CMG: Tasty Short?

Zachstocks published a piece on Chipotle Mexican Grill right after they released earnings, expressing caution towards the company's performance going forward, and its already-rich value.

I take interest as I always wanted to short CMG back in its pre-$100 days, but shares were impossible to borrow. I'm not sure whether or not it's actually feasable to short now... but it may be worth a look. If the general market weakens, watch for the bloated CMG to lead the decline.

Read the full article "Chipotle Earnings - CMG Getting Heavy" at Zachstocks.


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Do Not Buy Retailers, Part 2

Zachs.com published an article at Seeking Alpha discussing overall weakness in the retail sector.

Zachs calls out Abercrombie (ANF) and Target (TGT) by name for having weak comparable-store sales figures - ANF's dropped 28% vs. year ago numbers, while Target's fell 6%. They also pointed out that Wal-mart (WMT) elected to NOT report comps for the first time in 30 years. That doesn't necessarily mean trouble for WMT, but it's an indication of the immense pressure of retailers to maintain sales, beat Wall Street estimates, or suffer the consequences.

Read the full article here at Seeking Alpha.

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Do Not Buy Retailers

Zachstocks recently posted a piece on the numerous opportunities for initiating short positions in the consumer discretionary/retail sector.

The author discussed the macroeconomic factors causing weakness (consumer and economic uncertainty, etc.) and then adds commentary on specific stocks that may be poised to fall. He mentions Tiffany (TIF), Chipotle Mexican Grill (CMG) and Green Mountain Coffee Roasters (GMCR).

Head on over to Zachstocks to read the full article: "Retail Stocks Appear Ready to Fail"


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Barrons, FBR Advise Against First Solar; Shares Fall

Barrons wrote about First Solar's weaknesses and competitive threats this weekend (Reuters coverage of Barron's commentary here), and an analyst, FBR Capital Markets, followed up Barron's with a downgrade on Tuesday morning.

The FBR analyst, who slapped an "underperform" rating on FSLR, mused that "recent checks indicate at least one of First Solar's top customers has already switched from First Solar to a silicon-based module vendor for a project that is currently under construction."

The Yahoo! article covering the analyst downgrade elaborated. "Hosseini noted that FBR's meeting with the KfW Bank Group, a Frankfurt-based development bank that lends especially to economic, social and ecological projects internationally, revealed that its year-to-date photovoltaic project backlog has shifted dramatically toward silicon-based modules compared with its 2008 thin-film-focused mix."

I have previously drawn similar conclusions on this blog and on Student Stocks. First Solar is a company that is ALREADY overvalued even before considering the significant, growing competition that they face from both silicon-panel makers and thin-film outfits. Though the share price unfortunately increased after my last article, I made (real) money in the past shorting FSLR from $280 to $140. Though shares have fallen $20 (10%) since the Barrons and FBR pieces, shares still should have plenty of downside room. I tried to short FSLR a few weeks ago (shares were at levels similar to today's price) but none were available.

I continue to dislike FSLR shares at this price, in this environment. I'd never go long, and I will be considering initiating a short position.


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Yet Another "Short Treasurys" Article

At Seeking Alpha, the contributor Market Folly published an article about a successful, well-respected Hedge Fund manager recently voicing his opinion that investing in Treasurys is now "foolish."

Read "Michael Steinhardt: 'Investing in Treasuries Now is Foolish' " at Seeking Alpha.

-SF


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Amazon Short-Call Follow Up

Though I myself didn't short shares of Amazon.com (AMZN) despite all of my recent negatively-slanted pieces, I am glad to report that shares are sitting lower than they were on every date that I published anything about them.

AMZN's recent decline can be attributed to the general market pullback, but looking forward, shares may continue to underperform. Below is a six month chart of AMZN:

Shares are still trading at $75 though the company is only expected to earn roughly $2/share next year. Even a 50% upward surprise (meaning yearly earnings of $3/share) still wouldn't make shares look cheap.

Looking at the chart, shares seemed to touch resistance (both 50 day moving average and some previous lows) today, so further movement downward could be looked at as a weak technical sign. Shares have also clearly broken the upward trend that began in march. Looking downward, there had previously been consolidation between $60 and $65, which could be a reasonable mid-term price if the wider market continues to correct. There's still a glaring gap between $50 and $57, but I wouldn't expect that to be filled anytime soon.

