The major stock market indices are up about 3% from their recent bottoms and as usual after a post-panic bounce, I’ll remind you that if you were freaking out, losing sleep or just wishing you’d had trimmed more and raised a little cash when stocks were higher, that now is probably the time to go ahead and let out some of that pressure by trimming and raising that cash. Only you know your personal-family risk tolerance but losing sleep over your investments means you’re out of balance with your own personal risk tolerance.
Here’s the transcript from this week’s Live Q&A Chat where we cover the potential for a 1987-like crash, when will I get more aggressive about buying stocks, the cannabis bubble, Chinese stocks upside, earnings, gold and more.
Q. Calling for an ’87-like crash seems to be all the rage lately. Some pro-crash folks are saying that real risk is currently not being respected by most investors which could lead to a huge whoosh down, while some anti-crash folk say there’s tech/circuit breakers in place so we are unlikely to crash that hard again (go down 20%+ in one day). How likely do you think it is that we will ever see a one-day event like ’87?
A. I don’t think the stock market could go down a full 20% in one day because the circuit-breakers and other regulations probably would kick in and shut down the markets off and on for the day. That said, I do expect that in my lifetime that we’ll see the stock market crash 20% over a week’s time period in the midst of bigger bear markets. I don’t expect to see a 20% week’s crash in the next year or two though.
Q. When will you start buying? What are the catalysts you are looking for??? One more big down day? or…?
A. Unfortunately, it’s not like there’s a bell that I’m waiting to hear rung to start buying stocks aggressively again. No, remember that I’m always cognizant of the broader market and economic cycles and that I simultaneously look at each valuations of individual stocks and that all of my work contributes to what and when I buy, sell or otherwise trade. I’m likely to do some more trimming of my put hedges as well as doing some nibbling on some of our existing names that we’d trimmed higher and/or on some new names if stocks get into another panicky sell-off. But I can only take each of the pitches that markets give us as they pitched. And as I always remind you guys, there’s so much value in being patient and it’s never good to force trades. Easy does it as always.
Q. Hi Cody, can you talk a little bit on how are analyst’s targets and valuations done? A few weeks ago we were shaking our heads how TLRY could be at $120, then it went shortly to $300 and now analysts are raising the target to $200. Who is crazy?
A. Analysts usually try to give themselves cover and will change their price targets depending on what the price of the stock is trading when the analysts are doing their supposedly fundamental analysis to arrive at their price target. In my mind, most sellside analysts just want to avoid sticking out from the pack and they just want to keep getting their cushy paychecks and go on TV talking about their analysis. Being hard-core objective isn’t part of that gig. As for TLRY, you’ll recall that when it was trading at $120 the first time that I said I had no idea how high it can go before it crashes, but that I did expect at some point you’ll be able to invest in it lower than $120. Well, after it hit $300, it did indeed fall back to below $100 before spiking up again right now. I still expect TLRY will trade lower than $120 again at some point in the next year or two (and maybe in the next month or two!) but that it could go back to $300 first. There’s so much investor demand for real cannabis companies and TLRY is part of the very small supply. So there’s a bubble in cannabis stocks right now, I do believe, sellside analysts included.
Q. I know you’re not a fan in general, but China as a whole has been getting beaten down this year thanks in part to the Great Trade War. Do you think there would ever be a point to where you’d consider taking on some (ETF)?
A. Yes, there’s a potential time and place and price that I’d be willing to buy some Chinese stocks. I’d probably buy some individual stocks rather than a Chinese-stock ETF.
Q. I nibbled some NVDA today, not having any positions prior. Not sure that was prudent, but the one-year chart made it look so. Any thoughts?
A. I’ve been long NVDA for a couple years and it’s been one of our biggest winners over that time frame as it’s risen from $30 to nearly $300, though it has indeed come down hard in this swing down. Anyway, I still like NVDA here or I’d sell it all — so I can think of worse ideas than getting your toe in the NVDA water when it’s been taken down hard like this in the broader market panicky sell-off. That said, I do think NVDA’s expensive here and it’s got to grow faster than the current batch of analyst estimates expects in 2019 in order for it to get above $300 next year.
