Why won't my puts do the right thing?
I am pretty good at figuring out which companies are growing and which are falling apart.
But you wouldn't know that looking at my options. Right now, only TRID and CPWM are making money (I expect CPWM to reverse its recent rise and return to its drop). The rest are not even close.
I am caught in the wierd zone of being right about the companies but wrong about the stock. Here's what I mean
CFFN - They are up almost 20% since I went short. I won the battle but lost the war. They are indeed showing much worse performance. After I went short, the released earning sthat were terrible and worse than expected: down 30% YoY and the missed expectations by 10%. The stock has a 53 P/E and a PEG of 8. They are valued at $3B even though they have revenues of only $500M per year. They have a debt load of $7.4B and assets of $8.2B. They are a dogmeat company that is incredibly overpriced. Nevertheless, the stock rises because it is manipulated.
BMHC - They are expected to show a 30% drop in earnings. I think it will be much worse, especially given the worsening guidance of all homebuilders. And the assets are falling in value - like lumber. And forward guidance will probably also be reduced. Meanwhile, they are not budging. Rumors of a takeover have become long in the tooth, but they seem to keep the stock price afloat. A $4 drop (11%) puts us even
ETH - Another dog. Revenue and earnings are dropping, their competitors are reporting worse than expected results (LA Z Boy http://yahoo.reuters.com/news/articlehybrid.aspx?storyID=urn:newsml:reuters.com:20061012:MTFH03551_2006-10-12_22-14-38_N12375368&type=comktNews&rpc=44). Stanley furniture reported tonight that they missed expectations by 7% and that margins were weakening: profit fell 48% and sales down 11%. They are doing everything they can to keep sales up. My guess is ETH is as well (I predicted this when we bought the ETH puts). Indeed margins dropped from 23% to 19%.
ETH will be in a similar mess.
A $7 drop (20%) puts us even, which is not unreasonable - LAZBOY dropped 11% in one day when they released earnings. They are firing workers, the entire industry is struggling.
JNPR - Talk about another dog. They reported tonite and the results were weak, as expected. They reported a 5% revenue growth, inline with analysts. (Yeah, a P/E of 30 for a company driving 5% in sales.) But at what cost? Earnings are supposedly inline with expectations, which is a 5% drop. So a drop in earnings after a rise in sales - that spells margin pressure. Their margins are falling in order to get the sale. But the stock did not collapse, even with guidance for next quarter to be weak.
They will soon see a P/E of 20 - landing them back at $12. Will it be in time for the puts? Unknown. A $4 drop (25%) puts us even
NVL - They report that profits will be much lower than expected. The CEO is fired. Their bonds are demoted to junk status. Fitch says that their debt is likely to default. The S&P and others rate them a Sell. Their business is not improving. And they go up 10%!!!! They have a 27 P/E: Alcoa's is 11 and ALcoa is growing more. What does it take?? I smell stock price manipulation....again. A $7 drop (25%) gets us back to even.
RSH - Somebody help me. RSH is losing market share and is adrift. Sales are expected to be down 6% (they will be lower because of store closings). Earnings will drop 50%. Again, I think they will miss because of sluggish phone sales. The reason that they are doing well is that the CEO is a takeover artist with a record for cleaning up and selling companies. he must be spinning a good story for Wall Street, because I think he will not have much success here. A $4 drop or 20% puts us even.
WHR - They make dryers, washers, dishwashers and so on. They are basically closing all US based manufacturing and moving to Mexico and Germany (for Europe). That is smart and will help their margins...eventually. The big reason I went short wsa the same as ETH - housing slowdown and growth slowdown. Indeed, WHR has admitted to a flattening of unit shipments. So they hope to raise prices 10%. Expectations are for a 34% growth in sales and a 15% drop in earnings. This one needs to fall $20 or 25% to get even.
Eventually, these dogs wil lhave their day of reckoning, but the problem is that our puts expire possibly before then.
