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The Growth of the Short-Selling Hedge Fund ETF (HDGE, GT, OPEN, ENR, COL, GMCR, C, ERIC, ATI, BBY, JCI)

Administrator — Thu, 12 Apr 2012 15:06:03 +0000

Apparently having a short selling strategy under a hedge fund exchange-traded fund model has been working. This week we received notice that the assets under management for AdvisorShares ActiveBear ETF (NYSE: HDGE) hit a record with more than $209 million in assets under management. That figure was listed on the fact sheet as being $205 million as of Wednesday’s close. This is a short-selling strategy ETF, so in theory its share price will rise as the market falls and/or when the holdings fall in value.

The short-only equity ETF saw inflows as well this week as the market was soft earlier in the week, but that will obviously ebb and flow as the markets rise and fall. The top ten short positions are as follows (largest first): Goodyear Tire & Rubber Co. (NYSE: GT); OpenTable, Inc. (NASDAQ: OPEN); Energizer Holdings Inc. (NYSE: ENR); Rockwell Collins Inc. (NYSE: COL); Green Mountain Coffee Roasters Inc. (NASDAQ: GMCR); Citigroup, Inc. (NYSE: C); Ericsson (NASDAQ: ERIC); Allegheny Technologies Inc. (NYSE: ATI); Best Buy Co. Inc. (NYSE: BBY); and Johnson Controls Inc. (NYSE: JCI). Without rounding up or down, these top ten short positions account for only 32% to 33% of the entire ETF’s short positions.

Here is the ETF’s philosophy in a nutshell: “The portfolio management team implements a bottom-up, fundamental, research driven security selection process. In selecting short positions, the Fund seeks to identify securities with low earnings quality or aggressive accounting which may be intended on the part of company management to mask operational deterioration and bolster the reported earnings per share over a short time period. In addition, the portfolio management team seeks to identify earnings driven events that may act as a catalyst to the price decline of a security, such as downwards earnings revisions or reduced forward guidance.”

One thing is nearly certain here. If investors are looking for an ETF product that bets against high valuations or against what may be market aberrations, they may have found their vehicle.

Now, here is the flip-side of this ETF. There are two sides to every coin. If you get into a serious bull situation this can lose incredible amounts of money. Sometimes it is the most troubled stocks which rally the most, and it doesn’t take a rocket scientist to figure out what likely happens to the price of this ETF in that situation.

The ETF’s Net Expense Ratio is currently 3.29% but the fund noted “The Advisor has contractually agreed to keep the Fund’s Total Annual Fund Operating Expenses from exceeding 1.85% for at least a year from the date of the Prospectus. This agreement is limited to the Fund’s direct operating expenses and, therefore, does not apply to “Acquired Fund Fees and Expenses.” The fee breakdown is as follows per the ETF fact sheet:

Management Fee 1.50%
Short Interest Expense 1.44%
Other Expenses 0.22%
Acquired Fund Fees 0.13%
Gross Expense Ratio 3.29%

JON C. OGG

Filed under: ADR, Corporate Governance, ETF, Mutual Funds, Personal Finance, Short Interest Tagged: ATI, BBY, C, COL, ENR, ERIC, GMCR, GT, HDGE, JCI, OPEN

Poor Judgment by Ralcorp’s Board

David J. Phillips — Tue, 27 Sep 2011 10:26:57 +0000

Ralcorp’s (NYSE:RAH) board of directors unanimously rejected the latest merger proposal from ConAgra Foods (NYSE: CAG), saying the $5.18 billion unsolicited bid was not in the best interest of the company. Given the tender offer represented more than a 25% premium over current trading prices, one has to question whether board members truly represented the fiduciary interests of shareholders.

The maker of Chef Boyardee, Healthy Choice, PAM no-stick cooking spray and other food products, has made several unsuccessful bids for Ralcorp since March, culminating in a recent $94.00 per share offer in cash. St. Louis-based Ralcorp has repeatedly spurned the offers, opining it could best unlock shareholder value by spinning off its Post Foods division, which includes brands Honey Bunches of Oats, Grape Nuts and Fruity Pebbles, from its private label (store brand) and ready-to-eat foodstuffs (like cereals, cookies and pasta).

