New Trade: Long Travelzoo (TZOO) & Short Blue Nile (NILE)

By: ispeculatornew
Date posted: 07.11.2011 (5:00 am) | Write a Comment  (0 Comments)

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Two weeks ago we were able to close out a trade and I had not seen any great opportunities but today I’m ready to get going again as I hope to keep up the great track record that I’ve had so far. I will try to update the summary but our annualized return currently stands at +86% which is even better than 2009 and 2010. Today’s new trade is an interesting one for me. Why? While going short on Blue Nile (NILE) is nothing new for me, Travelzoo (TZOO) is also a stock that I’ve been very bearish on in general. I had a few losing trades on the name and have slowly started changing my general opinion of the company, its business and where it’s headed (similar to how I’ve been changing regarding AOL). While going long on Travelzoo against Blue Nile is not an absolute vote of confidence, it is still a sign. Either the company improved a lot or I was way off in the past but I do now consider Travelzoo to be a good value at its current valuation.

The major reason behind this trade is that on the basis of their 2011 P/E, I don’t think these companies should be trading at comparable numbers like they are right now. Travelzoo has been achieving stronger growth and I expect this to continue.

Before going further, you can take a look at the numbers we used to value this trade. As you can see the beta of the two names is almost identical:

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Long Travelzoo

Travelzoo is in a very competitive internet travel sector but has been ahead of the curve in many different ways. How so? One way has been its ability to accumulate millions of members to its mailing lists. Those are now being used to send out their weekly deals but also “Groupon-like”, daily deals. That recent tendency came just in time for Travelzoo which was perfectly located to get it done. That has certainly been a big part of how TZOO has achieved sales growth over 20%! Analysts seem to be very positive about the company and while it might have been overbought at some point, I do think that the stock is ready to move on higher and do consider that both Travelzoo and Priceline are the two long term stocks to own in this category.

Short Blue Nile

Blue Nile is one of those stocks that I’ve gone short on again and again and have generally been getting good results out of it. The beat down this year has been quite dramatic and while it has recently rebounded, I do think it is much closer to its true value than it has been in past trades. That being said, Blue Nile should not be trading at the same forward P/E ratio as Travelzoo, its growth does not warrant it.

Disclosure: No positions on TZOO or NILE

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