Maybe a Pine Tree

Ahknaten -- GOOG selling stock? This is not NEWs!

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On Oct. 14th I complained about GOOG, on Nov. 3rd I complained about GOOG. Today, I read something in the WSJ this morning that annoyed me. Someone made a short recommendation on GOOG because of the insider selling, but it makes me wonder, why didn't you say that before?! If insider selling is what you specialize in, GOOG was an obvious short. It has had some of the highest insider selling out there. Yet, perhaps you did not have the guts to say 'short', because many play the momentum game. What do I mean by the momentum game? Well.... they wait for a stock to drop and then they say 'sell', or they wait for a stock to go up and then they say, 'buy'. Why did that make the news? Good grief. Sad isn't it? I've disliked this stock for a very long time, the insider selling was obvious.

On Oct. 14 '07, I had written about how the F-Score was highlighted in an article about GOOG. It featured the research by Dechow, Ge, Larson and Sloan

GOOG was trading at $637. Now it's down -29% since then.

On Nov. 3 '07, I had written this about GOOG:

"So perhaps I'm a bit critical of things, but in this world I think most are afraid to voice a "contrarian" view to the masses. I don't understand GOOG and it has been going up. I don't understand AAPL and it has been going up. Perhaps, the stock market is like the drama in the "real world", and timing Britney Spear's comeback is as hard as timing a price correction for GOOG or AAPL?"

GOOG was trading at $711, now it's down -37% since then

Would you like to know some other stocks that have insider selling? How about CRM, SAPE, SNCR, GOOG and MORN. Short them as well.

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Ahknaten -- GOOG take a Sauna

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Let me share a story.

I'm from a Finnish background. If you know Finn, translate the name of blog and you might figure out my name. As a Finn, I love Finnish saunas and I love hot saunas, so I was anxiously awaiting my arrival at the 'Le Spa Scandinave' near Mt. Tremblant in Quebec. They were advertising a 'Finnish Sauna' and so we made a visit. I had asked if I could throw water in the sauna and they told me, 'yes'. So, I walked into the 'Finnish Sauna' (labeled on the door), and people were resting and falling asleep in it. Half an hour later, I walked in again and the same people were still sleeping and relaxing in it, but hardly any water had been thrown. Being a Finn, I needed some 'loyly' mixed with a bit of 'sisu' and threw half a bucket on the stove. Suddenly 30 people ran out, swearing at me in French. They called management and they came and yelled at me for throwing so much water. I explained that Finns like steam, but they insulted me by telling me there was a 'Norwegian steam room' nearby (not a sauna). More insulting occurred, and they asked, 'Have you ever been in a sauna'? Good grief. I wonder if they have ever had a real sauna? They really need some Finnish guidance before they advertise one. My experience sucked, I won't visit that establishment again, unless they figure out what a Finnish sauna really is.

I had a completely opposite experience at another spa location in Quebec. The place was called 'Spa Finlandais' (translation - Finnish Spa), and I was nervous, as I was worried they would butcher the Finnish name. They too had a 'Finnish Sauna', but this one was much better. Instead of having this aversion to steam, they would have an automatic dispersion of water on the 'kiuas' (stove), and someone would come in every so often and pour water on the rocks. Beautiful. Bravo. This was much closer to a true 'Finnish Sauna' and the 'Soumalainen' in me was not insulted by management.

So why am I telling you this story? Well, the Finnish bias in me hates one place and loves the other place. If they were stocks and I used that bias, I would short 'Le Spa Scandinave', and go long on 'Spa Finlandais'. Finns looking for an authentic 'sauna' should avoid one and aim for the other.

With stocks, people do the same sort of thing at times. They find a story and they stick with that story, and that becomes the story as to why they like/dislike a stock. It's not a bad thing, but it's important not to avoid the other stories as well. Fortunately, we have blogs and a wide variety of opinions, and it is best to compile that information and really make your own opinion. With the sauna example above, there may very well be good qualities to the spa I disliked (maybe I would like the other 'Spa Scadinaves' at the other locations, but one important 'factor' seems to have changed my opinion.

