Monday, July 9, 2007
Wisdom of Crowds experiment started 7-9-07
I will be posting the portfolio soon, I am currently working on some spreadsheets and things. It is about 20 5 star rated stocks. First day was interesting, but it did NOT beat the S&P 500. While the accuracy in stock picking was 67% which I consider good, all the gains where negated by an 8% loss by Bolt Technology (BTJ). Of course this is a long term experiment which even after today I think will handily outperform the S&P 500.
Thursday, June 28, 2007
Wisdom of crowds
I have been very busy with summer school midterms and other things. The Wisdom of Crowds experiment will start around July 3-5. Im am still dividing stocks into sectors and deciding how many of each to include.
Tuesday, June 12, 2007
A new project for me: "The Wisdom of Crowds"
I recently finished a book called "The Wisdom of Crowds" by James Surowiecki. To quickly sum it up: He argues that a diverse group of people, having their information aggregated (averaged), make better decisions or guesses than any single member of the group. Surowiecki argues against the constant "search for the expert" going on in our society today. Simply put, the crowd is smarter than any single member in it (even if there is a so called expert in the crowd).
While the book was a bit bland for my taste, it gave me an interesting idea for an experiment. The Motley Fool CAPS site is one of my favorite investing websites. The idea behind it is to let anyone, not just "pros" rate individual stocks. People can rate stocks either outperfom or underperform and also enter their reasoning for all to see. If their ourperform stock does better than the S&P 500, you gain the percentage difference. Every members rating is aggregated and the stock is rated on a 1 to 5 star scale. My experiment will test Mr. Surowiecki's theory, and my prediction is that he will be right. What I plan to do is to create a virtual portfolio comprising of only stocks rated 5 stars. This experiment will go on for six months initially, and I will post a link to the portfolio for all to track once I decide on the number of stocks that will be included. If the portfolio beats the S&P 500 index, then it is a success. I will try to include an equal number of stocks from each industry in the portfolio. It will be up in the next 48 hours. Stay tuned.
While the book was a bit bland for my taste, it gave me an interesting idea for an experiment. The Motley Fool CAPS site is one of my favorite investing websites. The idea behind it is to let anyone, not just "pros" rate individual stocks. People can rate stocks either outperfom or underperform and also enter their reasoning for all to see. If their ourperform stock does better than the S&P 500, you gain the percentage difference. Every members rating is aggregated and the stock is rated on a 1 to 5 star scale. My experiment will test Mr. Surowiecki's theory, and my prediction is that he will be right. What I plan to do is to create a virtual portfolio comprising of only stocks rated 5 stars. This experiment will go on for six months initially, and I will post a link to the portfolio for all to track once I decide on the number of stocks that will be included. If the portfolio beats the S&P 500 index, then it is a success. I will try to include an equal number of stocks from each industry in the portfolio. It will be up in the next 48 hours. Stay tuned.
Saturday, June 2, 2007
Looking for a no risk investment?
This is for everyone who is scared that the stock market is due for a correction and is looking for a safe place to put their money and earn some decent returns. I have just learned of an online savings offering 6% APY. I signed up for HSBC direct a few months ago when they were offering 6% APY for a few months. FNBO Direct is offering 6% APY guaranteed not to change until October. Four months at 6%, not bad. If you are worried about the legitimacy, no need to be. FNBO Direct is a subsidiary of First National Bank of Omaha, a bank that has been around for 150 years. They are FDIC insured. I am in the process of opening an account, and will post updates.
https://www.fnbodirect.com/
https://www.fnbodirect.com/
Thursday, May 31, 2007
Real Estate update- My analysis and forecast for the future
5/31/07
According to the Census Bureau http://www.census.gov/const/newressales.pdf, the supply of new homes on the market dropped to 6.5 months after being over 8 in February and March. To put that in perspective, in 2005 the supply was never over 5 months worth. That means that in February and March of 2007 there were 60% more new homes on the market than at the highest point in 2005.
