Ripping Through Estimates

Chipotle Mexican Grill - CMG - Reported earnings earlier today and ripped through estimates. It sold off slightly after hours because essentially, people panic. One of the main concerns I hear is that growth will slow in the back half of the year. Wow, so that's news? You could have listened to them say the exact same thing on the last call. Kind of reminds me of this stock Google, which had the same sort of dynamic play out where people thought the world was going to end. Its not going to happen. Right now estimates stand at $0.23 per share on $203.4 million in revenue for Q3. I ran through some rough estimates as I am somewhat pressed for time, and in Q3 the revenue estimate calls for roughly a 7.5% comp out of Chipotle. Now this is up to your interpretation, but in my humble opinion the comp will be better than that. All we can hope for now is that Wall Street's finest don't figure that out and leave estimates as is, so CMG can beat. That scenario is highly unlikely, but it would be great to see. Assuming a 9.0% comp they would be pushing $207 million in revenue, which would make for a nice beat assuming estimates hold steady. Now this information is not complete as I haven't listened to the call yet so I'm not quite sure on the EPS line and the revenue estimate is rough, but it gives you an idea of where I'm coming from.

As for the quarter, margins up - costs down. Simply put it was a very good quarter. Sure, not quite what some were expecting, but then again you have to understand its a restaurant in a weak consumer market. What do you expect? I still haven't decided on my entry point, but it is on my shopping list. I will post a more complete review when I get some free time.

I am starting my preliminary research on VMI tonight.

Earnings season seems to keep me too busy to stay on top of everything ,so I apologize for the brief CMG summary, I will run through the key elements of it all later.

If it is down only a few percent tomorrow, that should be a very good sign. If its up you may need to be a buyer...

One last point of risk. There shouldn't be any issue with this, but when McDonald's dumps their shares of CMG in October, it could pressure the stock.

Two New Investing Ideas

During my weekend review I found myself two new ideas I figured I would share. VMI and MO. I will post more on these two stocks and my rational later. I just figured I would give you the heads up. Tonight I will post my thoughts on Chipotle's earnings. In my dream world they meet expectations or perhaps slightly beat, and don't run too much. Reason being, (I will discuss in more detail later on tonight) from the research I have done, third quarter estimates are way too low for this company. More details to come.

Next Week

As we roll into next week, earnings season slows down we will hear from the retailers. Not to sound overly pessimistic but I don't see any way that it will be good news. Any mention of the words "weak consumer" or "slowdown" coupled with mentions of excess inventories and the need to markdown additional merchandise could put the indexes right back to where we started a week ago. There are a couple of ways to play this potential weakness. First, you can target your least favorite retailers and short them. Secondly, you can take a more general play and short the retail ETF - RTH - as something of a hedge against potential weakness. I'm am not necessarily recommending this as a trade, I just think it is important to monitor this as it develops. Its also important to be very sure you have done your homework on any retail stocks you own, lest you end up like me and VLCM from last week. Stocks sell off much more furiously now than they would during a outright bull market so risk management is particularly important.

CMG - Chipotle Mexican Grill - They report earnings Monday afternoon and I think they will be good. I am halfway tempted to take a position in this stock prior to earnings; however, I am not going to. I need to be more disciplined with my trading so I am going to wait. In order for me to buy this stock I would prefer for it to break its current downtrend, and firm up a bit. It is a relatively "expensive" stock, I am not a real big fan of getting into a stock right before earnings when it is priced so richly. Also, the restaurant sector is under intense selling pressure. I can't think of a single restaurant stock with the exception of McDonalds that has gone up in the last month. Barring complete disaster with its earnings report (which I believe is highly unlikely) I am going to look for an entry point in CMG in the coming weeks.

And my last note: I hope you all enjoy the yahoo quote board on the right. I just discovered that earlier today and decided it would be a good addition to the site. Send any feedback to randommarketthoughts@gmail.com.

Sometimes You Have to Admit Defeat...

Volcom, Volcom, Volcom... WOW! Going into earnings announcements I usually have a pretty good feel of whether or not a company can beat earnings in that quarter. I held VLCM today knowing that they should beat earnings estimates, and they did. Little did I know that they would do the same thing they have done each quarter since I started following them; issue guidance for the next quarter below estimates. Only this time, it is different. This company is in trouble. Their largest customer Pacfic Sunwear is not buying their products. Now whether it is because PSUN has too much inventory or are actually cutting back on VLCM products remains to be seen. This is main concern and it is a big one, but there is more...

