Mike's Stock Notes

I wanna see just one thread on ET that doesn't devolve into a foodfite!

 

It’s a bad time for for-profit educators – a really bad time…

The government is cracking down on schools because of the huge student debt problem. Since the Fed essentially guarantees the majority of US student loans, they have a vested interest in making sure borrowers actually graduate and get jobs to cover education costs.

For-profit educators have been in the spotlight because graduation rates are lower than those of state schools, and a larger portion of for-profit school graduates are defaulting on their loans. So now the Fed is stepping in with new costly regulations. Aggressive enrollment practices are being sniffed out and shut down, and a number of fraud cases have been uncovered.

This leads to very negative sentiment for education stocks. The majority of stocks in this group have been pushed down to very low multiples as investors bail out of positions to avoid the risk.



This morning, Devry Inc. (DV) announced that they expect new student enrollment for the summer to drop 15% to 17%, and stated that the company will be cutting jobs. For the fiscal 4th quarter (ending June 30), the company earned between 43 and 46 cents per share versus consensus expectations at 78 cents – the official announcement will come August 9.

Devry’s stock price dropped more than 25% on the news – dragging a number of educational stocks down with it.

The environment is far from stable, but given the intense selling and low valuations, there is a good chance that value investors will start nibbling on this area – supporting prices and leading to a snapback rally.

Capella Education Company (CPLA) may be a great long candidate here for a trade. The stock gapped lower today after DV’s announcement, but quickly began to recoup the losses. Looking at the long-term weekly chart, CPLA is bouncing off a major support level from October of 2010.



Apollo Group (APOL) may also be a good snapback candidate. Although it has broken support over the last three weeks, the stock has become very oversold. Since APOL is viewed as one of the industry leaders, any decision by value investors to start dabbling in the sector will almost certainly include buy orders for APOL.

Manage risk carefully as extended names can certainly become MORE extended. But with a stop just below recent lows, taking a long-shot on education names could be a great reward-to-risk opportunity.

 

HERE HERE!

HUGH I just dinged you on the other tread... the one in Chit Chat that has over $50,000 BOOKED gains in 3 weeks... yea that one I'm in on LF friend. ~stoney

 

I like stoney's thread, but I think Mike's is pretty well done. It's nice to have a thread that reviews some of the more important stuff each day for those of us who don't sit glued to the news feed all day.

So far I have been impressed with the quality of the thread. Keep it up , Mike.

 

UPS is down roughly 5% today after offering a dismal picture of the global shipping business.

In particular, the company cited notable weakness in exports from Asia to the US and Europe – which is an important developing macro theme. Without demand from the US and Europe, emerging markets like China (who rely heavily on exports to fuel their growth) are facing serious challenges.

60% of UPS’s shipping is business to business (as opposed to retail-based). Management noted a “gradual deceleration” in this segment versus “fairly solid growth” in the business to consumer segment.

UPS is cutting full year earnings guidance to a range of $4.50 to $4.70 per share – versus previous guidance of $4.75 to $5.00

With the news from UPS, the Dow Jones Transportation Index ($TRAN) has now officially broken down. This is an important both on a technical level and from a sentiment perspective. A number of trend following systems use the Transports as a major indicator for bullish versus bearish exposure.

Throw in the Dow Theory practitioners and you have a pretty wide body of traders much more inclined to lighten up on longs and begin rolling into short trades.



Both UPS and Fedex Corp (FDX) could end up being great short candidates – although we’ll want to wait for the dust to settle a bit. The best scenario would be for the bulls to come in and support these stocks – buying on the dips to take advantage of the “discount pricing.”



Both companies have held up relatively well over the last 12 months as institutional managers have embraced the “muddle through” perspective of positive economic growth. “We may not be in a rip-roarin’ growth market, but at least the global economy is pushing ahead…”

If the global macro picture continues to deteriorate (and there are some really good arguments supporting this scenario), long-only mutual fund managers will have to re-think this perspective, and they will also have to deal with redemption notices as fund investors cash out.

Keep these two blue-chips on the radar for possible setups after the dip buyers are finished…

 

This thread = pointless

Why not put on CNBC ?

 

Hey douchebag, guess what. "$50,000 BOOKED" doesn't mean anything, because dollar amounts are irrelevant in respect to performance.

If you're trading with $10 million, then "$50,000 BOOKED" is only 50 basis points, i.e. 1/2 of 1%... which really isn't that impressive.

And if you're trading with less than $10 million, you shouldn't be whipping your dick out so readily. It's not that big.

 

Yeah that chart is just screaming . . . something.

 

In light of Zynga Inc. (ZNGA)’s utter failure today, investors are starting to look a little more carefully at the social media area. Facebook is down nearly 5% ahead of earnings tonight, and currently trading more than 25% below its original offering price.

ZNGA by the way is now valued at less than a third of its December IPO Price – OUCH!

LinkedIn Corporation (LNKD) is one of the more successful social media IPOs of the last 18 months – currently trading at more than twice the initial offering price.

LNKD has a profitable business model, a strong and growing customer base, and investors who believe in the perpetual growth opportunity…

And that’s the problem: trees don’t grow to the sky and the chances of LNKD growing into its premium stock price in the even not-so-near future are horrible.



LinkedIn is currently trading at nearly 150 times estimated earnings for this year – and 83 times earnings expectations that are a full 18 months away. The price to sales ratio is just as alarming – with LNKD trading at 11.5x this year’s expected revenue – and 7.75 times next year’s revenue estimates.

Imagine what happens if those estimates are lowered... (!!)

In growth markets, PE analytics just don’t matter. Investors buy based on the story – not based on the valuation. But in an environment where managers are reducing risk, valuations matter very much. LNKD represent s much more risk, and is a potential liquidation candidate – or at the very least “reduce” candidate - for institutional managers.

Today, institutional managers are only reluctantly reducing risk. But in the event of a major market dislocation (say from a poor reaction to Facebook’s earnings tonight – disturbing news from Europe – another disappointing economic piece from China – or disappointment when the Fed decides NOT to embark on QE3) – managers will have to reduce risk quickly.

A large allocation to LNKD represents the exact kind of position that managers can kick out quickly to raise capital and reduce their VAR…

Breakdown Comes in Stages

LNKD has maintained its premium valuation because it’s a Wall Street darling and a favorite retail investor holding as well. Dips have been bought as investors take advantage of discount pricing.

In May, the stock broke to a new high (save the opening spike from the first day of trading), but couldn’t hold that level. In June, it absorbed the buy orders from discount buyers and established a support level.



But given the increasingly precarious state of the overall market – and the potential for both retail and professional investors to lighten up on risk – LNKD looks particularly vulnerable.

Facebook’s earnings this afternoon could certainly trigger a selloff – but the bigger opportunity will likely come from a macro shift away from high-value growth assets.

LNKD reports on August 2. Analysts are looking for earnings of $0.16 on revenues of $216 million. On the positive side, LNKD could benefit from poor employment (more users upgrading to premium accounts in an attempt to network and find a new job).

But given the overly bullish sentiment and the nosebleed multiple, the chance of disappointment is very high. LNKD is going to have to be extremely impressive (quarter after quarter) just to maintain – not to mention advancing further.

 

I hope that Baron won't compromise the quality of this webiste for a little money from idiots like these who bring a whole team behind them to insult anyone who challenges them.

Baron, are you listening? You will lose more than you gain by having people who use skulls and bones for their website image.