My Transformation is Compete

With today’s pin action in JAZZ, CRTO and RKUS, I decided to sell the one’s that won’t earn $10 per share next year, currently trading 10x next year’s earnings. I sold out of CRTO and RKUS and ponder to myself: “when was the last time I made money?” This has been a death march for me, albeit an expeditious one. Over the past 9 weeks, I’ve managed to lose coin each and every week, but 1. I cannot recall being this wrong for so long.

With today’s sales, I bought GSK, PG and ACE.

Inside of 3 months, I’ve gone from a leveraged gorilla, tossing banana peels at my enemies to olde man being kicked down an idle manhole while in a wheeled chair. Absolutely dreadful.

All of m hard work, the goodwill built from 2008 is gone, poof, in a bat of a lash.

As for PG, it traded 23x eps in 2001, 2002 and 2003. It’s trading a touch under 22x earnings now and just 18x 2015–so there is room for expansion.

https://www.youtube.com/watch?v=s2e5ZibypDk

After I got blown to smithereens in 2000-2001, I restricted myself from even looking at tech stocks, or anything deemed to be “hot.” I rebuilt my business on preferred stocks, bonds and regional banks, trading under 1x book value. As the market cratered in 2001, I was completely insulated from the carnage. However, the damage was already done. Nonetheless, my approach proved to be prescient and it resulted in my business expanding in assets, to new highs, putting me in a great position to play growth again in 2003.

I did not buy a tech stock, at all, from 2001 to 2003. A typical winner for me, during 2002, was buying a new issue preferred stock at $25, receiving two quarters worth of dividends, then selling it at $27. Two points on a $25 stock, over 6 months, was huge for me. True story.

Prepare to dial back your expectations, should this market enter bear mode.

In case you’re dividend hunting, here is a list of companies scheduled to go ex-divvy over the next two weeks.

DLPH, 0.25, 5/12
DD, 0.45, 5/13
LLY, 0.49, 5/13
ACC, 0.38, 5/14
DUK, 0.78, 5/14
GSK, 0.64, 5/14
WHR, 0.75, 5/14
CVX, 1.07, 5/15
AFL, 0.37, 5/19
LUX, 0.89, 5/19
TGT, 0.43, 5/19
MPC, 0.42, 5/19
VLO, 0.25, 5/19
WAG, 0.32, 5/19
MRO, 0.19, 5/19

Sounds boring. But it could be rewarding, if you apply a little leverage to the mix.

For a moment, let us pretend the market isn’t going back to 666. Because if it is, this site will be militarized and all of you will be drafted, whether you like it or not, to fight in the wars to come. We will not discuss stocks at 666. Instead, we will discuss anti-aircraft batteries vs WWII era bombers and how to serve human meat and how to convince the children it’s really pork.

I digress.

One of my companies blew up in the after-hours: JAZZ. They missed earnings and that’s all that was needed to drop it 13 points in after hours. These is a highly profitable drug company, who will earn in excess of $8.00 per share in 2014. That, apparently, means nothing to the savages who are selling it down to the ground. I will likely sell it, alongside CRTO and RKUS. Coincidentally, all of my recent losers were stocks that were once deemed “momo.” I’d prefer not to sell CRTO, coming off a great qt and trading less than 3x sales. However, one of their competitors, FUEL, had a glass of acid thrown in its face–in the after hours- down 30% (LOL!) because they missed earnings. CRTO will likely trade down in sympathy and I need to cut the loss.

Moving on. I put together a portfolio of 25 stocks for your perusal. Members of The PPT can view the portfolio here.

The criteria is fairly simple:

-large cap
-pays a dividend
-brand recognition
-has performed well over the past 3 mos
-FPE below 20

Here is what I have now. PG is one of the higher multiple stocks. The only reason why I tossed it in is because of its brand recognition, which comes in handy when people are uncertain of what to buy.

PG
GIS
LO
PM
MO
DKS
GSK
LMT
KMT
MHK
MSFT
BAX
WMT
DGX
ETN
T
DE
AAPL
ALK
DLPH
ACE
WHR
AET
LEA
WNR

All of the earnings coming out are dreck. The liquidity that once drove stocks higher, provided by the Fed, is gone. The economy, once led up by a recovery in housing, is now on the decline. I ask myself “other than the fact that stocks have gone lower and are seemingly on sale, why should I be long?” It’s a question I should’ve asked myself about a month ago. However, sometimes it’s better to be late than never at all.

Stocks suck, especially the one’s with big growth rates. They’re not growing fast enough because the economy is rotten. The only companies that seem to be doing well are basic necessities: beer, toilet paper and cheap clothes. Other than that, it’s casino time, all day, every day.

Bounce or no bounce, I’ve seen enough of this cancer. We’re going much lower from current levels. The growth stocks are only the beginning and serve as the proverbial “canaries in the coal mine.”

Tomorrow, once again, I will be making wholesale changes to my holdings.

It’s likely that some of you were out celebrating today’s market bounce, over a cold glass of chardonnay. You ordered the surf and readily updated yourself with stock quotes from your stupid phone. Upon leaving the restaurant, a giant anvil fell on your head–now you’re dead.

