The Sabrient Blog

He’s got plenty of cash

He’s got plenty of friends

He drives women wild

Then drives off in his Mercedes-Benz

He’s got a long wick with a flame at both ends

He’s hot

But don’t let him go

Just give him a chance to grow

Take it easy, take it slow

And don’t let him go

Don’t let him go

REO Speedwagon

Green Mountain Coffee Roasters’ (GMCR) founder and former Chairman, Bob Stiller, is arguing “don’t let him go” after his dismissal for having a margin call on GMCR shares that prompted the sale of another $125,000,000 on May 6, 2011.  The fact that Stiller needed to borrow against his remaining shares is an interesting story in itself when you realize how much cash he had raised in “insider sales” in the last 12 months.

That is a total of $155,818,504 since March 14, 2011 BEFORE the margin call that required the sale of 5,000,000 more shares at $24.68.  Mr. Stiller claims that his stock was margined to pay for a $14,000,000 yacht.  I guess the yacht dealer had a problem accepting any of the $155 Million in cash and dispels the theory that “he’s got plenty of cash.”  Director William Davis was also caught up in the margin call on May 7, 2012 forcing him to sell 148,000 shares for $3,725,160 just 3 days after selling 400,00 shares on May 3, 2012 for $10,068,000.  The bigger problem for Mr. Davis is that his margin account was not properly disclosed to shareholders in what GMCR refers to as “an inadvertent clerical error left the information out of the company’s February 2012 proxy statement.”  Keep in mind that Mr. Davis was the chairman of the governance committee and a member of the four-person audit committee.  Actually, I can’t help but reflect on the irony of that in light of the concerns raised by Sam Antar, Gary Weiss, myself and many others.

The good news for us is that GMCR was originally recommended as a short October 22, 2010 when we worried about the potential valley below.  At that time, investors were just getting a small sampling of the insider selling to follow and a sample of how GMCR would treat “errors” in accounting.  In spite of the SEC inquiry that began in September 2010 and continues today, the stock traded as high as $115.98.   Along the way, insider selling mounted (just a small sample detailed above); red flags continued to be discussed on March 20, 2011; Sam Antar’s analysis of earnings and inventory problems on May 9, 2011;  a hint of the “errors” excuse that has become the rule rather than the exception at GMCR on June 6, 2011; and another reminder of the absurd valuation when GMCR traded above $100 per share on October 6, 2011.

This story of GMCR is still being written and is far from over. For now, Stiller argues that despite the margin account problem created by himself and Mr. Davis that GMCR should follow the “don’t let him go” line and just understand that he needed a yacht and Mr. Davis non-disclosure of his margin account is simply a “clerical error.”   Not to mention that the first quarter was a complete disaster. The SEC will have to unravel who and what was known to insiders as they merrily lined up at the sell window in January-March 2012. All of that said, I recommend that we take this opportunity to close the short position for a profit of +21.09% or +13.44% annualized (we had to wait a long time for this one).

Rockwell Collins (COL) is another stock (albeit a much shorter timeframe) I recommend watching closely to take a profit in after being recommended as a short on January 28, 2012.  COL broke the support line today that I drew in January when we entered the position.  I have studied technical analysis since 1986 and know enough to know that it is far from a perfect science.  I recommend taking the +13% profit on any sign of a rebound but would let the profits run if COL continues the daily spiral it has been in since May 1, 2012.

The only option position we have to review in May is Freeport McMoRan Copper and Gold Inc. (FCX).  I am recommending that we roll FCX May $40 put for $7.50 and sell the FCX Aug $40 put for $8.20.  Recall that we entered the first ½ position at $38.38.  The FCX May $40 call will expire Friday allowing us to recognize a profit of $1.42.  The FCX $40 put was originally sold for $2.91.  In a less volatile market I wouldn’t be opposed to accepting delivery of the FCX shares based on the forward P/E of 6.23, $4 Billion in levered free cash flow, and anticipated yield of 3.5%.  Rolling the option to August keeps cash free to take advantage of opportunities we may spot in other stocks and potentially earn an extra $0.70 if our original premise plays out.

Recommendations:

Buy to cover GMCR at the market, Thursday May 17, 2012

Watch COL closely and buy to cover on any sign of a rebound above the support line (I will post a recommendation when I observe this)

Buy to cover FCX May $40 put, sell to open FCX Aug $40 put, allow FCX May $40 call to expire and wait for higher price to sell new call

Tweet This Post

When something is confusing or incomprehensible, a person might say, “It’s all Greek to me.” Well, that’s exactly what investors have been saying for the past several days—in the market’s inimitable way. Despite promising economic and corporate news in the U.S., the headline risk from Europe has been just too much to bear. It is keeping the bulls at bay, and front and center for an encore performance is Greece.

