Harry Rady News

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.

As originally published on TheStreet.com
by Andrea Tse
10/25/2010

NEW YORK (TheStreet) — A number of widely-discussed stocks are poised to plummet — some by more than 20% and others by more than 50%, according to a number of investment managers we polled. From stocks that have serious fundamental issues to those that could drop on valuation, read on for three stocks that some market watchers think could tank within a year …

Barnes & Noble
Predicted Percentage Drop: Roughly 25%
Time Period: Next three to six months
Number of Analysts: 6
Average Recommendation: Hold
Market Cap: $899.2 million
Trailing Twelve-Month Operating Margin: 2.7%
Trailing Twelve-Month Revenue: $6.05 billion
Why Barnes & Noble Stock Could Plummet: “There’s a couple of different things,” said Brian Shepardson, co-portfolio manager of the James Market Neutral Fund. “On the big-picture issue, I think they’re facing a lot of competition from Amazon.com(AMZN_) and Wal-Mart(WMT_) … heavily in that area, too, so those are the two big places where we can purchase books, per say — like a hardcopy or paperback version. They’re also coming up against the iPads, the Kindles of the world that are bringing out content in a different format. So that’s kind of the rationale behind it. I don’t know if it’ll be to this extent, but it kind of reminds of — for a while Blockbuster — if you wanted to rent a movie, that was the big place that you would go to. And then came along Netflix( NFLX ) and delivering movies over the Internet — a different format without having to visit that physical store.

“Just looking at what we saw recently, I would say in the short-term, I could see it dropping back to $12, just where it was in July — maybe down to $10.77; that was its low back in 2008. I don’t see why it can’t touch there just in the immediate future (three to six months), then trickle lower than that.”

“Right now their earnings — they’re having a difficult time with their earnings. They’re in a negative position, so they actually have a negative P/E ratio; their return on assets is only around 1%. They’re paying a dividend, but their payout ratio is a 150%; so either they’re going to have to find a way to raise their income or else cut back on that dividend. It’s not just the story behind it; there are also some fundamentals within the company that we’re looking at.”

Salesforce.com
Predicted Percentage Drop: Up to 50%
Time Period: Next 12 months
Number of Analysts: 40
Average Recommendation: Outperform
Stock Price/Earnings Ratio vs. Industry’s: 901.91%
Market Cap: $14.7 billio
Trailing Twelve-Month Operating Margin: 8.1%
Trailing Twelve-Month Revenue: $1.46 billion
Why Salesforce.com Stock Could Plummet:”From a valuation perspective, all the cloud computing stocks are vulnerable,” said Harry Rady, chief investment officer and portfolio manager of Rady Asset Management. “I mean a number of these stocks are a trading at a hundred times earnings, so take your pick — Salesforce.com, VMware(VMW_), the whole space is just crazy.

“I look at them more as a basket. They’re both great companies doing really well, yet Salesforce is trading a 180 times trailing earnings and 90 times forward earnings and VMWare is trading at 105 times trailing earnings and 51 times forward earnings. So I don’t really have anything bad to say about them other than the valuations are ridiculous…”

VMware
Predicted Percentage Drop: Up to 50%
Time Period: Next 12 months
Number of Analysts: 34
Average Recommendation: Hold
Stock Price/Earnings Ratio vs. Industry’s: 413.53%
Market Cap: $32.2 billion
Trailing Twelve-Month Operating Margin: 12.4%
Trailing Twelve-Month Revenue: $2.41 billion
Why VMware Stock Could Plummet: “Fundamentally they are doing very well,” Rady continued. “But what you’ve got to remember is that product cycles are very short in this business and companies can be leapfrogged technologically almost overnight, so they’re only as good as their next product and if they stumble the stock could get cut in half. So expectations are that they just keep executing and keep putting out perfect product after perfect product; and that may happen — but we think it’s already discounted in the price of the stock.”

