Musings on Autodesk…

I got an investor deck for a startup that was going to “disrupt” Autodesk. Pfft is my first thought. They have an enormous operational moat I replied and…then thought in the back of my head, why not look at Autodesk (NASDAQ: ADSK) itself. But it slipped my mind. Who thinks of Autodesk these days?

Then Alexander Eule of Barron’s wrote September 26th about Autodesk, which may as well be known as AutoCAD, after their dominant engineering design suite. They are undergoing a pricing change, shifting from boxed-perpetual to cloud-licensed product. Adobe is in the midst of completing their own pricing transition, to much applause from the street. The primary source for the article is Rob Nicoski of Disciplined Growth Investors who sees, if the transition is well executed, “a company with earnings power of more than $4 a share in five years.”

Aside from a pricing transition it’s pretty easy to conceptualize a large growth driver in the coming years: widespread – maybe even consumer adoption of? – 3D printing.

Autodesk over the years

Autodesk over the years

Does the Adobe chart presage anything for Autodesk investors?

ADBE max chart oct 2015

Beyond the fashion of cloud applications – though that’s a relevant consideration for investors looking to have multiples expand, the cloud subscriptions can also significantly reduce the piracy rate that afflicts so much high value software. In Autodesk’s case, that’s estimated at 43% (in this investor report, slide 20)

Autodesk like most tech companies has the problem of explaining GAAP to non-GAAP (meaning, huge employee option grants off the books) expenses but assuming market reception to his remains neutral, the product & cash roadmap is intriguing. From the investor presentation at 2015’s investor day in September:

ADSK key takeaways from Sep 2015 shareholder meeting

adsk recurring rev and projections

These numbers bear a great deal of similarity to the analyst estimates’ provided for stories in Barron’s so the likelihood of them should be taken with a grain of salt. That said, engineering and design software is awfully sticky, and deeply embedded into business processes that it would be harder for a start up to disrupt.

Autodesk has under-performed, severely, similar design-oriented software firms like Adobe & Ansys: almost no return in the last ten years versus a 300%+ and 150%+ return.

Autodesk, Adobe, Ansys comparison 10 year

Adobe’s break to new highs in December 2012 at around 36 presaged an enormous run to the low 80s today – though perhaps a bit ahead of itself now, with an unfavorably received earnings report tonight.

After a decade of lackluster performance there’s a lot of execution to prove. Waiting for a new high in ADSK might leave a lot on the table but that’s preferable to dead money for another ten years. With a market generally threatening a downtrend, there is no particular need to jump in now either. This is a classic case of wanting to follow quarterly reports to see when there is a good market response to successful strategy implementation. One is tempted to nibble at it now.

That said, if the product pricing strategy works, and the engineering software market widens or deepens, long dated call options are an interesting play. Open interest is high in the ADSK Jan 2017 60 and 65 calls, with a last ask of $2.11 & $1.39 respectively. Jan 2018 calls are more thinly traded, with a 70 strike at $2.60 ask, $2.20 last. Maybe not bad for the pivot potential in a stock that was at 63 not so long ago this year until cash flow fears materialized.

 

 

 

 

 

 

 

 

 

 

Nov 27 2013 Positions & Quick Notes on Future ones

* Successfully shorted ZN last few days, lowered the position size for unusual time period.  Long March Wheat at 662.75, short Twitter at 41.  The wheat has a nice risk-reward and I’ve put in a stop under the lows.

* Really liked Stanley Druckenmiller’s interview on Bloomberg including comments on what great managers are for, and that Japan’s Nov-May seasonal rise is one of the most reliable in the world (including 40k to 7k overall decline, you’d still have made money.)  Suggestion of shorting IBM given cloud computing challenge and their use of capital is a compelling idea that deserves more investigation (the low p/e as is makes me wonder about risk-reward versus other short possibilities.)  Declining free cash flow argument works even better against NFLX for example.  The Amazon comments – that AWS could be half of revenue soon also merit further examination.

* Looking closely at NFLX, HLF, TSLA, P, LNKD on top of TWTR as shorts.

