Short Ideas?

[BG2008]

SPY Puts at 5% OTM three months out costs about 1.5%.  It's the cheapest hedges I can find.  If you've got long positions, I say just pay up and get the hedges rather than trying to short individual names. 

[watsa_is_a_randian_hero]

How about JNJ. Metrics have deteriorated over the last year.

 

I've reduced my position in JNJ...still own a little though. 

[ShahKhezri]

SPY Puts at 5% OTM three months out costs about 1.5%.  It's the cheapest hedges I can find.  If you've got long positions, I say just pay up and get the hedges rather than trying to short individual names.

 

I agree...I put about 1% of my portfolio in IWM puts, May 87's yesterday.  Insurance is cheap.  I am 100% long, 20% short.

[Hershey]

Fresh Market seems ripe to me. :)  NOTE:  Have never shorted a stock, and probably never will.  I just think the fanfare for this company is way overblown.

 

[constructive]

Given that around 1/3rd of US companies are unprofitable, I don't think it makes much sense to focus on shorting profitable companies like TFM, JNJ, GMCR, VALE, THO, VZ or SHW.

[ItsAValueTrap]

Sometimes stocks are heavily shorted because it's about where the puck is headed.

 

Some companies with very high short interest at one point in time:

FSLR

BBRY

GME

SHLD

RSH

GMCR

 

Some of these companies were profitable when they were being shorted.  Sometimes the shorts correctly figure out that earnings are about to take a plunge. 

 

*Short GMCR.  Weak cash flow may be a sign that they aren't actually profitable.  The patent expirations will likely affect earnings.

[ubuy2wron]

Not my idea but 30 year Japanese gilts is my single best short idea.

[SI]

Why I am personally shorting VZ.

 

#1 - Price:

17.5x 2013 earnings and 15.4x 2014 estimates. Valuations are unprecedented. Historically they have traded at a 15% discount to the market - today it is a 24% premium. VZ is up on mkt's hunger for div yield and the AT&T story that it could sell its towers. Subsidy discipline has also powered the stocks.

 

#2 – Slowing Growth(this is dated but I thought u'd like to see it nonetheless):

In 3Q12 wireless subscriber growth dropped to an all time low(Now in Q4 the #s were better on all the iPads added to VZ plans). Post paid growth was 1%. Prepaid growth of 10% is the worst it has ever been. Leading to a total device growth of just 3.8% down 300bps from one year ago. ARPU growth(driven by feature phone to smartphone growth)is decelerating. Upgrade rate fallen to 6.8% from 8.6% a year ago, the lowest in the smartphone era.

 

#3 - Price, Margin & Capital Intensity Risk:

-Threat of Price war is elevated b/c of Sprint capital windfall. (History of Softbank is aggressive price war). Tmobile+PCS also investing for growth.

-Capital spending in the industry accelerating.

-Cyclical peak in margins as smarthphone driven arpu slows and growth slowing.

 

Target: Bernstein's analyst before he left 6 weeks ago was 13x earnings and 5.7x ebitda is $33/share.

-At $48.50 I don’t know it is going down but paired against other investments I am not enamored with VZ. The div yield has now fallen to 4.25%

-At 8.6% growth 2013 into 2014, the market may stay patient but given the 2.2% growth the following year I do not think the mkt will retain this love for VZ shares at 15.4x 2014 earnings.

 

[Cardboard]

LULU

 

Short at will!

 

Cardboard

[lessthaniv]

LULU

 

Short at will!

 

Cardboard

 

While I don't dispute this on valuation ... just think its a risky proposition. An aside; I've always thought UA and LULU would be a good strategic fit. Male dominanted specialty line coming together with female dominated specialty line.

[Phaceliacapital]

Morningstar:

 

Lululemon notified the investing community Monday of manufacturing concerns regarding its signature Luon black pants. Coverage of the fabric is weak, causing sheerness in the pants. The company has removed from its shelves the units that do not meet its stringent technical specifications. While this sounds like a small concern, the press release noted that the affected items were nearly 20% of all women's bottoms in the retail channel and that there would probably be a shortage of these styles during the first quarter, lowering profitability. Before last weekend, the company was on track for double-digit comparable-store sales growth and expected revenue of $350 million-$355 million for the first quarter. Since discovering the problem, management has revised its forecast to include comparable-store sales growth of 5%-8% and revenue of $333 million-$343 million for the first quarter. We expect this to weigh on the gross margin and selling, general, and administrative expense ratio over at least the first two quarters of 2013 as the company experiences a mix shift away from these high-margin and high-volume items and has to spread its costs over fewer units. Lululemon is currently trading at $63, slightly above our fair value estimate of $62.