The bottom line, once again, is that Amazon is a great company but AMZN shares are still overvalued. I'm personally not initiating any short position at this point, but I'd rather short than buy long AMZN shares tomorrow.

And as always, if you're in the market for one of Amazon's new Kindle readers, please do through so my link below.

Buy a Kindle 2, Kindle DX, or anything else at Amazon.

Is it Time to Short Treasurys?

Seeking Alpha contributor Larry McDonald thinks so.

Many market analysts and observers have been screaming to short Treasurys for months as rates have hovered near all-time lows. Even Warren Buffet has now acknowledged that the current treasury situation appears to be bubble-like.

I agree that the current Treasury bond environment is unsustainable, but "when" is the key unknown. I was early when I called for an oil-bubble implosion, and I have also been early on shorting stocks like FSLR and CMG. But yields for Treasurys can't really get much lower, so it seems like downside risk for the shorting instruments (TBT) might be more limited.

The article is worth a read, and you can check it out here:
Read "Rising Treasury Yields Could Mean Its Time to Short Them" at Seeking Alpha.

How to Short Stocks

On Seeking Alpha, Penny Sleuth publishes a great piece on the mechanics of shorting stocks.
It is well worth reading if you're currently shorting stocks, planning on it in the future, or are just interested in how the process works.

Read "Three Ways to Short Stocks" at Seeking Alpha.

Do Not Buy Chipotle Mexican Grill

How's this for a nice throwback - Short Chipotle Mexican Grill (CMG).

On my other blog, I wrote plenty about CMG's ridiculous valuation in late 2007 and early 2008. I was never actually able to short CMG shares, as I could never find any available, but that was ok - my initial call on October 31, 2007 was a bit early, and I would have probably covered as shares rose from $130 to $150. However, my thesis was eventually vindicated as shares fell from $150 to about $40 over the course of 2008.

Now shares have recovered back to about $80, and armchair analysts are once again labeling CMG shares as too expensive. Though company results have been impressive over the past few quarters, there appear to be some cracks under the surface that will cause a slip-up going forward.

Two article below are worth reading: The first, at Zachstocks, is a general overview on the bearish CMG case. The second is another piece at Seeking Alpha about recent insider sales of CMG shares.

Read the article "Chipotle - A Tasty Short Opportunity" at Zachstocks.
Read "Why are Insiders Losing their Taste for Chipotle" at Seeking Alpha.

More Kindle DX Details: Still Not Impressed

Well, most leaked pre-release facts seem to be right: the new Kindle is big, pretty, and textbook- and newspaper-friendly. As I mentioned in my last post, a few colleges will be participating in trials to see if the Kindle textbook experience can catch on.

A troubling new piece of information is the price of the Kindle DX: $489. For $500, a consumer can buy a newest-generation iPod or iPhone, competing ebook reader, or one of many high-quality netbooks. I think that Amazon has priced the device far too high, as the allure of a device with relatively-limited functionality diminishes considerably as price increases.

And once again, Amazon is paying 10% to anyone that can sell one, which is a very significant amount of foregone revenue. On a similar note, if anyone was looking to buy a Kindle DX, feel free to put $48.90 in my pocket for (old-fashioned) textbooks, you can click this link to pre-order a Kindle DX.

My original thesis before the release of the Kindle 2 was that the new Amazon e-media readers would not be game-changers, and I stand by this sentiment. The function-to-dollar ratio for the Kindle 2 and Kindle DX cannot compete with an iPod or a netbook. The Kindle family is a wonderful niche product for a certain group of people - bookworms that travel - but I still cannot conceptualize mass appeal at this current level of high price and low functionality. Amazon's core business is still growing healthily, and shares may continue to enjoy a rich valuation, but I wouldn't expect the Kindle to add materially to Amazon's bottom line anytime soon.

Amazon's "Kindle DX" Hype May Provide Shorting Opportunity

Amazon is holding a press conference at a New York university tomorrow to probably announce what many optimistic investors had been waiting for: a Kindle with a bigger screen.

Much of the reason for the press conference seems lost as the important info has been leaking out over the past few days. Engadget, a popular electronics blog, published this post about the new Kindle, including leaked pictures.

