Harry Rady News

Originally posted on Business Week
3/3/2011
Rita Nazareth

Warren Buffett has a cash hoard of almost $40 billion and wants to spend it on major acquisitions. The “elephant gun has been reloaded, and my trigger finger is itchy,” the 80-year-old chairman of Berkshire Hathaway (BRK.A) said in his annual letter to shareholders on Feb. 26.

Buffett typically prefers “simple” businesses with pretax profit exceeding $75 million, “consistent” earning power, and “good” returns on equity while employing little or no debt, he says in his report. He has shifted his takeover strategy as Berkshire focuses on “capital intensive businesses” that require investment in infrastructure and equipment, such as power producers and railroads. Investors such as Buffett prefer to buy companies when their valuations are low by historical standards. Last year he made his largest purchase, paying $26.5 billion for Burlington Northern Sante Fe railway. Buffett didn’t respond to a request for comment.

General Dynamics (GD), the maker of Gulfstream business jets and Abrams tanks; Exelon (EXC), the biggest U.S. nuclear power generator; and Archer Daniels Midland (ADM), the world’s biggest grain processor, are among 45 companies that meet the acquisition criteria listed in Buffett’s annual letter, according to data compiled by Bloomberg. “He’s probably looking for something along those lines,” says Barry James, who oversees $2.5 billion as president of James Investment Research in Xenia, Ohio. “Obviously we’re going to need defense, energy, and agriculture.”

Buffett owned a stake in General Dynamics more than a decade ago. Its net income rose 19 percent in the fourth quarter as demand for Gulfstream jets rose, and Chief Executive Officer Jay L. Johnson says the aerospace unit will increase sales at least 10 percent this year. Rob Doolittle, a spokesman for General Dynamics, declined to comment.

ADM could appeal to Buffett because it excels at transporting and storing food and grains, “a very difficult business to replicate,” says Brian M. Barish, president of Cambiar Investors in Denver. One thing that might deter Buffett is that in 1996 ADM agreed to pay a then-record $100 million antitrust fine after the government accused it of price fixing. Buffett’s son, Howard Buffett, joined ADM in 1992, serving as a director and head of investor relations. He resigned in July 1995 because he was unhappy with the company’s actions related to the investigation, The Wall Street Journal reported at the time. Roman Blahoski, a spokesman at ADM, declined to comment.

Exelon may be a target as Buffett looks to add to his stakes in utilities and power producers, according to Harry Rady, who oversees $270 million as CEO of Rady Asset Management in La Jolla, Calif. Exelon trades at 10.1 times earnings, compared with its five-year average of 14.7. “It’s out of favor,” says Rady. “That would be one that would be right up his alley.” Exelon spokesman Paul Elsberg also declined to comment.

Buffett could consider adding another insurer to his stable. Chubb (CB), Travelers (TRV), and Allstate (ALL) are all trading below their historical valuations based on book value, according to Paul Newsome, an analyst at Sandler O’Neill + Partners. Buying an insurer “definitely makes sense,” he says.

The bottom line: Bloomberg data show 45 companies that match up with the takeover goals Buffett outlined in his latest shareholder letter.

Original Article: http://www.businessweek.com/magazine/content/11_11/b4219043478685.htm

U.S. Stocks End Mixed, But Leaders Shine | Web
11/22/2010
Originally Published on Investors.com
By Mao, Vincent

Euro-zone fears and worries over the financial sector pressured stocks, but they fought back to a mixed finish Monday.

The Nasdaq rose 0.6% after having been down as much as 0.7%. It found support near the 2500 level. The NYSE composite fell 0.4%, while the Dow and S&P 500 lost 0.2% each. All three were down between 1.3% and 1.5% at session lows. Volume fell on both exchanges.

A number of leaders had a nice day. About 78 stocks in the IBD 100 ended higher.

F5 Networks (FFIV) rallied nearly 8% to an all-time high in heavy trading. The stock cleared a 128.05 buy point in a three-weeks-tight pattern. F5 provides optimization technologies for network applications. It grew earnings between 30% and 65% over the past four quarters. Sales growth ranged from 15% to 46% over the same period.

Riverbed Technology (RVBD) erased opening losses, climbing 6% to a record high. The stock found support at its 10-week moving average in October. Riverbed provides products and services that improve applications and accessibility over wide-area networks. Its earnings grew between 10% and 86% in the past four quarters. Sales grew 22% to 45% over the same period.

VanceInfo Technologies (VIT) rallied 6% as it continued to rebound from a second test of its 50-day moving average. It’s now just about 1% off its Nov. 4 record high. The stock cleared a cup-with-handle base in July. Last week, the Chinese provider of software research and development services beat views with a 24% rise in Q3 earnings. After the close, the company announced a secondary offering of 2.2 million American depositary shares.

