3 Stocks Stopping the Presses
Oct 25th 2011 11:01AM
Updated Oct 25th 2011 11:18AM
You saw the headlines. You know your stock price made a big move. But what does that portend for your investment's future?
By pairing the latest news with the collective wisdom of our 180,000-plus strong Motley Fool CAPS investing community, we might be able to discover whether your stock's latest exploits are a short-term hiccup -- or the start of a much bigger trend.
The following stocks all made big moves last week:
CAPS Rating (out of 5)
Change Last Week
|Green Mountain Coffee Roasters (NAS: GMCR)||
|Ocz Technology (NYS: OCZ)||
|Seagate Technology (NAS: STX)||
Source: Motley Fool CAPS; % change from Oct. 14-Oct. 21
A BOGO sale
Noted hedge fund operator David Einhorn set his sights on K-cup brewer Green Mountain Coffee Roasters with a devastating investor presentation showing why the coffee maker and its earnings multiple of 36 was simply a company operating on a caffeine high. It must have been pretty convincing, because the stock plummeted in the aftermath.
Einhorn's slide show (which you can see here) takes apart Green Mountain's deal with Starbucks (NAS: SBUX) , shows how it bought up rivals at expensive premiums to keep from competing against them when its patents expire next year, noted that private label K-cups can capture around 20% of the market beginning in September 2012, and questioned a number of aspects of corporate governance.
The partner deals it has with Starbucks, Dunkin' Donuts parent Dunkin' Brands (NAS: DNKN) , and others won't be enough to protect it from the low-priced competition that will be moving in next year. While Green Mountain is coming out with a new brewer that will offer new patent protection, Einhorn correctly wonders how will they "convince their customers that a fluted K-cup filter makes a better cup of coffee than a smooth K-cup filter" at a premium prices when low-cost private label K-cups are available? Add in some dubious financial accounting, an SEC investigation, and fading transparency, and a pretty strong bear case was made, though not everyone is convinced.
But the essence of Einhorn's presentation resonated with a lot of CAPS All-Stars like YoungMoneyJB, who pointed out the patent several weeks ahead of the hedge fund trader:
Keurig's patent runs out soon. We are going to be seeing "K-Cups" everywhere. First-mover advantage will soon evaporate as cup-style coffee makers become increasingly commoditized. GMCR had a phenomenal run, but DNKN appears to have the strongest growth prospects at present.
Did Einhorn brew up some controversy simply to perk up his short position? Share your thoughts on the Green Mountain Coffee Roasters CAPS page then put it on your watchlist to keep track of its progress.
A crude assessment
Having gone all in on solid-state drives, Ocz Technology effectively doubled down by buying the systems-on-a-chip design team from PLX Technology along with a perpetual patent license. Ocz also raised full year revenue guidance. Earlier this year, Ocz bought solid-state drive controller design company Indilinx, which taken together gives Ocz a complete technical base and IP portfolio to take on Western Digital (NYS: WDC) and Seagate Technology.
Seagate got its own boost after competitor Western Digital reported that flooding in Thailand shut down its manufacturing operations there and it would take at least several quarters to dry out. Seagate, which also has Thai manufacturing facilities, didn't get swamped like its rival, but it did warn it could face parts shortages as a result of the floods.
It's expected that computer makers like Dell (NAS: DELL) could get hurt as a result of the floods, as IHS iSuppli estimates disk drive output could tumble as much as 30%.
That presents an opportunity for Ocz, though it might not be as large as it appears on the surface. HDD customers aren't going to suddenly flood the solid-state drive market en masse because of a shortage, but it could represent an incremental change that boosts Ocz's long-term outlook.
CAPS member TMFZahrim thinks the "new direction" Ocz took was the right one, one that will pay off for some time to come:
I've seen enough proof of the new strategy's success to trust the new direction, and OCZ shares are trading at just 10.6 times forward earnings today. That's enough to make me invest some of my professional pride in the stock, hence this mid-term "Outperform" rating.
With almost 1,200 members weighing in on Seagate, it's clear they don't think the drive maker will be all wet either, as 94% of those registering an opinion think it will outperform the broad indexes. Tell us in the comments section below who's going to come out ahead in the end, and then add Ocz Technology and Seagate Technology to the Fool's free portfolio tracker to see how it all plays out.
At the time this article was published Fool contributor Rich Duprey holds no position in any company mentioned. Click here to see his holdings and a short bio. The Motley Fool owns shares of Western Digital and Starbucks. Motley Fool newsletter services have recommended buying shares of Starbucks, Dell, and Green Mountain Coffee Roasters, as well as creating a lurking gator position in Green Mountain Coffee Roasters. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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