I think that the spring has brought buyers out once again, which is one reason for the jump in sales. The other factor seems to be builders are realizing they have to slash prices in order to sell their huge inventory of new homes still on the market. At this point it is better for them to accept low prices instead of letting having them sit in inventory or in some cases go into foreclosure.
This increase in new homes sold, is a sign that these inventories are finally being cleared out and are coming back to a reasonable level. I previously did not make the distinction between new homes and existing homes (used homes) which led me to be confused by the April sales figures. I was looking for any signs that the market may have bottomed and was given some false hope by the rise in sales. However, with prices tanking it is unlikely that we have hit the bottom. There is hope however, prices have come down far enough that buying is looking attractive again (especially for first time home buyers which were practically priced out of the home market in recent years) especially with great bargains to be had by dealing with suffering builders.
Sales of new homes surged by 27.8 percent in the South. Ont the other hand, sales fell in the Midwest by 4 percent, and making it the only region in the country which has seen sales drop. This is not surprising, as I live in the Midwest and see the tremendous amount of homes for sale. Prices here are not dropping as drastically as in the Florida and California markets, simply because they did not rise as high in the first place.
What I have noticed is that prices have flattened (if not lowered slightly) and houses are on the market for very long periods of time. People who have purchased in the last two years have seen no appreciation in most cases, and would have a hard time getting the money they spent back if they were to sell today. The time of the "flipper" is long past. My view is that real estate is looking like a good long term investment at this point. If I were in the market, I would make a deal with a struggling builder, and try to rent the house for whatever I could. I would be greatly surprised if the market did not start appreciating again in the next two years, with someone purchasing now having a decent return on investment if they sell in 5 years. This is simply my opinion of course.
Existing home sales are the more important barometer of the real estate market in my opinion, as they effect the typical consumer (homeowner) the most. On May 25, The National Association of Realtors reported that sales of existing homes dropped by 2.6 percent in April to a seasonally adjusted annual rate of 5.99 million units. That means that sales are at their lowest point nearly four years. This does not bode well for the market. There is a multitude of homes for sale, and all sellers are holding firm with their prices, not willing to believe that prices of real estate have actually come down after skyrocketing for the past few years. These people (and it is already happening) will have to start lowering prices to sell their homes, or especially to sell investment properties that they have mortgages on. And then we will finally see a bottom in this market. Hopefully this is happening as I write this, and the market will start to stabilize. This is unlikely, but I predict it will happen within the year.
The analyst consensus is that the market will see a slight recovery in 2008. This is in line with my view, at least for the Midwest. I am not as convinced about other markets, such as California, where speculation has run rampant for many years.
It seems as though the stock market is currently the only thing keeping the U.S. from going into a recession as GDP growth has nearly halted and the all important real estate market has not reached bottom yet. Former Fed Chairman Allan Greenspan puts the likelihood of a recession at 1 in 3. If the stock market receives a correction as many are predicting, what will there be left to invest in (short term)? Let's hope we don't have to find out.
According to the Census Bureau http://www.census.gov/const/newressales.pdf, the supply of new homes on the market dropped to 6.5 months after being over 8 in February and March. To put that in perspective, in 2005 the supply was never over 5 months worth. That means that in February and March of 2007 there were 60% more new homes on the market than at the highest point in 2005.
I think that the spring has brought buyers out once again, which is one reason for the jump in sales. The other factor seems to be builders are realizing they have to slash prices in order to sell their huge inventory of new homes still on the market. At this point it is better for them to accept low prices instead of letting having them sit in inventory or in some cases go into foreclosure.
This increase in new homes sold, is a sign that these inventories are finally being cleared out and are coming back to a reasonable level. I previously did not make the distinction between new homes and existing homes (used homes) which led me to be confused by the April sales figures. I was looking for any signs that the market may have bottomed and was given some false hope by the rise in sales. However, with prices tanking it is unlikely that we have hit the bottom. There is hope however, prices have come down far enough that buying is looking attractive again (especially for first time home buyers which were practically priced out of the home market in recent years) especially with great bargains to be had by dealing with suffering builders.
