The news Letter---------------------------------- Dear Grant''s Investor Subscriber,
Welcome to the new Grant''s Investor!
We''ve been scurrying around behind the scenes to make the new Grant''s Investor an even more essential research partner than the old one. We''ve made numerous changes, both large and small, to provide the best advisory service possible. We''ve even ditched the old slow Web site in favor of a faster new one.
As for the service itself, you''ll find a sharpened focus on a smaller universe of specific investments from both the long and short sides, as well as concise top-down analysis of what to look for going forward.
Also, as part of the re-launch, you''ll find something new for us: a Grant''s Investor portfolio comprised of compelling investment opportunities on both sides of the market. We will only include stocks that we have explicitly examined. As we produce new reports, we will be gradually adding to the portfolio until it totals about 20 stocks. Also, we will closely monitor and continuously update the stocks in our portfolio.
As we make the transition from the old Grant''s Investor to the new one, we will be updating several of our prior stock analyses. All of these updates will suggest a current course of action. Some will advise closing out positions, some will advise establishing new positions at current prices. In this inaugural issue, for example, we will be revisiting Four Seasons, Triton PCS and J.P. Morgan -- all of which we have thoroughly examined in the past.
At the same time, we will be introducing a steady diet of brand new investment ideas. This week, we''re taking a skeptical look at Riverstone Networks.
We are excited about launching the new service and hope you will find it even more valuable than its predecessor. As we are just getting started with the new format, there will certainly be items we can improve upon. Please let us hear your comments.
Thanks for subscribing, and once again, welcome!
Sincerely,
The Grant''s Investor staff
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November 30, 2001
Riverstone Networks -- router maker is about to be routed!
J.P. Morgan -- we still don''t like it.
Big holders scramble to sell Triton PCS -- and no wonder.
Winter arrives early at Four Seasons Hotels.
Is the market bottom in? Not by a long shot.
Paul Kasriel nixes any notion of deflation -- quite the contrary.
Japan is imploding, says Gregory Weldon.
Symbol Position Description Entry Date Entry Price Last Close Return
RSTN Short Riverstone Networks 11/30/2001 * 16.21000 unch.
JPM Short JP Morgan Chase 11/30/2001 * 38.06000 unch.
TPC Short Triton PCS 11/30/2001 * 30.10000 unch.
MMS Short Maximus 11/30/2001 * 37.57000 unch.
RDN Short Radian Group 11/30/2001 * 38.61000 unch.
AZO Short AutoZone 11/30/2001 * 66.57000 unch.
FS Short Four Seasons 11/30/2001 * 42.79000 unch.
VLO Long Valero 11/30/2001 * 35.25000 unch.
RAX CN Long Rio Alto 11/30/2001 * (1) 21.25000 (1) unch.
CNX Long Consol Energy 11/30/2001 * 22.27000 unch.
VSL Long VSNL 11/30/2001 * 9.25000 unch.
*All "Entry Price" values for the initial portfolio positions will be established based upon the last sale price for each security as of 12:00PM ET, today November 30th.
(1) denominated in Canadian dollars
New Recommendation: Sell short Riverstone Networks (RSTN) above $16. Trailing stop loss at 25% above entry point.
RSTN shares are very richly priced, both relative to conventional valuation metrics and also relative to its competitors'' valuations. The stock is expensive despite the fact that RSTN:
Has yet to generate operating profit.
Faces a challenging macroeconomic environment with formidable rivals.
Has poor revenue quality that raises doubts about future growth prospects.
Suffers from falling ASPs and negative operating margins that will make profit growth difficult to achieve.
Click here to read why we think RSTN is riding downstream in a leaky boat.
Portfolio updates
Recommendation: Sell short J.P. Morgan Chase (JPM) above $38. Trailing stop loss at 25% above entry point.
J.P. Morgan has done nothing to redeem itself in our eyes since we first wrote about it last May. Revenue from the major divisions is still falling and credit risk is mounting. Now along comes the Enron debacle. JPM is heavily exposed, and that can''t be a pretty sight. Click here to get the ugly details.
Recommendation: Sell short Triton PCS (TPC) above $30. Trailing stop loss at 25% above entry point.
Two big holders of Triton stock (one of whom just happens to be J.P. Morgan) are dumping shares in a secondary offering. How''s that for a vote of no confidence? We''re not surprised, though. We had this wireless provider''s number last July: no profits, slumping revenue growth and a ton of debt. Click here to learn why we think the stock sale is just one more good reason for long positions to get out of the way.
Recommendation: Sell short Four Seasons (FS) above $42. Trailing stop loss at 25% above entry point.
