Schaeffer's Weekly Contrarian

"When everyone thinks alike, everyone is likely to be wrong."
~ Humphrey Neill, The Art of Contrary Thinking

The above quote has been reiterated numerous times in our publications because of its ability to succinctly capture the essence of contrarian thinking. While simple in theory, the task of capturing the prevailing sentiment can be as elusive as defining the boundaries of a cloud. The closer you get to it, the harder it is to see.(More)

 Print  My Yahoo  Add RSS
 

Is This Just the Beginning of Netflix's Recovery?

Posted on 2/1/2012 1:43 PM

Publication: "Harvard Business Review"
Publication title: "Netflix Will Rebound Faster than You Think"
Publication Date: 1/26/2012

KeyWords: NFLX 

Brief Summary:

After plummeting in late 2011 due to controversial price hikes, the shares of Netflix (NFLX) are once again on the rise. What's more, this upbeat article suggests the stock could pare its end-of-year losses at a quicker-than-expected pace, should the company flex some fundamental muscle.

"Two new sets of data show that criticism over Netflix's pricing moves has been overblown, and that the company is performing better than expected," note the authors. Along with the company's stronger-than-expected earnings report on Jan. 25, a recent study by CBS, The Nielsen Company, and The Cambridge Group found that, in a nutshell, "Netflix has only tapped half of the existing market for viewers with demand for streaming content, and that market is presumably growing."

However, as the authors note, "It's hard to imagine streaming is the final end game given that its 11% profit margins are a fraction of the legacy mail DVD's margins, which are nearly 5x higher." Nevertheless, considering NFLX's history as a "clear category creator with subscription-based DVDs by mail and again with subscription-based streaming," it might only take more of that same innovation to secure the firm's long-term viability. For instance, might the firm bring "its subscription-based media model to re-invent the local movie theater?"


Contrarian Takeaway:

Technically speaking, NFLX has tacked on roughly 73.5% in 2012, and is now attempting to establish a foothold atop the $120 region. This area acted as resistance during the final months of 2011, but could now switch roles to serve as support. What's more, the equity has outperformed the S&P 500 Index (SPX) by 71.7% during the past 40 sessions, underscoring its status as a recent broad-market standout.

From a sentiment standpoint, the equity's once-full bullish camp is still relatively depleted -- which could translate into a boon for the stock. According to Zacks, only four analysts currently rate NFLX a "buy" or better, compared to 26 offering up "hold" or worse suggestions. Likewise, Thomson Reuters pegs the average 12-month price target at $96.67, representing a discount to NFLX's current price.

As contrarians, there's nothing we like more than to see a fundamentally sound, uptrending equity surrounded by pessimism, which points to an ample supply of sideline cash to fuel additional gains. Should NFLX continue to recover both on and off the charts, a wave of upgrades and/or price-target boosts could lure even more buyers to the table.

Andrea Kramer (akramer@sir-inc.com)


 Discuss this commentary (Comments: 0)  |   Email to a Friend  |  RSS Feed Add RSS Feed
 Del.icio.us   Facebook   Reddit   Newsvine   Digg!Digg  

Can Research In Motion Take Any More of a Drubbing?

Posted on 1/26/2012 5:05 PM

Publication: "Barron's"
Publication title: "New CEO Not Enough for RIM "
Publication Date: 1/23/2012

KeyWords: RIMM 

Brief Summary:

This article takes a downbeat look at Research In Motion (RIMM), and suggests that only exciting new products or business strategies can spell better times for the downtrodden company. On Sunday, Jan. 22, the BlackBerry parent said good-bye to its co-CEOs and promoted Chief Operating Officer Thorsten Heins to the post. Although the author admits that RIMM is making the right decision in trying to move beyond its recent failures, he thinks that Heins may not be the right fit for the job. Analysts appear to be going back and forth about Heins as well, claiming he lacks the necessary experience and wondering if -- because of his more than four years with the company -- he may be "indoctrinated to the existing culture of the firm." As one analyst points out, "Heins views the company's current strategies as appropriate adjustments in addressing RIM's position, which may be enough to say that he is complacent as well as complicit in the massive smartphone market-share losses." If the newly appointed CEO should work out, the article asserts, there would still be a period of adjustment to wade through for RIMM, as the battle with well-established smartphone giants like Apple and Google rages on.


Contrarian Takeaway:

Even though RIMM has added 12.4% during 2012, the tech issue is still sitting on a whopping 73.7% deficit for the past 12 months. On a relative-strength basis, the stock has underperformed the broader S&P 500 Index (SPX) by 25.8% throughout the past 60 sessions. A closer look at the charts reveals that the stock is faltering below the $18 level and its 20-week moving average -- the latter of which has guided the shares lower since mid-March 2011.

With this lackluster price action, it's not surprising to find plenty of negativity surrounding RIMM. According to Zacks, 92% of analysts following the stock already consider it worthy of a "hold" or "sell" recommendation.

Elsewhere on the Street, short interest declined by roughly 14% over the past month, but still accounts for nearly 8% of the security's float. At RIMM's average pace of trading, though, it would take just two days to buy back all of these pessimistic positions -- indicating the bearish bandwagon is far from crowded.

However, the options pits looks to be teeming with bulls, as evidenced by the 10-day call/put volume ratio of 2.39 on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). This ratio arrives in the 91st annual percentile, signaling that traders on these exchanges have rarely bought calls over puts at a faster pace during the past year.

Considering RIMM's weak technical and fundamental performance, an unwinding of optimism among options traders could create an additional headwind -- especially if the stock continues to cower below technical resistance.

Jim Cunningham (jcunningham@sir-inc.com)


 Discuss this commentary (Comments: 0)  |   Email to a Friend  |  RSS Feed Add RSS Feed
 Del.icio.us   Facebook   Reddit   Newsvine   Digg!Digg  

Wall Street's Wary of Best Buy's Battle to Remain Relevant

Posted on 1/18/2012 4:10 PM

Publication: "CNBC.com"
Publication title: "Best Buy: The Big Box Fights Back"
Publication Date: 1/18/2012

KeyWords: BBY 

Brief Summary:

This article takes a skeptical look at Best Buy (BBY), with the author asserting right out of the gate that the retailer "has its work cut out for it." Despite respectable growth in online sales, along with the success of its smaller-format Best Buy Mobile outlets, the author warns that BBY is still too dependent on its brick-and-mortar stores. Eventually, notes the article, the relatively high overhead of those "big box" locations will start to put a dent in BBY's bottom line, as consumers increasingly migrate to the online arena to purchase electronics. While the retailer already has plans to pare its physical footprint in the U.S., the author wonders whether those cutbacks will be sufficient to appease shareholders.


Contrarian Takeaway:

BBY has definitely emerged as a technical laggard, with the stock losing roughly one-third of its value over the past 52 weeks. This steady decline has been highlighted by resistance at the equity's 10-week, 20-week, and 40-week moving averages, which have collaborated to thwart all of BBY's rally attempts since mid-December 2010.

In light of this dismal price action, it's no surprise to find a preponderance of pessimism surrounding the shares. During the past 10 sessions, options players on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) have bought to open 1.69 puts for every call on BBY. This ratio registers in the 98th annual percentile, just two percentage points from an annual pessimistic peak.

In the same bearish vein, short interest ramped up by 22.8% during the most recent reporting period, and now accounts for a noteworthy 13.3% of the stock's float. Plus, Zacks reports that 16 out of 22 analysts consider BBY worthy of just a "hold" or "sell" rating.

While BBY has yet to show any signs of life on the charts, the one silver lining is the healthy amount of negativity priced into the shares already. The retailer certainly has a number of technical and fundamental obstacles to overcome, but at least Wall Street's expectations are set fairly low.

Elizabeth Harrow (eharrow@sir-inc.com)


 Discuss this commentary (Comments: 0)  |   Email to a Friend  |  RSS Feed Add RSS Feed
 Del.icio.us   Facebook   Reddit   Newsvine   Digg!Digg  

Time to Take a Long Look at IMAX

Posted on 1/17/2012 9:01 AM

Publication: "Wall Street Journal"
Publication title: "Imax's Headroom for Growth Should Lure Movie Investors"
Publication Date: 1/9/2012

KeyWords: IMAX 

Brief Summary:

This Wall Street Journal article takes a bullish look at IMAX Corp. (IMAX). Despite a rough 2011 in Hollywood, which contributed to IMAX's more than 23% loss for the year, the author suggests that the company's "profits can grow at a healthy clip," even with "merely average box-office sales." As he points out, demand for IMAX's giant screens is increasing, particularly in foreign markets -- where the majority will be located in the near future. Plus, unlike studios, IMAX is able to collect roughly the same percentage of royalties overseas as it does domestically. In conclusion, the author writes, "While Imax shares would be hurt by a run of flops, investors who buy a seat should get their money's worth."


Contrarian Takeaway:

IMAX has started 2012 off on the right foot, climbing more than 15% in the first two weeks of the year. On a relative-strength basis, the stock has outperformed the broader S&P 500 Index (SPX) by roughly 26% during the past three months. The shares ended last week above their 32-week trendline and round-number resistance at the $20 level, which could now switch roles to serve as support.

However, there appears to be a decent amount of pessimism still surrounding the stock. Short interest rose by 15% over the past month, and now accounts for 9.1% of the security's float. At IMAX's average pace of trading, it would take over one week to buy back all of these bearish bets.

The options arena also looks to be loaded with bears, as evidenced by the 10-day put/call volume ratio of 0.90 on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). This ratio arrives just 10 percentage points from a pessimistic peak, signaling that traders on these exchanges have rarely bought puts over calls at a faster pace during the past year.

Analysts are similarly downbeat. Thomson Reuters places the average 12-month price target at $27.30, which represents a 29.4% premium to IMAX's settlement of $21.10 on Dec. 13.

Should IMAX continue to rise above the psychologically significant $20 level, an unwinding of pessimism could give the stock the boost it needs to continue on its year-to-date ascent.

Jim Cunningham (jcunningham@sir-inc.com)


 Discuss this commentary (Comments: 0)  |   Email to a Friend  |  RSS Feed Add RSS Feed
 Del.icio.us   Facebook   Reddit   Newsvine   Digg!Digg  

Is Halliburton Overhyped for 2012?

Posted on 1/5/2012 12:18 PM

Publication: "MarketWatch"
Publication title: "Should you buy Wall Street's top stocks for 2012?"
Publication Date: 1/4/2012

KeyWords: HAL 

Brief Summary:

As this MarketWatch column points out, now is the time of year when Wall Street analysts offer their two cents on the best stocks to buy for the year ahead. However, after running the numbers, columnist Brett Arends cautioned that if history is any indicator, investors may be better off coming to their own conclusions for 2012.

Specifically, if you'd invested $10,000 in each of the 10 most beloved stocks (as measured by their number of "buy" or better ratings) on the S&P 500 Index (SPX) last year, "you'd be down 3.5%, even before trading costs and taxes," says Arends. Furthermore, "Six of the 'top 10 stocks' actually lost you double digits," while five of the 10 least-loved stocks (as measured by "sell" or worse ratings) actually rose year-over-year, outperforming a flat SPX.

That said, the author -- with help from Thomson Reuters -- listed Wall Street's "top picks" of 2012, which included commodity titan Halliburton (HAL).


Contrarian Takeaway:

According to Zacks, HAL is, in fact, adored among the brokerage bunch, garnering a whopping 22 "strong buys" and three "buy" endorsements. For comparison, just two analysts offer up a lukewarm "hold" rating, and not one rates the stock a "sell" or worse. In the same vein, Thomson Reuters pegs the consensus 12-month price target on the equity at $53.83 -- representing a steep premium of 53% to HAL's closing price of $35.12 on Jan. 4.

Elsewhere, the options crowd is also optimistically aligned toward HAL. The security's Schaeffer's put/call open interest ratio (SOIR) of 0.66 indicates that calls comfortably outnumber puts among options slated to expire within three months. Plus, this ratio registers in just the second percentile of its annual range, suggesting that short-term options traders have rarely been more call-heavy on HAL during the past year.

From a fundamental and technical standpoint, though, the abundance of bullish bets seems somewhat out of place. For instance, HAL could be on the hook to cover the cost of cleaning up the 2010 Gulf of Mexico oil spill, if BP plc (BP) has anything to say about it. Technically, meanwhile, HAL has surrendered roughly 40% since peaking at $57.77 in July, ushered lower beneath its 10-week and 20-week moving averages.

From a contrarian perspective, the optimism surrounding HAL could leave the equity vulnerable in 2012. Should the stock continue to struggle on and/or off the charts, a mass exodus of bulls -- in the form of downgrades, price-target cuts, or a reversal in sentiment in the options pits -- could exacerbate the shares' recent slide.

Andrea Kramer (akramer@sir-inc.com)


 Discuss this commentary (Comments: 0)  |   Email to a Friend  |  RSS Feed Add RSS Feed
 Del.icio.us   Facebook   Reddit   Newsvine   Digg!Digg  

Green Mountain Coffee Roasters: Not for the Faint of Heart

Posted on 12/30/2011 12:21 PM

Publication: "Kiplinger"
Publication title: " Breaking the Caffeine Habit"
Publication Date: 12/22/2011

KeyWords: GMCR 

Brief Summary:

This article takes a skeptical look at Green Mountain Coffee Roasters (GMCR) following a remarkably volatile year for the stock. After peaking near $116 in late September, the shares took a serious dive -- thanks in part to a bearish case from well-known fund manager David Einhorn, as well as a poorly received earnings report in November. While some prospective buyers may be lured in by the drastically reduced share price, this bearish piece warns that there could be additional downside in store for beaten-up GMCR. Citing evidence of flagging Keurig brewer sales, unresolved accounting probes, and the threat of increased competition as GMCR's K-Cup patents expire in 2012, the author concludes that "investors... should avoid the stock."


Contrarian Takeaway:

From a technical perspective, GMCR is perched at a crucial level. The stock gapped above the $45 level back in March, which set the stage for the aforementioned sprint up to record-high territory. After a gruesome second half of 2011, GMCR is now lingering right near the $45 level. So far, this area is holding up as support -- but a breach of this level could spell trouble for the shares.

Meanwhile, the sentiment backdrop is a bit murky. Short interest accounts for a hefty 24% of the equity's float, pointing to a glut of potential buyers on the sidelines. In the event of any good news from GMCR, this could translate into a significant short-squeeze rally. On the other hand, with nine out of 12 brokerage firms maintaining a "buy" or better rating on the shares, any further weakness in the share price could prompt a round of momentum-killing downgrades.

As a result, GMCR could be poised for a volatile move in either direction over the coming months, depending upon how the company's fundamental drama plays out. In the meantime, traders should keep a wary eye on the stock's progress around that historically significant $45 region.

Elizabeth Harrow (eharrow@sir-inc.com)


 Discuss this commentary (Comments: 0)  |   Email to a Friend  |  RSS Feed Add RSS Feed
 Del.icio.us   Facebook   Reddit   Newsvine   Digg!Digg  

After T-Mobile Bid's Collapse, What's Next for AT&T?

Posted on 12/21/2011 3:17 PM

Publication: "The Wall Street Journal"
Publication title: "Trouble on the Verizon for AT&T"
Publication Date: 12/20/2011

KeyWords: T VZ 

Brief Summary:

This article takes a long, hard look at Ma Bell in the wake of AT&T's (T) collapsed bid for T-Mobile. In this gloomy piece, the author asserts that AT&T is on the hook for "much more than the huge breakup fee" connected to its ill-fated merger -- the telecom titan has also lost time to key rival Verizon Wireless, "in terms of investing in its own network." While Verizon recently struck a deal with cable companies to scoop up additional spectrum assets, and moved forward with a "shrewd" plan to jump into the next-generation LTE network, AT&T is now left scrambling for an alternative method to build out its own notoriously sluggish network. Going forward, concludes the author, "the trajectory of [AT&T's] share price should remain muted."


Contrarian Takeaway:

Many on Wall Street were already leery of AT&T's brash T-Mobile maneuver, so the stock didn't exactly suffer when the telecom giant walked away from the bid. However, the author's prediction of stagnant price action could prove to be quite accurate, since a sideways price trend would simply be more of the same for Ma Bell.

Over the course of the past year, the shares have been virtually comatose, with T resting on a 52-week gain of 0.2%. Plus, the stock is currently pinned below familiar resistance in the $29.50-$30 neighborhood, which has played the role of stubborn resistance for the better part of the past three years. During the near term, this technical ceiling could continue to keep a lid on T's progress.

Meanwhile, short interest accounts for less than 1% of T's float -- so, even in the event of some stellar news for the stock, there's very little room for the Dow component to benefit from a rush to cover. As this skeptical article suggests, both bulls and bears may want to steer clear of stagnating T for the foreseeable future.

Elizabeth Harrow (eharrow@sir-inc.com)


 Discuss this commentary (Comments: 0)  |   Email to a Friend  |  RSS Feed Add RSS Feed
 Del.icio.us   Facebook   Reddit   Newsvine   Digg!Digg  

DuPont Can Wait

Posted on 12/15/2011 12:35 PM

Publication: "Barron's"
Publication title: "Punt on DuPont"
Publication Date: 12/9/2011

KeyWords: DD 

Brief Summary:

This article was a call for investors to bide their time with DuPont (DD), and wait for the stock to tick lower before snatching up shares. The author points out that DD lowered its earnings outlook for 2011 (reported on Dec. 9) amid "customer destocking," which can be linked to a "softer demand for consumer electronics, coupled with weakness in housing and construction markets." DD's 3.4% dividend yield and a press release stating that its agricultural and food segments "continue to be strong" can be considered positive for the company; however, the writer thinks that sluggish demand in American and European industrial markets will overshadow these potential positives, making it a better play for the shorts. Furthermore, the columnist acknowledged that DD's annual meeting -- which took place earlier this week, after the article was penned -- could pressure the stock even lower, should more disappointing details about its outlook emerge.


Contrarian Takeaway:

Sure enough, DD did delve deeper into its outlook, predicting the recent bout of destocking to be relatively short-lived. Furthermore, for 2012, the company said it expects global gross domestic product (GDP) to increase by 2% to 3%, projected "restocking" among its agricultural, nutrition and bioscience segments, and predicted 2012 earnings of $4.20 to $4.40 per share. Analysts, on average, are calling for earnings of $4.23 per share in 2012.

Even before this clarified forecast -- which didn't do much for the shares of DD -- most of the brokerage bunch were bullish toward the stock. According to Zacks, 71% of analysts doled out a "buy" or better endorsement. Meanwhile, Thomson Reuters places the average 12-month price target at $52.80, which represents a 21% premium to DD's close of $43.70 on Dec. 15.

Elsewhere on Wall Street, short interest ballooned by 14.6% during the past month. However, these bearish bets represent just over two sessions' worth of pent-up buying demand, at DD's average pace of trading, suggesting the bearish bandwagon is far from overloaded. During the near term, the security could take a hit if any of the lingering bulls decide to hit the exits.

From a technical perspective, DD is sitting on a 12.3% deficit for 2011. The stock is currently in danger of closing the month below its 20-month moving average for only the second time since October 2009.

Should DD extend its year-to-date retreat, a change of heart in the options pits or among the brokerage bunch could weigh on the shares.

Jim Cunningham (jcunningham@sir-inc.com)


 Discuss this commentary (Comments: 0)  |   Email to a Friend  |  RSS Feed Add RSS Feed
 Del.icio.us   Facebook   Reddit   Newsvine   Digg!Digg  

The Long and Short of Capital One

Posted on 12/9/2011 2:43 PM

Publication: "MarketWatch"
Publication title: "Capital One stock isn't a number No. 1 choice"
Publication Date: 12/2/2011

KeyWords: COF 

Brief Summary:

This MarketWatch commentary investigates Capital One Financial (COF), and examines what makes it a "good company, bad stock" and the "Stupid Investment of the Week." The author points out that COF's prospects -- namely its credit card service and its pending acquisitions of financial-services advertiser ING Direct USA and HSBC Holdings' (HBC) domestic credit card business -- appeal to many traders. Even COF's valuation looks like a deal for those attempting to find a bargain on such a big name. However, the writer suggests, COF could easily trade in either direction, depending on how these potential prospects pan out, making it difficult to see the bigger picture for the average investor.

Appropriately, the article closes with a summation of COF from Brent Wilsey of Wilsey Asset Management in San Diego. "There's a good chance this stock is at $50 a year from now, and that would be good in just about anyone's book." Wilsey continues, "I like the company and think it's worth buying, but there's no sector that is harder to own right now than banking, and Capital One is only going to be an investment for someone who can ride it out and hang onto it for 18 to 24 months regardless of what happens in the short term. A lot of investors can't do that these days."


Contrarian Takeaway:

As the author suggests, there's a fair amount of confidence surrounding the stock. According to Zacks, 75% of analysts interested in COF give it a "buy" or better endorsement. Meanwhile, Thomson Reuters places the average 12-month price target at $56.85, which represents a 23.4% premium to Friday's intraday high of $46.08.

There is growing optimism in the options arena as well. During the past 10 days, speculators on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) have bought to open 1.12 calls for every put. This ratio lands in the 66th percentile of its annual range, implying that speculators on these exchanges have bought calls over puts at a faster clip than usual during the past couple of weeks.

However, this recent trend toward calls may not be as bullish as it seems. Short interest on the equity is up slightly over the most recent reporting period, and now makes up a healthy 6.4% of the security's available float. Therefore, it's possible that a portion of the recent call volume was a result of hedging activity by the shorts.

On the charts, COF has been slow to move, turning in a mere 5% gain during 2011. Since early August, the security has been bouncing between support in the $40-$41 range and resistance in the $46-$47 region.

Should the stock continue to get whipsawed by the uncertainty in the global financial markets, an unwinding of optimism could weigh on COF.

Jim Cunningham (jcunningham@sir-inc.com)


 Discuss this commentary (Comments: 0)  |   Email to a Friend  |  RSS Feed Add RSS Feed
 Del.icio.us   Facebook   Reddit   Newsvine   Digg!Digg  

Is Starbucks Destined to Follow in Netflix's Footsteps?

Posted on 11/29/2011 1:57 PM

Publication: "Fortune"
Publication title: "2011 Businessperson of the Year"
Publication Date: 11/17/2011

KeyWords: SBUX NFLX 

Brief Summary:

Howard Schultz, founder and CEO of Starbucks Corp. (SBUX), was recently named Fortune's 2011 Businessperson of the Year. As the magazine notes, since returning to Starbucks in 2008, the politically vocal leader has "taken it to new heights, posting record revenue and profits." Furthermore, the "ubiquitous brand has transcended mere coffee to become a lifestyle emblem," boasts "more stores than ever" -- and is still expanding, especially overseas.

In fact, Starbucks -- which already has more stores than all but Subway and McDonald's (MCD) -- aims to open around 200 company-owned stores in the U.S. next year, and remodel another 1,700. Plus, it's slated to open 600 new stores abroad -- mostly in mainland China -- in 2012, and hopes to have 1,500 stores in that country by 2015. In the shorter term, the firm will introduce its first mild roast, Blonde, next month, and intends to utilize its $30 million purchase of juice giant Evolution Fresh as "its entry into the 'health and wellness' food category."

However, while the Fortune article acknowledges that "for every Steve Jobs, there's a Jerry Yang," it doesn't mention the fate of last year's inaugural recipient of Businessperson of the Year: Netflix (NFLX) CEO Reed Hastings. Since receiving the award last December, Hastings has seen the shares of NFLX plummet roughly 65% -- mostly in the wake of the exec's controversial decision to hike prices and split its streaming video service. What's more, the streaming content concern recently tagged a new annual low, after warning of a first-quarter loss amid a costly overseas expansion.

Plus, contrarians could argue that the Street's adoration of NFLX -- as evidenced by the aforementioned Fortune honor -- likely hit the "euphoria" stage of the sentiment cycle earlier this year, which left the stock even more vulnerable to a bullish backlash. Against this backdrop, we have to wonder: could Schultz's Fortune award signal a similarly risky sentiment set-up for SBUX?


Contrarian Takeaway:

Like NFLX just a year ago, the shares of SBUX are on the rise, tagging a fresh all-time high of $44.69 earlier this month. In fact, the equity has outperformed the broader S&P 500 Index (SPX) by almost 10% during the past 60 sessions, on a relative-strength basis.

On the sentiment front, the majority of analysts are unsurprisingly optimistic, with Zacks reporting 14 "strong buys" and one "buy" rating, compared to eight lukewarm "holds" and just one "sell" or worse recommendation. Likewise, short interest depleted by 32.5% during the past month, and now accounts for less than 2% of SBUX's total available float -- pointing to a lack of potential buyers on the sidelines.

Against this backdrop -- and considering that themes on magazine covers tend to be already widely known and almost universally significant -- one could argue that a wrong move by Schultz & Co. could leave SBUX vulnerable to a bullish exodus on the Street.

Andrea Kramer (akramer@sir-inc.com)


 Discuss this commentary (Comments: 0)  |   Email to a Friend  |  RSS Feed Add RSS Feed
 Del.icio.us   Facebook   Reddit   Newsvine   Digg!Digg  








Search Past Schaeffer's Weekly Contrarian

Search by: Word or phrase to search:

 

"When everyone thinks alike, everyone is likely to be wrong."
~ Humphrey Neill,
The Art of Contrary Thinking

The above quote has been reiterated numerous times in our publications because of its ability to succinctly capture the essence of contrarian thinking. While simple in theory, the task of capturing the prevailing sentiment can be as elusive as defining the boundaries of a cloud. The closer you get to it, the harder it is to see.

Even Humphrey Neill admitted the difficulties inherent in gauging sentiment:

"I found in my own case that it took several years, as a matter of fact, before I was able to weigh 'public opinion' with sufficient accuracy to feel reasonably confident of the contrary conclusion. It takes time to form the habit of thinking contrarily…I grant you that you will have to peruse a pile of news and comments."

Regular Schaeffer's readers are well aware that we use "hard" data such as put/call ratios and short interest to gauge the sentiment of stocks, sectors, and the market as a whole. Graphs and numbers are easy to quantify and show. What is not so easy to convey is the sentiment that is gathered from poring over numerous publications and scanning various news outlets. This information is embedded in our approach and used to make trading decisions.

At Schaeffer's, we have a team of analysts who track this "anecdotal sentiment" and pull it all together for our in-house research. The amount of information available is overwhelming and it would be impossible for one individual to stay on top of it all. Noting that Neill himself acknowledged the complexity of tracking numerous publications and the need for experience, we have launched a new column, "Schaeffer's Weekly Contrarian."

This weekly column will post summaries of current articles and provide a short take on how we view the article in a contrarian light. Some entries will give you insight into how we read media articles and how to merge small morsels into a tasty contrarian meal. Our goal is to constantly scan various media and news outlets every trading day and present some of what we feel provides a good contrarian read. We should note that not all articles will lend themselves to a contrarian interpretation. In fact, most will not.

What This is Not

First and foremost, "Schaeffer's Weekly Contrarian" is not meant as a trade recommendation. These articles and our contrarian interpretation are but a small piece of a much larger analytical puzzle. Gathering anecdotal sentiment from a variety of sources and merging this with hard data is the hallmark of contrarian analysis. Here you get a first-hand account of how to go about this in real time.

It's also important to understand that getting a contrarian read from an article is by no means a poor reflection on the publication or its writers. A negative article on a high-flying stock may site accurate facts and be extremely logical. And more importantly, it could ultimately prove to be correct. However, experience has taught us that uptrends do not end until the final capitulation where it seems that everyone has finally given up their concerns. The market has shown time and again that short-term moves are often driven purely on emotions. By monitoring the comments made by analysts in the media, we can add this to our contrarian arsenal to gauge whether the capitulation stage has finally been reached.

At Schaeffer's, we have the years of experience and the ability to "peruse the piles of news." More importantly, we are willing to share it with you every day. It's almost like having your own personal team of contrarian analysts gathering and summarizing anecdotal information. We hope "Schaeffer's Weekly Contrarian" becomes a resource you value as much as we do.

(Top of Page)



Partner Center
© 2012 Schaeffer's Investment Research, Inc. 5151 Pfeiffer Road, Suite 250, Cincinnati, Ohio 45242
Phone: (800) 448-2080 FAX: (513) 589-3810 Int'l Callers: (513) 589-3800 Email: service@sir-inc.com
All Rights Reserved. Unauthorized reproduction of any SIR publication is strictly prohibited.

Market Data provided by QuoteMedia.com | Data delayed 15-20 minutes unless otherwise indicated.