Sales of new homes surged by 27.8 percent in the South. Ont the other hand, sales fell in the Midwest by 4 percent, and making it the only region in the country which has seen sales drop. This is not surprising, as I live in the Midwest and see the tremendous amount of homes for sale. Prices here are not dropping as drastically as in the Florida and California markets, simply because they did not rise as high in the first place.
What I have noticed is that prices have flattened (if not lowered slightly) and houses are on the market for very long periods of time. People who have purchased in the last two years have seen no appreciation in most cases, and would have a hard time getting the money they spent back if they were to sell today. The time of the "flipper" is long past. My view is that real estate is looking like a good long term investment at this point. If I were in the market, I would make a deal with a struggling builder, and try to rent the house for whatever I could. I would be greatly surprised if the market did not start appreciating again in the next two years, with someone purchasing now having a decent return on investment if they sell in 5 years. This is simply my opinion of course.
Existing home sales are the more important barometer of the real estate market in my opinion, as they effect the typical consumer (homeowner) the most. On May 25, The National Association of Realtors reported that sales of existing homes dropped by 2.6 percent in April to a seasonally adjusted annual rate of 5.99 million units. That means that sales are at their lowest point nearly four years. This does not bode well for the market. There is a multitude of homes for sale, and all sellers are holding firm with their prices, not willing to believe that prices of real estate have actually come down after skyrocketing for the past few years. These people (and it is already happening) will have to start lowering prices to sell their homes, or especially to sell investment properties that they have mortgages on. And then we will finally see a bottom in this market. Hopefully this is happening as I write this, and the market will start to stabilize. This is unlikely, but I predict it will happen within the year.
The supply of existing homes for sale shot up to a record total of 4.2 million in April, an increase of 394,000 from the March supply. Analysts predicted that this big inventory surge would act to further depress prices.
The analyst consensus is that the market will see a slight recovery in 2008. This is in line with my view, at least for the Midwest. I am not as convinced about other markets, such as California, where speculation has run rampant for many years.
It seems as though the stock market is currently the only thing keeping the U.S. from going into a recession as GDP growth has nearly halted and the all important real estate market has not reached bottom yet. Former Fed Chairman Allan Greenspan puts the likelihood of a recession at 1 in 3. If the stock market receives a correction as many are predicting, what will there be left to invest in (short term)? Let's hope we don't have to find out.
Saturday, May 26, 2007
New Home sales soar by record amount
EDITED ON 5/31/07 (previously did not distinguish new home sales from existing)
This is not a headline from the housing boom of a few years ago, it is from 2 days ago. Sales of new single family homes gained 16.2%, while economists were predicting a paltry 0.2% gain. That is the biggest one-month sales gain since April 1993 (a 16.4%). This is not necessarily positive news, in fact it is quite confusing. While sales increased at a record level, the median price of a new home sold last month fell a record 11.1% to $229,100 from the previous month.
I just passed my real estate licensing exam and have some family in real estate, so this was particularly interesting. I will attempt to figure out what this article means in terms of the current housing market slump in the coming days.
http://www.msnbc.msn.com/id/18842917/
http://www.miamiherald.com/163/story/117143.html
This is not a headline from the housing boom of a few years ago, it is from 2 days ago. Sales of new single family homes gained 16.2%, while economists were predicting a paltry 0.2% gain. That is the biggest one-month sales gain since April 1993 (a 16.4%). This is not necessarily positive news, in fact it is quite confusing. While sales increased at a record level, the median price of a new home sold last month fell a record 11.1% to $229,100 from the previous month.
I just passed my real estate licensing exam and have some family in real estate, so this was particularly interesting. I will attempt to figure out what this article means in terms of the current housing market slump in the coming days.
http://www.msnbc.msn.com/id/18842917/
http://www.miamiherald.com/163/story/117143.html
Friday, May 25, 2007
Nintendo (NTDOY.pk) update
Nintendo held a Media Summit in Seattle last week to showcase some of the games scheduled to debut this summer and beyond (link to IGN coverage). To kick off the event, there was a presentation to the media by Nintendo of America president Reggie Fils-Aime. He discussed Nintendo's expanded audience games (games targeted outside of the normal gamer market) as well as the releases of Metroid Prime 3, Super Mario Galaxy, Smash Bros. Brawl and The Legend of Zelda: Phantom Hourglass later this year.
