A few shorts

Posted on January 22, 2006 , filed under Stocks | Print This Post

I am in the process of looking at a few shorts. The first is TRLG True Religion Apparel, Inc., makers of upscale denim jeans. I don’t believe expensive denim jeans is a sustainable business. I do believe that consumer consumption habits have changed and people are more willing to pay for premium denim jeans. My worry is that jean companies go in and out of fashion rather quickly. Once a trend fades the only thing left remaining for a company to do in order to maintain sales is to reduce the price of the jeans until the brand losses its appeal and goes into obscurity. There is a chance that True Religion can diversify well enough to build a lasting brand like Levis, but the chances are against them. The niche that True Religion serves, the jetset wealthy crowd, is highly sensitive to trend changes. There are a large number of readers who, like myself, can name several upscale jean companies that were popular 5-10 years ago that no longer exist. Once True Religion jeans become too popular, the few people who can afford the price of the jeans will simply move onto another brand. I don’t expect that this will happen overnight, but I am guessing in about a 12-18 month timeframe.

The next two shorts I am looking at are CAL, Continental Airlines, Inc. and AMR, AMR Corporation. I believe the price of oil will continue to rise, causing pricing pressure on both airline carriers. CAL and AMR have risen quite aggressively over the past few months. I believe CAL and AMR are due for a 10-20% drop in price if crude oil can maintain or rise above its current price, around $68 a barrel.

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