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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...

Friday, July 28, 2006

Why does blogger???

Why does blogger:

1) Sometimes "eat" posts?
2) 50% of the time not actually accept an image after it says it has

Two questions I would like answered. Because even though in general blogger is decent, if those two items were fixed it would be great.

Thursday, July 27, 2006

I passed!

All that studying in May has paid off. I passed level 1 of the CFA exam series. One down, two more to go!

PNRA Defense

As I wrote yesterday, I owe y'all a Panera defense. I've gotten it wrong for about 20 dollars now, and those 20 bucks are in the wrong direction. So what the heck is going on here?

1) Big money hates the restaurants. They're afraid the consumer slowdown is affecting them, and to some extent, that feeling is justified. Like mentioned before, The Cheesecake Factory (CAKE) has shown slowing sales, and so has PF Chang's China Bistro (PFCB). Even Panera has shown slowing same-store sales, falling to under 2% in July. On April 5th, I warned that anything lower than a 6% number could spell trouble for Panera. At least I got that one right. So - big money is selling shares by the boatload, and that means trouble for a high PE stock like PNRA.

2) Same-Store Sales Growth numbers have slowed. Is the consumer eating out less? Inconclusive, methinks. Is it weather? Inconclusive. So what is it? Keep your eyes open.

Combine the fear in the restaurants with the same-store sales numbers falling and overall market conditions and we now see PNRA shares off about 30% from their high. It should have been expected - the chart has been nothing short of a technician's nightmare since March (Pardon me if I don't write about that in my formal equity research reports). Plus, Panera's shares have fallen like this before.

Alright, you say, so why did the earnings report yesterday send the stock into a tizzy? On the surface, Panera said it wasn't likely to make as much as they originally said. But, you really had to pay attention on this call because it was confusing. It turns out, that this Crispani pizza thing is a really big deal for Panera. It requires major training, equipment, marketing and so on and so forth.

Crispanis are coming to a Panera near you, sooner than expected. But what used to look like a nice smooth line running at about a 30 degree angle - earnings, expenses, growth, etc could now get a little lumpy. Expenses are jumping from one 10-Q to another: Q3 will be worse than management originally said, but Q4 will likely be better. Most importantly, there is now some more uncertainty, and I think that's the big reason for the sell off. It pains me that I didn't see this coming. But even if I had, I would probably have maintained that it wasn't a big deal to Panera's business and that the markets wouldn't react like they have. Markets and uncertainty go togther like alcohol and firearms, however.

So now it's up to investors to place their bets on whether or not Crispani will turn out to be good for Panera, or cause its demise. My guess is that it won't cause the bakery-cafe's demise, given the history of successful product rollouts and America's infatuation with pizza. And oh, by the way, there are more menu innovations coming but the company won't say what. But Panera might not earn the $2/share like managment originally said would happen. Would you be disappointed if they only earned $1.90, instead? That would only be 26% EPS growth.

The bottom line is that this story is still a great long-term stock. CEO Shaich has been around the block once before with Au Bon Pain and knows some of the pitfalls to avoid when it comes to managing publicly traded restaurants. But, while the share price knife is falling, there's no reason to try to catch it, even though I have been a buyer ever since $65 was breached.

Time for a Cinnamon Crunch Bagel! Mmmmmmm...

Oil Prices - Peaked?

The image below makes me think that oil is soon headed lower. It was on the BusinessWeek Homepage. Can anyone confirm that this is on the cover of the magazine?

Wednesday, July 26, 2006

A Good Blog Post

In trying to make sure I post daily now that I understand how this works here at my internship, I am at least going to provide a link to something everyone should read today. It might be the only post I get to today...but I hope not, because I am going to have to "defend" Panera today - I'm not sure the market is understanding what's actually being said (though I did warn to wait for the momentum to slow).

At any rate, head over to a blog written by Mike Shedlock for a great read on Moneyball and the Barron's cover implications.

Tuesday, July 25, 2006

Microsoft: Anti-innovation?

Just a quick thought here, in 1995, Microsoft started giving away Internet Explorer AFTER Netscape had been the first to market and held a ton of market share. Internet Explorer became the global standard for web browsers soon thereafter.