Here is a quote from his speech that particularly stood out for me:
A few other points of interest:
Nintendo Wii is number 3 in a Top Products of 2007 story by PC World. (link here) Where does the XBox 360 rank? The upgraded Xbox 360 Elite places number 18 on the list, while Sony's PS3 is nowhere to be found.
Lastly, Nintendo's stock went up 2% recently on news that their target for Wii sales in the U.S. by 2012 is 35 million. That is very close to the 38.2 million Ps2 consoles sold in the U.S. thus far. The Ps2 is the biggest selling console of all time.
Here is a quote from his speech that particularly stood out for me:
I overlooked this fact in my earlier analysis and it further goes to show Nintendo's dominance in the gaming market at this time. This bodes well for Nintendo's stock price in the short term."In the history of the videogame industry here in the United States, only one company has ever been the number-one manufacturer of a hardware console, the number-one manufacturer of a portable console, the number-one game publisher and the owner of America's top-selling game all at the same time. The company was Nintendo back in the 80s. And now today we've done it all over again."
A few other points of interest:
Nintendo Wii is number 3 in a Top Products of 2007 story by PC World. (link here) Where does the XBox 360 rank? The upgraded Xbox 360 Elite places number 18 on the list, while Sony's PS3 is nowhere to be found.
Lastly, Nintendo's stock went up 2% recently on news that their target for Wii sales in the U.S. by 2012 is 35 million. That is very close to the 38.2 million Ps2 consoles sold in the U.S. thus far. The Ps2 is the biggest selling console of all time.
Monday, May 21, 2007
Nintendo stock forecast
Wii is the top-selling new console for the fourth month in a row
And for the first time in recent history, Nintendo has the top two positions on the game hardware list with its DS handheld continuing its number one run, and the Wii passing the Ps2 (on the decline obviously) for the first time since its release.
Would you want anything different in a possible investment?
Even with the stock doubling in the last year, I still believe it has room to grow. I look at this more as a growth play than a value but the stock is far from expensive. It has a 30 p/e multiple which seems more than reasonable.
The company had record operating profit 226.02 billion yen ($1.91billion) in the year ended in March. This beat analyst expectations by more than 10%. This is more than double from last year. Net income meanwhile, is up 77%. I think this more than justifies their multiple
and makes Nintendo look very attractive even at current levels.
Nintendo is forecasting only a 0.4% increase in net income for next year (ending March 08). Look for them to beat this (although not by 77%) next year with a few guidance raises along the way. Their estimates are conservative as always. It is well know that the Japanese are conservative due to their culture, and in this case it makes for a very favorable investing environment.
Possible Negatives
market.
JP Morgan's price target for Nintendo is $46.49
My 6 month price target (By 12/31/2007) is $51.00
And for the first time in recent history, Nintendo has the top two positions on the game hardware list with its DS handheld continuing its number one run, and the Wii passing the Ps2 (on the decline obviously) for the first time since its release.The Wii (360k units) sold 101,000 more units than in March, in a sign that Nintendo is finally managing to ramp up production enough to better keep pace with demand. The Wii's competitors, the Xbox 360 from Microsoft, and Sony's Playstation 3 delivered paltry results. XBox 360 sold less than half of Wii's numbers, while the PS3 sold less than a quarter of Wii's numbers at 82,000. Sony's numbers were down 37% over March numbers.
Nintendo also has the top 4 games on the April sales chart. Below are the games rankings along with units sold in the month of april. Figures courtesy of the NPD.
01. Pokemon Diamond (DS) - 1.045M
02. Pokemon Pearl (DS) - 712K
03. Super Paper Mario (Wii) - 352K
04. Wii Play (Wii) - 249K
Not only are these games made for Nintendo consoles, but they are all developed in house by Nintendo. What this means is that Nintendo keeps the lions share of the profits on these games as opposed to a game made by another publisher, which would just pay Nintendo a licensing
royalty for each game sold.