But you wouldn't know that looking at my options. Right now, only TRID and CPWM are making money (I expect CPWM to reverse its recent rise and return to its drop). The rest are not even close.
I am caught in the wierd zone of being right about the companies but wrong about the stock. Here's what I mean
CFFN - They are up almost 20% since I went short. I won the battle but lost the war. They are indeed showing much worse performance. After I went short, the released earning sthat were terrible and worse than expected: down 30% YoY and the missed expectations by 10%. The stock has a 53 P/E and a PEG of 8. They are valued at $3B even though they have revenues of only $500M per year. They have a debt load of $7.4B and assets of $8.2B. They are a dogmeat company that is incredibly overpriced. Nevertheless, the stock rises because it is manipulated.
BMHC - They are expected to show a 30% drop in earnings. I think it will be much worse, especially given the worsening guidance of all homebuilders. And the assets are falling in value - like lumber. And forward guidance will probably also be reduced. Meanwhile, they are not budging. Rumors of a takeover have become long in the tooth, but they seem to keep the stock price afloat. A $4 drop (11%) puts us even
ETH - Another dog. Revenue and earnings are dropping, their competitors are reporting worse than expected results (LA Z Boy http://yahoo.reuters.com/news/articlehybrid.aspx?storyID=urn:newsml:reuters.com:20061012:MTFH03551_2006-10-12_22-14-38_N12375368&type=comktNews&rpc=44). Stanley furniture reported tonight that they missed expectations by 7% and that margins were weakening: profit fell 48% and sales down 11%. They are doing everything they can to keep sales up. My guess is ETH is as well (I predicted this when we bought the ETH puts). Indeed margins dropped from 23% to 19%.
ETH will be in a similar mess.
A $7 drop (20%) puts us even, which is not unreasonable - LAZBOY dropped 11% in one day when they released earnings. They are firing workers, the entire industry is struggling.
JNPR - Talk about another dog. They reported tonite and the results were weak, as expected. They reported a 5% revenue growth, inline with analysts. (Yeah, a P/E of 30 for a company driving 5% in sales.) But at what cost? Earnings are supposedly inline with expectations, which is a 5% drop. So a drop in earnings after a rise in sales - that spells margin pressure. Their margins are falling in order to get the sale. But the stock did not collapse, even with guidance for next quarter to be weak.
They will soon see a P/E of 20 - landing them back at $12. Will it be in time for the puts? Unknown. A $4 drop (25%) puts us even
NVL - They report that profits will be much lower than expected. The CEO is fired. Their bonds are demoted to junk status. Fitch says that their debt is likely to default. The S&P and others rate them a Sell. Their business is not improving. And they go up 10%!!!! They have a 27 P/E: Alcoa's is 11 and ALcoa is growing more. What does it take?? I smell stock price manipulation....again. A $7 drop (25%) gets us back to even.
RSH - Somebody help me. RSH is losing market share and is adrift. Sales are expected to be down 6% (they will be lower because of store closings). Earnings will drop 50%. Again, I think they will miss because of sluggish phone sales. The reason that they are doing well is that the CEO is a takeover artist with a record for cleaning up and selling companies. he must be spinning a good story for Wall Street, because I think he will not have much success here. A $4 drop or 20% puts us even.
WHR - They make dryers, washers, dishwashers and so on. They are basically closing all US based manufacturing and moving to Mexico and Germany (for Europe). That is smart and will help their margins...eventually. The big reason I went short wsa the same as ETH - housing slowdown and growth slowdown. Indeed, WHR has admitted to a flattening of unit shipments. So they hope to raise prices 10%. Expectations are for a 34% growth in sales and a 15% drop in earnings. This one needs to fall $20 or 25% to get even.
Eventually, these dogs wil lhave their day of reckoning, but the problem is that our puts expire possibly before then.
posted by Andrew at
8:56 PM
0 Comments:
Post a Comment
Subscribe to Post Comments [Atom]
<< Home