I am currently short GRMN. I believe that while the current years earnings/revenues may be achievable, the company is headed down the wrong path in the wrong industry.

Garmin trades at about 10x consensus FY08 expectations of $3.95. Many will argue that this is simply too cheap for a company with such promising growth prospects and that remains underpenetrated. I, on the other hand, believe that while revenue may continue to increase, margins will continue to be under heavy downward pressure. The onslaught will come from all sides: lower ASPs, more competition, the inability to reduce the bill of materials quickly enough, and the commoditization of GPS (iPhone, Blackberry).

Furthermore, Garmin doesn’t own any of the valuable assets i.e. the maps themselves. In this scenario, Garmin simply becomes a producer of hardware. And now, they find themselves in an unenviable position: what features can we add to our GPS devices that will make them more attractive to consumers? MP3 player? Removable media cards? I, for one, would rather be a handset maker who decides to add GPS to my devices than the other way around.

The problem with something that becomes ubiquitous is that generally it becomes not very profitable unless you have a strategy to prevent others from entering (think iPods and iTunes).

To add insult to injury here. It certainly isn’t helping that the US consumer is hurting or that it seems as if Garmin may be coming close to a saturation point. Add a few missteps relating to the nuviPhone (which really is an absurd idea) and I’m not sure if Garmin will ever find its way again.

One more thing… it frustrates me to no end when I see a management buying back shares as their business deteriorates. Essentially, they are taking shareholder money and burning it.

As for trading this stock, the short interest is high and it tends to find GARP buyers. My strategy has been to short the stock on rallies and leave enough dry powder to scale into a larger position as the valuation becomes more and more untenable. Good luck!

I have been long absent. The SWIR and NVTL stories have played themselves out. They are both losing their PC OEM businesses and not finding replacement revenues fast enough. They’ve gotten extremely cheap if you exclude cash balances. I am no longer short either at these levels.

I am still long AWI as it continues to post very strong quarters despite the housing downturn. When the economy turns, this stock should be phenomenal. In the meantime, they are generating cash and rewarding shareholders.

Sandisk has been an utter disaster. I would not have predicted what has transpired when I originally shorted it back in December. I have no position and I don’t see things improving any time soon over there.

Hibbett’s Sporting Goods is still a rather expensive stock. My attempt at short term trading was wrong but at these levels above $20, they are provided no room for error. They are trading close to 20x earnings. These stories have been ending in a trail of tears as earnings are eventually cut and multiples contract.

I will try and post more often. Currently, some of my favorite ideas are long: QCOM, ONNN, ACIW, MF, HNR, EAC, and PNWIF; and short: STEC, AMSC, HBI, DDUP, and MATK.

Good luck!

I shorted some HIBB after-hours at $12.45. It closed at $15.96 so it was down almost 25% already. Why on earth would I chase it? for a few reasons:

1. They cut their fourth quarter forecast to 20-26c from 36-44c
2. They cut their comp sales forecast from up mid-single digits to down mid-single digits
3. Companies that miss guidance have been getting punished — possibly punished more than they deserve to be, but punished nonetheless. For examples, see how RT, SHOR, SNS, ZLC, TIF, and MW traded after the print.
4. I tried to work out where I think the stock can go and if I get extremely bearish on it, I can cut their earnings for FY 2009 to 64c from de-leveraging effects of weaker sales and softer traffic. So, a 12x multiple on 64c equals a $7.68 stock.

Anyhow, I don’t necessarily think we’ll get there. I just think that the risk/reward is pretty good.

I’m posting this article that I had begun writing at the end of December while I was out of the country. After what the market has done recently, SNDK is a full 20% lower in stock price but I think that some of the comments I made are still relevant so I am posting my article anyway. Supply growth of NAND flash is continuing at a phenomenal pace and now with increasing worries about consumer spending coming to the forefront, SNDK may suffer for a while.

Despite selling off substantially after 3rd quarter earnings, SNDK probably still has another leg down from it’s current $35 price tag. My target is the mid-$20s based on a revenue miss due to price declines and a bleak outlook for margins based on the huge amounts of supply coming online next year.

On their Q3 conference call, the company guided to price declines of around 25% offset by 55% bit growth for the fourth quarter. Generally, they guide conservatively and beat on bit growth. For instance, last year they guided to 55% bit growth and reported 75%. So, what’s the problem? Well, Micron (MU) reported their quarter last night and made some comments about nand flash including these gems: NAND Flash prices are down 40% so far this quarter and NAND bit growth of around 60%.

