How Long Can You Hold Your Breath?

It is pretty obvious to me and others that there is a ton of value in Sears Holdings ($SHLD). The issue with an investment in SHLD is that Eddie Lampert is asking you to jump in the pool with him and hold your breath for potentially a period of time of 10 to 20 years before he catalyzes the situation and allows you to come back to the surface. It could happen more quickly of course. Why would he show you his cards?

Most investors are not ready to wait that long...and Eddie is slowly stealing the company away from investors a la Michael Dell but in a more subtle way. He knows you can't hold you breath.

If you make the determination you can hold your breath for that long, by all mean, jump in the pool.

 Written by Michael Bigger. Follow me on Twitter and StockTwits.

On Being Bold

A lot has been said about J C Penney ($JCP) stock prices in the past few days. In a world of near perfect and free information consummer brands have no choices but being bold. Else, you die. 

I find $JCP fascinating because of its boldness. It might have a chance and I am monitoring.

The non-bold consummer brands are .......

Written by Michael Bigger. Follow me on Twitter and StockTwits.

American Apparel...I Don't Care

No,,,I don't care about the stock price ($APP). I don't care about what it does in the next five minutes or ten or a week or a few months. I don't care one bit.

If you care about the price, I am the wrong person to ask.

I care about the business. The yardstick is the business. I care how about they are eliminating the backroom in most store and increasing selling space by about thirty percent. I care about the new distribution center and how that will improve operation and margin. I care about some stores comping at ninety percent in Asia. I care about EBITDA margin reaching up to twenty percent.

I care about the business. Other than that I don't care.

If you want to talk about the essence of the business, I am willing to spend the whole day talking about it.

Written by Michael Bigger. Follow me on Twitter and StockTwits.

Amancio Ortega

Fortune published a piece about Amancio Ortega back in January of 2013. Ortega is the Founder of Zara and Inditex. Anyone interested in investing in apparel brands must read this article. You can access the piece right here. Enjoy!

Written by Michael Bigger. Follow me on Twitter and StockTwits.

Never Obvious

It was not obvious to:

• Buy Amazon.Com (AMZN) during the Amazon.Toast era of 2001.
• Buy Priceline.Com (PCLN) when Jay Walker left the company and sold his stocks.
• Buy Netflix (NFLX) during the Blockbuster Total Access assault.
• Buy Mcdonald's (MCD) in the low teens in 2003 after a slide from the mid forties.

It is never easy because the mind is focused on the vivid -The Fallacy of Vividness - and not on what is not changing. What is not changing with these companies is that the customers keep coming back.

Written by Michael Bigger. Follow me on Twitter and StockTwits.

Why I Added to My Groupon Position

I just added to my small Groupon position after Groupon announced that Andrew Mason has been removed from his CEO position (Letter to employees: https://www.jottit.com/v5wux/ ).

What I have learned since the vicious tech bear market of 2000 and 2001 is that buying leading Internet brands when they fall hard on their behinds has worked very well for me. I have made a lot of money with Amazon (AMZN), Priceline(PCLN), eBay(EBAY), Netflix ($NFLX), and Expedia (EXPE).

The buzz surrounding Groupon today sounds similar to the Amazon.Bomb ... Amazon.Con discussions of 2001. Jeff Bezos discusses this in this video:

 It is easy to hate Groupon right now. Anyone liking the company? 

 Written by Michael Bigger. Follow me on Twitter and StockTwits.

Emotional Connection with Customers

Eric Beder of Brean Capital wrote an interesting research report about American Apparel (APP). What caught my attention is his observation that despite the company almost collapsing in 2009-2010, its customers have never abandonned the company. He describes them as fanatically loyal and he labels the company one of the strongest brands in the consummer space.

The company has a strong emotional connection with its customers.

Now, let's look at Sears (SHLD) and JC Penney (JCP). Where are the fanatics? Nuf said.

Written by Michael Bigger. Follow me on Twitter and StockTwits.

More Insights about Distressed Apparel Companies

Oscar Schafer, in this Barron's roundtable column, makes an interesting argument for Quicksilver the surfing and action sports apparel company. As a distressed investor, I bookmarked the following insights for future reference:

• Global apparel brands with an authentic and rich heritage are very valuable. In a world of free and perfect information they are harder to build since it is becoming increasingly hard to gain potential customers attention.
• The valuation needle can move to 10 to 15 times EBITDA for go private transactions.
• These brands get in trouble when they lever up too much for acquisitions or other expansion gambles.  High levels of debt can be very risky.
• The recovery catalyst for these situations revolves around a commitment  trimming the cost structure to allow operating earnings to reduce the debt load and interest expenses.

Our biggest position in distressed apparel is American Apparel (APP). We believe that when APP returns to optimal health, which should happen within two to three years, the company will generate 15% to 20% of sales in EBITDA at full capacity. At $800 million in revenues, the company could generate $120 million of EBITDA at a minimum. 

How much is that worth?

Investing in distressed situations is very risky.  Please do your own due dilligence prior to investing. We are long American Apparel and realize the odds of the company going bankrupt are still quite high.

Written by Michael Bigger. Follow me on Twitter and StockTwits.

This Insight Made Billionaires

I found this interesting Pier Import ($PIR) article in Forbes magazine. The article highlights an interesting situation by which a distressed company start seeing his business getting much better while the stock prices is trading under the assumption of the worst case scenario. 

 

In November 2003, Pier 1's stock was trading above $25.  However, the housing crisis took a huge toll on sales and profitability.  By early 2009, $PIR dropped to just $0.10 and was in danger of delisting from the NYSE. Alex Smith, CEO of $PIR said this about this situation:

 

“The outside world couldn’t see it, but our business was getting stronger”

 

He was right.  Yesterday the stock closed at $21.85.

   

Trading large-caps can make you a few bucks, but finding deep value is where the big money is.  Anyone that can uncover situations like $PIR in 2009 can become a billionaire. People will pay you a lot for the ability to choose great deep value investments. I know I would. Wouldn't you?

 

Here are two more data points showing American Apparel's management confidence in the current state of the business. This is why I think American Apparel could be the next successful distressed situation:

 

American Apparel New Shiny Wharehouse

 

Investing in distressed situations is very risky.  Please do your own due dilligence prior to investing. We are long American Apparel and realize the odds of the company going bankrupt are still quite high.

Written by Michael Bigger. Follow me on Twitter and StockTwits.

Tablets to Fuel eBay and Amazon Marketplaces

ABI Research estimates that tablet shipments will reach 145 million in 2013. Since tablets can easily be re-set to factory default, packed and are cheap to ship, one would expect the trading in used tablets to explode in the next few years as users trade in the old for the new.

Assuming that the 2013 crop of tablets will change hand one time in their life at $100, the gross merchandise value (GMV) generated by this activity is $14.5 billion. That is only for a one year crop.

The beneficiaries of this trading activities are eBay ($EBAY) and Amazon.com ($AMZN) marketplaces. That is only one of the millions of products they both sell.

By my calculations that could mean 3-5% additional revenues with fat margin for EBAY and AMZN just from this one product. No wonder they are rocketing to all time highs. What do you think?

Written by Michael Bigger. Follow me on Twitter and StockTwits.