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Palm Refuses to Go Down

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As things go, may as well give it a shot.

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In an environment that has me beating my head against the "trading wall" out of an endless feeling of befuddling frustration, the last thing I want to do is to chase high-fliers only to watch them top-tick the second I get my confirm.

We can argue ad nauseam if my overall take of the market is right or wrong, but that's for all the other Buzzes I'll post. With shorts about as manageable as nitroglycerin, I am left to looking for forgotten names. If this were not a sufficiently pathetic excuse for not being long the "Market-Express," your comic relief for today comes courtesy of my long position in Palm (PALM), which I arrived at for all the reasons why someone would generally ignore a stock.

It's Opposite Day in the 'Ville Minyans, and the laugh is on me.

From a valuation standpoint, PALM's story is pretty simple: the 16-19 P/E is neither here nor there for a company whose EPS jump around in no predictable fashion. Yes, the T12 months sales trend has been up for the last 12 straight quarters, and current EV/Sales is 0.63, but these are metrics you can find in many crappy companies. Book Value is $9.75, $5.10 in cash, and PALM has no debt. T12 months Free Cash Flow has been running about 120-130% of EPS. All in all not bad, but hardly an eye opener.

But wait... not only are PALM's financials unremarkable, it also lacks "hidden" catalysts.
Yes, when the Treo 750 finally comes out (way to miss the Christmas season guys!) it's probably going to be a decent success. I have been to three Verizon Wireless (VZ) stores in the last couple of weeks, looking to replace my pre-historic "crackberry" with something else, and three times the sales people winked at me to come back when the Treo 750 rolls out, then the decision will be easy. But competition among smart-phones is, and will continue to be, brutal. In this space, the claim to "best gadget" has a shelf life measured in weeks, even among the groupy-like Treo fans.

The blandness of the above might in part explain the 13% short interest in the stock, and why less than 1/3 of the analysts rate the stock something better than a "hold."

But the lackluster outlook does not end here. PALM lacks "invisible" catalysts as well. After the miserable failure of the Q phone, one could surmise that Motorola (MOT) might be thinking of buying its way out of handset irrelevance by making a run at PALM. Otherwise some other dummy out there (and there are plenty) probably will, if only because... the dummy can. Alas, PALM has categorically stated that it is not for sale; though after hearing Bob Toll of Toll Brothers (TOL) suggest that the D.C. housing market is "dancing on the bottom," you'll forgive me for suffering a slight bout of management-induced incredulity.

So why would I buy a stock with average numbers and no unknown catalysts? Let me "question" with the following question: "Why have waves of mindless programs been buying stocks on upticks in bunches of 1000-at-a-time for the last couple of months with no regard to price?" Simple: because the stocks are going up.

Naturally, while in the throngs of the "Opposite Day" dimension, I did not buy PALM because it has been going up, but rather because it refuses to go down. On September 6, PALM missed numbers and the stock bottomed at $13.92; on September 21 it lowered guidance and the low tick was $14.49; on November 6, NTP sued PALM for patent infringements and the low was $14.02; on November 28 PALM warned again – in a big way - and the low price ticks at $13.84. These are four pretty large pieces of bad news and the stock did nothing.

Maybe George was on to something. As things go, may as well give it a shot.

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Position in PALM
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