Tilson On LL: “My best intel” Is That Q3 Earnings Were “disastrous”

Tilson On LL: “My best intel” Is That Q3 Earnings Were “disastrous”
Lumber Liquidators

From an email which Whitney Tilson sent to investors on October 9th – Tilson comments on the recent rally in Lumber Liquidators (LL) shares and why he expects it to be short lived. In a seperate email also obtained by ValueWalk, Tilson says he is up 9% this month. Both emails can be found below.


What a gift today’s short-squeeze rally in LL was.


Fund Manager Profile: Kris Sidial Of Tail Risk Fund Ambrus Group

invest Southpoint CapitalA decade ago, no one talked about tail risk hedge funds, which were a minuscule niche of the market. However, today many large investors, including pension funds and other institutions, have mandates that require the inclusion of tail risk protection. In a recent interview with ValueWalk, Kris Sidial of tail risk fund Ambrus Group, a Read More

The settlement with the DOJ, while it removed a tiny bit of uncertainty, also imposed substantial compliance costs for the next five years, so at best it was a push. Yet, at today’s peak, the stock had ripped 56% in less than four days.


I figured something like this might happen in light of the high short interest and lack of news until the Q3 earnings report at the end of this month, so I covered ~20% of my short position about a month ago at $12.90 and hoped for something like this to put a bigger short back on. Today, I got it and added to my position at nearly $20/share.


Even putting aside all of the unresolved and potentially crippling regulatory and legal risks related to LL poisoning its customers (certainly negligently, probably knowingly), who knows when LL is going to get back to breakeven, much less make steady profits again? (It lost $0.29/share in Q1 and $0.75/share in Q2.) Analysts have it making $0.29 in 2016 and maybe getting to $1.50 in 2017, so I struggle to understand who (other than shorts covering) is buying this at $20…


My best intel is that the just-completed  LL Q3 was another disastrous one, so I think it’s likely that today’s buyers are going to get crushed in just a few weeks.


I’ve sure been seeing this in my portfolio – up almost 9% this month. In 17 years, I’ve never had a seven-day stretch like this. Let’s hope it continues!


An Epic “Buy-the-Losers” Rally

The average stock is up more than 6% since equities hit their recent lows on September 29th.  But this rally has been much different than prior ones we’ve seen over the last year or so.  That’s because this time markets have been led higher by the most unloved, beaten-down names, while prior market darlings have lagged.

Yesterday we sent paid subscribers a detailed analysis of the stock characteristics that are now leading the market.  This report looks at things like valuations, yields, market cap, short interest levels, institutional ownership, international revenue exposure, and analyst ratings to see which ones are driving performance the most.

To highlight the “buy-the-losers” trend we’re seeing, though, we broke the S&P 500 into deciles (10 groups of 50 stocks each) based on stock performance from the 5/21 all-time-high for the index through the 9/29 low.  We then calculated the average performance of the 50 stocks in each decile during the rally that we’ve seen since 9/29.

In the chart below, decile 1 all the way to the left contains the 50 stocks that performed the best during the 5/21-9/29 market correction.  Decile 10 all the way to the right contains the 50 stocks in the S&P that went down the most during the 5/21-9/29 correction.  As you can see, the results are as clear as day — the worse a stock did during the correction, the better it has done since September 29th.  In fact, the 50 stocks in decile 10 that went down the most during the correction are up a whopping 15.4% during this bounce!  Conversely, the 50 stocks that held up the best during the correction are only up 3.7% during the bounce.  That’s significant performance divergence.


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