ADBE vs SWAV, Market Path Of Least Resistance, War Is Fog and More

Here’s the transcript from this week’s Trading With Cody Live Q&A chat with two minor Trade Alerts in there. 1) I’m buying a little ADBE. 2) I’m buying a tiny bit more of RKLB.

You can watch a replay of this week’s SKTLs Volunteers Zoom call here. We talked about how The Space Revolution is in a similar place to what The Dot Com Revolution was in in 1997 or so or similar to where The Crypto Revolution was in 2014 or so. The Space Buzz buzz is starting, the bubble will come next, the crash after that, consolidation after that, and then the trillion dollar valuations are built and sustained. I’ll write more about this on Trading With Cody next week.

Q. In your opinion was the market reaction to the Fed rate hike sufficient to put in a near term bottom? It didn’t feel like it to me.

A. I’d rather cover shorts than sell right now, but I’m not sure I’d want to do too much outright buying just yet. I was bit surprised by the viciousness in the market’s reaction to the Fed — I thought everybody was wanting it to either crash or spike so maybe the market was going to flatline and bounce back and forth with a slight downward bias. But that downward bias has been strong. Anyway, I am opening up some more exposure to the long side in the hedge fund this morning by selling more puts I had on as hedges and locking in some profits on those.

Q. Cody, following up, what is the path of least resistance for the market near term? Sounds like you’re saying there is a slight downward bias for the near term. What would get you to change your opinion?

A. Yes, probably a path of least resistance is probably lower for mid-term, but short-term I don’t know right now. It’s starting to feel a bit oversold. I don’t know.

Q. Cody, what odds would you give for Russia using a tactical nuclear device in the next 6 months? What is the most probable end game for this war?

A. Maybe 10% chance, but again, in war, nobody knows nothing, maybe not even Putin knows what the odds are of nukes coming out in this war at this point. Most probably end game is that Russia gets to save face somehow and that NATO takes in Ukraine and another couple countries on Russia’s doorstep. But again, war is fog!

Q. Cody, I listened to Dan Nathan, who I like, talk about the S&P only down 20% and is being held up by big tech and will not bottom until big tech gets crushed some more. Apple is only off its 52 week highs by 16%, but GOOG 30%, AMZN 37%, META 60% and MSFT 30% have been crushed. Seems energy or something else has helped S&P. Do you think big tech gets crushed more before this is over? Thanks.

A. I’d rather own big tech than oil stocks again now. And I don’t think big tech is going to be as crushed at the magnitude and quickness it has been all this year forever. But I also don’t think big tech is going to magically go back to all-time highs anytime soon. Google and Meta and Tesla are probably my favorite of the “big tech” right now and NVDA will be very compelling at $120 and below if it gets there.

Q. Since you just said it would be compelling ~120, I’m guessing that the US AI chip ban doesn’t concern you much regarding NVDA?

A. If NVDA’s AI solutions continue to be amongst the best in the world then there should be more than enough demand for those chips in the US and Europe for years, I suppose.

Q. After getting REKT post-Figma acquisition, does ADBE interest you here?

A. GMTA, great minds think alike? LOL. Yes, I have been working on ADBE here, as it has been decimated, down 60%+ in a straight line (not that it’s all-time Bubble High really is relevant). The fact is that it’s trading at 7x 3 years out and 5x 5 year out profits (my P/P ratio), and I think that’s pretty cheap!

Q. You’ve noted that SWAV is a nice grower but also not cheap. Could you provide any more color on it and the next level you might be looking to add?

A. Shockwave isn’t at all like ADBE but it’s an interesting comparison so let’s look at the two. Shockwave has new biotechnology that will penetrate new markets and will be largely paid for by the government’s health care industry’s ridiculously favorable rules for companies like SWAV to make 85% gross margins. ADBE has software for its primary business which has almost no incremental costs whenever you bring on a new paying customer so they have 85% gross margins too (note that the market sets the price its willing to pay Adobe for its software vs how the government sets the price that its willing to pay for Shockwave). Anyway, Shockwave will grow 40% or more for the next few years as it penetrates new hospital systems and more doctors likely adopt its technology https://shockwavemedical.com/. Adobe will continue to grow high single digits or low double digits, call it 10%. So SWAV is trading at 17x 3 years out numbers which quickly drops to about 6x 5 years out numbers because of the high top line growth rate. ADBE’s aforementioned P/P ratio is 7x 3 years out which only drops a little more to 5x 5 years out numbers because the topline only changes 10% per year. So Shockwave is set up to become cheap in five years, but in the meantime it’s pretty expensive looking on any numbers you look at for the next 3 years. ADBE is just cheap now and will get cheaper but slowly.