Since then MSFT has operated as though this strategy will continually work! Wait for for others to innovate, they can copy such innovations and win. So when it comes to innovating, I dare say MSFT is a second-rate company.

The XBOX was a great product. But, it didn't come in and dominate Sony's incumbent Playstation. Maybe that's because they didn't give it away?

Enter MSFT's antivirus program, whose ETA is TBD. For the acronym-challenged, that means I don't think it is out yet. Symantec (SYMC) is the rolling behemoth in this land, although McAfee (MFE) has a strong foot in the ground, too. Will mister-softee take market share here? My guess is not unless they give it away - which is feasible because it is software. But if they don't, I say good luck, but no thanks. My Norton Antivirus is working just fine.

Now MSFT wants to copy the iPod? Puhlease. This growth engine has the horsepower of a golf cart.

Monday, July 24, 2006

Miss Japan got Robbed

Maybe it's just me, but Miss Japan got robbed from being Miss Universe last night.

Why am I watching Miss Universe? That's a good question with no answer...

Sunday, July 23, 2006

Taking heat on SIRI

I've not spent tons of time thinking about whether or not Sirius will turn profitable. Thus, where SIRI goes from here I have no idea. If you have a good reason to think that they will make money someday and can back that up, I welcome it. It would help all of us - since I don't have the time to really sit back and think about the company and how it might be worth more than the 3 satellites it owns out there in spaceland. Will its fixed costs begin to shrink relative to its revenues? How many subscribers will it take?

But, please, if you send me emails like "Alan" did, you're wasting your time and mine: "you are wrong about Sirius." - Alan

Alan - I'd like to hear why you think I am wrong. All I said is that the stock price getting cut in half made perfect sense. If you have more information, that would be helpful.

Thursday, July 20, 2006

Um, duh...

I just read a line from a Motley Fool RSS feed:
"Everywhere you look, you will find companies that have seen their shares plummet despite good news. ... Sirius Satellite Radio's (Nasdaq: SIRI) shares have been cut in half since peaking two years ago despite blowing past subscriber growth targets."

Um, yeah, but they continue to lose more and more money as they grow subscibers. Adding subscribers doesn't mean value's been added and the stock should go up. Lest we not forget Krispy Kreme Donuts which suddenly sprouted stores everywhere?


source: Factset Research Systems

What's worse, SIRI is not even profitable at the Gross Margin level. Ugh. I'll give TMFBreakerRick the benefit of the doubt - because I'm sure I've written some silly things before too.

Wednesday, July 19, 2006

Two items of business

First, I thought this picture was kind of funny. Wish I'd not gotten stuck in traffic to see the Yahoo headline on the top of its own home page.

Second, I thought that we should all read this post by Barry Ritholz concerning technical analysis. I still posit, even after a year in Bschool that it has its place in the investment business. If one ignores it, then he/she is missing out on a useful tool. Pay attention to the comments in the post - they add alot.

Sunday, July 16, 2006

Barron's = Public Disservice

Upon more investigation into the aforementioned Barron's articles, I found this to be entertaining:

"...Apple's stock is cheaper than it has been for a long time. It's changing hands at about 25 times the consensus estimate for this fiscal year's earnings...Although a price/earnings multiple of 25 may look steep compared with the
broad market's 17, it's reasonable in view of the company's growth prospects: The consensus is for earnings growth averaging 20% a year over the next five years."

Then in the very same magazine, another writer puts the following logic to keyboard (keep in mind that Panera will grow earnings at least 25% this year, and more likely closer to 30% annually for a few years to come):

"...EVEN AFTER ITS recent selloff, Panera fetches a lofty 31 times '06 estimated earnings..."

So, 31 times forward earnings is expensive for Panera, but not Apple? But, Apple is expected to grow slower?

This is where publications confuse investors who are trying to learn this game. We're not doing a service to moms and pops out there, we're doing a disservice.

Yeah, Apple and Panera are in different industries...and we could talk cashflow...yada, yada, yada. The point is that there is so much mumble jumble out there, we're better off NOT paying attention to it and thinking like Peter Lynch instead (BTW - if you click on that link, buy that book because it's perhaps the best investing book ever written - and I don't get any kind of royalties).

