I’m pretty much receiving a constant flow of questions from Trading With Cody subscribers via email and especially in the Trading With Cody Chat Room. And it’s hard to stay up with all of them, but I do try.
Here’s a bunch of questions about individual stocks from you guys. Interestingly and not coincidentally, my micro analysis of these individual stocks underscores why I’m increasingly cautious these days. Heck, my commentary and analysis below is almost bearish, isn’t it?
MTCH – You know it’s a bull market and that we personally have some huge winners when I look at MTCH’s stock chart and see that it’s gone from $15 to $45 over the last five years and my first thought is that it’s underperformed many of The App Revolution stocks. Regardless, Match Group has net debt of about a billion dollars, is growing nicely at 25-30% per year and is trading at a 30 P/E. That’s not a terribly expensive valuation in the current market but that statement itself underscores why I’m being more cautious overall and more picky about adding potential new Revolution Investing names.
SODA – Sodasteam’s got a clean balance sheet with no debt and a couple hundred million dollars in cash. The company’s growing about 15% per year, which ain’t bad, but a far cry from some of the best performing Revolution Investing kind of stocks that I like to invest in. Speaking of which, Soda is about the opposite of a Revolutionary Trend. With the stock trading at 20x next year’s earnings estimates and at 3x sales (for a soda company) I’d be more inclined to short this stock than to buy it.
ALGN – I don’t typically invest in companies that are dependent upon insurance companies and/or the taxpayer for their revenues so that’s a mark against this name before I even jump in. That said, we’re talking about a company that’s growing at an impressive 30%+ per year. But with the stock trading at 60x next year’s earnings estimates, there’s a lot of risk in that name. I don’t like it here but I don’t hate it here either. Call me a bit agnostic on this one.
VMW – This is certainly a Revolutionary Investment kind of name as the trend toward “cloud, mobility, networking, and security infrastructure software” (as this company describes its business) is huge. That said, the growth rate here has slowed to 10% or so and that’s not enough. Also, with Dell’s interference in the stock structure, I’m not interested in being involved with this stock.
KL – A gold miner. Nope, not for me. I’m concerned that EVERY miner stock I check has billions of dollars of debt and needs gold to stay here or go higher to pay it off. I’d rather own gold coins than gold miners.
KEM – KEMET Corporation manufactures and sells passive electronic components. Passive component businesses are typically lower margin than semiconductor and other active component businesses and Kemet’s business is no exemption. With 25-30% gross margins (vs 80% at our holding Axogen, for example) I’m not impressed. Lower gross margins alone isn’t a deal breaker for me to invest in a stock though, depending on valuation and the potential for expanding gross margins in the future. Kemet’s looking to grow about 1% next year though, and though the stock is “only” trading at a 12 P/E, that’s not cheap enough for me to be interested at all in this one.