That just about sums up the NASDAQ, a great ancient land of mystery and phantasm.

Don’t bother buying anything with a PE north of 13. Please, do yourselves a favor and try to make back the money you lost methodically, as opposed to all at once. My greatest catastrophes always occurred when I was most desperate.

As an aside, I find it readily (there’s that word again) amusing how CNBC is trying to blame RISING rates for today’s decline. It must be quite enjoyable to be that stupid.

The overall index is doing fine because the large cap stocks have a ton of cash and aren’t richly valued. However, and as you know, everything else is getting drawn and quartered. Coming from a person who remembers 2000 like it was yesterday, writing $50,000 margin call checks in the morning– only to see it dissipate into thin air by lunch– this is worse than that.

I am referring to the specific area of the market that is plunging: bubble stocks. Your FEYE’s, WDAY’s and SPLK’s of the word, these companies offer zero respite–just down, day after day. Even in 2000, we received respite. After an initial 25% drop, the market popped 13%, dropped another 4%, then popped again 13% before collapsing. But now, we’re all so jaded, cynical creatures throwing everything into the fire because we like to see it burn.

Bear in mind, we weren’t always like this, rough edged, jackal like monsters. The market made us this way, especially after the complete and utter horseshit of 2008-2009. Even though I made a fortune shorting stocks in 2008-2009, I hated the business more than ever. It’s never fun profiting from other people’s demise, unless of course you’re into that sort of thing. I recall the feeling of futility, wondering if making money on the short side even mattered, since the financial system was bound to collapse and clients would lose their jobs anyway. At one point, I even started to stockpile dry food and physical gold, believing credit was about to dry up to the point of no return: Mad Max theory.

But now I don’t care about that sort of stuff. It’s all child’s play, fantasies of smaller men, in lesser positions. We will forge ahead and the market will heal in time.

Like religion, to invest is to have faith. Without any, you’re just pissing in the wind.

Sotheby’s announced they were taking a one time charge to pay off Dan Loeb’s legal expenses. For those of you who are unfamiliar, Dan tried to wrest control of BID from the current management team, most likely because it’s a super cool thing to have–the famed auction house and all. I am sure Dan spends plenty of money at the house, and his friends, and his wife’s friends, his neighbors etc. I believe a soup cup just sold for $36 million. How fantastic!

But, as fate would have it, Dan’s billions meant nothing to the blue bloods at Sotheby’s, aside from jacking them for 3 seats (count em’) on their board. They dialed up their noses real high, after surrendering the seats, and paid for Mr. Loeb’s legal expenses, chartered flights, and whatever gratuitous expenses that might have occurred over the past 6 months.

Tough guys.

Back in Brooklyn, we’d call this extortion or under kinder circumstances “go away money.”

It’s good to be King.

Let’s be clear about one thing here: this is not a bear market. The Dow and the S&P are doing just fine. Ever since I removed myself from the wreckage of my high beta/momo/death traps, I’ve been able to think clearly and avoid the urge to punch holes into my walls. Having said that, I did buy a few remnants of the past (RKUS, CRTO) and they’ve certainly served as reminders of what to avoid in this market.

With about 25% cash, portfolio mostly filled old man stocks, I know what to do.

I am waiting, mind you, for an oversold signal or two, courtesy of The PPT.

Today’s action can only be described as indiscriminate punishment, without boundaries–a North Korea interrogation facility led by rogue officers of the NSA.
If you miss earnings and fall into the category of “cool”, you will regret the day you were born. Rest assured, we are merely in the beginning innings of this correction (Extra Grady).

SSNI -32%
ZU -30%
RLOC -27%
EXTR -26%
FEYE -25%
END -25% (apropos)
DTLK -24%
AOL -22%
GRPN -21%
AEGR -21%
WFM -19%

Aside from the above train wrecks, there are over 350 stocks down more than 5% today, far worse than yesterday’s junior varsity decline. Welcome to the big leagues.

Dave Dewalt, Huge Asshat Award Winner, ceo publicly traded time bomb, FireEye

I know it’s early in the year and there will be plenty of gents worthy of this distinguished award. However, it would be impossible for anyone to steal this guy’s thunder inside of the next 7 months of 2014.

Introducing, Dave Dewalt, CEO of publicly traded time bomb called Fireeye, Asshat winner.

Let’s go over a series of events that has led Dave to this post.

3/3/14– FEYE is offering 5.582 mln shares of its common stock and selling shareholders are offering an additional ~8.417 mln shares (85.64 )

3/5/14– FireEye (+3.5%) makes new all time high — FBR raised tgt to $105 this morning — co is expected to price 5.6 mln share offering THursday night (91.27 +2.98)

3/7/14– FireEye prices follow-on public offering of 14 mln shares of common stock at $82.00 per share by co and selling shareholders (89.55 ) Of the shares being offered, 5,582,215 are being offered by FireEye and the remaining shares are being offered by existing stockholders.

