Winter 2007/2008

I advocate a short position in the common stock of D.R. Horton, Inc. as I believe the stock has an intrinsic value today of $7.25, representing a margin of safety of approximately 40% against today’s price of $11.86. The company is poorly positioned in the current homebuilding environment with significant exposure to weak geographic markets and deteriorating sales orders, which will likely lead to further impairment announcements.

D.R. Horton is facing significant challenges due to increased cancellations, a heavy debt load, and exposure to weak housing markets. The company's inventory is at risk of substantial impairments, and the housing market is expected to remain weak, leading to further declines in stock price.

Macy's shares are undervalued due to slow sales growth at rebranded stores, but improvements in sales growth and margins are expected in the near future. The company's stock buyback program and ownership of most stores provide downside protection, making it a strong long-term investment.

Macy's shares are currently undervalued due to temporary sales lag from rebranded stores. As customers adapt to Macy's promotional style and product offerings, sales are expected to recover, leading to a significant increase in revenue and stock price. The company has shown operational improvements post-merger, and historical trends suggest that retail stocks may be nearing a bottom, making this an opportune time to invest.

Netflix's business model is outdated and unsustainable in the face of increasing competition from cable and telco video on demand services, which have already penetrated a significant portion of the market. The company's growth is stagnating, and as margins shrink, it will struggle to retain customers, particularly as usage declines. A price target of $16 indicates a potential downside of approximately 30% from current levels.

Netflix has already experienced its strongest growth phase, and its revenue is expected to peak in 2008. The company lacks a competitive advantage in online distribution and is facing deteriorating subscriber economics due to rising customer acquisition costs and churn. Additionally, the emergence of new DVD technology will further squeeze margins, leading to a poor long-term outlook.