Chris, I may have been too restrictive in my response. I do occasionally buy puts on cos that are just flat-out overpriced, but I make sure they are a minority of my portfolio.
The ones I like right now where I expect disaster to hit soon are: 1. Micron (duh!)
2. Hilton
3. Electronic Arts (yes, I bought it 21 points ago and sold it 9 points ago. Good co., but seasonal and wayyyy overpriced at nearly 40 times. I also have a long Midway/short ERTS paired trade in my income portfolios.)
4. Gateway. Better after the Dell report, but I don't want to be without a third because this one could go belly up any minute.
5. Chaste Manhattan. Despite the silly mania for financials, this one has done poorly. Not so much that I am printing money on the puts, but I am slightly ahead. I consider that a victory after the Citi/Travellers insanity. Chase has always been a crummy bank. Texas Commerce has always been a crummy bank. Chemical has always been o.k., but on a smaller scale. I don't see any synergy here.
6. IBM. Phony accounting, stock buybacks, replacing equity with debt. All of these dirty tricks have hidden the real weakness at the largest computer maker. I think a desperate but cash-rich Compaq takng aim at some of IBM's cash cows is not good news longer term. Hitachi has already taken a big bite out of the mainframe business by building a better box. Y2K will help the service business, but it makes Beamer look pretty dumb in all its other businesses.
7. Novellus. Should be a layup if anyone cares about fundamentals.
Overpriced but no pratfall visible:
1. McCafee. Does the phone co. make the obscene calls so you will pay for an unlisted # and buy caller I.D.? Who actually puts viruses into boxes? Security is the game here and I don't trust them a lick. Good co., but overpriced.
2. Microsoft. I haven't talked much about this one because I haven't and still don't want anyone to follow me on it. I consider MSFT a Don Quixote quest and it may be a fool's quest. I just don't see how the market can keep falling for their tricks. A 20% growth rate, and that was adjusted up, which caused a rise in the stock price, no dividend, a pe ratio of 62, Justice Dept. probe, no technology to speak of, nothing new that looks the least bit interesting and a scary slowdown in pc sales has to eventually take its toll on this overpriced monopoly. Will they be able to lowball eps and then "beat expectations" forever without anyone catching on that this trick is hiding a real slowdown? Maybe. But my feeling is that when the crash comes in this one, it has so far to fall, that I'm willing to be there or be square. But I only recommend it if you have a discipline that saves you from many lousy expirations.
Dell will probably be on this list after their next report. Mikey is talking too brashly for there to be a downside surprise this time. But I don't think they are immune to the pc slowdown. MB |
