Falling Knives
A Downpour of Sharp Objects

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By wishiwaspsychic
October 26, 2007

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At 200-300 stocks, my watchlist is getting a bit out of control...but here's a group of FKA's (some for multiple days, and one that has turned around a bit) that I either own, or have interest in owning:

-NCTY (not rapidly, but from 50 to 30 in a few months)--everyone likes video games, and ERTS bought a significant stake at $38. Concerns about releases are overblown, and the company's upcoming products are promising.

-SCSS: Hidden Gems beloved baby keeps on dropping--I'm short Dec. 12.5 puts, and even though the business has problems now, I think that eventually the excellent product makes this a value.

-FORM: complex semi-conductor business which I understand superficially...but what I do understand is established growth record, excellent forecast growth over the next several years, and a huge cash position. Market is concerned about stupid inventory issue that won't affect much of anything, and with a few seemingly fixable operational issues. My experience is that with rapid growth there will be hiccups, and if one looks at the bigger picture they will see a compelling growth story here. Stock down big today to 35 range.

-AACC: debt buyer down after hours after yet impairment charge to pre 2005 portfolios. This is bad, but the market is also playing on rising legal fees which hurt earnings, even though this is part of the company's plans to accelerate collections. On the bright side, collections were up, and the company bought a bunch of new debt on the cheap. This is an ugly business that has had ugly results, but the stock looks cheap cheap long as we don't see repeats of the debacles of those pre 2005 portfolios. I like this as a paired play with the best of breed, PRAA.

-CCRT: down from $25 to $19 with no real news. Subprime concerns abound, but some big names have bought at prices far higher than those of today. Tread lightly, but maybe worth a few dollars.

-LOOP: Soon to be the FMLS of commercial real estate. I love the business, and I like the stock a lot more in the teens than in the $20's. $17.5 puts make for a nice entry point, though buying shares for the long haul is a good call too.

-FLML: oops, reverse falling knife...stock has fallen from $47 to under $10, but back up to $12 as market likes GSK's comments on Coreg CR and positive testing results. I don't know that I'd be selling puts, but wow is there volatility here. Fun for informed speculation. TMFMillertime, thoughts???

-WPL: Embattled money manager keeps falling, announcing a suspension of the dividend as the company tries to right the ship. I'm pretty sure there's a decent business under here somewhere. I sold at $14 after buying at $10, and now am snooping around with the stock at $7. If only I'd done the same with FLML...

-RUTH: Not a classic falling knife, but the stock has fallen from $23 to $12. Ruth's Chris makes a heck of steak, and at a PE of 12, there is a lot of pessimism built into the stock. I know there's a lot of concern about disposable income and the competition in the sector, but I'm pretty comfortable with 15's growth assumptions here, and that would make the stock a pretty nice value. $10 puts would give one a heck of an entry price should the stock fall that far. Come to think of it, I am not even sure if there are 10 puts...

-CHIC, CHS, NWY: Women retailers beware...I'm short CHIC 12.5 puts, and am looking at NWY should it fall to the 5's. The market hates these stocks, but CHIC has a great balance sheet, NWY has a solid balance sheet, and these company's are still making money. I'm waiting to see if the market gives us silly cheap prices here, as I don't see any immediate catalyst to send these stocks soaring.

-CPSS: Up nicely today, but that is only after a number of ugly days. Tangential subprime, and has had a big holder selling, but the business looks solid. I like the business, the management, and the price. Under 5 is a steal in my book. No options here.

-DFS: Discover Financial Services down to 17.5, as the market is spooked of all things financial. I won't pretend to know what sort of bad debt issues the company may have (see American Express), but I know that this network has real long-term value. I'm just not sure how cheap the stock may get. Anybody have opinions? I've got no position, but am looking closer.

-WM: WaMu keeps falling. I work for a firm that buys delinquent property taxes and tax foreclosures, so I get to see some underwriting efforts, and let me tell you, WaMu has made some terrible loans. I also know they have had some serious back office issues at times. That said, this is a major entity with a lot of different business lines, and at some point there's got to be value. That dividend keeps getting bigger, but I'm not ready just yet. My bet is that this knife may fall a bit farther.

Happy hunting to all.