Session of 03/05/2007

[David Randolph]

David, can you please look into gra and hmin for shorting?

Sure, why not.

GRA has touched the 50 days SMA today and is rebounding some on the intraday. The 200 days SMA stands just at $14.93, that is, 35% below the current price.

Fundamentally:

- Market cap is $1.6 B. Engaged in specialty chemicals and materials businesses on a worldwide basis through two operating segments: Grace Davison which includes silica and alumina-based catalysts and materials and Grace Performance Chemicals which includes specialty chemicals
- No historical dilution
- Balance sheet is strong with $536 M in cash
- Revenues are growing nicely over the years, and the sales multiple is 0.57
- EPS in 2006 was $0.9, so the earnings multiple is 26

Yes, I would say it is expensive and could have a correction to the 200 days moving average, but fundamental trends are positive, I wouldn't mind all that much buying this stock after a further correction, so probably not the best short outthere in my opinion.

[Stocky2000]

hey david i think AVT  and MA would be  good shorts...what do you think..Thanks

ket

[David Randolph]

Dave would shorting Chinese solar companies be good such as HOKU and FSLR?

HOKU no because they have that big contract with Sanyo that by itself justifies the current market cap. If the company doesn't dilute shareholder's value (which didn't do over the last 5 quarters), I see the stock sustaining the current share price or even rising.

FSLR, let me see ... hmm, this is a recent IPO stock, and usually I dislike those stocks, so probably a nice short. Technically there's that big gap up that could be closed at $34.74.

Fundamentally:

- Market cap is $3.19 B. First Solar, Inc. engages in the design and manufacture of solar modules through its proprietary thin film semiconductor technology. The solar module employs a thin layer of cadmium telluride semiconductor material to convert sunlight into electricity. The company sells its products to solar project developers and system integrators in Germany. First Solar is headquartered in Phoenix, Arizona.
- There's dilution
- Balance sheet is OK
- There's strong revenue growth, but the sales multiple is 24
- EPS in 2006 was 7 cents, so the earnings multiple is 639.

Yes, no doubt FSLR looks like a great short, despite the great technology I'm sure it has. Valuation is stretched to the moon.

[pompano]

LEND looks like a good short.  All the way to $6?

[Guloso]

Hi David,

Hope you are fine. Sorry for Sporting!!

HMIN is similar to  HOKU. Please take a look. 

[TraderStar]

I'm interested in HMIN as well, not sure if it is wise to bet against it...

[nica33]

Hi David, could you take a look to NEW. Down today with big volume

[David Randolph]

David, can you please look into gra and hmin for shorting?

Now HMIN. It is a recent IPO stock, so probably a nice short, as those companies usually dilute shareholder's value right after the IPO, as they need more financing. The chart indeed looks bearish.

Fundamentally:

- Market cap is $578 M. Home Inns & Hotels Management, Inc. engages in the development, lease, operation, franchise, and management of economy hotels under the Home Inn brand in the People's Republic of China. (complete profile here)
- Dilution  in Q3 over Q2 2006, as expected.
- Balance sheet looks weak, working capital is negative.
- I expect revenues of about $83 M in 2006, so the sales multiple is 7
- EPS in 2006 is expected to come in at $0.19 or so, which puts the trailing earnings multiple at 180

What do you mean? This is one hell of a sure thing for the short side, if you ask me

Thanks

[TraderStar]

HMIN will report earnings on Wednesday .. my Chinese contact tells me they are expected to be good .. so maybe better to wait and short into a bounce if there is one.  I will probably not play this one at all .. but will definitely be watching it because I am curious as to what happens next seeing that the Chinese & Portuguese disagree on its prognosis 

[David Randolph]

HMIN will report earnings on Wednesday .. my Chinese contact tells me they are expected to be good .. so maybe better to wait and short into a bounce if there is one.  I will probably not play this one at all .. but will definitely be watching it because I am curious as to what happens next seeing that the Chinese & Portuguese disagree on its prognosis 

They'd better be really good, to sustain a 180 earnings multiple

I'm tired, going for a walk, I'll be back later, good luck on your trades

[njshiva]

HMIN will report earnings on Wednesday .. my Chinese contact tells me they are expected to be good .. so maybe better to wait and short into a bounce if there is one.  I will probably not play this one at all .. but will definitely be watching it because I am curious as to what happens next seeing that the Chinese & Portuguese disagree on its prognosis 

They'd better be really good, to sustain a 180 earnings multiple

I'm tired, going for a walk, I'll be back later, good luck on your trades

Thanks for the analysis David.
Sad that I cannot short majority of the stocks from etrade. I tried hmin, frpt etc. no luck. 

