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Strategies & Market Trends : Classic TA Workplace

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To: Bocor who wrote (43705)	6/27/2002 9:43:52 PM
From: reaper	Read Replies (1) of 209892

<<HMO's also >> the thing i don't like about the HMO's (as a short) is that properly managed (which few of them are) they could be decent businesses. what i look for is asset-intensive businesses that create lots of P&L "earnings" but produce no shareholder value 'cause of the amount of capital required to create those earnings. these companies "grow" by taking on tons of debt. then the sh8t hits the fan for whatever reason and financing is withdrawn, which means they can't grow any more. earnings estimates get cut in half AND multiples get halved, so the stocks go down 75%. in some cases i get lucky enough that the debt precipitates a liquidity crisis and the stock goes all the way to nil (a la ENE or MM). the problem w/ HMOs from my point of view is that they are inherently asset-lite businesses; most of them are very conservatively financed and produce good free cash flow. so you don't have the potential for a balance sheet disaster. i mean, a great example is Oxford. remember how f'd up that company was. but they survived, since they didn't really need that much capital. i want guys who chew up tons of capital every day, 'cause when the punch bowl gets taken away there's nothing left to do but liquidate the business. the good thing about HMOs from a short point of view is that they are notoriously difficult to manage. its damn near impossible to not have your costs get out of control vis-a-vis your revenue at some point. also with the HMOs, they seem to still be responding well to upside surprise. i would like to wait until they stop going up on good earnings. Cheers

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