Scary Stock #1: Palm (PALM)
Palm (PALM) is the unfortunate company that has to go head-to-head against Apple's (AAPL) iPhone and Research In Motion's (RIMM) BlackBerry, not to mention both companies' enormously deep pockets. PALM will not win against such stiff competition.
Palm continues to lose money and burn cash faster than the Bush and Obama administrations. On Aug. 31, it had $277 million in cash and receivables, and $522 million in payables and short-term debt, while long-term debt is $389 million. And this is a company that may generate $400 million in revenue next year, and perhaps $500 million the year after, but no profits!
Barring an acquisition by a company dumber than Palm (where are the Chinese companies when you need them?), the stock is worthless.
Scary Stock #2: Open Table (OPEN)
Open Table (OPEN), a company that allows people to make restaurant reservations online, is a cult stock that's unspeakably overvalued. Think about it. Restaurants, especially higher-end ones, continue to lose business as consumers pinch pennies, and OPEN is a pure play on the restaurant business. This non-tech outfit is selling for six times revenue and 100 times forward earnings based on analyst estimates.
Management says it will fuel growth by expanding in Europe, but have you ever been to the typical high-end European restaurant? Fugheddaboudit! Management and other insiders just dumped a humongous number of shares in a secondary offering, which didn't raise any money for the company -- it just let investors and managers get liquid.
Scary Stock #3: Blue Nile (NILE)
Blue Nile (NILE) is another cult stock. It's well managed and a great brand for those buying jewelry online. The Street sees NILE as a "trading down" winner for people looking to save money who will buy their jewels online to save money. That may be true to some extent, but you need a credit card to buy online and income to back up the credit card -- and Blue Nile's core customer isn't the person who will go to Tiffany (TIF) while wearing a Hermes scarf.
Consensus estimates have NILE with a forward P/E in 2010 of 62. No kidding. The stock right now is range bound and has been driven by the troika that kills fundamental investors -- short squeezes, momentum traders and the willfully blind.
Bottom line: This company (while a great franchise) has a stock that is due to blow up. The only question is when.
Scary Stock #4: First Solar (FSLR)
First Solar (FSLR) is part of the Chinese solar industry -- an industry that's one big bubble!
I would like to provide a fundamental analysis of First Solar, but since it's a Chinese company, that would require paranormal skills that are found only in buy-side analysts who do investment banking or hope to do investment banking business in China and the Chinese solar industry. These companies boast iffy and unreliable accounting data. Orders from suppliers to assemblers are single, double and triple booked -- not in their earnings statements, but in the "insights" provided by analysts.
Furthermore, solar sales are being driven by Chinese government largesse; stock prices are being driven by loans from state-owned banks; and how long do you think the United States and Europe are going to give these companies unfettered access to their markets if China does not devalue? Plus, the put premiums reflect the contention that the Chinese solar industry is in a big bubble. Stay away!
Scary Stock #5: Wynn Resorts (WYNN)
Wynn Resorts' (WYNN) Steve Wynn is a guy I really love. He went from a bingo parlor operator to the world's most famous and innovative casino operator -- all while battling near-blindness from retinitis pigmentosa. He brought Frank Sinatra, the Mirage, Bellagio and the Wynn to Las Vegas, bought this, sold that and just brought $1.5 billion back home by cashing in on an IPO for his Macau venture.
He is one cool customer, but financial success in stock markets does not mean people are spending more money -- in fact, they are spending less. There will not be much growth in Las Vegas or Macau. In fact, I believe Las Vegas is gong to be seriously impaired for at least several years, and WYNN is radically overvalued.
Most importantly, in the short term, the stock is headed down and just dipped below its exponential six-monthmoving average, and is now hovering just above its 50-day moving average. Oh, and it is selling for 100 times earnings.
Finally, Mr. Wynn does not have a history of returning cash to investors; rather, he spends it on new hotels and casinos.
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