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Strategies & Market Trends : Z Best Place to Talk Stocks -- Ignore unavailable to you. Want to Upgrade?

To: Larry S. who wrote (22038)	2/2/2000 11:16:00 PM
From: DanZ	Read Replies (1) \| Respond to of 53068

RBK, KSWS, GUMM. Larry, I like the fundamentals of KSWS better than RBK, and therefore, I have a much larger position in KSWS than RBK. I'm treating RBK as a shorter term trade than KSWS because I think that KSWS has more upside potential than RBK with less risk. KSWS has 0% long term debt versus RBK's 73%. KSWS is trading at a PEG of only 0.39 versus RBK's 0.86. It's no wonder that KSWS's chart is in better shape than RBK's. Still, RBK beat the estimate and the stock should get a pop tomorrow. They earned 1 cent, which is where the mean estimate was 90 days ago, before being reduced to a 3 cent loss. I think that the stock will make its way back to 8 1/4 to 8 3/4 and that's where I would sell it. On the other hand, I think that KSWS has upside potential over the next couple of months to 18 - 20. If their sales stabilize and investor confidence returns, I think that the stock could trade back to 30 later this year. Given K-Swiss' cash position, expected free cash flow, and stock buy back, I don't think it has much downside risk at all. IMO, the lowest that it will trade is 10 1/2 to 11 if it breaks 12, and I don't even think that it will break 12. I read the Motley Fools article when it came out and found it to be somewhat negatively biased. The author didn't take into account the valuation of KSWS, and I think that the stock has more than discounted all the issues that he raised. The guy who wrote the article stopped by the Yahoo thread a few days ago. He posts under the name "tmfbobdog", so you might read the Yahoo thread if you are interested in the exchange with him. K-Swiss is supposed to release their earnings on February 10. The company said that their earnings would be in the range of 40 cents per share to 50 cents per share, and analysts immediately lowered the mean estimate to 44 cents. The company has a lot of control over their G&A expenses (this directly from the CFO, George Powlick), and I think that they will earn 47 to 48 cents per share, beating the consensus estimate. My main concern with K-Swiss is their inventory level, but given the current stock valuation, they could probably throw all their existing inventory away without even affecting the stock price. K-Swiss reported that their future orders for the first six months of 2000 were down about 25% from last year, and this is what knocked the stock for a loop a few weeks ago. I believe that this is due to an inventory correction in the US, as opposed to a problem with demand for their products, for three reasons. One, according to the weekly Point of Sales data (which excludes Venator), sales of K-Swiss shoes have been up 150% to 250% in the first three weeks of this year when compared to the same period of 1999. Two, K-Swiss' market share has been flat to slightly higher when compared to the same period last year. Once the inventory correction works its way through retail channels, I believe that K-Swiss' orders will begin growing again. This could take a year, but the stock should begin recovering well before that. Three, the company's future international orders for the first six months of 2000 are up. GUMM: An institutional short holds a position in GUMM and they have successfully jacked around with the stock from time to time on a very short term basis. There are no stock options on GUMM, so the only way that shorts can hedge is by boxing their position. I believe that a large short selects "opportune" times to unbox their long position by dumping stock on the bid, and I think that this is what happened today. Once they dumped all they had, they started buying again and ran the price back up, albeit not all the way to the mid 30s. When they started dumping on the bid, they probably hit some stops and brought in selling from a few panicking longs. The company released the results of the independent clinical study on Zicam yesterday, which confirmed that Zicam reduces the duration of the common cold by 78% when taken at onset. The average duration of a cold is about 10 days, so with Zicam the average duration is only about 2 days. This confirms the company's initial study, and my own personal experiences with the product. Zicam has very high gross margins and I think that Gum Tech will make a lot of money on it. They withheld many details of the study pending publication in a medical journal. If they released too much, they wouldn't have a chance of getting the data published. Perhaps the most important thing about the study is that Gum Tech can now claim that Zicam is clinically proven to reduce the duration of the common cold by 78% in its advertising and on the product's packaging. I personally think that this is huge and will enable Zicam to stand out on the shelf among all the other cold products. When you include nicotine and dental gum, the fundamentals of Gum Tech are very bullish and I believe that the stock will trade to a minimum of 60 this year. I'm basing this on my 2000 earnings estimate of $2.30 per share and a PE of about 30, both of which I think are reasonable. I think that the stock will find support at its 20 day moving average, currently at ~24 and rising about 1 point per day. The most likely support is 26 to 28, and that's where I would buy the stock. GUMM is volatile and will test your nerves in the short term, but I strongly believe that it is an excellent investment that will pay off well for those who are patient enough to hold it. Dan