Cosi out / China Mobile in
Originally Posted May 17, 2007
Well, it seems that waiting for Cosi’s quarterly earnings report was less than a great idea. Maybe, I should have listened to the so called “whisper numbers” in the days leading up to the report when the stock dropped from 6.00 to 5.00. Instead, for one reason or another, I held out hope that it would narrow its quarterly losses and continue to head in the direction of profitability as management and analysts had projected for the company. It also looked like text-book time for a breakout of a 3-month flat base provided that the stock stayed even until the earnings report and a good report pushed the stock into a new uptrend. None of these things happened and management’s withdrawal of its 2008 projections as well as being way passed my comfortable stop loss zone forced my hand. I wanted to hold Cosi for a year but I can’t in good conscience see the stock rebounding over the next year. I have, however, put the stock on my rebound candidates watch list and wouldn’t hesitate to jump back in when the time is right.
Things are not all bad with Cosi. It struggled to reformat its business model to that of a franchising model, but this seems to be done and plans are in place for very aggressive growth through franchisers over the next few years that will more than double the number of units in operation. Further, the company does not heap debt onto itself and keeps a lot of cash on hand. If it can find a way to start generating revenue from the units its operating and show a marked improvement in same store sales growth, it will be the next big growth story in the restaurant industry (but we all know how fleeting some of those stories can be, Krispy Kreme anyone?). When will this happen? I don’t know. The loss of Kevin Armstrong, Cosi’s former CEO, may be a factor in slowing the company’s run to profitability, but Downtown Associates, an activist hedge fund in New York, recently bought a 5.1% share and you have to believe they’ll be trying to force some changes from up top. So, I’ll be keeping an eye for news on Cosi, but, for now, I do believe there are more lucrative opportunities elsewhere.
One of those opportunities is China Mobile (CHL). The stock looks to be finishing up an intermediate term base and recently made an RSI buy point by breaking off of 50 and a MACD buy point on moderate volume. China Mobile is the defacto cellular phone monopoly in China as well as Asia’s strongest brand above even that of Toyota according to ICBC and we all know my proclivity for strong brands which in my opinion are one of the best ways to quasi-differentiate one’s self in a competitive market. It would seem to me that China Mobile is a safe bet to continue its leadership in cellular communications well into the future. Thus, I see the opportunity for short-term gain in this stock and have some reassurance as to insulation from downside risk in the long-term.
Thoughts on May 23, 2007
Too early to tell on the China Mobile buy but it seems that Cosi corrected a bit from the over reaction on the day of its earnings report. A smart move in hindsight might have been to wait for a correction from the low it hit that day and then a move into China Mobile knowing that I wasn’t buying it based on a break out but more on the anticipation of a move to the upside of a base and then a breakout. But, how could we have known in hindsight that Cosi would rebound? Well, one could say that it had support at about the $4.50 range and that the earnings report really wasn’t THAT bad especially given that the company’s valuation was already so depressed. Tough call. It’d be great if we could see into the future, huh?
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