Group mate HiSoft Technology International (HSFT) gapped up and added 4% in heavy trading. It too is rebounding from a test of its 50-day line. Before the open, the Chinese IT services provider delivered Q3 earnings of 21 cents a share, up 163% and 3 cents above views. Sales grew 53% to $38.9 million, also above views. The company also guided full-year profit at 82 cents or 83 cents a share vs. views of 77 cents.

Outside of technology, Chipotle Mexican Grill (CMG) climbed 5% to an all-time high. That puts shares 57% past a buy point from a cup-with-handle base cleared Sept. 1.

On the downside, financials were some of the session’s worst performers. The Financial Select Sector SPDR dropped 1.4%. Big banks such as Goldman Sachs (GS) fell 3% and Morgan Stanley (MS) lost 2%. Both are laggards with Relative Price Strength Ratings of 49 and 14, respectively. “Several factors weighed negatively on financial stocks today,” noted Harry Rady, CEO and portfolio manager at Rady Asset Management.

First, Barclays Research reported that the top U.S. banks may have a shortfall of $100 billion to $150 billion in capital as per Basel III standards. Second, the effort to bail out Ireland continues to put pressure on Financials. And last, the FBI conducted raids on a few hedge funds related to a new alleged insider-trading probe.

Elsewhere, Hewlett-Packard (HPQ) reported October fiscal Q4 earnings after the closing bell. The company earned $1.33 a share, up 17% and 6 cents over views. Sales grew 8%, also beating views. HP also guided fiscal Q1 profit and sales above analysts’ estimates. Shares rose 1% in extended trading.

The second estimate of the Q3 GDP, existing home sales and the minutes from the Nov. 3 Fed minutes will be out Tuesday.

As originally posted on Bloombert.com
By Nikolaj Gammeltoft

OpenTable Inc. short sellers are placing record wagers against the online restaurant-reservation company, betting it will slump after posting bigger gains than every other U.S. initial public offering in the past two years.

The San Francisco-based company’s shares jumped 230 percent through yesterday since the IPO almost 18 months ago. The rally convinced investors to sell short 15 percent of its shares outstanding, the most since OpenTable began trading in May 2009 and more than twice its average level, according to data compiled by Data Explorers, a New York-based research firm.

Rady Asset Management LLC and T2 Partners LLC are betting OpenTable’s prospects don’t justify a price-earnings ratio of 122, or eight times higher than the valuation for the Standard & Poor’s 500 Index. While analysts estimate the company will post 51 percent growth in per-share profit in 2011, OpenTable may run out of room to expand its business, said T2’s Whitney Tilson, who lost money when the shares jumped 11 percent on Nov. 3 following the company’s quarterly earnings report.

“It’s one of the most overvalued stocks we’ve ever seen,” said Whitney Tilson, who oversees $214 million with Glenn Tongue at T2 in New York. “It’s a well-run company, but it’s stretching for growth and the earnings report was misinterpreted as a spectacular report, when it was only OK.”

Tiffany Fox, a spokeswoman for OpenTable, declined to comment.

Fourfold Profit Gain

OpenTable, which posted a fourfold increase in third- quarter income last week, makes money from restaurants that install its system and collects monthly subscriptions and a fee for each guest seated through online bookings. Diners schedule reservations for free through OpenTable’s website or applications on devices such as Apple Inc.’s iPhone.

The stock, which has at least five analyst “buy” ratings and seven “holds,” peaked at $69.61 on Nov. 4 after the third- quarter earnings announcement. It closed at $65.95 yesterday, and fell 0.1 percent to $65.87 at 11:49 a.m. in New York.

OpenTable has one of the best management teams among small Internet companies with strong growth opportunities, according to Citigroup Inc. analyst Mark Mahaney, who increased his share- price estimate to $80 this month. The stock has risen 16 percent since he boosted his rating to “buy” from “hold” on Sept. 13.

“What OpenTable has proven is that it has created a dominant transactions platform on which in can layer in new, high-margin revenue streams,” the San Francisco-based analyst wrote in a note to investors last week. “Impressive.”

Adding to Bet

Tilson said his firm started betting against OpenTable several weeks ago and added to the wager after the quarterly report drove the shares higher. Short selling is the sale of borrowed stock in the hope of profiting by buying the securities later at a lower price and returning them to the shareholder.

OpenTable reported third-quarter earnings excluding some items of 23 cents a share, beating the average analyst estimate by 54 percent, Bloomberg data show. The number of restaurants using its software rose to 15,246 as of Sept. 30, up 31 percent from a year earlier. The company is expanding its web-based Connect service, a lower-cost alternative for restaurants that take fewer reservations.

“They are cutting their prices to customers in order to maintain the growth in restaurants that investors want to see,” said Tilson, whose Tilson Focus Fund has outperformed 93 percent of peers in the past five years, according to data compiled by Bloomberg. “You can cut prices to help growth, but that will eventually hurt your profit.”

