Search results matching tag 'James Dlugosch'

Dole IPO busts out of the gate

James Dlugosch — Mon, 26 Oct 2009 21:40:00 GMT

Perhaps the little guy is finally catching on to the games that Wall Street loves to play.

Last Thursday, Dole Foods (DOLE) priced its IPO at $12.50 per share, well below an expected range of $13-$15 a share. Based on that, you might have expected it to move higher when shares opened Friday morning.

But investors sensed something sour in this offering, and it wasn't the pineapple. Shares fizzled from the start and closed down fractionally; they sat at $12.20 at Monday's close.

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That's not a huge loss, but it's far from IPO glory. And it reflects the caution that all investors need to have right now.

Dole has been off the market for six years, since private owners took back company. The private holders of the company no doubt hoped someone would be out there clamoring for shares.

But the discount we see here to the expected pricing range suggests that the rules of the IPO game may be changing.

In the old days, Wall Street would price IPOs in a way that all but guaranteed immediate profits for those allocated shares in the deal before the start of public trading. A long sales pitch consisting of road shows and careful study helped all but the worst IPOs shoot up when they hit the market. Those initial shareholders could cash in almost from day one.

Today, that pricing model is all out of whack. Investors are cautious about deploying capital on a stock that may be trading on hype. Sellers are no longer interested in leaving money on the table for greedy buyers of IPOs who trade and trade as prices go up and up.

As a result, there is a vacuum in the IPO market that causes most IPOs to now go bust, even if they represent solid businesses. That's why I recently suggested that investors consider buying busted IPO's instead of newly minted shares.

There is a deep pool of orphaned IPOs that fell in price after becoming public companies. These busted IPOs trade for lower prices for any number of reasons. In many cases, it is the market that is damaged, and not the company.

Dole's problems have more to do with market mechanics instead of inherent value. In addition to pricing the IPO, the chairman of the company, David Murdock, was simultaneously selling an unrelated convertible debt deal that may have confused investors about the company's real worth.

It was Mr. Murdock who took Dole private in a heavily-leveraged deal a few years ago. Proceeds from the IPO are being used to pay down some of that debt.

The company’s finances are a lot more complex than selling fruits and veggies, and investors appear to be saying not so fast.

That caution is exactly what is needed in this environment. While it would be easy to get sucked into the IPO game, given the bullishness of stocks right now, investors are better served waiting for a better price.

I would stay away from DOLE until the dust settles and check out busted IPO's instead.

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James Dlugosch — Thu, 22 Oct 2009 21:45:00 GMT

Is the market turning into a raging bull?

One sure way to tell if a bull market is back is by examining the number of private companies lining up to become publicly-traded securities.

That number seems to be rising. Last week private equity giant The Blackstone Group (BX) announced that it would be selling many of its portfolio companies via the public market. Interestingly, it was the IPO of BX itself that signaled the end of the last bull market in 2007.

But IPOs are a dangerous game for investors. Companies often debut with a lot of hype and at too-high prices. Stocks shoot up, then fall back as insiders and private investors who hold shares start selling. It’s the little guy who chased down shares in the market that loses.

So, I have a better idea for you: buy shares of busted IPOs. Here's why, plus three failed IPOs to buy now.

Today, at the dawn of a new bull market, some interesting IPOs will soon start trading. But the risks haven't changed. When times are good, the price of an IPO often has minimal correlation to true value, and it's often simply hype. And early investors stand ready to sell and bring prices back down.

Consider instead the case for busted IPOs.

Many companies that have ridden the IPO roller coaster now stand idly by with broken valuations. Their business plans may look suspect. But the froth and hype has also been removed.

If they're good companies with solid businesses and lots of potential, you can buy huge upside potential at much lower cost, with much less downside risk. That’s an equation that makes sense to me.

Here then are three ideas for those interested in the busted IPO.

The Blackstone Group (BX)

Leave it to the ultimate private equity institution to time the market perfectly. The Blackstone Group (BX) went public in late 2007 just as the market was about to reverse course. At the time of the offering, investors scooped up shares enthusiastically, sending the price to above $30. It did not take long for the sellers to push that price down. In fact, the stock did nothing but go down in the first year-plus of trading. The environment was not conducive to big profits for any financial institution, including BX.

