Cody Kiss & Tell: Bullishness, Gold, lots of stock inputs ($GDX, $NFLX, $PYPL, $AMBA….)

Q. I trust your judgement but I don’t understand how you turned more bullish suddenly. All the factors (noise) like Fed interest rate hike, China market, Oil price drop, Strong US dollar which are important to many in market haven’t changed much. Also if you ask who is scared more right now, I guess we would get 50-50 which means we are not trading opposite to crowd too. Can you explain what made you feel that the path of least resistance is upward right now. ?

A. Well, my bullishness could end up being wrong. But I think we’ve been hearing about a Fed rate hike nonstop and I don’t believe that moving interest rates from 0% to 0.25% or even to 1% is going to stop people from seeking higher risk assets like stocks since rates are just too low. China’s consumer class is going to grow by millions of people this year and next. Oil and energy prices drops are good for other businesses and all consumers around the world. Strong US dollar means that every dollar I get paid with is more valuable than it would be otherwise, and I want what I get paid in to have more value, not less. So I actually find most of those economic trends you’re citing to be quite bullish, not bearish. And stocks have come down 30-50% almost across the board, which is also bullish in my mind.

Q.  Could you talk a little about gold? You’ve mentioned a stall between $1,100 and $1,200. Is this strictly a technical analysis? Any guess on how long the stall — and whether the next move is positive? This relates to the question of whether we might want to trim some of the tremendous gains in GDX $15 December 15 calls to date –I know you’re still not counseling trimming on them. (Until recently, I’ve been adding on dips to improve cost basis; wondering if i still should, though it’s getting to be a very large position within my portfolio.)

A. If you haven’t taken any profits on the $GDX call options, I probably would look at trimming maybe 1/3 or even 1/2 here. I might trim a few more $GDX call options myself just to lock in some of those outsized gains we have there. I am just “feet-to-fire” when I say I think gold could top near $1200 near-term. Longer-term I think gold could be $5000/oz during my lifetime. The GDX call options were just a trade though. Most gold miner stocks also have too much debt and if gold doesn’t stay above $1200, there could be some bankruptcies in the next few years in gold miner stocks too.

Q.  Need your inputs on $ILMN?

A. $ILMN looks like a better short than a long. It’s another biotech stock that is growing quickly that’s making outsized margins because they’re lobbying the government to set the prices for ILMN’s products as high as possible. That dynamic is likely changing and I think biotech margins are about to start seeing declines which will impact their earnings estimates and growth over the next three to five years. $ILMN makes 70% gross margins vs Apple’s 40%ish. Illumina has $1bb in debt and about a billion in cash too. I’m short the $IBB and might go ahead and buy some puts on BIIB and ILMN and other individual biotech stocks in months ahead too.

Q. Any feel for apple er?

A. iPhone 6s and 6s Plus sales have been strong and I expect the Watch is doing okay too. iPad and Macs are steady. Hope the bar isn’t set too high tho, as I don’t think Apple’s earnings report will be “blowout” or anything.

Q.  You indicated you were thinking about starting a position in $NFLX. I have to assume you are thinking this is a good entry point and that you would buy more if it went lower. I own it also at a lower price point and have been a bit worried about the high valuation and huge run it has had this year yet I still very much believe in it especially with the rollout to multiple countries the rest of this year and next. I was in Spain last month and going to nettles I saw the tag coming soon to Spain so there is a lot of ground to gain. Do you fell it is still a good long term hold no matter what the earnings later today say for this single quarter?

A. I just bought some $NFLX back again this week and think it can triple or more from here over the next few years. I plan on buying more if it gets hit on its earnings report tonight.

Q.  My question is, all things considered, which of the current candidates in either party do you think would have the most positive impact on biz and the market if elected. Again, you may feel there’s no difference. Any comment on the discussion on Glass Steagall revival and Dodd-Frank last night?

A. I think any candidate that gets through the Republican Democrat Regime’s filters is going to be pretty much completely owned by big business and will do everything he/she can do to help prop up corporate profits and the stock market too. I read Frank Dodd and it was 120,000 pages of subsidies and protections for giant banks written by bank lawyers.