Google. Wow, how do I finally talk about Google after all that?
There are certainly people who like the company, and you hear of analysts who pick crazy target prices. I had heard $1200 from one. I hope that's a typo with one extra '0', after a DCF valuation, I come up with $222. GOOG has a LOT of insider selling - that fact alone made me question the company, but, I've had this concern for a long time now. The PE seems still a bit high for me, and although they have growth, I think that growth has been decreasing. If the growth decreases and it is no longer that desirable as a growth stock, will people like the valuation story. I don't think so? Sometimes people criticize me for looking at insider selling, they give arguments like "but the directors need to diversify", "it doesn't mean anything'. I would disagree, and if you'd like to find a great example of insider buying/selling, pull up Factset and look at a chart of MWY with the insider selling. MWY is remarkable. This is a stock that I hated, but it kept going up, and I could not figure out why, until I saw the massive amounts of insider buying. The insiders timed it beautifully. They sold when it was high, they bought when it was low and they kept repeating that. So now you know my thoughts on Google, but just like the sauna story above, realize that I too have biases and that doesn't always paint the complete picture of a stock. It's best if you try to do your own research and convince yourself why you like/dislike a stock. You won't get it right all the time (neither will I), but it's a lot of fun, and you and I will learn a few things along the way.

As for the sauna -- Check out Spa Finlandais, avoid the other, and short Google.

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Ahknaten -- Manage This -- WLP, CI, AET, HUM and HNT

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This week, managed health care stocks were hit as some companies announced cuts in their forecasts; but, if you're looking for some health care stocks, this might be a good time to buy. Let me try to explain. I'm bearish on health, but I'm bullish on managed health care. In my diversified portfolio on Marketocracy (click here), I have 0% in health care. In my virtual diversified portfolio for this blog (click here), I have 0% in health care. In my health care portfolio (click here), I have 52% in managed health care. So far, those bets have paid off for me. Since the health care sector has underperformed the S&P 500, that underweighting helped my diversified portfolio; however, the overweighting on managed health care, has helped the health portfolio. The health portfolio has had an incredible 130% return since inception, as compared to the XLV health spider's return of 18%. Moreover, the portfolio has achieved that return without relying much on volatile bio-tech stocks. In fact, I have a short-only health fund (click here), that has recorded a return of 83% vs. the S&P 500 in the past two years, and about 78% of that is in bio-tech companies. NOTE - BE CAREFUL OF 'HOT - HIGH GROWTH - HYPE - MOMENTUM' TYPE STOCKS! Not every biotech company you read in a blog or elsewhere will solve whatever problem they're working on.

So, I am bearish on health, but if you must have some health stocks, I'd recommend picking up some managed health care companies. Why? Well, many of them have a low PE, price/book, price/cash flow, accruals, short interest, F-Score, along with some growth and momentum. So the value, growth, and quality stories are still fairly good in my opinion. They're not the best stocks out there, but they're alright for a health portfolio. In fact, I've held WLP, AET, HUM, HNT, and CI for many years now, and I've certainly enjoyed the returns. Since my first purchase, WLP is up 20%, AET is up 147%, HUM is up 71%, HNT is up 9% and CI is up 104%, and I still hold some of those in my health portfolio (I need to sell some as I have a stop loss in place, but I might pick them up again in the next week or so).

Would you like a few price targets? (note - some of my target prices are lower than current prices).

WLP (target = $68)
AET (target = $36)
HUM (target = $44)
HNT (target = $34)
CI (target = $32)

Short health, short bio-tech and long on managed health.

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Ahknaten -- Bye Bye BIDU

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Short BIDU. I get a price target of $69.

