Deep Value Letter - Banner Ad / Email Capture

Friday, September 24, 2004

week in review

market was down about 1% on the sp for the week,running out of steam at the 1130 area..a long way from the 1140-50 area I thought we would get to before topping out..interest rates and oil continue to be the twin fears keeping a lid on prices along with the break below the much fabled and feared 200 day moving average that has the chart boys all oil continues to become more volatile its worth exploring oil and gas trusts as trading vehicles ...(right now they are pretty elevated levels and i would not be a buyer.)... thats on the agenda for the weekend, along with restoring the apartment to a normalized condition.Nothing really new to add this week ISSI hit the buy point but I am already choking on semiconductors(and donuts)..for income oriented accounts pja and cei hit buying levels and both yielding in the 10% area are decent buys.....selling puts on deep value stocks was just about breakeven for the week with the overall value declining in our favor about has been correctly pointed out to me that we should be long calls on some of these as well so as to profit from any increase in volatility in addition to upward price moves.....on the large cap side pfe and aig look like interesting trades at these levels...pfe has now closed down 8 days in a row,sliding 10% over that is down 4 days in a row,slipping a little over 5%...

looking at next week I think we hold near the round of 1100 (oh hell lets just join the merrill, mr e chorus and call it 1104) and have topping in the 1135 neighborhod...1140-45 looks to be a serious level to watch on the upside from a longer perspective with 1080 on the downside being what I would think would be the stopping point for any serious selloff.this is all with the usual dont know crap about timing cavaet but making (un)educated guess only

favorites are capa..quickly becoming one of my man i really like this stock favorites, matrix on any kind of sell off,lens and mosy

portfolio news this week

pep boys got trimmed by goldie today

4:10 (Dow Jones) Goldman Sachs analyst Matthew Fassler lowers his 3Q estimate for Pep Boys - Manny, Moe & Jack (PBY) to 22c from 27c and his 4Q forecast to 12c from 13c. Fassler keeps his 2005 estimate at $1.20 and maintains his in-line rating. Pep Boys is working to stabilize its service business, but it's a challenge given the tough environment and the recent shift in its cost structure toward hourly installers - a fixed cost - versus commissioned technicians - a variable cost, Fassler says. (DJH)

they presnt at the weisel conference on monday and that may light a little fire to reverse todays goldie induce 8% sell off

a decent business week piece on the dreaded damn donut stock that shall haunt us endlessly:

BusinessWeek OnlineWhy Krispy Kreme Is Worth A BiteFriday September 17, 3:57 pm ET Are doughnuts poison? You might think so, from a look at Krispy Kreme Doughnuts' (NYSE:KKD - News) stock chart. Under $12, the stock's off 77% in 13 months. Yet few on Wall Street see an opportunity. Indeed, the stock is nearly inedible to investors, who fret over the low-carb craze, not to say Krispy Kreme's own many blunders.
Although you might call me the Will Rogers of doughnuts (never met one I didn't like), Krispy Kreme's shares never tempted me. Way too rich. Yet now I'm wondering: Is all the bad news already reflected in the stock? Investors are giving Krispy Kreme a market value of $750 million, putting it 24th on the list of restaurant stocks, well below even such careworn names as Panera Bread (PNBA.). Are they overreacting? INDISPUTABLY, THE STOCK presents some glaring risks, starting with the Securities & Exchange Commission's probe into how Krispy Kreme bought back franchise rights in such markets as Dallas. Whether the SEC ultimately will force Krispy Kreme to account for these deals differently is a question mark. Another is future profit growth. Krispy Kreme first said it expected earnings this fiscal year, ending January, of about $1.17 a share, a 29% gain. In May, it revised that to $1.05 or so. In July, when Krispy Kreme disclosed the SEC's inquiry, it noted that the agency also was questioning the lower estimate. On Aug. 26, it quit forecasting earnings. Hardly an alluring outlook. Just the same, these worries may pose less danger to investors than to management's credibility. Take the SEC. Although the agency does not discuss its probes, Krispy Kreme described the inquiry as informal. Let's say, though, that it turns more serious, and Krispy Kreme ends up restating its books. That might prove humiliating for Chief Executive Scott Livengood. He is not talking now, but in July he declared: "We are confident in our practices." For investors, however, it would hardly spell fresh financial trouble. If Krispy Kreme had to take the extreme step of writing off all of the $124 million in reacquired franchise rights that it booked as intangible assets in fiscal 2004, it would post a huge special loss and slash shareholders' equity, to $4.98 a share from $6.94. But even in this drastic -- and highly unlikely -- event, cash flow would be untouched: The dough Krispy Kreme spent to buy those franchise rights is long gone. It's history. A bigger imponderable to me is Krispy Kreme's future profits. In August, the company told analysts it would slow its expansion, which took it to 427 stores now from 218 in February, 2002. One aim of the more tepid growth plan is to focus on widening margins at newer stores. Another is to use capital more sparingly via more modest stores, which rely on smaller machines to produce fresh, hot doughnuts. What might these moves produce? Better cash returns. In this year's first half, Krispy Kreme posted operating cash flow of $50 million, up from $38 million the previous year. Suppose the company can match fiscal 2004's full-year cash flow of $95.6 million. Then, because Krispy Kreme now is spending less on expansion, it could wind up with substantial free cash flow -- that is, cash after capital spending and acquisitions -- for the first time since going public. Don't expect Krispy Kreme to regain its status as a cult stock. Yet the shares have room to rise. The Street's bearish consensus on earnings is 69 cents a share this fiscal year and 81 cents in 2006. That means the stock's price-earnings ratio is less than 0.9 times its expected growth rate. The average comparable figure for other restaurant stocks is 1.3 times. With apologies to Will Rogers, who once quipped that if a stock "don't go up, don't buy it," Krispy Kreme is a buy.

mylan and ichan continue to mix it up over king....

speaking of ichan he increased his stake in westpoint last week:

Icahn ups WestPoint stakeBy StaffHome Textiles Today -- 9/24/2004NEW YORK — Clearly seeing value in a company, and an industry, that others have walked away from, high-profile financial engineer Carl Icahn has reportedly increased his stake in WestPoint Stevens as the textiles titan gets ready to emerge from bankruptcy, possibly by early next year. Icahn bought a chunk of WestPoint's second-lien bank debt in May, and is now said to have taken an even larger position in the company, buying about a third of its first-lien bank debt from Q Investments, a private investment firm based in Fort Worth, Texas. The move would put Icahn in a position to engineer an outright takeover of the company as it emerges from Chapter 11, swapping his debt for shares in the reorganized company. Holders of secured bank debt, as opposed to bond holders, are first in line when it comes to getting something in a bankruptcy restructuring, usually exchanging their bank debt for common stock. Mary Gilbert, managing director of Imperial Capital, a Beverly Hills, Calif., investment firm which tracks the company, said WestPoint's first-lien bank debt totals about $456.7 million, which would value a one-third stake at about $162.2 million.

No comments: