Capital Ideas Monthly Investment Report (F, MFB)

Capital Ideas, Inc
Authors: CJ Brott & Karen Burns

Disclaimer: Capital Ideas, Inc owns F and MFB in their Covestor Macro Plus Income model.

We decided to target a few stocks as long side plays for the current round of earnings releases. Among those chosen for inclusion in our portfolio were Ford (NYSE: F) and Maiden Form (NYSE: MFB). The idea was to take advantage of underestimated earnings power. In the case of Ford this has worked well as the company earned $2.6 billion vs. the streets $1.6 estimate for 2Q2010 ). Translated this was $0.61 vs. the $0.40 estimate. We had been impressed that Ford has beaten estimates for the last four quarters and believed they would again as their cash flow was so high they were able to prepay $4 billion in debt.

In the case of Maiden Form the company has beaten estimates for the last four quarters. Earnings are growing at a compounded rate of 17% from 2Q2009 through 2Q2010, giving the stock a PEG ratio of about .75 ( Release date is 8/11 and we believe the stock could trade as high as $35 in the next 18 months. Much of this depends on a continuing good relationship with Victoria’s Secret as they are responsible for the majority of product demand growth over the last year.