But today, you can buy BX for just over $15 per share. You're buying shares as the market for financial services is beginning a new profit cycle. That is far better than buying shares at $30 near the end of the last business cycle. I would buy BX today.

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Orbitz Worldwide (OWW)

Another late-2007 IPO was for the hot online travel booking site, Orbitz Worldwide (OWW). It should be noted that The Blackstone Group had was involved in this offering as well. Shares traded for $15 at the time of the offering, but quickly fell apart in grand fashion. At the bottom, investors could have bought OWW for about a buck per share.

Was the company busted or was the market busted? In this case, the market was the problem. Shares of OWW have since rallied to its current price of around $6.50 per share, far below where they traded initially.

The discount is still a big opportunity for investors. The economy is on the mend, and travel, both leisure and business, looks to increase over time. That should bode well for the booking company that has established itself as a key player in the industry. The stock is worth at least $15 in my opinion.

Dice Holdings (DHX)

Is it really worth the dollars to go public at the end of a bull market? I get the allure, but the subsequent bust of an IPO may ultimately do more damage in the long run. Then again, some lucky private investors are able to profit at the higher sale price. It should be no surprise to find our third busted IPO in the 2007 offering trash heap. Dice Holdings (DHX) went public in late 2007 and has spent its public-trading life in selling mode. The bottom was reached in March at $2 per share.

In the case of DHX, the collapse should not be much of a surprise. The company specializes in job searches. When companies are not hiring, its business will naturally suffer. That said, with a recovery taking place it may be time to look at this business anew. It is a perfect time in the cycle to be buying any business tied to the job market. The job market will be the last thing that improves as the economy returns to growth. Though DHX has returned to about $7 per share, that is half what it sold for in 2007. It is not too late to buy DHX and participate in this IPO at half the price.

Investing in IPO’s can be a thrilling experience. Unfortunately in many cases the thrill is replaced by disappointment. However, buying a busted IPO gives you some of the same thrill and less chance of disappointment.

Get the names and buy prices of 5 More Busted IPOs to Buy Now here.

At the time of this writing, Jamie Dlugosch did not own shares of BX, OWW and DHX in personal or client portfolios.

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401k Match Makes a Comeback

James Dlugosch — Thu, 22 Oct 2009 20:42:00 GMT

Yesterday I wrote about perks for jerks. Today, the little guy gets his due.

While the economy may not be producing jobs sufficient to relieve persistent unemployment, corporations are feeling good enough to reinstate 401k matches to those currently employed.

With times tight and layoffs mounting many corporations suspended 401k matching as a way to preserve capital. No matter that doing so would hurt the very people that corporations depended on for long-term success.

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This was a time for desperate measures. Or was it a way to keep the good times rolling for those at the top?

We’ll never know, but I have my suspicions.

What I do know is that the reinstatement of matches is being done quietly. The reason for doing so is that cutting the matches pretty much happened under cover of darkness.

No sense bringing in the attention when all that attention will do is highlights the ridiculousness of cutting the matches in the first place.

Take American Express (AXP). This financial services behemoth could not pay TARP money back fast enough so as to avoid any scrutiny of management compensation or mishandling of government funds.

Imagine the heat that would come from a revelation of corporate jets and country club memberships at a time when the AXP workforce had its 401k matches suspended. No wonder they are making a come back.

News of 401k matches making a comeback is quite compelling and says much about the health of the economy and the future of the recovery. As worrisome as it can be to say that job growth is a lagging indicator we have evidence now that such is true.

401k matches do indeed cost money and management spending of that money takes a certain amount of confidence. The next step will be for that confidence to grow into downright enthusiasm.

Once that happens hiring will begin en masse. The estimate is that half the companies that suspended 401k matches will return the popular program for employees.

That is a good thing for the market and the economy, even if it is happening quietly.

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Perks for jerks keep rolling

James Dlugosch — Wed, 21 Oct 2009 20:59:00 GMT

After all we have been through, the plush perks for bank CEOs and executives continue to grow unabated. Do they have no soul?

Apparently not. The government has bailed these guys out to the tune of $700 billion or more, yet the golf club memberships and personal use of corporate jets remains the order of the day.

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Memo to the jerks: You cannot continue to behave this way without consequences.

A revolution is brewing, and anger is swelling. This kind of news will not help matters.