[lessthaniv]

Morningstar:

 

Lululemon notified the investing community Monday of manufacturing concerns regarding its signature Luon black pants. Coverage of the fabric is weak, causing sheerness in the pants. The company has removed from its shelves the units that do not meet its stringent technical specifications. While this sounds like a small concern, the press release noted that the affected items were nearly 20% of all women's bottoms in the retail channel and that there would probably be a shortage of these styles during the first quarter, lowering profitability. Before last weekend, the company was on track for double-digit comparable-store sales growth and expected revenue of $350 million-$355 million for the first quarter. Since discovering the problem, management has revised its forecast to include comparable-store sales growth of 5%-8% and revenue of $333 million-$343 million for the first quarter. We expect this to weigh on the gross margin and selling, general, and administrative expense ratio over at least the first two quarters of 2013 as the company experiences a mix shift away from these high-margin and high-volume items and has to spread its costs over fewer units. Lululemon is currently trading at $63, slightly above our fair value estimate of $62.

 

Duly noted. Still rather short the S&P with puts though.

[writser]

LULU

 

Short at will!

 

Cardboard

 

I agree this is trading at ridiculous multiple (implied earnings growth) and I am short a few similar hot stocks myself (Salesforce comes to mind). But the problem is that these are 'story stocks' and there are no clear catalysts in sight. Shorting them will be painful :). In the long run if you short a basket of them you will probably do well. But for the next year there is nothing that could stop these stocks from doubling. Management can nudge the numbers a little bit,  talk about growth and as long as nothing big happens the stock will only go up. And the most annoying thing here is that your exposure to them keeps getting bigger if your idea doesn't work out in the short term; potentially forcing you to rebalance at very unfavourable prices. I.e. you sell at 100, cover half at 300 because your exposure has tripled, and then the stock goes down to 50. Do you make money? Nope. So I keep these positions very small, and probably they are still too big ..

 

So aside from my basket I'd like to short things with a hard catalyst in sight. Things like these. Unfortunately opportunities like these are often hard to borrow.

 

Maybe I'm just stating the obvious.

[lessthaniv]

LULU

 

Short at will!

 

Cardboard

 

I agree this is trading at ridiculous multiple (implied earnings growth) and I am short a few similar hot stocks myself (Salesforce comes to mind). But the problem is that these are 'story stocks' and there are no clear catalysts in sight. Shorting them will be painful :). In the long run if you short a basket of them you will probably do well. But for the next year there is nothing that could stop these stocks from doubling. Management can nudge the numbers a little bit,  talk about growth and as long as nothing big happens the stock will only go up. And the most annoying thing here is that your exposure to them keeps getting bigger if your idea doesn't work out in the short term; potentially forcing you to rebalance at very unfavourable prices. I.e. you sell at 100, cover half at 300 because your exposure has tripled, and then the stock goes down to 50. Do you make money? Nope. So I keep these positions very small, and probably they are still too big ..

 

So aside from my basket I'd like to short things with a hard catalyst in sight. Things like these. Unfortunately opportunities like these are often hard to borrow.

 

Maybe I'm just stating the obvious.

 

I agree Writser - things can stay irrational for a long time.

RE: STP - The put option premiums tell the story on that one.

[Cardboard]

"Lululemon said it had used the same manufacturing partner for key fabrics since 2004. “We are working closely with them to understand what happened during the period this fabric was made,” said the company, which is scheduled to report fourth-quarter earnings on March 21."

 

""All shipments to Lululemon went through a certification process which Lululemon had approved," Eclat Textile CFO Roger Lo told The WSJ.  "All the pants were manufactured according to the requirements set out in the contract with Lululemon."

 

Lo also said that Lululemon hasn't contacted Eclat since the incident."

 

Customers are complaining, are saying that this was known and are no longer all in ah ah about Lulu:

http://finance.yahoo.com/news/lululemons-biggest-fanatics-want-ceo-202400854.html

 

Same stores sales growth are on the decline since Q3 have been announced. Starting to talk about single digits or a major change. Expansion in the U.S. is almost halted and they are now pushing overseas. There are many things going on here that could indicate that unheard of sales per square foot are coming to an end. If the die hard fans are disappointed and starting to bitch about them, it could be telling. It is a very tough to please clientele these ones. They were kind of brain washed, but now they are coming to their senses. Women like that who get angry can do a lot of damage to a brand especially since they are using the no commercial approach. It is all grass roots and social media.

