Always bet on brilliance and revolution

The volatility index $VIX has been consistently crashing to new lows for weeks now and is as low as its been in years. With the $VIX presently at $11.80 as I write this — the question might be will the $VIX ever get above 15 again? The answer is most definitely yes. Will it happen over the next thirty or sixty days? Probably. It seems almost obvious to buy $VIX call options dated out two months. But then again…hmm. The problem is the VIX options are still so expensive. The VIX would have to get close to 15 before any of the options you can buy on it would be in the money. So I’m not doing it, at least not yet.

Lots of focus on Amazon’s new air cargo hub and how the company is trying to stop relying on Fedex and UPS to deliver packages.  The bigger story is, as I pointed out a few months ago: “The big story with Amazon is that they’re slowly starting to build a fleet of carriers and a package distribution network for their own deliveries so they don’t have to keep paying UPS and Fedex. Eventually in another decade or so, the company will actually open their delivery service up to the public and undercut the UPS, Fedex and USPS prices. It’s the same thing Amazon did with Amazon Web Services, which they built for their own network first and then opened up to the public.”

Amazon revolutionized cloud computing and is about to revolutionize delivery/logistics.

With it’s dominance in retailing continuing to grow, Amazon Web Services’ incredible profitability and growth, and now the Alexa-as-Operating-System set to dominate spoken-voice interactivity — yes, Amazon seems set to rule the world. I’m comfortable with my large Amazon position, at least as comfortable as I ever get with any stock. Which isn’t exactly as comfortable as I am when one of my daughters is sprawled on my chest snuggling. And yes, there will definitely be 30-50% pullbacks in the stock in years ahead, just as there always has been in any stock over years.

But when you get the chance to bet on brilliance and revolution, you take it. As I’ve written several times: “Mark Zuckerberg, Jeff Bezos — these two guys are brilliant. I’ve been betting on them each for a long time and don’t have any plans on changing that.” And long time readers know that I used to call Steve Jobs brilliant back when the market was valuing Apple’s businesses and future cash flows at zero. No really, the stock traded below its cash level back in 2003 and I wanted the chance to be with Steve Jobs and what an opportunity to do so!

As for other retailers, I’m not sure the retail brick & mortar model will ever stop its secular decline. I don’t often buy retailers, and am not planning to start any time soon.

Speaking of Revolutionary companies and investing in them… a link to this article came up in my Facebook Memories from one year ago today. It underscores why we should think big and be patient with companies like Amazon who have brilliant visionaries running them and as a result are revolutionizing the world.

A Decade of Google Analysis
By Cody Willard Published February 2, 2016

People day trade, draw lines on charts, try to catch a big swing here and there, time the market, read the tape…and they lose sight of what’s important with their portfolios — maximizing our upside potential and minimizing risk. I do that by recognizing Revolutionary Trends and investing early in the most Revolutionary Companies (can I trademark this term yet?) on the planet.

Google Alphabet, Apple, Microsoft and Facebook are currently the top 4 most valuable companies in the world. I have to admit that I’m rather proud that I’ve owned and held onto three of the four for years, long before they were worth hundreds of billions of dollars. 🙂

As a matter of fact, you can see for yourself that Google, Facebook and Apple have been my three largest positions in my portfolio since June 2012 as I’d loaded up on Facebook back after it crashed to the teens after it first came public:

June 15, 2012 Latest Positions – Here’s a list of my latest positions in approximate order from largest to smallest. I give each stock a current rating from 1 to 10, 1 being “Get out of this position now!” and 10 being “Sell the farm, I’ve found a perfect investment” (there will never be a 10 rating, because there is no such thing as a perfect investment, of course).

1. Google (8) (Market cap back on June 15, 2012 was $150 billion)
2. Apple (9) (Market cap back on June 15, 2012 was $450 billion)
3. Facebook (9) (Market cap back on June 15, 2012 was $70 billion)

I want to focus on Google in particular today because as of this morning, Google, a company that’s not even twenty years old, has ridden the Internet and App Revolutions to becoming the most valuable company on planet Earth. I’ve owned this stock since its IPO and have quite a public record analyzing this company.

Remember about a year ago when I was buying more Google common stock and long-dated call options while the stock was below $500 a share? Recall these posts:

Trade Alert: Nibbling some names as we analyze the cycles – “Is it time to for this current market pullback to end? Is it time to load up on stocks again for the next swing higher? Let me answer those questions this way – if you’ve been following our playbook, trimming at highs, managing your overall net long vs net short exposure, and handling your business properly, then you know that it’s time to scale into some of our favorite long-term Revolution Investments while leaving yourself plenty of money and time to scale into more over time. I’m doing exactly that today with scaling into more $GOOG common stock.”

