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Strategies & Market Trends : The Rational Analyst -- Ignore unavailable to you. Want to Upgrade?

To: Scott H. Davis who wrote (1648)	8/27/1999 3:16:00 PM
From: HeyRainier	Respond to of 1720

<<...But in practice, when a stock sells off prime time, yet the business case is sound, how many of ya'll actually re-acquire the stock as the trend reverses, or do you mentally have long since shifted elsewhere? Please let me know your experiences, and hints as to when to re-acquire a sound, unreasonably downnbeaten stock.>> Hi Scott, If I have determined that the business strength is credible and remains strong, the downturn temporary, and the management credible (this is a recent, ever-so-important feature), then yes, I will seek to acquire the issue upon improvements in technical behavior for the issue. By strong business, I mean how the company continually rates relative to Michael Porter's "Five Forces" of competitive strategy. If the key competitive advantage points remain intact, then the case is more compelling for a reacquisition of the issue. Starbuck's seems to be a good example here. On an absolute basis, the valuation might scare others off, but on a relative basis, you're getting it at a P/E floor of about 40--the average historic low for each of the last 5 years. Many, many technical indicators I used gave bottoming signals around $20, and I was encouraged (somewhat ironically) by the word that some less-than-astute writers from TheStreet.com were recommending shorting the issue to $19. Such statements like that are probably equivalent to a high put/call ratio on the issue. Overall, I took the contrarian approach when the issue justified it. SBUX ranks fairly well with regard to Porter's forces. However, In most cases, the declines are very justified, but the problems with SBUX came more from perception distortions rather than from critical operating weaknesses. But overall, I would not have acted so aggressively if the technical behavior did not show signs of a potential reversal. Mentally, do I shift away? Sometimes, but only when other opportunities are ripe for the picking. But after the play, it's probably back to the core focus issue. As for Q, it is a perennial piece of poop. I was not extremely impressed with my business lunch with EVP F. Munoz. He was extremely vague on issues that should have been clearly outlined. To me, it signaled (1) an unwillingness to elucidate critical information (i.e. future e-commerce initiatives and how they will get it done) to important shareholder contacts, and (2) uncertainty on matters of execution. I scaled out of 60% of my position after that lunch, and it has turned out to be one of the best investments in a lunch I have ever made. Long term, I will hold the core position I still own. I have made it a point to never again (knock on wood) keep a significant holding in an issue once the trend did not go my way. And that's what happened a few weeks back. Despite all the hurrahs about the company's potential, I will not take the layman's vote over the market's vote, and in this case, the market has proven correct again. I question the management's credibility on forecasting issues, as well as on execution issues. My silence on Q has perhaps been one of the best signals of my perception of the company. Looking forward to next year, earnings in the high teens to low twenties (pennies per share, that is) may be possible, but that would tend to be more conservative relative to the bull-tinted projections laid out in the past by others. I don't put too much faith in this issue any longer, but the prospects remain interesting. But I certainly would enjoy being proven wrong on the way up. --Rainier