Supposedly, the new Kindle will feature a 9.7 inch screen, enhanced browsing capabilities, and a built-in PDF reader, adding some more functionality to the device. However, the Kindle is still far from being a full-fledged computer-alternative (I'd argue that the most recent iPods are much more functional) so I don't know if the Kindle buzz is merited.

Newspaper and textbook publishers are looking to this bigger Kindle to try to increase popularity of their products: apparently, Case Western, Pace, Princeton, Reed, Arizona State, and Darden School at the University of Virginia will be participating in a trial where Kindles will be used in the classroom.

However, as a college student, I don't see this application of the device gaining much traction. Traditional textbooks are convenient because they can be taken everywhere (though not necessarily all at one time). The new Kindle will replicate this ability, with the added convenience of carrying a single device weighing ounces instead of lugging a half-dozen textbooks weighing 20 pounds. However, the appeal ends there. Paper textbooks can easily be marked up to enhance the learning experience; even with some sort of highlighting or annotation feature, the effect is largely lost on-screen. The best part about paper textbooks are their reusability; books used year after year are very cheap to buy secondhand, and even new books can be returned or resold for a significant portion of their face value. Though the Kindle user will likely be able to keep their Introduction to Macroeconomics book forever, it retains little value after the course is over.

I also think that there is an emotional objection to electronic textbooks. In my Penn State-mandated public speaking course, the required text was electronic. It amounted to a PDF with links to a limited-access website with additional material and assignments. For this, the publisher charged about $70 - a hefty price for some intellectual property. Students were outwardly angry and hostile, and many, like myself, didn't bother to even purchase the textbook. People would rather spend $100 for a paper version that they can sell to a friend or the bookstore for $50 than pay for material that feels like it should be free.

Maybe schools like Princeton will have free course materials or heavily subsidized textbooks, but I don't see the Kindle catching on at Penn State.

The other highly-touted new application is the reading of newspapers, and struggling companies like the New York Times are hoping that they can sell a lot of $10 monthly subscriptions to help stop the widespread bleeding. But as other bloggers and writers have pointed out, why would someone pay $10/month for the Times' limited-feature Kindle edition when their regular website features much deeper and richer content for free?

Unless there are some mind-blowing details that haven't been leaked yet, I don't see this new Kindle creating much of an addition to Amazon's bottom line anytime soon. I think that Amazon's shares are already more than fully valued, so if AMZN shares do pop tomorrow, that pop simply provides a juicier entry point for a short position.

Buying BGZ as a Hedge and Speculation

My portfolio is made up of plenty of high-beta stocks with questionable futures.... I am proud to hold 1000+ shares of ETFC. Other winners (note to reader: that's typed sarcastically) include AIG. Rounding out some other holdings are Penn Gaming and US Steel.

To hedge this exposure and to attempt to profit off of a market correction that I believe is overdue, I just purchased some shares of BGZ, one of Direxion's 3x ETFs. BGZ is 3x bear Large-Caps, so I expect it to more closely track the indexes (S&P 500/Nasdaq) than any of their other highly-leveraged instruments.

The Direxion products are widely criticized for destroying share value simply because of the details of how it leverages up performance, so holding it for forever isn't recommended. But with market strength today, I figured I'd buy it with a one- to two-week timeframe due to stock-market strength and the potential for forthcoming weakness (such as stress-test results released later this week).

As with any volatile instrument, I entered a stop-limit sell order to protect against huge losses. My stop-limit is currently at $38.50, which may be adjusted up if the shares move up as I think they will. My intended exit is roughly $50/share, which should happen if the market is down 2%/day for 3 days in a row.

So this is how I'm attempting to trade what I feel is current exuberance in the market... We'll see how well this method really works.

Do Not Buy Amazon: Round 3

Another pretty good article about avoiding Amazon.com shares (AMZN) has gone up on Seeking Alpha. You can read the full article by clicking the link below:

Read Why Amazon is Overvalued by Jason Tillberg at Seeking Alpha

His arguments are based on a fair-value P/E of 10, which even I will admit is unrealistically low for a company like Amazon. I don't have time to re-run calculations (as I have an important final in 12 hours), but the basis of his argument is valid. Amazon is a great company, but not an attractive buy based on fundamentals at this point. Like FSLR, which I have repeatedly criticized for being overly expensive, AMZN shares could continue to go up based on investor sentiment and good short-term performance. But the bottom line is that shares are more than fairly valued at this level, and jumping in at this point is not the most rational capital allocation that you can make.

