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Tuesday Tub'in


"Why limit tantrums to Friday?"


Updated: Net-Flix (NFLX): Playing "Flatliners" for the last 4 months

From Today's Buzz: "Netflix is stumblin' and bumblin' to levels not seen since last November, down 3% to $10.29. Those '04 lows were touched in the wake of Net-Flix' all-time-classic conference call of confusion when the company dropped subscription prices, took down numbers and generally looked like the Three Stooges sans Moe ("Moe is their leader").

As the natural timing of the cosmos would have it, the NY Times has a lengthy Net-Flix
piece (free reg required) with some jaw-dropping analyst commentary regarding that dark October call. My fave: Piper's analyst offering that "it was like all our beliefs in the Net-Flix growth strategy were shattered".

For whatever it may be worth, I've got the name on my list for adding long-side exposure as it drops. It's not so much that I have "beliefs" in Net-Flix (shatterproof or otherwise). It's a combination of some support levels drawing near and I think it's almost impossible to underrate Net-Flix' main

If only I knew what the CNBC StockScouter gave Net-Flix... then I could get really bold... "

Within moments, Minyan "Dutch" had let me know exactly what the StockScouter rates Net-Flix. The stock is a 4 (four).

Apple (AAPL) is a 9. "Low risk, high reward".

Same for Ebay (EBAY).

At the risk of biting the hand that feeds me on occasion, the StockScouter is a creation of pure evil. It should be handed a large brick, stuffed in a bag and dropped in the East River.

You know... just in my opinion and stuff. And it wouldn't matter if the Scouter gave my book sweeping 10's as ratings. The problem isn't disagreeing with my book, it's my moral objection to the idea that an investment thesis, ANY investment thesis, can be reduced to a single number... let alone the thought that somebody, somewhere is actually making personal investment decisions using the scouter.

("C'mon, CNBC, you guys like me because I'm opinionated.... right?... right?... Hello...?")

Moving right along... Minyan Mailbag!

Dear Prof. Macke,
A few things to note about Toys'R'US (TOY):
a) No net debt
b) Price to FCF of 8x, which means a FCF yield of 12.5x.
c) Meets most criteria for Private Equity investments
d) Have you seen the number of babies being born recently. A whole new generation of Americans is being born, and companies like Kimberly-Clark (KMB) and Proctor and Gamble (PG) are raking it in with diapers, formula, etc.

Guess which is the number one registry for expecting parents? Yup, its Babies'R'Us (anecdotal).

Minyan AA

Fair points all, AA. The only counters I would offer are (unlettered as they are general responses rather than point by point):

* For the year just ended, Babies 'R' Us same store sales comped at 2.2% vs. (1.7%) for the parent Toys division. It's a growth story with some promise but, with 211 stores and a plan to add "20-30 per year" until reaching 300 with the current model, just not a very exciting one.

* That gives Babies a pro-forma long term revenue target of $675 - 700million.

* While I frankly admire how proactive Toys R Us Corp is being with their strategy (really... the toughest decision is walking away from the fight in the Toy category) that Babies run-rate isn't enough to offset the investment uncertainty created by the possible (probable?) LBO and creation of a dedicated Babies R Us company.

The Toy division did 1.1Billion in '04 revenue vs. 475Million for Babies. There's a lotta work to be done by the company before it will be possible to invest in Babies through any common stock available.

* TOY hit a 52-Week high today. I see the FCF multiples but it doesn't matter in terms of the stock, beyond handicapping the chances of finding a Toy buyer.

For what it's worth, (IMO, not advice) I wouldn't buy the stock here for Babies or any other reason. I'm not shorting it, either... it's a "watch" name.

"Video Games are the new 'Plastic'"

The military is using a game featuring ""a smorgasbord of ferocious, flesh-chewing weaponry (Unreal Tournament 2003)" to train our troops in Iraq.

The weird part of the story is that they toned down the violence in the game to make it more useful for the troops.

Speaking of plastic (a reference to The Graduate, 'course), While squiring Mrs. Robinson, Benjamin Braddock (Dustin Hoffman) used the same hotel alias as Frodo Baggins while checking in (so to speak), "Mr. Underhill".

(My theory is that sharing this stuff will allow me to get it out of my head... freeing much needed space for loftier knowledge.)

Ford '05 Recalls off to a strong start

The NHTSA announced today that it's reopening an investigation into Ford (F) cars including the F-Series (28% of Ford's sales). If the investigation results in a recall a staggering 1million vehicles could be affected.

A Ford spokesperson offers that "A reopened investigation is a rare occurrence, and rarer still does that investigation result in another recall!"

Another very rare event that moves closer every day: The bankruptcy of one of the remaining Big 2. (Wait for it... 2010ish)

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