Short Interest

The proportion of OpenTable shares that were sold short climbed to 15 percent on Nov. 3, according to Data Explorers. That compares with a low of 1.5 percent in December.

Short-selling in OpenTable is increasing as shares of S&P 500 companies borrowed and sold short fell 2.1 percent to 7.76 billion between Oct. 15 and Oct. 29, the lowest level since June 30, according to exchange data compiled by Bloomberg. Short interest for the benchmark gauge for U.S. equities slumped to 4.4 percent of shares available for trading, also known as “float.” It’s down from 4.6 percent in September.

OpenTable’s 230 percent rally since it sold shares in May 2009 is the most among companies that conducted initial public offerings since Jan. 1, 2009, according to data compiled by Bloomberg.

50 Percent Lower

“We would argue that the stock price could be 50 percent lower,” said Harry Rady, chief executive officer of Rady Asset Management in La Jolla, California, which runs a long-short fund that is betting against OpenTable. “The stock is ahead of itself and is priced for perfection.”

OpenTable has created a service called Spotlight that offers coupons to restaurants. It competes with Groupon Inc., the owner of a coupon website with 20 million subscribers that’s seeking venture funding in a deal that may value the company at about $3 billion, according to people familiar with the matter. OpenTable has a stock-market value of $1.52 billion.

“OpenTable is a pure valuation trade for us,” said Rady, who manages $270 million. “The stock is too expensive, even using the most optimistic assumptions, which therefore makes it vulnerable.”

Source: http://www.bloomberg.com/news/2010-11-11/opentable-s-230-surge-lures-short-sales-after-best-u-s-ipo.html

Originally published on InvestmentNews.com
by Jeff Benjamin
11/2/10

Legalizing joints could lead to fewer inmates in the joint, says Rady; jail operator’s share price at 52-week high

Today’s vote on legalizing marijuana use in California has triggered the aggressive short sale of the operator of a private correctional facility where up to 30% of the prisoners are incarcerated on marijuana-related crimes.

By shorting Corrections Corporation of America (

The stock, at more than $26 per share, is trading at a 52-week high and has gained 44% since falling to around $19 in March.

Technical analysis also shows resistance to a bearish turn for the stock.

Last month, the stock’s 50-day moving-average price crossed above its 200-day moving average in a “golden cross” move that is considered to be a bullish indicator.

Mr. Rady, who manages $270 million as chief executive of Rady Asset Management LLC, is betting on the passage of Proposition 19, which would legalize marijuana cultivation and possession for personal use, and allow for taxation by local governments.

The impact of legalized marijuana on a company such as CCA could be immediate, he said.

“The prisons are so overcrowded that it would be a very compelling reason to let those prisoners out of jail for marijuana-related crimes,” Mr. Rady said. “If I’m wrong, the stock is already trading at its 52-week high and probably doesn’t go up on the news, but if I’m right, look out below.”

Polls leading up to today’s vote had opposition to legalized pot in California outweighing support, 51% to 39%.

But Mr. Rady’s case for shorting the stock is also bolstered by a hunch that the company’s earnings report Wednesday could come in below analysts’ estimates of 37 cents per share, which is up from 33 cents a year ago.

- Source: http://www.investmentnews.com/article/20101102/FREE/101109986

As originally published on AdvisorOne.com

One of the biggest frustrations I’ve had over the past few years is hedge fund managers “gating” their investors. High-net-worth (HNW) investors commit substantial personal capital to these hedge funds with the expectation that the manager will limit the downside and generate greater returns than your typical index-chasing portfolio.

Unfortunately, during the downturn, not only did they suffer losses, but they went so far as to lock-up the investors’ assets within the funds. Investors were unable to access their money for an indefinite period of time regardless of circumstances.

To me this is inexcusable; while I understand investments in private equity and other illiquid strategies have longer-term commitments, it is unconscionable to think a long-short domestic manager should and/or would tie up their investors’ assets. For this reason, I encourage investors to avoid limited partnerships with gating provisions in place.

Some good has actually come out of the publicity on gating. The industry has seen the expansion of publicly-traded alternative (hedge fund) mutual funds. As a portfolio manager of an alternative mutual fund, I am far from impartial, but recently a number of well-respected hedge fund managers have decided to offer their strategies in this liquid, transparent format with daily pricing.

I would encourage all HNW investors to consider adding exposure to alternatives—but first look at the alternatives offered in a mutual fund format. Typically, adding a hedged strategy would decrease a portfolio’s overall correlation to the markets and would therefore lower the portfolio’s risk profile and corresponding volatility.

I would strongly encourage investors to focus on risk-adjusted returns. A tactically-managed hedged strategy may offer the added benefit of providing an asymmetric risk/reward profile. If the hedged strategy is available in a mutual fund format then the risk-adjusted return profile gets even more attractive given the importance of liquidity in calculating risk-adjusted returns.