Tag Archive for LNKD Short

Stock Market: Oversold and Overvalued

May 30, 2012 Equities

A tough combination for traders which is why we are on the sidelines at Hedgephone.com — We are fine with a flat year so long as we can find that one high probability trading set up to make a nice 8-12% yearly return from. Currently, the market is still overvalued and over-loved yet as we discussed here yesterday, on a technical basis the market is very oversold.

In this case, we have no real crystal ball except that summer trading is done on thin volume and means very little in general as all of the “big boys” are in the Hamptons. In our view, that’s a fine place to be as the opportunities to trade here are few and far between. We will update as stocks get cheaper — the lower they go the better they become from an investment/value standpoint and the more we become interested in them. All in all, we think the S&P is fairly valued at around $1050-$1100 so we wouldn’t step in front of the current down leg just yet…

In another 20%, I am sure we will have a lot more to talk about at Hedgephone!

For now, consider the following short ideas: These “leaders” could soon become the laggards if this is the start of the next bear market crash for equities.

CRM

ANGI

AMZN

LNKD

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Netflix Was A Total Pump and Dump… We Think These Stocks Are Too…

May 7, 2012 Scams

Most investors are taught to assume that markets are efficient and that investment decisions are made in an honest and professional manner. In fact, none of the major finance textbooks (think CFA and MBA here) cover things like pools, pump and dumps, affinity fraud, market manipulation, marking the tape, front running, cooking the books, etc… in an in depth and exhaustive manner.

Many times, investor ignorance costs the general public dearly. At www.hedgephone.com our main goal is to help investors steer clear of investment scams and pump and dump companies. We have learned the hard way that fraud in corporate America is an ever-present, ever-persistent problem.

Netflix (NFLX) investors learned the hard way about investment pools (loose agreements between big money traders to manipulate a stock). We believe that Netlflix was indeed a massive pump and dump (whether this was criminal or simply chaotic randomness) orchestrated by management, institutional investors, the media, and other interested parties whether they were actively manipulating the stock or not.

In our view, corporate insiders decided to go for a stock bubble valuation by juicing cash flow in the short term, moving toward an internet only “revolutionary” business model, and getting Jim Cramer to relentlessly pump the stock via Mad Money. The team is confirmed by interlinking director members from TheStreet.com, Netflix, etc… and from huge insider sales near the top of the bubble. If Cramer and company liked the stock so much, why were the corporate insiders who knew the business better than anyone else dumping shares like there was no tomorrow? In my view, this was simply a case of insiders dumping into the pumping whether they believed the hype or not. As a professional investor and part time fellow journalist, I was astounded to see nothing but positive articles (except of course from other authors at Seeking Alpha….) on the company from the likes of TheFool, The Street.com, Investors.com, etc.. etc… right before the implosion. We were extremely bearish. Not that it makes us special but it means that this was predictable (if we got it right, the big money managers from Harvard Business School certainly should have!).

The onslaught of BS in the financial media led to Netflix being priced at $300 per share and for over 100X what in hind sight look to be questionable earnings because they were later erased by huge losses. While most people simply believe the action in Netflix was based on a rational, efficient markets we think the stock traded the way it did because of speculation, media hype, and some old fashion stock promotion. Many authors argued that developments within the company caused the stock crash, but we think the action of the name was more typical of a micro-cap stock promotion. The fact that thestreet.com was so positive on Netflix while sharing board of director members with Netflix seems like a pretty obvious conflict of interest to me — nothing criminal, mind you, just a little bit slick.

At Hedgephone.com, we aren’t here to tattle on people but to educate them. We are looking for the next pool ready to blow up and we don’t think Netflix was the last organized pumped up and over-hyped stock to burn the little guy… Here is a quick and dirty list of companies we are investigating currently and why we think they are more hot air than hot stock at current valuations.

Angie’s List (ANGI) — We started covering ANGI at $15.50 a share and so far this short has been a nice winner similar to our call to short Groupon at $22 a share. Angie’s List reported dismal earnings last week as the company managed to lose another $14MM in the last quarter. Sure, revenues were up big but paying for business only makes sense for start up web companies right now because there is a bubble in these names created by massive economic stimulus and mal-investment (think 1999). Without this bubble, ANGI should probably be worth around 1X sales or about $150MM — a full 80% drop from current levels. The balance sheet looks sketchy, the bottom line is blood red, and even though web traffic is up the stock looks like a great short at today’s prices.

