3 O'Clock High: Short Hunters
"Deep down, in your heart of hearts, are you more afraid of winning (and all that means) or losing?"
As Minyan Michael "Michael" Santoli discussed Retail Round-Up favorite Pier 1 Imports (PIR) on CNBC this morning I was watching with rapt attention. My ship was about to come in, via the magic of television coupled with Mr. Santoli's media-perfect and somehow trustworthy hair.
"It's impossible for anyone to talk about Pier One without calling them the 'House of Outbreak Monkeys'." I thought smugly. "Finally one of my trademarked phrases is going to pay off! Not only will Santoli owe me 50-cents for using the phrase but it will also unleash the enormous pent up national demand for a new catchphrase! Tee-shirts, mugs... maybe even a made-for-TV movie staring Tori Spelling as a woman bitten by a crazed monkey during an ironic visit to Pier 1 (because it wouldn't be plausible for Torri or anyone else to actually shop at Pier 1 non-ironically)!"
I hit "record" on the Tivo (TIVO) and waited in vain. Santoli (on the list?) failed to say "House of Outbreak Monkeys". What's worse, he had the audacity to come out with a pro-PIR stance, of sorts, offering that the company was hated with near uniformity on the Street and would "at some point" approach a buyout valuation level.
I think the fact of Private Equity funds being the "Hot New Thing" at least slightly changes the strategy for trading retailers. Specifically, I think...
- "Beaten Down" retailers traditionally make attractive targets for buyout groups. The stocks get cheap and retailers always seem like relatively straight forward turnaround plays.
- That these buyout groups will one day come to rue the day they first heard the word "retail" once they actually try to execute these turnarounds doesn't really matter in terms of the stocks.
- In this environment, with so much money sloshing into buyout groups with relatively few places to put the money, it's better to take profits on retail shorts sooner, rather than later. Regardless of how lousy the operation looks the stocks are always one bogus buyout rumor from a 10% (or more) ramp.
- At the very least, the private equity money makes retailers "sticky" to the downside. I mean, if a stock like The Gap (GPS) can turn in years like 2005, be nearly hostile take-over proof due to the huge insider ownership (and, no, the founding Fischer family isn't going to buy the chains) and still get propped up because "somebody, somewhere" is considering a buyout then it can happen to any stock.
- The net effect is to make me look more towards the high-fliers for short-side retail plays. And I don't think I'm ready to short the likes of Abercrombie (ANF) until they stop comping in the mid-20% area.
When asked what he was thinking as he entered the ring for his defining fight against Thomas Hearns, boxing great Sugar Ray Leonard always has one response. "I was thinking 'Do what Ali would do. Embrace the moment. Control the moment and be the Man.'"
It's advice I ponder before doing anything of import. Happy 64th birthday to The Greatest of All Time.
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