The New Year Brings New, and Possibly Less Competitive Shorting Opportunities
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.
|Alaska Air Group||25.5||-1.6%||110.9%||-39.8%||-585.1%||-171.9%||-435.3%||34.4||104.1||141.0|
|AmeriGas Partners LP||28.0||34.5%||-46.8%||-1.8%||144.8%||-106.6%||132.7%||28.2||103.0||180.2|
|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|
|Owens & Minor||37.6||0.2%||2.4%||0.9%||7.8%||-2.4%||7.0%||108.4||79.0||123.6|
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.