Q. Any feelings on our stocks going to earnings now? Who might surprise?
A. My answer to your question underscores why I’m being patient about making any big new moves right now. I have less of a feel for most of our companies’ upcoming earnings report this season than I’ve had in a while. Earnings themselves from most of our companies (and most of the market) will come in strong and even above expectations. But there are many macro factors that could impact outlooks.
Q. Can you offer any insight as to the timing of your decision to launch your hedge fund? For instance, why start it now as opposed to, say, closer to a time like 2008? Being so late in the cycle, the coming years seem like it will be a time to be very nimble (which hey, could make for some very interesting opportunities on both sides – wait… did I just answer my own question?).
A. Running a hedge fund is exactly what I am supposed to be doing with my life. I had an incredible experience and learned so much about life and the markets and propaganda and politics when I closed my prior hedge fund to take on having my own TV show on Fox Business. And then I came home, caught my breath, started a family and had a medically-fragile daughter too. My family, including Amaris, are in a great, healthy, happy spot. And I can’t wait to get back to doing what I’m supposed to be doing with my life. And of course, as far as the broader markets/cycles go, the fact is, as you know, that I don’t have to go out and load up on tech stocks on the first day when my hedge fund launches. I’m also going to be investing a little bit of the fund into cryptos and into some crowdfunding opportunities (I’ll be showing Trading With Cody subscribers exactly where and how I’ll be investing in the crowdfunding opportunities so you can too if you want — more on that later) and there’s a lot less cyclicality in cryptos and in crowdfunding bets than there are in the broader stock markets. I could go on. I’m so excited to get fund up and running January 1! I can’t really answer many questions about the hedge fund in the chat forum. Email us/me your questions about it to firstname.lastname@example.org. And everybody, please note: THIS CHAT DISCUSSION does not constitute an offer to sell or the solicitation of an offer to buy an interest in the fund. Any such offer or solicitation will be made only after delivery of a Private Placement Memorandum and only in those jurisdictions permitted by law.
Q. You’ve bought some $GLD (and physical gold) in the past month or so. Any thoughts on also holding some of its miner cousin, $GDX?
A. The short answer is that I don’t want the additional execution risk that comes along with owning gold miners and not just gold. I think GLD is a good hedge. I’ll probably just use it. Then again, I’m an opportunist and I might end up doing a little GDX too.
Q. Cody, I heard this morning that Uber may go public in the first half of next year. They are talking about a $120 billion market cap on a company that projects losses for quite a while. Thoughts?
A. A $120 billion Uber valuation if it’s actually still losing money, would be a clear reflection of a Bubble-Blowing Bull Market in its 8th year that we’ve been riding.
Q. $BOX has had a quarter of it’s value sliced in recent weeks. Is there a price where’d you’d consider it or is it just too late in the cycle for such a name?
A. Man, a lot of those highflying middling tech stocks like BOX that I was warning people about because were trading at 10-15x next year’s sales estimates have lost 25% in this sell-off over the last two weeks. BOX is now down to trading at “only(?)” 4x next year’s sales estimates. So it’s certainly gotten more attractive to me, but let’s do some further analysis. If BOX can keep growing its topline 20% per year for the next five years, they’d be cranking out $1.8 billion in sales. At 70% gross margins and, say, 15% net margins, you’d be looking at nearly $300 million in earnings five years out. Throw a 20x multiple on that number and you’d have a $6 billion market cap stock. Which would be about a double from here or about $40. When the stock was recently trading at $28, a $40 potential price target over five years out isn’t very exciting. And frankly, even at $19 seeing a potential $40 stock doesn’t sound like the best risk/reward scenario I’ve heard today.
A. I don’t PCTI anymore, but it’s a non-growing, barely profitable $4 telecom supplier stock. What’s the edge?
Q. PCTI has a dividend.
A. PCTI has less than $40 million cash on their balance sheet. How safe is that dividend?
Q. What about new IPOs, like PLAN?
A. I look at each IPO like I would any other stock — on a case by case basis. PLAN looks like it’s trading at more than 20x last year’s sales estimates and more than 10x this year’s sales estimates. You guys remember when I predicted all these Cloud companies coming public back five years ago when I wrote The Cloud Revolution book? Well PLAN, BOX and so many other cloud companies are public now, but they’re mostly too expensive just now.