"I think viewers quite like it when I'm suffering or eating or drinking something horrible or really up against it in some quicksand or whatever."
- Bear Grylls
Quicksand
The real thing. Not the kind that you see in movies, or in black and white TV shows where someone gets stuck and then slowly disappears. It was more than 30 years ago. We had a young fellow walking well out in front, a Haitian immigrant. I liked him a lot. We also had a kid walking each flank, and one on rear guard. I was the one in the center with the map and the compass. There was only one way to get around in those days. No GPS. If you got lost out in the rain forest, then you really got lost.
For the uninitiated, navigating through a jungle environment is extremely difficult. In a normal circumstance you would shoot your azimuth (direction), and hopefully find something noticeable and distant directly in your path, walk to that spot, and repeat as often as necessary. In the jungle, nothing visible is very distant. It's when you need to move around large obstacles that one's math skills are put to use. Know your stride. Understand the impact of slope upon personal stride, and understand geometry. If you can't use a protractor on a map, then you can't lead.
One day, my point man disappeared right in front of my eyes. In a flash. He was there, and then he wasn't. All that was left was a patrol cover floating on top of some kind of disgusting goo. One of the other guys in the squad (also a Haitian immigrant) happened to be one of the biggest folks I had ever met. This fellow was a former college level offensive lineman who had been to camp as a free agent with the New York Jets. Cut early in camp, he had made a different decision with his career trajectory. These two were fast friends. This football player quickly threw off all of his gear, and put most of his body into that goo, and fished around for his friend. None of the rest of us would have been large enough or strong enough. The point man was a small guy, thank goodness. A scary amount of time passed. The large one grabbed onto something, and finally pulled the other (just covered in the worst stuff, and gasping for oxygen) out of the murk. One of the scariest things that I have ever witnessed. Etched on my brain til my dying day.
Stocks To Avoid
There are a few stocks that remind me of quicksand. That's where I was actually trying to go with that memory. These are not actually short calls. I don't get short a lot of equity. if I don't like a stock, I could sell calls, which is dangerous if you're naked the stock. I would in many cases rather buy puts, though I am slow to lay out capital in this way. I find that selling/writing options is better for the P/L ration over time than buying options. Just as you have a shopping list for down days, every one of you should also have a mental list of stocks you avoid.
1) Facebook (FB) : This one is fairly new to my list. Revenue stream? Growing business? Seemingly tame forward looking valuation? Sure, you may answer yes to all of the above. I feel that there is now too much uncertainty connected to the name, especially now that both CEO Mark Zuckerberg before Congress, and VP of Global Marketing Carolyn Everson in London, have told you that overhead is only going to increase as more employees are brought on to monitor abuse. Any loss of revenue could be short-term in my opinion, but hiring is long-term, and any coming regulation is sure to squeeze profit margins. I am long several FB put options. I think the stock revisits last week's lows, and might consider an equity long position if entry might be gained significantly lower than current levels (perhaps below 140).
2) Wayfair (W) : There just seems to be something wrong here. Yes, I know that Citron Research warned on Wayfair earlier this month. I do not always agree with Citron, in fact, being long a name such as Nvidia (NVDA) , I don't always appreciate their commentary. That said, this firm is something of an enigma to me. Net Sales show dramatic improvement year over year, yet Net Income plummets. EBITDA, Gross profit margins, Sales turnover, and return on assets all seem to headed in the wrong direction over time. Perhaps even scarier is a Quick Ratio that persists at levels below 1.00 even with total cash and equivalents that grew 78% from Q4 2016 to Q4 2017. Hmm. Might it be that total debt grew more 1300% over that same time frame? Maybe.
3) Tesla (TSLA) : Have the short sellers already missed their chance here? I will readily admit that this is the one stock that I have regularly shorted over time (with some wins & losses). Fundamentals are meaningless here. The imagery of an obviously playful CEO at a time when such playfulness was obviously inappropriate was tough on the eyes. This is the current deal. The share price reacted well to the Q1 update. There is no doubt that as Musk ramps up S3 production, gross margins contract. Are rising expenses sustainable? Musk has always been golden when it comes to raising cash. Can this be counted on? He will have to find out prior to year's end. Don't forget that the US EV (Electric Vehicle) tax credit starts to phase out this year. That might pull consumption forward (as you may now be seeing). That may also spell doom for this name, especially as competition from traditional automakers is only going to continue to increase. Given a chance to short this name above 305 in the short-term, I likely do so small. No size positions taken in cult stocks. Not ever.
GoAmateur
GoPro (GPRO) has seen it's share price decline by 41% over the past year. Yet, in Thursday trade, the shares increased in value by more than 7% on speculation. Thank a circulated report that China's Xiaomi has contemplated acquisition. Unless you indeed buy this name on pure spec, I can not for the life of me, even imagine spending five bucks on one share of this stock. For that money, I would rather buy a gallon and a half of gasoline, or maybe two gallons of milk. Other than the fact that competition is fierce, and really anybody who can manufacture a camera can do what this firm does, what's really wrong with this company? The real question is where to even begin? Drones? No, GoPro already exited that business.
1) For Q4 2016, the firm reported EPS of $-0.30 on revenue of $338.4 (-38% y/y/), both numbers badly missing expectations. the firm reports Q1 2018 data on May 3rd. Expectations are currently for $-0.48 on about $175.4M. If they hit this revenue number, that would represent a 19.7% drop from Q1 2017.
2) Over the past year, Gross Profit Margins have dropped from 41.3% to 26.6%, while Operating Margins have plummeted from a barely profitable 1.9% to -16.3%.
3) In that same span of time, book value has dropped from 3.16 to 2.18, and total debt has ballooned from nearly zero to $130M. While Current ratios remain a comfortable looking 1.55, and show improvement, once inventories are stripped out, the Quick Ratio languishes below 1.00, and you know what that means. (For you non-accounting majors, that means in theory that the firm could have a problem meeting short to medium term cash needs if forced to liquidate.) Is solvency an issue? They do have some nice cash on hand, so .. no, not yet. That said, growth is certainly a problem.
Economics (All Times Eastern)
07:30 - Fed Speaker: Boston Fed Pres. Eric Rosengren.
09:00 - Fed Speaker: St. Louis Fed Pres. James Bullard.
10:00 - U of M Consumer Sentiment (April-adv): Expecting 100.8, Last 101.4.
10:00 - JOLTS (February): Expecting 6.19M, Last 6.31M.
13:00 -Baker Hughes Oil Rig Count (Weekly): Expecting 799, Last 808.
13:00 - Fed Speaker: Dallas Fed Pres. Robert Kaplan.
Today's Earnings Highlights (Consensus EPS Expectations)
Before the Open: (C) (1.62), (FHN) (.31), (FRC) (1.07), (JPM) (2.28), (PNC) (2.43), (WFC) (1.07)
