January 2006


As stated yesterday, True Religion will be presenting at the Brean Murray conference. One thing I forgot to mention yesterday, was that short interest actually INCREASED from December 15th to January 15th. There are now 4.9 million shares short. This is a little uner 20% of all the shares outstanding. If you watch the price action, you’ll see investors are now holding onto their shares. Its going to be harder to scare people out of the stock going forward. Add to that the fact that this is becoming an IBD darling, and we have alot of potential here.

My biggest concern for today will be the Fed meeting. It’s expected that rates will be raised, but the question will be with regards to the future. Will the rates continue to be raised? Bernake will now have control. So many questions. The market could take a dive in the afternoon. I’m sure there will be pretty light action in the Street until the anouncement is made.

I added to my gold position just right now to take advantage of the upward movement I think gold will see once the rate hike is announced.

Tomorrow they will be participating in the Brean Murray conference as mentioned in their press release last week.  I don’t really expect any significant news out of the presentation.  Maybe we can get a better idea of how the company is doing this quarter, what the current backlog is, and an approximate number on how much the Manhattan Beach store contributed to the bottom line.  I don’t think we’ll hear adjusted guidance.  Seems like the company wants to wait until the conference call to blow away the $.23 per share.  I think if they bring in anything less that $.30 there will be a sell off.

The fundamentals have not changed, so my outlook has not changed.  I would be buying on the dips right now.  I wrote a couple April 22.5 puts for $5.20 a share when the stock was at around $20.  I am looking into writing more puts if there is a pullback.

 

I bought my first real estate position this week. I’m partnering with two guys who have success buying distressed, pre-foreclosure properties mainly in Philadelphia. They buy the properties pretty cheap, rehab them, and then either keep it for cash flow or flip the property. After everything is said and done, they pay approximately 60 to 70 cents on the dollar for the property.

The deal is structured so that I put up all the money and they do all the work. After my capital investment is recovered, we split the profits 50-50. I think this is fair, since I don’t want to take an active role in small projects. My biggest concern is with regards to the mortgage liability, which will be in my name. Before entering into this agreement with them, I had seen how others had fared previously with them, and I like what I heard.

On this project in particular, we plan on holding the property for rental income. I’m expecting a return of a little under 30% in the first 18 months, and then a little over 30% over the next 12 months. The way it’s going to work is that we are going to close on the property (already done), perform the rehab work (beginning on Monday), rent it out (hopefully within the next 4-6 months), and re-finance. At this point, depending on the real estate market and my experience with this venture in particular, I will decide what to do with the money.

I am looking very forward to developing a strong working relationship with people knowledgeable in the real estate industry, particularly the distressed seller market. I feel that when the market collapses these people will benefit most from distressed sellers trying to get rid of their houses quickly because they realized they can no longer make the payments on their houses. I want to be in a position where I can take advantage of that.

The stock opened at $45 trading under the symbol CMG, which I personally feel is way overvalued. I expect the underwriters to keep the stock above $40 for at least a week. Seems like they’re the ones providing the support in the open market right now.

I will wait for it to come down to the mid to low 30’s before I think of picking some up. Hopefully I’ll have that chance.

Chipotle is set to go public today. I anticipate buying some. I don’t know exactly what strategy I want to use, but I like the company, and I love the burritos. I may buy some options if they are available and play the company that way. I may also buy a small position at the open and try to day trade it, but I’m undecided. Its a high profile IPO, so I imagine everyone else is thinking the same thing. We shall see later today.

In a previous post I had mentioned FHHI and how I took advantage of the reverse merger arbitrage opportunity that existed. After completing the arbitrage transaction, I studied the company further. Fashion House is in the shoe making business. What I like about the company alot, is they’re partnered with already established brands: Oscar de La Renta, Richard Tyler, and Bill Blass to be exact.

I had met with the CEO a couple of months ago, and I was thoroughly impressed. He wants to grow the company, and I think he will be able to do so effectively. Using multiple brands and lines, he will be able to penetrate all price points. In the Fall, the company introduced 1 Richard Tyler line as well as 1 Oscar de La Renta line. In just a couple of weeks, February 10th, the company will be introduced 1 more Richard Tyler line, 1 more Oscar de La Renta line, and its first Bill Blass line.

The most exciting thing about this company, is that although it is relatively young, there is no brand name that needs to be built. The brand names have already been established not only with vendors, but with the public as well. This will make it easier for the company to increase its door count much faster, as relationships have already been established with each company’s clothing lines already.

