LULU (part 2)

http://stocks.us.reuters.com/stocks/estimates.asp?symbol=LULU.O&WTmodLOC=L2-LeftNav-23-Estimates

I would have posted this as a comment but sometimes links are not clickable in comments.
They've blown away estimates, they are increasing guidance, and analysts are increasing estimates. This is called multiple expansion. When do we take a vote?

Growth investing 101: LULU

Growth investing is all about beating estimates (one could say that's all there is to investing). In retail, valuations are not measured as PE but in Same-Store-Sales (SSS) growth. Here's why:
http://www.fool.com/research/2000/foolsden000627.htm

Consider the recent SSS of these (one time growth) retailers:
WMT: 2.4%
TGT: 3.3%
SBUX: 6%
THI: 7.9%

LULU: 25% (latest Q results)
And today increased estimates to 35% SSS growth!

http://www.reuters.com/article/companyNewsAndPR/idUSWNAS642620071016

And the stock shot up 6.3%. Time is of the essence in growth investing; navel gazing is not recommended. You had to get in on WMT, SBUX, THI, and GAP when the SSS were high, not when the earning started materialising. That's too late.
Women will pay $100+ for pants that make their ass look good, and I am more than happy to profit from their vanity/insecurity :)
They have a big US and Intl expansion plans, and we know american women need as much help with their butts than ever before. So I feel this is one of the safer growth stories I've seen and I'm calling for a vote. Otherwise, I want to buy in my personal account.

LLL

I just saw this on the Globe website:

BMO starts LULU at 'market perform'
Leonard Zehr, today at 10:32 AM EDT

Post the first comment Back to the blog
Still in La La Land is lululemon athletica inc., with the stock trading at 80 times forward price/earnings, which along with the enterprise value-to-EBITDA, are the highest relative to its North American athletic apparel peers.
BMO Nesbitt Burns analyst Adam Clark voices an opinion being heard in more step-classes, specifically that the market is “looking well past the next couple of years and paying for many years of continued high growth.”
He began coverage of the stock at "market perform,” saying that under a base-case discounted cash flow analysis, he figures the stock is worth $29.54 (U.S.), well below current levels, while under an aggressive scenario, the value rises to $48.48.
On the Nasdaq Wednesday morning, lululemon has eased 1.4 per cent to $49.35, which is slightly above his aggressive numbers crunching.
While the stock could be doing deep-knee bends on any dip in the growth line, he suggests the company should be able to maintain a premium valuation, “given the momentum in its operations and the high probability of positive news to come out of the company over the next three-to-six months.”

Dogs of the Banks strategy

Specifically, I'd like to implement the Dogs of the Oligopolistic Canadian Banks strategy. I think it's well known: at some regular periods in time (say 1 year), buy the 2 cheapest banks based on past returns, dividend yield, etc. Then reassess next year. Due to the Oligopolistic nature of the 5 banks, their profit growths are virtually guaranteed. The only downside is those little dividends they distribute, which could cause some tax inconveniences.

Emerging Markets

Friends,

I often use a top-down approach to choose my investments: selecting a sector or region first, and then choosing particular stocks or funds. In that regard, in this post I am proposing to invest a portion of our portfolio in emerging economies.

The following reasons can be considered for this proposal:
• The downside is large: emerging markets are highly volatile; and even worse they may be a bubble that may burst at any moment. But we should not focus only on the downside. The upside is large too: emerging markets have been outperforming the developed ones in the past few years, and it is likely that they continue growing in future. So it should be considered as an investment with high risk and high potential reward.
• Exposure to the emerging markets can help diversify our portfolio. The Canadian market is less than 3% of the word financial market and the US economy is slowing down. But the emerging markets (and the emerging economies) are taking a larger share of the world’s market. For instance, exposure to emerging markets helped Eddie’s and my portfolio recover swiftly during the recent/current financial crisis (would be more difficult without such diversification).
• Underlying economies are healthy. In fact they are often referred to as engines of the world economy; and that they should/may help the US and the rest of the developed economies go though the slow down and avoid a deep recession. “IMF figures show that Asia, not America, has been the main driver of global demand, powering the world economy through its fastest five-year period of growth since the early 1970s.”
• Decoupling! I agree that decoupling may not make sense in the current integrated world (perhaps it is a bad term). But emerging countries are becoming “less” dependent on the US. The percentage of export to the US is decreasing, as trade and “demand” within the emerging countries (e.g. in Asia) increases. “China's exports to America have fallen from 34% of its total exports in 1999 to 25% now”.
• Bubble factor: I am not in a position to judge whether the market in Asia is a bubble or not. But if it is a bubble, it may still continue to grow for years before it bursts. There are many documents arguing that the situation is China for example is still far from what we had in dot com bubble. “The NASDAQ composite index saw a gain of more than 500% from 1995 to early 2000. Japan's Nikkei 225 jumped by 300% from 1984 to 1989. The Shanghai A-share index, having recovered most of its plunge in late May, shows a gain of about only 160% over the past five years. Moreover, Chinese A-shares now have an average price-earnings (p/e) ratio of around 45. At their peaks, the average p/e ratio of the Nikkei 225 in 1989 and the NASDAQ at the start of 2000 were both well over 100.”

