Autonomous Truckers, A Resilient American Investor, Impact of A PFOF Ban On Hood, And Much More
Here’s the transcript from these today’s live Q&A chat. As always, don’t forget to follow us on Twitter @TradingWithCody!
Q. How sustainable is this rally? Feels very overdone. At the same time, the sell-off also felt very overdone. Analysts are now adjusting their year-end S&P targets. Feels like everyone is getting bullish again…which is concerning. What are your thoughts here?
A. Few bears are left. The markets have blown up a lot of shortsellers this year and especially this summer too. I wouldn’t want to be plowing into a bunch of new positions right now, but I’m not terribly bearish right now either.
Q. With the inflation lower now, can you see investors rotating from bonds to stocks?
A. I think we’re seeing some of that the last couple weeks but as long as you can buy Treasuries that yield above 4% they will give stocks some competition.
Q. I read this past week that S&P 500 is back above where it was when Fed started current rate hike cycle in Mar ’22. (still down about 6%ish from end of ’21) but nonetheless… at a high level. What’s your initial thought or reaction to that? what does it say about the current state of markets or imply about what lies ahead? seems remarkable… but not sure what I think about that…
A. It is a testament to investors’ resilience and to the US economy that the markets have been able to handle the unprecedented move up in rates from 20 years of near 0% rates to now 5-6% Treasury rates. Remember when I wrote last December that higher rates might be good for the US economy over the long run? I still think that the Fed should rarely put interest rates below the natural level and save their QE/artificially low interest rates for desperate times.
Q. Seems lots of smart people were offsides on this rally largely driven by big tech. From my shopping experiences inflation still seems to be an issue. Wage inflation especially. I think last call you were looking for a 5-8% pullback? Still thinking this? Thanks.
A. Still cautious about the overall markets. Still love our longs.
Q. Along those lines, you mention that you love our positions. What are your top-ranked positions as of today?
A. My favorite longs right now are, in alphabetical order, probably: GOOG, HOOD, INTC, TSEM, UBER, UPWK.
Q. How do you envision BTC moving the closer we get to next year’s halving event?
A. Not sure the BTC move around a halving event is gameable, but I’d imagine it’d rally a bit as it gets closer to the actual halving and then will sell off some after the news of the halving being done in a classic Sell-The-News reaction.
Q. When you recommend an UPWK or a HOOD those are clearly trades and not 10,000-day multibaggers . (correct me if I am making the wrong assumption) that being said a target price is definitely helpful.
A. Upwork is a great company and is disrupting the part-time employee marketplace but it is perhaps not a fully Revolutionary company. We do think it could be a 3-5 bagger in the next 3-5 years though. Robin Hood does seem fully Revolutionary and the valuation is quite compelling especially when you consider its Enterprise Value (take their $11 billion valuation and subtract the $6 billion of net cash they have on the balance sheet). We think they will be adding dozens of new Revolutionary revenue streams like their IRA matching product in the coming years.
Q. At what price did you recommend UPWK?
A. We sent out a Trade Alert on May 4 that said: “We have been slowly adding to our basket of beat-up space stocks like BKSY, RDW, and RKLB (when its below $4). Lastly, we have been building up a small position in UPWK after it has been absolutely crushed this year. The company reported a pretty good quarter last night and the stock crashed initially but bounced back quickly. For those that don’t know, UPWK is the leading online freelancing platform and is used by many large corporations to hire high-skilled talent for web, mobile & software development, content creation, technical writing/editing, sales & marketing, accounting, engineering, etc. The stock has been beaten up lately on fears that corporate cost cuts will disproportionately reduce total spending on freelancers. Additionally, there is the fear that many of the services formerly hired on UPWK like content creation, writing, etc. will be eliminated by ChatGPT and other generative AI platforms. However, we like UPWK because it is a revolutionary platform play, has already achieved a critical mass of users, and is one of the few cloud/software companies out there that is trading at a reasonable valuation and still has some growth potential. We are nibbling on some shares around $8 and will add more if it drops from here.”
