VLO - $105.53 Valero ** No Stop **
Remember we were stopped out last week on Valero at $96. It completed a +$10 run since that stop. It really ticks me off but you have to play the cards you are dealt.
Valero will split 2:1 on Dec-15th and begin trading at the new price on Friday the 16th.
The game plan for this entry is to buy it after the split. With the stock holding at $106 it appears there is building pressure for a split run. I would rather see it heading south instead but we can't control the direction. If we do get a run it could hit $110 on any move at all. This would split to $55. I want to buy the Jan-2007 $60 LEAP. That should be far enough away from the split price to be cheap and plenty of time for another double. The last 2:1 was October-2004 at $80 ($40 split adjusted). The stock is now $105. How about a repeat of that feat?
The symbols could change on Thursday night so don't put the order in until Friday. I am expecting Friday to close down, possible the low of the week so take your time. A buck or two either way won't hurt. The longer you wait the cheaper the premium will be. Friday is quadruple options expiration and the market makers will be extremely busy. The prices might not settle until Monday. This is going to be a long-term hold so take your time and pick your entry.
I am planning on holding this over the spring demand decline since gasoline margins are a big business for Valero. I will pick an insurance put once we get an entry.
Valero Energy Corporation (Valero) owns and operates 15 refineries having a combined throughput capacity, including crude oil and other feedstocks, of approximately 2.5 million barrels per day. Valero produces environmentally clean refined products, such as reformulated gasoline (RFG), gasoline meeting the specifications of the California Air Resources Board (CARB), CARB diesel fuel, low-sulfur diesel fuel and oxygenates (liquid hydrocarbon compounds containing oxygen). It also produces conventional gasolines, distillates, jet fuel, asphalt and petrochemicals. Valero markets branded and unbranded refined products on a wholesale basis in the United States and Canada through a bulk and rack marketing network. It sells refined products through a network of more than 4,700 retail and wholesale branded outlets in the United States, Canada and Aruba. Valero's retail operations include approximately 1,500 company-operated sites that sell transportation fuels and convenience store merchandise.
2007 $60 LEAP Call - Buy on Friday or Monday after the Thursday split
Insurance Put: Will be selected after the entry
Entry $?? (12/16)
CAM $84.29 - Cooper Cameron
CAM has been trending slowly higher at the rate of about +$2 a week since the October lows. Cooper is a supplier of equipment to the oil field industry and has little correlation to the price of oil. Friday's drop in oil barely impacted CAM for a loss of only -35 cents.
CAM is splitting 2:1 on Thursday 12/15 and ex on Friday.
Like Valero we want to buy the LEAP the day after the split or Monday at the latest. With CAM at $85 and probably $90 before the split we want to buy the $50 LEAP. ($100 divided by 2)
There is no RUSH. Cam is not going to spike out of sight. You can wait until Monday or even Tuesday after the split to make the purchase. I expect Monday (12/19) to be the beginning of the year-end rally so watch it carefully.
This will be a long-term hold and will have insurance.
Cooper Cameron Corporation is an international manufacturer of oil and gas pressure control equipment. It also manufactures centrifugal air compressors, integral and separable gas compressors and turbochargers. The Company's operations are organized into three separate business segments: Cameron, Cooper Cameron Valves (CCV) and Cooper Compression. Cameron is a provider of systems and equipment used to control pressures and direct flows of oil and gas wells. CCV is a provider of valves and related systems primarily used to control pressures and direct the flow of oil and gas as they are moved from individual wellheads through flow lines, gathering lines and transmission systems to refineries, petrochemical plants and industrial centers for processing. Cooper Compression is a provider of reciprocating and centrifugal technology applications, and related aftermarket parts and services.
2007 $50 LEAP Call - Buy on Monday/Tuesday after the 12/16 split
Insurance Put: Will be selected after the entry
ESLR $11.71 - Evergreen Solar
Evergreen Solar is a leader in the struggling solar space with installations all over the world. The key to any solar technology is volume and the California initiative to install one million solar assisted homes could be the push that makes solar finally affordable.
The vote is expected to happen on the 15th and a successful passage could catapult ESLR higher. Either way ESLR is still a competitor with improving technology and a real business model. They are yet to be profitable but are closing in on that goal. A true volume spurt as they would get from the million home project should assure that profitability through scale. Solar is the way of the future and the million roof project could be the key. The California bill would also require home builders in CA to offer a solar component to any buyer by 2010. That would cover 150,000 homes a year.
