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Take my temperature, I agree with DragonLZ (partially). RAS and ZALE

Recs

16

March 27, 2010 – Comments (34) | RELATED TICKERS: RAS , ZLC.DL , BGPIQ.DL

Sorry UltraLong,   I have some macaroni necklaces that I made for you...I even shellacked them, but whack me with the cane anyway, I definitly need "recalibrated".......

Some fun banter here with DragonLZ
http://caps.fool.com/player/dragonlz.aspx

Dragon uses "chart eyeballing". I like fundamentals and short term charting. When they match, then I start digging in for the next level. Of the three equities DragonLZ is testing his eyecharting LONG term, I tend to agree that Two of the three have some potential, although all three are speculative. BGP, RAS, and ZLC. I'm going to join him on the RAS and ZLC. I see BGP down over the long haul, but I'm not fond of downthumb sub $3 equity here on CAPS. Mr. Market can burn you short term on a downthumb from the lower levels where the percent change is rapid. TEN taught me some lessons!Here's my pitches on ZALE and RAS, I'll save my thoughts on Borders for another time. I realize earnings are Monday.  That will either start their down spiral, my best guess is BAD, or give them a temporary upward momentum.  If they get a temporary uplift it will just make the fall a little later.=======================================================

So agreeing that ZALE Corp has some upside over the next 9-18 Months, my premise on Zales's, a jewelry chain is that they indeed suffered and dug a deep pothole for themselves from the recession. Clearly they sell a luxury item and the economy tanked them. Over 1500 stores of various sizes and focus, from wedding to small padoga's and kiosks, is a lot of overhead in a bad economy. Three quarters of heavy losses and a slight "win" in the Christmas quarter, Zale's is living on inventory. Cash flow has allowed some debt repayment.

The Good: Cash flow and Inventory! Zale's book value is now a mere 0.34. Debt is 10X cash, but still manageable. While I agree that Zale's $740 Million in inventory most likley deserves some writedown and it's scattered in over 1,000 locations, overall it's an asset they can use to hold together while the economy turns. If needed they can reduce inventory. My take on diamonds is that they are overvalued as supply and demand is tightly controlled by a few stakeholders. This could be broken through, but so far seems to be holding solid. Gold/Silver have basically increased in value.

Weddings, a key source of revenue are down. Same gender couples unions/marriages may help with that.

Overall, I think Zale's has a good chance of growing from the $3.36 it is at now. It peaked this past year at $8 only 5 months ago. Past performance is no guarantee of future gains, but if I was going to make a speculative play, I'd rather do it where the inventory is measurable and has some promise. All that glitters is not gold and all that sparkles is not a diamond, but my rough cut on this one is that there is a glimmer of hope.

 =========================================================

RAIT Financial Trust, RAS, as a REIT / financial is hard to value. Things can break either way, (acknowledging the obvious that sideways is NOT likely), but I see some chart activity that suggests that the speculators are speculating and adding to the play. I got off to a bad start on this one as I caught it on a market up day when equities like this have amplified upside....countered by amplitude downside on any down cycles. What goes up FAST can go down faster as speculating investors are often not loyal and generally chicken.

RAIT Financial Trust has a book value of a mere 0.21, but value here is subjective with real estate, especially commercial real estate. As an REIT RAIT needs to pay 90% of profit out as dividends, but loses have eliminated dividends except for on their Preferreds. Overall REIT's suffered greatly when property values crashed and leasee's evaporated. Being forced to pay out dividends reduces reserves and flexibility.

Overall, I give RAIT a decent chance of bouncing back. Loan covenents and leasee's are critical here. Few banks want to take over business's that are even slightly viable. RAS has been a money loser on paper for the last three years. Holding dividends gave them some relief. RAIT diversified slightly with more attention to their broker-dealer securities. Leasing is up somewhat in their multi-families. RAIT shed some losing property at a loss, but helped clean the books. Buyback of securities at about 30% on the dollar should help long term; lowering debt to equity from 5.4 to 3. RAS is trying to avoid foreclosing on tenents, but in some cases will have no choice. The multi-family diviision they just purchased is a new frontier for them, but I see some promise here. Those getting forclosed on in their homes and their credit wrecked for years need to live somewhere. 

