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RVB's Market Musings

What began here as an avenue to interact and learn has far exceeded those goals.

If you are a prospective employer, please consider this site a place where you can see my passion for investing...

Tuesday, January 31, 2006

To my lovely girlfriend....

Who reminded me that I'm sounding OLD on my blog. I've changed the description to remind ME that I'm supposed to be ME on here - which means to crack dumb jokes from time to time and still learn and pick stocks. At least she thinks I'm funny, whether or not that's the case in reality I have no idea...

Sidenote again: ANOTHER PetMed Express commercial on TV while typing a blog post...second time in a week - and this is an entirely different channel...it's like God is simply saying - buy it, buy it now.

That brings me to an interesting question...how good are the higher powers at investing, anyways? I'll bet even they can't project revenues out 10 years....

I'm looking - but not finding much

In an attempt to be bolder, I am looking for a play. But - I got nuttin'. Google's getting hammered tonight, but who knows what will happen with that. I can't find much out there these days, so be patient if I don't blog much. Hopefully you all are finding about the same - not much - because if you are that means I'm lazy!!

The RVB Interview

Today on GannonOnInvesting, I am featured in the 20 questions spot that Mr. Gannon has been running. I am honored to have been asked to do this, so when he asked, I immediately replied yes. Check out the interview here!

Sunday, January 29, 2006

And the winner of SB XL is...

If I had to bet the Super Bowl, I would take Seattle plus the 4. That's the way to bet it.

Even better - they'll win the game outright! That's my pick and I'm sticking to it. Their D-Line is the underrated reason they're so good and they will once again show it on Sunday.

I opt to be bolder...

My posts on BEBE were a little bit weak, in my opinion. I mentioned it on the 16th, and then after earnings I bragged about it. Of course, if the position had gone against me, would I have brought it up? I am not so sure. I surely didn't bring up my NTRI short idea - although I never entered it because it failed my criteria.

With all that in mind, I am going to do my best to be bolder in my picks and predictions. I will certainly be wrong sometimes, but that's part of the game.

My next post will be my first pick.

Friday, January 27, 2006

Quick read on Chipotle

I agree with Rich Munarriz from The Motley Fool.

Read his article on the chipotle IPO. What's your price?

More on BEBE

Sometimes, it's amazing to note how self-fulfilling technical analysis can be. Bebe is sticking right around it's 200 day exponential moving average. I s'pose it could be a coincidence.

Anyhow, I believe that today's numbers put BEBE's multiple around a more fair 24...maybe a bit pricey given retail's glim outlook, but probably fair. Tough to initiate a new position based on today's news in my opinion. At any rate, I reduced the position size a bit, but will hold the remainder. Yeah, I know, it's a trade - but when the market offers up a 25% gain in 10 days, it's a gift.


Sometimes the market kind of throws you a sweet fat pitch across the plate. BEBE just happened to be coming. The market's expectations for BEBE had gotten pounded simply too low. This happens alot - a company posts "lousy" earnings, then analysts pull down their expectations. It's hard not to, especially with a company like BEBE that has had earnings quality issues in the past. We all manage our expectations - when I'm going to see an Owen Wilson or Vince Vaughn movie, I know that it probably isn't an oscar winner. Yet the little gem called "Wedding Crashers" far exceeded my expectations. Who doesn't do this stuff? Anyhow, BEBE is having a nice day today, up 17% as a result of beating the beaten down expectations. I had mistakenly mentioned on the 16th of January that BEBE was an interesting candidate for a value investment. Deep value, it maybe wasn't, I should have said it was a Growth-at-a-Reasonable-Price (GARP) play.

For a company growing at 35% per year, BEBE was trading at only 19 times earnings - a multiple lower than Guess, Charlotte Russell, Aeropostale, and Abercrombie and Fitch. Yet, that 35% growth rate is higher than all of those stores...of course with the somewhat questionable earnings quality issues of the past (and I think they're kind of in the rearview mirror), maybe that 19x was sort of justified...just not at that growth rate, in this author's opinion.

