I have to admit that this week’s Live Q&A Chat was full of questions that were ebullient and free of worry. I think it might be time to nibble a few index put hedges here. I’m nibbling a few puts in the usual suspects, including SMH, IGV and SPY. Strike prices that are about 5% out of the money on the SPY and dated out to December or maybe January.
Here’s the transcript.
Q. Are articles like this a sign the bull market is ending or still has room to run? UBS Says the Wealthy are Preparing for a Huge Selloff
A. I’d say that most any mainstream headline that you see repeated in the mainstream financial news over and over for days or weeks on end is usually a good contrarian indicator. So that would mean an article like that would indicate there’s more room to run. You can’t really game the markets with this analysis though!
Q. Sort of piggybacking off the previous question, do you have any thoughts on / reaction to Ray Dalio’s “The World Has Gone Mad and the System Is Broken” piece from last week? https://www.linkedin.com/pulse/world-has-gone-mad-system-broken-ray-dalio/
A. Here’s my thoughts on it. The angrily confused tone of that missive with the markets at all-time highs is sure very different from his didactic tone explaining why the markets were crashing in this missive called “To Help Put Recent Economic & Market Moves in Perspective” published THE VERY DAY THE MARKETS BOTTOMED back last December 26: “A number of people have asked me to explain what’s now going on in the markets and economy. As you probably know by now, I believe that everything (i.e., all reality) works like a machine with cause-effect relationships that drive what happens, and that to be effective it’s essential to have a good mental model of how those machines/realities work and to have good principles for dealing with them well.” https://www.linkedin.com/pulse/help-put-recent-economic-market-moves-perspective-ray-dalio/ Dalio is one smart dude and we might want to be bit more cautious off this anecdote vs being bullish because Dalio’s tone has changed so dramatically.
Q. What would you rate a 9+ today?
A. Investing in yourself!
Q. Now that we’re approaching November options expiration, my modest hedge/bet on seeing a reversal in markets by now hasn’t done well (to say the least). I know you’re relatively optimistic in the near term; would you advise a new, small hedge (ETF puts) dated out to, say, December or January — and on which ETF’s/markets? And which strikes (the usual 5-10% OTM)? Or does your outlook say we hold off right now? Thanks.
A. I think it’s a good idea to nibble a few puts in the usual suspects, including SMH, IGV and SPY. Maybe closer to 5% out of the money on the SPY and dated out to December. Just in case there’s a major pullback in the markets, which is something that I don’t necessarily expect here. Hedging costs some performance, but if it helps you sleep at night, then it’s a good thing.
Q. Cody. What is the top stock to buy now?
A. Might not be a great time to buy stocks until the next time people are freaking out and asking what’s the best stock to sell. That said, I sure like some of our hated/beaten down names like WORK, UBER and TWTR but I think we should be cautious-ish right now.
Q. What would you say is the dumbest expense/purchase people under the age of 30 make?
A. Worrying too much about retirement. I mean, it’s good to save and start your retirement accounts as early as possible, but I always considered spending on dinners networking and experiencing life to be better long-term investments than an S&P 500 mutual fund in my 401k at that age.
Q. If you were a parent of a high schooler today, would you want him/her to go to college or take another (far less expensive) career path?
A. Totally depends on the individual high schooler.
Q. Cody – how much does it concern you when you see tons of insider sells, and pretty much no insider buys on your stocks? Just for example, you would think TWTR insiders would be taking advantage of the current price if they saw value there.
A. I don’t worry about insiders buying or selling unless there’s something that sets off my spider senses about it.
Q. I just read a short writeup in CDNS, Cadence Design Systems, saying it was well positioned in the growth of AI in that it’s one of only a handful of software companies in the world that controls the electronic-design automation business, has 90% recurring revenues, and supplies all of the major chip manufacturers. (And last year announced a multiyear contract with the Pentagon.) Familiar with them? What I don’t know is the financials — whether they’re overpriced at the moment, etc. Worthy of a look by you? Thanks.
A. I’ve studied CDNS before and even hit on the analysis of why it was a bit too expensive for its growth rate last year: ‘While I’m on my Googling kick, I just googled “Semiconductor cycle” and did a general search: https://goo.gl/ABgEhp and an images search: https://goo.gl/nndqos and a news search: https://goo.gl/DWpfij. Boy, people do a lot of predicting the bottoms and tops of the semiconductor cycle, don’t they! Meanwhile, the usage and uses and of chips continues to expand and there has certainly been a secular growth to the industry for decades now and I would expect that to continue for decades to come as the world digitizes everything ever more. As for CDNS and SNPS, both are growing about 10-20% topline and are trading near all-time highs at valuations of about 25x next year’s earnings. I don’t see anything to get particularly excited about in those two names at this particular time.’ Cody back in real-time November 2019 again now. Interesting that if you click on those above Google links, you’ll see that there are no mentions of a semiconductor cycle peak right now. Might be time to worry about a peak in the semiconductor cycle when the SMH is at all time highs and few investors are worrying about a peak in the semiconductor cycle. CDNS is now trading at 30x next year’s earnings. It’s a steady grower, 90% gross margins and recurring revenues, but not growing even 10% topline right now. Maybe we can wait for it to get sold off along with the rest of the semiconductor cycle if/when the semiconductor cycle finally does peak.
