Greenberg: What You May Have Missed
SAN DIEGO (TheStreet) -- Here's what you may have missed over the past week, including takes on Micron, SolarCity, Zagg, Fastenal, Family Dollar, Sysco and Nu Skin.
-- Will Pricing Pressures Hit Micron?
-- Solar City Flying Too Close to Sun?
-- Logitech Taking Zagg Out of Its Misery?
-- Why are Fastenal, Family Dollar, Sysco in One Shorts' Sights?
PRICING PRESSURES AT MICRON?: From the past week or so on my Reality Check newsletter, and the Herb on the Street blog:
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 -- in which prices are kept tight for the obvious reason -- or whether, in the end, even with industry consolidation, the dynamics of this industry from a competitive standpoint aren't likely to change.
And this update: My original piece noted a delay in the pricing at the DRAM Exchange of contract DRAMs, used in PCs. The delay suggested prices could fall further as manufacturers and customers took longer-than-usual to negotiate. After a two-week delay, prices fell just shy of 1.6%, which is a less of a slip than the decline in February. That is one reason Micron's price shot up Monday; the other is strong re-recommendation by several analysts. Typically, contract prices follow spot prices, which have been tumbling. On Monday, at least one analyst said spot prices are not as reliable an indicator as they once were. On the other hand, CLSA's Matt Evans (who is based in Korea) wrote a note reiterating his sell recommendation on DRAM maker Hynix, saying, "The structural positives of the DRAM industry have been exaggerated."
An industry call, bullish or bearish, doesn't get any more tense or polarizing as this one. There doesn't appear to be any gray. The level of intelligence on both sides is enormous. It would not surprise me to see Micron's stock rise further after earnings on sentiment that, "Whew, the bears don't know what they're talking about." But, then again, to reiterate: If the bears are right, this will be a story that evolves over the next two quarters.
The bottom line will ultimately boil down to capacity: Will it or won't it rise? As I wrote in my original piece, when it comes to adding capacity, a company such as Micron, worried about Wall Street, is likely to keep supply tight; a company such as Samsung, which doesn't care about Wall Street, can quietly add capacity, even if it's not doing so now. Memory has always been a share-grab game. The issue now: Once a share-grab game, always a share-grab game? Buckle up. Given the stock's rise, the red flag remains.
TOO CLOSE TO THE SUN FOR SOLARCITY?: When I started researching SolarCity (SCTY - Get Report), I was struck by how downright complicated the company is. It's more than just putting solar panels on houses and selling power.
As is often the case, as I wrote the piece, the more questions I had, the more confused I got. Heightened complexity also makes a company opaque -- and opaqueness is generally reason for investors to be on guard.
TAKING ZAGG OUT OF ITS MISERY: Late Monday, news surfaced on The Deal that Logitech (LOGI - Get Report) may buy Zagg (ZAGG - Get Report). That would certainly be good -- for Zagg, at least. The Deal, a sister publication of The Street, quoted industry sources as saying Logitech could be interested in both Zagg and Monster Cable, a private company. As I wrote, the story isn't far-fetched. With a deal, Zagg would be taken out of its misery. The risk, of course, is that a buyer doesn't know everything it is getting. 9.4% of Zagg's float is sold short -- and, even after the recent earnings report, that's a risk that shouldn't be taken lightly.
STOCKS ON NEW SHORT FUND'S RADAR: Ask veteran short seller Andy Matthes what three stocks he think are unusually risky and, after thinking for a second, he quickly names them: Family Dollar (FDO) , Fastenal (FAST) and Sysco (SYY - Get Report). As I pointed out, they're among several dozen stocks in the Teton Valley Fund, a new short-selling mutual fund Matthes co-manages with short-selling analyst Gary Cooper. Like the rest of fund's portfolio, these are big and liquid -- and, unlike so much of the focus in the short community, they're not shorts because the fund's managers believe they are disasters in the making.
NU SKIN FLEES CHINA FOR THE UAE: I never wrote about this, but things are going so well for Nu Skin (NUS - Get Report) in China, after getting fined, that the company is now flying all of its nearly 14,000 distributors out of China to Dubai for training sessions.
FINALLY, I HOPE THEY NAIL THIS SUCKER: The feds are finally going after Dickson Lee, the CEO of L&L Energy (LLEN), a controversial Chinese coal company. I wrote about the company long ago. Since then, GeoInvesting has done a deep dive that appears to have helped the government shape its case. If you do nothing more, and want to read about it skim to the bold-faced part in my take on it and read from there.
-- Written by Herb Greenberg in San Diego