Of course, I'm not here to say that sometimes I don't swing at that fat pitch and miss it anyways. The point is, you still gotta swing the bat!

Thursday, January 26, 2006

Another rally should be coming...

This morning, while taking a break from reading my "Valuation" Book, I thought to check today's Investor's Business Daily for the most recent Investors Intelligence Survey numbers. This is what I like to see: the percentage of bullish advisors is declining - and we haven't seen a big decline. If that holds, then we should at least see a re-rally to retest the old highs. One of the things that I believe strongly is that "reversals retest themselves". So, watch for a probable retest, and expect it to be weak (maybe it won't even get to the old high), which could be an opportunity to raise cash or move to more defensive positions. Don't be surprised to see 1245 on the S&P before this happens, but don't be surprised for it to just happen anyways before that happens...

Tuesday, January 24, 2006

Another Case for Small Caps

For my Motivation and Leadership class, I had to read the first chapter of Competitive Advantage Through People by Jeffrey Pfeffer. This chapter helps explain yet another reason that small caps, on average, will outperform the broad market.

Though written in the early 90's, I think the chapter brings up an interesting point. Mr. Pfeffer describes how companies that do well in the markets over periods of time do not succeed for long because of economies of scale (Walmart), technological advantages (Microsoft), or ability to obtain financing (I can't find an example of this anymore). To understand where I am going, I realize that both Microsoft and Walmart still have their competitive advantages - but their stock prices haven't been nearly as successful as, say, Hansen Natural (HANS) or NVR (NVR) in the past 10 years.

One big competitive advantage that small caps have - motivation. People are more easily motivated because small cap stocks tend to be new, and entreprenuerial. Sure, many of these small companies don't do well, but the ones that do are tremendous. The ones that succeed, like Southwest Airlines (LUV) did from 1972 to 1992 - the book says that LUV was the best performing US stock in those 20 years -because the founders were motivated to succeed and inspired its employees to follow the cause.

So now my question is with all of the academic papers that use standard deviation as a measure of risk...I will ask if perhaps small cap companies with great leaders are LESS risky than most of the stocks out there in the market? Consider Panera Bread Co, or Starbucks. I'm sure that when Wal-mart was first growing that its employees were much more movtivated, on average, than they are now. Now it's just so hard to be...it's too big.

Food for thought.

As an aside, a commercial for PetMed Express just flew by me on the TV. Go PETS!

Monday, January 23, 2006

What I'm watching

Still love PETS, even at 17. I think it's worth something in the upper 20's. One could say it's PE is high, but remember, it only has 50 cents in earnings...and it's growing at 20+%...

I'm also liking Cognizant Technology (CTSH) which is just hanging out in a basing pattern. I think they're better than Infosys (INFY), and WiPro (WIT) (No offense to the former GM of my former business)... Cognizant is the American-based IT outsourcing company. Offshoring IT is NOT a fad, it's a necessity and will be probably for my lifetime. Sometimes things just make rational sense. Sales grew 53% last year, which ain't bad for a 6 billion market cap! If CTSH grows at just 15% for 10 years, it will make over 4 dollars per share in 2015. At a 30 PE it would be worth 125 bucks a share. It trades at 49. And I gotta think they'll grow faster than 15%!!! That's REALLY conservative.

These two investments seem like long-haul winners to me...

Saturday, January 21, 2006

Valuation for the ehem, lazy

I had one hell of a night last night. But, I am safe and my car miraculously did not get hit while stopped on the side of the highway in a snowstorm. So I decided that since I could not make it to the elegant retirement party for a former colleague that I would head off for a burger and beer with a fellow classmate.

He has some experience in investments, and he pointed me to a website that one can use to just kind of do a valuation "sniff test" if you will. The site is called Value Pro. I'm sure that there are zillions of y'all out there who've known about the site for years. But, I hadn't heard of it before but I have to say that it provides a nice starting point for valuing stocks.