Trade Alert: Buying Spy calls, Google and First Solar – “It’s time for another fresh round of tranche buying of a little more GOOG and FSLR common stocks and I’m also going to add a couple call options on the SPY here — buying the calls with a strike price of $186 from November 2014.”

4 near-term catalysts for the next stock market crash redux – “I’ve been getting more cautious and cash heavy of late and while I’m not turning into an outright bear, seeing two of the four bullet points from my own playbook detailing 4 near-term catalysts for the next stock market crash has me wanting to remain a bit cautious and cash heavy. If I didn’t own Google as one of my largest positions, that’d probably be the one stock I’d look at starting to scale into.”

Trade Alert: Scaling into two of my favorite tech stocks – “Last week, I’d noted that I’d want to scale into $GOOG below $490 and into $SNDK below $90. We’re here. I’m following my playbook. I’m scaling into about a 1/6th size tranche position in GOOG common stock. This will be my last Google purchase for a while, as I now have what I’d consider a large position in the stock and don’t want to commit any more capital to it for now. While I do think it could take a while for Google to get back into favor, I am looking out into 2020 with Android remaining the dominant smartphone and becoming the dominant wearables platform as the primary driver for Google’s growth in the next five years.”

Trade Alert: Buying long-dated GOOG options – “I am buying a small first tranche of call options in GOOG, dated out into January 2016 with strike prices around $540 or higher. Will add a second tranche to this batch if GOOG were to get hit again in the near-term. I’d mentioned I’ve beenthinking about scaling into some more GOOG exposure and this is the approach I’m taking as I already have some common from much lower prices still.”

Even better, let’s go back to 2011 when Google was at $240 per share:

I just bought some slightly out-of-the-money Google calls – “Google’s down 3% on the day and it’s another one that has the bulls writhing in pain just now.  But then again, looking out six months, this company has some huge growth ahead of it, is trading much cheaper than the broader markets and has tons of loaded ammo behind it as its a favorite of the tech shorts once again.   And on that note, I also just bought some slightly out-of-the-money Google calls with expiries six months out adding to an existing position.  Stick with the play book, stay disclined. Especially when it’s painful.”

And here’s my fundamental analysis for Google back in 2011 as outlined in the book I published back then:

50 Stocks for the App Revolution – “One of the truer purer-plays on the App Revolution is Google. Google’s Android, while still not nearly as good overall in performance, ease-of-use, and battery-life as the iPhone (I’ve owned and played with many of each over the last year), has mind-boggling growth ahead of it. And like most of Google’s best businesses, it’s got huge profit margins, low reproduction and distribution costs, lots of disparate revenue streams and … did I mention something about growth above? Huge growth.

And there will likely be three major platforms battling it out for most of the 1.5 billion app phone buyers in 2010 — Symbian (driven by Nokia), Android (driven by Google) and iPhone (driven by Apple). There will be other platforms, but it’s looking increasingly every day that they will be on a much smaller scale — Microsoft and Blackberry and perhaps HPQ’s Palm, etc. Nokia’s Symbian system will also grow.  (Find out how we’re trading Nokia in the Revolution Investing model portfolio by reading my recent newsletter dedicated to trading Nokia).

The stock’s cheap, with an enterprise value now at less than 15-times next year’s earnings, when you include the $24 billion plus in cash they have on their balance sheet — nearly $37.50 per share.  That’ll be closer to $100 billion or so in cash by 2020 and if the company grows earnings at just 15% per year for the next seven years, they’ll be earning $90 a share.  Throw a 20 multiple on that and add the $100 billion cash and guess where you end up?  That’s right, $1000 per share price target for Google.”

I was calling for a 300% gain in the stock when I put that $2000 price target on it back in 2011. (Please note that we adjusted the post-split numbers for Google in my analysis there since they did the two-for-one stock split.)

Take a look at how many analysts, retail investors and other people attacked me for my $1000 per share ($2000 pre-split) price target on Google back when I first put that out there.

Going back even further, here’s some analysis from my old Telecom Connection Newsletter that we used to publish on TheStreet.com from 2006, ten years ago:

Telecom Connection Portfolio Round Up –  “Google’s gone from being a rebellious problem child in Wall Street’s eyes to being the punching bag for a bunch of regulatory bureaucrats on Capitol Hill recently. Meanwhile, the company continues to chug along as single fastest-growing company in the history of capitalism in terms of just about any tangible metric you use, including earnings. The stock popped $25 or so in the last week, but it’s still a strong buy in my book.”

