short selling
A Compelling Case for This Retail Discounter
By George Leong for Daily Gains Letter | Aug 1, 2014
There is a lot of hurt out there in the retail sector as consumers have yet to come back in full force. The soft consumer sentiment has impacted retailers across the board, from the specialty retailers to department stores. Even the discount and big-box stores, which are pretty resilient when spending declines, are hurting at the register.
Consequently, we saw a consolidation in the discount sector after Dollar Tree, Inc. (NASDAQ/DLTR) decided to snap up rival Family Dollar Stores, Inc. (NYSE/FDO) in a cash and stock deal valued at $8.5 billion, or about $74.00 per share.
I last talked about picking up a company like Family Dollar Stores in April as an investment opportunity when the stock was trading at $58.31.
Now for both companies, the merger makes a whole lot of sense, especially at a time when consumers are tighter with their spending habits. The merger will likely mean eliminating overlapping stores in the same vicinity, since there will be 13,000 stores in the network.
At the smaller end of the spectrum, a discounter that is an investment opportunity and worth a look is Five Below, Inc. (NASDAQ/FIVE), which has a share price of $35.27 and a market cap of $1.94 billion. The stock debuted on July 19, 2012 at $26.05, but has reported several soft quarters, which drove some investors to the exits. Yet at just above its 52-week low of $33.94, the stock offers a decent contrarian investment opportunity for speculators.
With Five Below down over the past 52 weeks, compared to a 17.39% advance by the S&P 500, there could be a good investment opportunity here…. Read More
What Makes This Beaten-Down Stock So Attractive
By George Leong for Daily Gains Letter | Jul 24, 2014
Chipotle Mexican Grill, Inc. (NYSE/CMG) showed why it’s the hottest restaurant stock out there at this time. The stock has been a favorite of mine since declining to the mid-$200.00 level in October 2013. On Tuesday, the stock surged to above $650.00. Now that’s growth and an excellent investment opportunity.
The company easily destroyed estimates in both revenue and earnings. Chipotle beat the consensus earnings per share (EPS) estimate by a whopping $0.41 per diluted share and surpassed the $1.0-billion quarterly revenue mark for the first time. Easily beating expectations, the key comparable restaurant sales metric rose a staggering 17.3%, which is incredible. The maker of burritos, tacos, and wraps has attracted a loyal following for good healthy food from consumers who may have gone to McDonalds Corporation (NYSE/MCD) or Taco Bell in the past.
Chart courtesy of www.StockCharts.com
While Chipotle continues to be my top restaurant play, the acceleration in its share price has made it somewhat top-heavy, so it’s more of an investment opportunity on price weakness.
A key driver for the restaurant sector is the growing jobs numbers. The more confident people are about their jobs, the more willing they are to go out for meals and spend.
A contrarian restaurant investment opportunity that looks intriguing right now is Noodles & Company (NASDAQ/NDLS), a provider of noodle and pasta dishes.
The stock debuted at $32.00 on June 28, 2013, surging to $49.75 on October 15, 2013, prior to the recent decline to $27.20 on July 17, 2014. In my estimation, the current price weakness offers aggressive investors a good investment opportunity.
Chart courtesy of www.StockCharts.com
Noodles & … Read More
How to Play the Hot IPO Market for Profit This Year
By George Leong for Daily Gains Letter | Jun 26, 2014
In the late 1990s, the demand and market for initial public offerings (IPOs) was sizzling with the promise of staggering one-day gains for those lucky enough to get in on the ground floor with share subscriptions. We saw millions made in one day for the chosen ones—the rich.
But that was then. The IPO market, while still quite popular, is nowhere near where it was back then. Investors are now pickier on the issue.
Recall King Digital Entertainment plc (NYSE/KING), the maker of Candy Crush Saga. In my view, this has to be one of the most hyped-up IPOs in recent times. Debuting at $20.50 on March 26, the stock is currently trading at $17.00, but even at this price, I think the valuation is crazy, with a market cap of $5.42 billion. This company doesn’t even make money and it’s vulnerable to weakness for those looking for an aggressive short selling opportunity.