Instead of patting yourselves on the back for a job well done, you guys need to take a class on empathy. There are millions of Americans struggling without jobs. Many of those still with jobs find their paychecks barely get them by.

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Is it really ok for you to be teeing it up at the finest club in town, yucking it up with your friends at shareholder and taxpayer expense?

No, it is not ok. You are well-compensated already. Why invite more scrutiny by taking advantage of the situation? The dirty little secret is that there are plenty of executives who could take your place.

Your job is not that difficult. All you need to succeed in finance is a simple middle school level grasp of mathematics and enough common sense to make sure any loan underwritten is likely to be paid back. It is not a tough job.

Generally speaking, I am opposed to government interference in compensation, but the more I see these stories, the more I want to encourage the government to put pressure on these boneheads.

It is not right that the same guys that nearly destroyed the financial system are still being rewarded. I know that some of those receiving perks are merely doing their jobs, and some are doing the jobs well, but seriously, this stuff needs to stop.

Look in the mirror and honestly ask if you deserve that obscene compensation. I think you will be surprised by the answer.

In lieu of the government doing something, I want to see the investor class handle this issue. We need more yelling and screaming, the kind we saw at town hall meetings on health care reform, at shareholder meetings.

Vote with your pocketbooks by declining to invest in companies with obscene compensation. If you hold shares, vote out boards and management that continue to do this stuff.

I know I will look more closely at compensation as a prerequisite for future investment consideration. I will do so until the jerks figure out that the little guy does matter.

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New chief, same problems at Playboy

James Dlugosch — Wed, 14 Oct 2009 20:45:00 GMT

A lot of print magazines are closing their doors. But like a young teen with a secret stash, Alex Vaickus is holding onto his hard copies of Playboy.

Named the new president of Playboy Enterprises (PLA) last week, Vaickus boldly proclaimed that the print magazine would be cut “over my dead body."

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But that's bad news for Playboy shareholders because Vaickus, a 10-year-plus veteran of the company, has little hope of turning around the famous bunny unless he is willing to make bold changes.

Instead of defending the dinosaur, what is needed here is a sale of the company.

In early May I made a case for selling Playboy. With Hugh Hefner being unceremoniously dumped by his latest troika of blond beauties, I suggested that investors sell the stock for a number of reasons.

The old icon of stud was heading for pasture, and the formerly impressive empire is heading out with him. Desperate attempts at reviving the brand have all but failed.

Shares of Playboy fetched $3.21 per share the day the article was published, down from $15 per share a few years back. By the end of May, the stock had dipped to $2.50 per share. The stock traded sideways for most of the summer before getting a boost that pushed it to its current price of $3.66.

The reasons for the move higher had nothing to do with Playboy’s operation. Instead, speculators began buying shares in hopes that the company would be sold. Could a new, younger Hef revive the bunny?

Making a very strong case for such a scenario recently was MSN Money columnist Michael Brush. In Is the bunny a bargain?, Brush suggested that shares of Playboy are worth much more than current value, based on the value of Playboy Enterprises' assets.

The company does, indeed, have a significant treasure chest of goodies, including one of the most famous real estate icons in the world, the Playboy mansion. Even in a down real estate market, that piece of property alone could be worth as much as the market currently values the company.

Add in the magazine and other cash-generating assets, and one gets a valuation at many times the current price.

Of course, we all know that the real value of any asset is the price that someone is willing to pay. With Playboy, is it realistic to assume that someone will pay up for this limp biscuit?

The answer in this case has to be a resounding yes. Think about it for a moment. Playboy is one of the best-known brands in the world. Although the world has passed the company by, the legend remains.

How many hormone-crazed billionaires are lining up to take the robe-and-pipe mantle from Hefner? I can think of a handful just off the top of my head.

At the top of the list would be the Maloof brothers. The successful business entrepreneurs redefined Las Vegas hip with their Palm hotel property, and they have a relationship with Playboy.

These playboys would be a perfect fit to take over for old Hef.

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Also on the list would be Mark Cuban. The owner of the Dallas Mavericks and former playboy may be a less likely candidate as a cultural symbol of Playboy, given that he is no longer a bachelor. That said, he certainly has the resources to pull off a deal.

