The Daily Kill Sheet Picking Off Profits One Stock At A Time!

September 27, 2012

Daily Kill Sheet For September 27, 2012

Filed under: Uncategorized — Administrator @ 9:46 am

Take a look at Genesco (GCO, $66.01) for a trade. The stock has been sinking like a stone since reporting earnings on August 29th, even though they had beat the consensus estimate by $0.23 a share and raised their full-year guidance. The stock price is now sitting just below their 200-day moving average and I expect the stock to bounce driven by the company’s strong results and the stock’s low valuation.

While it is hard to say what caused the stock to sell off after its second-quarter earnings release, I suspect that it may have something to do with the company’s updated earnings guidance. Indeed, although the company beat the consensus by $0.23, management only raised the low end of its full-year guidance by $0.18, and the high-end by $0.18 implying that fourth-quarter estimates were too high. For the record, the company guided full-year EPS to a range of $4.88 – $5.00 while its previous guidance was a range of $4.70 – $4.82. The consensus stood at $4.82. While it is disappointing that the company guided conservatively, management has a history of low-ball guidance and then beating handily. In fact, over the past four quarters the company has beaten the consensus by over $0.20 in each quarter.

Sales were strong in the second quarter and I expect this trend to continue in the back to school season. Same-store sales were up across all of the brands: The Lids Sports Group’s comparable store sales increased by 2%, the Journeys Group increased by 6%, and Johnston & Murphy Retail increased by 2%.  The Schuh Group’s comparable store sales increased by 9% in the month of July, the first month it was eligible for inclusion in the company’s comparable store numbers. Looking ahead, back to school and the upcoming holiday season should help to drive sales. 

With that said, GCO shares are trading at 13.2x the consensus estimate and only 11.8x the forward consensus. The outlook for next year is for about 12% EPS growth, but note that the sell side has been under estimating the company’s growth all year. With that said, a P/E of 16x would put the stock at about $80. My near-term price target is $75 implying a 13.6% return to my target. Given the stock has just broken through its 200-day, it will likely take the stock a couple of weeks to break back through the new resistance.  Patience should lead to good gains here, however.

September 14, 2012

Daily Kill Sheet For September 14, 2012

Filed under: Uncategorized — Administrator @ 9:28 am

Take a look at Agco Corp. (AGCO, $45.85) for a trade. The stock broke through its 200-day moving average yesterday and we are going to try and use this technical strength, coupled with a seasonal trading bias to ride the stock to the $49 – $50 area for a 7% – 9% gain to my target range.

In general, agricultural equipment sales are tied to farmer incomes. Generally, farmers are paid after the harvest, or in the fourth quarter for many of the grain crops. Often times to avoid a big tax bite in the current year, farmers will put orders in for new equipment. Given we have had a drought this year, agricultural prices have shot higher and those farmers who have grain will be flush with cash. Meanwhile, farmers whose crops have been hurt by the drought will likely be receiving crop insurance payments. These farmers have a choice of either taking the insurance money in the current year or deferring part or all of the payment into the next year for tax purposes. I suspect that many of the farmers will take the insurance this year and look to buy new equipment that help to increase their yields. As I mentioned earlier, crop prices remain elevated, and most farmers will want to take advantage of the high prices by planting more next year. (This will likely lead to lower crop prices going forward as all of the farmers making similar decisions will lead to a bumper crop next year, but that is a discussion for another day!)

All said, I expect the traditional seasonal bias in AGCO shares will hold true this year and work with the recent push through the 200-day moving average to give us a nice speculative gain in a short time frame. With that said, my near-term target is $49.

September 12, 2012

Position Update – HUN

Filed under: Uncategorized — Administrator @ 3:52 pm

I am taking profits in my 8/11/11 investment in Huntsman Corp. (HUN, $15.55) for a 17.9% gain. The stock has been very volatile over the past year and has shown both a profit and a loss for us over our 1-year hold period. While the stock price has been volatile, HUN’s earnings have been consistently strong over our holding period beating the consensus estimate for four consecutive quarters. While I expect this trend to continue over the next couple of quarters, the stock is just finishing up a strong run and the shares have a tendency to be volatile. With that said, we will take profits here and look for a better entry point on a pullback. 

Daily Kill Sheet For September 12, 2012

Filed under: Uncategorized — Administrator @ 10:07 am

Take a look at Dunkin Brands (DNKN, $30.50) for a short trade. The stock broke through and closed above its 200-day moving average yesterday and is sitting just below its 50-day moving average ($31.09). While a break through this level could push the stock up towards $33, I suspect the stock is more likely to reverse here and retest its previous lows.

My thinking here is twofold. First, the company recently completed a secondary stock offering for a selling stockholder where they bought back 15 million shares, or about 12% of the outstanding shares. The deal had two positives for the stock. First, it took away the overhang due to the large position being liquidated by the selling shareholder. Secondly, by buying back 12% of the shares the company should see EPS accretion to the tune of $0.04 –  $0.06. These positives are already in the share price, however, and has led to the stock’s solid performance over the past couple of weeks. Looking ahead, the company faces hard back-half comps due to last year’s introduction of Dunkin K-cups. If comp store sales were to slow (last quarter’s growth of 4% came in below Street expectations of 5% comps), investors could sell the shares off hard as they did last quarter. At 20.3x the forward estimate, the valuation leaves little room for disappointment.