One of my favorite stocks is a little company called PetMed Express (PETS). They have a unique business - they sell pet prescriptions over the phone. It's brilliant - because if you know how people are in this country with pets, you'll note that pet healthcare costs are hugely on the rise. In the old days - we simply replaced our pets. Not any more. And if PetMed's growth story proves anything, that would be it. Anyhow, with a 20% growth rate, Value Pro's DCF says that PETS is worth almost 18 bucks. Monday mornings earnings report is worth checking out...

Thursday, January 19, 2006

Reading Mat'l

Check out Trader Tim's latest post and the Bear Case 3-part article he links to. Worth a read.

Wednesday, January 18, 2006

The Job Hunt

Deviating from market ideas today, I am actively seeking a summer internship in Equity Research or Portfolio Management. Proprietary trading would be cool, too, but realistically it would be tough to get that gig for a summer.

It's been slow going, but it appears that firms are now beginning to interview candidates. This is good since I at least now have one semester of Finance and Accounting behind me.

I've got my resume in order, a list of people to contact, and a list of online applications to fill out. Fortunately we meet potential employers each week during our seminar class.

I also have a 17 page analyst report on Panera Bread (PNRA) almost completed. I have a few issues to fix, and then it should be ready to show potential employers. In case you're wondering, I have a "buy" rating on the stock, with a conservative price target of $74...but I will add that the reward-to-risk ratio isn't quite favorable at its $63.70 share price. The highest analyst target is $87 and I think the lowest is $63, but I haven't spent much time reading their reports -> that's not my job.

Tuesday, January 17, 2006

What are those burritos worth?

I did some quick number calculating on Chipotle:

Let's assume that for 10 years, the company grows at 20%. (It is growing much faster than that right now but it won't forever)

EPS in their S-1 (online) was $1.27.

So, at 20% growth in 10 years, $1.27 is $7.86 per share in earnings. Let's say that Chipotle has a multiple of 30 at that time. That would put the share price at 235.91 in 10 years.

Wow, you say! Wait a minute, we need to move that value into today's money. What discount rate should we use? I say let's use 15% - a little higher than the expected S&P return, so this is conservative and makes the number less risky.

So, using 15% as the rate, we get a share price of 58.31. So, the burritos are worth 58 bucks a share if you want to earn 15% per year if Chipotle grows at 20% per year for 10 years, and the multiple is 30 in 10 years (Starbucks still has a 50 multiple and Panera has a 40 multiple).

So, 58 bucks? Maybe. This is a bit of a fly-by-the-seat-of-my-pants calculation, so you don't want to pay that much. But, in the $20's, if Chipotle gets there, the stock could be a steal. Rest assured I'm watching the IPO!

Monday, January 16, 2006

Classes Start Tomorrow

Tomorrow classes fire up again, and I am ready for them to begin. I have at least finished a rough draft of my Equity Research report on Panera Bread Company (PNRA) and it looks like it's in decent shape.

My classes are finally moving towards finance. Out of 16 credits this semester, 9 of them are finance. I have a Valuation class, an Investment Theory class, and a Corporate Finance course.

Mostly, I am looking forward to really learning valuation concepts because, although we did spend time on valuation last semester, we really were simply introduced to valuation.

My valuation model is also the weakest part of my research report. I wouldn't buy the stock as an investment today, because, even though the stock should go this year, the reward-to-risk ratio is too low for me.

Stocks on my watchlist:
Nutrisystem NTRI - I'm looking at this for a possible technical trade setup / overvalued short play.

