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IBleedConcrete (99.65)

The Dirty Dozen: 12 Stocks with Great Short Potential

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10

September 13, 2008 – Comments (3) | RELATED TICKERS: DIET , AVSR , CXR

The first in a monthly (?) rundown of possible short positions chosen for their high debt, high price to book, earnings and sales, and poor chances of growing their way out.  Of course this also eliminates a lot of speculative companies that sell shares instead of issuing debt as well as many distressed banks trading below book value.  I'll leave those to other people.

1. EDiets.com (DIET) http://caps.fool.com/Ticker/DIET.aspx?q=diet

At $94M market cap, Ediets is a real pig, however they seem to have hit upon a successful diet plan: letting competitors eat their lunch. GtrInvestor and rd80 have laid out the nasty details of financing, while the collapsing revenue of their newest business model really speaks for itself.  (Not to mention the terrible website - it takes 6 or 7 clicks to even see the price of a meal plan.) This is my first ever short.

2. Avistar Communications (AVSR) http://caps.fool.com/Ticker/AVSR.aspx?q=avsr

A "development" company in that they hardly have any revenue or growth, a "mature" company in that they're in debt up to their eyeballs!  Thinly traded and spiking up a bit now, we could see a good entry point soon.

3. Cox Radio (CXR) http://caps.fool.com/Ticker/CXR.aspx?q=cxr

I despise companies that routinely dump all of their bad news into big losses in a single quarter.  Sure, a quarter with "regular" earnings looks fine to Cox shareholders - but another loss is surely just a few months ahead.  And in the long term, traditional radio, newspapers and TV are dying.

4. Lamar Advertising (LAMR) http://caps.fool.com/Ticker/LAMR.aspx?q=lamr

Terribly managed, they took out gigantic loans last year for a share buyback and special dividend i.e. an investment bank vampire got ahold of them and sucked them dry.  They have $1.8B in hard assets (mostly land and billboards) and $3.2B in debt.  One caveat with Cox and Lamar is that short interest is already high.

5. Ariba (ARBA) http://caps.fool.com/Ticker/ARBA.aspx?q=arba

Another Internet B2B company with negative tangible book and continuous losses.  They seem to have a bit more growth potential than most of this list, but with more research and good timing the current runup could be a great opportunity for shorts.

6. H&R Block (HRB) http://caps.fool.com/Ticker/HRB.aspx?q=hrb

This was a surprisingly good year ... of course for H&R Block that still translates to a loss over the last 12 months.  They have new management and have been getting out of their worst business units but I have a suspicion they still hold plenty of bad assets. Over the long term the trend is toward personal filing - and maybe towards tax code simplification, their worst nightmare.

7. Verisign (VRSN) http://caps.fool.com/Ticker/VRSN.aspx?q=vrsn

The only 2 star stock on my list so they must have something going for them.  Wait ... nope. From the looks of it I would guess that some competitor is eating them alive.

8. DTS  (DTSI) http://caps.fool.com/Ticker/DTSI.aspx?q=dtsi

Dolby also seems to be destroying DTS.  But wait, they just posted 2 quarters of positive earnings!  Never mind, it's some kind of accounting gimmick since sales are still falling and cash flow is still nonexistent.

9. Doral Financial (DRL) http://caps.fool.com/Ticker/DRL.aspx?q=drl

10. Capitol Federal Financial (CFFN) http://caps.fool.com/Ticker/CFFN.aspx?q=cffn

11. Kearney Financial (KRNY) http://caps.fool.com/Ticker/KRNY.aspx?q=krny

12. Center Bancorp (CNBC) http://caps.fool.com/Ticker/CNBC.aspx?q=cnbc

4 banks with high debt loads, price to book over 2.0, no growth in sight and of course ultrahigh PEs.  Dividend payout ratios well over 100% could be good or bad - nobody wants to short a big dividend, but if it needs to be cut it would be a great downside catalyst. For a laugh, compare DRL to fellow Puerto Rican bank WHI - trading at a price to book of 0.09.

Just missed the cut: lots more banks, property & development companies like CUZ, GGP, HR, BKD, retailers like ZLC, etc.

That's it.  What are your thoughts on the best short opportunities out there?

3 Comments – Post Your Own

#1) On September 14, 2008 at 1:52 AM, Tastylunch (99.54) wrote:

DIET is a great choice, I got a +30 on that one already. My pitch is gone since I closed it. By far my favorite of your list.

Horrid companies with horrid price to sales ratios like Parkervision have worked well for me in the past. China Sunergy (CSUN)  has worked in the past for me too. since the market keeps forgetting and remembering their tech is likely  going to be obsolete. TIXC has crashed so it may be too late for that.

Ethanol crap plays like PEIX , AVR and VSE might be good candidates.

STSI and XRM have caught my interest of late. One tripled on a  postitive court settlement but has no sales anymore, the other is up 75%  and has a horrid amount of debt .

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#2) On September 14, 2008 at 1:53 AM, Tastylunch (99.54) wrote:

just saw you have GGP in your CAPS that's good too.

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#3) On September 14, 2008 at 10:47 AM, IBleedConcrete (99.65) wrote:

Thanks for the ideas, I think I need to use stock screeners other than CAPS in the future because they seem to have many blind spots.  For example there's no way to search for negative book, for unrated stocks, for pink sheet or OTC stocks, etc.

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