Gross margins got smashed. Now sure part of it was because of a one time benefit last year; however, I am guessing the majority of the problem lies with lack of demand or pressure from PSUN. Either way this isn't promising.

Operating margins are down. Absolutely no leverage achieved. This is the last thing you want to see in a new company that is growing.

With the amount the company lowered guidance for the third quarter right now I don't think there is any way they will meet their guidance for the full year. That will give the stock yet another haircut. Wow, I just can't believe what happened here, I am still speachless.

I have to admit I was dead wrong on this company. I believed it had a tremendous product with great growth opportunities. Now I am forced to make the decision of when to sell this stock. Right now the stock is down 8% AH, that probably isn't a bad place to sell your shares. I may hold on for a few days and dump it next week in hopes that someone may find some small positive to focus on and buy the stock. Maybe some value guys will step in on it and pick up some shares. Here is one way to look at it. Given the abysmal performance that we are going to see out of VLCM over the next 5 months I feel like it is appropriate to look into next year and imagine how favorable the comps will look. The company has Europe coming on next year, which should drive tremendous revenue and earnings growth, particularly in the back half of the year. That may be a time to own the stock. Not now.

And This Makes Sense How?

General Motors Corp. lost $3.2 billion in the second quarter because of heavy charges for layoffs and early retirements -- part of its massive restructuring program.

$3.2 billion dollars! And the stock was up 5% on the news. How is that possible? (Well I know, but I still think its crap) Now hold on for a second the $3.2 billion loss is income according to GAAP (accounting rules), so of course we have to give the company the benefit of the doubt and allow them to adjust the numbers. So they give us General Motors accepted principles. So here is what they did:

Without one-time items, GM said it earned $1.2 billion, or $2.03 per share. That was significantly ahead of the 55 cents per share forecast in a survey of Thomson Financial analysts.

Now before I go into this for a moment, I would like to quantify the amount of money GM has reported as a loss for the last year and a half: Now this is just a ballpark figure but it is roughly $12.4 billion dollars. That is a huge, huge amount of money. If anyone has ever heard of big bath accounting I feel like our boys at the GM may be making use of this tactic, ohh and this has been a 5 quarter long big bath. This has allowed the company to write down assets, fire people, "restructure" and take the entire hit in the current period while leaving future periods free and clear. The only problem with this is, the underlying business is still incredibly weak. The only thing that has changed is perception.
Here is a list of some of the other negatives that didn't get any play today:

The Delphi issue which has the potential to cripple the company.
Vehicle deliveries are down from 2600 to 2400.
Market share down from 15.1% to 13.8%.
They also have sold off their most profitable division GMAC...great long term play (note sarcasm here).
They earned a NEGATIVE gross margin in their automotive division.

Bottom Line: This company has insanely complicated financials, probably more so than the individual investor should ever concentrate on. They are not doing anywhere near as well as the stock price says. If I owned it, I would keep it on a tight leash and probably take some small profits from today. You couldn't get me to buy it up here, but shorting it is too aggressive at this juncture. Too much momentum.

Credit AP: http://biz.yahoo.com/ap/060726/earns_gm.html?.v=31 for the early quotes.

So You Want to Short Stocks in Your IRA?

Today, during my daily reading I came across an article about a ticker: DOG. Now this is a product by a company called 'Pro Funds' that allows you to short the Dow 30 stocks. Now while I was at work I was making fun of what kind of person would pay 1.3% to short the Dow 30 when they could just short DIA for much much cheaper, I got an IDEA. This company offers a variety of products, check em out here: http://www.proshares.com/resources/litcenter/#prosp
Read the prospectus! The also have leveraged shorts. Now I am not 100% sure that these are permitted in all IRA accounts, but they are the only way I know of (other than RYDEX funds) to short in an IRA account. Hopefully, some pessimist out there can take advantage of this and make some money.

*Beware of the fees on these funds, they are much higher than Rydex.

Here is the original article: http://etf.seekingalpha.com/article/13508

Good Luck.

Defensive Mutual Fund Idea

“It is the Advisor's philosophy that although often considered politically incorrect, these and similar industries and products...will continue to experience significant capital appreciation during good and bad markets. The Advisor considers these industries to be nearly ‘recession-proof.’” - Vice Fund Prospectus, July 29, 2005, page 2.

Now naturally that is a bit optimistic, but I really like this fund in this current market.

http://www.vicefund.com/

Ticker: VICEX

The fund is up 5% this year, 5% for the last year, and 20% for 3 years. Morningstar rates it a 4 star fund, mainly due to its relative newness.