In the social media space, the biggest and most highly anticipated IPO following the debut of Facebook, Inc. (NASDAQ/FB) was social media play Twitter, Inc. (NYSE//TWTR). Yet unlike Facebook, Twitter doesn’t currently have any major revenue streams and is still looking for ways to make money. While Twitter is way down from its high of $74.00, I still wouldn’t be a buyer at the current $39.00. The company doesn’t deserve its market cap of $23.0 billion. Until Twitter can provide a valid revenue model instead of its annoying ads placed in the middle of tweets, I would not buy. A decline to below $30.00, however, could provide an aggressive trade.
What’s going to be hot this year … Read More
How Godzilla’s Box Office Success Could Offer Your Portfolio the Same
By George Leong for Daily Gains Letter | May 28, 2014
Godzilla (2014) is running wild at the box office, as this classic B-movie remake has delivered a record opening weekend for specialized movie theater operator IMAX Corporation (NYSE/IMAX).
If you have ever had the IMAX experience, you likely agree that Godzilla was probably as life-like as possible through the big-screen format of an IMAX theater, surrounded by about 12,000 watts of mind-blowing sound via a network of more than 40 speakers.
The screening of major Hollywood blockbusters on IMAX screens has been a big winner for the company and an excellent investment opportunity. IMAX has shown such major movies as The Hunger Games series, The Avengers, the newest Batman series, and The Hobbit: An Unexpected Journey.
Yet the appeal of IMAX has not only been its expansion in North America, but its ability to grow rapidly worldwide in places such as Western Europe, Japan, China, and Russia, which makes the stock a good investment opportunity. As of March 31, 2014, there were 840 IMAX theater systems installed in 57 countries worldwide.
The expansion into China is especially intriguing as an investment opportunity. With more than 1.3 billion people and the ongoing debut of Hollywood films in China, the investment opportunity is tremendous. At this time, there are about 150 IMAX theater systems in the country with contracts to open another 400 or so. In fact, if IMAX catches on, we could easily see hundreds more theater systems installed.
Fundamentally, the company reported higher annual revenue growth in 2009, 2010, 2012, and 2013. Revenues are estimated to grow 5.7% to $304.46 million in 2014, followed by 15.2% to $350.64 million in … Read More
What You Absolutely Need to Know About Gold’s Future
By Moe Zulfiqar for Daily Gains Letter | Jul 11, 2013
I have faith that gold prices are just about to go higher. While the current negativity towards gold continues to increase, it goes against the most basic of economic principles—supply and demand.
Since gold prices have begun their recent slump, some in the mainstream media have even said that the bull market in the metal that began in 2002 is over. They are saying gold bullion has no space in their portfolio and that it isn’t really a store of wealth anymore.
But the fundamental reasons for a rise in the value of gold bullion are actually increasing. The demand is going up and supply appears to be slowing—the very recipe for a price increase.
The demand for the metal remains very strong. According to data from the Hong Kong Census and Statistics Department, imports of gold bullion to mainland China from Hong Kong increased to 108.781 tonnes in May, compared to 80.101 tonnes in April—a 36% increase in just one month. (Source: Ananthalakshmi, A., “UPDATE 1–China’s net gold imports from Hong Kong jump in May,” Reuters, July 5, 2013.)
And there are major concerns on the supply side. The cost to take gold out of the ground is getting higher than the metal’s current price, making mining gold a losing proposition. Consider that Barrick Gold Corporation (NYSE/ABX, TSX/ABX), one of the biggest senior gold bullion miners, is halting its production at one of its biggest mines, the Pascua Lama mine in Chile, due to its costs increasing from $5.0 billion to $8.5 billion. And Barrick isn’t the only one facing a problem in rising production costs; there are others … Read More
Why Are Short Sellers Avoiding These Two Gold Stocks?
