Blogging American Apparel

We wrote our first post about American Apparel ($APP) on May 6, 2011. We view blogging as embracing entropy. By this I mean, the activity is more like throwing a handful of seeds in the air and see what takes hold overtime. When we go into it we have no assumption about what is about to take place. We have no clue really, but we embrace the pursuit of throwing seeds in the air. You just never know.

I often push the exercise further by reminding our trading group that we know nothing as a group and in order to discover profitable ideas we start with experimentation with no pre-conceived notion about the situation at hand. That is the upside of studying Physics -- Learning you know nothing very fast.

We just don't know, like we didn't know what would happen with the American Apparel series of posts. But yesterday, I got rewarded handsomely for all the hard work we put into the American Apparel ($APP) situation. 

I was approached by an analyst at a firm that has a significant position in the name. I can't say more than this about who it is. He wanted to talk to us about American Apparel ($APP) after he read all our material on the company.

Our conversation was one of the most enlightening conversation I have had in ages. He knows the company inside out and it showed he had put a lot of work into it. Actually, much more than we did. You see, I don't get turned on about how stock prices move or how a chart looks like or what have you. I crave talking about the business, the customers, the products, the strategy, and so forth.

I like talking about its valuation and how big can this company be in 10 year, 20 years down the road. I like to mentally imagine the trajectory of the business at very long time scale.

Yesterday, I was like a kid in a candy store. I could have talked about the business for days. I could have listened to this analyst talk about the business for days. It was that exciting. Having this type of conversation helps me validate my investment ideas and get confidence to go in big when it makes sense.

All the blogging we do helps us connect with other individuals.  Sometimes it takes a while to get the reward for the work, but it is usually worth it.

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

Blackberry: The Good, The Bad, and the Shift in Momentum

If we can agree on one thing related to BBRY, it is that everyone has an opinion.  There are a lot of topics keeping the bulls and bears talking.  

The good: 

• Shift in focus to the secure email and enterprise security, through internal growth and potentially acquisitions.
• Dividing the company into operating units: Enterprise Services, Messaging, QNX Embedded, and Devices.  This allows each unit to grow the business independently and sets up the possibility to spin off one or more units if a good opportunity arrises.
• New CEO has a proven track record for turnarounds.
• The company now has $3Bn in cash on the balance sheet plus access to an undrawn credit facility of about $250mm.
• New head of Devices business hired from Sony/Ericsson.
• The new convert provided $1Bn in additional liquidity at 6% interest with a conversion price of $10.  The investor has until Jan 13 to exercise an option to purchase an additional $250mm of the convert.  Note that the option was extended from mid-December (that should go under the bad).
• The convert was issued to Fairfax in lieu of an original plan to buy the company for $9 / share.

The bad:

• Co-founder Michael Lazaridis just sold his position down to <5%
• Just announced an asset impairment of $2.7Bn and a reduction in inventory value of [?], primarily B10 devices.  Additional inventory writedowns are possible.

• Revenues continue to decline across operating units.

To evaluate an investment in $BBRY, these factors are all irrelevant.  They are all in the past.  All this information is priced into the stock.  In fact, a lot of the bad news was priced in ahead of the earnings announcement so that the actual announcement produced a positive spike in the stock.    

The critical question is, what (if anything) will be the catalyst for a stock price recovery?  Some investors hope that is the Foxconn deal.  The partnership will help avoid some of the inventory risk issues BBRY is currently dealing with, which is a positive for the company.  In addition, the deal allows BBRY to focus on other areas of the company where it has a competitive advantage, such as secure email and messaging.  The catalyst could be a change in attitude about the stock due to the CEO and the new deal.  Positive news improves the company's image which can come around to improve revenues and results.  We can't be sure what the catalyst will be at this point.  One thing is for sure, it feels like there is a lot of strength in the stock since the announcement. 

On this name in particular, there is a good amount of upside if the company is able to turn around its image and deal with the many issues around mostly the hardware.  The stock could double to the $15 range.  There is also a good amount of risk to the downside if they are unable to succeed with the turnaround plan.  It feels like a binary situation where either (a) they are able to turn around and the stock doubles (or more), or (b) they can’t turn things around and the stock price plummets.  Given all the hype, there is likely to be a lot of volatility.  In these types of situations, I think options offer the best value proposition.  I am long the Jan ‘15 $7 calls.

How are you playing Blackberry?  

Written by Jennifer Galperin.  Follow me on Twitter and StockTwits. 

Physics - Note to Self

The most important thing I learned studying Physics at University is that I know nothing and therefore I gotta experiment.

Plug Power Cracks the Hydrogen Code

Bruno Forget of Air Liquide gave one of the most insightful presentation at the Plug Power ($PLUG) Analyst Conference held on December 4th in Albany, NY.

He described the fuell cell hydrogen business as being a research experiment for most of the nineties until about 2009. Back then, there was no commercial opportunities to extend a single project into a viable recurring commercial opportunity.

He proclaimed that it was Plug Power that cracked the commercial fuel cell opportunity when it won a deal to implement its Gen-Drive solution at a new Wal-Mart ($WMT) distribution center in Canada.

Then he said:

$WMT is about data and return on investment. It measures everything.

Forget knew then that this was a big deal that was about to change the whole business dynamics. He was so excited about it that he thought that Air Liquide should invest in this company. He got rejected from the get-go. Air Liquide is a big company. It does not move that quickly.

$WMT added the $PLUG solution to an existing facility in Balzac, Ontario. It replaced its existing lead battery solution with $PLUG's GenDrive solution.

Then $PLUG proceeded to win more $WMT distribution centers business in the USA. Then it won a bunch of business from the like of Kroger ($KR), FedEx ($FDX), BMW, Mercedes Benz and so forth. You can find the more comprehensive list here. Forget grew more excited than ever and he kept on pushing.

That lead Forget to conclude: 

 $PLUG IS THE LEADING HYDROGEN SYSTEM INTEGRATOR IN THE WORLD. NO ONE COMES CLOSE

That is when I almost fell of my chair listening to Forget.

Now you know why Air Liquide decided to invest when the company faced liquidity issues in early 2013, after a botched financing attempt during which shortsellers front ran the stock.

Consider this: Who will get a big chunk of this $20 billion opportunity in the USA alone? That is just forklift and it does not include all the adjacent markets....tuggers, TRUS, range extenders, and so forth.

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

Disclaimer: Bigger Capital, LLC, Bigger Capital Fund, LP, Bachelier, LLC and the Bigger family hold millions of shares of Plug Power. We intend to increase our position if the company's results track our benchmark.

Plug Power is a highly distressed situation and it is not suitable for the majority of investors. The likely outcome of an investment is a loss of principal. 

Note to Self - Insights

Focus on the rare and massive insights (Information Entropy). Everything else is noise (Noise).

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

Plug Power Conference Call - The Breakout Picture

On November 14, Plug Power (PLUG) reported its Q3 results and held its Q3 2013 earnings call. Andy Marsh, PLUG's CEO, surprised Wall Street by announcing $14 million of new booking since October 8. I want to point out the major insights I uncovered while reading the release and listening to the call.

