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The Dow Jones Industrial Average continued its meaningless assault on 20,000 last week, at one point on Friday trading within 0.37 points of hitting the target before closing up 1.02% for the week at 19,963.80. The S&P 500 rallied by 1.7% to finish at an all-time closing high of 2,276.98, while the Nasdaq Composite Index also hit a new all-time closing high of 5,521.06. I don't have the vocabulary to express how unimpressed I am with all of this nonsense.
The fact that the market is rallying with the economy so weak may or may not be surprising or justified – markets are often driven higher by sentiment – but needs to be seen as a very fragile state of affairs. Chasing stocks at their current values is a risky proposition.
While the headlines were all making happy talk, under the surface, investors were throwing money at some of the worst pieces of trash out there. While struggling retailers like Macy's, Kohls, LBrands, and others took it on the chin after reporting lousy fourth-quarter results, investors marked up the stock of Sears Holdings Corp., which pre-announced another quarter of double-digit same-store sales declines and sold one of its last crown jewels, Craftsman, and borrowed another $1 billion from its controlling shareholder to stay afloat. By Friday, however, Sears stock was dropping hard again.
The same thing is about to happen to this garbage stock.
WTW Is Fighting an Uphill Battle
One of the money-losing companies that rallied sharply recently was Weight Watchers International Inc. (NYSE: WTW), which popped up when it announced the totally irrelevant news that major shareholder Oprah Winfrey lost more weight (I mean, seriously, is that not the stupidest reason ever given for a stock to rise in the history of markets? And by the way, unless Oprah plans on becoming the Incredible Shrinking Celebrity, she can only lose so much weight before the company is going to have to come up with some other fake news to prop up its stock).
The truth is, WTW has been struggling to reach consistent profitability for years. Moreover, it has done so under the weight (sorry) of an enormous debt load that sooner or later it is going to have to admit that it can't pay.
Reading WTW's balance sheet is enough to give anybody an upset stomach. In fact, if it handed out copies of its financials to its customers rather than its diet food, it would probably help them lose weight. The company is sitting on long-term debt of $1.986 billion and its cash and cash equivalents, dropped from $241.5 million at year's end to $99.0 million at the end of October after it repaid $208 million of bank debt. Interestingly enough, the company's debt consists entirely of bank debt that matures in 2020. Until then, it only has to repay $21 million of principal in 2017, 2018, and 2019 before refinancing the remaining …
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Prominent money manager. Has built top-ranked credit and hedge funds, managed billions for institutional and high-net-worth clients. 29-year career.