Perhaps none of the above is new for any of you. So just consider them as a “collection” of the available arguments in support of investing in emerging markets. I also know that for any of these arguments there are counter arguments. So the decision is up to you. If there is enough interest we can continue discussing the available alternatives, and details. If not we can simply pursue other investment options.

Links to supporting documents:
• America drops, Asia shops: Thanks to the vigour of Asia's consumers, it is a good time for the American economy to slow. http://www.economist.com/opinion/displaystory.cfm?story_id=8057575
• The alternative engine: A sharp slowdown in the American economy could be offset by the growing and largely unrecognised power of Asia's consumers. http://www.economist.com/opinion/displaystory.cfm?story_id=8049652
• The boiling point: How does China's bubble compare with previous financial manias? http://www.economist.com/finance/displaystory.cfm?story_id=9370662
• The great wall of money: China's economy may be less vulnerable to a bursting of the stockmarket bubble than it appears. http://www.economist.com/finance/economicsfocus/PrinterFriendly.cfm?story_id=9225696
• If an economic bubble bursts in China, will anyone notice? http://www.globeinvestor.com/servlet/story/RTGAM.20071024.wibasia24/GIStory/

An article from globeandmail.com

Ed (edkim98@gmail.com) thought you would be interested in the following article from globeandmail.com, Canada's leading source for online news:

"Loonie could swoon next year, EDC says"
Predicts the Canadian dollar could fall as low as 85 cents next year on lower commodity prices; export situation to deteriorate
<http://www.theglobeandmail.com/servlet/story/RTGAM.20071030.wedc1030/EmailBNStory/robNews/home>

Note from Ed: Hi all,
I just wanted to see if could post a blog by sending an email.
We all know currency predictions are a-dime-a-dozen, but I like the explanation in this article.

Ed

+----------------------------------------------------------------------+
Get the news delivered to your inbox. Sign up for our daily News Update:
<http://www.globeandmail.com/newsletter/>

testing email post function

This is a test post to see if the email post function works.

 

The following is a link to the Department of Energy chart of monthly Ng pricesfrom 1997 to 2007.

 

http://tonto.eia.doe.gov/dnav/ng/hist/n9102us3m.htm

 

Des

Profiting from Government Intervention

You can always blame governments for screwing things up, but could there be a silver lining in Alberta's recently announced royalty grab? If anybody has been following the recent debate over increasing the provincial royalty taxes on conventional as well as tar sands production, its me. My portfolio has been highly leveraged towards all aspects of oil and gas, but primarily in North America and mostly in Canadian drillers, service companies, P&Es, and oilsands. So obviously my personal stake in Cdn. holdings have drifted lower (in spite of record oil prices!) over the last 6 months because of this gov't review. Although I don't like it, increasing royalties and changing rules has been a fact of life in many parts of the world and I'm not here to argue that there shouldn't be an increased social benefit to all this development in AB.

Oilsand companies will face higher royalties on a sliding scale with the price of oil, but most oilsands companies' stock prices haven't suffered much as oil has continued to trend higher. The same cannot be said of Ng producers especially mid- and smaller Ng producers including PEY.un, CMT, BVX, and POU. These are just a few Cdn. Ng producers that are trading at cyclical low NAV - based upon discounted proved and probable reserves. I've been selectively buying these and other names over the last year believing we've hit a low only to have one negative after another.