 

As usual do your homework, but IMO it would not take much more for this one to get kicked out of the momo club and for sales to really take a turn for the worse. Here I am not talking about just a case of overvaluation, but possibly an implosion of profitability.

 

Cardboard

[ItsAValueTrap]

The thing about the retail industry is that reversion to the mean usually doesn't happen.

 

Sam Walton of Walmart was at one point richer than Warren Buffett.  Great businesses tend to chug along and grow for a long time.  The Lululemon manufacturing problems seem to be an aberration to me (though I haven't researched it)... much like American Express' salad oil scandal.

[watsa_is_a_randian_hero]

http://www.thedailybeast.com/articles/2013/03/19/lululemon-discovers-what-men-have-always-known-yoga-pants-are-see-through.html

 

I was confused about all of the hullabaloo about sheer,” a New York City-based consultant and avid yoga practictioner who wished to remain anonymous, told The Daily Beast. “I never thought it was an issue, I thought it was a feature.”

 

same thing I was wondering

 

[Cardboard]

"Wait 'til all the Leno/Letterman jokes and morning shows get a hold of this......women will think twice about ANYthing with the LULU name on it.....they don't want lookloos scrutinizing (and drooling) all over their body, OK? We're not just talking the 17%....we're talking the whole image getting spattered with black ink. Head for the hills, bro. "

 

That looks like one of "these" posts from Yahoo and that is where it comes from, but think about it seriously. It makes a lot of sense and is indeed a very smart observation.

 

Cardboard

[lessthaniv]

"Wait 'til all the Leno/Letterman jokes and morning shows get a hold of this......women will think twice about ANYthing with the LULU name on it.....they don't want lookloos scrutinizing (and drooling) all over their body, OK? We're not just talking the 17%....we're talking the whole image getting spattered with black ink. Head for the hills, bro. "

 

That looks like one of "these" posts from Yahoo and that is where it comes from, but think about it seriously. It makes a lot of sense and is indeed a very smart observation.

 

Cardboard

 

I just don't see a run for the exits on the brand. Women will continue to buy them because they are comfortable and they make them look good. I don't dispute the rich valuation Cardboard and I don't want to come across as defending them. I simply think its risky to short it.

[fareastwarriors]

"Wait 'til all the Leno/Letterman jokes and morning shows get a hold of this......women will think twice about ANYthing with the LULU name on it.....they don't want lookloos scrutinizing (and drooling) all over their body, OK? We're not just talking the 17%....we're talking the whole image getting spattered with black ink. Head for the hills, bro. "

 

That looks like one of "these" posts from Yahoo and that is where it comes from, but think about it seriously. It makes a lot of sense and is indeed a very smart observation.

 

Cardboard

 

I just don't see a run for the exits on the brand. Women will continue to buy them because they are comfortable and they make them look good. I don't dispute the rich valuation Cardboard and I don't want to come across as defending them. I simply think its risky to short it.

 

anecdotally, from my lady friends, LULU makes fundamantally good products, and they still swear by it. but it could be the case, that it is a good company but just a bad stock (at least at the current valuation)

 

 

[compoundinglife]

Anecdotal, but as someone who has practiced yoga for around 10 years I don't think this will cause a shift in loyalty to other brands. People that practice yoga especially women tend to be really fanatical about the exercise clothing they wear. Nike and others do not IMO offer the same feeling of being associated with a particular lifestyle or method of exercise. People who purchase their products are making a statement and you can't make that statement currently with the athletic brands like Nike.

 

I think men could be easily swayed to buy Nike products but I think the brand recognition that Lululemon has with women is strong. I see this more as short term road bump.

 

Agree the valuation is rich.

[Cardboard]

What about the feel on your body of Athleta and Lucy clothes yoga expert?  ;)

 

I think that you guys are missing the point. It is not just about yoga here. The brand is now selling to other people who are not practicing yoga at all. That is how they grew so big. Some wear it just because of the logo/brand, they are in style. They are now expanding in golf. We are well past just yoga enthusiasts.

 

Think about the younger girl wearing these things because it is cool and the other girls starting to question her and making a few jokes about see through. And they are expensive, so the other girls unable to buy them are also jealous and will jump on the opportunity. How do you think this is going to work out? You might counter by saying that they sell more to women in their late 20's, but tell me that they never worry about how they look, what they wear, perception from others.