Q. $AMBA seems to be trying to base around 55-60. I do own this stock and am just holding for now as I don’t want to add anymore, my confidence is not as strong. Is this case of where we will need to wait one or two earnings reports before we really start to see it move again? Feet to the fire, higher or lower price in one year.

A. I expect that demand for $AMBA‘s HD video chipsets is still through the roof as drones and wearables hit the market. Not to mention that virtual reality camera sets will require dozens of video chips to make it work. It takes 16 cameras for GoPro’s new VR camera set to record 360-degree VR. That’s a lot of video chips per unit. Feet to fire, I expect $AMBA could be back toward $100 per share in a year or two if the growth keeps going.

Q. I’ve been holding $PYPL since its split from ebay. It’s a small position but I’m frustrated with it. What are your thoughts?

A. I’ve been doing some work on Paypal and it’s another name that I think looks like a better short than a long. It’s trading with a $40 billion market cap and I just think there’s a lot of competition coming heating up for payment processing over the next few years. $PYPL isn’t cheap either.

Q. What is your opinion for $ETP?

A. $ETP has $18 billion in debt vs $3 billion in debt. That’s an ugly balance sheet. The company needs higher energy prices or it could have some serious trouble maintaining that 9% dividend. I might invest in an energy stock or two at some point if there’s a slew of big bankruptcies in the sector, but after looking at $ETP here for you, I highly doubt I’ll ever want to invest in it.

Q. I like $CVS‘ dividend. I mean,  I like CVX (Chevron). I’m also eyeing ULTA. Is now a good entry point?

A. Boy I don’t like seeing all these giant corporations loaded up with debt and little cash when interest rates are likely to be higher in coming years. $CVS has $12BB debt vs. $2BBcash. With the stock trading at 16x next year’s earnings estimates, it’s not cheap for a retail brick and mortar company. The 1.6% dividend is okay but not enough to get me interested. I’d rather buy $WMT with a 3.6% dividend than $CVS with a 1.6% dividend. I like $CVX better than $CVS.  $CVX is paying a nearly 5% dividend yield but obviously will struggle if energy prices don’t bounce back big at some point soon.

Q. I own the stocks you are adding to, does it pay to sell some KO to buy some more?

A. $KO‘s got a $18BB debt but $30BB+ cash, so the balance sheet there isn’t bad. The 3% dividend is also nice but with little or no revenue growth, the 20x forward P/E is awfully rich. I’ve never owned $KO in my life tho and am hesitant telling you to sell a stock you own. Good luck.

Q. Do you have any ETFs or individual stocks in mind to short or buy puts on to play the energy bankruptcy thesis? It seems there is some complacency about energy bottoming since oil popped modestly. Glencore’s fire sale could be the bellwether of the start of energy bankruptcies rather than the end.

A. I’d rather search for energy stocks that are carrying 10x more debt than cash and would look to short just about any of those. We probably should have done exactly that six months ago and would have some huge profits on that concept.

Q. Is it a warning sign when companies hold too much debt than cash or is that how businesses can be run ? What are the options they have to raise money for business when the growth slows other than doing a secondary offering ?

A. Large cap companies should manage their cash flows to better build up their cash balances and pay investors and quit buying back stock using debt. And as a shareholder, I’m often happy to see a company do a secondary offering when their stocks are up 1000% and at all-time highs, which is what most every large cap and any energy stock could have done this time last year but didn’t.

Q. Is that analysis of energy stocks anything you’d be doing in the near future — if not specifically for a trade alert (i.e., short)?

A. I think we might be late on the trying to game the energy crash bankruptcies, just because energy could bounce. If oil hits $35 or so in the next few months, then yea, there will probably be some shorts opportunity in energy stocks.

Q.  I assume “1/3 full sized position tranche” means $7K based on a $20K full position, and “1/5 of a full sized tranche means $4K based on a $20K full position? I get confused when you talk about fractions of tranches vs. full sized positions.

A. Exactly: “”1/3 full sized position tranche” means $7K based on a $20K full position, and “1/5 of a full sized tranche means $4K based on a $20K full position?” Thank you for helping clarify this for all subscribers.

Okay folks, that’s a wrap. Thanks for a great session!