My Stock Winners

The Best Time to Short AMZN is NOW –2/8
Q1 “Blowout”

Amazon surprised analysts and everyone following the name. Though there were some legitimate business drivers for the gains (lower than expected margin compression, slightly better sales, etc.) the majority of the earnings surprise can be attributed to lowered R&D investment, a favorable tax situation, and foreign currency gains. These are not the kind of operational improvements that merit such an enormous increase in stock price, but instead served to artificially show earnings growth well above the real growth in the business.

Business Overview:
AMZN is the largest pureplay internet retailer, with $10.7B in sales in 2006, and has grown its revenue at about 25-30% per year for the last few years. Though AMZN is primarily known to US investors for their domestic presence, the company has become an international force, deriving 55% of sales from the US vs. 45% internationally. The company continues to grow outside its core media products into other categories (electronics, etc.), but media–composed of books, dvd, and cds, still account for 66% of revenue.

AMZN is entering other popular spaces, including distribution of online music, dvd rentals, and its much hyped Amazon Web services. These businesses are all in their infancy, but are being relied upon to deliver growth coming forward, which I do not believe will come for several years, if at all.

Amazon’s non-retail businesses
Before delving to much into the economics of AMZN’s core business, I think it is useful to discuss the prospects of Amazon’s non-core operating businesses. I will argue that even if AMZN were to overnight become a leader in each of these new business, the total value of these business would not amount to more than $3B, or 1/10th AMZN’s market cap.

To be Continued….
(Meanwhile, here is a link to see my past articles of some good picks:)
http://www.mystockwinners.com/signs-of-going-down-for-amzn/

The Best Time to Short AMZN is NOW –1/8

AMZN is a compelling short at current levels. AMZN has shot up over 100% in the last 6 months, most recently on its “blowout q1″ earnings report, a typically seasonally weak quarter in which AMZN reported EPS higher than their seasonally strong q4. Revenue growth has accelerated, and high hopes for new initiatives (digital distribution, web services, etc.) have fueled a speculative furor not seen in the name since the height of the boom. Analysts are excited by the prospect of amazon as a “media” company, rather than a online retailer of low margin products, trading at a over 100x earnings, with PEG multiples higher than GOOG and EBAY, both of which are more attractive, higher margin businesses.

For a variety of reasons, I believe these growth avenues are overblown, and that AMZN is more likely than not a leading online retailer with a strong online marketplace, low operating margins, and moderate but not spectacular growth going into the foreseeable future. I will argue that even if AMZN overnight became a leader in all areas they hope to grow into, the company would still be overvalued and likely to disappoint given current expectations. AMZN is overpriced on both an absolute basis, as well as relative to peers, and could see a upwards of a 30% drop based solely on a return to its prior lofty valuation levels, or upwards of a 50% drop if valuations were more in line with comps (which, arguably, are overvalued themselves), and potentially see further decreases as new ventures fail and their core retailing business receives continued pressure from offline and other online retailers, as well as the inevitable levy of an internet sales tax, which could wreak havoc on already tiny margins. Given the high PEG, as well as revenue and earnings growth going forward, I believe the risk of multiple expansion or multiples staying the same is relatively low, and that AMZN is an attractive low risk/high reward short.

To be Continued….
(Meanwhile, here is a link to see my past articles of some good picks:)
http://www.mystockwinners.com/category/weekly-pick/

Third quarter trading came to a close Friday, and for the eighth time in the last nine quarters, the Dow Jones 30 showed a positive return, adding 3.6%. The tech heavy Nasdaq gained 3.8%, as Apple and Google have both led the latest rally; while the S+P 500 picked up a mere 1.6%. Still, the quarter was the ninth gain out of the last ten quarters for both the S+P and the OTC market.

Things weren’t so rosy everywhere though, as the Russell 2000 small cap index broke a four quarter string of gains losing 3.4%. Even though the Federal Reserve followed the script and cut interest rates, concern for smaller companies growth prospects always come to the fore when a slowing economy becomes the headline focus.