With approximately 18 million shares outstanding at the moment, the company will grow into its valuation fairly quickly, and could see anywhere from $3 to $5 a share within the next 18 to 24 months. When speaking with the CEO, he had told me that ultimately he would like to pursue a listing on a major exchange, and that he already has small, high quality companies on his radar screen that he would consider as acquisition targets in the future.

I am very bullish on the stock. In the past 2 days it has jumped approximately 60%. At this point I would probably wait for a small pullback, although its not guaranteed, but I am still considering buying at these prices. I will be attending the company’s exhibit in Las Vegas for the unveiling of its new product lines and will have an opportunity to meet with the CEO at that point. If anybody has any questions they would like me to ask him, please let me know.

I recently finished reading Freakonomics, and I must admit I was slightly disappointed. From reading the blurb, I thought it was going to be pretty interesting, helping me to realize things I would have never thought before.

The book provided me with some nice little anecdotes, but to be perfectly honest, I wasn’t impressed. Some of the conclusions established were rather easy, although reading the stories behind them is what made it entertaining. The book has no use with regards to increasing knowledge in economics, but like I said, could provide for some interesting stories to tell people at parties. My personal favorite topic discussed was the relationship between abortion and crime.

Today was a really good buying opportunity for TRLG. I bought a couple of July $25 calls this morning. I don’t know how much lower the stock will go before the conference call, but I must admit, I am feeling alot better with the price action in the stock right now. I feel that for the most part, the current investors are larger investors that won’t sell their positions so easily. I am no longer as nervous as I was back in October, and with good reason. We’re up signiciantly from that low of around $12.

Looking at the company’s number, its still trading at a forward PE of under 20, which I think is ridiculously low for a stock growing this fast. If you were to apply a PE of 30 for their 2006 estimates, we could see $35/share by the end of year. Look at growing competitors in their industry. PE’s between 30 and 40 are not uncommon. After the 4th quarter conference call, we may begin to see the market correct its valuations. We shall see. For now I’m buying on the dips, and will most likely sell the short term position after the conference call.

I also purchased some Google January 2008 $600 options. Its risky, but in all honesty, I didn’t put much into it, and it has the possibility of getting there over the next 2 years. We shall see.

In December of 2004, I invested in a venture for a bar/lounge in Manhattan. I took a 1% interest in the bar. The general partner who was going to be in charge definitely had excellent experience, and came well referred. I decided to take the chance. If nothing else, it would expose me to the nightlife industry, which is something that I have always been interested in.

I have received a 10% return since my initial deposit into the escrow account in December. The bar opened its doors in March. It hasn’t been as successful as we had hoped, mainly because of the location, but because the managing partner was able to negotiate very good leases, we have been able to keep our overhead low and stay profitable.

I have also gotten the chance to meet other investors, and have networked new relationships. Some are involved in other bars in Manhattan, some have real estate projects they are dealing with, and others are working on new bar ideas of their own. All in all, its good because I’m meeting like minded individuals who are also seeking a higher return on capital.

The biggest lessons that I learned from this deal:
1. You can find valuable partners via Craigslist
2. Hold onto your money as long as possible. Those 4 months of downtime, where my money virtually earned nothing kills me. Next time I will try to negotiate better timelines for when the money needs to be deposited. Naturally, the bigger the investment stake that I make, the more leverage I will have to negotiations.

 

Sorry about the absense for the past week or so. I’ve been extremely busy so far this year. My portfolio is doing very well, I’m up over 75% since the first trading day of the year, and I have already hit the target I wanted to hit by the end of the year. It’s been keeping me busy though.

I’ve also been going out, networking with people. I am looking to get involved into real estate, although right now I want to make some small deals, just because I want to get my feet wet without being overexposed in a saturated market.

Yesterday afternoon I picked up Ivanhoe Energy at $2.93. Very interesting play here. First off, with a market cap of over $600mm, I think it is WAY overvalued. That being said, they have developed a way to turn heavy crude oil into light sweet crude. Yeah, the potential there is insane. They stated they have already been approached by numerous people who want to partner. And with good reason. I read yesterday that heavy crude sells for $18 less per barrel than light sweet. This will help heavy crude drillers increase earnings significantly.

This is an extremely risky play. The technology could prove not to work over long periods of time. For that reason, I have put a very small portion of my portfolio into it…. approximately 2%. If it works out then that’s great. If it doesn’t then that’s okay as well. But I can only imagine the potential that it has right now, opening up an entirely new market.

Next Page »