Forward Industries FORD - The company went from 2005 highflier to getting a huge haircut and now looks like it could be a value play

Hershey HSY - This stock has what I think is a good technical trade setup

Fresh Del Monte FBP - Also has a possible good technical trade setup

Bebe stores BEBE - Another highflier that got a big haircut. The company has no debt, new management, and is continually increasing earnings. Quality of earnings is somewhat in question, but given the recent growth I believe that under 20x earnings bebe is a good value play

Bluenile.com NILE - Blue Nile runs an online high-end jewelry store. It focuses on educating the consumer, which I find to be of great value and the store seems to be in position to grow for my lifetime, since my generation LOVES buying online and probably will until we die. The stock is pricey, but not as pricey as it was 8 weeks ago.

Wednesday, January 11, 2006

Why do we hold onto old tech stocks?

First, I have to confess that Cramer's show has prompted this blog. I do watch the show when I can because I find it entertaining. I don't necessarily always agree with him, but that's a different topic.

About 90 seconds ago, someone asked him about Cisco Systems (CSCO). Of course, he is negative on it. So am I.

It's not that Cisco isn't a good company. It is. But the product is really a commodity. I'm even a fan of the Scientific Atlanta (SFA) acquisition because I think internet and cable go together in more ways than people realize. On demand video and internet access are a match made in heaven. (The Electrical and Computer Engineer in me has been saying this for 3 years).

So my main question is, "Why do people hold onto the belief that glory tech stocks of prior days will once again rise from the dead?" In tech investing, we all know that new technologies lead the market. Let me say again, we KNOW that new technologies lead the market. Yet we hold onto "old" (read: mature) technologies. Why do people do exactly what they know NOT to do? Tech investing is COMPLETELY different than Warren Buffett style investing, and that's why Warren doesn't play in this sandbox. Buy and hold here won't work - if "hold" means to hold for 50 years.

Yet, psychologically we get addicted to a stock, and as we age we think it'll rise from the dead. So, if I were in my mid 30's when Cisco was the internet darling stock, now I'd be nearing 50 thinking it's still awesome. Am I just unaware of my emotions towards the stock? Is this investor psychology at it's worst, I.E. I'm holding onto something that really isn't there?

While I can't say for sure, I believe there's a link. I've seen many people make this error, both at the individual and institutional investor level. This thought prompts me to think that firms need to have minds from all walks of investing to be successful. It also leads me to believe that it is time for my annual reading of Trading in the Zone, by Mark Douglass. It is, in this blogger's opinion, the best investing book ever written. You may disagree but when it comes to the psychological aspects of investing I think you'll agree (yes the book has traders in mind, but in the end, we're all traders with different timeframes).

So, when it comes to tech, look around! Why would you have owned Cisco over the past few years when Sandisk (SNDK) has popped up to line the shelves of every Best Buy, Circuit City, Walmart and Target. In fact, you probably have Sandisk flash memory in your house and don't even know it. Just check out the 3 year relative performance! (Picture posting problems) SNDK wins by 637%.

Tuesday, January 10, 2006

Have We Come to Expect Too Much?

Perhaps the question I should ask myself is, "Have I come to expect too much?" and then follow it up with, "Are other investors like me?"

While walking home from the gym today, my post-workout euphoric mind started thinking about yesterday's post "Investment Professionals". I will admit my writing was perhaps a tad harsh. I said that many investment professionals provide little value to the client. What I mean is that after countless hours of working, most fund managers still underperform the S&P 500 index. Now, if you are one of the few who can historically beat the index over the long-term, congratulations. You are rare. And you should have a job for as long as you wish to work, as long as you keep your motivation to continually perform (you may not every year, but it's about long-term returns).

With that being said, I still maintain that most investment professionals are not in this category. Statistically speaking, it is a well known fact that somewhere between 75 and 85 percent of funds cannot beat the S&P 500 and what's more is that the percentage who DO beat it on a yearly basis changes almost every year. Again, there are some talented people out there who can do it, though. For example, one of the founders of Adage Capital Management is a very successful UW ASAP graduate. He was a former portfolio manager for Harvard Management Company and when he left, Harvard kept much of their assets with him. He is a very skilled portolio manager. It's no surprise that Adage's website is kept behind lock and key.