Linkedin (LNKD) — While this is clearly a great company, the stock is not a great investment in the classic Ben Graham 1934 Security Analysis sense of the term. LinkedIn is a bubble stock trading for 900X earnings. There is no rational explanation for this other than it is a repeat of the 1990′s technology bubble. While I wouldn’t short LNKD, I do think that investors should try starting their own web company versus investing in this clearly overpriced security.

Salesforce.com (CRM) — While cloud computing is a “revolution” in innovation, we don’t think that the market valuation for CRM is a real one. In fact, we think Salesforce is another “pool” manipulated by the big guns in the trading world. We also think the current technology bubble is so important to the Federal government that fraud charges will never be levied on any of the major manipulators or bubble company executives in the future even though these crimes are clear and identifiable. You see, we have created a culture of fraud on Wall Street and Main Street loses every time. That’s just the way it is — expect Saleforce.com to “beat” earnings and ramp a little higher before ultimately blowing up sometime in the next year or two.

YELP (YELP) — Yelp is a lot like Angie’s List because it is clearly just an eyeball and mouse-click valuation. The company lacks earnings, cash flow, book value, etc… but the market loves anything with a dot com at the end of it’s name. Yelp is one of the worst investments I can remember at this price but like all internet businesses anything can happen and the company may eventually grow into this astronomical valuation.

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Angie’s List is a Short…

April 19, 2012 Equities

As readers of Hedgephone know, I have long argued that Wall Street’s last and greatest bubble was going to pop somewhere around the time that Facebook (FB) goes public. The reasoning was that the web 2.0 bubble is almost as vile and deplorable as the 1999 technology bubble. Most investors don’t have the type of long-term memories to avoid the pitfalls and bear-traps of investing in the latest growth idea.

Call me crazy, misguided, out of touch, behind the times, or whatever you like, but the bottom line is that investment bankers on Wall Street receive some of their largest underwriting fees from tech bubble IPO banking. Once the Facebook deal is unleashed on the investing public, the bubble will be so large and ominous that the relative mouse-click and eyeballs valuation game might end violently with a loud Hindenburg pop.

While investment bankers are supposed to be a respectable bunch who provide growth capital to innovative businesses, these guys also have an inherent conflict of interest and are looking for huge payouts with little regard to the small investor who buys into the frenzied hype that these IPO’s create. Additionally, many bankers on Wall Street are simply A-moral as opposed to immoral and could care less about the valuations they come up with using their pro-forma models – which really only have a use in a class room or sales floor setting.

Read More Here:http://seekingalpha.com/article/510171-angie-s-list-a-pump-to-short-before-the-dump

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7 Hyped Up Stocks To Sell Short Now

March 21, 2012 Equities

Here are seven fully valued (note the short-seller euphemism) stocks that could possibly tank big time because of overvaluation. Investors who are long these names should at least consider selling calls and buying some puts in our view as the recent rising tide has lifted some pretty leaky boats along the way.

The internet-related industries are undoubtedly the bright spot of today’s economy, but much of that growth is more than priced into many of the leading stocks in the internet industry. The following table shows just how expensive these stocks are. Keep in mind, over the past 100 years or so, the S&P 500(SPY) has averaged 14X peak earnings. Stocks also tend to trade for a small premium to book value — obviously internet businesses have economic moats that are valuable so this type of analysis is less effective in estimating intrinsic value. Still, numbers are all we have to go by and these names look expensive based on the hard data. High beta names often correct the fastest in market downturns as well.

NOTE: I would use stop loss orders or call option protection if you plan to short these as directional trades. Read more here:http://seekingalpha.com/article/449041-7-hyped-up-stocks-to-sell-short-now

TTM PE Forward PE Price/Book
Salesforce.com (CRM) N/A 200X/N/A 6X
Opentable.com (OPEN) 45X 20X 8.5X
LinkedIn (LNKD) 753X 83X 14.6X
Pandora (P) N/A 263X 16X
Amazon.com (AMZN) 138X 80X 10X
Zillow (Z) N/A 53X 9.25
Zynga (ZNGA) N/A 37X 5.46X
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4 Web 2.0 Stocks to Short

March 9, 2012 www.hedgephone.com/network

In private circles, I have long argued that the Wall Street money machine was
not going to let the market for “Web 2.0″ stocks fall until the Facebook (FB) IPO, at which point pretty much all of the air will be let out of the tires of the “pretender”
social media stocks and the bubble will finally pop.