Do Not Buy First Solar

I wrote about FSLR's overvaluation prior to their last earnings release, and the results disappointed the street, leading to share price decline.

During the last conference call, management cited economic headwinds and increased competition as risks to future performance. I don't think either of those threats decreased materially over the past quarter, and I expect both to continue into the future.

The general business environment may improve as the world economy recovers and developed nations continue to become "greener," but FSLR's competition gets stiffer by the day. Solar has become commoditized, and both traditional silicon-based panels and other thin-film competitors will continue to erode demand for FSLR products.

The share price will likely be very volitile after this earnings release; a plesasant surprise will send shares skyward, while continued disappointment will drive shares lower. FSLR still trades at a premium valuation, and I believe that shares have plenty of room to fall.

TheNoBuyList.com

To make life easier for you, the valued reader, you can now access this blog at TheNoBuyList.com.

Do Not Buy VMWare

From Zachstocks:

Though VMWare (VMW) is a profitable, growing company, shares still appear overvalued. The company recently reported earnings of $.25/share during the most recent quarter, which was impressive considering current economic conditions. However, management predicted that revenue over the next quarter(s) will be about flat compared to last year. At the same time, margins are under pressure, meaning that VMW shares will probably continue to be under pressure.

VMWare provides many different corporate IT solutions (cloud computing, virtualization, etc.) but also seems to be hoping to lure in comsomuers with other offerings: I have also seen ads on Facebook for VMWare software that allows Windows and Apple apps to run side-by-side on a Mac.

VMWare's solutions will be in demand as they are cost-effective solutions for businesses, but as the revenue and profit growth stagnates, shares will too.

Read the full article "VMWare Cloud Computing Casts a Shadow" at Zachstocks.

Do Not Buy Swine Flu Stocks Follow-up

This morning, I wrote about huge daily declines in share prices of companies that have exposure to any business that may be adversely affected by the swine flu (or simply a reluctance to travel/go out because of fear of it). Shares of such companies continued to fall throughout the day:

• Carnival Corp. (CCL), -13.5%
• Royal Caribbean (RCL), -16.3%
• Southwest Airlines (LUV), - 9.4%
• US Airways (LCC), -17.4%
• Smithfield Foods (SFD), -12.4%

All five companies mentioned saw a slight rebound in aftermarket trading (generally 1-2%), suggesting that investors were ready to expose themselves to some risk.

The pace of new developments in this swine flu saga seems to be slowing, pointing to a possible end of such knee-jerk declines. However, some entities continue to escalate their reactions: Russia has temporarily banned meat imports from Mexico and a few US states, and more recently announced that it will begin checking planes arriving from the Americas. The World Health Organization has also raised its alertness level, and new cases are continuing to pop up in different corners of the globe.

So how does swine flu relate to stocks right now? I would not yet dabble in companies and industries (travel, meat, etc.) that are effected (actually or psychologically) from this swine flu concern. If and when the panic blows over, investors that jumped in at the right time will realize healthy gains from stocks like CCL. However, it is too soon to discern the extent of this swine flu problem, so prudent investors should avoid buying any affected companies in the immediate future.

Do Not Buy... into New Accounting Rules

Because of relevance to my probable future career and potential to impact the stock markets, I am directing attention to Mark Sunshine's article "M2M Accounting Still out of Control" at Seeking Alpha.

The author describes how new accounting rules skew results for financial companies in unrealistic ways. He writes:

As an example, if a fictitious company called “Sunshine Inc.” were to borrow $100 in the public debt markets and the trading price of this debt were to decline to $80 then Sunshine Inc. would recognize a $20 gain on its liabilities as if it had repurchased them in the market. It doesn’t make a difference if Sunshine Inc. actually has the cash or intent to retire its liabilities, merely its debt trading at $80 is enough to trigger a gain.

That is what Citigroup did in the first quarter. Its liabilities traded at a discount and it recognized a gain of about $2.5 billion in a quarter when, on a consolidated basis, the whole company earned about $1.5 billion. That means, without the make believe of fair value accounting, Citigroup lost a lot of money in the first quarter.