Positive fourth quarter performance is reminiscent of how the American League has dominated the National League in the annual All-Star Game. For nine consecutive years, the stock market has moved higher in the year’s final frame. Besides nine in a row, it’s been 24 of the past 27 fourth quarters that have seen stocks advance by year end. So, unless you’re an extreme contrarian, it’s probably a good time to hang on to your hat and your stocks.

Even though interest rates are lower, credit markets are still squeaky tight. And while tech stocks have resumed their flight, the Dow Tranports and financial stocks of every flavor have been noticeably absent from all the rally hoopla. With housing having gone from the dog house to the outhouse, it will be intriguing to see whether the consumer steps up to the plate for the Holiday Shopping Season. IMHO, AMZN will go much lower as I point out in http://www.mystockwinners.com/high-pe-ratio-amzn-get-ready-for-the-fall/

However, it is almost a sure win to buy Chinese Stock which is regulated by USA rules, such as http://www.mystockwinners.com/china-stock-watch-vcdyob/
(Note: stock symbol has recently changed to chri.ob see more here http://finance.yahoo.com/q?s=CHRI.OB )

Best of Luck on the coming week!

========= Undervalued Stock #1 ==========

———- Chesapeake Energy Corp. (NYSE: CHK) ——–

Insider Name: Aubrey K. McClendon
Insider Position: Chairman and CEO
Insider Action: 50,000 shrs on 9/24/2007 - 9/25/2007
Insider Total Holding: 28,106,318 shrs

——————————————————-
Undervaluation Merits…

P/E Ratio = 9.8 (Industry Average 17.5)
P/S Ratio = 2.24 (Industry Average 5.53)
P/B Ratio = 1.72 (Industry Average 3.15)
P/CF Ratio = 5.00 (Industry Average 25.40)

Industry: Independent Oil & Gas

========= Undervalued Stock #2 ==========

——— Merrill Lynch & Co. Inc. (NYSE: MER) ———

Insider Name: Armando M. Codina
Insider Position: President & CEO
Insider Action: 5,760 shrs on 7/25/2007
Insider Total Holding: 13,357 shrs

——————————————————-
Undervaluation Merits…

P/E Ratio = 7.5 (Industry Average 11.4)
P/S Ratio = 0.81 (Industry Average 1.42)
P/CF Ratio = 8.40 (Industry Average 9.70)

Industry: National Investment Brokerage

——————————————————-
Other Merits…

Dividend Yield = 1.8%

——— Merrill Lynch & Co. Inc. (NYSE: MER) ———

The Weekend Edition: If You’re So Smart Why Aren’t You Rich

It is still not well understood why some people are rich and others are poor. Luck, timing, parents, choice of spouse and many other factors play important roles in shaping an individual’s circumstances. Past analyses have mostly just looked at income, with studies of World War II veterans finding a link between smarts and a better salary. What good is it to be smart and have a better salary if you end up broke or spending it all on credit card bills? Looking at the National Longitudinal Survey of Youth 1979’s latest round of survey answers from more than 7,000 randomly selected participants, author Jay Zagorsky tries to tackle the question of whether better IQs lead to bulging bank accounts and less bankruptcy. The answer is no. “Being more intelligent does not confer any advantage along two of the three key dimensions of financial success (income, net worth and financial distress),” says Zagorsky, looking at the data with statistical tests. And when it comes to financial distress, smarts are no help at all.

People with 140 IQ scores (a score of 100 is average) missed payments and maxed-out their credit cards more often than their lower IQ counterparts. “Only among people slightly above-average does an increasing IQ score lead to a reduced chance of financial distress,” says the study. “The survey provides no data to explain why this occurs,” but Zagorsky offers these explanations for High IQ types getting into financial hot water:

They might be busier and less focused on routines like paying bills.
They might lead a lifestyle that is closer to the financial precipice because they feel they are smart enough to get away with the risks of credit card spending and saving less.
“Since intelligence is not a factor for explaining wealth,” he writes, “individuals with low intelligence should not believe they are handicapped in achieving financial success, nor should high intelligence people believe they have an advantage.”