While I have no doubt that Facebook is worth $40 billion or more, I think the
time might be ripe to short some of the non-Facebook social media IPO’s here
because they could end up being similar to the Web 1.0 bubble back in the late
1990′s (am I the only trader who still remembers that bubble bursting?).

Maybe this is all a little personal for me. You see, my father, who was a
respected professor and author, died back in 1996 when I was sixteen. He left me
a great fountain pen collection, a really cool leather jacket and, of course, a
few unpaid bar tabs and other miscellaneous debts that I am still working on
paying off.

READ MORE HERE:

http://seekingalpha.com/article/421611-4-overvalued-web-2-0-stocks-to-sell-short

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Best Stocks to Short (Worst to Own)…

November 30, 2011 Equities

AMZN — 100X earnings??? Really???

CRM — 500X earnings????

LNKD — 600X earnings???

CMG — Mexican Food at 50X???

QQQ — Tech bubble 2.0

P — growth but at an unreasoanbe price… remember Napster?

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10/25/2011 Hedgephone Market Model Switches to 100% Short

October 24, 2011 Equities

This is the second or third time this year we have switched to a 100% short equity rec. at Hedgephone.com

Look to go short the CRM, AMZN, QQQ, LNKD, IWM, etc… etc… etc… of the world.

The market tape will likely get pretty ugly as the UK parliament rejected the unification of the UK with the debt zombie that is the European Union.

Also, Pumpflix’s implosion will leave momentum investors psychologically scarred.

The market is technically overbought and due for a ripe pullback.

All in all, don’t buy the hype, or buy the rip — instead short the rip and cover the dip!!!

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Conversation on Seeking Alpha Regarding CRM and LNKD (My Two Favorite Shorts)

September 29, 2011 Equities

West888

“Wow could you get any further short innovation? These companies are the three bright spots on a very beleaguered economy. Companies that are actually hiring 20% a year. Companies that are investing in communities, building campuses, attracting talent. So your investment thesis is that you don’t like the current quarter results for companies with revenue growth over 30%? How does it look when you take a 20 quarter view? Do the numbers on the companies work then, when the growth subsides and the companies reach a reasonable market penetration like $10 billion a year?”

29 Sep, 11:03 AM!
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Hedgephone Comments (901)

“innovation” — such an over used buzzword. I call it shorting mania and buying panic…

Netflix is a perfect example of when “innovation” meets reality and valuation….

Valuation met innovation in a dark alley, and valuation beat the piss out of innovation… I’ll take valuation over “innovation” any day of the week.

29 Sep, 11:18 AM! Report Abuse0

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westwest888 Comments (38)

“So you should invest in things you know, like paper. Scott’s makes the same amount of paper every quarter, they pay a nice dividend, and you can take your money and put it in 10 year treasuries at 1% or find other investment opportunities with it. I think a paper company is not growing and owes it to their shareholders to give them their money back over time.

I don’t understand how YOU would run those companies to maximize shareholder value. Let’s presume if you didn’t invest in R&D you could return a 20% after tax profit. Do you really want that money back in this investment climate? Or would you like a bunch of really smart people to write more software, invent new services, and build out new infrastructure? Who would liquidate when you have momentum?

NFLX sells a product for under $10 with no contracts to consumers. Two of the companies you listed above have lots of enterprise customers on multi year deals with support and customization. Every 3 months they get an email that new features have been added no extra charge, so they’re happy.”

29 Sep, 12:02 PM! Report Abuse0
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Hedgephone Comments (901)

Hi West,

I think the important point to note is that my articles on short selling aren’t shorting the business but merely the stock.

I agree with you that growing a business for the long term is the goal of any corporation for the maximization of shareholder wealth is the ultimate goal of any legitimate CEO.

That said, there are environments where the paper CEO should return maximum cash to shareholders if, for example, that company sees bad times ahead and slowing sales volumes. In that particular case, paying out a large one time dividend and liquidating the firm would make a good deal of sense if the shares of the firm were undervaluing the assets on hand.

If the shares were markedly overvalued from a liquidation perspective, the company should issue stock or sell the company. Of course, valuing any business is more art than science but mainly I agree that spending on innovation makes a good deal of sense depending on future business prospects, the economic backdrop, and competitive forces.

So in all, I am not saying that an overvalued firm is making a mistake in spending money in R&D, but if I were a stockholder I would prefer the company to issue shares at an overvalued level to pay for that R&D or to sell the company at an inflated price to maximize value.

