Cody Kiss & Tell: Favorite energy stocks, the Military Industrial Complex, Health profiteering and more

Here is the transcript to this week’s Live Q&A Chat. Visit the Trading With Cody Chat room on the Trading With Cody iPhone App, the Trading With Cody Android App or at https://twc.scutify.com/members/. If you have any questions about our service, just email us at support@tradingwithcody.com.

Q. Morning/afternoon, Cody (depending on time zone). In your recent update mailing, discussing energy, after the usual cautions you write “some strong balance sheet energy companies have bottomed & will thrive in years ahead, but it will be a stockpickers’ sector, not an all around boats lift.” Any names that qualify in that regard? And would they include Chesapeake ($CHK) who just re-structured their debt (And who, it should be noted, has seen the prices for its call options bounce back 300-400% in the last couple of months)? Thanks.

A. If I had to own a couple energy names, the two companies with the strongest positions and balance sheets in the industry are probably $CVX and $XOM. I don’t have to own energy stocks though. As for $CHK they still look to be very strapped for cash to me and reliant on higher energy prices to survive the next couple years. I don’t know how much debt they restructured, how it was restructured or if they have access to more cash, but no matter the answers to any of the above, nothing right now would make me want to invest in that company’s stock.

• Subscriber Follow-up: Thanks for your reply and insight regarding energy stocks.

Q. What are your thoughts on $FB tonight?

A. Earnings seasons often come with themes — sometimes most any report gets bought, sometimes most any report gets sold and sometimes strong reports pop while bad reports tank, and other times it’s just random. So far this earnings season most reports have been a bit soft and have been sold as evidenced by $GOOG, $AAPL, $NFLX, $CMG, $TWTR, $BWLD and others. $FB‘s more likely to sell-off tomorrow than in other earnings seasons. So feet to fire, I’d expect some strong growth in the $FB earnings report but some uptick in expenses and probably the stock will sell-off 5% or so tomorrow. But I’m not gaming it.

Q. Comment regarding your update memo: That drone — very cool at one level, but I fond it VERY scary that it’s so small, built with face and body recognition and designed to follow people. Creepy to the max and, seriously, do you think abuse of something like this might lead to even more restrictive “privacy” regulation/enforcement (the down-to-earth version of the FAA’s 400-foot, line-of-site regulation)?

A. There will surely be more Laws and Regulations in years ahead as drones/robots/wearables all become more mainstream and the need to protect privacy and public spaces increases.

Q. Can I get your take on $AGN. I know in general you are not bullish on biotech but $AGN has been hit hard after the $PFE merger was canceled. Prior to announcing the $PFE deal in the first place the stock was trading at $300 on its own. They have a good balance sheet and are profitable. Once the $TEVA sale is complete they will have another $49 billion I believe. I seems to me that this is might not be a bad risk/reward stock for the next 2-4 years.

A. $AGN Allergan is a pretty good example of the kind of profiteering and outsized gross margins that biotech companies have enjoyed under the RepublicanDemocrat Regime’s health care system including Medicare, Medicaid, RomneyCare, ObamaCare, etc. Last quarter,$AGN earned $3BB in profits on $4BB in sales. That translates to 75% gross margins. $AAPL, for reference has gross margins that are half that, having made $20BB in profits last quarter on $50BB in sales. I don’t care how cheap $AGN appears to be, I don’t want to invest in a company that’s likely to see gross margins fall substantially in the years ahead.

• Subscriber Follow-up: Excellent points. Thank you

Q. I am watching $INFN as it reports tonight – communications hardware company growing at an accelerating rate but having been sold off hard in recent months – any views on the company?

A. I’m growing interested in $INFN as it falls and gets to some compelling valuation levels. The company is growing 15-20% per year top-line and could earn $1 in 2017. I’d like to buy it in the single digits where it’d likely have a better margin of safety than here though.

Q. Do you follow any of the defense contractors? If so, any recommendations?

A.  The biggest problem with investing in defense contractors is that their business models are dependent upon government spending (lobbying) on war machinations. I always think of Eisenhower’s farewell speech when I think about investing in the Military Industrial Complex (i.e., defense contractors): “A vital element in keeping the peace is our military establishment. Our arms must be mighty, ready for instant action, so that no potential aggressor may be tempted to risk his own destruction… This conjunction of an immense military establishment and a large arms industry is new in the American experience. The total influence — economic, political, even spiritual — is felt in every city, every statehouse, every office of the federal government. We recognize the imperative need for this development. Yet we must not fail to comprehend its grave implications. Our toil, resources and livelihood are all involved; so is the very structure of our society. In the councils of government, we must guard against the acquisition of unwarranted influence, whether sought or unsought, by the military–industrial complex. The potential for the disastrous rise of misplaced power exists, and will persist. We must never let the weight of this combination endanger our liberties or democratic processes. We should take nothing for granted. Only an alert and knowledgeable citizenry can compel the proper meshing of the huge industrial and military machinery of defense with our peaceful methods and goals so that security and liberty may prosper together.”

Q. Hey Cody. I am starting to get interested in $INVN as a play on the iPhone 7. Do you have any thoughts on this name? Thanks.

A. I lost faith in $INVN‘s management when I felt like they oversold their near-term prospects while inventory issues were building a few years ago.

• Subscriber Follow-up: It might be worth a look…they are in the iPhone SE and the stock seems very reasonably priced.

Q. $NVDA green again, I’m guessing $AAPL has no business with $NVDA. Is that correct?

A. Correct, Apple doesn’t use Nvidia chips. Though, come to think of it, I wouldn’t be shocked to see Nvidia GPUs in future Apple products in a few years. I would like to open this up to further discussion in the chat room. I’d like to hear what Trading With Cody subscriber and tech analyst @KLTX thinks of NVDA/AAPL supply deals in years ahead as he knows the industry well. Thoughts KLTX?

KLTX’s answer: Hey Everyone…my thoughts on NVDA being used in Apple products? At the present time, AMD introduced a new version of their GPU that has ‘leap frogged’ NVDA. NVDA is expected to be shipping a new GPU also, but they are a little behind AMD. Apple uses the best GPU possible at the time of their design bake off process…and I think it is AMD right now. NVDA has been doing well with their GPU’s in many different applications….autos, high end PCs, servers…etc. I will stop here because I don’t want to say anything else in error. But NVDA’s management has done a great job of picking where to apply their engineering design talent…meaning, spending R&D dollars to make their chips desirable by customers that you may not think would use their products. