Thoughts on Market Stories from the Week

August 4, 2010, 4:39 am

I’m going to offer up brief opinions on some of the events from the past trading week. Maybe you had your eye on one or two of them as well.

Playboy (PLA) reported a net loss in its second quarter. The red ink came out to 16 cents per share this time around; last year, the loss was 26 cents per share. You know what? It doesn’t really matter if management was able to narrow the bleeding. Playboy is purely an arbitrage play now, with Hugh Hefner making a bid to take control of the business (a competing bid has been made by FriendFinder, which owns Penthouse). I would avoid making a buy here, since the arbitrage game can be a difficult one to win.

Wade Hansen wrote an excellent piece on World Wrestling Entertainment’s (WWE) latest quarterly results. He covered the fundamental and technical aspects of the thesis in addition to supplying insight on a potential valuation of the equity. It’s always fun to check in on this media entity, partly because WWE actually sports a high dividend yield. As of Friday’s closing price, the stock was yielding over 9%! The one thing I will add to the analysis is a mention of the free cash flow. According to the press release, there was none this quarter, as the metric was negative. Ouch! If you want to pay healthy dividends, you need a nice stream of free cash. Nevertheless, I do find the stock interesting on dips; I’m hopeful that cash flow will improve later on (it isn’t always bad, as I recently mentioned). Still, this is a high-risk play, it should be noted.

Berkshire Hathaway (BRK.A, BRK.B) saw a big decline in its quarterly profit. Also, results missed Wall Street’s projections. So what? This is Warren Buffet we’re talking about. Mr. Long-Term-Investor himself! If you own Berkshire Hathaway, you simply ignore the stats and trust Buffet to steadily increase shareholder value over time. Or you don’t. It’s your call.

At the beginning of the week, I wrote about Coinstar (CSTR) and my belief that the shares might currently be too risky to buy. I still hold that opinion. But I do want to say that the company’s DVD-rental asset, Redbox, announced a cool deal with CVS Caremark (CVS). According to the press release, 700 CVS/pharmacy locations will have a movie-dispensing unit of their very own by the end of the year; the full roll-out will occur by the conclusion of 2011. Making Redbox as ubiquitous as possible is a smart strategy. Of course, the long-term viability of physical software has been questioned by many pundits (including our own Zac Bissonnette back in 2009). For now, though, consumers seem to love the value proposition they get from these devices.

Finally: how about that price action on Friday? The major indexes were down pretty low at one point. Then, they rallied back by the end of the session to close not too far from their starting points. The jobs report made for a volatile day. What are we to make of the movement? Probably not much, except to say that it’s still wise to be extremely cautious before sending in any orders. Whenever you’re in doubt, set your buy price a little lower (or, alternatively, wait and give yourself time to perform additional due diligence).

Disclosure: I don’t own any company mentioned; positions can change without notice.

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