Finding a buyer will not be the problem for Playboy. The bigger issue for investors in Playboy stock is Hefner. Will he step aside so easily?

One can hypothesize that the man will not walk away without a fight. He has lived the high life, and I suspect wants to continue living it. Hefner without Playboy could even lead to his mortal demise.

At the same time, the man does have a fiduciary responsibility to shareholders, but as we have seen with other executives, such a duty does not always mean doing what is best for shareholders.

Hefner would have to be blown away by an offer to buy the company. Given the emotional cachet, such a deal may be forthcoming. Playboy is a hormonal prize that could very well draw an outsize bid.

Such a bid is more likely to come when economic times are prosperous, though, so investors may have to wait a bit. The possibility of a sale, then, is real. And thinking it will happen is the only justification for owning this stock.

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Obama takes aim at defense industry

James Dlugosch — Mon, 05 Oct 2009 18:02:00 GMT

President Obama's shift in policy regarding missile defense in Europe marks the beginning of the end of the defense stock trade. For the entirety of the Bush administration defense stocks enjoyed a tailwind that provided fuel for significant gains.

Those winds are fading fast.

The trouble with diplomacy is that it replaces action or preemption with talk. Defense companies require action, thus the demise of preemptive foreign policy bodes ill for future profits.

Interestingly, the market has yet to realize the magnitude of the shift.

Defense company stocks have done surprisingly well since Obama was elected. Most in the sector have recovered from an initial spate of selling after the election, and now trade at essentially break-even since November, 2008.

Granted, defense company stocks did lose value in the few months before the election, but the relative stability of shares has been unexpected.

Unfortunately, the market is confusing Obama's style with the substance of his message. Obama wants to take a bipartisan approach to governance and a slow, steady hand in implementing change. That's his style. But the substance of his message is the same: He will drastically reduce defense spending and eliminate wars. The substance is what ultimately matters to the price of defense stocks.

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The way I see it, the defense industry has only received a stay of execution. When the final coup de grace arrives is anyone's guess, but the change in the missile defense program may be the beginning of the end. If this succeeds, it will only embolden the administration to do more with less.

And do more with less should send chills down the back of any defense company investor.

Historically, we outspend our adversaries by a wide margin. That approach helped bring down the Soviet Union, but in today's world of fighting shadowy characters underground, pure dollars will not win the war.

Or at least that is the belief of those now in power. We have to win the hearts and minds of the people, and you do that with peace, not bombs.

If you are still holding defense stocks, I suggest you use the recovery rally as an opportunity to sell. These businesses will be worth less as demand for arsenals declines.

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Olympic rejection will hurt U.S. companies

James Dlugosch — Fri, 02 Oct 2009 22:01:00 GMT

Perhaps it was wishful thinking to believe that global sentiment could change with a new president in Washington in less than a year. While we are taking positive steps to renew goodwill, we still have a long way to go.

The shocking headline that Chicago lost its bid to host the 2016 Summer Olympic Games and that Rio wins is a stunning blow for the wonder kid now in office. Obama, himself from Chicago, staked much on the International Olympic Committee decision, making his appeal in person.

Apparently nobody was buying – and Obama's domestic political opponents are now reveling in his defeat. All that is problematic for a country desperately attempting to restore its image around the globe.

Does it spell trouble on other fronts, including our portfolios? I think it does. The impact on multinational companies based in the US will be profound.

With a domestic economy in shambles, sales around the globe are ever more important. Those sales are much tougher to grow when there is animosity towards us instead of glad tidings.

While many companies, including McDonalds (MCD), Yum Brands (YUM) and Starbucks (SBUX), have growing businesses around the globe, imagine how sales would increase if the world felt more positively about the U.S.

The economic benefits of hosting an Olympic Games are significant. In one study, it is estimated that hosting an Olympics results in a 30% boost in trade that is lasting instead of short term.

Certainly, it could just be that Rio de Janeiro presented a stronger case than Chicago, or that the organizers noted that South America had never hosted the games.

But it's hard not to see a message to the United States from the IOC is that the world still does not want to do business with you.

Those negative feelings create a strong headwind for U.S. multinationals wishing to increase trade.

Obama can talk a good game, but he fell short in his effort here. The way his opponents rallied against the Games didn't exactly say our country could get it done, either.

