Monday, May 9, 2016

Chipotle Mexicon Grill presents a clear opportunity

It has no debt. It's a cash flow generator. It is facing a fixable problem from food viruses. Market is assuming that the management would not be able to take care of these problems effectively. Even without valuing its growth options in creating chains that operate in the same way but with different types of fast healthy foods, the current business appears to be valued at a significant discount.

Read the debate over CMG.

The one single biggest risk to CMG is another outbreak of E. Coli or other food contamination. So it's really critical that they have it under control, even though nobody can really guarantee 100% food safety. I see hiring its former critic and food safety experts as very positive steps.

It's Deja Vu All Over Again. Don't let a crisis go wasted. It's time for the company to repurchase its own stocks. Agree!

Some critics have argued that Chipotle is facing a more fundamental crisis than E. Coli, namely that its menu has been "stale." I disagree. The company has been innovative, testing new items as part of their practice. The reason that they had not had any big changes in menu was because their customers wanted to keep it simple. However, with the E. Coli crisis hitting the business hard and many formerly loyal customers hesitating or leaving, it's the perfect time to introduce new menu items that can help attract a new cohort of loyal customers. I believe the management have this figured out. (5/23/2016)

(Chipotle story in three minutes)

It's really interesting to note that people actually CRAVE Chipotle burritos. Do a search on twitter or google to see those discussions. Sometimes it seems worse than Starbucks! You don't think the customers will come back in drove?

Wednesday, February 24, 2016

Very tricky time at the Fed

I like Tim Duy's recent summary:

Despite some hawkish talk, the Fed will find themselves in risk management mode at the March meeting. Some will not like it. There will remain a contingent that fears standing still risks excessive overshooting of the inflation target.

Fed to stay neutral/dovish and tread cautiously(3/7/2016).

On Yellen's New Pivot to Go Slow on Rate Hikes and Said it Firmly (4/1/2016).

Analysis of the Fed minutes. (4/6/2016)

Still too much slack, unemployment rate moving side way (5/23/2016). Market now looking for a rate hike in July. This hike may not do as much damage to global economy as the one in December, but will slow down recovery progress. Look at oil market for hints.

David Rosenberg calls a summer rate hike "reckless and unnecessary." (5/24/2016) Strong words coming from a former bear, but he gives very good arguments against the hot heads in the Fed, especially the regional heads.

Monday, May 11, 2015

Zillow deserves a higher valuation than $100

As the housing market shows signs of revival, perhaps due to jobs or low rates, the biggest bargain is not in home builders, probably not in housing-related services such as HD/LOWS, but in the newly enlarged and dominant online real estate information site Zillow (Z).

Suntrust has come out today to upgrade the stock from neutral to buy and raised its target from 110 to 130. It listed six key positives:

1) Secular shift – growing trend of researching and discovering properties online, enabled by greater information, data and attribution, esp. in the younger generations;

2) Mobile usage increasing – smaller brokers and MLSs will have a tough time justifying continued tech spending to keep up;

3) Dominant position – Z/Trulia combination creates a scale that is unmatched and creates a “must buy” for agent advertisers and a “must be on” for home sellers;

4) Strong ROI – we believe that as the better performing agents get more leads, conversion rate and ROIs will rise, creating significant pricing power for Z;

5) Optionality - around Rentals, mortgages, and digs are underappreciated;

6) Margin leverage – we think the margin profile is misunderstood and can approach levels >45%.

When the merger with Trulia was announced last July, the stock promptly jumped from 125 to over 160. But as the merger was finally completed with most potential in tact, the stock was punished to below 85 at one point on January 27. We couldn't resist and bought into it in a big way. As the stock recovered somewhat, the short interest rose to 50% of float according to Yahoo Finance. Short-covering can make this stock soar like any hot dot-com high flyer.

When Zillow reports tomorrow we'll have a chance to see how much progress it has made since the merger with Trulia in terms of numbers. It could still be a transition story, but as long as the six  points above are in tact, we should be unfazed by any short-term negative.

And then there is the threat of and Murdoch. But judging from the spectacular failure of MySpace, how much credibility would you give Murdoch this time?

(2/7/2016 Note)

The stock has dropped below $20 (or $60 before the share split into Z and ZG). This is very surprising development. For a completely different take on the Zillow story, see Barron's article:
Zillow Share Could Fall By Half.

Safalow believes that the real market for Zillow and its rivals is much smaller than their fans suppose. Residential real estate is an "80/20" business, where a small portion of the nation's 500,000 active real estate agents do enough business to justify advertising with Zillow. He thinks it could be 15% or less. With Zillow claiming more than 55,000 agents as advertisers and Trulia, more than 70,000, the two portals may be reaching saturation -- especially given the companies' assertion that their customer overlap is modest.

It has already fallen more than half from the $140 level. It looks cheap. But if we believe the story of agent saturation in the article, and given how internet stocks have been hammered in the market, we may very well see further weakness of the shares.

Thursday, January 29, 2015

End of my landlordship

Today marks the end of my endeavor of being a landlord as I sold the last piece of my investment properties.

I got into this in early 2008. Nice timing! But I picked Dallas as the spot. The rent-to-price ratio have been high. On paper, things should work out in terms of cash flow.

But it wasn't nearly as profitably as expected. The maintenance costs ate up all potential profits and then some.

Plus, you get to deal with all sorts of tenant issues, weather issues, insurance issues, repair this and repair that, ...... and, the tedious tax reporting issues... I have to say I hated it.

The only upside, I guess, is I get to learn more about property markets, and why I should stay away from ever engaging directly in this business. Way too much hassle for my time.

There are better ways, more liquid ways, such as investing in home builders and related housing businesses, REITS, and home furnishing businesses...

It took me a couple of years to realize it's not my cup of tea. It took me another five years or so to get rid of the investment properties.

Bye bye. Thank you very much. I don't want to be a freaking landlord!   

Tuesday, September 16, 2014

Charlie Rose Interview of Tim Cook

There are two parts.



Tuesday, August 19, 2014


Paul Krugman has an interesting piece on why we fight wars. The analysis on Putin sounds on target: the macho guy is set on exerting his influence not by economic means but via military prowess. But I think his take on China left something to be desired: China's main focus remains to be on economic growth. There is much to be gained on economic reform and trade. Not much on military actions, even against Japan. There is a crucial difference between China and Russia, and between China and Japan. China has never in her long history invaded a sovereign country in order to occupy and annex. Russia and Japan are different stories.