A lot of this sounds Cash America specific but we are in baby thrown out with bathwater area here.... EZCORP bottomed out near the upper $11s in October 2008 (other than 1 day spike down) so that may be where it is headed. The stock is about $1 below where we sold it (currently in the $12.70s) so I'm going to wait this out... also I believe this market is prone to more downside after the obligatory dead cat bounce - so I'm just sitting on the sideline tapping my shoes. Further, we have earnings on the 22nd (tomorrow) so no reason to make a "bet" (and that's all it is) ahead of 50/50 proposition. If I had to guess however, I think the stock could be setting up for an upside surprise based on a solid earnings. Let's see what Cash America had to say...
- Payday lender Cash America International Inc (CSH) forecast a 15 percent drop in fourth-quarter net income, excluding certain items, as it has been hurt by lower cash advance revenue, and cut its 2009 earnings outlook.
"Our transition to a new loan product in Ohio... proved more challenging than anticipated and led to a loss for our storefront cash advance business in the fourth quarter," Chief Executive Daniel Feehan said.
Quarterly earnings were also hit by higher loss rates for the company's online cash advance product and heavier discounting on the retail sale of merchandise during the Christmas season.
The company lowered its 2009 earnings view to between $3.10 and $3.30 per share from its prior view of $3.35 to $3.55 a share, citing changes in revenue in its remaining Ohio locations. The company said in May last year that it plans to close its Ohio lending operations following the adoption of a legislation in the state that significantly caps interest on loans it makes.
My one concern with this group outside of legislative risk is the economy is going to be far worse than the punditry talks about and hence the cash advance "repayment" ratio (which is poor to start with) is going to get even worse as the job losses mount. Hopefully these companies are tightening up their standards....
As for the market, as I wrote late yesterday I would be taking any last hour tomfoolery or a morning "bounce" as an opportunity to expand some short exposure. All the individual stocks I want to short are so beaten down (doesn't mean they cannot go lower) but it's just easier to use the Ultrashorts until we get to a more sideways market where the "worst of breed" rebounds.
For now I am using 2 "resistance" areas - S&P 820, and 850. Support turns into resistance... any bounces to these areas I will build short - a first layer at 820 and a larger one at 850... so I have layer one in on this morning's "IBM says everything is cool! buy stocks!" rally to 820. If we break below S&P 800 on a close I'll add more short there as the chart screams to me: "lower".... don't know if it is right away - but it's coming. With all the Obama announcements I see coming in the next 1-10 days you will see the bulls once again clinging to hope. That's the only fly in the ointment. But as we saw yesterday - hope doesn't get you very far when reality strikes. Expect a lot of reality as these months pass - I am keeping a very wary eye to Friday and the General Electric (GE) report - that will be a market mover one way or the other. Unfortunately we have to use 3 eyes to watch Washington D.C. in this very abnormal era when government interference means more than business fundamentals. Which is why it's hard for both shorts (hey we decided we're going to ban financial shorting - enjoy!) and longs over the long run in this type of environment.
But for now, we use every rally to rebuild short exposure. Cash is back over 60%. This is not a time to take risk so I'll be mostly an observer until the next trend begins. During this entire tank job the past two weeks we've been sitting just fine - so we don't need to take risks to make sure we don't miss the "bounce". Most mutual funds have just hemorrhaged 15% in the past two weeks so I'll let them worry about missing the rebound...
I've placed some buy orders on names I like at substantially lower prices to see if they hit in the coming week or so... not doing much else as I await SuperObama's plans to save every bank and homeowner from themselves.
Long EZCORP in fund; no personal position