But, have we come to expect too much? "Beating" the S&P500 can be defined in many ways. I could purchase a fund that might beat the S&P on a risk-adjusted basis. This is great, and should be considered "beating" despite the fact that the return may be lower, on paper. But, if on a yearly basis investment pros can't beat the S&P 500, why not just buy the SPY Exchange Traded Fund, pay the 0.28% commission, and go play golf?

Like I said yesterday, this is why many people have flocked to the Hedge Fund world (as well as the ETF world). Of course, these investments are only available to the wealthy, but my guess is that as time goes on, Mutual Funds will start to act more like Hedge Funds do today. It's human nature for those fund managers to want to have some of the freedoms in choosing assets that hedgies do.

The Dow Crosses 11,000! (So what?)

All CNBC could talk about yesterday was the Dow potentially crossing the "psychologically important 11,000 level". It did.

Big deal? Maybe. Yes, I do believe in Technical Analysis, or "TA" as it's called. I think it's a great tool, but only a tool. Without a hammer, a nail is useless, and vice versa.

So does it matter that the dow crossed 11,000? Not really. Over time, stocks go up. Look at a chart of the S&P 500 since 1980. If you were to make the chart span a longer timeframe, from say 1920, it looks pretty much the same (stockcharts doesn't go back that far!)

Why is that? Well, for one, the historical Return on Equity for US companies is around 11 or 12 percent. So it would make sense that the stock market returns that, right?

Will that continue? Who is to know? I would think it would, over time, barring any major macro changes.

In the meantime, let's not get so caught up on the Dow's current level and think more rationally. The market is headed higher. This is likely because companies should continue to profit in 2006, and more importantly they should make more than they did in '05.

But what about these people who talk about recession? Are we headed to recession? Of course, eventually, we will find ourselves in a recession. But, when will that be? '07? '08? '20?

In the meantime the Dow is headed higher. Good. It should. But don't get caught thinking that it means that 2006 is going to be another 2003, a year in which the S&P 500 gained 26%

Monday, January 09, 2006

Investment Professionals

While doing the dishes today, I was thinking more about my first interview for an Equity Analyst summer internship role with a fairly well-known investment company. During this interview, it became clear after 10 minutes that I was not going to go any further in the interviewing process. Why? I lack the pedigree for a typical investment analyst. In fact, the interviewer basically came right out and said it bluntly -> which I respect. Those who know me personally know that I am blunt, and sometimes brash but always with good intentions. I'm not big on ego - I just love investing and learning about investing. But - much like those who have decided that hedge funds are their investment vehicle of choice, I have little patience for investment professionals who are arrogant and don't provide any value to clients. Unfortunately, I believe that that number is a very high percentage of the total in the business.

I know. Before I decided to make this career change, I was a client. A frustrated one at that. But, it's not all these professionals fault. For one, the rules guiding mutual funds almost always prevent them from outperforming the S&P500, which can be bought with ticker SPY and paying a mere 0.28% yearly fee. There are, however, a few great exceptions such as Bill Miller's fund at Legg Mason. Mr. Miller receives alot of press for having beat the S&P500 for 15 straight years. He deserves every bit of it, and probably more. Secondly, most professionals have all the same credentials. Huge numbers have an MBA from Wharton, Harvard, NYU, or the University of Chicago. Many are CFA charterholders. There are even many in the business for which both sentences fit.

The problem is, at what point did these people start thinking differently? The CFA exams test the same things, year in, year out. MBA classes don't really change over time. In fact, with so many of the professionals coming from the same 4 or 5 "top" schools, how much variation is there in what these students know? So you have these "pedigree" people - in fact, many of them who had prior experience in the field before getting an MBA. I sometimes think that it is ironic that I plan to become one of these people. This is not necessarily because I believe it's necessary to beat the markets. In fact, Marketocracy has proven to millions that these designations can be more of an obstacle rather than helpful. Said one proven self-taught investment veteran,
"I think artfully applied discipline rather than secret tools make more money in the long run. The industry has a lot of CFA/MBA's who all went to top notch schools, mostly all learned from the same classic textbooks and so how can anyone have excellent comparitive performance if the are all using the same methods and screening tools? To make real money takes thinking outside the box. It's science, math and art combined. Every engineer can build a great race car but when that tools in put into the hands of an artful driver that can think outside the box, magical things happen. You have to really "feel" the market and not be a robot. If you don't believe that a computer can replace you all!"