I guess the Greeks couldn’t stand losing their global limelight to Spain and Italy. Greece is like that pesky cousin who always stops by unannounced to bum a free meal and “borrow” a few bucks (and light up a cigarette in your living room before heading out).

They have not been able to put together a political coalition to run the government, so the likelihood of them having to drop out of the euro is steadily rising. Now we must await another round of elections slated for June 17, while bond rates in Spain and Italy rise. If Greece refuses to make mandated spending cuts after the new elections, which is likely given that anti-austerity candidates are likely to gain even more support the next time around, they may lose their bailout and get kicked out of the euro club. Many experts think such an occurrence would be devastating to the EU and UK.

The resulting weakness in the euro vs. the U.S. dollar has been a negative for U.S. equities and good for bonds. Looking at the U.S. sector iShares this week, Financial (IYF) and Materials (IYM) have been the weaklings, while defensive sectors Healthcare (IYH) and Consumer Goods (IYK) have held up pretty well. The PowerShares US Dollar Fund (UUP) and iShares Barclays 20-Year Treasury Fund (TLT) are both up this week.

But this correction seems like a developing buying opportunity to me. The only question in my mind is how much pain investors will have to endure before the market rebounds. Read more…

Tweet This Post

A weekend of more election surprises in Europe, as a socialist candidate won a key state vote in Germany, threatening Prime Minister Angela Merkel‘s stance on austerity in the Eurozone. The Greek “leadership” has all but abandoned hope of forming a new elected government, likely requiring yet another vote.

Those European issues combined with new concerns about China’s growth didn’t do anything to mitigate the JP Morgan embarrassing announcement of a new $2 billion trading loss.  Unsurprisingly, the market performed poorly yet again today as the S&P 500 fell more than a percent to 1338, its lowest level since early February, extending the streak to six weeks since our last new high.

Market Stats. The worst style/cap last week was Large Cap Growth, losing -1.05%.  The best was Small Cap Value, gaining a tiny +0.19%. Utilities and Healthcare, classic flight-to-safety sectors, were the only positive sectors, with each gaining about +0.5% or less.  Basic Materials dropped a whopping +2.7%, followed closely by Energy which dropped more than 2%.

Here are the market stats.

Today, not a solitary sector gained anything while the Dow lost 125 points and Nasdaq, 31 points. Financials writhed in the fallout from JP Morgan’s massive trading loss as well as the weakness in most European banks due the Greek impasse and the German election surprise. Read more…

Tweet This Post

“Many people take no care of their money till they come nearly to the end of it, and others do just the same with their time.” — Johann Wolfgang von Goethe

If Wall Street was looking towards the first quarter earnings season for a sign that it should resume the same sort of optimistic stance that it had taken earlier this year, it is likely that its gaze is now resigned to look elsewhere.

There is definitely a trend resuming, but it appears to more resemble the tendency to be defensive and sell, rather than to view dips as prime buying opportunities.

Though the majority of companies reported earnings that equaled or exceeded expectations, the bar seemed, based on investor reaction, to be set towards the low side. However, with the resumption of instability emanating from the European sovereign debt crisis, and unspectacular data emerging from the domestic economic front, investors seem to be slumping back into fear and uncertainty as evidenced by increasing levels of volatility in the market.

Global investors seem, to a certain degree, only to be finding cheer when they see and hear signs of various forms of quantitative easing and other versions of stimulus. For the U.S. market, the most recent Fed intervention, in the form of its bond-buying program oddly referred to as “Operation Twist,” was embraced by investors as a poor cousin of the QE3 that was hoped for, but greeted as a relative nevertheless. Read more…

Tweet This Post

Friday we learned that Covington Investments, LLC proposed an acquisition Advocat Inc. (AVCA) at a price of $8.50 per share which represents a 96% premium over last Thursday’s close. Before the opening on Friday, the merger was announced, which resulted in a day’s gain of over 57% for AVCA but far short of the bid and ending the day at $6.82.

Trading volume on Friday was nearly ten-fold over normal trading. This showed considerable interest in this transaction, but considering that the closing price represents another 25% premium to the offer, the markets are tentatively considering this proposal. Either the arbitragers are seeing considerable significant levels of collapse of negotiations or the market has not fully reacted to the 4th proposal by Covington since February 27, 2012.

