The New Year Brings New, and Possibly Less Competitive Shorting Opportunities

By: Reggie Middleton | Fri, Jan 2, 2009
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Happy New Year all! With the new year comes the possibility of a strong bear market rally, which brings with it the potential to profit from the same companies whose fundamentals and macro situation led them to be profitable short candidates in 2008. While I don't give trading advice, I do want my subscribers to be aware that a sharp increase in a weak company's share price does not necessarily make that company stronger. Keep in my mind the 12 months that I held on to my GGP bear trade. This company had several major price run ups that pushed the position into deep drawdowns, which enabled me to double up on the position without incurring significant option premiums and paying much less for short stock positions. I was able to do this because I had conviction and confidence in my research. If the research is followed consistently over an extended period of time, there should be enouch profit and confidence for the average follower to easily endure drawdowns and adverse market movements with confidence and aplomb! Remember, once you break 100% in net profits, you should be playing completely with the house's money!

I say this because I don't want the less experienced subscribers to mistake my fundamental valuation style for that of an active trader. I can't predict the future, but I am very good at analyzing the present. With those thoughts in mind, I wish you to remember that I believe 2009 will see quite a few company failures, starting with retailers in the first and second quarters as banks wait for the holiday revenues to finish being counted.

On that note, we have finalized the Consumer Retail shortlist and identified five companies (of the original 16 shortlisted) as the most overpriced in fundamental terms, hence could see further correction in their share prices in the coming months. Below, you can find the companies that were culled from the shortlist (I removed the actual picks out of the list, and will start issuing reports on them within a week and a half for paying subscribers). I have highlighted some of the rejects in red in the table below, for they may be of interest to somebody. We performed a historical trend analysis of all the 16 companies intially shortlisted, cut down from over 500 found in the scan, and came up with 4 strong candidates. Unfortunately, two of them were very thinly traded with no underlying options, thus representing too much risk for my tastes. I am keeping them on the back burner as a speculative trade in the case of a major market move to the upside which should minimize my risk. The other two should have a forensic report ready for paying subscribers in a week or two. Keep in mind that we have not looked into any qualitative aspects in the shortlist below.

Growth (%)
Net Income
Growth (%)
Cash Flows
Q108 Q208 Q308 Q108 Q208 Q308 Q108 Q208 Q308
Alaska Air Group 25.5 -1.6% 110.9% -39.8% -585.1% -171.9% -435.3% 34.4 104.1 141.0
Allegiant Travel 41.8 31.9% -1.2% -11.2% 102.7% -72.6% 84.5% 43.8 29.7 26.4
AmeriGas Partners LP 28.0 34.5% -46.8% -1.8% 144.8% -106.6% 132.7% 28.2 103.0 180.2
Children's Place 23.2 -40.3% 84.5% -39.0% -133.4% 0.1% 23.2% (1.2) 143.1 111.1
Churchill Downs 37.2 -26.2% 172.8% -44.5% -112.1% 3821.3% -91.6% 44.5 85.0 74.6
Costco Wholesale Corp 53.7 7.3% -2.0% 39.0% 25.1% -10.0% 34.8% 853.4 1,763.2 2,176.2
Omnicare Inc 22.1 0.1% -0.6% 3.4% -244.2% 22.9% 56.8% 142.3 228.6 331.9
O'Reily Automative 28.1 6.9% 9.0% 57.8% 14.1% 20.4% -25.8% 118.9 215.5 289.3
Owens & Minor 37.6 0.2% 2.4% 0.9% 7.8% -2.4% 7.0% 108.4 79.0 123.6
Walmart Stores 55.3 -11.3% 107.6% -50.1% -26.2% 114.1% -51.5% 3,705.0 9,983.0 10,173.0
Wynn Resorts 44.3 9.5% 6.0% -6.8% -28.6% 482.2% -81.2% 138.3 338.8 488.8

I am also preparing reports on more European banks and insurers. This is going to be a bad year for the UK and the Eurozone! Paying subscribers should have a lot of info and ideas to digest in the next few weeks.



Reggie Middleton

Author: Reggie Middleton

Reggie Middleton

Reggie Middleton

Who am I?

Well, I fancy myself the personification of the free thinking maverick, the ultimate non-conformist as it applies to investment and analysis. I am definitively outside the box - not your typical or stereotypical Wall Street investor. I work out of my home, not a Manhattan office. I build my own technology and perform my own research - in lieu of buying it or following the crowd. I create and follow my own macro strategies and am by definition, a contrarian to the nth degree.

Since I use my research as a tool for my own investing to actually put food on my table, I can stand behind it as doing what it is supposed too - educate, illustrate and elucidate. I do not sell advice, I am not a reporter hence do not sell stories, and I do not sell research. I am an entrepreneur who exists just outside of mainstream corporate America and Wall Street. This allows me freedom to do things that many can not. For instance, I pride myself on developing some of the highest quality research available, regardless of price. No conflicts of interest, no corporate politics, no special favors. Just the hard truth as I have found it - and believe me, my team and I do find it! I welcome any and all to peruse my blog, use my custom hacked collaborative social tools, read the articles, download the files, and make a critical comparison of the opinion referencing the situation at hand and the time stamp on the blog post to the reality both at the time of the post and the present. Hopefully, you will be as impressed with the Boom Bust as I am and our constituency.

I pay for significant information and data, and am well aware of the value of quality research. I find most currently available research lacking, in both quality and quantity. The reason why I had to create my own research staff was due to my dissatisfaction with what was currently available - to both individuals and institutions.

So here I am, creating my own research for my own investment activity. What really sets my actions apart is that I offer much of what I produce to the public without charge - free to distribute and redistribute, as long as it is left unaltered and full attribution is given to the author and owner. Why would I do such a thing when others easily charge 5 and 6 digits annually for what some may consider a lesser product? It is akin to open source analysis! My ideas and implementations are actually improved and fine tuned when bounced off of the collective intellect of the many, in lieu of that of the few - no matter how smart those few may believe themselves to be.

Very recently, I have started charging for the forensics portion of my work, which has freed up the resources to develop the site to deliver even more research for free, particularly on the global macro and opinion front. This move has allowed me to serve an more diverse constituency, which now includes the institutional consumer (ie., investment turned consumer banks, hedge funds, pensions, etc,) as well as the newbie individual investor who is just getting started - basically the two polar opposites of the investing spectrum. I am proud to announce major banks as paying clients, and brand new investors who take my book recommendations and opinions on true wealth and success to heart.

So, this is how I use my background and knowledge in new media, distributed computing, risk management, insurance, financial engineering, real estate, corporate valuation and financial analysis to pursue, analyze and capitalize on global macroeconomic opportunities. I have included a more in depth bio at the bottom of the page for those who really, really need to know more about me.

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