Avoid FANG complacency, eSports Revolution, Avoiding Questionable Valuations, and more
Here’s the transcript from this morning’s Live Q&A Chat in the Trading With Cody Chat Room.
Reminder that we’ll do The Cody Willard Show tomorrow at noon ET. The Cody Willard Show is my once weekly 45-50 minute live show that you can find on Facebook, YouTube, Twitch TV, Periscope, Twitter and elsewhere. We also publish it each week in podcast form on iTunes,Soundcloud and Stitcher.
I’ll answer a couple of the questions below in much more detail during the show and will send out a transcript of the whole show exclusively to Trading With Cody subscribers.
Q. Why am I reading articles regarding the impending death of the FANG stocks when AAPL, GOOG, and AMZN posted excellent numbers but FB fumbled the ball. Seems OK to me?
A. Let’s not whistle past any graveyards (I’m never sure when that analogy applies?) or more specifically be complacent. Stocks can and usually do top out before their fundamentals. The question my mind here with regards to our biggest Revolutionary Stocks and most of our names is whether or not the cycle itself (both the market and/or the earnings growth cycles) is indeed topping out. Secondly, valuations are VERY extended in most tech names, especially those trading around $10-200 billion market caps, as so many are trading at 10+ times revenues. There’s a lot of air that can come out of the market and can hit even great Revolutionary companies like the AMZN, AAPL and GOOGL’s of the market.
Q. I’ve been a member for 7-8 years, first time poster. It is weird as we always look for new and revolutionary ideas that we don’t talk or have more questions on esports/gaming. That seems it would be right up our alley. This industry seems to be really taking off and selling out arenas (Barclays this past weekend). I know we own NVDA and AMZN for exposure but just curious on your thoughts about this up and coming industry. I also saw an article the wsj posted about parents now hiring video game tutors for their kids!!! Crazy huh? Back in the day my parents would pull the plug on my Nintendo and kick me outside while i was burning bushes and gambling for rupees in the Ledgend of Zelda! Lol.
Subscriber Carl notes: Back in the day we didn’t have video games to play in the first place.
A. Thanks for being a long-time subscriber and thanks for posting your first ever question. It’s a good question too. The clearest plays on the industry are the game makers like TTWO, EA and ATVI and those stocks have done well in the last five years, especially TTWO. There’s a lot of investment going into esports from a lot of big companies but it’s not a needle-mover for most of those like AT&T, AMZN, etc. AMZN’s Twitch.tv growth (owned by Amazon) is probably the purest reflection of the growth in esports. There will be some great esports pure-ish plays to come public in the next few years, so as always, we’ll look at each one as it comes out and analyze valuation, opportunity, Revolution, etc.
Q. In the past I believe you’ve said BOX is a good company but too expensive… is there a level you’d consider it to be reasonable?
A. $BOX is hoping/expecting 20% topline growth to $735 million in sales, maybe a few cents of earnings as it might turn profitable next year. 5x sales for a company that’s not profitable and not the dominant player…probably not a stock for me in this environment at this stage of the market/economic cycle.
Q. Hi Cody, same thing for $SPOT, any level you would consider it?
A. $SPOT is hoping/expecting 30% topline growth to $6.7 billion in sales, and little expectation of turning a profit next year, not cash flow positive by a long shot either. 5x sales for a company that’s not profitable but IS the dominant and Revolutionary leader in music consumption, is on my radar. Maybe if I could get it at less than 3x sales — so I might get interested in Spotify’s stock at $100 or lower.
Q. Hi Cody. Just curious. You say in your recent post you’d nibble TWTR around $30 or so. Does that mean now at a price of about $31/$32? Thanks A. Short answer, yes.
Q. What do you think about MDR? It seems it could be a good play with rising oil.
A. I’m not a big fan of investing in oil in general as it’s certainly not a Revolutionary energy technology. I know little about MDR specifically and probably don’t see much reason to, at least from my investment approach. I think oil is at the high end of the range I outlined the last few years and I don’t think oil is likely headed much higher much longer from these current levels.
Q. Two of your buy more targets are close here – INTC & TWTR – adding or tempted?
A. Tempted, but not adding to either yet. They’re not quite at the levels outlined in the “Where I’d buy more” post sent out earlier this week.
Q. Have you looked at CVNA as a revolutionary candidate – I started buying at 11 and love the “no dealer” interface idea.
A. Wow, that is some serious growth rate that Carvana company is putting on. 100% topline growth this year, 80% next year expected. But once again, you look at the valuation of this company and it’s trading at 8x this year’s revenue estimates. And like SPOT and BOX, which I analyzed above, the company’s not profitable and not expected to be profitable this year or next. And in this kind of a Bubbled-Blown Bull Market entering its 8th year, I’m not inclined to invest in a name like this right now.
Q. I will ask but suspect I know your answer – CARG?
A. 30% revenue growth projected this year, slowing to 18% next year. Trading at 10x next year’s revenues and nearly 200x next year’s earnings estimates. I bet you do know my answer! Not a stock for me except that one might actually be a tempting short!
Q. Sounds like AMZNs numbers in the early days…
A. I don’t think Carguru is going to be the next trillion dollar company like Amazon is likely to become some day. Also, remember that AMZN fell more than 90% from 2000 to 2002 and didn’t get back to its 2000 for another decade — in 2010!
Q. Cody Any interest in a hardware producer for 5G. Someone along the lines of Nokia or Ericsson? I doubt you have lots of love for Huawei. But the other 2 after, missteps, are down a bunch? Verizon will benefit domestically, producers hopefully globally
A. I get your logic, that selling into 5G service providers should be a growth industry in the years ahead, but for every 5G cell order, there’s a 4G cell order that it replaces. I’m also not sure if the average selling price and/or profit margins in 5G equipment will be what they were in 4G, which weren’t what they were in 3G. Not only that but NOK, for example, has $8 billion in debt that it’s still saddled with. Not likely to invest in either NOK or ERIC anytime soon.
Q. Cody, You continue to teach me about being a better investor. For me gathering both your insights and how you process information is important to hear about. SEDG will be reporting thursday and the recent news of patent infringement just came out.. I imagne questions will be asked about this at the conference call AND …..what is your perspective on this development with Huawei ? ..underneath these questions is being able to discern what is important information and what will just pass over in time..from your perspective..which you share about a lot… thanks for your insights…
A. Thanks for the kind words. I doubt that SEDG lawsuit against Huawei amounts to much, but I suppose it has the potential to win the company some settlement at some point in the next few years. We’ll indeed hear more about this development on the earnings call and we’ll just have to analyze it afresh then.