 

This is not like a woman buying a pack of Maple Leaf bacon or other meat product at the grocery store. The person may recall the previous fiasco, but now trust that quality controls have gone up and there is no one to laugh or comment on her purchase.

 

Moreover, how much more time will people try the pants on in the stores to ensure that they are not see through in the future? They are $100 or more which is retarded for something that is worth half of that no matter what the material is. Tell me that this has no impact on the reputation again. Time will tell, but I am not shorting just for current valuation here. The snowball effect is possible here on the brand and future profitability.

 

Cardboard

[compoundinglife]

What about the feel on your body of Athleta and Lucy clothes yoga expert?  ;)

 

I think that you guys are missing the point. It is not just about yoga here. The brand is now selling to other people who are not practicing yoga at all. That is how they grew so big. Some wear it just because of the logo/brand, they are in style. They are now expanding in golf. We are well past just yoga enthusiasts.

 

Think about the younger girl wearing these things because it is cool and the other girls starting to question her and making a few jokes about see through. And they are expensive, so the other girls unable to buy them are also jealous and will jump on the opportunity. How do you think this is going to work out? You might counter by saying that they sell more to women in their late 20's, but tell me that they never worry about how they look, what they wear, perception from others.

 

This is not like a woman buying a pack of Maple Leaf bacon or other meat product at the grocery store. The person may recall the previous fiasco, but now trust that quality controls have gone up and there is no one to laugh or comment on her purchase.

 

Moreover, how much more time will people try the pants on in the stores to ensure that they are not see through in the future? They are $100 or more which is retarded for something that is worth half of that no matter what the material is. Tell me that this has no impact on the reputation again. Time will tell, but I am not shorting just for current valuation here. The snowball effect is possible here on the brand and future profitability.

 

Cardboard

 

Notice I prefaced my statement with "anecdotal" which by definition means my view my be completely irrelevant :) I also won't argue that yoga pants are probably a fad with regards to the non-yogi or non-athletic consumers that have hopped on the train.

 

But, I feel the brand recognition is strong enough and they have established themselves enough that they are more than a 1 trick pony. Yoga pants may not be as popular in a few years but I think the brand likely will be more popular.

 

No position. Just offering my opinion which could be totally wrong.

[ItsAValueTrap]

They are $100 or more which is retarded for something that is worth half of that no matter what the material is.

Um... a lot of women have ridiculously large wardrobes and they spend ridiculous amounts of money on "overpriced" apparel.  Louis Vitton bags, True Religion jeans, etc.  Men do that too, though it's less prevalent.

 

The brand is now selling to other people who are not practicing yoga at all.

Nike makes shoes for athletes.  Many people do not wear Nike shoes for athletic reasons.

 

These brands are about aspirations and identity.  The clothes are status symbols, they make people feel good about themselves, it's an expression of identity, etc. etc. 

 

2- What people say and what people actually do are two different things.

 

People rag on McDonald's all the time for unhealthy food.  But it's not like people bother ordering salad at McDonald's (which are actually pretty good).  A lot of people eat at McDonald's... it has long lines.  Even chefs eat there (e.g. Anthony Bourdain).

 

Women complain about misogyny, complain about creepy guys and sexual harassment, and they definitely don't want to feel judged for being slutty.  (I do not believe that women should be subjected to misogyny or sexual harassment.)  But most (though not all) women will put a lot of effort in their appearance... they want to feel attractive (even if they have a significant other or don't want one).  And some women get the idea that you have to dress like a sex object (or dress "slutty") to be attractive.  If you Google image search "princess leia cosplay"... you see that many females opt to cosplay as the sex object version of Princess Leia... the version that is literally a sex slave.

 

Sometimes it's about being attractive without other people judging you for being slutty.  Even if you are dressing in a way that some might consider to be slutty.  Tight yoga clothes that make you look hot is kind of a good thing for Lululemon.  A lot of women (though not all women) go to the gym or yoga because they want a hot body.  That's just how it is.

[ItsAValueTrap]

In my opinion it's somewhat good for Lululemon that this sheer fiasco is happening.  It's wonderful for their brand and image.  It reinforces the notion that their clothes are sexy but not slutty.

 

A lot of articles quote men (and women) who say that ("non-sheer") yoga pants make you look hot.  This is good for their brand.