This was replied to by a top 10 member in the history of Marketocracy with,
"I do agree - and the stats show - that all those insitutionalized MBAs will struggle to outperform. Trust me, there is nothing institutionalized about my research methods, and I'm so much outside of the box that I sometimes need Lassie to help show me the way home."

So, while I am focused on, and do find value in the traditional methods, in the long run I am completely convinced that my different background and open-mindedness to different investing methods and tools will be what can set me apart. And I want to stipulate that I do not mean this in an arrogant way whatsoever. I work very, very hard at what I do because I love it. And I have the motivation of a former frustrated client of those who were just simply "the pedigree".

New Links Added

I came across some great blogs on VInvesting.com today and thought I would link to them.

First, check out NoDoodah's post on Technical Analysis and Value Investing. It's introspective and perhaps the single best post I have read from someone whose mind has changed on the subject of TA.

Next, check out Gannononinvesting. I think that this is a full-time gig for Mr. Gannon, but the site is full of great ideas.

I also added "Theo" below. You can actually see his entire portfolio on his blog, which is interesting. If I had that capability, I'd add it, but with blogger, which is free, I'd have to manually add it daily. Who has that kind of time?

Also, check out Controlled Greed, which I believe is fairly interesting. It is full of links on the left, as well. Perhaps he is less selective for his blogroll links, perhaps not. Either way, it's worth a quick read from time to time.

For some interesting stock picks, check out Stocks Below NCAV - Which means stocks that trade for less than their current asset values. It's hard to find stocks like this, but Buffett would probably love these!

Wednesday, January 04, 2006

Hungry? Try a really really big burrito

I'm smitten. I love Chipotle. The food is great and the company will be issuing stock to the public very soon. Do I like it?

No. I love it. But it's risky. So are alot of things in life - driving, marriage, flying, etc. I have roughly 30 years before I officially retire, so "risky" can mean opportunity to me.

Chipotle is profitable. This is not a hype-IPO like Caribou Coffee, which has debt covenants from African nations that specify odd things. That was a terrible IPO and should never have been hyped. Warren Buffett talks about your "investment punchcard". This idea is that you get 20 punches on your card in your life. Use them wisely.

I think that this might be worth a punch. And I don't say that because of hype. Or because my tummy loves the barbacoa burrito. In fact, I still maintain that the food at rival Qdoba is even a tad better. However, Qdoba is owned by Jack-in-the-Box and thus there is no pure play on it aside from franchising some restaurants. The chipotle S-1 is online. It does a good job of warning about the risks in the stock, and there is a caveat that the common shares only get 1/10 the voting power that the class B shares do. Also consider that it is expected that McDonald's, which owns 92% of the shares currently is likely to continually reduce its stake in Chipotle. This could result in more selling pressure on the stock than buying pressure.

The price has initially been set to be around 15.50 to 17.50. I would expect that when CMG (the proposed NYSE ticker for Chipotle) begins trading that it opens higher than that, and investors/underwriters cash in. Of course that is pure speculation, but it would be similar to what UnderArmour (UARM), another hot, profitable, crazily growing IPO did very recently.

Let us think about the statement, and well documented fact, that most companies perform poorly after their IPO's. I have a problem with using this statement to describe Chipotle. My problem is that it's not a normal IPO! It's a partial sell off! Some of the great sell offs in history include The Limited's (LTD) sell off of Abercrombie and Fitch (ANF), GE's recent sell off of Genworth Financial (GNW).