Telecom Connection: Telecom Blasts Off – “Now for the buys. I want to double the Google (GOOG:Nasdaq) position. The stock has dropped about 7% since I added it to the portfolio a couple weeks ago. I believe that’s an opportunity to add more because business is strong and Google, the single fastest-growing company in history, is likely to show more huge growth this year.”

I also mentioned Apple which trading for less than $10 per share, split adjusted at that time –  “It’s time to double the Apple (AAPL:Nasdaq) position as well. The driver for Apple’s stock in 2006 is going to be market share in the computer business, and I think the company is likely to double its market share this year. That means it simply needs to take 2-3 percentage points of market share out of 100 percentage points to get to more than 5% total. At 5% market share, I’d expect the stock to trade at more than $100 a share.”

Or back even further back to 2005 when I joined Aaron Task on his TheStreet radio show to talk about Google and Apple:

Feather in Large Caps – “Willard talked about a ‘capital glut’ in the U.S., which has kept the economy from collapsing. Additionally, technology companies are experiencing an ‘incredible profitability boom,’ he said. Those factors have contributed to an increase in merger and acquisition activity, which has reduced the supply of stock in the market. Additionally, Wall Street is starved for good growth stories, which is one reason stocks such as Apple Computer and Google have run so much, he said. Willard, who has owned Apple since the stock was in the single digits, is paring his holdings even though he plans to continue holding the stock well into the next several years, he said. Willard’s thesis about Apple is playing out, he said, but with the stock up so much, ‘I don’t want to be a pig.’ Commenting on Google, Willard said the stock is discounting earnings so far out into the future that it is bound to trade wildly. But he plans to hold the stock for years to come.”

And also from 2005, nearly a dozen years ago:

Google Quarterbacks This Game – “More than a year ago when Google’s market cap was about $40 billion, when Microsoft rolled out its new Internet search engine to much fanfare and selling of Google stock, I penned a column called Google Targets Microsoft With Desktop Search. That was $80 billion of Google valuation and trillions of user searches ago.With Google at a $120 billion market cap and generating billions of earnings now, there’s no doubt that Softee (and every other company on the planet) now has Google fully in its sights. But I still believe investors should ‘flip it’ when it comes to that analysis. Google still has everyone, including Microsoft, on their heels, and Google’s on the offensive rather than the defensive. Internet advertising accounts for less than 10% of all advertising sales now. That percentage will be going to 20% in the next few years and will eventually hit 50% and more in the decades to come. Hundreds of billions of dollars are at play here, and there will be lots of winners. Google has been and most likely will continue to be one.”

So yeah, I am proud of my analysis and even more proud that I’ve put my money and career where my mouth was, as I’ve bet big on Google for so many years now. We were able to look past the near-term trading cycles in Google and position ourselves to ride it into becoming the most valuable company on the planet.

Last night, Google reported an absolute blow out quarter with strong topline growth and even stronger bottom line expansion, as I’d expected. Stock up 5-10% after hours, also as I’d predicted. The most exciting part of Google’s quarter was that revenue growth actually accelerated from last quarter. Gross revenue accelerated for the 3rd straight quarter to +24% Y/Y. Mobile search is exploding in growth for the company and the combination of mobile and YouTube drove Google Sites paid click growth acceleration to 40% Y/Y. Given how large Google’s revenue run rate already was, tens of billions of dollars per year, well, so much for the law of large numbers.

Let’s not waste our time daytrading, drawing lines on charts, trying to catch a big swing here and there, market timing, reading the tape or whatever else people want you to do with your time and money.

You do realize that long-term subscribers to my service are probably the only people on the planet who can say they’ve owned three out of the four most valuable companies as they grew into these behemoths they are today. Let me quote myself from 2005 to wrap up today’s report: “Hundreds of billions of dollars are at play here, and there will be lots of winners. Google (and Apple and Facebook and other positions of ours) has been and most likely will continue to be one.” I still plan to hold them for years to come.

To get started investing in these names or any other Revolutionary Company, I always suggest starting slowly and scaling into 1/3- or 1/4-sized positions and then nibbling a little more here and there over time. And, of course, my mission is to find and invest early in the next three companies to join the most valuable companies on the planet list. Stay with Trading With Cody as we do so.

Rock on.