Competition
Lets take a look at the Xbox 360. The console had about a one year head start over the Wii and therefore has a larger installed customer base at this point. This is obvious as it was the only next gen console on the market for almost one year. Microsoft has 59%, while Nintendo has 27%. So Microsoft has twice as many consoles in homes, while Nintendo is currently outselling it 2 to 1. I'll take the growth every time. Lets take a look at an issue I have been hearing about
with the Xbox 360.
Here is a survey done by 360-Gamer Magazine regarding xbox reliability:
1464 (38.81%) say they have NOT had a console fail
1506 (39.93%) say they've had one console fail
802 (21.26%) say they've had more than one console fail
Not only does this 50+ percent hardware failure generate bad press for Microsoft and its 360, one would have to be naive to think that the amount of units that have had to be replaced under warranty at Microsoft's expense have not eaten into Microsoft's gaming division earnings.
Sony, at this point is in third place in the console war. I would not count them out yet based on their past history (PS2 is the best selling console in history). In the short term, there is a lack of
games being published for the PS3, and the Wii is outselling it 3-1. Not to mention it retails for $600, more than double what the Wii goes for. Also of interest, the founder of the Playstation, Ken Kutaragi, will retire as chief executive of Sony's game division on June 19.
Competition Summary
What I would like to stress is not only that Nintendo is outselling the competition with its Wii and DS console sales. The point is that Nintendo actually makes a profit on each Wii that it sells, while Microsoft (even well over a year after its release) and Sony sell their consoles at a loss hoping to recover costs with accessory sales and of course software royalties. As the Guiness beer commercials would say: "sell consoles at profit? BRILLIANT!!"
Financials
Would you want anything different in a possible investment?
Even with the stock doubling in the last year, I still believe it has room to grow. I look at this more as a growth play than a value but the stock is far from expensive. It has a 30 p/e multiple which seems more than reasonable.
The company had record operating profit 226.02 billion yen ($1.91billion) in the year ended in March. This beat analyst expectations by more than 10%. This is more than double from last year. Net income meanwhile, is up 77%. I think this more than justifies their multiple
and makes Nintendo look very attractive even at current levels.
Nintendo is forecasting only a 0.4% increase in net income for next year (ending March 08). Look for them to beat this (although not by 77%) next year with a few guidance raises along the way. Their estimates are conservative as always. It is well know that the Japanese are conservative due to their culture, and in this case it makes for a very favorable investing environment.
Possible Negatives
- Dollar-Yen fluctuations may have impact on stock price. The situation is favorable at this point.
- Nintendo needs to develop new characters for game series. The next three big games coming out are sequels: Mario party 8, Metroid Prime 3, and Super Smash brothers 3. How many more Mario and Zelda games can Nintendo release?
- Not enough third parties are making use of the Wii's motion sensor with innovative new franchises. (EA does have big plans for new Wii games. Link here)
Conclusion
market.
JP Morgan's price target for Nintendo is $46.49
My 6 month price target (By 12/31/2007) is $51.00
Thursday, May 17, 2007
Nintendo dominates console market (again)
Today, May 17, the market research firm NPD released console and video game sales figures from April 2007. Nintendo has the two top selling consoles in the US market as well as the top 4 games.
This japanese stock is also traded in the US (pink sheets ) under the symbol NTDOY.pk. The stock has more than doubled over the past year, and is currently trading at around 42 dollars. I have been in this stock since 36, and feel it has more room to go up. I will be giving it an in depth analysis in the coming days.
This japanese stock is also traded in the US (pink sheets ) under the symbol NTDOY.pk. The stock has more than doubled over the past year, and is currently trading at around 42 dollars. I have been in this stock since 36, and feel it has more room to go up. I will be giving it an in depth analysis in the coming days.
More insider selling
Crocs CEO and President Ronald R. Snyder Sells 248,166 Company Shares
This is the second HUGE insider sell in less than a week. The CEO netted over $17 million dollars from this sale. Take from that what you will...