ZC on precipice and LULU

Back from Greece and looking to fire up the blog:  ahead on short ZC position from 760; about to break through 735 which has been the repeated low of the last month:

Prior to the summer run up Corn was in the 550s.  I have no idea if it can rapidly return there but feel this is a decently safe position to enter into an extension of the position.  I did the same on the LULU short, less for technical reasons than increasing fundamental conviction at 68:

I’m down on the effective ZNGA long position (by shorting Jan 13 & 14 puts at 3 & 2.5; the premiums got most of the move down and I also feel there isn’t much further move down there but perhaps could have waited a bit longer to enter the position: now trading underneath net asset value makes the risk minimal I think.

 

 

Intuit’s PR Push

Barrons and Forbes both did big profiles on Intuit (INTU 58) this weekend.  When this happens it’s not likely by accident and you can thank a good PR company.  Rising stock prices affect the likelihood of feature articles.  Reporters want to explain to their readers what is going on, and whether to get on the bandwagon.  Sometimes they do themselves. Continue reading

LULU to become a Downward Facing Dog?

I am looking into where a short short entry point is on Lululemon Athletica (LULU, $77).  There is motivation aplenty.  Competition from Gap’s Athleta?  Patents on pants?  Rising inventory?  Color Bleeding?  Who is John Galt?  Landmark Forum participation (see the correction obviously added after some legal notice)? One can over-react to errata but I’ll hone in on other details the website has spacing errors after periods:

 The training program was such a success that the lululemon people have created a life for themselves that most people could only dream of.lululemon is a company where dreams come to fruition.

Notifications about particular stores include information that the Walnut Creek, California store will in fact be open on July 4th.  Congratulations.  For a company whose prime value is brand identity these scratches on the fender do reduce the value of the car.

Chart forLululemon Athletica Inc. (LULU)

A small position probably could be had now with a stop over the spring highs…will look more closely in following days.  I feel bad to have missed the (first big?) decline in Deckers DECK 45, whose story has some eerie parallels with LULU

Chart forDeckers Outdoor Corp. (DECK)

LULU is a sloppy company, poorly managed, riding a fashion craze and about to hit severe price competition.  SHORT!  Namaste.

POSITION UPDATE: Soybeans vindicated today, only commodities position now.  Bought some ZNGA outright as it heads into a ferocious short squeeze.  Out of ANF.

ANF: Gary Smith v. BusinessWeek

Abercrombie & Fitch has plenty of problems both managerially and in its sector to be an interesting long term investment.  But it is a volatile one, and perhaps set for a small technical run here, according to Gary Smith of Fox Business.

His argument is very Peter Lynchish, seeing lots of kids in the malls at his local ANF.  I’m not sure I’d look for it to climb to 50 but somewhere in the mid 40s seems probable, and I’ve set my alert accordingly.

For the opposing view, and perhaps the Businessweek-as-contrarian indicator, there was a negative piece about the secular trends for ANF in Businessweek last month.

 

Barron’s Predictions and other weekend notes September 8 2012

Favorable recaps of FDX, TSO, INTC, Housing Stocks (in three different articles), PFE, WYNN.  Tesoro has had such a run from the mid teens to over 40 that I feel for such a cyclical stock the gains may already have been had — Barron’s said another 40% gain could be on tap.  PFE & INTC got the usual treatment of being appealing for p/es around 10 and dividend yields near 4%.

Here Come Super Options by Steven Sears was the only noteworthy article, describing the attempts of the CBOE to get approval for 10-15 year exchange traded options to match specialized markets made for insurance companies.   The article did not note SPX “super options” of up to 5 years are already available, notably with European exercise rules so as to not be manipulable to large dividends.  Volume and open interest look very light however.

SunTrust STI has been covered numerous places (Forbes) about selling the remaining stake in Coca Cola (KO, $38) after a 2,000,000% return from 1919.  This historical anomaly was something that first fascinated me when I started looking at stocks in the mid 90s.  STI looks a touch ahead of itself but could be a beneficiary of the ongoing housing revival.  I think there are probably better buys out there.