The bigger they are, the harder they fall.” This old saying sums up the worst nightmare of every Amazon investor, and every investor in today’s market. Dare ye buy at the top?

Every day, Nasdaq.com publishes a list of the market’s top stocks — the companies whose shares have just hit their highest intraday price of any time in the past 52 weeks. Every day, investors read this list and tremble — some with greed (big mo’, baby!), and others in pure, unmitigated, acrophobic terror (whatever you do, don’t look down).

You could heed them. You could ignore them. You could take the stock tickers and construct anagrams from ‘em. For my money, though, the best course of action is to use the “52 week high” list as just a starting (or selling) point for further research. After all, stocks can go up for many reasons, and it’s up to you to decide how worthy those reasons are.

With that said, let’s meet recent list of contenders, drawn from the latest “52 week high” list at Nasdaq.com. What does our panel of more than 65,000 stock gurus (and counting) have to say about them?

Sell Amazon (AMZN)
Use that profit to buy (HIMX)

———— Barnes & Noble, Inc. (NYSE: BKS) ———-

Insider Name: Leonard Riggio
Insider Position: Chairman of the Board
Insider Action: 100,000 shrs on 9/11/2007
Insider Total Holding: 13,064,597 shrs

——————————————————-
Undervaluation Merits…

P/E Ratio = 16.9 (Industry Average 18.4)
P/S Ratio = 0.42 (Industry Average 0.91)
P/B Ratio = 1.94 (Industry Average 3.22)
P/CF Ratio = 7.10 (Industry Average 12.10)

Industry: Specialty Retailer

——————————————————-
Other Merits…

Dividend Yield = 3.30%

———— Barnes & Noble, Inc. (NYSE: BKS) ———-

========= Undervalued Stock #1 ==========

————– HIMX ————–

Insider Position: Director and CEO
Insider Action: 29,100 shrs on 8/24/2007
Insider Total Holding: 155,200 shrs

——————————————————-
Undervaluation Merits…

P/E Ratio = 10.1 (Industry Average 41.6)
P/S Ratio = 0.34 (Industry Average 1.15)
P/B Ratio = 2.23 (Industry Average 5.21)
P/CF Ratio = 7.30 (Industry Average 18.50)

Industry: Semi conductor

——————————————————-
Other Merits…

Dividend Yield = 0.9%

Valuation:
AMZN’s pe=110
HIMX’s pe=10

Company future Priced in:
AMZN=Investor has a false picture perfect image, but in fact, their plan are old concepts that will not make $
HIMX=Investor has a false picture of lawsuite, (price dropped to the lowest when being sued, but usually goes up from that point)

Technical Analysis:
AMZN:
http://www.stockconsultant.com/consultnow/basicplus.cgi?ID=sample&symbol=AMZN&4086#ttop

“Downside� TRADE QUALITY 95%, Excellent

TARGET 1 Price: 73.57 Profit: 12.2% , for a typical pullback.
Cover Limit/Trailing Cover Limit: 86.08 Loss: 2.8%
Profit/Loss Ratio: 4.4 : 1 - Excellent

TARGET 1 POTENTIAL Excellent, there are 1 support areas on the way to Target 1.
Stocks may quickly fall to Targets when there are not many support areas blocking the way.

TARGET 1 SUPPORT -6.2% at 78.55 ± 1.73, type single, strength 3
-12.2% at 73.57 is Target 1

TARGET 2 Price: 70.21 Profit: 16.2% , Profit/Loss Ratio: 5.8 : 1 - Excellent for an extreme pullback.