Risky, speculative, but fits within my risk/reward and while short term may be rocky, I think RAIT has some long term potential. IF any of the REIT's ever return to dividend paying status then a sub $3 entry point will quickly be returned.

==============================================

 Two speculative plays.  Agreeing on two out of three finanicals, even for different reasons ain't half bad, although the end result could be ALL BAD. 

I like DragonLZ's results and we have a good time bantering when we don't take each other too seriously. If Investing youself isn't fun and you're a sore loser then you should find something else to do.  At least by agreeing, misery loves company, so we'll be in the same sinking boat!

Disclosure:  Put my money where my mouth is, bought RAS at $2.03 Friday.  Will probalby buy Zales unless UL gets ahold of me and whacks some sense into me.


TSIF  The Sky isn't falling today, but my portfolio might be if I keep drinking DragonLZ's Kool-aid! :) 

 

34 Comments – Post Your Own

#1) On March 28, 2010 at 12:44 AM, dragonLZ (99.43) wrote:

First of all, I agree with jian1133: Coach Handbags at $35 are a sweet deal (go very nicely with my floral dresses from Talbot).

Secondly, TSIF, I don't know if I should be happy about this post or not. It seems like you used my name just so you can put the blame on me if these two calls prove disastrous. :)

Thanks for the post and Good Luck.

p.s. I bought ZLC at $3.63 on Tuesday...

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#2) On March 28, 2010 at 1:43 AM, TMFUltraLong (99.95) wrote:

Ok, let's analyze the true disaster that is Zales Corp.

my premise on Zales's, a jewelry chain is that they indeed suffered and dug a deep pothole for themselves from the recession. Clearly they sell a luxury item and the economy tanked them. Over 1500 stores of various sizes and focus, from wedding to small padoga's and kiosks, is a lot of overhead in a bad economy. Three quarters of heavy losses and a slight "win" in the Christmas quarter, Zale's is living on inventory. Cash flow has allowed some debt repayment.

The Good: Cash flow and Inventory! Zale's book value is now a mere 0.34. Debt is 10X cash, but still manageable. While I agree that Zale's $740 Million in inventory most likley deserves some writedown and it's scattered in over 1,000 locations, overall it's an asset they can use to hold together while the economy turns. If needed they can reduce inventory. My take on diamonds is that they are overvalued as supply and demand is tightly controlled by a few stakeholders. This could be broken through, but so far seems to be holding solid. Gold/Silver have basically increased in value.

Here's my problem with the above statements. One, Zales does not sell a luxury item. They sell a deep discount fashion items in most cases and they have done a very poor job of that for 3 years. Their inventory problems are the worst in the industry. They have consistently tried to restructure their debts unsuccessfully and most vendors will only deal with Zales on a Cash On Demand basis, an insult in the jewelry world. Zales has gone through FIVE CEO's in the past 8 years and their most recently departed CEO completely detached them from their roots by bringing in more non-industry upper management than trained diamanteers. Their margins have dropped through the floor, the debt is in serious question with a very high probability of default and 15% of stores looks like a starting target in terms of closings. They are losing customers like mad and their losses show this. Zales is one of the strongest bankruptcy candidates in the stock market if you ask me. I think you've got to be sadistic to buy into a company in the midst of a death spiral.

UltraLong

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#3) On March 28, 2010 at 1:54 AM, dragonLZ (99.43) wrote:

UL, why do you have to spoil the party like that? We had so much fun before you showed up...  :)

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#4) On March 28, 2010 at 10:25 AM, TSIF (99.96) wrote:

It was the Koolaid....... not me, the Koolaid!

Good points Ultralong.  No comments yet about RAS? 

One reason I made a RL investment in RAS, but not Zales's yet. The overhead is the killer. I disagree with you on their sales mix.  They have several catagories of outlets, some cater to the higher end, but it certainly doesn't have the Tiffany name.

I'll review the CEO info and inventory problems.  THanks for the feedback, exactly why I posted and what CAPs is all about, but I'm still leaning ot a speculative upside until I do more follow-up.

