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
03/13/14 - 01:26 PM EDT
So much for those who laughingly insisted the FTC would never launch an investigation into Herbalife. An investigation is underway. It won't be over anytime soon and the outcome is uncertain. But in the meantime, what to expect? Beyond the broad and deep request for documents, which is likely to be part of a civil investigation by the FTC, the bigger issue is what the ramifications are for Herbalife and the entire industry, regardless of whether the investigation from Herbalife's perspective is a win, lose or draw. In two years of researching the industry, I've been struck by how multi-level marketers, as a whole, have slipped through regulatory cracks....READ FULL POST
03/12/14 - 12:06 PM EDT
Let's start with the obvious disclosure: I love Twitter. As I've written numerous times, it has become my primary news feed and I use it for disclosure and conversation. But as the company appears to struggle with user engagement, especially with its stock in the nosebleed section of valuation, several things are clear. I believe the company needs to do a better job marketing to users who don't realize they never need to tweet. But there's something else for those who do want to tweet: Outside of merely posting a simple tweet, Twitter is not user-friendly. I started thinking about this after watching CNBC's Carl Quintanilla's interview Tuesday with Twitter co-founder Biz Stone. Stone, who doesn't work at Twitter any longer, said he believes there is 'plenty of room' for improvement. (Easy for him to say!)READ FULL POST
03/12/14 - 09:33 AM EDT
What you may have missed, including takes on Nu Skin, Clean Harbors and pharmaceutical mega mergers. It was a light week as I am working on new stories, but here is a roundup from last week's Reality Check. Plus, as an added bonus, there is a new red flag. Keep an Eye on Nu Skin - The next date that counts will be March 18, which is the deadline for the company to file its delayed 10-K. As I wrote on here last week, the company disclosed that its audit committee had hired "outside counsel" to help with an internal review of Nu Skin's China operations. But why would the audit committee be involved in a review of the company's China operation -- whose operations are being probed by the Chinese government? And why would the audit committee hire outside counsel?READ FULL POST
03/05/14 - 09:54 AM EST
My weekly summary, including takes on Harley, Clean Harbors and RealPage. Here's what you may have missed over the past week on Reality Check, my Herb on TheStreet blog and even social media. What I'm hearing on Harley, from one of my contacts: "Any way you look at it, they are stretching to get the revenue dollars and they are able to charge those marginal credits. More so, the numbers look great at the outset -- but look out down the road if you haven't planned on a huge increase in (credit) losses." What ITT Didn't Say: ITT Education, in a press release, told the Consumer Financial Protection Bureau it has no business suing the for-profit education company....READ FULL POST
03/04/14 - 11:44 AM EST
After seeing RadioShack's horrific fourth quarter results, including a challenged balance sheet and its last-ditch and latest survival plan, which includes shutting 1,100 stores, it dawned on me: I live within seven minutes of two radio shacks. Twenty-five minutes of seven. And probably an hour of dozens.And therein lies its problem with its too-little-too-late attempt to turn things around: I don't go to Radio Shack to buy milk or bread or get our prescriptions filled.I don't need the convenience of a Radio Shack.And when I do go, with the notable exception of buying a burglar alarm battery that went on the fritz overnight -- something only they have -- I almost always walk out empty handed.READ FULL POST
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