Maybe I, like Mr. Lynch, have never met a share I didn't like. Shrugg...

Lack of a Cool Title for this Post, Hence Let's Call it "More on Panera"

Barron's ran an article this weekend on Panera (Thanks, Jas, for pointing it out). In the article, several analysts and a money manager are interviewed about the stock. BB&T may have a good piece of info: stores opened last year average less sales than the rest of Panera's stores. This could be a problem going forward. However, I'm not sure how significant this number is just yet, because new stores are seeing even better "honeymoon" openings than last year - new stores now sell 45k per week vs. 41k a year ago. So which number is right? I think it's unclear.

There are some other good points - Panera is showing a lower return on capital and most restaurants are starting to see a consumer crunch. Indeed, it looks as if margins are falling. However, Panera has just now begun to expense stock options, so the data may not be correct (admittedly, I haven't gone back and made the appropriate adjustments yet, I'm waiting for Q2 results). We'll know much more on the call in a few days (the 26th) And as for a consumer crunch - who knows if Panera will be affected? I'm not seeing it, and niether is Ron Shaich, Panera's CEO:
"...looking at this over 25 years I will tell you I have not ever seen any of our businesses and in particular in this business, go up or down in any material way on macro consumer phenomena. You know if anything when there are matters that seem to effect macro, macro consumer issues when there was a fire gas crisis when 911 hit, if anything Panera seemed to benefit in some way as people stayed close to home and we were seen as a neighborhood kind of experience. I would further add that, generally for our consumers – I think our consumers tend not to be the most penny pinching. By their very nature of they have chosen to spend a little bit more for something they perceive as higher quality. And I think you know for most of our consumers, a sandwich one way or the other is not what is going to define their economic health. And you know I – and so I think that what we have traditionally seen is certain concepts that are at the effect of macro consumer trend and larger ticket durable items affected in a material way in recession and in economic crunch. That’s a long way of saying that I hope we are not – I don’t expect that we’re going to be back here in a month or 2 months or 3 months or 6 months saying that the consumer environment has changed, such that our comps or sales have been affected by that. Now, that’s what 20 odd years say to me, we will see what happens."

Most agree that Panera is a great company with a concept that works. But now we're starting to see disagreements about the stock. According to the article, there are 3 SELL ratings, citing 30% downside. Ok, maybe that 30% downside is there. Maybe it's not. But, when the analysts talk about Panera trading "higher than its industry" to strengthen this case, I find that odd. Here is a quick table of some prominent public restaurant companies. It would make sense that Panera gets a higher multiple.

[photo missing - blogger not accepting pic uploads at the moment]

What's more is that because of its price point, it's conceivable that more people will head to Panera, not less. "Hey John - want to go to Applebee's for dinner?" "No, I think we can save some money if we go to Panera instead." I dunno - it's just conjecture.

A few things that I am surprised to now hear the company talk about: 1) It looks like there could be a move to more urban locations - downtowns, etc. The company has avoided this in the past - doing a great job at controlled growth 2) Management has reorganized itself to support the growth. I read this as "Panera knows it's on to something big and now they're getting ready to take it to the next level." 3) I wasn't even looking ahead to 17% unit growth, I was being more conservative. Rest assured if that story plays out, Panera, already a 15-bagger from its IPO, will beat the S&P going forward.

Right now, the market is focused on the negative. The momentum in the stock is clearly down. Technical analysis of the stock paints an ugly picture, too. Yet, the company still appears to be on track to grow 30% this year.

I guess we have to pick a side. Who's right? Mr. Shaich or the analysts? My money's with Ron and when this downward momentum subsides, I'll be checking the story again - to make sure it's still in tact. Then I'll finally be a shareholder.

PS - Panera had its first-ever "Analyst Day" this year. Anyone can view the slides, and I'd encourage all to do so.

New additions

I added a link to my resume and sample research reports on the right hand side of my blog. Please click on one and let me know if it did or did not work - because my web hosting space is at UW and I did test it, but with my permissions, not an external person's.

Thanks for visiting!

Friday, July 14, 2006

Pandora is Cool - Really Cool

I just encountered "Pandora". What a kick-@ss website. Granted I've only spent 10 minutes with it.