Thanks,

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#5) On March 29, 2010 at 6:15 PM, bridgeboy0 (33.28) wrote:

Congrats on being quoted in the Fool's recent article about Jamba.  Of course, I noticed that you closed the pick on Jamba the same day the article came out.  Like you, I expect it will be pulling back a bit at this point.  Do you still think the long term prospects are good and are you looking for a re-rentry point after the hype of the recent 'potential deal' articles die down?

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#6) On March 29, 2010 at 8:24 PM, TSIF (99.96) wrote:

Hi Bridgeboy0, 

The small group of Fools who write the articles are hard up for material and as a "prolific" and very wordy pitch writer, they are often taking snippets from me. Their daily goal is to get out as many articles as they can and onto the newswires to call attention to their services.  I respect them for that, but pitch writing is not really that prevalent and since I tend to be where the high beta equities are that are more interesting to readers, I get way more than my fair share of pitch quotes in the articles, but I certainly appreciate your noticing it and congratulate you as well for getting in the fray on some pitches the trio can use, instead of mine!!!!  :)

Caps has a bug that I've reported once that what you do with limit orders is listed as a fact on the 5PM daily reports.  I didn't close Jamba, but I did set a limit order to have it closed if it drops much more. 

 I updated the pitch with:

"Unfortunately, too much of the recent bounce was due to rumors of Starbucks buying out Jamba. These rumors haven't been confirmed or denied as of this pitch update. However, if not true, then Jamba is ahead of itself right now on artificial "juice". Unfortuantely, insiders who helped bail out the company during the economy rough patch are likely to sell into this if not true. My thesis was based on long term. Of course a buyout is fine at a premium, but an artificial runup on a rumor is not okay. I'll exit and reenter when more appropriate. Good luck."

There are a lot of warrants loose on this one. Sans the Starbucks report, it's gotten too high too fast. Yes, if we get a pullback to the $2.20 level or so on a NO to the rumors then if I get booted on my limit, I expect to jump back in. 

 Good luck!!!!

TSIF

 

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#7) On March 30, 2010 at 11:29 AM, TSIF (99.96) wrote:

I did get limited out on JMBA.  If the Starbuck news is true, then I'll be "sorry".  But I don't see it in the short run.  I'll be evaluating my reentry. Sometimes equities get ahead of themselves.  You can ride'em or trade 'em.  I generally do the wrong thing!  :)

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#8) On March 30, 2010 at 12:19 PM, dragonLZ (99.43) wrote:

TSIF, please don't agree with me any more. Both RAS and ZLC are getting killed ever since you said you agree with me...

I know there is no way I made a wrong call on these 2 stocks, so it must be you who jinxed them...  :)

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#9) On March 30, 2010 at 12:42 PM, TSIF (99.96) wrote:

DragonLZ.  I just came to update my call on Zale.  I'm still with you on RAS, but I apologize for the short term jinx.  Actually, it was my plan to run them down and buy them cheaper.....devious of me.  I just forgot to sync my CAPs call to my RL call!  OOPS....    

 So I disagreed with you on BGP, so you must still be winning that battle, with even greater returns.  Since the market does opposite of what I say!  :)  How's that one working out so far??

Quick look at Borders....hmmm....  OOOPPSSS.  :)  Guess it's not ALL me!  :)

Remember, these were LONG term calls!!!  Patience young grasshopper.....

 

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#10) On March 30, 2010 at 12:43 PM, TSIF (99.96) wrote:

Regarding ZALE....

 I confess to screwing this call up.  Fortunately, it hadn't shifted to my RL portolio, but I tend to believe my next layer of DD, still two away from investing in most cases, would have caught some of these issues.  Macaroni Necklaces in the mail now to UltraLong.  Good team work.  This is not to say that Zale won't get some investor relief.  It's potential upside if it pops is still excellent, the chance of that happening, however, is lower than I had calculated.  Risk side higher than reward side of the equation.  TSIF

 

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#11) On March 30, 2010 at 3:01 PM, TMFUltraLong (99.95) wrote:

Zales....

Battleship sunk!