Chart forSunTrust Banks, Inc. (STI)

Hogs Wallow Near Two Year Low in the WSJ was also of note for future commodities plays;

Slaughter-ready hogs have been streaming into meatpacking plants since July. Their shipments have included thousands of sows, or mature females, that farmers normally would keep for breeding litters of piglets. The move eventually will tighten pork supplies. Meanwhile, many farmers are only willing to feed expensive food rations to their most-productive sows.

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Notable Barron’s Predictions September 1

The market strategist survey was as usual effectively worthless with most of the analysts predicting a market very close to where we are today, Treasury bills at 1.75 give or take, and without decisive opinions about whether the “fiscal cliff” will be avoided.  Only Goldman Sachs stood out with an end of year S&P prediction of 1250.

Steven Auth of Federated recommended CAT at 84.47, QCOM at 61.20 and Daimler DDAIF at 48.85 (“luxury goods”).  Robert Doll of Blackrock recommended Chevron CVX @ 110.93, ConocoPhillips COP at 56.11, and UnitedHealth UNH at 54.69, Adam Parker of Morgan Stanley concurred on Chevron, Bristol Myers BMY at 32.8, AmerisourceBergen ABC at 38.1

I like the CAT call — 8 p/e also favorably ranked at Valueline — and this is on my watchlist after any market drop but low priced enough perhaps just to jump in.  Continue reading

The SPX topping out?

Doug Kass at theStreet.com put up two contrasting files showing specific points where lows in the VIX signaled forthcoming drops in the SPX, five times in the last two years.  He was on CNBC with the same message two weeks ago — the market effectively unchanged since then.

Bespoke Investment Group has a compelling chart that the gains of late in large caps have been mostly low volume gains which is technically ominous.

Some “Triple Top” talk evidence seems specious to me — Business Insider cites this as a possible “Triple Top”:

chart of the day, s&p 500 three spikes, august 2012

But had been warning about the same thing in September 2011

s&p futures head and shoulders

In short the S&P does appear posed to this rube technician at a decisive moment which possibly suggests a downward bias, that is also seasonal and will fluctuate with the election.  It is notionally cheap but facing huge European headwinds putting the smaller cap Russells in the unusual position of being a slightly better equity safe haven.  Few ports would be safe in that storm however.

Apple (AAPL) is 5% of the S&P and 13% of the NASDAQ 100 Capitalization-weighted indexes and so a meaningful short term up move (likely) in this one name could pull the entire index higher.

Triple Threat for Total Return in Forbes September 10 2012

“Triple Threat for Total Return” by John Buckingham in Forbes reviewed long term performance data from 1926 to present (this data set will be the good subject of post one day) to conclude small caps, dividend payers, and value stocks outperform.  Therefore, quod erat demonstrandum, investors should look for all three today.  Give me a good large growth non dividend payer anytime but I’m an investing child of the nineties.

He recommends three stocks that would fit this screen (not, necessarily three stocks from a screen – an important difference but his method is not specifically expressed in the article):

Lexmark LXK @ 18 (in article, 21.62 at close today)

Nash Finch NAFC @19

Navios Maritime Holdings NM @3.58

I would not touch any Greek Shipping short of a reincarnated Themistocles.

Bust of Temistocles

Buckingham says they are at 35% of book value.  Perhaps but we can find safer values elsewhere and there is little to gain from deep research here that would benefit other stocks.  Dry bulk shipping is in a sour mood; there are other ways to play that rebound.   If you’re really into shipping of another sort, perhaps one of those ways is Nash Finch but that is too low growth low margin for my tastes.

Lexmark maybe a Kodak or Xerox in the making but with an ever-so-slightly safer chart (where “safe” means I at least know where I’d get out — a return under say 18) with very solid revenue and cash on hand, I think is a more interesting play.

Chart for Lexmark International Inc. (LXK)

The gap between 18 and 21.xx may be attributed to the announcement of a $100m buyback and that they’ll dump the inkjet business.  They acquired Perceptive Software in 2010 and claim it too will be profitable next year.  They have a 6% dividend yield.  Should have gotten my Forbes in the mail sooner.

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