The RSY Portfolio loves value stocks and while we evaluate stocks mostly on how the markets views values, this correlates with the value that other businesses place on these valuable companies. If this merger goes through, this will be the second position that RSY went long and was bought out, with the first being Lubrizol (LZ). Since AVCA does not have options available, and the next ex-dividend date is June 27 for just 5.5 cents, then this offer looks like a time to reduce our exposure or unload our position. RSY recommends to put in two bids with half the position in each bid (200 from the original 400 recommended). The first being a limit order of 200 shares at an asking price of $7.49 (GTC), and the second being a limit order of 200 shares at an asking price of $7.99 (GTC). If the offer holds for the next few days, the limit price of $7.49 should be easily met as the high on Friday was $7.54 but feel free to lower this if the market continues to be weak, and the limit price of $7.99 would still represent a little over 5% premium to the offer for others that wish to take the risks.
Read more…

Tweet This Post

By Meena Krishnamsetty (Insider Monkey Editor)

Hedge funds will disclose their end of first quarter holdings next week. However, we can still track hedge funds’ transactions through Form 4, 13D, and 13G filings. We don’t get to see their entire portfolio in these filings but we get to see their recent transactions in their large positions. Here are the stocks hedge funds bought recently:

Apple (AAPL): Dan Loeb’s Third Point previously sold out its position in Apple during the second quarter of 2011. Third Point decided to buy back those shares at a substantially higher price of $445 a share after Apple’s fourth quarter earnings announcement. Here is how Loeb explained his Apple investment thesis in Third Point’s quarterly investor letter: Read more…

Tweet This Post

Last week I noted that there wasn’t much new to say about the stock market and its drivers lately, but like washing your car tends to attract rain, my comments were immediately followed by anger-driven election results in France and Greece. Both of these elections were about a rejection of austerity mandates placed upon a citizenry already feeling severe pain. The thought process is, “If the U.S. can simply print money and spend its way out of trouble, why can’t we?”

Of course, when an economy is thriving, the broad electorate is employed and happy with capitalism and free markets with a dream of potential riches. But when times are hard and austerity looms, the masses at the lowest rungs of the economic ladder suffer the most, lose faith in the system, and begin to demand Socialist policies to guarantee their wellbeing. Class warfare ensues, and politicians who are willing to champion the plight of the vast working class often get elected. Their challenge is finding a way to actually fulfill the Herculean expectations they create.

It comes as little surprise that Greece has chosen this path. But it is somewhat of a surprise to see that this is also the path that mighty France has chosen…again. Read more…

Tweet This Post

Today’s trading began amidst a multitude of unpleasant factors. France handed over its leadership to a socialist regime; a Greek election offered no support for current leadership or austerity; Asian markets were down sharply overnight; and European markets continued to exhibit weakness.  Fortunately, we had no economic news at the open, but near the market close, consumer debt was released, coming in at more than double the prior month’s reading and far off expectations.  While I’m not sure what to think of that, I can tell you that it is not the most stable indicator, as it is frequently revised. The April showers (loss) have led to a very poor opening week for May.

The selling abated throughout the day, with the S&P 500 and the Nasdaq closing up a tiny fraction of a percent while the Dow was off about 30 points.

The market has shown no appetite for much of anything the past 6 weeks.  The only sector up for the week was Telecommunications, although not everyone considers it a sector.  Our SectorCast was off target last week, but right on target today with Financials, Healthcare, Technology, and Consumer Cyclicals up a tad. Our 30-day forward sectors look very much the same this week. Read more…

Tweet This Post

“Be a terror to the butchers, that they may be fair in their weight; and keep hucksters and fraudulent dealers in awe, for the same reason.” – Miguel de Cervantes

European politics are certain to dominate the conversation among investors this week and should, more than likely, continue to be the focus of attention for the remainder of the month, either directly or indirectly.

In spite of reasonably positive numbers to have emerged from the corporate sector during the course of the current earnings season, it is all but impossible for Wall Street to ignore the present state of its largest trading partner. With over 20% of U.S. exports heading across the Atlantic to Europe, and 14% earmarked directly for the Eurozone, it would be a serious case of ostrich-style denial if investors chose not to notice the unsettling activity in the region.

All it takes is one dysfunctional partner to create a dysfunctional relationship. And with an angry electorate screaming for change, any kind of change, whether it originates from the far right or far left side of the political spectrum, the Eurozone is moving deeper and deeper into dysfunctional territory.

During the course of the past weekend, France’s Sakorsky was unceremoniously given “le heave ho”;  Greece’s main parties suffered a serious level of parliamentary attrition; and Germany’s Merkel watched her increasingly fragile coalition travel yet another step in the direction of disassembly. Read more…

Tweet This Post

Sabrient’s Chief Market Strategist, David Brown, will be on interviewed on today’s (May 4) segment of the Money Life Show, hosted by Chuck Jaffe. David appears a little after midway through the show.

You can read a summary of the interview here on Market Watch.

David discusses some of his favorite stocks right now, including Seagate Technology (STX) and US Airways (LCC) as well as stocks he recommends selling, including Rockwell Collins (COL) and Hittite Microwave (HITT).