Chipotle is a great business. Yes, there are some risks, like construction costs, nutrition concerns (when has that been a concern for Americans, the fattest nation in the world?), competition, additional expenses from being public, demographics, yada yada yada. Those risks are not unusual. The one risk that does concern me is that there is mention of potential costs incurred as a result of a security breach that the company encountered. Whoa. Huh? I'm unfamiliar with this kind of a risk.

So, what's the conclusion for now? Time to dive into the numbers. This stock could be a winner for the long-run. But it's probably also going to be a favorite with traders because it's gonna be volatile. That much seems certain for now.

Tuesday, January 03, 2006

Value investors versus Growth Investors - Who's better?

Value investors like Buffett and Growth Investors like Bill O'Niel argue. Students of these great investors both think they're better than the other. Now, I first think that if O'Niel and Buffett met, they probably wouldn't even talk stocks. They wouldn't because they have no interest in proving others wrong. That's not what successful investors do. They try to invest and make money the way that they know how. So, the answer to the question "Who's better" in my opinion is actually completely irrelevant.

The bottom line is that the both work. Check out last year's performance on the American Association for Individual Investors website. On the "Stock Screens" page, you'll notice that the Ben Graham stock screen was up about 25% and the O'Niel stock screen was up about 27% for 2005 (Ben Graham was Buffett's mentor and wrote the classic Value Investor's manual "Security Analysis" in the 1930's). In that time, the overall S&P500 was basically flat.

So, who's better? Who knows? Who cares? Do what you know. Maybe put them both together??? But, don't tell an investor of a different pool that he / she is wrong. An analyst would probably never have invested in Airtran (AAI) this year, yet the stock was up 45% this year. It's not about being right or wrong, egos have to step aside. It's about growing assets - aka making money and beating the market.

Value Watch List - Joann Stores (JAS)

For a while now, I have had a watchlist of distressed stocks. My watchlist is really for two reasons:

  1. I want to learn how to have more confidence in seeing a distressed stock and being able to pull the trigger on it because the fundamentals say so. After all, I am in B-school to learn the fundamental aspects to investing! Buffett would be proud.

  2. To understand what makes a good distressed stock, while some others are distressed because, well, they have issues.

One of the stocks on my watchlist is Joann Stores (JAS) (Chart). Most people know the store. In fact, I was in one over the holidays. (They have great scented candles in there, BTW). My girlfriend is a shopper there because of the scrapbooking materials. However, according to her, Michael's (MIK) (chart) is a better store.

A simple look at those charts shows that Michael's stock has been a better performer (if you increase the timeframe, you'll see that MIK has performed well over the past 3 years). This prompted me to read a few analyst reports, and to listen to the most recent conference call. The company is trying to convert most of its stores over to "superstores". These mega-Joanns appear to have better financials than the smaller stores. An average store is 14,000 square feet but these superstores average 35,000. Will that cause my girlfriend to someday say that Joann is once again on the hip list to shop? That's a good question. Perhaps we need the girl's name "Joann" to come back in favor. It's been uncool since the sixties. And, Michael is a very popular guys name. My marketing prof. would be proud for me picking up on this simple but powerful difference.

But, looking at Joann's share price is interesting. The company has lowered guidance for the year, and it posted a loss for all quarters in 2005. Management has changed in many key areas, although not at the CEO level. The company is certainly seeing hard times today, and that is likely to continue, but, I believe that the company is intriguing here. Given the time crunch, I haven't really DRILLED into the #'s yet, so I am using an S&P stock report which says that the shares are worth $17. From here that would be a 50% gain. How much more downside is there? For me to take this position I would need two things:

  1. A perceived 16.6% downside. I like 3:1 Reward-to-risk ratios, and am very disciplined about this.

  2. Technicals that line up and say "it's go time".

I have niether just yet. But, things appear to be getting close. So, JAS stays on the watchlist, and perhaps even gets bumped up a little bit.