UltraLong

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#12) On March 30, 2010 at 3:45 PM, dragonLZ (99.43) wrote:

No UL, that's not the case here. ZLC's battleship is actually a super-secret stealthy submarine. Now it's just going to hide under water for a while...to trick the enemy.

When it resurfaces again, the revenge is gonna be sweeeeet....

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#13) On March 30, 2010 at 3:50 PM, TMFUltraLong (99.95) wrote:

Submarines can only survive under water and at certain depths for so long before they implode and sink...very symbolic don't you think? That's what happens when you go through 5 CEO's in 8 years.

UltraLong

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#14) On March 30, 2010 at 9:24 PM, Tastylunch (29.31) wrote:

if ZLC equity survives to 2012 I'll be shocked. They are getting murdered by Blue Nile etc. And their management is about as goofy as a three dollar bill.

gotta go with UL on this one

I hated RAS once too, can't remember why. dunno about now.

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#15) On March 31, 2010 at 12:21 AM, dragonLZ (99.43) wrote:

Finally found where wife hid the special Kool Aid.

I like to drink this special Kool Aid only before making very important investing decisions (I try to make important investing decisions every night)...

 

TSIF, after ZLC and RAS, I have 2 more investment ideas for you: PALM and MPG.

PALM used to be a $10 stock two months ago, and now is only $4. That means PALM is 60% undervalued comparing to 2 months ago. They also are in a great, booming industry. They make cell phones. Show me a kid who doesn't have a cellphone today, and I'll show you a loser...(if you know what I mean)...

MPG did go up quite a bit lately, but they are in the real estate business. You know the saying: They are not making any more land, baby... Easy money, my friend, easy money... :)

Let me know what you think. If you agree with me again, I'm pullig the trigger on PALM tomorrow (before its price explodes on some positive news). I already own MPG (but can always get more if you agree with me on this one too).

Also, if you need more Kool Aid, just give me a buzz. If wife answers the phone, tell her you got wrong number or something like that (don't use: No habla Englese as she's fluent in Latin American).

Good Luck!

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#16) On March 31, 2010 at 12:25 AM, tkell31 (26.85) wrote:

PALM is going bankrupt.  The fact it is at 4 compared to 10 just means it is 60% closer to going bankrupt.  Then again your score is 99, and mine is 45, but we'll see how it goes.

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#17) On March 31, 2010 at 1:00 AM, TSIF (99.96) wrote:

dragonLz, the koolaid after Midnight is way to potent for even you.   Score don't matter on this one tkell31, Dragon's model is really pretty good on picking under achievers Mr. Market might fall temporarily in love with, but it has it's flaws!

My thoughts on MPG:

http://caps.fool.com/Pitch/MPG/4708679/here-i-go-on-my-fourth-call-on.aspx?source=itxsittb0000001

Both MPG and PALM would need someone to to white knight them to have a chance. I'm the first to admit that bankruptcy isn't as likely as it use to be. Banks don't want garbage either!

Both very speculative, to the degree that the risk/reward is highly skewed too far.   Was Palm overvalued at $10-12 or undervalued at $4??  Aren't you the one who says the market is always right??  In this case $4 is still too generous!

I'll reflect on the risk/reward ratio when I get some sleep, but I doubt I would find anything on either of these that would change my mind. 

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#18) On March 31, 2010 at 6:52 AM, dragonLZ (99.43) wrote:

C'mon guys, I was joking. Why is everybody so serious? It's just money, remember?

In the future, if you see me commenting after midnight, and I'm mentioning Kool Aid, you need to understand you can't take me seriously.

TSIF, as ZLC plunged 20% yesterday, I came up with the idea of "giving" you 2 more losers, and I picked the ones I know you hate.

But I guess I threw you off by including MPG in the two, which I said I (kinda) like the other day. Sorry about the confusion (even I, on Kool Aid, don't "analyze" the stocks like I analized PALM and MPG above. Btw., I thought you'd like my "PALM is 60% udervalued comparing to two weeks ago" fundamental analysis.)

I also want to apologize to people who don't feel like joking because they picked ZLC (based on this or my post) and now are 25-30 points down on that call. I hope nobody had real money riding on it. 