• The big driver for the increase in booking was an order from Kroger for 201 GenDrive units with a service component attached to it. If we assume two third of the booking since October 8 is from this order than Kroger did a $9 million deal with PLUG. That works to about $46,000 per Gen-Drive unit. We know that on average a Gen-Drive unit costs about $16,000. Service becomes a very large portion of this contract. This bodes well for PLUG, because the service addition gives us confidence that PLUG is in a position to see revenues swell above the break even mark of about $55 million in 2014. In addition, this is the second Kroger distribution center win for PLUG. Kroger is sold on the PLUG solution and there is no reason why PLUG can't win a significant chunk of all of its 34 distribution centers conversion if Kroger decide to go all in. The total Kroger Distribution Center opportunity is about $300 million recurring over a 5 to 6 years period. If you doubt the importance of fuel cells for Kroger check out page 43 of the Kroger Factbook.
• Bridgestone was the second customer of PLUG Power Gen Drive solution. They have used Gen Drive for over 6 years in their automated ground vehicles (AGV). These units run 24/7 and can lift up to 40,000 pounds for 21-plus hours a day. They have decided to renew this fleet with a Gen-Drive solution. This is another testimony of the superiority of the PLUG solution. This is something PLUG can bring on the road to win more contracts and win new customers.
• Marsh said: I'm expecting a blowout number of orders in the fourth quarter as we start to close some of these multi-site deals and gain new customers win. When Philip Shen of Roth Capital asked: You've already had a really nice Q4 for booking. How much better can it get? Marsh responded:It easily could be 2 to 3 times higher. Shen exlcaimed: WOW!

On December 4th, PLUG will hold an Analyst meeting in Latham, NY to update analysts on these deals and new customers wins. I will be attending the meeting and can't wait to give you an update.

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

Disclaimer: Bigger Capital, LLC, Bigger Capital Fund, LP, Bachelier, LLC and the Bigger family hold millions of shares of Plug Power. We intend to increase our position if the company's results track our benchmark.

Plug Power is a highly distressed situation and it is not suitable for the majority of investors. The likely outcome of an investment is a loss of principal. 

Icing on the Cake

Today's news on PLUG highlights the feasibility of additional uses for hydrogen powered fuel cells.  PLUG's core business, forklifts, is enough to bring the company to profitability next year, assuming they meet revenue targets.  Any additional applications, such as powering refrigeration units for cold transportation, are in our opinion icing on the cake.  And there are plenty of potential applications such as this with existing PLUG customers.  With enough icing, this cake could turn into a beautiful tiered wedding cake.

PLUG earnings are scheduled to be announced tomorrow morning.  I will be listening to the conference call at 10am.  Will you?

Written by Jennifer Galperin.  Follow me on Twitter and StockTwits.

Fuel Cell Showcase - New York

American Apparel Memorandum

MEMORANDUM 

To:   Board of Directors of American Apparel, Inc.

From: Michael Bigger, CEO of Bigger Capital, LLC, Cold Spring Harbor, NY  11724

Attn: Glenn A. Weinman, Executive Vice President, General Counsel and Secretary

747 Warehouse Street, Los Angeles, CA  90021

Distr:    Dov Charney, Alberto Chehebar, David Danziger, Robert Greene, Marvin Igelman, Allan Mayer, and William Mauer

As a significant holder of American Apparel shares, I want to take this opportunity to remind the Board of American Apparel of its fiduciary duty towards all the shareholders of American Apparel.

Given the recent setbacks experienced by the company as evidenced by the October 10 press release, Bigger Capital strongly opposes any action by the Board to extend the maturity of the Charney Anti-Dilution Provision as it did in 2013.

The current stock price represents an opportunity for Mr. Charney to make open market purchases with his own money in order to negate the dilution created by the funds that were raised in 2011, should he so desire.

Kind Regards,

Michael Bigger

CEO, Bigger Capital, LLC

I Left 20 Million on this Table

 Here is a picture of the buys I executed on Priceline ($PCLN) starting in 2001.

 

The stock reverse split 6 to 1 in June of 2003. I spent about $300,000 to buy the equivalent of 20,000 shares post-split ($15 per share). I sold the stock in the 40s. 

 

If you ever wonder why I sit on my positions for a very long time now you know. If you have the ability to get yourself involved with securites that have tons of potential, by all mean, just sit on your ass and do nothing. 

 

And please, don't weep for me, I did very very well in other Internet stocks that I bought during the same bear market and that I am still holding.

 

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