HIMX:
http://www.stockconsultant.com/consultnow/basicplus.cgi?ID=sample&symbol=HIMX&6502#ttop
“LONG” TRADE QUALITY 100%, Excellent
Good trade quality is a combination of good profit, profit/loss ratio and target potential.
TARGET 1 Price: 4.81 Profit: 22.4% , for a typical rally.
Stop Limit/Trailing Stop Limit: 3.79 Loss: 3.6%
Profit/Loss Ratio: 6.2 : 1 - Excellent

TARGET 1 POTENTIAL Excellent, there are 1 resistance areas on the way to Target 1.
Stocks may quickly rise to Targets when there are not many resistance areas blocking the way.

TARGET 1 RESISTANCE +10.9% at 4.36 ± 0.11, type single, strength 5
+22.4% at 4.81 is Target 1

TARGET 2 Price: 5 Profit: 27.2% , Profit/Loss Ratio: 7.6 : 1 - Excellent for an extreme rally.

HIMX is a stock which has a very real chance to be up 50%+ by Christmas time.

Low volume selling indicates weak hands. Let hope the smart money will stay. Based on Fundamentals. It is a screaming Buy. But technicals are getting streached and we are at a point of bottoming. I will not trust any drop on low volume and will remain a holder.

After researching this company and looking that the fundamentals, I just loaded up some today.

This stock is so undervalued. It has great fundamentals. Today is the bottoms. With the market down 250 points today, next week is due for a jump.

This suit is a tatic and it is going to be dismissed. Once that is out of the way, there could be a 15-20% rally.

When it’s $4.23, its only 4.03 because you’re going to get .20 back per share in a month. This thing has doubled rev in the past two years, upped guidance past WS expectations, beat WS expectations, trading with a 10 PE (actually only 9 because its .20 cheaper than its trading price)….oh why go on. I’ve never seen anything deny logic as much as this. And it just flippin sits everyday. Stale money everyday. Actually, it just keeps crawlin lower so worse than stale money. Unbelievable.

Cheer for value investors.

From Tuesday’s closing low, the Dow Jones Industrials rallied 317 points into the Labor Day Holiday weekend. That’s the good news. The bad news was that the popular benchmark still managed to lose 21 points on the week to close at 13,357.74. In fact, the only popular average to gain on the week was the NASDAQ Composite, which added 20 points to close at 2596.36.

The S+P500 added 41 points from its Tuesday low to finish the week down just 5 points to 1473.99. The small cap Russell 2000 was the week’s weakest performer dropping 6 points to close the week at 792.69. Stocks were aided by comments from Fed chief Ben Bernanke, who assured Wall Street that he’s ready to cut rates to avoid any further crisis. Those comments were backed up by President Bush, who went on the record by saying the Federal government will do all it can to help the people who shouldn’t have bought homes in the first place, so at least they might be able to keep them. That is as long as it wasn’t hit by a hurricane first. If that was the case, then you’re in trouble.

So, while those in the media (along with those at Starbuck’s) argue the pros and cons of whether or not the Fed will cut rates, one thing is for certain. Housing is dead in the water, and no one knows how long it will take before that is ultimately going to affect this nation of happy-go-lucky consumers. How about never? What more can you expect from a society where an infamous convicted tax dodger known as the “Queen of Mean” dies and leaves nothing to her grandchildren but ponies up $12 million for her poor lonely little dog.

The trade shortened week starts on Tuesday with U.S. auto sales expected to post a fractional gain for August, while the ISM manufacturing index is expected to decline. Wednesday, the Fed’s beige book of regional economic data is released, while July home sales are seen dropping 3% in July. HP unveils a number of new PC’s and computer game products, while Apple releases its latest iPod in San Francisco. Challenger, Gray & Christmas report August job cut announcements.