Q. A lot of sentiment in the Web3 space is against Meta (thoughts are that they will not figure out the metaverse, etc). I wonder if this is just Web3 hating on Web2 or is there more to the story? In my view I think Meta is pretty smart and has a boatload of money to see this through. Cody, what are your thoughts? What is your value proposition on Meta given the head winds they may have?

A. I suppose there’s a little more to it than just “web3 hating on web2 companies” in that, there’s a fundamental hope/belief in the web3 community that they will somehow either actually empower individuals or at least be able to profit on individuals in web3 like Meta and Google and other web2 companies did to people. Regardless, I consider Meta a metaverse company but not necessarily a web3 company although I have to admit I don’t really care about web3 vs web2.

Q. Cody, you said you really liked RKLB below $5. Does that still hold and where do you see RKLB in the next 1,3, and 5 years?

A. Yes, the CEO is on CNBC right now by the way. I have no idea where RKLB will be in one year, but in three years if it delivers on its vision and next gen rocket ships, it should be quite a bit higher thank here and in five years could be even higher. If they fail, and space is hard, the stock will probably be at $0.

Q. I watched the Investor Day by RKLB yesterday. They seem to be firing on all cylinders, I mean nozzles. You said you’d buy at $5, are you? I really like RKLB and I’m buying a lot. Is this wise in this market? I’m trying to look out 3-5 years.

A. See prior answer. It’s risky but it’s a great company.

Q. Curious what your rating on BTC is with it bouncing around 19k for some time now. Do you foresee a new 52 week low before the year is out? At what level do you get aggressive on the long side?

A. I’ve been saying for a while that I think bitcoin is headed lower as the Great Crypto Washout (oooh, new term!) develops. Maybe $16k or so is where bitcoin might be nibble-able again. I’m in no rush to get more bitcoin or other cryptos except for the SKTLs Space Debris token that I volunteer on and still nibble more of most every week.

Q. Why do I get the feeling that the latest trade alerts are like re-arranging the deck chairs on the Titanic?

A. I certainly hope we have done a good enough job of avoiding icebergs that we are not on a Titanic. I have preached caution since I repeatedly said throughout last year that we’d had a Blow-Off Top ending to the Bubble-Blowing Bull Market, steering our ships away from icebergs. I think there are individual stocks that have already bottomed and others that will do so soon and a select few stocks that have been putting in or are about to put in those bottoms will likely go up 10x or 100x from here in the next decade. While the broader stock markets could be rangebound for years.

Q. Cody, how would you rank UBER now?

A. Maybe a 7/10 right now.

Q. In your research, have you looked at LAC – Lithium Americas? Seems like a pure play on a lithium miner, kind of like MP. I imagine Lithium deposits in the Americas are not too prevalent, so someone that can mine a resource that will have continued demand is a good catalyst.

A. I’ve studied the lithium industry a little bit over the past few months and didn’t end up digging into any pure plays in the industry because I just think it’s too easy to create new lithium mines vs, say, how hard it is to create new rare earth mineral mines.

Q. Have you looked into QS again? Price has come way down. Do they have the future battery tech? There are also other battery makers, any insight into these types of companies?

A. Looked at it but I think I prefer EVNX. I’m still learning about the individual companies though.

Q. In the past you have distributed a list of where you would consider additional purchases of your holdings. Could you do that again in the next few days?

A. Great idea! I’ll try to do that this afternoon or tomorrow.

Thanks for all of the great questions. Have a great week, enjoy the weekend! I leave you with a shot of my colt licking the rain drops from the night before off my Tesla the other day. And a bonus shot of a beautiful rainbow dropping into the mountains beyond.