Maybe a Pine Tree

Balmer falls short, You should too!

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I heard Yahoo rejected the Microsoft offer, the stock dropped, and I found myself strangely smiling.

Back in Feb. '08, I mentioned in this blog:

"Yahoo is overpriced. Sell. Microsoft is paying too much."

And then in this blog , I gave a small prediction.

"Here's my weird prediction: I think YHOO stock will fall in the next year. I think it's overvalued. Sell. Now, once YHOO falls, then I think there is a high probability that MSFT might make another offer on the company, but this time the stock will be trading at a price lower than $19, and the offer will be at least $5 billion less than the other offer they made."

So far so good, but do I feel bad for the shareholders? Sure.

Is Yahoo trying to do what is in the best interest of the shareholders? Just for fun, go to Yahoo Finance, and look at the Yahoo insider transactions on Yahoo from the past two years. It feels rather odd using Yahoo to look at itself, but let's do it for some fun. Do you see the selling? It sure looks like a director, another director, a former COO, the EVP, a President, and even a 'Chief Yahoo' has sold some shares. I'm afraid to count how much a Chief Yahoo sold. Yet, although they are exercising options and selling some stuff, the Microsoft deal wasn't good for the shareholders? Wow. Shareholders do pay attention - here's a fun exercise, in the next couple months watch to see if there is any insider selling and by whom, and ask yourself, if they're selling, shouldn't you be too?

Why do some analysts make downgrades AFTER the announcement? Do they lack the guts to go out on a limb and make a prediction, or are they just trying to 'play it safe' and keep their jobs? After all, it seems a bit easier to go along with the flow and issue predictions AFTER the event. Perhaps in 6-12 months Yahoo will get another offer from MSFT at a lower price and I'll love to see how many analysts upgrade the stock on that news, AFTER the announcement. At least I had the guts to downgrade it BEFORE the announcement.

YHOO, I think you should have taken the offer - sorry, short YHOO.

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Captain Hook says avoid Crocs!

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This week CROX announced earnings, and folks got excited and the stock went up 10%, well guess what? I still dislike it and I'll still short this footwear company that seems to act like a volatile biotech stock.

Now, not to toot my own prediction, but back in this article,

I had complained about CROX and made this statement:

"Avoid this one, pick up a copy of Backpacker magazine, read the reviews on hiking shoes and buy something else instead"

And so I got a subscription to Backpacker magazine, I'm reading their Gear Guide and I'm going to buy something other than CROX for my hikes this year. By doing so, I have avoided the -55% drop that the stock has experienced since that time. I don't always get these stock predictions right, but when it happens to go in my favor - it sure feels good.

Now, once again I'll look at the value, quality, smart money and growth stories for CROX.

Value
CROX has a low (nice?) PE and price/book, but it also has high (poor?) price/cash flows. With updated earnings into my model, I get a price target of $13. With the poor price/cash flow, it's a 'short', but the other variables tell me that it's a 'Long'.

Quality
CROX has high (poor?) accruals and a high F-score. Short.

Smart Money
Poor high short interest, but the insiders haven't sold recently. Now, for those who don't think that insider selling counts, what do you think of the insider selling that happened last year when the stock was at $40, $50, $60? Does it make you pause and wonder: Did the insiders know something? Did they think it was overpriced? Should you have thought the same? Short, but if the insiders buy more and the short interest declines, then it's a 'Long'.

Growth
They have very high sales growth, and in my opinion that can't continue. Short.

My Opinion

I think CROX could appeal to some value investors hoping for a turn-around story, it could also appeal to those growth investors that love fluctuating high growth rates. But, with high price/cash flows, high accruals, a high F-score, high short interest, and "abnormal" growth rates, I'm going to pass on CROX and stay 'Short'.

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How to Pick Stocks -- Quick Thoughts on HOV, BGP and VLO

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I'm not one to spin stories on stocks, as there are many blogs, newsletters, research reports and forums dedicated to doing just that. When deciding how to pick stocks, I like to ask myself this question:

What type of funds would I pitch this stock to?
Would it appeal to 'smart money', 'value', 'growth', or 'quality' funds?

If I think it would appeal to a variety of funds, then that gives me a 'long' opinion. If I think it wouldn't appeal to a variety of funds, then that gives a 'short' opinion. It's not terribly hard to create this opinion. If a stock would appeal to a variety of funds, then that creates a strong 'catalyst' for the stock, as many funds might be interested in increasing their exposure of that stock. It's a fairly simple story to understand.

So, here are three quick stock opinions.

HOV
Smart money funds - HOV has a high short interest. SHORT.
Value funds - HOV has a low price/book, poor PE, low price/cash flow. Mixed result = SHORT.
Growth funds - HOV has a low sales growth. SHORT.
Quality funds - HOV has a low F-Score and low accruals. LONG.
My valuation - $6. SHORT.
My Opinion = Short HOV, but it might appeal to 'quality' funds.

BGP

Smart money funds - BGP has a high short interest. SHORT.
Value funds - BGP has a low price/book, poor PE, low price/cash flow. Mixed result = SHORT.
Growth funds - BGP has a low sales growth. SHORT.
Quality funds - BGP has a low F-Score and low accruals. LONG.
My valuation - $6. SHORT.
My Opinion = Short BGP, but it might appeal to 'quality' funds.

VLO

Smart money funds - VLO has low short interest. LONG.
Value funds - VLO has a low price/book, low PE, low price/cash flow. LONG.
Growth funds - VLO has positive sales growth. LONG.
Quality funds - VLO has a high F-Score and low accruals. Mixed result = SHORT.
My valuation - $60. LONG.
My Opinion = Long VLO, but 'quality' funds may want to avoid it.

Short HOV and BGP. Buy VLO.

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