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...
you have reasoned arguments for not shorting AZO....however Huck would be remiss not to retort to your reluctancies - namely that "FCF is growing rapdily". Hardly growing, and certainly as rapidly as you would suggest. SSS are on a rapid decline, and based on AAP recent earnings, Huck forsees neg. SSS 3rd quarter. Huck's a bleeding lib, but still doesn't buy greenhouse gases quid pro quo that is = global warming, however something sensational is happening in the past 2 decades where tempature in increasing thereby requiring fewer auto electrical repairs. Enter Walmart and our p/e stalwart AMZN who are also getting into the auto parts fray (same day delivery) and what you will find is a recent parabolic rise in AZO equity that already has your long term car use paradigm baked in the shake. AZO will not quickly decline ala GCMR, NFLX, CMR....but a slow and gradual slog is why Huck is staying away from puts and focusing on short positition. (do have 5 LT Jan '14 390-370 puts - that's all). Don't get Huck started on insider trading and neg. sharholder equity. Throw Huck a bone about how Sandy helps AZO - Huck still scratching head on that one. Fewer miles driven = fewer repairs, so says HUck's noggen and HHFM. (Hungstein Huck's Factual Models, copyright 2009). Higher gas also means fewer mile which is double-edge djibouti for AZO - oil will tank only if economy bad which is also bad for AZO. Good economy means higher gas and more new car purchases - also bad for AZO. Lose/Lose is HUck's thesis, and recent parabolic rise is siren call for top-pickers like ourselves. The "new paradigm" of holding onto cars longer is tired. Show the chart, Sybs.
Huck respects concerns about FSLR cadmium telluride - however it is cheaper and more plentiful than silicone and less vulnerable to commodity type increases. effciency is paltry but costs are cheaper. much like natural gas, the technology isn't ideal, nor is the footprint 0%, but it is effective, cheaper and cleaner as we transition away (albeit slowly) from coal/gas.
INTC is a great call. Don't own any but that and MSFT have been on HUck's mind for some time
Huck comes to this board for rounded well-persepctive, thanks to you. Good luck, Tech.
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...