Q. Good morning. I wondered about TTD I think it my be a good long term holding. Your thoughts? AND Q. I second mkkil’s TTD question, Cody. My first thought was a programmatic ad platform was a commodity. But selection by Amazon and now getting Disney inventory is interesting. If AI is a differentiator and they are truly ahead, connected TV advertising is going to be huge and a way to win in streaming agnostic to the content provider wars.
A. I just think there’s some privacy issues that are going to come back to haunt TTD. I am not a big fan on this company or this stock. Would rather short it than buy it.
Subscriber: I’ve been buying up TTD…. its the place companies go to advertise who dont want to use googl and fb…. roku uses it as well PG uses it…. play on mobile devices and smart tv ads
Subscriber:, ROKU buying dataxu so maybe TTD loses Roku, I own both pretty big.
Subscriber: Roku addressed that purchase in their call… they said its complimentary… time will tell
Subscriber: The real attractive thing about roku for me… is the fact its so easy to use. Smart tvs will be a big seller this xmas…. they have good arpu for not having content… intl expansion coming…. it is the definition of cord cutting and not pressured to make content and spend spend spend.”
A. I like ROKU’s positioning as Switzerland of the streaming wars. I do not like TTD and think it could be much lower than these levels in five years.
Q. TTD. You know why it is up so much yesterday and today?
A. Earnings last week must have been good enough that there’s either shorts covering or new investors coming into the new and/or the trader momentum junkies are plowing into it and/or all 3 and/or some other reason.
Q. At what prices would you get interested in gold & silver again?
A. Gold closer to $1350 or lower and silver…hmm, maybe at $8?
Q. Cody, thoughts on gold pull back?
A. Gold is still up 10%ish from where we were buying it earlier this year and down about 5% from where we were trimming it a few weeks ago. I think it’s good to have a little gold and/or GLD as a hedge but I might not buy more til GLD gets closer to $130 (it’s at $137ish right now).
Q. Hi Cody, what is your buying strategy for DIS? I suppose you’re going to buy in tranches. Do you already have a schedule for the other tranches? Are you going to buy more below a certain price or after a certain time? Or are you going to buy more when you feel the time is right? How big is the portion you are going to buy this week, is it around 1/3?
A. Good catch, thanks for asking this. I’m buying about 1/2 of a DIS position this week. I’ll buy more in the next week or two probably or might just wait and let it play out for a bit after that. We’ll see how the pitches come.
Q. Thoughts on SNAP. FB Amzn long term
A. I’ve owned FB and AMZN for years and plan to continue to. I’ve owned SNAP since it was at the $6-7 levels and but trimmed some recently. Holding most of it steady. I’ll write up my latest long-term analysis for each of them in the next Latest Positions round up later this week.
Q. Work feels like it bottomed– can anyone buy them?
A. It’s hard to call a bottom. Lots of things can happen, including Black Swans or just bad luck, that can take a stock lower. Anyway, sure someone could buy WORK. Microsoft probably won’t, but maybe Google or CRM or someone could come along and spend 10-15% of their market cap buying Slack (WORK – worst ticker ever).
Q. Any doubts about WORK? Still confident in its thesis??
A. Oh, I always have doubts. I’m still confident in the Slack WORK thesis though I certainly harbor doubts.
Q. Cody – any thoughts on MCD? They’ve been hit pretty hard over the CEO employee-dating scandal and leadership changeup. It’s hard to imagine the long-laid plans of Esterbrook are suddenly going to dissolve because their CEO was replaced by a fellow insider.
A. I’m not a fan of McDonald’s because it just seems like people are going to keep eating healthier over time. But MCD’s a great company. The stock is wildly overvalued here in my humble opinion too though. ‘
Q. FAANNG or FANG (whatever you prefer): Rank them 1 thru 4 top buys at this time in your POV … (or sell GOOGL and buy DIS???)
A. I wouldn’t sell GOOGL! I’ve owned all of FAANNG but Netflix for years and I’d probably rate AAPL last and the others pretty even for the near-term.
Q. Do you think Jon Favreau’s ‘The Mandalorian’ looks hot? Does to me. (and this is coming from a disappointed SW fan thanks to Rian Johnson’s epic failure of The Last Jedi) $DIS
A. YES!! I can’t wait to watch it. But I’ll probably wait another 8 weeks so that I can binge it over a week’s time or so when I get a chance sometime.
Q. Qcom is a long term position for you, but do trim here? Or tuck it away and don’t look back??
A. Nothing wrong with trimming and tucking and not looking back. Have cake, eat it too. Q. Just cancelled my Hulu subscription and subscribed to the Disney+ package that includes it pus ESPN. We’ll see how the kids vote on this later. A. Let us know!
Q. ARK / Cathie Wood says gene editing is huge. Any names you’re excited about in this space. She loves Illumina
A. Yes, I’m studying gene editing stocks and the industry but not ready to invest in it yet as there are too many ethical issues right now.
Q. What should the valuation of MCD be? It’s P/E is currently 25, pretty close to it’s peers. Chiotle is 69, and Del Taco is 258!
A. I see TACO’s P/E at about 20, not 258. I would think about 10-15x P/E for a company like MCD that grows its topline at the same rate as or even less than the GDP.
Q. Time to buy cron?
A. I like CRON but not as much as I like CGC and GWPH.
Q. Cody, have you looked at PINS?
A. Yes, and here at $20ish, the stock is trading at 8x next year’s sales topline growing 35% and 60% gross margins. If the gross margins can improve in coming years (and they’re supposed to and I expect they will), this stock looks pretty attractive here.
Leave a Reply
You must be logged in to post a comment.