Among the biggest winners in Friday's early trading are
CKX (Nasdaq: CKXE)
J Crew (
Top Percentage Gainers -- Friday, May 28,
Company Name (Ticker)
|CKX (Nasdaq: CKXE)
|J Crew (
*Table includes companies with minimum market
capitalizations of $200 million and three month trading
volumes of at least 100,000 shares. All percentage returns
are listed as of 12:04PM Eastern Standard Time . Click on
ticker symbols for up-to-the-minute price quotes and
percentage gain data.
Time to Take Profits in CKX
CKX (Nasdaq: CKXE)
are up nearly +20% as word spread that the company's biggest
investor and a just-formed hedge fund are teaming up to acquire the
producer of the very popular
So You Think You can Dance
TV programs. (CKX also holds marketing licenses related to Elvis
Presley and Muhammad Ali). Those buyers are betting that those TV
franchises have ample room for expansion. But historically
speaking, that's not a good bet. The vast majority of TV shows
eventually lose their customer base. Even the successful franchises
Law & Order
are content to simply generate cash, even after the ratings stopped
rising after the first few years. For example, Rupert Murdoch's
News Corp. (
continues to rely on the Simpsons franchise for steady annual cash
So are these folks looking at CKX as a cash cow? They shouldn't.
The company generated less than $15 million in cash flow last year,
and is off to a bad start this year as large one-time expenses
continue to hit the income statement .
Action to Take -->
Shares trade roughly -15% below the rumored purchase price, and
could still rise a bit more, but this morning's sharp spike likely
represents the biggest gin investors will see. It looks like time
to take profits.
Ener1 Becomes a Major Battery Player
Earlier this month, we discussed the investor cynicism regarding
A123 Systems (Nasdaq: AONE)
and other lithium battery makers. Concerns have mounted that these
companies will only slowly build the critical mass to reach
profitability. But when you team up with China's largest auto parts
supplier, you can get to that break-even point much more quickly.
That's why investors are bidding up shares of
, which had been up more than +20% at the market open, but are
still up around +12% after some profit-taking. Despite the pop,
shares are still less than half of the 52-week high.
The timing appears right. Only recently, auto companies such as
Honda Motor (
and Volkswagen have said they may look to outsource the battery
systems in their electric car efforts. That's because outside
suppliers have the expertise and manufacturing capacity to handle
this potentially very large opportunity. Right now, analysts think
Ener1 can cut its GAAP (Generally Accepted Accounting Principles)
losses in half next year to around $0.21 a share. This deal could
push the company even closer to break-even, if not in 2011, then by
Action to Take -->
So how large can this market be? If 4% of all vehicles have
lithium-ion batteries by 2015, then it would be a $5 billion
market. Assuming Ener1 can control 10% of that market, then sales
would rise from a projected $235 million in 2011 to $500 million in
2015. A lot can go wrong before then: Oil prices could slump,
quashing demand for green vehicles; governments might lose their
desire to subsidize these vehicles, or other technologies may
arrive. But if this market is for real, both A123 Systems and Ener1
still stand out as the best plays. With shares well off their highs
and the market size just now coming into sharper focus, this may be
a time to move in on these names.
Europe's Impact on U.S. Retail
Shares of retailer
J Crew (
are up more than +4% while shares of
are trading flat in Friday trading. Each retailer announced solid
quarterly results on Thursday evening. Yet both of these firms'
connection to Europe explains the stock price divergence. J Crew
derives almost all of its sales in the United States, yet sources
roughly 25% of its merchandise in Europe. The weakening Euro surely
helps lower costs.
In contrast, Guess? derives more than a third of sales and nearly
half of its profits in Europe and the Middle East (where sales in
some countries are also denominated in Euros). And thanks to the
slump in Europe, Guess? lowered second-quarter profit forecasts to
around -15% below the consensus. Full-year guidance was lowered by
a lesser degree. And that's worth noting as we go into this
upcoming earnings season .
When companies need to cut near-term guidance, they are often
loathe to fully extrapolate that weakness to subsequent quarters.
Management at Guess? is effectively hoping that third and fourth
quarter results will not be as heavily impacted. But more than
likely, unless the Euro posts a sharp rebound, then near-term
guidance will again be cut when the next quarter's guidance is
U.S. sales could help to minimize the damage from the Euro. They
rose a robust +9.7% on a same-store basis, aided in part by weak
comps a year ago. U.S. sales will need to continue strengthening to
offset the headwinds created by European sales. The fact that
shares of Guess? didn't tank on the weak outlook tells you that
investors are focusing on the positives.
Action to Take -->
Guess' resiliency is a bit of a surprise - especially in the face
of lowered guidance and a flat market today. But if management
indeed needs to cut guidance the next time earnings are released,
then shares could head materially lower. The domestic momentum is a
potentially off-setting factor to the Euro weakness and should keep
shares from falling much further. The next catalyst would be either
a re-strengthening of the Euro, or a change in domestic sales
As for J Crew, the quarterly results were surely impressive, but
the neck-snapping improvements in same-store sales were partially a
function of very weak comparisons a year ago. Also, the U.S.
Commerce Department just noted that April consumer spending was
flat, after six straight months of gains. That means some of these
retailers showing great strength may not be able to keep boosting
guidance if consumer spending doesn't start to grow again. Until
and unless the unemployment materially drops, retail spending can't
keep up its heady recent pace.
-- David Sterman
Disclosure: David Sterman does not own shares of any security
mentioned in this article.
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