Golden Parachutes for Key Executives

Considering the purchase price was higher than Ralcorp has ever traded at, it is hard to fathom why senior management failed to endorse ConAgra’s offer, especially given the personal payday that awaited each of them under “change-in-control” clauses contained in their respective employee agreements. In a buyout, co-chief executives Kevin Hunt and David Skarie each stood to pocket, at a minimum, $15 million (including $3.7 million in accrued salaries and cash bonuses, and in excess of $6 million in stock awards). Chief financial officer Thomas Granneman left more than $5 million on the table, too (including $3 million in three-years worth of salary and average annual cash bonuses, and more than $2 million in stock awards). Furthermore, actual payouts to named executives would have been significantly higher, as these severance packages were based on the closing price of Ralcorp on September 30, 2010 ($58.48 a share), according to the 2011 proxy statement.

Post Brand Cereals Were the Future — Back in 2008

That management and the board of directors now believe that a spin-off of Post brands is the better option to boost value for its shareholders — as opposed to an acquisition by ConAgra — is odd, considering the same guys were the cheerleaders behind the $2.6 billion purchase of the same ready-to-eat brands from Kraft Foods (NYSE:KFT) in 2008.

“A transforming event for Ralcorp — the addition of Post cereals gives Ralcorp a truly distinctive line of branded cereal products plus a branded infrastructure and platform that we can build on through organic growth and acquisitions,” David P. Skarie said in November 2007.

For the nine-months ended June 30, segment profit for Post brands contributed 33.3%, or $160.6 million, of $481 million in total segment profits. By comparison, Ralcorp derived just $64.4 million, or 13.3% of income from the manufacturing of third-party cereals. In addition, branded profit margins of 22% almost doubled those of its private-label operations.

Though Post-branded cereals remain the profit cow for the company, the Kraft purchase did not exactly shake up the cereal category or propel Ralcorp above also-ran status. The brand remains mired in third place and, looking ahead, management is acutely aware that growing margins will be difficult, given competitive obstacles, the incessant promotional and bidding wars with industry leaders Kellogg (NYSE: K) and General Mills (NYSE: GIS) for slotting space on the shelves of supermarket chains and discount retailers such as Walmart (NYSE:WMT).

Management has admitted, too, on recent quarterly conference calls that operating efficiency gains will unlikely be significant enough to offset the adverse effect of $200 million in cost inflation, from increases in packaging and freight to primary ingredients (such as durum wheat, cashews and peanuts).

Ralcorp is the nation’s largest supplier of private label cereal, including copycats of more than 30 of the top national brands and (20 hot cereals). Ergo, looking ahead, management believes manufacturing higher unit volumes of store brand products could better insulate forward profitability from the aforementioned competitive headwinds.

Some on Wall St., disagree with Ralcorp’s internal optimism. Morningstar analyst Erin Lash argues that spinning off Post would prove to be a “value-destroying investment for Ralcorp’s shareholders,” as Post trails rivals Kellogg and General Mills in the “highly-competitive’’ cereal category.

It is unlikely that a Post spin-off would improve Ralcorp’s financial flexibility. On June 30, trailing twelve-month total debt stood at 3.2 times operating EBITDA and more than 70% of total assets on the balance sheet was fluff: some $4.8 billion of goodwill and other intangibles.

According to regulatory filings, as part of the split, Post is expected to generate approximately $1 billion in net cash for the company. However, $545 million of these proceeds will go towards the company’s August 2011 purchase of Sara Lee’s (NYSE: SLE) refrigerated dough business, leaving little left over to make a dent in the $2.4 billion in long-term debt.

In addition, the 10Q Detective notes that post-split, private-label Ralcorp will lose the cash flow contribution from the higher-margin branded cereal business!

Break-Up Value?

Ralcorp appears fairly valued based on sector comparisons: 18.6 times trailing twelve-month (TTM) price-earnings, which is 16.2% and 28.7% higher than the TTM of Kellogg and General Mills, respectively.

Wall St. itself is divided on much additional market value a Post cereal spin-off would generate longer-term to existing shareholders, with post-split capitalizations ranging from the mid $70-range up to $90 a share. BB&T Capital Markets analyst Heather Jones estimates the private label part of Ralcorp could fetch an estimated 9 to 9.5 times EBITDA, and Post about 8 times, suggesting a total post-split value of $85 to $90 a share — lower still than ConAgra’s $94 per share (all cash) offer!

“Cuckoo” — but Not for Cocoa Pebbles

Even with a mouthful of cereal and milk, the audible sounds of fiduciary irresponsibility by the board cannot be muffled. One is left to ask, did the board fear losing more than complimentary boxes of Cocoa Pebbles in a ConAgra takeover — such as the cushy $200,000 (+) annual stipend for showing up eight to 13 times a year for board meetings?