I also suspect our reputation is in a deeper hole than previously imagined.

That is not good for stocks of companies doing business overseas.

We used to be the model for the rest of the world. Peoples of different cultures wanted to be like us. So much so they bought our products without question. Today, they're not so happy with us, and that's not good for our products.

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New heir at the house of Morgan

James Dlugosch — Tue, 29 Sep 2009 20:13:00 GMT

This morning I saw an interesting interview with Alan “Ace” Greenberg, former chief executive of Bear Stearns, on CNBC. Asked to comment on the views of JP Morgan (JPM) Chief Jamie Dimon, Greenberg demurred and backed the banking genius 100%.

“Whatever Jamie says, I agree,” he said.

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You will not often find Wall Street executives reluctant to share opinions. These guys have strong egos, and Ace has one of the biggest. His deference to Dimon is very telling.

There are few, if any, who can match skills with Dimon. He has a long history of success, culminating with his leadership and stewardship of JP Morgan (JPM). Morgan has nimbly navigated the waters of a recession and a financial meltdown, and emerged relatively unscathed.

Because of that success, Morgan trades only slightly lower than the stock traded before the crisis. Not bad, considering the carnage.

The question for investors going forward is what happens when Dimon retires?

Today, JP Morgan put Jes Staley in line to succeed Dimon by naming him the new head of the investment banking division. The 30-year veteran will replace the current co-chief executives leaving that post.

Investors need not worry about an imminent departure of Dimon, but this move does raise the succession question. Dimon is clearly a star, and when a star leaves, a company can suffer.

Take a look at General Electric (GE). That company has not come close to reaching the levels achieved during the reign of vaunted CEO, Jack Welch.

How about Apple Computer (AAPL)? The technology leader saw its shares plunge on concern regarding the health of its star CEO, Steve Jobs.

It is a tricky business for any company to replace a star CEO, and Morgan won't find it easy. But don’t expect shares to suffer much when Dimon eventually leaves. A bank is not at all like a technology company or an industrial company.

Although the recent crisis might have you think otherwise, a bank is pretty hard to screw up. The crisis was a once-in-a-lifetime event. Generally, banking is a pretty simple business. You hold money, you lend money, you borrow money.

JPM certainly benefits from having the services of Dimon, but the bank will be far from lost when he leaves.

It is encouraging that JPM is planning for the future, but don’t expect the news to move the stock one way or the other. This news is much ado about nothing.

At the time of publication, James Dlugosch did not own shares in JP Morgan, General Electric or Apple.

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When will credit crunch hit credit-card stocks?

James Dlugosch — Fri, 18 Sep 2009 14:17:00 GMT

Does Chicken Little ever give up?

The supposed experts will tell you that one of the economic shoes to drop in the near future is massive credit card debt defaults. Persistent unemployment combined with already cash-strapped consumers mean the payments can't keep rolling in. Or so the argument goes.

The market disagrees, judging by the action in credit-card company stocks this year.

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I have been watching the action closely since the start of the year. You see, I was one of those experts who believed that credit card companies would be in big trouble during 2009.

I was so convinced of such an outcome that I was willing to speculate on the short side of the market with two names that I thought were particularly vulnerable. Both Capital One (COF) and American Express (AXP) were listed in my Top Stocks to Avoid in 2009.

My assessment of the space was accurate during the first quarter. when both of these stocks lost more than half their value. But since that time, these stocks have enjoyed a huge rally.

Today, Capitol One is up more than five times since bottoming in March of this year. Amexis up nearly four times in the same period. These and other stocks in the space have been on absolute fire.

Most impressive is that the gains come despite continued expectations for further defaults and weak conditions for credit. So the key question becomes, is the market acting rationally here?

For the answer investors need to look at the fundamentals. Guessing at default rates, especially when the economy is stabilizing and possibly on a path for growth, is a waste of time.

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Short-sellers of credit card stocks have been burned quite badly because of assumptions that have simply failed to come true.

Another name in the space, Discover Financial Services (DFS), reported third-quarter earnings that beat expectations today. It too has had an impressive move, share price-wise, and the earnings report would suggest the move was justified.

The company posted a profit of $559.4 million, or $1.07 per share, in the period. More importantly, delinquencies were better than expected. The other shoe has yet to fall, but does that justify the current price of Discover shares?

