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  • techstrategy techstrategy Nov 8, 2012 8:32 PM Flag

    Hey TECH!!!!

    PJ:

    You know that I recommended going long GMCR at$17. I rode it to $30. I am close to reentering there, but it isn't my top priority. All the analysts have it all upside down. GMCR occupies a VASTLY more strategic position in the retail coffee ecosystem than people are giving them credit for. As I've said, they have a huge installed base and many proprietary brands. They have already built out excess manufacturing capacity (taking a trick from INTC's use strategic capacity buffer) and others will find it hard to justify the ROIC of building contract manufacturing capacity. The deal with Costco shows that... At the same time, if we do go into recession, GMCR can ruin the retail coffee economics by slashing GMCR branded KCup pricing. SBUX has significant strategic and financial risks which are simply not remotely priced in. I'm more tempted to short SBUX than go long GMCR right now, but I might sell 2015 puts on GMCR....

    On GRPN, absolutely. I'm happy to share more via email (not going to post more on specific strategy/trades here).

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    • Tech, Huck vividly recalls your rec of gmcr in the teens.....as Huck recommended fslr at 19. Still holding, but paltry position compared to PCLN months ago.

      Huck all in on azo short. It's time has come.

      Huck

      • 2 Replies to hucktuck3
      • Huck, never have gotten into AZO. Probably makes a ton of sense, but I have a coherent investment thesis (long and short) and it doesn't necessarily fit. I get the negative book equity and the valuation does seem stretched, but cash flow is positive and growing rapidly. Plus, I think we are witnessing a secular shift to extended auto life and maintenance. I suspect Sandy will actually be positive for AZO (one of the few situations in which that actually is true).

        I do think GMCR (assuming it can manage cash flow over the next two years) has upside, especially relative to SBUX (which is likely at all time peak margins) as a paired trade. Everybody is on the SBUX side of the equation and frankly, everyone will be proven wrong in time. GMCR has WAY more leverage than anyone can imagine right now. Retail coffee ecosystem is massive. GMCR has a market cap of less than $5B and is trading at an EV/EBITDA of about 6. It simply has to manage cash and capex over the next 2 years and it has significant upside. It occupies what I refer to as a strategic control point in the business system. SBUX is living in la la land. $5 Lattes are going away. Everyone is talking about AAPL and INTC margin concerns. They ought to be concerned about SBUX... Not short there yet (when there are companies that have little cash and #$%$ it away like AMZN), but probably will be at some point. Let Joe and the Fast Money crew pump it for awhile, but know that it faces bigger LT headwinds than most.

        I'm actually long INTC and gradually increasing the position. I have a hypothesis as to how the global economy comes back into balance (in the medium and long term) that seems to be gradually bearing out and INTC will be a winner (big time) in said scenario. Do take a look. Unlike my long GMCR call at $17, INTC has huge cash flow (trading at less than 5x EBITDA), a very strong balance sheet and a 4% plus dividend yield. If I were INTC, I'd borrow $50B at these ridiculous interest rates and buy back half the company... Debt service would be trivial compared to cash flow. INTC will be $40 or more by Jan 2015 whether that is accomplished through buybacks or multiple expansion. Seriously.

        Good to see you here. This will be one of the epic supernovas of all time. Investing all sorts of capital in all the wrong things... It's not clear yet, but will be in time...

      • I remember years ago (when FSLR was around 200) calling it a massive bubble at a nanotech conference (as VCs were putting OPM into R2R solar plays with pre-money valuations in the billions....). I said then that solar cell manufacturers would create value, but the majority would be captured elsewhere (installers). That is until someone achieved what I consider to be threshold installed unit economics. We aren't there yet and we are going to have to increase absorption spectrum and pull modular design for assembly levers to drive down the TCO to do it.

        At some point, solar is going to take off and simply crush everyone's expectations. Everyone in society is bashing solar energy right now, but the VERY LT economics are clear. Extraction based energy will inexorably increase in $ per unit energy because the energy return on energy invested continues to decline (through fracking has moved us to a new technology curve for the near term). Solar enjoys Moore's law type economic scaling. Someone should create a plot of $ oil per barrel, $ coal per kilowatt hour, $ natural gas per btu over the past century and compare it to solar $ per peak watt. The former curves are slowly but consistently rising and the latter decreasing and fast. Eventually, they cross and everything changes.

        I'm waiting for some of my nano brethren to get closer to the theoretical limits of absorption (there is some REALLY cool stuff out there -- Google nano antennas Idaho National Labs) where the economics change forever. With the right business model, those game changing (nano)technologies could literally change the geopolitical landscape and dramatically improve the US LT economic outlook. In terms of First Solar, I've never been too big a fan because the efficiencies using CdTe simply are not going to get to the levels required to have compelling unit economics. Also, Cd is bad stuff. We've got to use a more benign material system if we are going to really make solar at a scale that matters...

        So, I like solar. I just don't think First Solar's underlying technology has the headroom to achieve threshold economics. It will happen and keep watching the solar space because the opportunity is much bigger long term than most people get...

    • Tech,

      I know! That was a good call, that's why I ask. They are into Costco big time. Stores stocked very well with brewers and a lot of k-cups (but not a lot of skus) I think if they can convert that excessive inventory into sales it can get the stock moving. Also some rumors about international expansion. If they make some positive comments on that front it can loosen some of those weak shorts and cause a decent size squeeze. Coffee prices have come down considerably since last year too. Not sure if it will affect margins as I've heard they hedge again coffee prices.

      I've read your argument for GRPN on other posts....definitely interesting.

      On the AMZN front, I got an option question for you. If I had 245 puts and assuming the stock continues to drop, at some point would it be wise to get closer to the money and double up on the number of contracts? Or just hold since the premiums would be minimal? - PJ

      Sentiment: Strong Sell

      • 1 Reply to pjlouie13
      • PJ:

        All specifics via email. You know I am happy to offer my perspective, but I've decided to keep specific positions / strategies off the board.

        Looks like I might get a chance to double up on GRPN sooner than expected. It amazes me what lemmings most analysts are. Few seem to have the capacity to truly think strategically and synthesize macro impact upon micro... I'll give you the strategy there via email too...

        Tech

    • I emailed you. I don't know if you got it since I wasn't 100% sure on your email address. I just messaged your yahoo id.

 
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