Best time to buy is when…and other topics

Here’s the transcript from this week’s Live Q&A Chat. Lots of of our subscribers looking at this sell-off as a buying opportunity. That’s good that people aren’t fearful and have been prepared for it. But contrarian-wise, that’s bad because as I note in my answer to the first question, “The best time to buy is usually when you can’t hardly stomach buying, so the fact that you’re anxious to put money to work might indicate that you should do so slowly.”

I’m headed to NYC for the next three days as the hedge fund launch continues.

Q. Markets are dropping “because the global markets are dropping”. Is this a good time to start buying in? I cut my investments by about 50% and am getting itchy. Please explain the disconnect between the good earning reports we are getting and the fact that stocks are dropping. My guess-the hedge funds are exiting because their buddies are getting out, causing a self-fulfilling prophecy. The real world (inflation fears, the fed, etc) had a part, but why now? More importantly, how long until I can scratch my itch.

A. The best time to buy is usually when you can’t hardly stomach buying, so the fact that you’re anxious to put money to work might indicate that you should do so slowly (sorta joking, sorta not, obviously). Anyway, markets can drop for millions of reasons that you didn’t list, including from sentiment swings; geopolitical risks; valuation reversions to the means; currency wars; trading wars; inflation concerns; liquidity issues; etc. Be careful is my advice!

Q. Hi Cody, re the all important preservation of wealth, when you perceive a true bear coming, do you see any changes in the way you convey trade alerts or divesting strategy? May be un-answerable till we’re there, just never been thru one with you. But hey, on a good note, we’re gonna live forever and the markets always come back.

A. Line of the day, “But hey, on a good note, we’re gonna live forever and the markets always come back.” Part of your question assumes that the markets will go bear market and not just crash…or just stay rangebound for years. You’d definitely see me even more defensive and/or aggressive about adding short hedges and buying some puts if I thought the risk/reward set up was appropriate.

Q. Cody – What do you think of instead of owning VZ and WDC – buy deep in the money call options for 2021? I am trying to free up some cash

A. You’ll miss out on the dividends and you have to hope that the stocks go up a bunch over the time frame that your call options expire. I’d rather stick with common positions in WDC and VZ and maybe supplement them at some point with call options perhaps.

Q. WDC reports later this week. What are you looking for to stay positive on the investment?

A. I’m looking out two or three years from now with WDC and expecting storage pricing to have stabilized, margins expanding, etc. The market is expecting a terrible quarter from WDC, so anything not terrible might pop the stock 5-10%. Regardless, I’ll be interested in seeing what’s up in the fundamentals when we get the earnings report this week.

Q. is there a short term trade on WDC heading into earnings? PANW?

A. Expectations for WDC are very low and that could mean that even a decent quarter would pop the stock 5-10% as I’d mentioned above. PANW has pulled back nearly 20% since the day we trimmed it at $230 a couple weeks ago but expectations are that the growth there will continue, so it would likely take a really good quarterly report to pop the stock near-term.

Q. Is Facebook worth a nibble here if I do not own any right now?

A. I always tell people that if you want to own a stock, it’s probably best to get your toe in the water with a small partial position tranche and then nibble a little more later opportunistically. I wrote a whole analysis on why I’m holding my remaining FB shares despite my anger at the company yesterday: http://tradingwithcody.com/2018/10/22/facebooks-either-desperate-or-still-really-hacked-or-both-but-im-still-holding-the-stock/

Q. Hey, and what about Tesla? I am a buyer “if” they raise equity again. It’s the only thing the bears have. Clear that and a major rally for this stock. That is the overhang right now, I think. Any new thoughts on this puzzling stock, CODY?

A. I’m not a TSLA fan and will never buy it as I’ve explained many times over the years (read these: http://tradingwithcody.com/?s=tesla+elon). That said, I think you’re right that if the company would issue a big equity raise for like $5 billion, the stock would likely put in a bottom.

Q. Good Morning Cody – Suntrust cut Snap’s price target from $13 to $8. Thoughts?

A. I wonder why he had a $13 price target two months ago when the stock was much higher.

Q. Big earnings day coming up Thursday – can you provide some bullet points for what you’ll be looking for in $TWTR, $SNAP & $WDC?

A. TWTR – want to see usage growth and higher monetization growth. SNAP – same. WDC, see notes above.

Q. I read yesterday that in a trade war with China AAPL, GOOG, FB and AMZN might hold up well. AAPL because they have great relations with China and the other 3 because they have little business in China. Agree? Thanks.

A. I think trying to game microeconomics (looking at individual companies) in the context of macro geopolitical economics is probably not a good idea. I mean, you know I’ve owned those 4 stocks for many years and I still do so I obviously think they’re relatively good ways to invest in a time of The Great 21st Century Trade War.

Q. What price would you nibble AMZN, AAPL and NVDA? If somebody does not own those stocks, start to position on today’s drop or still wait?

A. I always tell people that if you want to own a stock, it’s probably best to get your toe in the water with a small partial position tranche and then nibble a little more later opportunistically.

Q. Do you like SQ now that it’s 25% off it’s highs?

A. SQ is one of the fastest growing big cap tech stocks on the planet, with 50%+ topline growth this year and another 40% growth expecting on top of that next year. But the stock is trading at 15x NEXT YEAR’S SALES ESTIMATES and 100x next year’s earnings estimates. I like the company and wish I’d bought some at $15 but at $75 I don’t like the valuation risk/reward profile.

Q. Why do not we have some financial/tech stock like MA, V or SQ in our portfolio?

A. Like I said earlier, I wish I’d bought some SQ two years ago, but I missed it. Not going to force a fintech stock into the portfolio just to do it.

Q. VZ: nice call!!

A. Well, so far at least and thanks. But let’s not count our long-term Revolution Verizon chickens before the 5G eggs are just being incubated.

Q. Hi Cody, How are you doing? Wishing you and your family to be happy and healthy. I was wondering what are your views on Stellar Lumens. Now that Visa is working with IBM and both are using Hyperledger Fabric(underlying currency as now is Lumens). Lumens at this point are only used for transferring and since they don’t need to hold it. Do you think it will generate good ROI in future ? And what other cryptocurrency you think will be adopted or could compete in adoption by mass market. Value will only be generated by mass adoption but companies who are looking for adoption are also looking for stability and if there is stability, high ROI is not possible. Please express you thoughts.

A. I’ve talked before about the risk of stellar being a utility vs currency, and that risk is because of the fact that it’s a utility vs currency but the fact that it’s a utility vs currency is also why it’s such a compelling crypto. And I work everyday on finding the next great cryptocurrency and will let you guys know anytime I decide I’ve found one.

Q. What do you also think of Netflix spending another $2B? With interest rates increasing having high debt of $10B will bring it down or would they cruise along just fine ? Thanks much for your input. They’re best.

A. Thanks for the kind words. Netflix is employing a win-all or go-bust-trying-to approach. Regardless, I think there’s a lot of winning-it-all priced into this stock just now.

Q. What do you think about NTNX?

A. Another unprofitable, fast growing software company trading at 4x next year’s sales estimates. It’s cheaper than it was when it was trading at 8x sales estimates a month ago before the stock dropped 35%, but it’s still not cheap.

Q. Cody, 90 seconds left on your own 20 and you need a TD. Tom Brady or Aaron Rodgers?

A. Yea, I’d take either one, but Rodgers wins out for being more cowboy than Tom.