I'm not losing faith in the ones I've held, but after Premier Stelmach announcement yesterday there have been a flurry of announcements from drillers and P&Es that they will cut back on drilling new wells. This lack of investment may spell little growth and even production declines (horrors!) for the companies I own, but it is bullish for the intermediate price of Ng. I believe this is the time to buy the underlying commodity.
For those of you new to the Ng markets, a good primer is here:
http://canada.theoildrum.com/node/3095

The Ng markets are self correcting in a way because as the price gets too low, P&E shut-in wells or stop drilling altogether, and eventually supply goes down and the price rebounds. Ng has always been very cyclical with predictable seasonal variations (up in the winter and summer and down in the shoulder periods). Also those of you that know me, will attest to my peak oil leanings! In fact from my readings, peak gas in N.A. is already past and supply will gradually decline as the oil drum article linked above discusses. The problem in a nutshell is that all the large Ng fields in N.A. have been discovered and now we're going after the smaller pools which by definition are smaller and hence deplete much faster. In fact it's not unheard of to have depletion rates of 25% within the first year in some wells. The number of wells drilled and general investment peaked in 2006 and all this did was to have flat production and arguably a slight decline. If P&Es don't invest anymore production will decline; if they invest even less the decline will be faster. Another primer on Ng http://www.theoildrum.com/node/2157

There are other bullish factors that point to higher Ng prices. There is a rough correlation between oil and Ng prices eventhough oil is a international commodity and Ng is more of a local N.A. one. The energy content of oil compared to that of Ng is about 6:1 in terms of B.T.U.s and it should trade roughly in that range. There are some industrial users that can shift from one fuel to the other depending on price. Recently oil has been around $80 and Ng $6 so either oil has to come down or Ng should go up. Demand has been quite stable in N.A. over the years but one of the largest users of Ng are the oilsands producers as it is very energy intensive to extract bitumen via SAGD (steam assisted gravity drainage) or in the refining of bitumen into syncrude. The total amount of Ng used because of this ramp up in oilsands production may leave very little for export into the U.S.

Luckily I've found an ETF that aims to mimic the two front month contracts for Ng delivery. Its symbol on the Amex if UNG. It has reasonable volume and a market cap now of 438 million. It was launched last spring at $50 and now trades around $40 which is its NAV. Unfortunately its price and NAV doesn't match up with the quoted price for Ng, but you can look up its NAV here:
http://www.etfconnect.com/select/fundpages/etf_funds.asp?MFID=176653

So what are the negatives and why is the price of Ng depressed? There are a number of things:
1. Storage levels are at historical highs.
2. We had a mild winter and normal summer.
3. Risk of rising imports from Liquefied Natural Gas (LNG) tankers.

I believe #1 and #2 will take care of themselves given time. The weather is the weather and there's not much to do about it. #3 will take some years before it makes a real impact on the N.A. market. There are many LNG terminals planned and being built in N.A. and while they may be built, there's no guarantee that they'll have the import volumes. Europe and Asia have been very proactive about signing long term supply contracts with LNG exporters and N.A. hasn't because of its low Ng price environment. Also need I mention the two countries with the largest Ng reserves for potential export are Russia and Iran. (I think Qatar might be in there too)

Sorry for the long post, but overall I think investing in the underlying commodity is the correct play at this time and will remove company specific risk.

Hoping for a cold winter!

Des

What Housing Bubble?

Everyday I read something in the Main Stream Media (MSM) about how the housing market will probably last until 'X' date. There doesn't seem to be a shortage of opinions about what the housing market is doing. My read on this is taken from histories of previous real estate recessions, and if we have anything to learn, its that housing corrections take much longer to grind out than stock market corrections. Maybe not the subprime borrowers, but some people can just live in their homes and wait for a better price!