There are some folks who take BIDU's PE and compare it to GOOG's PE, and by doing a bit of simple math (438*3.2=1402) they figure GOOG should be worth about $1400 and then they blog about it. If you take the PE's and reverse the process and lower BIDU's PE, then you get a price target of about $84. Personally, I hate these simple PE calculations, but it gives you a picture how people come up with some crazy simple price targets.

I don't see a 'smart money story' as BIDU has a high short interest.
I don't see a 'value story' as it has a high price/book, PE, price/cash flow, and I price it out as $69.
I don't see a 'growth story' (even though it has high growth), because that high growth cannot continue forever (and more than likely high estimates are based on high ROE terminal estimates).
I don't see a 'quality story' as the accruals are high.

So, I don't see a convincing story for BIDU that would make me feel comfortable pitching it for a fund that deals with smart money, value, growth, or quality.

Bye bye BIDU. Pick something else.

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Ahknaten - My Mid-Term Report Card (a critique of my blogs)

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Grade: B+
You can give me whatever grade you like.
I thought it would be fun to look back at some of the blogs I had written. Last week, Cramer told his viewers to buy BSC. We know what happened to that stock, and if you missed it, check out The Daily Show for a nice funny recap. I'm not sure if it's fair to criticize the Cramer's in this world? Each blogger makes mistakes, and our estimates aren't always right. We're here to provide an opinion, entertain, create a discussion, but we're not always right. I just hope that I'm right more than I'm wrong. So, here is a recap of the themes in my blogs and the results so far.

Strategy Lab Players
Ahknaten - Me versus Them - Who will win the Strategy Lab?
Grade: C+

I made this prediction:

1st - High IQ -- Diversified
2nd - Guru Investor - Quant Guy
3rd - All Star Team - Respected Guru
4th - CAPS Commando - Boring Indexer
5th - The Amateur - Creative
6th - Dog Pound - Story Driven

Here are the rankings, so far:

1st - High IQ
2nd - The Amateur (+3)
3rd - CAPS Commando (+1)
4th - Guru Investor (-2)
5th - Dog Pound (+1)
6th - All Star Team (-3)

Congrats Amateur and High IQ, you're doing great! So far, my prediction with High IQ, CAPS and Dog Pound is fairly good. I'm quite disheartened that All Star and Guru Investor are not doing better than I expected. I'm not surprised that Dog Pound is close to the bottom and CAPS is close to the center. Although All Star isn't doing well at the moment, he had some great timing with his journal entry, "Why the Banks Won't Bounce Right Bank", as it mentioned BSC before the monumental collapse. My quant fund isn't doing great, so I might be in the same boat as Guru Investor. CAPS Commander is staying near the center of the pack, but his portfolio reminds me of a boring index fund. I'm quite impressed with The Amateur and his picks. He might have an advantage as he is picking short candidates and the others might not pick shorts for a variety of reasons. They're too afraid? Not allowed? Bad press (people like to hear 'buy', instead of 'sell')? They're pitching stocks they own?
If we went long on the 'best' stocks from that blog, and 'short' on the worst stocks, here are the results:

Long: GOOG -8% CEL 3% CVD -5% VLO -19% E -7% NKE 8%
Average -5%
Short: BWLD -1% HYTM -53% LUFK 3% GROW -18% BEZ -9% SBCF -1%
Average -13%
HEDGE SPREAD = 8%, S&P 500 = -4%

Momentum Stocks

In academics, many are against technical analysis, but there is some evidence of momentum strategies. In particular, momentum strategies that work off of earnings (increase in earnings, surprises, and "post earnings announcement drift (PEAD)") have worked historically. I like 'momentum', but I dislike 'technical analyses'. I'm quite sarcastic at blogs and "hot" stocks that people like, simply because they like the charts. I'm not a fan of technical analysis. There are some out there who are quite talented at technical work (like wildmap), and although I disagree with technical analysis, I will listen to it. Just because it doesn't work for me, doesn't mean that it works for someone else. So, I love bashing momentum/technical stocks. Here are the results for the momentum blogs:

Ahknaten Likes AAPL Tables -- Apple Part Two
Grade: C+
Short: Average return = -18%, S&P 500 -13%
CROX -69%, JNPR -30%, GMST -30%, AMZN -18%, NOV -27%, FCX -19%, RIO 3%, RIMM 16%, VIP 9%

Master-ahknaten-Card and Momentum
Grade: A+
Ken Kam made a nice call on MA, as it went up 49%. Congrats.
I was wrong on that one, but my short picks rocked.
Short: Average return = -39%, S&P 500 -13%
MA 49% CROX -74% CRNT -64% BPHX -58% FTK -67% SNCR -56% JRJC -59% NWK -56% CEA -50% ZNH -50% EXM -52% CORT -38% ACH -47% APPY -41% BCSI -43% CFSG -38% ASTI -52% DRYS -37% TBSI -30% HEM 17% CALM 37%

Momentum DRYS -- Ahknaten & Momentum
Grade: D
Short: Average return = -20%, S&P 500 = -15%
LCAPA -88% UAUA -52% DISH -41% EBAY -27% GOOG -31% AMZN -23% CELG -23% CSCO -26% AAPL -20% PCAR -16% SCHW -14% ORCL -12% BIIB -12% AAUK -21% RIMM -10% MITSY -13% NTRS -4% ESRX 4% GILD 13% HCBK 16%

Ahknaten - SIRI ously Losing My Patience and Other 'Hot' Stocks
Grade: D-
Short: Average return = -5%, S&P 500 = 0%
CROX -27% ICON -18% NTRI -2% SIRI 2% NCMI 0% VMED -7% WYNN 1% RHD -30% LULU 3% CKXE 1% GRMN 2% GME 18% TRYB -9% XMSR 1% PENN -9%

Other Stock Picks

NOKIA and Saunas
Grade: A
Long: NOK -1%, S&P -7%

Ahknaten UFPT
Grade: A+
Long: UFPT 24%, S&P -9%

Ahknaten doesn't like AAPL
Grade: D+
Short: AAPL -4% (down -33% from high since then)
Long: GIB -8% CSC -25% XRX -10% NOK -13% CHT -29% TMX 1%
Average Long: -14%
S&P -10%, XLK -14%

Ahknaten and NVO
Grade: A+
Long: NVO 11%, S&P 500 -15%

Ahknaten: Contrarians, Apple and Britney Spears
Grade: A
Short: AAPL -29% GOOG -39%, S&P 500 = -12%

Ahknaten -- Don't Give up on Financials, Think Insurance
Grade: D+
Long: Average return = -10%, S&P500 -10%, XLF -13%
ACE 2% AEG -28% AFG -13% AHL -2% AIZ -2% DFG -22% HIG -19% INDM -7% NAVG -9% PNX -5% PROS 21% RLI -12% SLF -21% SUAI -32% TRH -10% TRV -6% VR -8%

Ahknaten -- Ya Microsoft!
Grade: A
Short: YHOO -5%, S&P 500 -1%

Ahknaten -- YHOO DRYS
Grade: D-
Long: ACLI -14% ALEX -8% DAC -13% DRYS -26% -- Average = -15%
Short: RLOG -8% SBLK -4% ULTR -45% -- Average = -19%
S&P 500 -1%

Ahknaten - "C" me blog; "C" me run
Grade: A
Long: KIE (insurance) -1%
Short: C -12%
S&P 500 -2%

Ahknaten -- Crocodile Weight Loss (CROX and NTRI)
Grade: A+
Short: NTRI -9% CROX -28%
S&P 500 -4%

Ahknaten -- GOOG selling stock? This is not NEWs!
Grade: A-
Short: Average return = -1%, S&P 500 = 0%
CRM -5% SAPE 0% SNCR 5% GOOG -3% MORN -3%

