From Herb Greenberg's column today at TheStreet.com (I was thinking of buyng this one and saw your request as I visited this thread)Hope this helps. Regards, Debra
I first heard from Jordan Kimmel, president of Magnet Investing in Red Bank, N.J., back in January. He called to say that McKesson HBOC (MCK:NYSE), then in the high 80s, was headed for a fall. A big fall. He just knew it. He wasn't quite sure what the catalyst would be, but said that based on the fundamentals and his reading of the charts, it just didn't look like the picture of health. I made a few calls and couldn't come up with anything concrete other than a general malaise among health-care companies. What's more, Wall Street loved the stock (which should've been a clue).
And that's a large part of what had attracted Kimmel a few months earlier: Several large brokers had upgraded the stock to a strong buy from a buy. Almost immediately, Kimmel says, "I saw huge blocks, and I knew insiders were dumping." The chairman sold about 100,000 shares. Profit margins were also decreasing, and the company had done enough acquisitions to raise concern by Kimmel of aggressive accounting. The rest is history: McKesson has lost more than half its value amid accounting controversies tied to revenue recognition issues at HBOC.
Then there was the time, shortly after he called on McKesson, that he sent out a warning about Sepracor (SEPR:Nasdaq), the now-fallen biotech giant, which lost its air after Johnson & Johnson (JNJ:NYSE) chose not to exercise its option to co-promote a new version of Sepracor's allergy drug. "It had high debt, extremely decreased revenues, insiders didn't own a share and somehow this stock was going up because of momentum players. As soon as the momentum broke, I went short."
In this biz, it's hard to ignore two good calls over an extended period of time -- especially one as dead-on as McKesson. Like many analysts, Kimmel, a former broker, picks his shorts and longs through old-fashioned computer screening, charts and fundamental research. But it's all in the details, which in Kimmel's case means relying heavily on 16 criteria, including large increases in revs from operations and a stock that is rising at a slower pace than sales. On the short side, he likes to see the reverse of what makes a good long.
Speaking of longs, Kimmel's favorite (as it was when he first mentioned it to me months ago) is 4 Kids Entertainment (KIDE:Nasdaq). The company has licensing rights to World Championship Wrestling memorabilia but is currently making a killing off its worldwide licensing rights to Pokemon -- not the actual Nintendo game but everything else, including trading cards and the Saturday morning TV show. (If you have a 9-year-old son, you know all about Pokemon; mine, armed with packs of the cards, won't leave the house Saturday morning without taping the darn show!) The company is now in final negotiations on Pokemon movie; Kimmel says another movie is in the works. The company has no debt and management owns 50% of the stock. Despite the stock's quintupling this year, Kimmel says he added to his position recently. His reason: "It's a name most people don't know." Not yet.
Herb Greenberg, TheStreet.com 5/26/99
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