Q. What is HOOD on the rankings? AND Thank you for the detailed write-up on HOOD. It was a fantastic read overall. What is the current rating on HOOD? 8? AND Morning, I read the HOOD articles at what price do I add?
A. Thanks for the kind words. Bryce did a great job on that Robin Hood write-up of our analysis. I’d rate HOOD about an 8+/10 Revolutionary Rating at these levels right now. We added a little bit more earlier this week around $11 and would do so again if it drops back to a $10-handle.
Q. In your analysis of HOOD you write: “PFOF is prohibited in other countries like the UK and Canada, and the SEC considered outlawing the practice last year” What is the rationale behind this prohibition? What abuse are these countries attempting to remedy? You later write: “As mentioned, the SEC contemplated banning PFOF which would instantly eliminate nearly half of HOOD’s current revenue.” What would be the impact on HOOD should this happen? How, if at all, would this change your recommendation?
A. The reason some countries have banned PFOF is because there is a perception that it is a “hidden charge” to the investors and can create conflicts of interest. Most retail investors think that they are getting to trade stocks for free on HOOD since they don’t pay commission, but in fact, they are probably paying a tiny amount more per trade because the market makers, like Citadel, are making a larger bid-ask spread potentially compared to if the trades were all routed through an exchange. Additionally, during the GME Fiasco, there were rumors that the Citadel hedge fund was shorting GME stock, and then broke the Chinese wall and used its market-making division, Citadel Securities, to pressure HOOD and other brokerages to stop the buying in GME. Although as we mentioned in the article, the rumors turned out to be unfounded. If the SEC actually made an about-face and banned PFOF, HOOD could be down 20 or 30% overnight. But so would the other brokers like MS, SCHW, and IBKR that depend on PFOF to offer commission-free trading to retail customers. We think the likelihood of that happening is slim given the popularity and rise of commission-free trading.
Q. Big move by RKLB today. Not a lot of news that I can see except that a launch window starts tomorrow. AND RKLB jumped almost 10% on Thursday. I’m looking for a reason why and I don’t see a whole lot. I see news about a new contract but that broke later in the day and wouldn’t be a reason for a 10% jump. I see WSB is now all over RKLB. Doesn’t exactly make me feel great that the Reddit folks are behind this. Any thoughts/concerns on your end? Is there any genuine reasons for the run in the stock?
A. I don’t spend much time on Wall Street Bets (WS these days (never have spent much time on there) and wasn’t aware that they’re talking about RKLB. I think RKLB was terribly undervalued at $4. The stock is benefitting from recent successful launches while competitors like Blue Origin and ULA can’t even successfully test their rocket engines. Also, RKLB is benefitting from the recent big rallies in lots of speculative small caps.
Q. How does Threads change the thesis for META? They’ve gotten over 100 million users already and the app itself seems very intuitive/functional. With Twitter struggling, could Threads reach critical mass and serve as a catalyst for META?
A. I think META will be fine with or without Threads success. I haven’t been on Threads and I’ve only opened Facebook once in the last two months since I got access back into my FB account two months ago. My wife loves Instagram Reels videos and sends me hilarious golf videos all the time. Anyway, Meta’s social businesses are doing great as usual. On the other hand, I consume content on Twitter almost every day.
Q. Can you guesstimate how close Autonomous Driving (AD) is to becoming widespread? As is widely known, San Francisco and Phoenix already have extended operating licenses to Alphabet’s Waymo and GM’s Cruise. For retail use, the logical beneficiary of AD is UBER, trading at ~3.0x revenues and still unprofitable, but would it not be an interesting idea to accumulate shares of a large and non-unionized trucking company, such as FedEx, JB Hunt, Schneider National? UPS is unionized, so will be slow to adopt driving robots, but the non-union companies are currently trading at ~1.2x revenues and mid-single-digit multiples of TEV/EBITDA? The median valuation of 23 publicly traded trucking companies is 1.2x TEV/Revenues and 6.3x TEV/EBITDA. After fuel costs, drivers are probably their biggest expense even before (probably underfunded) pension benefits, and there is a chronic shortage of drivers.