On a technical basis, The Williams %R ration is currently signaling that the shares are near-term overbought. Given the stock just recently broke through its 200-day moving average, any pullback in the shares would likely take the stock price back through the 200-day, giving further fuel to the sell off. At this point my near-term price target is $28, implying a return of 8.9% to my target. Given the largely technical basis for this trade, I will keep a hard stop on this position at $31.25, just above the stock’s 50-day moving average.

September 10, 2012

Daily Kill Sheet For September 10, 2012 – Position Update

Filed under: Uncategorized — Administrator @ 11:06 am

I am taking profits in my 8/21 trading buy on Green Mountain Coffee Roasters (GMCR, $30.00) for a 23.2% gain. The stock has had a great run since breaking through strong resistance at $25 a share and is up strongly since that time.  Although the stock price has been volatile, GMCR has beaten the return of the S&P; 500 by 2190 basis points over our holding period. The stock has just hit a new heavy resistance area and will likely need some time to work its way through it. Thus, we will take profits here and look for a better entry point. 

September 7, 2012

Daily Kill Sheet For September 7, 2012 – Position Update

Filed under: Uncategorized — Administrator @ 10:31 am

I am taking profits in my 2/28 trading buy on Office Max (OMX, $6.41) for a 9.9% gain. The stock has had a great run since reporting earnings on August 3rd, and is up about 24.3% since that time. Over our holding period, the stock has twice beaten the consensus estimate making a string of four quarters where the company has beaten the consensus estimate. Concerns about the U.S. economy and about key competitor Staples has held the stock price down, though. Still, although the stock price has been volatile, OMX has beaten the return of the S&P; 500 by 350 basis points over our holding period. Two key technical indicators, the Williams %R ratio and the TRIX ratio are now pointing towards the stock being near-term over bought here. Given the volatility of the stock price in the recent past, I am going to take profits now, and look for a better entry price later. All said, take a market-beating 9.9% gain here.

September 6, 2012

Daily Kill Sheet Position Update (FINL, $23.50)

Filed under: Uncategorized — Administrator @ 11:38 am

I am taking profits in my 8/6 trading buy on Finish Line Inc (FINL, $23.50) for a 10.6% gain. The stock has hit my near-term price target and is now sitting just below a strong technical resistance area. We bought the stock as it just broke through its 200-day moving average. Our near-term catalyst was that the company had just reported better-than-expected earnings and that investor expectations for more of the same would push the stock higher. That has now happened, thus its time to take profits.

Daily Kill Sheet For September 6, 2012

Filed under: Uncategorized — Administrator @ 11:26 am

Take a look at Nordstrom’s (JWN, $57.07) for a trade. JWN is a high-end retailer in the Broadlines apparel space. The stock has outperformed the S&P; 500 on a six-month, 1-year, 2-year, 5-year and 10-year basis  and I expect this trend of out performance to continue over the long term. At the current quotation Nordstrom shares are fairly valued based off of its historical valuation ranges. However, as we enter the second half of the year and the holiday shopping season approaches, investors typically roll out their earnings estimate horizons to incorporate the next year and begin to value the stock on those estimates. All said, I believe the shares have about 25% – 35% upside from the current quote in the coming six to 12 months.
Operations Versus Peers

One peek at the table below should be enough to convince you that Nordstrom’s is the best in class operator in the broadlines space. The company gets top marks for return on equity, operating margin and five-year sales growth rate. Moreover, while the company’s five-year earnings growth rate appears to be second to Saks Inc. in the chart below, Saks’ “growth” rate is misleading given that it is actually earnings recovery. I like to define earnings “growth” as any EPS that is generated above the previous peak’s level. This is not the case for Sak’s whose most recent earnings peak was in 1999 when the company reported EPS of $1.64 a share. This year’s consensus estimate of $0.48 a share is nowhere near that peak, thus all we’ve actually seen in the past five years is a tepid recovery from the losses the company experienced in 2008 and 2009. Meanwhile, Nordstrom’s earnings growth is real, since 2011’s EPS easily surpassed their last peak earnings level from 2007 by over 12%.  

Valuation Versus Peers
Given the strength in the company’s operating metrics, it’s no surprise that JWN holds a premium valuation to the group. Although three stocks have higher P/Es than JWN, this is due more to the recovering nature of their earnings coming off a low base than due to the value of the actual earnings stream. Below is a table showing different valuation criteria for the stock over the past twenty-four years.
In Summary

Nordstrom shares can be bought at the current quotation. Ideally, I prefer to buy stocks for the portfolio when they are trading within the green bands of my 12-month trading range. Since that is not always possible, I find that selling puts on the shares is a good way to generate income while waiting for a better entry price. To that end, I recommend selling the October $52.50 puts for $0.68. If JWN’s share price stays above $52.50 over the next 43 days, then you would pocket $0.68 a share. This would generate a 5.9% gain. If the stock were to fall below $52.50, then you would be putted the stock at $52.50 and your cost for the position would be $51.82…$52.50 – the $0.68 you received for selling the puts. Remember that each put represents 100 shares, thus if your usual position would normally be 1000 shares, then you should only sell 10 puts. I will track both the shares and the puts $57.07 for the shares and $0.68 for the October $52.50 puts.
Looking ahead, JWN faces its toughest comp of the year in September (+10.7%) followed by easier comps in October and November, +5.4% and +5.6%, respectively.I expect positive comps in all three periods. The company presented at the Goldman retail conference earlier this week and did not mention anything specifically about the September comp. Management stated that “the company is responding well to newness – a trend they expect will continue.

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