Why CKE May Feel the Heat from a Revived McDonald's, Safe-Haven Stocks and More CHS

Author:
Publish date:

Pre-Labor Day:

Big Mac Attack:

McDonald's

(MCD) - Get Report

is pulling out all the stops with a special Big Mac promotion that offers coupons for 49-cent Big Macs, 20-cent hamburgers, 18-cent fries and 10-cent soft drinks. Couponing is never good for margins, especially for competitors forced to react. Of all the public fast-food chains, the one that needs this kind of pressure the least is

CKE

(CKR)

, which owns

Carl's Jr.

in California and

Hardees

throughout the South and East. CKE is in the process of trying to turn around Hardees, which it acquired last year; results, so far, are mixed. Lower margins, if even for just three weeks, could take a bite of CKE's profits. Any success by McDonald's, on the comeback trail, could take a chunk.

Safer haven?

Thinking about the odd places that have held up well, or been hurt little, I couldn't help but wonder how Harry Eisenberg's world was doing. Eisenberg publishes the

Walkers Manuals

of unlisted stocks, community bank stocks and penny stocks (www.walkersotc.com), and he reports his diversified portfolio of 26 infrequently traded stocks did quite well -- up 2% for August. "Five had double-digit gains," he says. These are companies whose stocks, for the most part, are only available when sold to the public by family members, other insiders or what is usually a small group of public holders. These are companies like

Adrian Steel

,

Louisville Bedding

and

Rio Plastics

that trade only on the pink sheets and/or over-the-counter bulletin board.

"They're not reacting to the external market," he says. "They're only reacting to their own performance. That's what makes them different. You don't have institutional buying and selling pressure, so people who invest are typically there long-term. And they're not anxious to unload unless something fundamentally changes, which typically doesn't happen."

Eisenberg also invests in unlisted community bank stocks, which are easier to buy and sell than nonbank unlisted stocks. His small portfolio is down 3% from May 1 to Aug. 31; that compares with a 25% drop for the

Nasdaq

bank stock index.

It's official:

CHS Electronics

(HS)

CEO Claudio Osorio is the

recipient of this column's Chutzpah award. He sealed it yesterday when, in apparent response to this

column, CHS issued the following press release: "Starting today, senior executives of CHS Electronics Inc., a leading international distributor of microcomputer products, intend to make personal purchases of a significant number of shares of the company's stock, Chairman and Chief Executive Officer Claudio Osorio announced.

"Mr. Osorio said key members of the CHS senior management team have committed to buy the shares because of their confidence that at current price levels CHS shares represent an exceptional value."

What he failed to say, or explain, is why the Osorio-controlled

Comtrad

is buying puts and selling calls in CHS' stock as a so-called collar. As this column reported yesterday, the original collar was set up on May 20, and there's no evidence that it has been closed, in which case Comtrad (Osorio) is roughly $4 million in the money. CHS bills itself as the world's third-largest electronics distributor.

Osorio declined further comment.

No celebration:

At least not at

Party City

(PCTY) - Get Report

. A recent item

here raised questions about a number of issues, including why selling franchisees would accept bids equal to half sales while Wall Street was paying one times sales for the stock. Why would franchisees take less than the going rate for the stock on Wall Street, even as the company's inventories were bloated and its debt and credit lines were rising? The company

responded that the issues in the column were of no concern.

Which brings us to yesterday, when the company announced earnings will miss analysts' estimates. It blamed factors unrelated to those in the column, and said it expects to be back on track next quarter. It had better hope so, if Wall Street's reaction to yesterday's announcement is any indication of what will happen if the fourth quarter doesn't go as well as expected: The stock fell 5 9/16, or 34%, to 10 11/16.

Duh!

For those of you who read the early versions of this column, an item regarding

The Learning Co.'s

(TLC) - Get Report

receivables said they had been sold off, or factored, but that an increase in days outstanding of receivables meant it would take longer for the company to collect. Duh! It already got the money from the party that bought the receivables. What I should've said: The long days outstanding shows the company merely has sold goods customers can take their sweet time in paying for. Sure, TLC gets the cash by selling off the receivables. But the more receivables days outstanding, the more aggressive, it would appear, the company was in booking its sales.

Herb Greenberg writes daily for TheStreet.com

. In keeping with the editorial policy of

TSC

, he does not own or short individual stocks. He also does not invest in hedge funds or any other private investment partnership. He welcomes your feedback at herb@thestreet.com. Greenberg also writes the monthly "Against the Grain" column for

Fortune.