While frustrated Ralcorp shareholders are left pondering what possessed the board to ignore ConAgra’s more-than generous merger bid, they might also want to question management on the following potential conflict, too: How come this “independent board” still sits three members with common ties to Energizer Holdings (NYSE: ENR), including William P. Stiritz, who chairs Ralcorp’s board, and J. Patrick Mulcahy, Energizer’s current chairman? It has been 17 and 11 years, respectively, since the food and battery companies were sent packing from the Ralston Purina (NYSE: RAL) family.

Since when does selling batteries make one an expert on food goods? Unfortunately, it is unlikely the Energizer bunny can do much to keep Ralcorp’s stock price “going and going.”

David Phillips

Filed under: Mergers and Buy Outs Tagged: CAG, ENR, GIS, K, KFT, RAH, RAL, SLE, WMT

Top Analyst Upgrades & Downgrades (APC, CFN, CBI, COLM, DRYS, ENR, HMC, IDIX, JACK, MGLN, MON, NSM, NVO, SPW, TM, VFC)

Administrator — Mon, 11 Apr 2011 12:22:38 +0000

These are the top analyst upgrades, downgrades, and initiations seen from Wall Street research calls this Monday morning.

Anadarko Petroleum Corp. (NYSE: APC) Reiterated Hold at Argus.
Carefusion Corporation (NYSE: CFN) Cut to Neutral but kept $30 target at BofA/ML.
Chicago Bridge & Iron (NYSE: CBI) Raised to Outperform at Credit Suisse.
Columbia Sportswear Company (NASDAQ: COLM) Raised to Buy at BofA/ML.
DryShips, Inc. (NYSE: DRYS) named as Bear of the Day at Zacks.
Energizer Holdings Inc. (NYSE: ENR) Cut to Neutral at UBS.
Honda Motor Co., Ltd. (NYSE: HMC) Cut to Sell at Citigroup.
Idenix Pharmaceuticals Inc. (NASDAQ: IDIX) Raised to Buy at BofA/ML.
Jack In The Box. Inc. (NASDAQ: JACK) Cut to Underperform at Credit Suisse.
Magellan Health Services, Inc. (NASDAQ: MGLN) Started as Underperform and $50 target at BofA/ML.
Monsanto Co. (NYSE: MON) Raised to Buy at Deutsche Bank.
National Semiconductor Corporation (NYSE: NSM) Cut to Hold at Deutsche Bank; Cut to Neutral at Gleacher.
Novo Nordisk (NYSE: NVO) Raised to Overweight at JPMorgan.
SPX Corporation (NYSE: SPW) Started as Outperform with $100 target at Credit Suisse.
Toyota Motor Corporation (NYSE: TM) Cut to Sell at Citigroup.
V.F. Corporation (NYSE: VFC) named as Bull of the Day at Zacks.

You can join our free daily email distribution list to hear more about analyst upgrades and downgrades, top day trader and active trader alerts, dividend trends, news on Buffett and other investment gurus, IPOs, secondary offerings, private equity, and more.

JON C. OGG

Filed under: Analyst Calls Tagged: APC, CBI, CFN, COLM, DRYS, ENR, HMC, IDIX, JACK, MGLN, MON, NSM, NVO, SPW, TM, VFC

Top Analyst Upgrades & Downgrades (AIB, AMAT, IRE, ENR, FCEL, GEOY, HBC, SNN, TEF, VVUS, WX)

Administrator — Tue, 03 Aug 2010 12:13:35 +0000

These are some of this Tuesday’s top analyst upgrades, downgrades, and initiations seen from Wall Street research calls:

Allied Irish Bank Group (NYSE: AIB) Cut to Hold and Target Cut to 1.02 (Euro) at RBS; Started as Outperform at Credit Suisse.
Applied Materials Inc. (NASDAQ: AMAT) Cut to Neutral at UBS.
Bank of Ireland (NYSE: IRE) Started as Outperform at Credit Suisse.
Energizer Holdings Inc. (NYSE: ENR) Raised to Overweight at Morgan Stanley.
FuelCell Energy Inc. (NASDAQ: FCEL) Started as Hold at Needham.
GeoEye, Inc. (NASDAQ: GEOY) Cut to Neutral at JPMorgan.
HSBC Holdings plc (NYSE: HBC) Cut to Hold at RBS.
Smith & Nephew plc (NYSE: SNN) Cut to Equal-weight at Morgan Stanley.
Telefonica, S.A. (NYSE: TEF) Cut to Hold at Citigroup.
VIVUS Inc. (NASDAQ: VVUS) Cut to Sell at Brean Murray.
WuXi PharmaTech Inc. (NYSE: WX) Raised to Buy at Jefferies.

