Inside the Madness

Jeremy Lin vs Charles Barkley: Linning vs Losing

Nicole Urken, Mad Money Research Director

From: Nicole Urken
Sent: Wednesday, February 15, 2012 6:29 AM
To: James Cramer
Subject: WTW

CC & 2 notes attached—more notes coming

From: James Cramer
Sent: Wednesday, February 15, 2012 6:37 AM
To: Nicole Urken
Subject: RE: WTW

Let’s match this with what Charles Barkley said about WTW—and what the company said—on Squawk on the Street—travesty

Nicole Urken, Mad Money Research Director

From: Nicole Urken
Sent: Wednesday, February 15, 2012 9:46 AM
To: James Cramer
Subject: RE: WTW

Charles Barkley =  opposite of Jeremy Lin factor! (Lin boosts MSG, Barkley hurts Weight Watchers... in this case with WTW, "losing" isn't a positive)

On Mad Money, we have been behind the long-term “anti-obesity” trend that has been boosting stocks like Whole Foods and Hain Celestial despite their higher price points, Chipotle because of its “food with integrity program,” and Herbalife which benefits from an intersection of both health and wealth in an underemployed world, particularly in emerging markets. However, another name that has fit into this theme—Weight Watchers—has been a stock with lackluster performance ever since the big surge it saw in the first half of 2011, just after the company rolled out its new points program.

By extending its “anti-fad” diet, focused on lifestyle choices, with a new points system to lure in new customers, Weight Watchers stock doubled from $40 to $80 in just about 6 months in the first half of last year. (Remember, anti-fad of any kind is good—as fads can cause pain to your investment portfolio ... Remember LA Gear? Webvans? Clearly Canadian? Or today’s Skechers?

However, while Weight Watchers is a solid company with a strong long-term foundation, it is important to recognize the limited time horizon of a time-pegged surge. WTW experienced an influx of new customers and sales after the roll-out of its new points program—making way for an amazing run in the stock that, if caught, allowed you to double your money in six months. However, with an event-catalyst like WTW saw, it is key to lock in profits after such a gain.

The stock has stagnated in the $80 range since last summer, and the company’s latest quarter (announced this week on Valentine’s Day eve) was disappointing with cautious 2012 guidance, particularly as the company is facing tough comps … not to mention steep marketing costs. While the Dutch Auction and buyback are likely to be accretive and the stock remains well-positioned as a long-term anti-obesity play, with stocks, timing is everything … and at this point, there are no real near-term catalysts.

As Jim mentioned in the exchange above, WTW CEO David Kirchoff came on Squawk on the Street back on January 3rd talking up his company’s prospects. While he touted the continued opportunities ahead for the company, a bit of scrutiny reveals what could be a difficult first half of 2012, given the marketing required to lure in the next round of customers and tough comps from last year’s new program roll-out.

As a side note, in that interview, Kirchoff emphasized the positive influence of Charles Barkley as a spokesperson: “Charles has been fantastic for us. He is making meaningful changes in the way he lives his life. He is eating vegetables and fruits for the first time probably ever. And so, you know, for him it’s an opportunity to be a role model for people who are struggling.”

Unfortunate timing. It was just a couple of days later that the “round mound of rebound” was caught on the microphone mocking his endorsement deal. Not quite Jennifer Hudson caliber.

Weight Watchers is still well-positioned as an anti-obesity play with solid growth prospects. But there are no near-term catalysts for the stock right here—Given the stock has had a sizeable “new year’s resolution” run up, would take some profits here.  Even post-Valentine’s-day-chocolate-and-wine-resolutions aren’t likely to boost shares right now. Instead, cheer for Jeremy Lin. And watch the stock of Madison Square Garden continue to rise while coming up with yet another Lin pun. Unless you are one of the 2.5 million Time Warner Cable customers throughout the state that have been unable to watch the Knicks because of the cable company’s dispute with MSG Network, that is. Unbe-lin-able.


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