Sorry Everybody. RAS and ZLC were just a part of an experiment (see my post here), not a recommendation. Both TSIF and I are also looking at these 2 stocks as long term picks, and we did mention they can be very, very volatile in short term. Still, I apologize.

I guess from now on, disclaimer for my posts should be the title of this post here.

Good Luck Everybody!

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#19) On March 31, 2010 at 10:36 AM, TSIF (99.96) wrote:

Hi DragonLz, if I'd read your Palm and MPG this morning, I probably would have caught the humor you were trying to impart.  I was VERY tired last night, (no koolaid of any kind), forced to work on a favor for someone.

I really didn't think on first read that your model would have found anything to like about PALM, although I do know you were MPG'ing a few times. 

A little :)  here and there might help. :)  Especially for new readers who just see an update going up on a blog while they are surfing.

I had three laptops on my table at the time, one in pieces, one copying files from the doner's hard drive to USB drive, and another on technets, hoping I had better news for my friend who had until Midnight tonight to file state reports on her daycare.

Anyway, anyone who follows any of us on our picks needs to be very careful. I think we both do a good job of warning people, but I have a lot of "groupies" now and I try to be more careful, but everyone is responsible for their own actions.  We both went LONG on these calls and my DD was still open.

ON a plus note, Zales got some relief from Citi last yesterday evening and is up 6% this morning.  Time for some Koolaid...whoopeee!  :) 

 

 

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#20) On April 01, 2010 at 9:46 AM, dragonLZ (99.43) wrote:

#9) On March 30, 2010 at 12:42 PM, TSIF (99.26) wrote:

DragonLZ.  I just came to update my call on Zale.  I'm still with you on RAS, but I apologize for the short term jinx.  Actually, it was my plan to run them down and buy them cheaper.....devious of me.  I just forgot to sync my CAPs call to my RL call!  OOPS....    

 So I disagreed with you on BGP, so you must still be winning that battle, with even greater returns.  Since the market does opposite of what I say!  :)  How's that one working out so far??

Quick look at Borders....hmmm....  OOOPPSSS.  :)  Guess it's not ALL me!  :)

 

BGP is up 40% today. Do you believe me now that you jinxed the other two?

p.s. Don't worry about ZLC and RAS...chart-eyeballing makes no mistakes... :) 

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#21) On April 01, 2010 at 10:30 AM, TSIF (99.96) wrote:

Nope, I don't.....  :)

You can extend the window to any date timeframe you want, but I indicated that the chance of BGP getting a temporary bump from earnings was high.  I had my downthumb set for $2.98, but it looks like we won't reach it. I got greedy again.

Check in in six months and see which if any of the three holds and then I'll claim ownership for jinx's.  :)

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#22) On April 01, 2010 at 11:46 AM, TSIF (99.96) wrote:

Ok, now I really picked BGP for a downthumb, so you can see if my downthumb will help on your upside by a reverse jinx.

I have $2.70 and below, you can have $2.70 and above.  Good luck!  (NOT!!!)   :)

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#23) On April 01, 2010 at 1:34 PM, Tastylunch (29.31) wrote:

BGP is interesting

on one hand many value investors still think it's undervalued

but what is a company really worth if it's business model itself might be defunct?

I'm not sure so I avoid rating it, plus I've met teh founders and really liked them so it clouds my judgment.

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#24) On April 06, 2010 at 3:57 PM, dragonLZ (99.43) wrote:

Is today a sign of better days ahead for RAS and ZLC (RAS up 9%, ZLC up 12%)?

I think it's way, way too early to tell... (but it sure feels good)... :) 

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#25) On April 06, 2010 at 5:32 PM, TSIF (99.96) wrote:

Way too early to tell, but RAS is above my RL buy in of $2.04, so I'm feeling much better now!!  :)

Joez has helped as well, but Neutral Tandem better get's it's switches in gear before I get really, really, mad!  :)

It's weighing down the options section of my portfolio leaving Hasbro to pull all the weight.   Team work, people, team work!

No, I'm not greedy.... 

 

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#26) On April 06, 2010 at 11:49 PM, dragonLZ (99.43) wrote:

I have no idea why is everybody so high on TNDM. All I see is a loser, but for your sake, I hope I'm wrong.

