04/07/14 - 09:43 AM EDT
Whenever you see a deal like Mallinckrodt buying Questcor, you have to ask: Is this a case of smart seller, dumb buyer? I've done zero work on Questcor, but over the past few years I've talked to a few very serious short-sellers who have. When I saw the news this morning, the first thing that crossed my mind: Mattel buying The Learning Company....Hewlett Packard buying Autonomy...Medtronic buying Arterial Vascular Engineering. All three of the targets were the focus of short-sellers, and all three famously blew up, or otherwise caused havoc, once inside the new parent -- for the very reason the short-sellers had been short. Mattel was perhaps the most wounded, and almost taken down by what it found once it owned The Learning Company. No idea if that will happen here, but a quick peek at Mallinckrodt's history sure is a twisted tale....READ FULL POST
04/04/14 - 09:00 AM EDT
Nobody's always right when it comes to stocks.I've learned that the hard way more than a few times in decades of reporting, researching and writing about companies. Even the smartest -- yes, that includes Warren Buffett -- sometimes get it wrong.In the end, when I mess up, I fess up -- and I always do a personal post-mortem. It's humbling, but it helps and often comes in handy as a reference point, and hopefully a lesson learned.If there's any theme, it's this: The worst mistakes often come from being too smart for your own good, especially when putting too much trust in your experience, perspective and instincts. It's important to trust your instincts, and I think mine are very good when supported by what I believe to be solid research -- and often just common sense. But every now and then, they steer me wrong. (Moral: Trust, but verify -- and verify, again!)These are a few of my biggest blunders, which also turned into big stocks.READ FULL POST
04/04/14 - 08:32 AM EDT
I have a confession: I'm all for shareholder rights, and generally side with the corporate governance crowd on almost everything. But when it comes to two or even the three classes of shares -- the latter being the route Google has just gone -- I just don't get exorcised. Class A and B shares are a growing trend, especially in Silicon Valley. Insiders tend to have the voting shares; everybody else (you and me) don't. By going so far as to create Class C shares, Google's not-so-subtle main goal is to ensure that founders Sergey Brin and Larry Page retain majority control. The downside of the A-B structure, of course, is that it can protect complacent management. I abhor management being run for the sake of protecting management. Shame on them! That's why, in general, I'm a fan of activists. But I equally abhor the rise of overzealous activists who swoop in, seeking some kind of short-term financial engineering to get a short-term pop in the stock, because they see an easy mark.READ FULL POST
04/02/14 - 09:33 AM EDT
What you may have missed, including takes on Micron, SolarCity, Zagg, Fastenal, Family Dollar, Sysco and Nu Skin from the past week or so. When Micron reports earnings Thursday, expect a lot of focus on pricing in dynamic random-access memory (DRAM). In a piece on Reality Check headlined, Is Micron headed for a Tumble?, the issue in focus was whether DRAM capacity is quietly increasing -- and, if so, whether prices could start to slide. The battle lines, involving some very smart people, have been drawn: Bulls think prices could show surprising resilience, and bears don't. But, as I wrote, the answer isn't likely to come with this quarter's earnings. This is something that, if you believe the bears, is currently evolving. The bigger question is whether there is a new world order in memory.....READ FULL POST
03/31/14 - 11:55 AM EDT
Before your eyes roll -- if you do nothing else, scan down to the bold-faced part of this story, and start reading from that point on. If you have a few minutes more: Last week's SEC suit against L&L Energy CEO Dickson Lee on fraud charges didn't make the headlines. Nor did the news that he landed in a Federal prison in Seattle, waiting for an arraignment Tuesday, as the Feds seek criminal charges against him on the same securities charges. My only question, even though these are just charges: What took 'em so long?READ FULL POST
03/25/14 - 09:30 AM EDT
Ask veteran short seller Andy Matthes what three stocks he think are unusually risky and, after thinking a second, he quickly names them: Family Dollar, Fastenal and Sysco. They're among several dozen stocks in the Teton Valley Fund, a new short-selling mutual fund he co-manages with short-selling analyst Gary Cooper. Like the rest of fund's portfolio, these are big, liquid and, unlike so much of the focus in the short community, not shorts because they believe they're disasters in the making. Instead, Matthes says they're "companies that go through the natural business cycle and have a hiccup. It doesn't make them bad people or bad companies." But what it does, if Matthes' and Cooper's financial statement sleuthing is right, is make them ripe for a tumble. Even in markets like this, which have been devastating for the shorts, stocks that somehow turn in unexpectedly bad or disappointing news do tumble.READ FULL POST
03/19/14 - 09:41 AM EDT
Here's my quick read of the China disclosures in Nu Skin Enterprises' just-published (and delayed) 10- K. The only thing that really mattered to me was the highlighted line: "It is currently unclear what impact the adverse publicity and our voluntary actions will have on our business in this market in the longer term or whether these voluntary actions will be effective in addressing concerns of regulators in Mainland China. Regardless, it is likely that we will be fined and could potentially face some other form of sanctions from these regulators." That the company tells you that it is likely to be fined and that it could face other sanctions is significant. Nu Skin has already said that its audit committee is investigating the situation in China, where Chinese regulators have launched a probe of Nu Skin. Part of what the Chinese are looking at, the company says, is the "structure of our sales organizations and compensation and whether they violate application Chinese regulations."READ FULL POST
03/19/14 - 09:36 AM EDT
What you may have missed, including insight on Herbalife, Usana and a yellow flag on Twitter. As Twitter tries to build growth in engaged users, I believe it needs to work on something else: making Twitter less arcane for new users. As I pointed out in a piece headlined "Twitter is Too Arcane," as Twitter pushes to the next level, if it wants to make itself appeal to the next-level of adopters it must make itself user friendly. Engaged users, or monthly average users by timeline view, by the way, is perhaps the critical metric to watch when the company next reports earnings. Don't buy any of those, "but, look it's up so much from a year ago" comments (even though it isn't). This is a growth company, so it's got to show sequential growth -- from quarter to quarter -- not quarter over quarter.READ FULL POST
03/18/14 - 06:49 PM EDT
Let's put this in the "bubble alert" file:We either are or are not in a bubble. I'll let the experts debate that one. But when I read this piece on MSN Money (which was later deleted), written by someone at Benzinga (where the article is still available), I stopped in my tracks. The headline: "3 Reasons to Tap Home Equity to Buy Stocks." Subhead: "Here's why leveraging your house to scoop up deals in the stock market might pay off big."Holy fill-in-the-blank, Batman.The story points out that "there are many stocks that have dividend yields higher than mortgage rates," and concludes: "Using the proceeds from a mortgage to buy equities can monetize a holding, increase the investment income and raise the level of liquidity for a portfolio. For long-term investing, there is nothing better."Reality: Nothing could be further from the truth.READ FULL POST
03/13/14 - 03:01 PM EDT
The body slam of World Acceptance's shares, after it disclosed it's being investigated by the Consumer Financial Protection Bureau, shows how some stocks are elevated from here to kingdom come on air and (at the first sign of trouble) weak-kneed investors. World, which I originally red flagged in 2012, has been an expert at keeping itself inflated on buybacks. That points to an inherent flaw in buybacks: The prospect that shares will fall below the buyback price. That's especially true at companies like World, which are walking a thin line in a world of controversy and use buybacks to keep their shares from falling.READ FULL POST
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