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When Bad News is Good News
The Oxford Short Alert
Tuesday, March 29, 2005
By Alexander Green, Investment Director
#248
** When Bad News is Good News
Bad news is rarely a welcome occurrence.
Unless, of course, you’re selling a stock short. And for two of our positions, the future looks pretty bleak. (And that’s a good thing.)
When we originally shorted Unisys (NYSE: UIS) the company was coming off a self-proclaimed “disappointing” year. Revenues declined significantly, gross profit margins were slashed in half. And the company watched profitability disappear as it reported a loss of 10 cents a share for the quarter.
It turns out the external factors management cited aren’t the only cause for concern. Just last week, New York-based research firm Vault revealed that problems continue to fester.
As one of the firm’s software engineers puts it:
“The cost-cutting program has reached pathological levels, and few management decisions raise employee morale… Unisys’ competition is the IT heavyweights. We continue to struggle to carve out a niche.”
Not surprisingly, shares are already setting new lows. Weakening demand and rampant internal woes should force shares lower when the company reports first quarter results.
Elsewhere, the downward trajectory for shares of Ceridian Corp. (NYSE: CEN) is gaining steam. The company has been struck with a double whammy of bad news this month.
Moody’s affirmed the company’s Baa3 rating (the lowest investment grade rating possible), but lowered its outlook to “negative.” And due to internal accounting control issues, the company missed its deadline to file its annual Form 10-K.
When Ceridian finally restates earnings, underperformance will likely force Moody’s to downgrade the debt to junk status – a move that should remove the weak support that already exists.
While the bad news keeps coming for both companies, the good news is that shorting both should continue to be a profitable venture.
Our gains in Unisys and Ceridian are likely just the beginning.
If you have any questions, feel free to call one of our VIP Trading Services representatives at 888.570.9830 (toll-free) or e-mail: viptrader@oxfordclub.com, or contact Pillar One Advisor Greg Galloway at 800.438.3040 or 407.667.4729.
Stock
Symbol
Current Price
Comments
Winnebago
NYSE: WGO
$31.54
Sell short. Buy stop is $39.
Ferro Corp.
NYSE: FOE
$19.18
Sell short. Buy stop is $24.
Unisys
NYSE: UIS
$6.75
Sell short. Buy stop is $9.
SanDisk
Nasdaq: SNDK
$27.82
Sell short. Buy stop is $30.
Ceridian Corp.
NYSE: CEN
$17.10
Sell short. Buy stop is $22.
CNH Global
NYSE: CNH
$18.20
Sell short. Buy stop is $21.35.
CenturyTel
NYSE: CTL
$33.19
Sell short. Buy stop is $39.67.
Safeway
NYSE: SWY
$18.48
Sell short. Buy stop is $21.
Bio: Alexander Green is the Investment Director of The Oxford Club. A Wall Street veteran, he has over 16 years experience as a research analyst, investment advisor, and professional portfolio manager. Mr. Green is also considered one of the most talented financial writers in the business. He’s been featured on “The O’Reilly Factor,” profiled by Forbes and Marketwatch.com, and has written for Louis Rukeyser and several other leading financial publications. He currently writes and directs The Oxford Club Communiqué, the Oxford Insight e-letter, and four elite trading services: one focused on momentum stocks, another focused on companies with significant insider buying, another dedicated to international growth stocks and another focused on short-selling fundamentally flawed companies. Mr. Green is also a top-rated speaker at financial conferences around the country.
Copyright – 2005 The Oxford Club, LLC. The Oxford Club does not act as an investment advisor or advocate the purchase or sale of any security or investment. The Oxford Club expressly forbids its writers from having a financial interest in any security recommended to its readers. All of our employees and agents must wait 24 hours after an Internet publication prior to following an initial recommendation. And for hard-copy-only publications, 72 hours after the publication is mailed. Investments recommended in this letter should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company. The Oxford Club provides its members with unique opportunities to build and protect wealth, globally, under all market conditions. The executive staff, research department and editors who contribute to The Club’s recommendations are proud of the reputation The Oxford Club has built since its inception in 1984. We believe the advice presented to its members in our published resources and at our meetings and seminars is the best and most useful available to global investors today. The recommendations and analysis presented to members is for the exclusive use of members. Copying or disseminating any information published by The Oxford Club, electronic or otherwise is strictly prohibited. Members should be aware that investment markets have inherent risks and there can be no guarantee of future profits. Likewise, past performance does not assure future results. Recommendations are subject to change at any time.
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