Here is what the commander and chief had to say just before he was recommended to the chair of the Federal Reserve.
http://www.washingtonpost.com/wp-dyn/content/article/2005/10/26/AR2005102602255.html

The Bubble in China

So now that I've made my first ever blog, I can't stop! :)

I just wanted to post an excerpt from Pete's email, which clearly shows the bubble mentality in China. This kind of info/observations are always fun to look back upon after the crash. :)
Enjoy, Eddie


Being in HK, I feel like the dotcom period. Stocks are going crazy and people watching their porfolio's everyday. We're in the midst of setting up an asset management in China and the stories I hear will make you laugh. For instance, people ( i.e. farmers) choose stocks based on price...so lower the price, the more popular the stock. Also, they have a 10% rule...a stock goes up 10%, they cash out and look for something else.

The HK market is also very speculative based on China allowing funds to be invested into the HK market. The liquidity in China is unreal. I heard a story last week from a friend who works at UBS. During the recent holidays, someone broke into UBS office...when confronted the man revealed he had a whack of cash he wanted to invest...he wanted to open up an account. =)

Old constitution

I think Des's "principles" are in-line with these constitution ideas we had before. I thought I'd post it on the blog, because that's what blogs are for.

Constitution:
1.) All investment and constitution decisions will be made by a democratic vote. a 50%+1 share vote is needed to pass any investmentdecisions.For instance, if at some future time the share ownership is distributed as follows:
Eddie: 26%
Peter: 25%
Des: 25%
Arash: 24%
Eddie and Peter's shares may pass a vote (26+25=51%) but Eddie and Arash (26+24=50%) may not pass a vote. In fact, Arash will always need the support of 2 other partners to pass a vote. Initially, all partners will have equal 25% ownership, so will need3/4 votes to pass decisions.
2.) Minimum Contribution: $2000-5000?? at any time during the calendaryear. Something that will let us get into a new investment ideawithout liquidating our current positions. Also, anything smaller makes accounting a bit tedious.
3.) Maximum Contribution: Unlimited, HOWEVER, the voting shares arecapped at 49.9% of the vote. This is to prevent one partner from making financial decisions "independently". So if one person contributes $50,000 next year, he will have contributed more than 50%of the capital, but cannot control all of the voting decisions.
4.) Withdrawals: There is a minimum holding period of 1 (2??) year.Any withdrawal must be preceded by a notice of at least 2months,stating the amount of withdrawal. The 2months period allows for timelydivestiture of assets such that it will not negatively impact theinvestments of the remaining partners. The remaining partners may elect (vote) to grant the withdrawal at an earlier point than 2months. The voting shares are adjusted at the time of withdrawal.
5.) Votes may be taken by email, txt msg, or con-calls. Due to the timeliness of some investment opportunities, we may need a quick callto get voter approval.
6.) New members may join with the consent of majority vote.

That's a start. Notice, no investing styles or strategies, I believe in democracy.

Welcome to Fulton Associates

Peter, Eddie, Arash,

Welcome to our investment club. I believe this is a first for all of us and I'm looking forward to sharing and debating ideas. I feel younger already - that's what kids these days do right? Blogging and all that. Actually I think blogging is the best way to keep track of investment ideas and other debates. I have partaken in another investing blog here http://www.stokblogs.com/ under the pseudoname beezwax over the past year.

I apologize for not consulting others regarding the name of the investment club. We needed a name for etrade and I just used my street name. I hope this is the beginning of a very successful partnership, but at the very least we'll have some fun. If we manage to make a few bucks, then it will all be worth it, but remember - twenty years from now the money we earn will have long been spent but bragging rights are forever!

I believe the first order of business is to generally agree to some ground rules - an investment club constitution if you will. We had circulated some preliminary rules around last year but we should all agree on the basic tenants before we proceed.

I'll start with these:

1. The first principle is not to lose our principle capital.
2. The purpose of the investment club is to make money.
3. We shall all share in gains/losses of the club in proportion to our share ownership in the club.
4. We shall initially initially start with equal dollar amounts invested so that our share ownership is also equal.
5. There will be no bias as to investment styles, or asset classes.
6. Investment decisions will be made together and will go to a vote if necessary with a simple majority carrying the vote.
7. In general we will not carry out short term trading strategies (i.e. daytrading)
8. Addition of new members to the club require a consensus of existing members ?
9. Initial investment holding period of one year minimum. After one year, any member may request redemption of his shares with written notice of at least 2 months

Feel free to add. The only one I'm unsure about is #8 the addition of new members. What I'd like to protect against is this morphing into something that we didn't intend to, but I'm open to suggestions.

Des