projections of $130 in earnings this year; based on the 35 million outstanding shares, that breaks down to nearly $4 per share. Considering NTRI is now an $18/stock, the P/E is like five.

The downward trend is certainly concerning, but short-term problems and fears about future expansion have punished NTRI too much. I'm going to look into some LEAPS for NTRI - maybe just January 09's, because with such a low multiple, I don't think NTRI can stay depressed for too long.

"I trade with TradeKing: $4.95 stock and options trades, plus lots of tools. It's simply the best way to invest. Click here to find out more.

A Slew of Stocks - Tech, Banks, Coal, and More.

Well, let's hope I don't, but last time I wrote about the prospects of a strong opening/daily performance, the market didn't perform positively.

However, once again, futures are up after a positive sessions in Europe (on Monday) and in Asia (on Tuesday).

I'm hoping for a couple pops on stocks I personally own; over the weekend, both Microsoft and Crocs received positive writeups in Barron's. (I own MSFT calls and CROX shares). Also, I'm long VIX puts and the VIX price has been falling as the market makes small (1%) positive moves. Also, in another post, someone reported that bank shares were up overseas; I'm hoping that bodes well for my CFC stock.

To substantiate this post with something other than personal investments most of you don't care about, I'll write about a bearish idea I have (and have executed in a paper account).

Coal stocks were sitting at 52-week highs before a downgrade by Goldman on Friday. On Wednesday, I discussed a potential trade in shorting coal with my father (who is a registered investment adviser). He discouraged the idea, so I didn't do anything immediately in any real-money account, but in my paper account at UpDown.com (more on that site later) I shorted both CNX (Consol Energy) and KOL (the new coal ETF).

My reasoning is thus: extraordinary circumstances have caused a temporary bubble in coal demand. Snowstorms in China and floods in Australia caused production to cease from many mines, and a combination of legitimate supply concerns and speculative fears drove the price of coal skyward.

There's one problem with coal getting this expensive this fast - there's so much of it in the ground. Unlike oil, which might have 50-100 years left, or natural gas, with a slightly longer timeframe, it's common knowledge that there are hundreds, if not thousands, of years of coal consumption left in the ground.

According to simple economic theory, what happens when the price of a good increases? Producer surplus increases, and producers become even more motivated to bring goods to market. As they record huge profits (as they may in the coming quarters), coal producers will surely ramp up production.

Then, when the snow melts, the waters retreat, and the coal dust settles, there will be more production capacity than there will be demand.

Big coal companies like CNX are trading at valuations of about 50-70x TTM earnings and 15x forward earnings (which take into account higher prices). But if prices fall (or even stabilize), these valuations will be unjustifiable. Look at big oil/gas companies - Exxon, Chevron, Conoco, Marathon, BP, and most others trade at multiples of less than 10.

So when the coal companies tanked Friday, I made nice 5% one-day returns on my newly-shorted shares. If only I would have done it with real money.

***Note: UpDown.com is a site I recently discovered. I have been using it for less than a month (so have not been eligible for payment), but here's how it works: you beat the S&P or write highly-recommended reviews, and you get paid. If anyone is interested in joining, just message me.

"I trade with TradeKing: $4.95 stock and options trades, plus lots of tools. It's simply the best way to invest. Click here to find out more."

Chipotle falls, Toyota undervalued

A few months ago I wrote about the ridiculous valuation differences between Chipotle Mexican Grill (CMG) and Buffalo Wild Wings (BWLD). I chose to buy BWLD, for which I have paid dearly; up until these last few days, an investment in Chipotle would paid off handsomely.

However, over the past few sessions, CMG has shed over 15%, with an awful 10% loss today. These huge losses haven't even been due to earnings warnings or other bad news; simple negative market sentiment has sent investors running.



I'm disappointed I missed out on $20 of negative downside; over the past few weeks, I have been eying CMG as a potential short. (Well, I use puts, because there's less downside potential, greater upside potential, and less initial investment).

Last quarter, Chipotle reported fair earnings, with good growth in new stores. However, there were some cautious indicators, like slowing or stagnant same-stores sales growth.

Due to a slowing economy, higher prices of raw materials, and a continuation of the trend seen last quarter, I expect CMG to post lackluster earnings when it reports within the next month or so. I was waiting to purchase puts so I could get February contracts with less of a time-value premium, but unfortunately, I missed out on a lot of downside movement.

I don't know what CMG will do in the short term. If the market pops 2% on Monday, CMG may bounce up 5% along with it. If market sentiment continues to be negative, CMG may still slide. Either way, my six-month forecast remains very negative. CROX lost half of its value after a mildly disappointing quarter; CMG could be no different later this month.

Meanwhile, I don't understand why Toyota continues to slide sideways and downward. Just today, Toyota surpassed Ford in U.S. auto sales, and it will likely surpass GM in worldwide global sales this year. Toyota is a huge company that's still growing, in established markets (like the US) and emerging markets (China, etc.). Sure, a weakening economy may hurt Toyota, but I think that it's time for shares to start appreciating in value.






"I trade with TradeKing: $4.95 stock and options trades, plus lots of tools. It's simply the best way to invest. Click here to find out more.

Is Crocs biting back?

I loathed Crocs (CROX) during this summer and fall, as trendy investors engaged in a feedeing frenzy, inflating the price of the quirky shoemaker. I did not take joy in the stock's plunge, but I felt as if it was justified.

However, CROX is now an attractive prospect. After a massive, painful decline from $75 to $35, CROX had returned to earth from it's lofty orbit. At that point, it was trading at a forward P/E of about 15 - cheap for such a high-growth stock.