Before the report was released, analysts estimated that Discover would lose money in 2009 and post a small profit of $.21. At $15 per share or so, Discover trades for a significant multiple to earnings.

In addition, Discover owes the government more than a billion dollars from dollars received through the TARP program. On the flip side, DFS has a strong balance sheet and book value that is nearly equal to its share price.

It would appear that DFS is appropriately priced, or possibly a bit rich at the moment. But that will not stop enthusiastic bulls from bidding shares up further, as they did when the earnings report came out.

American Express is expected to earn $1.07 in the current fiscal year and $1.67 in 2010. Such heady growth assumes that credit defaults will not fall off the cliff next year. The growth also fits well with a share price of $35 per share.

AXP trades for just over 20 times 2010 earnings. No frothiness here.

Capital One is a bit different. Here, profits are not expected until next year when analysts assume that COF will make $.76 per share, putting shares at a frothy multiple of earnings. The company has a weaker balance sheet and a history of being quite aggressive with its lending.

I wouldn't say COF is a house of cards, but I would suggest caution.

The big wild card in any of this is future earnings. Coming out of a recession, it is difficult to assess where the numbers will be. If like planetary orbits, growth accelerates at the bottom, we could be in for a period of upward earnings surprises.

If so, all three credit card issues listed here will do well. Still, I'm not recommending you put any new money into any of these stocks. If you already own Discover or Amex, you can continue to hold. Capitol remains a sell in my book.

James Dlugosch does not hold any positions in Discover, American Express or Capital One.

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The Gap's revival is in its jeans

James Dlugosch — Wed, 16 Sep 2009 21:24:00 GMT

The economy is improving, but does that mean people will again go out and blow a few hundred dollars on designer jeans? I don't know about you, but I certainly will not.

Instead, I’m falling back onto old standby: The Gap (GPS).

Do you remember when Gap was cool? I do. I shopped at the GAP from the mid-1980s until the end of the 1990s. But I stopped shopping at The Gap at the turn of the millennium.

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The timing was no coincidence; a lot of people did the same.. More choices, more niche brands and premium jeans retailers sprung up like weeds as the bull market wore on. The Gap got lost in the crowd, and its business suffered.

So did its stock. GPS was a lackluster share during the last bull market, then collapsed during the bear market last year. The move lower was a complete overreaction, as investors sold stocks and asked questions later. From March of 2003 until 2008, GPS traded flat at $20 per share. GPS lost half its value to $10 per share during the 2008 bear market.

But the selling failed to appreciate how well positioned The Gap would be during a debilitating recession. A weak consumer market favors The Gap, with its mainstream prices.

Perhaps that explains why GPS shares are up more than 100% since bottoming in March. They are also up significantly more than the market as a whole, year to date.

Ironically, however, the soft economy hasn't hindered the sales of some premium jeans brands. Premium jean-seller True Religion (TRLG) is also on a run of late. True Religion, with jeans that go from the $200 range on up, has benefited from expectations of a return to status jean buying after the recession ends.

Over time, I'd expect something more like the trading pattern of another premium apparel company, Buckle (BKE). Shares of Buckle bottomed last November, but rallied steadily through May. But since then, shares have sputtered, as investors question the strength of the next business cycle. Shares of Buckle trade for approximately $10 less than the high reached in May; jeans are in the $100 range.

To me, the likely scenario is that after a brush with disaster, the economy is likely to sputter forward over the next few years. Accompanying this unimpressive growth will be stubborn unemployment.

Consumers will still be strained and budgets will remain tight. In that market, premium brands will have a tough go of it. For The Gap, where jeans go for $50-$70 before the inevitable mall sales, the opposite will be true.

Its stable and relatively conservative brands may lack sizzle during the boom times, but its offerings are perfect for the economic environment now and in the future. Shares are relatively cheap as well, despite the 2009 gains.

Analysts expect The Gap to make $1.35 per share this year. At $21 per share, the company is valued at 15 times 2009 earnings. I expect early stage economic growth to push earnings 20% higher in 2010.

If so, there are more gains to be had in The Gap, while premium brands will remain under pressure I would buy GPS and avoid TRLG and BKE.

At the time of publication, James Dlugosch did not own shares of Gap, True Religion or Buckle.

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