Good Luck!

p.s. RAS looks real solid, but I'm afraid ZLC will not be able to continue going up so soon after the 20% fall from the other day. My guess on the best case scenario is: $4 in a month and a half.

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#27) On April 07, 2010 at 12:24 PM, TSIF (99.96) wrote:

Pessimist...  DragonLZ is a pessimist and a Jinx.  ZLC is heading to the moon!   $5+ in 30 days!   Go Zales, Go! 

Got anymore fresh Koolaide Dragon, what you sent me last time is running low!   Sounds like you need some more also!  :)

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#28) On April 07, 2010 at 12:53 PM, dragonLZ (99.43) wrote:

All morning long, I'm watching the news to see if there were any reports of a submarine sighting in West Michigan.

I could swear I saw something huge briefly come out the Lake Michigan while I was walking my dog this morning.

I didn't have enough time to see what was written on it, just the first two letters: Z and L (I think the third letter was either letter G or letter C. Maybe number 6, I'm not sure).

At first I thought I was dreaming, but believe me, my Fluffy's crazy barking wasn't for no reason. Last time that dog barked like that is when Tsunami hit Phillipines.

There has to be somebody else who saw it too...

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#29) On April 07, 2010 at 1:06 PM, dragonLZ (99.43) wrote:

TSIF, forgot to say:

Kool Aid is in the mail. You will just have to pay a small shipping and handling charge, but believe me, it's worth it. This stuff really works.

After having another glass, I think your $5+ in 30 days is way too conservative.

Cheers!

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#30) On April 09, 2010 at 4:28 PM, dragonLZ (99.43) wrote:

WOW.

Today: BGP up 9.6%, and more importantly, RAS up 10.9%.

ZLC is the only one who spoiled the party for the magnificent (speculative) trio: down 11.6% (I'm sure it's UL's fault :).

I guess somebody is very happy right now being up 30% in a matter of days on his RL buy. I'm sure that will be celebrated with an extra glass of koolaide tonight.

And even though my RL buy got killed again today, I'll still have a few extra glasses of koolaide tonight. What the heck.

I actually think today's drop was a healthy one. If ZLC was up again today, everyone would think ZLC is for sure coming back and is now a good investment. We don't want that. We want people to be afraid of it. Yes, real scarred...

Good Luck!

p.s. On second thought, why wait until tonight. Koolaide tastes good anytime... :)  

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#31) On April 09, 2010 at 5:36 PM, TSIF (99.96) wrote:

Not a bad week. Yes, I'm happy to have the 30.54% gain on RAS on the "books' for the weekend.  Looks a lot better!

I don't count my wins until their booked. Joez did as I expected today, but I still decided to ride it and it's up 36% overall, but "giving back" that $0.55 today still gave me a rash.

All of the children won't cooperate on the same day, but trending up is good enough. I did book half my options on Hasbro today, so yes, time for some koolaide!  Even if I don't count RAS yet, I earned some from that long two months on Hasbro at 200% upside!  :)

No ZLC is back in stealth mode, and I agree, slow but steady is much better. Less chance of it getting spotted in Lake Michigan.  Your dog needs to keep quiet!

Yes, koolaide is good anytime, but especially on Friday Evenings for some reason.  Cheers.

 

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#32) On April 21, 2010 at 12:16 AM, dragonLZ (99.43) wrote:

Sorry, I "brought" RAS down by mentioning your 30% gain (as you can see I'm very superstitious), but I had to do it as I needed to get a good entry point.

Now, I have real money riding on it too.

Good Luck!

 

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#33) On May 28, 2010 at 11:22 AM, dragonLZ (99.43) wrote:

I tripled my position in RAS this morning.

Although I might soon get some serious stomach ache from this call, I think it will be worth it in the long run.

Was thinking about adding some more ZLC or NCT too, but in the end decided to go "all in" (with money on hand) on RAS.

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#34) On May 28, 2010 at 11:32 AM, EnigmaDude (87.07) wrote:

I like RAS as well.  Added more shares at $2.10.  If they decide to reinstate the dividend it wil take off. Wish I had more cash on hand (but still paying for my new house!)

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