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Why the Parent of Thomas Kincade Galleries Is on One Manager's List of Stocks

I've gotta be honest. The first time New York money manager

Roger Lipton


Media Arts



ARTS) to me a month or two ago, I laughed and blurted out something like, "You've gotta be kidding."

This is a company whose principal business is selling the "feel good" lithographs and canvas copies, accessories, collectibles and gifts based on the works of artist

Thomas Kincade

, who is known as the "Painter of Light."

According to the company's own description, Kincade's art features the "unique use of light and his peaceful and inspiring themes" with a message "that celebrates home, family, nature and traditions ... to create positive environments in which to live and work."

The company's products have almost a cultlike following with certain types of collectors, which is where the "you've gotta be kidding" comes in. And if all goes well, it hopes to turn Thomas Kincade into a lifestyle brand for the masses that rivals the likes of

Ralph Lauren


Martha Stewart

through strategic relationships and licensing deals with the likes of

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What's even more intriguing is that Lipton is a buyer. He was quoted

here a few weeks ago singing the praises of a few down-and-out retailers, especially

Restoration Hardware



RSTO). (Take a look at it now.) But from a credibility standpoint, he also prides himself on having been among the first to short such companies as

Boston Chicken



BOSTQ) and

AMF Bowling


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So, what attracts him to something like Media Arts? Almost everything. The stock lost the momentum gang a month ago when its same-store sales failed to meet expectations, thanks to an overly wet summer in Carmel, Calif., where there are a handful of Kincade Galleries.

But profits, reported two days ago, were in line with his expectations. "The clear question is, how far can you take this painter?" he says. "At what point is saturation? I'm a guy who knows hype when I see it." And he doesn't see it here.

What he sees is a company that sells its paintings, at prices from $50 to $15,000, at more than 145 galleries and stores -- many of which are in California and other tourist locations. Its sales per square foot have held steady at $1,350 -- one of the highest if not the highest in the retail industry.

Furthermore, it boasts a 53% return on equity and a 33% return on assets. "A company generating a 15% or 20% return on equity would be fabulous," Lipton says.

He also believes earnings estimates of $1.35 per share this year and $1.60 next year could be light. One big plus, supposedly, will come as the company opens more galleries and stores throughout the country -- assuming they don't steal sales from and diminish the aura of the tourist stores.

"On the surface it looks like a frivolous company," Lipton says. "But I've done a lot of work, and that's what creates opportunity."

(P.S. There are 75 days outstanding of receivables, which is outasight. But the company says that's normal for its industry. Any skeptics in the house armed with details? Sign in, please.)

Short Positions

Jungle warfare:

Not long ago this

column noted how the stock of


(amzn) - Get, Inc. Report

AMZN) was going in the opposite direction of its zero coupon bonds, which have fallen in price since they were issued last May. With Amazon climbing 9 7/16 Thursday to close at 126 1/2, the trend hasn't changed.

So, while Wall Street continues to hail as the second coming of retail, the bonds get no respect. Junk bond analyst

Andrew Ebersole


KDP Investment Advisors

in Vermont rates them a sell.

One reason is that the bond covenant package "provides no protection to bondholders," he says. "They sold those bonds when the junk bond market was very hot. The bonds came with a yield of 10%, which is favorable for what could be construed as a somewhat venture capital company."

What's more, with a maturity date of 2008, "there's still a big chance of event risk," Ebersole says. "A lot could change on the Internet landscape between now and then."

Even the current yield of 12% doesn't sway Ebersole, who's more comfortable with the debt of such retailers as

Nine West



NIN), which has a 25% share of the women's shoe market. By contrast, he says, there's still plenty of uncertainties about Amazon's business model.

Usually a bond yielding as high as has a corresponding stock "that's trading at $5," says Margie Patel, who manages the

Third Avenue High Yield

fund. Amazon, she says, "is a source of wonder for me."

SyQuest sadness

: Thursday's

item on




SYQT), the removable drive maker, failed to point out perhaps the most pathetic part of what already has become a pitiful story: Despite its financial woes, this is a company whose products generally get much higher marks from computer geeks than





"Guess SyQuest illustrates the difference between having great engineers and great businessmen," writes

Michael Shafitz

. Adds

S. Hart

, "Perhaps you should have included an aside indicating SyQuest's marketshare and mindshare. That is, apparently, all that SyQuest has left, but it should be worth something."

I always wondered why the company didn't put itself out of its misery long ago by selling its proprietary technology to a larger company. (The broad market for its removable drives appears to be limited, thanks to expanded capacity of permanent drives and up-and-coming alternatives such as DVD.)

The reason may be that possible buyers are willing to gamble that the company will wind up filing for bankruptcy, which means they would get a shot at buying the company's assets on the cheap. SyQuest has warned as recently as two days ago that unless it can obtain sufficient financing or secure a strategic alliance, it "will not be able to continue funding its operations."

More hints from this column's Heloises:

An item here the other day suggested storing Mach3 razor blades in alcohol, or coating them in oil, to extend their use. Chemical engineer (and paid subscriber)

Mark Zabell

says the reason alcohol works is that "oxidation and mineral buildup from exposure to water both contribute to razor blades losing their edge and chafing you.

"Oil immersion will prevent the oxidation and IPA will help dissolve the mineral buildup." Rubbing alcohol, interestingly, is the main ingredient in an antilime cleaning product called Clean Shower, which is also being touted as a way to extend blade use.

One other solution, from

Ken Barlow

: "I keep my new packs of spare blades in the bedroom where there is far less humidity than the bathroom. This is easier than most of your other hints."

Maybe, but hardly as convenient.

(By the way, if you're wondering what any of this has to do with making money, just remember: The longer people use their blades, they less they'll buy new ones. The mere fact that so many people are thinking about how to extend the lives of their blades ain't particularly good for



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G) or any blade maker.)

Cable vs. AOL:

That wasn't really the point of my counterpoint with


, but it doesn't really matter. The bulk of my emails, as I mentioned Thursday, focused in on whether

America Online



AOL) is vulnerable to cable Internet hookups.

Most readers said that now that they have cable Internet hookups they'd never switch back to AOL. The always thoughtful Randy Befumo, an analyst at

Legg Mason

, warns however about getting too caught up in the current round of cable chatter.

Most, he says, is coming from early adopters, who he doesn't believe are representative of the mass market. "Most of these early adopters are noncommunicators, who are using the online medium as a replacement for the library, not the telephone," he says. "This is particularly true with reporters and analysts, who are more likely than others to misunderstand how the medium is used."

Then there was this, from

Kent Stoaks

(company unknown), who wrote: "We're network guys. It's common these days for companies to want Internet capability at the desktop. They also want AOL.

"We give them high-speed access to both, and it's one of our most popular services. If anything, the Internet's ADDING to AOL's franchise rather than destroying it. Fast AOL is neat, of course, and it's well-liked, so I wouldn't expect cable modems to have a serious debilitating effect on the business."

Padinha's Patina:


Jim "The Invisible Mouth" Padinha

keyboarded a piece that told those wild and wacky Cramerites to lay off yours truly because I had the foresight to move away from what he calls "the worst city in the country."

He's talking, of course, about San Francisco. And you wonder why I consider


Jim the Wacko from Wyoming? Operates out of a metal cabin in the mountains, no doubt. Economists -- can't live with 'em,


live without 'em.

Herb Greenberg writes daily for 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 Greenberg writes a monthly column for Fortune magazine and provides daily commentary for CNBC.

As originally published, this story contained an error. Please see

Corrections and Clarifications.