This is the second HUGE insider sell in less than a week. The CEO netted over $17 million dollars from this sale. Take from that what you will...
Wednesday, May 16, 2007
An update to yesterday's CROX analysis
First of all, I wanted to address a few comments that were posted on the yahoo finance message board.
One person compared Crocs to Nike in that they have room to expand into all areas. My response to this is very simple. Nike started off as an athletic shoe company. It became sucessfull because of its marketing, specifically endorsement deals with high profile athletes. Can anyone tell me that they see Crocs sucessfully branching out into other types of footwear? It is much easier for an athletic shoe manufacturer to make flip flops or sandals and be sucessful than it is for a sandal company to branch out into athletic shoes. Once again I invite any examples to the contrary.
Another comparison was made to Starbux (SBUX). This one is much further off than the Nike comparison. Starbux has a steller 10+ year track record. And the demand for coffee is not going anywhere. The demand for colored shoes with holes in them on the other hand...
My final point to adress is the sale of 100,000 shares of stock by a Crocs director (link here).The proceeds from this sale are over $7 million. Don't get me wrong, no one can blame him for making some money after the phenomenal run up in price. However, one must wonder if he is cashing out at the top? Only time will tell...
One person compared Crocs to Nike in that they have room to expand into all areas. My response to this is very simple. Nike started off as an athletic shoe company. It became sucessfull because of its marketing, specifically endorsement deals with high profile athletes. Can anyone tell me that they see Crocs sucessfully branching out into other types of footwear? It is much easier for an athletic shoe manufacturer to make flip flops or sandals and be sucessful than it is for a sandal company to branch out into athletic shoes. Once again I invite any examples to the contrary.
Another comparison was made to Starbux (SBUX). This one is much further off than the Nike comparison. Starbux has a steller 10+ year track record. And the demand for coffee is not going anywhere. The demand for colored shoes with holes in them on the other hand...
My final point to adress is the sale of 100,000 shares of stock by a Crocs director (link here).The proceeds from this sale are over $7 million. Don't get me wrong, no one can blame him for making some money after the phenomenal run up in price. However, one must wonder if he is cashing out at the top? Only time will tell...
Tuesday, May 15, 2007
Crocs (CROX) - A hot growth stock entering its best quarter or...
a stock reaching its peak?
5/15/07
Symbol: CROX
Closing price on 5/15/07: $73.16
At this time last year on the way to a round of golf, a friend of mine was raving about his new shoes. He said they were the most comfortable he had ever worn. To me they looked a bit silly. Comfortable, but silly. At that point, Crocs (CROX) shares were trading below $30. In July, they were under 24 dollars. Today CROX shares go for $73 dollars. Needless to say I missed the boat then.
I am now urging you not to jump on at todays levels. And if you have enjoyed the run up, please take a large portion off the table. Unlike in real life, in the stock market it is not fashionable to be late to the party. And for heavens sake do not arrive late to the party wearing Crocs.
As the weather here in Chicago is getting nice, it is hard to go anywhere and not see someone in Crocs. With this in mind, you may be wondering why I am bearish on the stock other than the already great runup. Well...
Crocs is a fad. Think about it, its not that difficult to see. They have only been around for a few years, and now they are hot as can be. I would like to remind you of a company called L.A. Gear. Shoes with lights in them sound ridiculous, but in the late 80's early 90's they were hot as can be. LA Gear shares were trading at 3$ in 1986, by 1990 they were $50 dollars. What happened to LA Gear? After treading water for a few years, they declared bankruptcy in 1998.
I see many similarities between Crocs and LA Gear. In 1990, LA Gear was doing $820 million in sales. Crocs is projecting 680 million in revenue for 2007. LA Gear's primary product was shoes targeted at the athletic, hip crowd. Crocs target market may be a bit more difficult to figure out, but one thing is certain: They are only good for wearing indoors or in good weather (see: holes in shoes).