There is no guarantee this bill will pass or even be voted on in December. I believe in solar enough that I am willing to take the risk on ESLR even without the California initiative. Options are cheap and there is a strong upside if this catches on. Unfortunately there are no leaps. We will buy the June calls and move up to a farther date later if the play progresses successfully.
The Dept of Energy also has a million roof program in progress. http://www.millionsolarroofs.org/
Evergreen Solar, Inc. develops, manufactures and markets solar power products enabled by its String Ribbon technology that provides reliable and environmentally clean electric power throughout the world. Its products are targeted at on grid and off-grid applications. The Company is developing technology at the wafer, cell and module stages of manufacturing, and it holds patents and other intellectual property in all three areas. In the String Ribbon technique, strings are pulled vertically through a shallow pool of molten silicon and the silicon solidifies between the strings to form a continuous ribbon of crystalline silicon. The ribbon is then cut and prepared for cell fabrication.
Buy June $12.50 Call QLU-FV currently $2.35
TIE $68.80 - Titanium Metals ** Stop Loss $62.50 **
I believe a downgrade of three steel stocks by Deutsche Bank and Merrill prompted the selling late in the week. TIE does not deal in the steel market and is not related. I believe funds simply took profits in guilty by association mode.
The drop on Friday knocked it back to the 100-day average and that has been first level support since May. TIE has broken that support only once or twice for short periods but has immediately rebounded back into the trend.
I would like to wait for a rebound to appear before making an entry but I don't have that luxury in this newsletter. Therefore I am making a hard entry for record purposes but leave it up to you to make a judgment call on Monday. $65 should be the next support level.
TIMET is the world's largest supplier of high quality titanium metal products. With its unique combination of strength, light weight, corrosion resistance and other metallurgical properties, titanium is used in hundreds of diverse aerospace, industrial and emerging applications where no other metal is as reliable or economical, especially on a lifecycle costing basis.
As a fully-integrated titanium manufacturer and distributor, TIMET's activities span every phase of titanium research, manufacturing and sales. We convert rutile ore into sponge; melt and refine ingot and slab; manufacture mill products; and distribute our products globally. We have the financial strength, capacity and technical solutions to meet the established demands for titanium and, as new uses for titanium accelerate, to lead the industry into the future.
Titanium Metals Corporation (TIMET) is a producer of titanium sponge, melted products and a variety of mill products for aerospace, industrial and other applications. For the commercial aerospace industry, the Company supplies titanium products to manufacturers of commercial airframes. Outside of aerospace markets, the Company manufactures a range of products for customers in the chemical process, oil and gas, consumer, sporting goods, automotive, power generation and armor/armament industries. Approximately 17% of the Company's sales revenue, during the year ended December 31, 2004, was generated by sales into industrial and emerging markets. TIMET markets and sells its products in the United States, the United Kingdom, France and Italy.
Buy March $80 Call TIE-CP Currently $6.20
No insurance this week. We will buy Jan puts once December rolls over.
Entry $68.80 (12/12)
OSTK $38.51 - Overstock.com ** Stop Loss $45 **
Probably the worst managed retail site on the Internet. The President, Patrick Byrne, blamed the poor performance of his stock on an evil "Sith Lord." (A Star Wars Character) Patrick continually ranks in the top five worst performing executives of a public company as rated by the Motley Fool. His latest claim to poor stock performance is the possible existence of "millions of counterfeit shares of OSTK trading on the Nasdaq." I am not kidding. He blames the SEC with being in collusion with the Nasdaq for refusing to disclose the number of counterfeit shares in the system. He warned "shareholders that the only prophylatic against hedge fund counterfeiting was to obtain the actual certificates from your broker and store them in a safe place." This would of course prohibit your shares from being traded. This was in response to a "Get Shorty" article in the WSJ.
Overstock has filed suit against several research firms claiming a conspiracy to drive its stock price down. Patrick claims research firm Gradient Analytics and Rocker Partners were at the center of a vast conspiracy aligned against Overstock. He warned that the criticism of Overstock.com will not go unpunished.
Patrick was forced to give up his role as Chairman in October with his father John Byrne taking back control. Patrick remains the president but that has not diminished his wild accusations.
The company has a good business model but has failed to execute on so many levels that it should be criminal. They have the worst customer service of any E-Commerce site I have every visited. I have made several purchases in the past from OSTK and all but one were botched terribly. The products come in an unlabeled box with no return address label and no invoice. You can't return them without some serious effort. Consumers will not put up with this when other companies like Amazon.com, NewEgg.com and Ecost.com are models for the industry.