A. Great question and thanks for the imbedded analysis in the question. I think Tesla’s way ahead of everybody else in full autonomy but that Tesla’s still a couple years or more from true Robotaxi. Long-haul trucking using Tesla Semi’s is pretty fully autonomous already as any Tesla owner who uses the latest Tesla FSD (Full Self Driving) Beta technology would tell you (including me). But driverless autonomy is not near. UBER’s freight business is a threat to the old-school trucking companies regardless of Autonomous Driving, IMHO. We are short some CHRW against our UBER long in the hedge fund, for example.
Q. I did not know about Blade’s organ transport service! Very impressive item on the company. When is the full analysis on Blade coming out? Looking forward to it! Especially after the Robinhood summary.
A. Bryce and I will be in NYC from July 23-28 and will be testing out the Blade Helicopter Taxi service and will be meeting with the CEO and other executives in person and then we’ll do the full write-up.
Q. What are your thoughts about the pending IPO fraud litigation against RIVN?
A. I don’t think the company did anything wrong but the company did come public at the exact top at a ridiculously bubbled-up valuation and put billions of dollars of money on their balance sheet. But that’s part of why I liked the stock so much at $12 — they have $12 per share in net cash on the balance sheet because they did come public at such a high valuation.
Q. You mentioned you were going to look into MRVL. Any update on your thoughts on valuation and future prospects? Thanks.
A. Good company and probably a bit of AI Revolution beneficiary but I think we’ll probably need a sell-off in it before I’d get bullish on it.
Q. Have you looked at Stellantis? They are the fourth largest manufacturer of Electric Vehicles worldwide, and the stock has a market cap of $59 billion. Its cash and securities total ~$49 billion, net of debt is $22 billion and is currently trading at a risible 0.18x TEV/Revenues and 1.2x LTM TEV/EBITDA (no typo here) which even for a car company is extremely undervalued. BTW, its dividend yield is 8.0%, so you get paid to wait for something to happen.
A. I hadn’t looked at Stellantis in a long time as I can’t stand their products (The RAM Truck I used to have was horrible). That said, at that kind of valuation and dividend yield, I’ll take a fresh look at the company. I am short some GM and F in the hedge fund paired against our Tesla long.
Q. Thank you for the $HOOD write-up! If there is time this week can you have a look at $INDI and let me know what you guys think?
A. I have Bryce looking at it. We’ll be in touch if we make a move on it. Interesting company for sure.
Q. HOOD is the latest FinTech play but have you/Bryce taken a look a Block lately? That’s an old position of ours that has been beaten down big time. Any interest in revisiting?
A. I lost all faith in Jack Dorsey, who runs Block/Square with the way he handled Elon’s buying of Twitter (which he used to run until Elon bought it). Seeing the insider communications and lack of direction that he provided his employees at Twitter was mind-blowingly disappointing. I don’t think I’ll ever own a Jack Dorsey company again.
Q. Did you guys ever take a look at AEHR? Up big today after earnings last night…
A. We have spent a decent amount of time looking at AEHR, but frankly, other than being a semiconductor equipment testing supplier, we don’t understand exactly what they do. Growing fast but revenue is still tiny and the stock is parabolic and that’s kept us from chasing it.
Q. VSAT finally paying…nice call! Thank you!
A. They’re having problems with one of their new satellites that were very expensive and way behind schedule when they finally launched them a few weeks ago. We covered about half the position and still have some puts as the company needs these new satellites to work well if they want to have any chance of defending their business against Starlink.
Q. NVDA has gone vertical–time to buy puts?
A. I’m just sitting on the NVDA in my personal account that we bought back seven years ago but I do think there’s some serious risk that the stock deflates 30% or so from here in the next few months. Trying to time that with puts would be tough but if it’s an outsized position for you and you want protection on it, maybe nibble a few puts dated out in Sept, 10% out of the money. The premiums on the puts aren’t cheap but aren’t crazy either.
I leave you all with a picture of one of Great Pyrenees talking to Amaris’ chicken balloon. I found Bernice (The Great Pyrenees, get it? sitting like that on her own and she looked annoyed at me for interrupting their conversation):
Thanks all, that’s a wrap!