Focusing on a single niche is almost never a good idea for a public company. For another high growth stock in a niche market, see Krispy Kreme. It may work for a while, but more often than not, these stocks come tumbling down. Bulls may say that there is room for Crocs to expand into apparell. I feel they have no room to grow beyond their current niche whatsoever. I challenge you to find me an example of a casual footwear company that successfully branched out into other areas. And for all you Crocs wearers, ask yourself this: Can you see yourself wearing Crocs T-shirts or hats on a regular basis. My guess it that all but the most die hard fans would say no.
Crocs is entering the summer season, its hottest quarter, there is no denying that. In fact, this may be the year of the Crocs. I predict they are very close to their peak however, at least in stock price. Crocs MAY have one or two more blowout quarters, but at a certain point its multiple will catch up to it. The stock still has momentum, and may yet reach $90, as Jim Cramer predicts. I for one will not be on that ride, and I also will not be on the ride back to the bottom.
(Down with Crocs image taken from ThatTShirtSite.com)
(La GEAR figures taken from: http://money.cnn.com/magazines/fortune/fortune_archive/2003/03/31/340090/index.htm )
5/15/07
Symbol: CROX
Closing price on 5/15/07: $73.16
At this time last year on the way to a round of golf, a friend of mine was raving about his new shoes. He said they were the most comfortable he had ever worn. To me they looked a bit silly. Comfortable, but silly. At that point, Crocs (CROX) shares were trading below $30. In July, they were under 24 dollars. Today CROX shares go for $73 dollars. Needless to say I missed the boat then.
I am now urging you not to jump on at todays levels. And if you have enjoyed the run up, please take a large portion off the table. Unlike in real life, in the stock market it is not fashionable to be late to the party. And for heavens sake do not arrive late to the party wearing Crocs.
As the weather here in Chicago is getting nice, it is hard to go anywhere and not see someone in Crocs. With this in mind, you may be wondering why I am bearish on the stock other than the already great runup. Well...
Crocs is a fad. Think about it, its not that difficult to see. They have only been around for a few years, and now they are hot as can be. I would like to remind you of a company called L.A. Gear. Shoes with lights in them sound ridiculous, but in the late 80's early 90's they were hot as can be. LA Gear shares were trading at 3$ in 1986, by 1990 they were $50 dollars. What happened to LA Gear? After treading water for a few years, they declared bankruptcy in 1998.
I see many similarities between Crocs and LA Gear. In 1990, LA Gear was doing $820 million in sales. Crocs is projecting 680 million in revenue for 2007. LA Gear's primary product was shoes targeted at the athletic, hip crowd. Crocs target market may be a bit more difficult to figure out, but one thing is certain: They are only good for wearing indoors or in good weather (see: holes in shoes).
Focusing on a single niche is almost never a good idea for a public company. For another high growth stock in a niche market, see Krispy Kreme. It may work for a while, but more often than not, these stocks come tumbling down. Bulls may say that there is room for Crocs to expand into apparell. I feel they have no room to grow beyond their current niche whatsoever. I challenge you to find me an example of a casual footwear company that successfully branched out into other areas. And for all you Crocs wearers, ask yourself this: Can you see yourself wearing Crocs T-shirts or hats on a regular basis. My guess it that all but the most die hard fans would say no.
Crocs is entering the summer season, its hottest quarter, there is no denying that. In fact, this may be the year of the Crocs. I predict they are very close to their peak however, at least in stock price. Crocs MAY have one or two more blowout quarters, but at a certain point its multiple will catch up to it. The stock still has momentum, and may yet reach $90, as Jim Cramer predicts. I for one will not be on that ride, and I also will not be on the ride back to the bottom.
(Down with Crocs image taken from ThatTShirtSite.com)
(La GEAR figures taken from: http://money.cnn.com/magazines/fortune/fortune_archive/2003/03/31/340090/index.htm )
Inaugural Post
Here are my intentions with my first venture into blogging:
- Bring some meaningful commentary to the field of investing.
- Help someone see a perspective they may not have considered.
- Gain experience as a journalist covering securities.
Please be gentle to this blogging newbie.
And as always.....no matter what anyone says.....Don't bet the rent on it!
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