The reason issuing shares to fuel growth makes sense for an overvalued business is that the capital can be used to acquire undervalued assets, boost R&D spend, pay dividends, or generally shore up the balance sheet to “catch up” to the market valuation…

In all, I see nothing wrong with the way these businesses are operated. I am simply looking at the macro picture and trying my best to find issues that the general public, who is by and large half educated and too trusting, will overpay for in the stock market.

When things get ugly is when the managements of overvalued companies try to defend their stock valuations (ala a certain http://bit.ly/89UJPz poster/CEO who will go unnamed) and advertise their future prospects to investors when they know deep down that growth expectations for the business are simply too high.

LinkedIn is an example of this in that the stock is markedly overvalued yet the CEO is making TV appearances, the President speaks at their HQ, etc… When government starts getting involved in touting overvalued investments you get the dual risk of fascism and the rage of the common man who loses money on said equity and winds up blaming capitalism instead of the collectivism or socialistic agenda that such a move was intended to deliver.

While I believe these companies are innovative and are driving “good” things in the capitalistic market as far as profits for their management teams, I feel they should all issue a ton of stock and use that cash to employ the R&D teams as you suggest. While this may not be good for existing shareholders in the short run, it will cool off the bubble for the shares and will create longer term value for the stockholders in aggregate. In other words, for these tech firms, the 20% going to R&D is better but a manager better serves shareholders by spending this money from a share issuance than from organic earnings when a stock is 50-75% overvalued as I feel all of these admittedly “innovative” firms are at present.

Just remember, ten years from now there will be a whole new set of innovative businesses and industries and at the heart of every business endeavor their is always disruptive change and new business models creating innovation. In other words, from the investors perspective finding low risk high uncertainty opportunities in your Scott’s paper example may be a better investment than a high risk high return investment in a bear market — bubbles tend to pop and people get hurt badly when they do. Better to take your medicine and issue stock down to the sleeping point so that over the long run your shareholders retain their capital

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Current Technology Bubble Sucking Wind…

July 28, 2011 Equities

So going over our short signal on 7/7/2011 we can see that the IWM is down approximately 7% while the Nasdaq 100 is down only 1.5% or so… So does this mean that the Nasdaq 100 is safer than the IWM? In my opinion no it does not — the tech bubble is back and LNKD, OPEN, AMZN, NFLX, etc… show us that tech stocks are very vulnerable to a bear market for equities. With that said, we are not saying switch from IWM shorts to QQQ shorts but we are worried for the high valuation “growth” bubble stocks that are “leading” stocks at present. If we were actively shorting the leaders, we would note the action in former leaders as a proxy for how far the current leaders could fall. Look at AKAM which is now down 50% or JASO which is down 70% from the highs for a proxy of how far AMZN, CRM, LNKD, KKD, etc.. can fall from here. If you own these stocks, you should sell them regardless of the overall direction of the stock market or the debt ceiling farce.

The bubble is acting piggishly, and as my father put it, “when pigs die, their squeels burn circles” — that’s all that’s going on in QQQ… The banskters want their IPO money from Facebook and Groupon… They need to keep LNKD up in order to do just that, but the debt ceiling epic fail will destroy the high PE tech stocks.

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How About That LNKD…

June 9, 2011 Equities, Scams

So shares of LNKD have cratered in recent sessions and are now trading for just $72 per share, down from their first day highs of $120 per share. Although at $72, LNKD still fetches 1,000 times earnings the shares are by no means cheap.

What LNKD’s plummet makes this investor wonder is whether shares of CRM, NFLX, GMCR, AMZN, etc… etc… are in a bubble as well… The runs each of these stocks have seen make me wonder whether some of the trends behind each of these stocks march higher is cyclical and fleeting or a permanent gain which will continue in the future.

LNKD shares were clearly in a speculative bubble, and in hindsight I wish I would have pushed the short side to much larger degree. YOKU was also extremely overvalued at recent highs, and while I was correctly bearish and shorted both of these names, I did not get aggressive enough on the short side to profit from these “scams at these valuations” type of short positions.

I will continue to look at the Chinese IPO’s for more short opportunities. RENN, YOKU, DANG, SINA, etc… have all made short sellers money if they shorted high and covered at lower prices. The risk and reward curve was not optimal for longs, but now the short side of these trades is likely a bit more crowded. With that said, i think a CRM, LNKD short call option, etc… type of trade would be a strong addition to index calendar put spread strategies.

All in all, I am less bearish here than I have been for some time and lightening up on my hedge positions because of the sharp selloff in equities. I do, however, recognize that the average stock is likely not a great value at current levels.

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