You can join our free daily email distribution list to hear more about dividend trends, analyst upgrades and downgrades, top day trader and active trader alerts, news on Buffett and other investment gurus, IPOs, secondary offerings, private equity, and more.

JON C. OGG

Filed under: Analyst Calls Tagged: AIB, AMAT, ENR, FCEL, GEOY, HBC, IRE, SNN, TEF, VVUS, WX

Tiger Woods Next Endorsement Deals: PriceWaterhouse, Powerade, Citizen, Verizon, Chrysler, And Visa

247wallst — Mon, 15 Mar 2010 10:08:19 +0000

Tiger Woods sponsorship income in 2009 was estimated by several media sources to be $110 million. Thirty million dollars of that came from Nike (NKE). There are no estimates for the revenue he received from the companies that chose to end their relationships with him—Accenture (ACN), Tag Hauer, AT&T (T), Gatorade, which is part of Pepsi (PEP), and Gillette, which is part of P&G (PG). Woods also almost certainly lost the opportunity to get another car brand deal to replace his arrangement with Buick when it lapsed. The Buick buyers are older than Woods, and the arrangement with the GM division was probably a bad deal from the start.

Media reports say Woods may play in the Masters which runs from April 5th through the 11th. Woods is probably more welcome there than at any other place that he plays. He has won this tournament four times and has the chance to pass Jack Nicklaus, who has six, before he retires. Woods can also count on the best crowd control of any tournament there. Augusta is a private club run by a very tough board of directors.

Woods would need to show up with his wife, two children, and mother to be viewed as socially rehabilitated by the golf world and the public. His “brand” is probably strong enough for him to resurrect his image over the next year or two. There are certainly models of athletes who have stumbled in public and regained their position with fans. Kobe Bryant is the most recent example.

Filed under: Media Tagged: AAPL, ACN, AXP, Chryslers, Citizen, ENR, ERTS, Gatorade, Gillette, KO, NKE, PEP, PG, Powerade, Schick, T, Tag Hauer, Tiger Woods, V, VZ

Top 10 Analyst Upgrades, Downgrades, Initiations (AEO, BNI, ENR, GET, GES, GD, STEC, VIA, YUM)

247wallst — Wed, 04 Nov 2009 13:09:32 +0000

These are this Wednesday’s top ten analyst upgrades, downgrades, and initiations seen from Wall Street research calls:

American Eagle Outfitters (NYSE: AEO) Raised to Top Picks at FBR Capital; but shares were also Cut to Hold at Lazard.
Burlington Northern Santa Fe (NYSE: BNI) Cut to Neutral at JPMorgan; Cut to Neutral at UBS.
Energizer Holdings (NYSE: ENR) Cut to Neutral from Conviction Buy List at Goldman Sachs.
Gaylord Entertainment (NYSE: GET) Raised to Market Perform at both FBR and at Wells Fargo.
Guess? Inc. (NYSE: GES) Cut to Hold at Lazard.
General Dynamics (NYSE: GD) Raised to Outperform at Credit Suisse.
STEC, Inc. (NASDAQ: STEC) Cut to Perform at Oppenheimer; Cut to Source of Funds at ThinkEquity.
Viacom (NYSE: VIA) Raised to Outperform at Oppenheimer.
Yum! Brands (NYSE: YUM) Started as Buy at Janney Montgomery.

You can join our open email distribution list to get updates on top analyst upgrades and downgrades, top day trader alerts, IPO’s, secondary offerings, Warren Buffett and other guru activity, M&A and more.

JON C. OGG

Posted in Analyst Calls Tagged: AEO, BNI, ENR, GD, GES, GET, STEC, VIA, YUM

Top Analyst Upgrades (EAT, DAI, ENR, HS, LEN, LNC, MGM, RTP)

247wallst — Mon, 18 May 2009 11:54:53 +0000

These are some of the top pre-market analyst upgrades we have seen from Wall Street early this Monday morning:

Brinker International (EAT) Raised to Overweight at Barclays.
Daimler (DAI) Raised to Buy at UBS.
Energizer Holdings (ENR) Raised to Neutral at UBS.
HealthSpring (HS) Raised to Outperform at Wachovia.
Lennar (LEN) Raised to Buy at Citigroup.
Lincoln National (LNC) Raised to Outperform at KBW.
MGM Mirage (MGM) Raised to Overweight at JPMorgan.
Rio Tinto (RTP) Raised to Hold from Sell at RBS.

