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Sticking Close To Home: Akamai, Citrix Systems, Cypress Semi...


There are many companies tempting on price alone right now, but when the going gets tough, stick "close to home"...

I'll spare the Minyanship lame attempts at humor, and with the S&P futures down a cool 16.00 (at 5:45 EST) to start my last Friday in Europe, let's turn to the Minx and a few macro thoughts:

  • The 4-week T-Bill is trading at a 3.4% yield against a Fed Fund rate of 5.25%. As Miller Tabak's Tony Crescenzi has noted over the last few days, if this is a reflection of not just equity investors, but also of money market investors fleeing commercial-paper backed funds, I'll leave it up to your imagination as to what would happen if a money-market house were to announce its funds will break the $1.00 price.

  • Central banks have injected some $400 bln into the system and the end result is Asia's markets had a mini-crash yesterday. Perhaps the "central banks put" is on time delay this time, or perhaps it ain't working.

  • Forget what's behind the kind of move occurring in the Japanese Yen. The violence of this kind of move can easily become the cause of further dislocations rather than the mere reflection of other problems.

  • Reuters carried a piece yesterday suggesting that meat markets were being roiled by problems in the credit markets. If that kind of cause/effect analysis is correct, it would suggest that U.S. consumers might not be able to afford food without credit, a stretch even for my doom-and-gloom scenario. This smells like the kind of headline that should make for at least a pause in the plunge, and that has made me shift my posture from one decidedly negative, to one that could benefit from further weakness but also absorb a sharp rally without giving up recent gains.

  • Staying on the subject of "meat", and before you might read the last paragraph as "bullishness" on my part, I also read that China halted the imports of U.S. meat from eight different producers, allegedly for "quality" issues. Mark this one down as yet another shot in the ever-growing protectionist tensions between the biggest creditor/debtor pair in the world. It may not end up like 1929 again, but it sure as heck starting to look like it.
Onto a few thoughts on specific companies:
  • Akamai (AKAM): I loaded up at $35 with 30 puts as insurance against a market induced wreck, which puts me squarely in the "dope" camp for now. If you care to know what this "dope" is doing at this juncture, I am shedding my puts rather quickly. If I am going to sink, I'll take my chances with this ship.

  • Limelight Networks (LLNW): I was skeptical about this one because it is a direct competitor to AKAM. Then I thought that a bit of diversification in the CDN space would not hurt, so I bought a few shares in the $16's. This trade, not mentioned in the 'Ville, is now down more than 50%. For what is worth, between doubling down and taking my humps, I chose doubling down. At 4x EV/Sales I view LLNW more like an open-ended option than a stock.

  • Market weakness notwithstanding, I thought the move in recently IPO'ed VMWare (VMW) would give Citrix Systems (CTXS) a boost. Not to be, apparently. Purely on a valuation basis a long CTXS / short VMW pairs-trade seems appealing, but I am not inclined to take on the dark side of such a hot IPO. I haven't figured out the details of CTXS acquisition of XenSource, except to say that the race for the desktop virtualization space is now on at full speed.

  • With the stock at $27 I thought my long-time relationship with Cypress Semi (CY) would be over by now. Au contraire. CY's metamorphosis (see also the Buzz & Banter archives) from "just another chip company" to a "cash flow machine" continues. Unless other companies come up with something similar soon, the PSoC concept might emerge as the first truly disruptive semi-technology in a long time. Meanwhile, subsidiary SunPower (SPWR) is smoking. Not surprisingly, throughout Italy solar panels are popping up on roof-tops everywhere.

  • If the debt pyramid scheme unravels completely, not even basic infrastructure companies such as Foster Wheeler (FWLT) and McDermott (MDR) will be spared. Overnight, Kurita Water (6370 JP) took a 10% in Japan's 6% rout. But that's why I am long lots and lots of broad index puts. (If, for example, the world economy does not collapse, these kind of names are what I want to own.) I had rebuilt my original long in FWLT at $100 after selling out near $120. I am looking for below $80 to add a new round.

  • Three days ago Quintana Marine (QMAR) increased its dividend, and the best analyst I know in this name raised its price target to $24. I am getting paid an 8% dividend to wait and watch as QMAR collects on a full book of business for the next 2+ years.
If I sound like a broken record always discussing the same names, it is not by accident. There are many companies tempting on price alone right now, but I've said many times that when the going gets tough I want to stick "close to home", close to the names I know well and I feel comfortable with. There will be plenty of times to wade in untested waters once things calm down.
As I was driving back from Rome yesterday I was thinking to myself that the "fun was over". Perhaps it is just beginning... back in Washington D.C. on Monday afternoon.
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Position in AKAM, LLNW, MDR, FWLT, Kurita, CTXS, CY, QMAR
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