SSales at OSTK have slowed and operating expenses are growing faster than revenue and marketing costs nearly doubled in Q3. Cost of acquisition for new customers rose +30% over the prior quarter. This is a signal that competition is winning the battle and prior customers are not returning. OSTK has a huge debt load and slowing sales will not help. Morningstar gives them a D+ for financial health and an F for profitability. Analysts are dropping estimates for the stock into the high $20 range and well below current prices.
In August, Patrick Byrne held a conference call in which he basically said that everyone from hedge funds to journalists to regulators had all been scheming to destroy his company. He said the plan was being orchestrated by someone he identified only as the "Sith Lord." He really said that. Rob Plaza at Zachs Investment Research said when a CEO is putting the focus on things he can't control like short interest there could be a bigger problem he does not want you to see. He said an even bigger problem is when management blames regulators for stock manipulation you have a real problem.
The last really dumb statement, or was it, came from Patrick on Nov-10th. He said "I don't give stock advice but the average investor should probably steer clear of Overstock." That advice I will follow.
Overstock.com, Inc. is an online closeout retailer, offering discount, brand-name merchandise for sale primarily over the Internet. The Company's merchandise offerings include bed-and-bath goods, home decor, furniture, kitchenware, watches, jewelry, computers and electronics, sporting goods and apparel and designer accessories. It also sells books, magazines, compact discs (CDs), digital versatile discs (DVDs), videocassettes and video games (BMV). The Company also offers limited travel services. Overstock.com offers approximately 50,000 non-BMV products and approximately 500,000 BMV products in eight departments on its main Website, www.overstock.com. Overstock.com has a direct business in which it buys and takes possession of excess inventory for resale. It also has another worldstock Website, www.worldstock.com, through which artisans in the United States and around the world can sell their products.
Buy June $35 Put QKT-RG currently $5.00
Entry $38.51 (12/12)
KKD $ 6.01 - Krispy Kreme Doughnuts ** No Stop **Play Title
Trouble is mounting for KKD. They have not filed financials since November 2004 and they are probably going to miss the Dec-15th deadline imposed by creditors. They warned this would happen about 10 days ago. They are having to restate financials for several years due to errors in accounting for expenses, loans and franchisee info.
The CEO Scott Livengood and other top executives were ousted earlier this year on allegations of financial misdealing and securities fraud. Suits are mounting from numerous groups, debtors, employees, franchisees and vendors over all types of non payment, fraud and failure to follow through with agreements.
Stephen Cooper, a turnaround specialist, took over the reins when the officers were evicted. So far the news has only gotten worse. Stores are closing rapidly including prior showplace stores and once leading producers. Cooper has worked on prior disasters including Polaroid, TWA, Enron and Boston Chicken. That list should give you a clue what is ahead for KKD.
Cooper said the chain cannot operate 4,000 square foot stores profitably and will try to reinvent itself as a smaller, leaner company. They are closing unproductive stores in a reasonable and rational fashion according to Cooper. He wants to focus on increasing sales of coffee and other beverages.
I have written about the similarity between KKD and Boston Chicken for several years and warned numerous times at much higher levels that KKD would end badly just like Boston Chicken. Now the Boston Chicken CEO is running KKD. Amazing prediction.
Yes, Boston Chicken was turned into a profitable entity once again. However it was done at the expense of shareholders. The common stock was cancelled the ownership of the stores was turned over to the debt holders. Boston Chicken wins, investors lose.
I believe that the NYSE will eventually tire of the endless deadlines for financials and will delist them. If that happens it will be the kiss of death for funds still holding the stock and hoping for a miracle return to the $105 levels of yesteryear.
Options are cheap and the KKD story is just waiting for Cooper to write the last chapter. KKD wins, shareholders lose.
Krispy Kreme Doughnuts, Inc. is a specialty retailer of doughnuts. It owns and franchises Krispy Kreme doughnut stores where the Company makes and sells over 20 varieties of doughnuts, including its Hot Original Glazed variety. Each of its traditional stores is a doughnut factory with the capacity to produce from 4,000 dozen to over 10,000 dozen doughnuts daily. Its sales channels consist of on-premises sales and off-premises sales. The Company has two complementary business units: its company and franchised stores, which Krispy Kreme refers to, collectively, as Store Operations and Krispy Kreme Manufacturing and Distribution (KKM&D). At February 1, 2004, there were 357 Krispy Kreme factory stores in operation, of which 338 are located in the United States. During the fiscal year ended February 1, 2004 (fiscal 2003), it acquired the remaining 33% interest in Golden Gate Doughnuts, LLC that it did not already own.
Buy 2007 $5.00 LEAP Put OKK-MA currently $1.35
Entry $6.01 (12/12)