JON C. OGG

Posted in Analyst Calls Tagged: DAI, EAT, ENR, HS, LEN, LNC, MGM, RTP

New Wave of Secondary Offerings (AWR, ENR, FIG, PL, SMTB, WAL)

247wallst — Fri, 15 May 2009 11:37:06 +0000

We are seeing yet another wave of secondary offerings that have priced between yesterday’s close and this morning. The offerings we have seen come to more than $1 billion and are from American States Water (NYSE: AWR), Energizer Holdings Inc. (NYSE: ENR), Fortress Investment Group LLC (NYSE: FIG), Protective Life Corp. (NYSE: PL), Smithtown Bancorp (NASDAQ: SMTB), and Western Alliance Bancorporation (NYSE: WAL).

We have broken these down by price and size, along with the difference of the pricing from yesterday’s close and from highs earlier this week.

American States Water (AWR) priced a 1 million share secondary at 31.00 per shares. It closed at $31.21 Thursday.

Energizer Holdings Inc. (ENR) priced its expected secondary offering of 9.5 million shares at $49.00 per share after closing at $49.69 yesterday and after being at $54.00 on Monday.

Fortress Investment Group LLC (FIG) raised $200 million after pricing a 40 million unit offering at $5.00 per unit. This was after a $5.26 close on Thursday and after units had hit $7.00 last week before financial offerings came fast down the pipe.

Protective Life Corp. (PL) priced a 13.5 million share secondary offering at $9.00 per share. That is after closing at $9.23 on Thursday.

Smithtown Bancorp (SMTB) priced a 2.8 million share secondary offering at $10.00 per share after closing at $11.24 on Thursday. SHares were $13.00 on Tuesday.

Western Alliance Bancorporation (WAL) priced a 29.2 million share secondary offering at $6.00 per share after closing at $6.26 yesterday and after closing at $8.73 monday.

JON C. OGG

May 15, 2009

Posted in Banking, Secondary Offering Tagged: AWR, ENR, FIG, PL, SMTB, WAL

Top 10 Analyst Upgrades/Downgrades (AMZN, BEBE, DYN, ENR, JNPR, JNJ, LVS, NFLX, PG, SKS)

247wallst — Mon, 20 Apr 2009 12:13:32 +0000

These are the top ten analyst upgrades and downgrades we have seen from Wall Street this Monday morning:

Amazon.com (AMZN) Raised to Buy at Citigroup.
bebe Stores (BEBE) Raised to Outperform at FBR.
Dynegy (DYN) Cut to Hold at Jefferies.
Energizer (ENR) Cut to Sell at UBS.
Juniper Networks (JNPR) Cut to Perform at Oppenheimer.
Johnson & Johnson (JNJ) Raised to Outperform at Wachovia.
Las Vegas Sands (LVS) Raised to Overweight at JPMorgan.
Netflix (NFLX) Started as Buy at Merriman Curhan Ford.
Procter & Gamble (PG) Raised to Buy at Sun Trust Robinson Humphrey.
Saks (SKS) Raised to Overweight at JPMorgan.

Jon C. Ogg
April 20, 2009

Posted in Analyst Calls Tagged: AMZN, BEBE, DYN, ENR, JNJ, JNPR, LVS, NFLX, PG, SKS

Top Pre-Market Analyst Downgrades (ADTN, AFL, CBS, DDUP, ENR, INWK, PCS, PTRY, RGLD, SYK)

247wallst — Tue, 27 Jan 2009 07:17:21 +0000

These are some of this Tuesday’s top pre-market analyst downgrades and cautious research calls from Wall Street that we have seen with more than two hours until the opens:

ADTRAN (ADTN) Started as Equal-Weight at Barclays.
AFLAC (AFL) Cut to Hold at Deutsche Bank.
CBS (CBS) Cut to Underperform at Bernstein.
Data Domain (DDUP) Started as Sell at Broadpoint AmTech.
Energizer (ENR) Cut to Sell at UBS.
Innerworkings (INWK) Cut to Hold at Jefferies.
MetroPCS (PCS) Cut to Sector Perform ar RBC.
Pantry (PTRY) Cut to Market Perform at FBR.
Royal Gold (RGLD) Cut to Underweight at HSBC.
Stryker (SYK) Cut to Hold at Needham.

Jon C. Ogg
January 27, 2009

Posted in Analyst Calls Tagged: ADTN, AFL, CBS, DDUP, ENR, INWK, PCS, PTRY, RGLD, SYK