You don’t have to do much math to see that there’s a pretty good chance that SNDK misses their topline number when they report Q1. Notably, the outlook that they provide may be even bleaker because last quarter they told you that they are at full capacity i.e. implying that their margins were peaking. Further, working in your favor, the sell side is impossibly bullish on the name with the 10 analysts who have a target price on the name averaging out to $57.90; 12 buys, 9 holds, and 1 sell in the group as a whole.

We may get a quick short squeeze when MacWorld rolls around and people get excited about a flash-based laptop but I think that will provide another great opportunity to short more stock.

UPDATE 01/28/08 9:32 EST – SNDK reports after the close today.  I do not think the risk/reward is quite as good now that the stock has traded below $25. I am covering my position.

    Armstrong Worldwide is my single favorite idea at the moment.

Armstrong is an industrial company that specializes in flooring and ceiling products. If you’ve ever seen hardwood flooring at Home Depot, you’ve seen the Armstrong brand. Armstrong came out of bankruptcy late last year after settling asbestos litigation. As a condition to re-emerge, the company gave 37 million shares, or 65% of the float, of its new stock (AWI) to the asbestos trust that would be paying asbestos claims. In addition, Armstrong emerged from bankruptcy with 1.6 billions dollars of NOLs and a pension that was overfunded by 600mm dollars. And to top it all off, at the end of q42007, AWI will be in a zero net debt position. The company has stated in the past that 2-3x EBIDTA is a comfortable amount of debt to take on.

The company is split approximately 50/50 in residential and commercial end-markets. The worries about their residential business are somewhat overblown because about 65% of their residential business is replacement vs. new construction. So, essentially, you’re talking about 5-6% exposure to new home construction. Meanwhile, despite the turmoil in the housing market, the company has managed to improve their operating results by improving manufacturing efficiencies and instituting price increases.

In the early part of this year, the company announced that they were going to be conducting a strategic review. The stock rocketed to $57 over the next couple weeks amidst the lbo boom and then July hit. This stock along with all the other stocks that were trading at 30-40% premiums on lbo speculation got crushed. AWI was quadruply-cursed -> a housing related stock, a management that does not openly promote itself, a possible lbo candidate, and supremely illiquid. It traded down to the mid-$30s. At which point, if you were smart enough, you would have purchased a company trading at near 8x cash flow.

Today, at $40, it is one of my favorite ideas. The company is still pursuing its strategic review – a complex process in their case as they have many options including selling some assets to a strategic buyer with an underfunded pension, doing a leverage recap, purchasing stock from the trust, or all of the above. In my opinion, the company is still trading at close to an 11% FCF yield without accounting for a present value of 180mm in NOLs and the 600mm in pension overfunding. In a best case scenario, the company makes a deal with the asbestos trust to purchase stock back from them – allowing them to buy back half the market cap of the company without being overleveraged (I think this gets you a stock in the high $50s/ low $60s. In a worst case scenario, I think you end up with a company that continues going about business as usual with minimal downside and continuing to provide over 200mm in FCF each year.

I am long this in my fund. Please do your own research before acting.

NVTL and SWIR produce wireless datacards, usb modems, and embedded wireless modules in PCs to connect to carrier networks. They have enjoyed favorable pricing and strong margins as their stocks have run up over the last year. The bear case had always been that larger competitors would enter the market and price them out. Well, it seems that the bear case is playing out now as Qualcomm has introduced their Gobi wireless solution and sources indicate that FoxConn will be producing an embedded module which should help to crush Novatel and Sierra Wireless’ margins. The price point is rumored to be around $80 compared to the current $120 – $150 that NVTL/SWIR charge. Simple math tells you that two things will happen – 1. these two will face severe pricing pressure and, 2. they will lose business to the larger competitors (Huawei, etc). Compound this further with the fact that these companies are one trick ponies for the most part and you could find them trading in the single digits very soon.

UPDATE: Deutsche Bank recently published a report stating that Ericcson Mobile Platforms is offering an embedded module in the $40 range for 2008. This is a significantly worse (better) pricing situation for NVTL and SWIR. Consider this – currently, their bill of materials is around $80-100 to produce these modules.

I continue to be short these names.

UPDATE 01/14: I’ve covered my positions in both for the time being as sentiment had gotten excessively bearish.  The street continues to love both names and q4 will probably be okay. The long term concerns remain and I will update again when I put the positions back on.