On the other hand, if the debts of Sunshine Inc. were to magically trade up in the market then Sunshine Inc. would record a hit to earnings. And, that is what happened to Morgan Stanley; they previous recognized valuation allowances on its liabilities and, much to its surprise, the trading price of its debt went up. As a result, Morgan Stanley’s first quarter earnings were trashed when it recognized a $1.5 billion hit to revenue. Because of fair value accounting Morgan Stanley reported a loss of $177 million for the first quarter.

He then cites another rule (which despite his degree, professional and academic experience in accounting, cannot understand) which would extend similar valuation methods to traditional industries.

There is no clear "Do Not Buy Security ___" in this article, rather, it is a look into the growing complexity of corporate earnings because of changing rules and regulations. The Citi and Morgan Stanley example is a perfect one - it shows how these new rules affect results in illogical ways. (Yes, some companies may buy back some debt when the price is attractive, but marking that value to market each quarter for companies like C and MS is unrealistic.) The charges or gains from this accounting may only end up as a footnote on some companies' financial statements, but it may add to uncertainty and volitility as companies report earnings. Analysts and investors will have to start looking at the changes in debt valuations over the previous quarter to figure out whether companies will book a gain or take a hit.

There is one plus to the growing complexity of corporate accounting - it should mean more jobs for freshly-minted accountants (like me, in 2011), which is something that I cannot complain about.

Do Not Buy Swine Flu-Related Stocks

As the world is freaking out about a possible swine flu pandemic, travel related stocks are being sold off. The damage that swine flu will inflict on airlines and cruise companies is likely (much) more psychological than tangible, but I would still avoid buying any travel-related stocks until this swine flu hype (hopefully) blows over.

For example, Carnival Cruise Lines (CCL) shares are down 10% as of 10 AM Monday, and its main competitor, Royal Carribean (RCL) is down 15%. Airlines are taking a beating too - Southwest (LUV) is down about 9%, while US Air (LCC), which was also downgraded by UBS this morning, is trading down 15%. Here is a little article on MarketWatch showing the price declines of airline stocks. Meat companies such as Tyson Foods and Smithfield are also down much more than the general market.

Actual bookings for things like cruises and flights may decline if this fear doesn't pass over quickly. But the market will continue to sell these stocks as long as the swine flu scare is making news. Eventually, there will be a buying opportunity after the fear subsides, but I would not be buying any of these stocks today.

Do Not Buy New York Times (Shares)

As reported by the Jacksonville Business Journal, a Barclays analyst thinks that shares of the New York Times Co. are still grossly overvalued despite their already-depressed prices.

Though the New York Times Co will receive an estimated ~$150 million for their 17.75% stake in the Boston Red Sox, even that glut of cash still doesn't do enough to stop the money-hemorrhaging.

Read the full article here (featuring more hard numbers and facts from the Barclays analyst) at the Jacksonville Business Journal.

Do Not Buy GM

Andy Kern writes at Seeking Alpha that GM shares are very cheap, but for good reason. He argues that even at the current $1.70/share price, the company is still overvalued for various economic, fundimental, and technical reasons.

Read "GM is Cheap for a Reason" at Seeking Alpha

What To Short when the Rally Dies

Written by Todd Sullivan and posted at Seeking Alpha, the author describes his current holdings and what he plans on shorting as this (perceived) bear-market rally loses steam.

Click to read "What To Short when the Rally Dies"

Do Not Buy Amazon, Volume 2

Mark Kreiger writes at Seeking Alpha that expectations and valuations are too high for Amazon.com (AMZN) as the company prepares to report earnings after the bell today.

Do Not Buy Netflix

As published at ZachStocks:

Netflix shares have recently outperformed the general market (and most other stocks) as shares have rallied 150% from November lows. Stockholders to have reason to be enthusiastic, as subscribers, revenues, and earnings continue to grow, while some competitors (primarily Blockbuster) continue to weaken.

However, shares now trade at a premium multiple that may be too rich for the actual expected earnings growth. Zachary admits that shorting NFLX would be a very risky trade, but it may pay off richly as the current euphoria has inflated the shares beyond reasonable valuation.