The one thing this fund has going against it is the roughly 2.0% expense ratio. That is much, much higher than I personally would pay for a mutual fund, unless its returns can compensate you better than an alternative fund. That is up to you to determine...to each his own.

I just thought I should bring this to your attention so that you can hopefully make some money out there.

Two Web Sites

Here are two websites that I check frequently.

1.) http://www.sharkinvesting.com/newsletter/

I really like the guy who writes this newsletter. Its free, just check it everynight. Granted it somewhat geared to getting you to sign up for his paid services (I am not a subscriber) but still useful.

2.) http://thehousingbubbleblog.com/

Feed your negativity about the housing bubble. Very good website. If you are interested in this subject at all check this site out.

My New Favorite Stock

CMG - Chipotle Mexican Grill

This week the restaurant stocks have been selling off based on bad news from YUM brands and other restaurant chains. Caught in the mess of this blood bath has been CMG. Now last quarter CMG absolutely blew out numbers. I mean destroyed them! Now the stock has made a round trip and is back near where it came public at $45. They should report either the second or third week in August. I suggest that you do some homework on this name, because the group think of Wall St. has potentially created an opportunity for you, and it is your obligation to take advantage of it. I will post my findings once I get some work done on them.

Site Updates

I made a few changes to the layout and added some ad links. This is a test post to check out how the changes will look.

Earnings Reports

Muted earnings from GOOG. If you like what they had to say the great thing about GOOG is that its not a big gapping stock, so you will be able to get into a position relatively close the the price from today. I'll tell you what though, the market share gap that GOOG is opening up should really be concerning for anyone else in the search space. (If you needed to tell YHOO investors that after their 20%+ losses this week)

I picked up some oil plays today. Just a small position, consider it a hedge against uncertainty...

I bet Apple misses next quarter ( I will keep track of this).

Gotta be defensive now, MO, BUD, KO, K, GIS...you get the point.

Just Some Ideas

I have been paging through my old trading notebooks and below I have copied a few items of interest.

Jim Cramer’s 7 rules for speculation:
1.) Accept the fact that most end badly (90%). Limit your investment to money that doesn’t matter to you.
2.) Never speculate in your IRA or 401 (k).
3.) Never add money to a speculative investment.
4.) Don’t pretend it is not speculationEx. Owning a stock for a few days and becoming convinced it’s a good company.
5.) Cut your winnings – never let it turn into a loss.
6.) Don’t over intellectualize it.
7.) Don’t blame the messenger.

Earnings season speculation:
- Find companies with few buy recommendations.
- Look for stocks that haven’t moved up in the week prior to an earnings announcement.
- If a stock has a plurality of holds and hasn’t moved in anticipation of earnings, you may have an opportunity worth buying into.

Its the season for speculation so I figured I would share a few nuggets of information. As is always the case I am going to update you all as we head through earnings season with my ideas for speculation. Naturally, I won't recomend you follow me, I am just sharing my opinion.

Starting Slow

Im back! Wow. Now I understand that no-one is reading this right now but I am going to build this site back here in the next month and make it better than it was before. So as for the market:

YHOO missed big today. What I think that means is the GOOG will more than likely miss on Thurs. Why you may ask? Well as I detailed in prior posts, there has (up until this point) been a very strong relationship between YHOO and GOOG around their respective earnings dates. If one beats the other beats, a miss equals a miss. Now naturally this is not the best form of analysis, but the way I would apply this is simply to lighten up an a GOOG long position into earnings "just in case". It would be extremely agressive (if not reckless) to short GOOG purely based on this relationship. I just figured it was worth pointing out.

The market right now is really not in very good shape. My only existing long position VLCM is getting crushed along with every other retail stock in the world. Although I am willing to bet VLCM will be at or above $50 within the next 12 months, I am not ready to committ capital to it.

I have to start slow so I am stopping here. More posts to come!

The return is almost here

Mid July and I will be back to make some money here. Its been far too long away. I am going to double the size of my account in the second half of this year somehow and detail the adventure here. I dont know if anyone reads this site anymore (and why would you) but once I start posting again its gonna be pearls here. If anyone does check this site and has any ideas on where we should begin feel free to post a comment otherwise I am just going to come out swinging for the fences. Right now I would be biased slightly to the short side as I dont see much positive out there. I am on vacation for a few weeks but upon my return get ready. Its gonna be fun.