By John Whitefoot for Daily Gains Letter | May 2, 2013
Is the global economy recovering? While the economic indicators aren’t exactly robust, that hasn’t stopped some investors from seeing the silver lining. Gold, held in exchange-traded funds (ETFs) and other gold-related equities, is primed for the biggest monthly drop ever as investors, sensing the global economy is in recovery, are selling off bullion.
And it’s selling fast. Gold slipped into bear-market territory in mid-April, on the heels of improving global growth and weakening fears of rampant inflation. On Friday, April 12 and Monday, April 15, gold prices sank 14%, the biggest decline in 20 years. And on Tuesday, April 15, gold hit an intraday low of $1,321.50 per ounce.
You can’t keep a hard asset like gold down, though. Over the last couple weeks, the price of gold has rebounded and is currently trading up more than 11%, near $1,472. That’s still 19% below the $1,559 per ounce gold was trading at on April 11, the day before it was trounced.
Gold still has a long way to go to make up for the mid-April rout. At depressed prices, though, many astute investors realize some gold companies are sitting in attractive ranges—the operative word being “some.”
The path to recovery is still fraught with challenges. With global production costs currently hovering around $1,200 an ounce, a further price depreciation could send some of the lesser financially stable gold producers into a tailspin.
One indicator investors like to consider when looking at stocks is the number of short sellers. Short sellers are those who are betting a company’s share price is going to fall.
While no single indicator can predict a … Read More
How to “Short Sell” Without the Risk and High Costs
By Moe Zulfiqar for Daily Gains Letter | Apr 24, 2013
It isn’t a hidden fact that investors can make money when stock prices go down. One way to do this is by shorting shares of companies that investors believe won’t perform well because profits will be lower, sales will be stagnant, and so on and so forth.
No doubt, short selling is beneficial when stock prices are falling, and it certainly lets investors make money; however, if the stock prices go in the opposite direction, investors can be in for a long period of misery—their losses can even be more than 100%. In addition, in order to short, investors need to meet a certain amount of capital requirement in their portfolio.
Instead of just short selling a stock and putting up the capital, thereby exposing themselves to greater risk, investors can make money when the stock price is falling by using an option strategy called the “bear put spread.” This option strategy provides investors with a limited-risk, low-capital option.
Consider this: Google Inc. (NASDAQ/GOOG) trades well above $700.00. To simply short 100 shares of this company, investors require a significant amount of capital.
At the very core, a bear put spread requires investors to buy a put option strike price above the current stock price, in anticipation of stock prices falling, and a write/sell put option at a lower cost than the current stock price. One key aspect investors must remember is that these two put options should have the same expiry date.
Suppose ABC, Inc. is trading at $30.00 per share now, but an investor believes that the stock price will decline. So, instead of short selling, he/she decides … Read More
Stuck in a Declining Market? Use This Strategy for Portfolio Growth
By Moe Zulfiqar for Daily Gains Letter | Apr 8, 2013
With financial media always talking about what to buy and where to buy, not a lot is said regarding the sell-high/buy-low strategy. Yes, I am talking about short selling—a way to make a profit in the falling market.
At the very basic level, short selling is the opposite of buying a stock—or “longing” a stock. When an investor longs a stock, their hope is that it will go higher in value, and eventually they can sell it for profit. In short selling, an investor sells the stock first and buys it a lower price—banking the difference between the two prices.
When an investor puts in an order for short selling shares of a company, they are essentially borrowing them, and selling them. Once the price reaches their perceived price, they buy them, and return those shares. Before going into further details, don’t worry; your broker will take care of this.
Short selling may be a familiar topic to many investors, but what you may not realize is that this strategy has many advantages that can help to grow your portfolio, even when the overall market is falling. Similarly, those who actively do short selling may not understand its underlying risks.
One of the biggest advantages of short selling is that investors don’t really have to wait for prices to drop for them to buy; rather, they can profit from them. In addition, it provides them with an alternative way of profiting—they can long when prices are going up, and short when prices are going down.
But while it has its advantages, short selling does have some disadvantages as well.
If … Read More
