Here is the transcript to this week’s Live Q&A chat. Join me next Wednesday at 2pm EST at https://tradingwithcody.com/chat or send me an email with your question at email@example.com.
Howdy folks. Ask me anything!
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Q. Nice bubble piece today, Cody. How do you explain the pickup in volatility.
A. As markets get toppy and as the risks for investors get riskier as prices rise in a bubblicious market like we are in, you’ll start to see volatility rise. In other words, steady Betty rally action is long-term bullish but jerky-Derky rally action with increased volatility and 1-2% daily dislocations in the broader markets is probably short-term bullish, but indicative of a longer-term top. Did I answer your question?
Q. You did, thanks, although I’d like to know if increased volatility is always bullish. Seems to me it derives from a whiff of doubt entering the grey matter of the Steady Betties. Could that not also suggest the market is vulnerable to a loss of bullish conviction that could morph into panic if we break below 50 day support?
A. No, increased volatility is often bearish. I’ve done a lot of analysis on how volatility, as measured by 1-2% intraday dislocations becoming frequent, is indeed a very bearish indicator. But my point is that we’re probably getting ahead of ourselves if we’re thinking that we’re already seeing that kind of 1-2% intraday dislocation action becoming frequent yet. Certainly there’s been some added volatility but outright dislocations on a day-to-day basis isn’t here…yet. I think we both are recognizing that there are some technical indicators of market tops and bottoms that we should have on our radar. But nothing more than that for me at least so far.
Q. Makes sense. Thanks! A comment I saw in the FT yesterday summed it up for me: something is not quite right when traders are buying treasuries to make capital gains and equities to generate income.
A. That’s a very interesting quote and a lot of truth in it too. This is not a time to be long Treasuries, though I’m more bullish about equities for the near-term. Thanks. Please consider signing up for TradingWithCody.com today to get a free month trial of this service. I don’t make any guarantees except I do guarantee you will become a better investor and trader with our service!
Q. Hi, Cody: when you suggest things like “Is MCD at 18x earnings vs AAPL at 7x earnings a better bet? I don’t think so. Buy Apple and short McDonald’s? Not a bad, if not perfect, paired trade.” — why is that paired trade better than, say, one or the other? Just curious about the philosophy/technique. Thanks.
A. The reason I cited AAPL vs MCD was simply that I find it shocking that place that serves something that ANYBODY on the planet can copy and build a competitive business in (hamburgers and bad fast food) is worth more than a place that sells something that only a handful of companies on the planet can even conceive of producing, much less competing with (smartphones/tablets/computers/software). AAPL vs MCD isn’t a pure “paired trade” by any stretch of the imagination, but it’s a great exercise in thought to consider the logic of doing so.
Q. Hi Cody, it seems like Apple currently is missing a catalyst. Even with the new iOS 7, there are both good/bad comment from both ends. IMHO, Apple is taking a make or break bold move in terms of changing iOS completely, which put more uncertainty into the stock itself. What would be your take on Apple in the next 12 months?
A. You’ve got it right – without a truly “new” product to catalyze a move higher, Apple seems destined to trade near these levels for the next couple quarters. The flipside of that logic is of course that WITH a truly “new” product like wearable computing devices and iWatches and what not, Apple’s stock could really finally take off again.
Q. I am always working during your weekly Q&A but would like your to help me understand why FB issued so many shares? I agree with you interpretation on where social media and FB are headed but how will all those shares help/hurt them going forward? If FB had the same number of shares as GOOG and I’m doing the math right it would be close to $200 now and isn’t it hard to move a stock up trading such a high daily volume? Thanks…
A. More important than the daily volume is the number of shares outstanding. Today’s article is all about exactly this topic – Trade Alert – Relative Valuation Analysis (and buying more metals). Over the next few years, if Facebook can generate just a couple pennies per daily user, the company will earn $4-5 per share and if they can do that, the stock will likely be closer to $80 a share, regardless of how many shares it trades on average per day over the years to get there.
Q. No matter how many shares you got FB will go down, no one likes American social networks because you have been watched. I really don’t want to post anything to FB anymore.
A. The NSA surveillance revelations are both a risk as well as an opportunity for FB and Amazon in particular to step up and become privacy/empowerment properties. Bezos and Zuckerberg are going to have to stand up to the government for their customers to do it though. I’ve made yesterday’s article on this topic free for everybody since you asked about it here in the chat which I’ve made free this week already.
Q. Cody, do you like VMW?
A. Back in my bestselling ebook, 30 Stocks for the Cloud Revolution, I cited VMW but was a bit cautious about it because of its outsized valuation which at the time was $40 billion. It’s now about $30 billion which is still rich for a company that will generate $5 billion in sales this year. Subscribers to TradingWithCody can read the eBook for free – 30 Stocks for the Cloud Revolution.
Q. Cody, how big was today’s physical gold/silver buy relative to your original position in gold/silver? And could you give an explanation of how much you have in gold vs. silver?
A. My GLD and SLV long positions are both small relative to the rest of the stocks in the portfolio. Since the big drop in spot prices, I am slowly but surely adding to my physical gold and silver coins and bullion and plan to keep doing so for the next year at least. I plan to have maybe about 10% of my assets in gold and silver by that time, which is a larger allocation than ever before in my life. I think the currency wars around the globe are still escalating in a race-to-the-bottom endgame.
Q. Have you ever looked at Blue Earth (BBLU)?
A. I’ve not looked at BBLU and its a micro cap/penny stock and that’s not a place I often risk my hard-earned capital in. You can sign up for TradingWithCody.com and get, for free, my 100 Stocks for the Clean Tech Revolution book which we published earlier this year, a $49 value.
Q. Juniper (JNPR) is one of your picks that stood out from the others. It has a 5-year PEG ratio of (1.0, which is very low compared to a lot of other tech stocks). Do you agree this one has some of the most upside potential? How important is the 5/year PEG ratio in judging growth stocks to buy?
A. The problem with a PEG ratio is that the analysts forward estimates are always going to be off, whether too high or too low. That’s why you’ll often see me talk about how I think the consensus estimates for a particular stock are either too high (so we look to sell or short the stock) or too low (so we look to buy or add to the stock).
Q. Does CIEN’s debt worry you?
A. Yes, I much prefer to buy stocks with a net cash position so I know they have more flexibility in managing their cash and/or raising debt when the time is right. That said, I’ve seen many stocks, telecom in particular, rocket 10- or 20-fold despite (or because of) the leverage they’ve got in their business model. Debt cuts both ways and I think it’s set up to cut the Ciena bears down on the current cycle.
Q. What’s your take on the FSLR secondary and the stocks near 16% decline in 2 days?
A. I think FSLR is still up huge from where we first bought it a few months ago and that this stock is going to continue to be very volatile but mostly headed higher over the next few months and years. I always like it when a company raises cash in an equity offering after the stock has gone up 400% in a straight line as FSLR’s has. I’ll probably add back some of the FSLR we sold near the highs at some point in coming weeks.
Q. Hi, how about any security stocks? Network security’s constantly in the news and clearly a real threat. PANW, for example?
A. I like PANW now that’s down 50% from its recent highs a lot more than I did when it was at its highs. I do think there’s a huge growth market for security and privacy especially with these latest revelations of how badly the Republican/Democrat Regime is spying on all of us on the Net.
Okie dokie, pokies. We’re done here with this week’s chat session. Thank you for all your insights and questions and helping to build this TradingWithCody community. There’s always a growth market in truth, objectivity, and hard work. That’s what you get here from us! Thanks again.