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Ten To Try Out?


Old mistakes and new ideas.

Did I really say that that there was opportunity in Excel Maritime (EXM)? Can I continue to defend my position in Ciena (CIEN)? Does it make sense that Ceragon Networks (CRNT) and Starent (STAR) will defy the inevitable shrinkage in capex spending and continue growing fast?

The market has spoken, and, reasons notwithstanding, it said loud and clear that I was wrong. The macro environment has run over my cutesy stock analysis like road-kill, and I am not sufficiently delusional to see opportunities for fast growth... anywhere. At risk of participating in the bottom making process, I gotta move on to more simple aspirations: safety, some kind of growth -- puny as it may be -- and industries that can navigate through tough times.
Minyanville's Why Wall Street Will Never Be the Same
So in the last 48 hours I have punted a whole bunch of names: Navios Maritime (NV), EXM, CIEN, STAR, CRNT, and FCStone (FCSX) to name some. In many of these I took some pretty good dings, which would have been devastating losses but for the direct hedges I carry on all of my large positions, as well as my net-short market exposure. Of the faves bought under my former state of mind, I am sticking with Akamai (AKAM), VMWare (VMW), the story there remains desktop virtualization and that's several quarters out anyway, and Cypress Semi (CY).
Newcomers to the party, all in smallish sizes, include:
Adobe Systems (ADBE): It's very exposed to economic weakness, but I promised myself I would not pass on it below $30. This is a de-factomonopoly and when things turn, and eventually they will, I know I will not want to pay 40x EPS for it. The pristine balance sheet will give me comfort when – not if – the price keeps moving lower.
Fluor Corp. (FLR): $2 billion of net cash, and trading at 0.2x "Enterprise Value to its backlog" of business. Hyper-growth in infrastructure build-outs has gone bye-bye, but there are still plenty of non-discretionary projects out there, and as the world economy grinds to a halt those projects will be the governments' way to keep people working.
Smithfield Foods (SFD): As noted yesterday by Prof. Krueger, it's a commodity "price taker" and hopefully most people can continue to afford ham and bacon; the CEO has seen a few rough times before. The scary bit is the balance sheet, which has been the subject of scary rumors over the last few days.
eBay (EBAY): This one was brought to my attention by Prof. Katsenelson; $4 billion of cash and zero debt, lots of free cash generation, cheap on any measure, the 1600 lb. gorilla in a business with high barriers to entry, and a stock generally hated beyond recognition.
More Cisco Systems (CSCO): I may be stuck in yesteryear with this one, but with $20 billion in net cash and great free cash flow, it is not the kind of competitor one wants to see when times are tough.
Proshares Ultra Financials (UYG): It trades like an option on financial institutions that should survive. If they don't, it really won't matter what else I own. It balances my large and larger S&P 500 (SPX) short.
Electronic Arts (ERTS): Once again an air-tight balance sheet ($2.6 billion in cash and zero debt), few competitors, and as cheap as it has been in a long while. The consumer is toast, but for a modest price its games can provide a lot of mind-numbing, yet legal and only moderately addictive entertainment as we hunker down in our basements and share tuna cans with the cats.
EDITOR'S NOTE: Professor Zucchi updated TYG with the following: "In yesterday's morning "10 To Try" piece I mentioned the Tortoise Energy Infrastructure Fund (TYG). Yesterday afternoon TYG's investor relations called me back and we discussed some instruments they use to finance their leverage needs, including Auction Rate Securities and Preferred stock. As it turns out, between the illiquidity of the ARS market and the "net asset coverage" requirements of the loans, things are far more dangerous than I care to deal with. I closed my position for a small loss."
Tortoise Energy Infrastructure (TYG): (See Editor's Note, above): A closed-end fund of energy Master Limited Partnerships. I used to own this many moons ago and forgot about it. It uses very modest leverage (33%) and pays a 10% dividend. It's largely insulated from swings in energy prices. Thank you to Minyan Doug Kass for the idea.
Roper Industries (ROP): An amalgamation of annuity-like businesses, it throws off plenty of free cash: EZ Pass Toll technology, water related infrastructure, and it's becoming the de facto convenience and security standard on college campuses, where students use a single card to access dorms, pay for on and off campus goodies, check out books, log-on to school networks, etc. The card works its magic by virtue of the Roper security/software network that lies beneath.
Apple Computers (AAPL): I'll be shocked if sales don't stink, but with $21 billion in cash, zero debt, and $13 for "at the money" option straddles expiring in two weeks I'll chance that I can trade around the volatility.
I highlighted the smallish size of my positions, because I must expect that in the current tape what looks cheap today will almost certainly look dirt cheap tomorrow. And, at risk of sounding lazy in my analysis, I will also offer this: divining estimates and valuations for the next several quarters will likely prove a fool's game.

I know there are probably dozens of good reasons for not owning some or any of these names, but my goal is not to find the niche outperformer (those where the CIEN, and FCSX kind of plays), or to slice and dice PEG ratios, gross margins and operating expenses. Since I need to keep some long exposure, for now I'll just be glad if my pawns survive.

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