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Strategies & Market Trends : Bill Wexler's Profits of DOOM
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To: Bill Wexler who wrote (4257)1/27/1999 7:49:00 PM
From: Bill Wexler  Read Replies (4) of 4634
 
To all concerned about CPU.

I've been receiving a lot of PMs from nervous investors worried about CPU tanking.

Can it go lower? You bet! I have no magic way of picking exact tops and bottoms. If I could, I wouldn't bother picking stocks, I'd simply buy lottery tickets. My buy recommendation of CPU is based on my opinion that the company's problems are not life-threatening and that management has shown a consistent ability to keep reinventing the company as the retailing environment faces new challenges - coupled with their excellent insider buying/selling record.

I felt CPU was cheap at 13 and 14. It is cheaper now and - of course - can continue drifting down. However, nothing has changed my opinion about what will happen to this company longer-term.

I maintain my strong buy recommendation on the stock. If it hits the single digits, I will average down my own position.

If you are terribly nervous then I would recommend selling calls/leaps as a hedge (not really worth it to buy puts at this point). An interesting trade would be to sell the Jan. 2001 25 Leaps (ZWPAE) at around 2. My reasoning is as follows - if the company were sold tomorrow I couldn't see it going for less than 25 a share, in the meantime - should the company stay in the doghouse for another 2 or 3 quarters - the time decay on the leaps would make the waiting a bit more bearable.
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