3/19/14– FireEye showing early weakness; note that IPO lock-up period expired today (73.50 -4.25) The stock has pulled back ahead of the lock-up expiration, -23% from its early March highs, but the stock is still up 265% from its initial IPO pricing of $20.00 (stock opened for trading at $40.30 on 9/20/2013).

4/10/14– Cyber Security stocks getting hit following Imperva (IMPV) warning as tech/momentum stocks pare this week’s bounce (29.11 -20.62) IMPV is down ~42% at a 17 month low after lowering Q1 guidance.

4/22/14– Fireeye (FEYE) field for a ~13.28 mln share common stock offering by selling stockholders.

 5/6/14– FireEye reports EPS in-line, beats on revs; guides Q2 EPS below consensus, revs above consensus; lowers FY14 EPS below consensus, raises FY14 revs in-line (37.13 -3.10) Reports Q1 (Mar) loss of $0.53 per share, excluding non-recurring items, in-line with the Capital IQ Consensus Estimate consensus of ($0.53); revenues rose 160.6% year/year to $74 mln vs the $71.66 mln consensus.

I had to document the series of events that has led us to this point. The stock, mind you, is down over 60% since March! Dave, FireEye’s CEO, bought a company called Mandiant. Very nice. Then, when the price was $82, he issued a secondary, JUST AHEAD of the expiration of shares in lock-up. This is a no-no, especially for new companies with weak shareholder bases.  Dave didn’t stop there.

Shortly after the lock up period expired, their competitor, IMPV, warned, sending the stock careening lower by 42%. As CEO of a company in a similar space, and seeing your share price getting crushed on a daily basis, one would think Dave might take steps to protect his shareholders, no?

NO.

About 10 days after the IMPV disaster, Dave announced ANOTHER secondary. Keep in mind, this wasn’t an effort by the company to raise cash. Quite the contrary. This was an offering to allow Mandiant insiders sell their stock! Unbelievable! He is truly a destroyer of shareholder confidence and value. Awesome stuff.

Hindsight is 20/20. But, as CEO of the company, Dave had to have known that his quarter was not so hot. Yesterday FEYE reported a disastrous quarter, missing EPS estimates by a football field. Did Dave announce a share buy back or offer some sort of soothing remarks in an attempt to stop the bleeding?

Of course not. He’s an asshat.

On top of the earnings miss and horrendous stock activity, Dave announced ANOTHER acquisition, using $60 million in much needed cash and an intent to ISSUE MORE SHARES, to the tune of $10 million.

This guy is totally tone deaf. These events should be bookmarked and shared across universities around the world, as a lesson to future CEOs of what not to do. The wanton disregard for shareholders, the arrogance, the sense of entitlement, operating in a vacuum, all of these things make Dave Dewalt an asshat of supreme magnitude.

Seeing the shares of FEYE down more than 20% this morning, I think it’s fair to say his job is in jeopardy, rightfully so.

Nevertheless, congratulations to Mr. Dewalt for this unprecedented accomplishment, in receiving an annual asshat award, even though we are only in the month of May.

Cheers!

Apparently, Putin said he’d talk about resolving the Ukraine issue. As a result, european stocks are sharply higher and US futures are indicating a +92 open for the Dow.

Back to the subject of buying internet stocks. After careful consideration, gawking at the “pin-action” in stocks like FEYE and TWTR, I’ve decided that anyone found guilty of buying these stocks should be offered the electric chair. Clearly, these people have little regard for their own money, or personal well being. I say we expedite the issue and shock them back into the graces of humanity.

How do we value these companies? What are reasonable levels to start buying? The answers are right in front of our faces, with some of the old line tech names. Let’s discuss, shall we?

We shall.

EBAY 4x sales

YHOO 8x sales (inflated due to Alibaba)

GOOG 6x sales

BIDU 10x sales

PCLN 9x sales

I think it’s fair to say the above companies have proven to be successful. While their stock prices may or may not be inflated, I believe their price to sales ratios could serve as a guideline to where some of these newer names might trade. For one, most of these newer names do not make money. However, since they’re much smaller, they deserve  takeover premiums.

The average p/s ratio of the stock mentioned above is 7.4. Let’s affix a 30% premium to that and say these new “cool” stocks should be priced at around 10x sales. Fair? Now let’s look at where these stocks are trading, post meltdown.

WDAY 29x sales

TWTR 27x sales

Z 21x sales

SPLK 21x sales

GRUB 18x sales

FB 17x sales

QIHU 16x sales

YELP 16x sales

TRIP 13x sales

LNKD 11x sales

PANW 10x sales

AWAY 8x sales

OPEN 8x sales

SALE 8x sales

TRLA 7x sales

CRTO 2.9x sales

ANGI 2.4x sales

SFLY 1.8x sales

GRPN 1.8x sales

Potentially, some of these stocks have 60% further downside–if we’re gonna go all the way. Other names are within reasonable valuations and can be accumulated, if you’re into that sort of thing. The danger lies most in the names trading above 10x sales.

All that aside, it looks like a bounce this morning. I am sure it will last for a solid 15 to 20 minutes before selling off in horrific fashion.