Techcruch alerted me about the site, via an RSS feed: "When did Earthlink Get So Cool?"

Already, internet users are catching on.

As a Rhapsody user, I know the songs I know and no more. Rhapsody's recommendations - well, quite frankly they suck. I hear the same about iTunes. Pandora's recommendations are really good. My quick office poll has people in agreement.

So, now I am a Pandora user. My next question is, can someone copy it? It seems fairly easy to do, but my user experience will keep me more informed. I can tell you that I will get MUCH MUCH more horsepower out of Rhapsody by using Pandora. In fact, I will now keep my subscription because I have found the place to help me keep my Sandisk (SNDK) Sansa full of fresh music that I like. Fresh is important in music. There is real value there - the question remains if it can be recognized

Tuesday, July 11, 2006

Quick restaurants still appear to be ok!

Like I've been saying - quick casual is still rockin'. Cosi reported 5.9% better sales this past quarter compared to a year ago. Cosi isn't the quickest in terms of food-ordered-to-chomping speed, but it's not bad either - similar to Chipotle (CMG) and Panera (PNRA).

I won't make the same mistake again and think that these establishments are the same as Cheesecake Factory (CAKE), California Pizza Kitchen (CPKI), etc... They're different.

Cosi happens to be the worst of breed stock in this space, but is beginning to look compelling as it may finally reach profitability.

Friday, July 07, 2006

Random conglomeration of thoughts

On Home Depot - the stock sure looks cheap to me. I am no fan of Nardelli's militant style - I think it's detrimental to intangible value - but tangible value seems pretty doggone compelling.

On Panera and Chipotle - these things are not prone to the same things that PF Chang's, California Pizza Chicken, and The Cheesecake Factory are. The selloff in these stocks is unwarranted. They're still not deep value stocks but in terms of probabilities, Panera could be bought here. There is way more upside than downside. But let's let the downward momentum play itself out. If we're entering a bear, you can probably get these guys even cheaper. For what it's worth - I had to leave Chipotle the other day because the lunch line was spiraling throughout the store and out the door. It was like the Kollege Klub that at 2AM on a Friday night (for those not in the know the KK is a bar on the UW campus known for finding Mr./Mrs. right now)

On Chesapeake Energy - Dammit, Aubrey. Stop the financing already. I'm scared you're screwing us shareholders and that the money you think you need means that we're near the end of the road in this cycle. I may find a different place for this capital, despite your apparent value.

On Gold - see Billcara.com. Also, check out this chart (this link will probably only work for a few days until the url changes). People continue to disbelieve me that gold will be volatile but mostly boring in the short term at this point. That selloff probably had something to do with margin calls. Commodities can be painful that way, despite what my more intelligent ASAP colleagues seem to believe. Let gold rest for a while. Long-term I'm still bullish. Short term I am napish, at this point. Is that a word?

On Radioshack - A new CEO and the stock is up 4 bucks? Short squeeze. Unless they change the name to reference something more hip than radios, I think they're screwed. Maybe Julian should go buy the name "Electronics Boutique". Lesson to entreprenuers: Don't reference particular items in your business name - you could wind up being associated with one thing only, and worse, that thing could be a fad!

Wednesday, July 05, 2006

Rethinking an idea

In an April edition of the Milwaukee Journal Sentinel, I recommended the Cheesecake Factory (CAKE) and Panera Bread (PNRA).

Cake hasn't fared well since the article interview: down 21%. Ouch. What did I miss?

The company isn't growing like it was, and there is a very simple reason why: patrons are no longer willing to endure the waits associated with eating at CAKE. It's not the food - the food is still delicious. What I believe is going on is that the company isn't growing its store base fast enough. The newer stores tend to drive same-store sales growth AND top-line growth. The days where these establishments increase same-store sales at a rapid pace is ending - the newness is wearing off.

The story is changing...and I would steer clear of CAKE.

Meanwhile, the Panera story remains in tact. We just need a bit of a sale in the stock.

Sue the wealthy!

If Apple weren't a goliath these days, with 8.2 Billion in cash and a remarkable brand, it wouldn't be getting sued. Where are the lawsuits against the little guys accused of the same thing?