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Author: MrArbitrage Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 337  
Subject: MrArbitrage on DAKT (Long) Date: 2/23/2009 12:12 PM
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February 23,2009
MrArbitrage top 4 picks: TUES, DAKT, UA & EBAY
http://www.tableofwisdom.com/MrArbitrage_Stock_Picks.html

Tuesday Morning (TUES)

As of today, Tuesday Morning’s stock price of between $.94 - $1.02 represents a total market cap of approximately $42 million! To put that into perspective, if you look at their historical earnings, this is just a fraction of the average annual earnings for this company. They bring in close to a billion in sales annually. I believe this is an absurd price for Tuesday Morning as the company has a strong balance sheet and can likely weather the storm. To be safe they cut the dividend last year, which had been a large percentage of their total EPS.

Tuesday Morning is a closeout retailer of upscale home furnishings, gifts and related items in the United States. It opened its first store in 1974 and currently operates 732 stores in 46 states at December 31, 2005. Their stock price descent began during the time the housing bubble ended, along with Home Depot and other stores sensitive to the housing market. Certainly, their sales have been declining as can be expected; however, I believe that when the economy eventually turns around their revenue and earnings will return along with it. If that occurs, the market is not going to allow you to purchase cash flow, earnings and dividends for the current buck a share.

Between 2005 and 2006 TUES was trading at a high of $35.00 per share. I believe it is eventually possible for Tuesday to reach all time highs again as they have a very loyal customer base but even a less sanguine expectation of a $10-$12 price target would be a potential 1,200% return. I don’t think that will happen for a couple of years or however long it takes for this economy to turn around. I do think that $5.00-$6.00 per share is possible within the next 1-2 years.

This is a volatile stock but I believe the common stock offers potential option like returns for a minimal, speculative investment.

Daktronics, Inc. (DAKT).

The Company is a supplier of electronic scoreboards, large electronic display systems, marketing services, digital messaging solutions and related software and services for sports, commercial and transportation applications. Daktronics offers a complete line of products, from small indoor and outdoor scoreboards and electronic displays to large, multi-million dollar, video display systems as well as related control systems, timing, sound and related professional services. The Company is recognized worldwide as a technical leader with the capabilities to design, market, manufacture, install and service complete integrated systems that display real-time data, graphics, animation and video. http://www.marketwatch.com/tools/quotes/profile.asp?symb=DAK...

This company has been experiencing steady revenue and earnings growth. They just had a RECORD second quarter with a 29% increase in net sales and net income was up 52%.

The stock is down because the market has been obliterated. There is presently no such thing as a “premium” for growth in this market. That will eventually change when the economy improves. Prudently, DAKT tempered the enthusiasm of investors after announcing their record quarter because the advertising market is slowing due to the economic conditions. Advertising is an indirect part of their business as advertisers purchase their product and may slow down on new orders.

THE KEY: The reason why I love this company is because they are the undisputed leader in global industry in its infancy. You may have seen one of their billboards over the past year if you have driven through any major cities. They REVOLUTIONIZE a primitive industry. Currently there are millions of old billboards throughout the US that require people to climb scaffolds and wall paper these outdoor billboards by hand. That is expensive. There are the costs of making the actual material, transporting it and the man hours to hang it.

The digital billboards by DAKT eliminate that archaic method of outdoor advertising. The technology is impressive. It’s like driving down the road and seeing a high def television with active advertising. I see the future of driving the highways of the world being similar to surfing down the “Information Super Highway”. When we surf the Internet, the “billboard” advertising is targeted at us with a certain amount of intelligence. It’s not just blanket advertising. DAKT’s digital billboards won’t quite be able to pinpoint ads to the degree that the Internet does but I believe it will allow for them to change the ads to sponsors more appropriate for certain traffic times and locations. This will open up many new doors for those who sell ads to obtain more revenue from one piece of real estate and to offer a more dynamic and valuable presentation for advertisers.

Subsequently, Daktronics also manufactures those gigantic screens you see at sports arenas and stadiums. You also probably witnessed the capabilities of their product during the inauguration of Barack Obama as they were set up throughout Washington DC. I don’t mean to minimize these segments because these venues are also a substantial part of their revenue. It’s just that I see the most exciting part of the business to be in the outdoor advertising. Next time you take a road trip, start paying attention to the extraordinary quantity of primitive billboards with spotlights on them. Think about the man hours required to change the ads on them for new sponsors. Think of what a small percentage -the many you have seen- are of the total number nationwide. Than think globally because DAKT is selling them globally and they are the leader by far in this industry.

DAKT is currently trading at a total market cap of $319 million (at the current stock price of $7.90 per share). I believe the market for their products will drive this company to substantially higher revenues and earnings in the coming years. I believe DAKT will become a company with a multi-billion dollar market capitalization. It is difficult to pinpoint a specific top for a company well positioned in this auspicious industry. I’m not a technical analyst but I’m sure there will be plenty of ups and downs given the economy; however, my 5 year target for this stock would be in the neighborhood of $125.00 (not adjusting for stock splits of course).

Under Armour Inc (UA)

The company is managed by a visionary and they execute quite well. They seem to succeed in every new product line and there are many for them to exploit. They have been growing revenue and earnings in the double digit and will likely do so for years to come.

UA stock price is down because of the economy in which we find ourselves. Again, there is no premium for growth these days. Unless America DIES – which is looking more plausible than anytime since the Civil War – than UA should otherwise fare quite well. They may do well even if America dies by suicide, depending on which direction Maryland goes politically.

I believe UA will give NIKE a true run for the money. UA is currently a $700 million dollar company. NIKE is currently a $20 BILLION company. Some speculate on NIKE buying UA. I say it is possible but UA shareholders would not be stupid enough to sell for less than $5 billion and that may be too cheap. Either way, I believe UA is a $5 billion company within 3-5 years depending on the economic climate, making this a 5-6 bagger.

Ebay (EBAY)

I believe EBAY is preposterously cheap. They have had some challenges but Ebay is a cash flow machine that will do well during economic travails. At the current $12.00 stock price, $15 billion market cap, 8 x earnings multiple – I think it is selling for less than what PayPal itself is worth in a rational market. (Ebay owns PayPal of course; so in my mind, you are getting one of these great companies for free with the purchase of a share).


Disclosure: I have purchased stock in all of these companies and currently have an interest in them. I am not making recommendations to anyone reading this because I know nothing about your current asset allocation, time horizon or risk tolerance. I am sharing my own opinions on these companies and why I invested in them. I do not guarantee the accuracy of my projections or opinions
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