Wednesday, January 24, 2007

AllianceBernstein Holding LP (AB)

AllianceBernstein Holding (AB) reported a 45% increase in Q4 net income ($1.48 vs. $1.16E). AB announced a $1.48 distribution per share. AB is an asset manager that acts like a REIT, technically it is a publicly traded partnership. I have been long this stock since November when I swapped out of Etrade (ETFC) and went long (AB). The trade has worked out well as AB has increased 19% since my purchase. I am raising my target price to $118 which is 20X my $5.90 2007 EPS estimate. Watch for upgrades to come. AB is called $1 higher in after hours trading.

Note: I am long AB

Tuesday, January 23, 2007

Maguire Properties (MPG) May Get A Bid

Vornado Realty Trust (VNO) recently topped private equity firm the Blackstone Group's bid for Equity Office Properties Trust (EOP). There is only a finite amount of prime commercial real estate and VNO sees value in EOP. From a fundamental standpoint REITS look overvalued. Many housing and commercial REITS are trading at upwards of 18-22 times forward earnings. I don't believe Blackstone will make another bid for EOP. Instead I believe they will go after Maguire Properties (MPG).

Why should you buy MPG? & Why would a private equity firm want to buy MPG?

  • MPG has listed itself for sale and estimated a sale price of $50 per share
  • FBR added it to their "Top Picks" on 12/11/06 $47.50 price target, $51 buyout price
  • High G&A Expense ($34mm). "...exceedingly high...on a percentage of NOI, it is the highest office REIT [Stifel Nicolaus] covers." (Stifel Nicolaus 12/11/06) There is room for cost cutting if taken private.
  • Owns highly desirable office space (15.4mm square feet) in downtown LA, Orange County, & San Diego, as well as a Westin Hotel and 32,000 parking spaces
  • Possible occupancy gains as space is currently less than 90% occupied
  • Industry best development pipeline according to Stifel Nicolaus
  • Can develop up to 1mm square feet of land in downtown LA
MPG is now trading at $42 a share. I see it fairly valued at $42 with a target price of $48-$50.

Thursday, January 18, 2007

Oil Trade

The trend is your friend in oil's recent 30% slide. A safe trade would be to go short the US Oil ETF (USO) and long Halliburton (HAL). From a fundamental basis, Halliburton has more limited downside than the actual commodity. The other trade would be to go short the ethanol producers (PEIX or VSE) and long Halliburton. If you have an option account, consider buying puts in USO, VSE, PEIX.

Tuesday, January 09, 2007

Costco (COST) Should Continue to Climb

Costco (COST) is a stock that I have regrettably overlooked in the past. I thought big box retailers were out of favor. Wal Mart is gasping for air every time it reports same store sales numbers. BJ's Wholesale (BJ) is in a restructuring phase. So why would anyone want to own Costco?

I finally stepped foot into a Costco store this week. I was impressed with how friendly the staff was and how well the store was laid out. Below are some brief observations.
  • All merchandise is sold in bulk. Customers spend a significant amount of money each time they visit the store. Costco has high inventory turnover. Therefore, Costco is able to collect revenue from the sale of inventory before they have to pay suppliers.
  • Only American Express, cash, or checks are accepted as tender. Costco has bypassed the high credit card fees charged by Visa and Mastercard (MA).
  • Merchandise is placed into your cart once it has been scanned at checkout. No plastic bags are wasted. Two stores in CA are solar powered.
  • Costco has industry low employee theft due to the large nature of products sold.
  • Costco owns the building and land of 359 out of its 458 warehouse properties.
All of the above information would make me want to buy the stock. Plus Costco trades near the same EV/EBITDA values as Target (TGT) and Wal Mart (WMT).

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Friday, January 05, 2007

Nymex (NMX) Aims for ICE

On Sunday January 7th, Nymex Holdings (NMX) will be launching six financially settled futures contracts that aim to directly compete with contracts traded on the NYBOT. Rival Intercontinental Exchange (ICE) recently bought the NYBOT. The Nymex contracts will include Cocoa, Coffee, Cotton, Frozen OJ, and Sugar (#11 & #14). The contracts will trade fee free for six months. The question is whether the Nymex contracts will be liquid enough to compete after the initial six month period. With the two exchanges essentially listing the same products, more arbitrage opportunities will be created to take advantage of price discrepancies between the two exchanges. Nymex looks be the winner as it will grab market share from a space it was never involved in (soft commodities). With Nymex and ICE now both involved in soft commodities, the question is will the new contracts lead to greater interest in futures trading? We will soon find out.

Note: I am long NMX

Nordstrom (JWN) Update

Nordstrom (JWN) reported a 9% increase in same store sales above the expected 4.3% estimate. I would take profits in JWN and sell on the good news. The trade is over in my opinion.

Note: I have no position in JWN