Howdy folks. Let’s rock n roll!
Q. Cody, Can you please go over your IBM short thesis? You were SPOT on as the stock fell from 210 to 187. How if any does it play into the eco system we are buying stocks for such as FB AMZN AAPl GOOG etc?
A. Here’s the thing with IBM, which Juniper itself confirmed this morning if you think it through — They are dependent mostly upon enterprise (big corporation) and governmental tech spending and both of those customer bases are cutting back on spending right now. IBM is at best growing at the rate of GDP, but that’s not enough in my mind to justify paying 13x next year’s earnings for a horrible balance sheet and questionable earnings quality to boot. I think IBM will trade down below $150 or so in coming months.
As for the IBM eco-system, I guess it does exist in the old “You can’t get fired buying IBM” kind of way, but there’s no viable strategy to developing an all encompassing, revolutionary eco-system ala FB, AMZN, AAPL and GOOG.
Q. Cody, any opinion on EMC?
A. EMC is a lot like IBM in that it depends on big biz and big government tech spending for growth. It’s better positioned for growth overall though and with $5 a share in net cash on the balance sheet and a long history of conservative accounting methods, I like EMC better than IBM. Maybe a long EMC and short IBM paired trade over the next six to twelve months would be a good hedged set up.
Q. You’ve trimmed your financial puts Cody. Rebound in short/mid term?
A. Yes perhaps. That said, I’d expect a short-term, somewhat scary maybe 3-5% pullback in the broader markets led by the financials on the downside at some point. Rallies last longer and go further than we often expect they could though. So, I ebb as the prices flow. And I will look to re-short or buy more financials puts on rallies from here.
Q. Good morning Cody. What a package AAPL delivered yesterday! I have some concerns around AAPL’s future. We all know that AAPL is working hard on new category of products. However, it is going to be hard for them to reproduce iPhone success IMO. Apple managed to convince people to change their smart phones every 2 years, but that’s going to be really hard for TVs panels. An iWatch is not going to sell as a high price as an iPhone, and probably will never match on margins. It is going to be really hard for the share price to more than double to $1000 in foreseeable future. What’s your take? How can Apple get their in your opinion?
A. If Apple earnings $60 this next year and $70 next year, and if the stock goes back to a 10 P/E multiple, plus you add what will be close to $200 a share in cash at that point even after the buy backs and dividends, you’d have a $900 stock sometime in 2014 or early 2015. That’s not quite $1k, but that’s only 10% away.
Q. Good diverse Call on Apple, Cody. Do you think Apple can earn $70 a share w/o cool new product categories and complete refresh of current line? I know you are looking for very cool features yourself hardware and software related.
A. I do think $70 is possible, but not probable without a new product.
Q. It is almost like Apple needs to split the stock to get rid of the $1000 psychological barrier. If it was $40, people wouldn’t say it can’t reach $100 as much. Even though it doesn’t change market value, it does change how people think and tendency for small investors to by a 100 shares and hold it.
A. Interesting perspective and maybe there’s some truth to what you say about the $1000 psychological barrier. Recall that Apple also got rejected hard after it passed the half-trillion-dollar market cap threshold and that’s probably another psychological barrier too. And no split will change that market cap number.
For me stock price seems like the biggest barrier. For whatever reason I find myself not drawn to high price stocks. Just human nature to feel like you have more with more shares and $40 seems more likely to go to $80 easier. That was my only point, just human nature.
Q. Do you think Apple will bring the thunder and magic this fall and next year? Do you think they will blow us away or let us down? They know they must knock it out of the park soon.
A. I do think Apple the bar and expectations for Apple’s next product cycle are so low that anything decent will make the stock valuation improve.
Q. FSLR is on fire. I got some options and they are up already. Should I cash in some of the shares bought at 37?
A. That’s awesome and congrats. Now, since you’re using options especially, you’ve got to be flexible and start taking some profits while the stock is on fire. You should probably look at selling 1/5-1/3 or so of your options now and then you can have your cake and eat it too — that is, if the stock falls back, you know you’ve made some nice profits already and if it keeps skyrocketing, you’ve still got a lot of upside leverage.