Four Seasons Hotels has lived up (down?) to our worst expectations of a year ago. A glut of high-end accommodations coupled with a slowing economy -- and exacerbated by the September 11 tragedy -- has pummeled the stock price. But with the upscale lodging sector stuck in the low-rent district and Four Seasons'' earnings on skid row, we think there''s more downside to come. Click here for our report.
The View From Andrew Kashdan
Hopeful bottom fishers aside, technical indicators and knowledgeable market watchers say the bear is still alive and kicking. We agree that the bottom is not yet in. To understand why we think the recent rally is nothing more than a "deck-chair shuffle," click here.
Paul Kasriel says, "Deflation? Not Bloody Likely!"
Barron''s cover story on Monday argued that long-term interest rates have reached a bottom. We found the reasoning compelling, and especially liked the picture of Alan Greenspan with Bugs Bunny ears. But it''s not quite so simple. Our cautious view on the economy would suggest another down move in interest rates, all else being equal. On the other hand, given the Fed''s aggressive pump-priming, future inflation growth rates may well rise above the bond market''s implicit inflation forecast. As Northern Trust economist and dazzling presenter at the recent Grant''s Interest Rate Observer Fall Conference Paul Kasriel put it, "Deflation? Not bloody likely!" Click here for his insightful (and amusing) report.
The news from Japan is not just bad, says Gregory Weldon, it''s an "implosion." Meanwhile, the Nikkei looks set for another fall.
A look at Japan''s October retail sales data is enough to make a salaryman order a big helping of fugu, and not worry too much about removing the poisonous organs. As Greg Weldon points out, the plunge from September''s -0.7% year-over-year rate of decline to October''s -7.1% year-over-year rate, signals an "implosion" in the consumer sector. It represents the steepest pace of decline in the retail sector in more than two years.
Add to that the October collapse in machine tool orders, says Weldon, and the depression-like 41.2% year-over-year contraction in total orders signals, in a word, an "implosion" in the industrial sector. What are the implications for Japan''s stock market? The Nikkei has rallied based on economic optimism, and hopes for a bank sector reincarnation. The joke is on the longs, says Weldon, as he takes a brief survey of the scene. Banks are imploding. The industrial sector is imploding. The export sector is imploding. The insurance sector is imploding. The consumer is imploding. Is the Nikkei next to implode?
While the credit rating downgrade announced by Standard & Poor''s this week did not come as a surprise, Weldon notes the commentary provided by S&P''s Takahira Ogawa: "There is more than a 60% chance the rating will be lowered again. The fact that we have kept the outlook negative means this is not the end."
Another observation from Gregory Weldon: Eurodollar futures are pricing in an increase in short-term rates of 250 basis points next year. It might not make it on David Letterman, but it''s quite amusing if you think about it.
We rarely do jokes, but did you hear? The Eurodollar depo futures market strip implies that the market expects the U.S. Federal Reserve to raise short-term interest rates by a whopping 250 basis points next year.
Unfortunately, the U.S. consumer does not find anything funny these days, as we rewind and review this week''s surprisingly weak readings on consumer confidence as per the Conference Board Survey for October:
Business Conditions Good at 16.4%, down from 18.6% in October, and down from 22.3% in September, making new cycle lows in the process.
Jobs Hard to Get at 60%, up (worsening) from 58.5% in September, and up from September''s 54.1%.
Further, the rapid rise in the "Jobs Hard to Get" category does not bode well for future employment data, nor confidence itself going forward. But even more damaging to confidence, going forward, may be the housing market. Within the allegedly healthy existing home sales data, the median sales price plunged by a massive $9,500, to $138,600, thus representing a steep one-month deflation of 6.4%.
Sure, the Fed will raise rates 250 bp next year. NOT.
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All information contained herein is obtained by Grant''s Investor Inc. from sources believed by it to be accurate and reliable. However, such information is presented "as is," without warranty of any kind, and Grant''s Investor Inc., in particular, makes no representation or warranty, express or implied, as to the accuracy, timeliness, or completeness of any such information or with regard to the results to be obtained from its use. Nothing contained herein should be considered personalized investment advice that is tailored to the individual needs of users.
Grant''s Investor Inc. officers, directors, employees and associated individuals may own or have positions, including entering into hedging strategies and buying and selling short the securities discussed in this letter, and may add or dispose of the same. Investments discussed in this letter should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company or companies involved in issuing the stock or stocks under discussion. The discussions and analysis presented to subscribers are for the exclusive use of subscribers.
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Copyright 2001, All Rights Reserv |