Ahknaten -- Manage This -- WLP, CI, AET, HUM and HNT
Grade: C-
Long: Average Return = -1%
WLP 1% AET -3% HUM 12% HNT -14% CI 0%
XLV -1%

Ahknaten -- Bye Bye BIDU (thanks Viking Warrior - I guess the title is not original?)
Grade: A (I would give myself an A+, but the title is overused)
Short: BIDU -22%
S&P 500 3%

Comments: 4

Luster Lost and Dull Gold (Gold I Have None)

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I'm not an economist, but I like to short gold and I think it is worth about $616. I compare gold to the gold stocks, and those stocks seem quite overvalued to me. This might not be the 'correct' method (if there even is a correct method?) at analyzing gold, but I'll use it as my method. So, when I make an aggregate valuation on gold stocks, I think they're overvalued by 33%, and applying that valuation to gold, I get a price target of $616.

Would you like some potential gold short candidates? Take a look at the list I update at Earnings Torpedo. On the list, 7% of all stocks listed are gold and 57% of the material stocks are gold stocks. So I would avoid NG, RGLD, SA, UXG, VGZ and WGW. In my 'IAK' virtual short fund: NG, VGZ, TRE, RGLD, MNG and SA are being shorted; and within my 'LTCM' fund (yes, I have a sense of humor), VGZ and RGLD are shorted.

I love Canada, and I'm sad to see some Canadian stocks on there. Sorry, short Canadian gold. If you short Canadian gold and you realize that the Canadian dollar is tied to oil/gold/materials in Canada, then you might want to ask yourself - what about the Canadian currency? Short that as well? It's possible that the currency went up too far and too fast. Just recently the Canadian dollar had its largest one day fall in 46 years. It was an incredible drop. But before you think I'm shorting the Canadian $$, I'm actually optimistic about the Canadian economy. Unlike the USA, they have a surplus, and they actually have debates about how they might have too much of a surplus. That sounds like a much nicer debate than worrying about living in a deficit.

Speaking of Canadians, I'm surprised that the Prime Minister is suing the opposing party for speaking against him on some issue. (He thinks that they are slandering him, they think they're telling the truth). This particular issue puzzles me - shouldn't opposing parties be allowed to accuse the other? Imagine if Clinton, Obama, McCain sued each other every time the other made a statement that they thought wasn't entirely true. Sad, isn't it? Is that hurtful to democracy? I'm not sure. I'm just puzzled by it.

Goldman has the word Gold in it; I think it's worth $167, short it. You probably know my opinion on financials. Go long on insurance, short the rest. It's a gutsy move, but I like taking contrarian picks. Actually, for my financial fund I like about 50 stocks (not all are in the fund), but not one of those belongs to the investment banking sub-industry.

Like I said before, I'm not an economist, but I'll give my opinion - I just wish others had some 'sisu' (Finnish word) in their blood and made an opinion as well.

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Ahknaten -- Queasy LDK

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LDK is a strange company to analyze. In the past year the stock has fluctuated from $20 to $77 and the volatility alone has been quite remarkable. When I made a valuation model in eVal, I found a price target for LDK of $44, but that assumed that the company could keep growing at least 38% for each of the next 5 years. Is that reasonable? If I dropped the sales growth to 10% in the 3rd year, I got a price target of $22. Is that reasonable? In some manner the company has a low PE and an alright price/book, but from another angle, I get concerned with the price/cash flow and high accruals. The accruals play a role in providing a high f-score to the LDK stock. In my virtual funds, I have gone neither long, nor short on it. I really think there are much better information technology/semiconductor plays out there. Note -- I haven't even mentioned the word 'solar' yet. This past week at the University of Dayton they had a RISE conference, and quite a few economists/strategists were bullish about alternative energy - and although some like the solar story, I'm not confident yet at entering that particular boat. This stock makes me feel a bit queasy, and for that reason, I'm going to say 'short' to LDK. Pick something else, this stock seems more like a 'gamble' to me.

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