The full article is available on ZachStocks: "Netflix: High Flyer or Falling Star"

Do Not Buy Green Mountain Coffee Roasters

From Zachary Scheidt of ZachStocks :

Green Mountain Coffee Roasters is a growing coffee company that sells the Keurig single-cup coffee brewer (along with related K-cups and whole bean coffees).

Shares of Green Mountain (GMCR) have nearly doubled in price from November lows, and Scheidt argues that they may be overvalued at current prices.

Read the full article "Green Mountain - Good Coffee, Peaking Chart" at ZachStocks.

About The No Buy List

The No Buy List has been created to compile bearish analysis of individual stocks and the stock market. Wall Street's factories of analysts regularly churn out "buy" ratings at a mind-numbing pace; the number of buys is disproportional to underweight, hold, and sell ratings.

So The No Buy List aims to offer a conflicting opinion, where authors can post their opinions that may contradict the Street's view. The No Buy List accepts outside analytical contributions, so if you have material that you'd like to see posted, just email it to stevof@gmail.com .

Feel free to bookmark The No Buy List or subscribe to our feeds, and hopefully we'll supply you with some fresh, high-quality investment ideas.

Do Not Buy Amazon.com

Amazon.com began as an internet book retailer and has expanded into sales of goods of all kinds. A consumer can now buy everything from groceries to the latest G-Unit CD on Amazon. Amazon's product offerings only continue to grow as they add more products to their site directly and invite outside sellers to sell through the Amazon portal. Amazon has even begun developing and selling its own products: the recently-introduced Kindle 2 created much buzz and will fluff Amazon's bottom line as they are the sole retailer of the high-margin product: "A teardown analysis of the Kindle 2 by market research firm iSuppli estimates the cost to build the device at $185.49, or about 52% of its retail price of $359" (Businessweek).

With other offerings like apparel, foodstuffs, and mp3 downloads, Amazon is attempting to diversify into a seller that can supply almost anything a consumer could want. The strategy does seem to be working, as revenue and profit keep increasing despite a sour economy. However, Amazon's weakness has always been tight margins, and margin expansion is unlikely. The internet is an ultra-competitive animal, as many websites (like SlickDeals.net) exist solely to alert consumers to good deals. Amazon's decision to allow outside sellers to sell products on the website (via the Fulfillment-by-Amazon program and the simpler Selling on Amazon option) allows sellers to attempt to match or undercut Amazon's prices, making it more difficult for Amazon to retain healthy markups (except on niche products like the Kindle).

When Amazon can't increase margins, they increase volume, which has worked thus far. I believe it will continue to work, as consumers will increasingly turn to Amazon to meet all of their discretionary needs, so I do believe that Amazon will continue to be a growing, healthy, and increasingly profitable company.

However, Amazon makes the Do Not Buy List due to an overly-rich current valuation. Amazon is expected to make $1.50 per share this year, slapping a price to earnings ratio of over 50 on shares. Even next year's earnings, currently estimated at $1.94, will maintain a P/E of over 40. Since I believe that Amazon will continue to perform well, I'll say that Amazon will make $2.75/share next year - even with such results, the shares would still trade at a 29 P/E. These ratios are much, much higher than competitors, and seem unsustainable despite recent enthusiasm.

eBay, Amazon's most comparable online competitor, trades at a P/E of just 10 (though that is partially attributable to problems with eBay's business). Wal-Mart, the diversified brick-and-mortar retailer, trades at a P/E of 15, while Target, Wal-Mart's smaller competitor, trades at a similar valuation. Best Buy, the electronics retailer, trades at roughly a 17 P/E.

Amazon's business model does differ from these retailers - Amazon is less of a pure-retail play with the addition of revenue streams like music sales, the Fulfillment by Amazon program, publishing, and more - but at its core, AMZN is a retailer. Amazon does have a world-class supply chain and does not have to pay for retail square footage like the aforementioned competitors do. But because a consumer can buy the same books, movies, and groceries from Target or Best Buy, Amazon's margins on such commoditized items will always remain slim.

The bottom line is that Amazon.com is a great company that trades at a somewhat-ridiculous valuation. AMZN will report earnings later this week, and I have a cannot believe that any news could propel shares much higher at this point. Therefore, Amazon will be placed on the Do Not Buy List for the short- to medium-term until margins show signs of improving, or earnings increase to a point where AMZN's P/E falls closer in line with competitors.