Investing in high-growth niche stocks like CROX can be tricky, or even disastrous. (I briefly owned Heely's, a similar, trendy shoemaker, selling eventually for a small loss.) Once a former high-flyer like CROX falls, it's often hard to establish a floor.

But, I decided to take a risk. I liked CROX at $35; I thought it was significantly oversold.






So when it was in the high $30's, I bought December 42.5 calls. I just closed the position today.

11/30/07

Bought

CQJ LV Call Crocs Inc $42.50 Exp 12/22/07

$1.10

12/07/07

Sold

CQJ LV Call Crocs Inc $42.50 Exp 12/22/07

$4.20

The stock certainly recovered nicely, bouncing up about $4, or 10% in one week.

After selling my $42.5 calls, I deciced to reinitiate an options position, and purchased December $47.5 calls for $1.40/contract.

This investment, in my opinion, is attractive for two reasons; fundimentals, and momentum.

As I previously discussed, CROX was ridiculously overvalued at $75. When they announced earnings, which weren't even bad, the expectations of speculators were crushed, and as Jim Cramer shouted "SELL" on Mad Money, investors dumped the stock. (That wasn't a direct shot at Jim - though he had been pumping up the stock on its way up, a panicked investor that sold on his advice would have not endured the full losses). CROX fell over $25 the first day after earnings, and continued its downward slide for another two weeks before stabalizing.

Now, CROX has an attractive long-term vaulation. The shoes are still selling well, as consumers snatch up the trendy, colorful, albeit unusual clogs. During the last conference call, the company still called for strong growth, just not strong enough to justify a 40 forward P/E. CROX is also releasing clothing to compliment their product line, using lightweight material; if the clothing is as revolutionary (or intreuging) as the shoes, sales could become supercharged.

I usually wouldn't touch a stock if I didn't believe its long term prospects were respectable, so CROX passes that test. However, the real reason why I'm playing with some options is because CROX is (or was) a hot momentum stock. Now that CROX is well off its low (and up in 4 out of the last 5 sessions), individual investors who had sworn off CROX might be attempted to jump back in.

I don't think a valuation of $75/share is reasonable, but CROX still definitely has room to run. The average prediction of next year's earnings is $2.69/share. The current forward P/E is just 17, which I'd consider pretty low for a company expected to grow 40% next year and at 26% over the next 5 years.

I'd start to find CROX a little overpriced with a forward P/E in the mid-20's. However, the stock still has lots of ground to cover before then. With a forward P/E of 20, CROX would trade around $54/share. Assuming a forward multiple of 22.5, that would make CROX a $60 stock.

My December options will expire too soon to enjoy all of CROX's potential price increase. But, even as a value-oriented longer-term investor, I think CROX is an attractive buy-and-hold at this current valuation. CROX may be cold-blooded now, but I think it's going to bask in the sun.

Heelys Revisited - Analysis

I published an analysis of Heelys (HLYS) as my blog was in its infancy... about one month ago now.

Over the past month, Heelys' shares did little of anyting - they teetered around in the low $8's, trading up or down a dime every day.

However, on Friday, Heely's shares jumped after they released their Spring 2008 lineup of shoes.

The stock was up 16%, a huge jump compared to the basically-flat performance over the past two months. I don't expect the stock to hold all of it's gains from Friday simply because it was such a dramatic pop on non-major news.

However, I still find Heely's as attractive as I did a month ago. Heres are some data (provided by Yahoo! finance) that demonstrates some of the reasons why I still love Heelys:

Share Statistics
Average Volume (3 month)3:	606,689
Average Volume (10 day)3:	496,433
Shares Outstanding6:	27.06M
Float:	17.31M
% Held by Insiders4:	33.52%
% Held by Institutions4:	43.70%
Shares Short (as of 25-Sep-07)3:	2.35M
Short Ratio (as of 25-Sep-07)3:	9.6
Short % of Float (as of 25-Sep-07)3:	28.90%
Shares Short (prior month)3:	2.43M

The statistic that really screams "POSSIBLE BIG GAIN" to me is the percentage of short shares - a whopping 29% of the float. It would take 5 full trading days to completely cover the short positions.

That, in a nutshell, is why Heelys could be an explosive pick. It could very well do nothing for a long, long time, but when there is substantial positive news about Heelys, a major short squeeze will occur and the price will skyrocket.

After the terrible earnings in the summer that sent the stock plummeting, I think that virtually all bad news has been priced in. Lower orders and estimates are already incorporated into the share price; I think that the current quarter could turn out well since the estimates were revised lower.

All it will take to sent Heelys to $15 is good news and the subsequent short squeeze - say that they beat earnings, or Journeys doubles their order - a natural rise to $11 or $12 may occur, and at that point, many investors who shorted the stock on the way down may scramble to cover positions, increasing the price even further.

Will this happen tomorrow, next week, or next month? Don't count on it. I bought my Heelys position around $8.7, and I wouldn't be surprised if it stays priced between $8-$10 for a substantial period of time. However, since Heelys has virtually no long-term debt or obligations, I think the company will regain footing after the retailer's current inventory clears out, and then it will be all good things for the company.

Lastly, another thing to always consider is the possibility of a buyout. Heely's current market cap is about $250 million, which is very doable for Nike (market cap - $31 billion), Adidas, or even Crocs ($5+ billion). I'm not necessarily predicting a buyout, but for a big apparel company, acquiring a growing, popular niche brand like Heelys could be a very attractive investment.