Sounds good. Thanks.
Q. FLSR reports on April 29. What do you expect to do before earnings, if the stock is still at these levels?
A. If the stock stays here around $45, I’ll probably just hold all of it into earnings. If it pops closer to $50, I’ll probably trim a little bit. And if it drops back below $40 before earnings, I might even buy some calls for an earnings report gamble.
Q. What is future of FSLR?
A. First Solar is the last man standing in the solar industry and if they can manage their cash well, they can roll up every former competitor for pennies on the dollar and be hugely profitable with any growth at all in coming years. FSLR could earn $4 this year and with 10% topline growth over the next three years, they could earn $8 a share in 2018 or so.
Q. What about GLW? And I never sold FIO, Change your posture about FIO iin the future or is a finished story like FFIV?
A. FIO’s got more pure growth in its market than FFIV does, at least for the next couple years. But both depend again on big biz IT spending for growth, although FIO’s market is so new it will grow fast no matter what the overall trend in big biz IT spending is. I just lost faith in FIO’s management’s ability to execute on their plan (unlike the aforementioned ARMH’s management doing so well). If the company and management can get the ship righted, I’d probably be willing to revisit the stock. Not before they prove themselves again — this ain’t no court of law where it’s innocent until proven guilty.
GLW’s got so many good marketplaces of growth, from tablets/smartphones/TVs, fiber optic cabling and emissions technologies for semi trucks. But the margins in all of those businesses have been suffering for the last couple years and Corning’s competing against burgeoning Chinese competition, so I’m not looking to buy it for this cycle for now.
Q. Can you elaborate on why Juniper will bounce back? I bought some today as you recommended. What is the deal with the “carrier demand” that you were mentioning in your earlier note?
A. “Carrier” means telecom/cable/satellite service provider, ala Verizon, Comcast, Dish. Carriers are ramping spending to meet the huge demand for video consumption on smartphones and tablets and increasingly on big screen televisions too. Juniper sells routers to those companies and gets 70% or so of its sales from carriers and the rest from normal enterprises like banks ala Goldman Sachs. Cisco gets about 70% of its sales from the normal enterprises like banks and 30% from carriers. (Those 70/30 numbers are being pulled out of my memory off the top of my head and are probably not quite accurate but are close enough to give you a good sense of why I like JNPR better than CSCO right now).
Q. Cody – what’s your view on ARM, one of the UK’s tech success stories that seems to be going from strength to strength?
A. I like ARMH and explained why in this book from last year. Nothing much has changed in the overall picture since then except the company has executed on everything I outlined in that report even better than I’d expected.
Q. Cody – what are your thoughts on DDD? Seems that the accounting scandal was much ado about nothing. Time to jump back in?
A. The 3D printing industry is the real deal, but I don’t like to take chances when there’s questions about accounting. WorldCom got away with bad accounting for years before it finally crushed their shareholders and I don’t want to take any chances with my hard-earned capital. I prefer SSYS and XONE to DDD, but all are expensive even considering big growth in the out years.
Q. Can we get an update on ZAGG at these levels below your original entry point?
A. ZAGG will report earnings on May 3 and if the report is decent, the stock should really pop back to $8 or above I’d guess. Remember this is another “Management Must Execute” over the next three to four quarters for this trade to work and if they do, the stock should be closer to $20.
Q. I bought physical gold on the early side, where should I be looking to add and not asking for a bottom but what do you think the range is over the next 5 years?
A. I think you should slowly add to it on weakness such as the ongoing current pullback. I think physical gold can range from $1000/oz to $5000/oz over the next five years.
Q. I am regretting never getting into MDBX, it seems everytime it’s down I dont buy and then it jumps up!!!! Also do you recommend buying FCS? I am looking at buying 1000 shares into either MDBX or FCS, if MDBX drops again would you buy in?
A. Medbox needs a miracle for it to work out for shareholders at this valuation. What a ride though. Fairchild Semi is a good company but not growing very fast. Better investment than Medbox for the long run though.
All rightie folks. My fingers hurt. See ya on the flipside.