Thursday, retailers report August sales of the back to school variety, while home builder Hovnanian reports third quarter earnings expected to shed further light on the weak state of the new homes market. H&R Block is at the center of a proxy fight being staged by Richard Breeden with results expected to be announced. Friday brings the non farm payrolls report expected to rise 95,000 and below the level to keep unemployment stats unchanged. Expect the jobless rate to rise to 4.7%.

AMZN is at a very high rick level, with a PE ratio of 100, month then double of GOOG and YHOO.

Legg Mason/miller and other funds chose to sell significate amounts of stock prior to June 30, 2007 as reported last week. Of course when it went to $89.00 in late July we do not know yet if these institutions completely liquidated, or not.

All of the millions of shares they sold, of which in most cases have been held for over twn years were sold below $68.00 per share, as this was the highest PPS prior to 6/30/07.

If these major holders of the stock believe that amzn is a sell @ $68.00 what would lead you, as a long to believe that the stock is worth more than this price.

Everyone should know that AMZN is overvalued and carries tremendous risk at these levels. But this stock can also go higher because it was never rational to begin with. I think that there is a good chance that we head into the 60s next week. The market should resume its selloff and AMZN should participate.

========= Undervalued Stock #1 ==========

—— American Financial Group, Inc. (NYSE: AFG) ——

Insider Name: Carl H Lindner
Insider Position: Chairman & CEO
Insider Action: 100,000 shrs on 8/20/2007
Insider Total Holding: 8,800,395 shrs

——————————————————-
Undervaluation Merits…

P/E Ratio = 8.8 (Industry Average 10.5)
P/S Ratio = 0.79 (Industry Average 1.40)
P/B Ratio = 1.19 (Industry Average 1.50)
P/CF Ratio = 5.60 (Industry Average 9.4)

Industry: Property & Casualty Insurance

——————————————————-
Other Merits…

Dividend Yield = 1.40%
Exceeded Analysts’ Earnings Estimates for Past 5
Quarters
Currently Under Share Repurchase Program

Dow, Nasdaq Finish Lower As Investors Grow More Uneasy About Economy. The stock market found little to assuage concerns in minutes from the Fed’s last meeting, released during afternoon trading. The major indexes’ losses steepened after investors parsed the minutes for signs of a possible cut in interest rates.

But don;t you worry. This only kills high flying stocks such as AMZN

Let’s say AMZN’s revenue grows 30% in ‘08, and 20% in ‘09, ‘10 and ‘11. I think that is extremely aggressive. Growing top line from such a large number.”

Let’s examine what this poster might mean by “such a large number”.

Isn’t the largeness of numbers pretty relative, and simply based on our own mostly brick and mortar experiences and perceptions about what is feasible or possible, i.e., enterprises like Target Stores circa 1991 tended to grow from a base (revenues of 16B) similar to Amazon by next years estimate at only about 10% per annum?

Target Stores
Revenue Growth
FY 92: 11.2%
FY 93: 7.3%
FY 94: 10.7%

But Target’s conditions for growth in a physical, landbased environment were different from the online marketplace in a number of ways. For example, you need more time and capital to build out a brick and mortar enterprise, that and the fact that the customer base, a subset of the population, is just not growing that fast anyway, even if you did not have those limitations.

The population Target was drawing from was probably not growing too much more than 1.1% per annum, but the population Amazon will be drawing from will be growing at a rate of 6x that much:

“JupiterResearch says the worldwide online population will increase at a compound annual growth rate of 6.6 percent during the next five years, far outpacing the 1.1 percent compound annual growth rate for the planet’s population as a whole.”

So if we couple this 6x factor with Target’s 1990’s growth rate of 10% we get a growth ceiling of about 60% per year for online retail between now and 2011.

Seen from that perspective perhaps the consensus 25% revenue, so far less than that 60% is a more conservative figure that some think. And one that already incorporates the slower economy and is based on Amazon’s most affluent customer segments. Meaning that when economies pick up 35-40% growth would not out of the question.

AMZN=30 in 1 monh