Tweet This Post

Have you noticed that there hasn’t been much new to say about the stock market and its drivers lately? Bears are weary from calling tops that don’t follow through, and bulls are hesitant to inject more cash until they have a more inspiring catalyst. So, we’re pretty much left to wonder whether the overworked mantra “Sell in May and go away” will be a self-fulfilling prophecy…or a contrarian catalyst for the bulls to get busy again.

The Dow, Nasdaq, and S&P 500 are all holding above round-number support levels at 13,000, 3,000, and 1400, respectively. On Tuesday, the Dow hit its highest levels since December 2007, following a strong ISM Manufacturing Index and strength in China’s manufacturing sector, but it petered out before the day’s end. Riskier small caps actually finished in the red as investors were worried about maintaining the “risk-on” trade. Then Wednesday’s ADP disappointed, but the riskier Nasdaq, mid caps, and small caps were the leaders while large caps languished. Financial and Energy led on Tuesday, but lagged badly on Wednesday.

Yes, there’s a lot of confusion during this period of technical consolidation, so investors are grasping for any sort of sign, omen, or directional catalyst. Now they await Friday’s Government Employment Situation report. Bulls are hoping for a green light to renew the surge…or at least a reason to continue holding the line until the next catalyst. Read more…

Tweet This Post

Despite last week’s little rally, April showers have dampened market. While it didn’t build into a torrential downpour, it steadily showered investors with worse-than-expected economic data, including last week’s dreadful Durable Goods Report (-4.2% compared to last month’s +1.9%), continued but minor increases in initial jobless claims throughout April, and a disappointing initial Q1 estimate of GDP (+2.2% compared the previous quarter’s +3.0%).

Europe didn’t add any sunshine during April due to increasing worries over Spain, the other PIIGS, and last week’s unanticipated resignation of the Dutch Prime Minister.  Today’s Personal Spending increase of only +0.3%, versus an expected +0.5% and last month’s +0.9%, drowned a more favorable yet anemic Personal Income Report; and the Chicago PMI of 56.2, compared with last month’s 62.2, didn’t help.  Will reports later this week from Construction Spending, Auto and Truck Sales, both ISM Indices, and Factory Orders let a little sunshine through or even bring May flowers? Read more…

Tweet This Post

“One’s destination is never a place but rather a new way of looking at things.” — Henry Miller

Investors seemed to have regained their collective mojo, powering the S&P 500 Index (SPX) back up to the 1400 mark for the first time in three weeks. The upward move by SPX was fueled mostly by better-than-expected first quarter earnings, which increased the bottom line for the benchmark index by 1.8% on the week.

Will 1400 now serve as a new level of support or morph once again into a hard line of resistance? It has been over four years since the SPX has spent any sustained amount of time over that level. At the moment, it would likely require a significant alignment of the stars for 1400 to become the new support line.

What would such an alignment look like? Certainly, a continued stream of positive earnings would be a requirement. This is a possibility, because the bar of expected earnings seems to be leaning towards the low side. So this aspect of the equation seems as if it could happen. Read more…

Tweet This Post

Here’s the latest Stock World Weekly: Market Forces. Enjoy!

Please give us feedback.

Features this week include:

• Technicals by Mark Hanna
• Discussion of HFT by Washington’s Blog
• Trends by Allan Trends (charts and the big table)
• Sea of Cash by Lee Adler
• Pharmboy and Phil’s trade ideas

Excerpts:

TECHNICALS with Mark Hanna:

This week, the indexes broke through the tops of their boxes. The carbon and silicon-based life forms controlling the trading scene are now free to run the Risk-Off trade to new heights. As Mark observed on Thursday,

“Looks like people are jumping on the upside bandwagon again as the S&P has cleared those highs of 1392-1393 at the ‘top of the box… Keep in mind Bernanke has us in a “Tepper moment” again. [Sep 24, 2010: Video - Appaloosa's David Tepper - Ben Bernanke Will Make Everything Go Up in the Can't Lose Environment]

“Either the economy gets better, or the Fed comes in with guns blazing. Either scenario the stock market “wins” in simple think… [Apr 1, 2012: Is it Really as Simple as Don't Fight the Fed?]… Read more…

Tweet This Post

“The Pain in Spain: More Room for a Short ETF Bet?”

Sabrient’s Daniel Sckolnik was quoted at length in this article by Ronald Fink in Institutional Investor:

With Spain the latest euro zone member to inspire fear among sovereign bond investors, exchange-traded funds that invest in the country’s equities are seen as a profitable means of shorting its debt.

Daniel Sckolnik, a senior analyst for Santa Barbara, California–based research firm Sabrient Systems, cited three ETFs in a recent Periscope column in its weekly investment newsletter: VGK (MSCI European ETF), IEV (iShares S&P 500 Europe 350 Index Fund) and, as Sckolnik put it, “for those who want to go for a more laser focus,” EWP (iShares MSCI Spain Index Fund).

Click here for the full article.

Tweet This Post