“VMWare is a great company with 20% long-term growth rates. So really well-run companies with growth rates like that should maybe trade at 20, 25 times earnings. So in our opinion, the stock should be down 50% from here.”

“Salesforce — same idea. It’s growing at about 25%, so perhaps the company should trade at 25, maybe even 30 times earnings, which gets you to a stock down more than 50%.”

Although Ernest Rady is known as a man who has always shied away from the limelight, he did not let that stop him from donating $30 million to the School of Management of the University of California at San Diego in early 2004.

Ernest is the father of well-known investment manager Harry Rady of Rady Asset Management.

The School of Management will bear his name with the hope that the Rady School of Management will one day be as influential and well known as U of P’s Wharton School or the Kellogg School of Northwestern University.

Enjoy the video below for the entire informative interview with Harry Rady of Rady Asset Management, Barbara Ryan, Deutsche Bank Securities and the CNBC anchor Maria Bartiromo.

Harry Rady of Rady Asset Management discussed his reaction to the recent news that the Obama administration would be softening its approach to health care reform. Appearing on the CNBC Maria Bartiromo’s financial news update on Monday August 17th, Rady explained why he is not really that influenced by the comings and goings of government policy.

Harry Rady presents his opinion below:

“We think that great companies, with strong patent portfolios and great IP will prosper no matter what happens. So we are not trying to predict the winners. We think the “commoditized” service providers, such as the HMOs, the generic drug makers; we think that under any scenario, they get squeezed. But companies that have these positions and these patents, they will do well.”

Follow the link to the Harry Rady’s complete video presentation.

The middle of July was a difficult time for investors. After 8 weeks of general improvement, the market dropped 187 points in just one day of trading, the largest single day point drop since April 20. Confidence that the spring rally was for real was badly thwarted, as all the major indexes declined over 2%.

Trading in oil has been mostly keeping pace with the stock market’s ups and downs these past three months. So it was no surprise that the price of benchmark crude oil fell $1.42 in July, reaching $70.62 per barrel on the New York Mercantile Exchange. The price of crude has fallen almost 3% during just two days of trading in mid-July.
These events were not a surprise to Harry Rady of Rady Asset Management.

“The market just seems to keep driving the car into the wall and then wonders why it can’t keep driving,” Rady said.

Signs that the surge in stock prices experienced over the spring months continue. The Dow Jones fell 187 points last Monday, which is the biggest one day drop since April 20. The other major indexes also fell more than 2%.

Since there was not much trading volume, the loss is explained as due to a shortage of buyers rather than a large number of sellers, suggesting a hesitancy to get involved in the market until there is more clarity as to which way the market is actually heading.

It is clear that stocks have been rising too quickly considering the trouble our economy is still in, according to Harry Rady of Rady Asset Management.

“The market just seems to keep driving the car into the wall and then wonders why it can’t keep driving,” Rady said.

Porsche-tractor

In order for the U.S. automobile industry to compete in the global marketplace Harry Rady, of Rady Asset Management argues that there must be strict downsizing of the industry. Any products that are irrelevant in the marketplace, such as cars that are simply not selling, should no longer be produced. Instead the manufacturer should focus on producing the cars that are selling in the most cost efficient way, and revenues should be funneled to research and development so that the company can continue to compete.

When asked which car manufacturer he prefers, Rady answered that he has always been bearish on this industry and finds that while it is  a difficult question to answer, if he had to recommend any particular company, he admits to admiring the business practices of Porsche. He feels that Porsche is an excellent engineering firm, and they not only produce quality engines for  cars, but they are well diversified with a top-notch product.

In his discussion of the bailout of the American Automobile industry Harry Rady explains why it is a mistake to have politicians dictating business practices. The bailout should be strictly limited to fixing the problems in the industry and not getting muddled in other tangential enterprises like producing electric cars or rail cars or other activities that will make the process of repairing the industry more complicated. Rady believes that if a business has the right management in place and the right structure for the industry to compete, then it must be up to that company or industry to decide what the right time and the right conditions are for the development of a new product, such as electric cars.