Welcome to this week’s PTT Insider. It was a big week for a couple of our picks, but an even bigger week for PTT Research. Friday marked the launch date of our first-ever subscription product: The PTT Research Newsletter. Subscribers flooded our website all weekend. This caused some issues, but we got through it and were absolutely blown away by the response.
As a reminder, the PTT Insider will remain a free newsletter. However, our next pick to triple will only be delivered to subscribers of the PTT Research Newsletter, so take advantage of discounts and sign up today!
Looking at our picks, this week’s big winners actually came from betting against a couple of troubled companies.
The first pick was Coronado Biosciences (CNDO). I wrote about them on July 22 when the stock was $8. I wasn’t sure it was going to drop, but thought it was a good bet. On Monday morning, its experimental Crohn’s disease treatment (which used eggs from parasitic worms found in pigs) failed in a clinical trial. The news sent the shares plummeting to $1.91, generating a 75% profit for investors who were short the stock.
The second pick was made by my good friend and PTT Research analyst, Josh Burwick. On March 13, he wrote a negative article about Teradata (TDC) and how Amazon’s (AMZN) Big Data efforts were going to put a dent in their business. At the time, the stock was $58.50.
On Monday evening, TDC preannounced negative Q3 results. This sent the shares down to 46.50 in Monday’s after-hours session. That’s a $12 drop from Josh’s initial price, good for a 20%+ profit for those who shorted the stock.
As you can imagine, I’m a big believer in shorting overvalued stocks. If you’re a paying subscriber of PTT Research, stay tuned. We’ll do a video lesson discussing this topic in the weeks ahead. The #1 thing to know about shorts is that good one will make you money when they go down…AND they protect your portfolio from losses when the market is falling (because they usually fall with the market)!
In 2000-2001, shorting stocks is the main reason why I was up 131%, while the market fell 52%. If two people had a million-dollar portfolio at the beginning of 2000, one would have finished 2001 with $480,000 and the other would have finished with $2.31 million.
In 2007-2008, shorting was the reason I was up 45% while the market fell 35%. The same million-dollar portfolios would have finished 2008 with $650,000 and $1.45 million respectively. However, it is more likely that one of the million dollar portfolios dropped to $480,000 in 2000-2001 (as stated above) and dropped further to $312,000 in 2007-2008. Meanwhile, the other went from $1 million to $2.31 million to $3.35 million.
That’s a ten-fold difference…and a big reason why you should learn about shorts.
At PTT Research, we’re gearing up to unveil our latest pick to triple. However, we’re also preparing to introduce you to one of my favorite short analysts. In both cases, only subscribers to our new service will be in on the action, so check it out and stay tuned!
THIS WEEK PTT RESEARCH SUBSCRIBERS WILL RECEIVE:
- A PTT Trade Alert!
- An actionable technical analysis of a PTT Portfolio position
- A stock update that is showing “bullish” technical signals
PTT Research subscribers are scheduled to receive PTT’s Next Pick To Triple on Thursday, October 24. Subscribe today to receive 5% off your subscription (offer expires 11:59pm CST on Friday, October 18).
Here’s another example of a solid thesis. We don’t cover automotive stocks, but our reader did a good job of framing his idea:
Geely Automobile looks to me an interesting candidate for Poised To Triple for one main reason: it has a nice growth story, which is far from valued by the stock market. The story is quite similar to the one of Great Wall Motors in China (another Chinese auto manufacturer, specializing in SUVs). The market has rewarded Great Wall’s growth with a share price which has been multiplied by 10 since the end of 2009, while the share price of Geely has been merely stable since 2009/2010.
Great Wall has now a market cap of around $22.6B versus $4.7B for Geely.
Looking at the last 4+ years, both companies have a clear growth profile both for top line and margins. Great Wall is supported by one obvious element: the strong (and regular) growth of the SUV segment in China. Geely’s growth has been more broad-based:
- supported both by its sales in China and overseas (Great Wall is now struggling overseas after some quality problems last year),
- its success overseas is quite unique for a Chinese automaker with a 26 % volume growth for H1 2013, after growing 100 % in 2012, (export sales now represent 19 % of sales and the company targets 50 %),
- in China, their growth is driven in the short term by several elements (market improvement, but also ability to build a brand which allow them to increase average prices by 11% during H1 2013, in particular by launching SUVs this year). One reason why some investors remain skeptical about Geely: the high level of subsidies they receive from the government. These subsidies represented 35% of its net result during H1 2013. I don’t think it’s a major problem for 3 main reasons:
- others did the same in the past (ex.Hyundai Motors),
- these subsidies are progressively removed and do not prevent the company from improving profits: during H1 2013, their profit before tax increased by 37%, despite a 24% decrease in subsidies.
- without these subsidies, Geely has already reached operating margins of 8.7%.
Geely is managed for the long term, with a clear focus on quality, which enable the company to build a brand and progressively increase its average prices (by decreasing the discount versus foreign competitors). The great success of Great Wall shows the potential (both for earnings and valuation) for a successful Chinese auto maker. Geely’s growth potential is not reflected in its share price. Overall, I think that Geely’s share price has the potential to double.
Do you have a pick to triple? If it’s relatively undiscovered and involved in Information Technology, Internet, Fashion, or Consumer Trends (and has at least $10 million in annual revenue), send it in to firstname.lastname@example.org. If it meets the criteria we just described, we’ll take a look (if not, we’ll just hit delete!).
If we like your pick, you’ll hear from us…and your pick may be the next addition to the Poised To Triple Portfolio!
Poised To Triple is a property of PTT Capital, LLC. This information is confidential and for the information of the addressee only, and may not be reproduced, in whole or in part, copies made or circulated, or disclosed by the addressee to another party, without the prior written consent of PTT Capital, LLC. Information and opinions presented herein has been compiled from sources believed to be reliable, but PTT Capital, LLC makes no representation at their accuracy or completeness. This communication reflects PTT Capital, LLC’s opinion as to the securities mentioned herein, but is neither an offer to sell nor a solicitation to buy them. Copyright 2013 PTT Capital, LLC. All rights reserved.
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PTTResearch.com, PoisedToTriple.com, PTTAlpha.com and The PTT Insider are property of PTT Capital, LLC. This information is confidential and for the information of the addressee only, and may not be reproduced, in whole or in part, copies made or circulated, or disclosed by the addressee to another party, without the prior written consent of PTT Capital, LLC. Our content should not be consumed without reviewing our latest Methodology, which discloses our investment philosophy and trading practices. Mark Gomes' Methodology is subject to updating, but publicly available at PoisedToTriple.com or upon written request. Information and opinions presented herein has been compiled from sources believed to be reliable, but PTT Capital, LLC makes no representation at their accuracy or completeness. This communication reflects PTT Capital, LLC’s opinion as to the securities mentioned herein, but is neither an offer to sell nor a solicitation to buy them. Copyright 2015 PTT Capital, LLC. All rights reserved. Past performance does not indicate or guarantee future results.