[tokyopua]

If $oil goes down as I think it will (due to a worldwide, but especially Chinese economic recession in late 2007, early 2008), alternative energy will go down even more than oil related companies, because these trade at cheap valuations, where as alternative energy companies are trading at lofty multiples, unfortunately.

I say unfortunately because we all want the World to be more environmentally friendly, but the free market economy doesn't solve all problems of the World.

David, how would you define recession for China?  If they were growing at 10% till recently, what percentage growth would qualify as recession for them?  I also think I heard on Bloomberg that India had been growing at something crazy like 35% recently.  If it goes into recession, does that mean they are still growing at 10% for example?

[nullzero]

HMIN will report earnings on Wednesday .. my Chinese contact tells me they are expected to be good .. so maybe better to wait and short into a bounce if there is one.  I will probably not play this one at all .. but will definitely be watching it because I am curious as to what happens next seeing that the Chinese & Portuguese disagree on its prognosis 

They'd better be really good, to sustain a 180 earnings multiple

I'm tired, going for a walk, I'll be back later, good luck on your trades

Thanks for the analysis David.
Sad that I cannot short majority of the stocks from etrade. I tried hmin, frpt etc. no luck. 

Maybe time for a new broker... Scottrade you can short alot more selection of stocks it seems. Also Interactive Brokers I hear is really good.

[bourbonstreet_crawdaddy]

Hi David,

I hope that your walk left you refreshed and rejuvenated. What are your thoughts on the GOOG short? Do you still think that GOOG is one of our best options as far as shorting goes - especially in light of the fact that the stock is getting support at the 200 DMA, and because the earnings have come in above analysts expectations for the past 4 quarters, and estimates for 2007 seem reasonable.....

Just wondering if there isn't some better stocks to try and short..... or if we should just sit tight, and you are still confident that GOOG will break its long term trendline.

Thank You for all of your good advice David - and get some rest!!


Bourbon 

[nullzero]

If $oil goes down as I think it will (due to a worldwide, but especially Chinese economic recession in late 2007, early 2008), alternative energy will go down even more than oil related companies, because these trade at cheap valuations, where as alternative energy companies are trading at lofty multiples, unfortunately.

I say unfortunately because we all want the World to be more environmentally friendly, but the free market economy doesn't solve all problems of the World.

David, how would you define recession for China?  If they were growing at 10% till recently, what percentage growth would qualify as recession for them?  I also think I heard on Bloomberg that India had been growing at something crazy like 35% recently.  If it goes into recession, does that mean they are still growing at 10% for example?

Basically what David was saying is the Chinese economy is dependent on a strong U.S. consumer to maintain their extremely high growth. China is growing so fast and making so many new factories and products that it is basically making over capacity for the demand in the future... This is kind of like how the Homebuilders started to overbuild when the Real Estate market was booming... We saw how that has turned out the boom turned to bust for the Real Estate market (Due to lowered demand for housing and everyone who was going to buy a house has already taken out a home loan.)

Now just imagine the same situation with China... The Chinese economy is lets say the booming real estate market and represents the housing prices, home builders, and everything associated with the supply side of it.
The U.S. consumer is the demand side of the equation. Same as in the housing boom the U.S. consumer was on a consumer spending boom with buying power brought on by eased lending (credit cards, housing atm effect, etc... Debt is a horrible way to increase buying power because it is unsubstainable and will lead to a reserval when the time comes to pay up.) in the U.S. and a artificially weak Chinese currency which made Chinese goods nice and cheap.

Looking at how fast the Chinese economy has gone its like a runaway speed train. You slam the breaks it will turn into a bloodbath and derail... The Chinese are use to the same amount of U.S. consumer consumption of their goods... Any pullback will cause major effects since they are all ready ramped up and even over capacity as it is. Look how fast the Real Estate market in the U.S. turned from incredible boom to the path of a huge burst in just a years time.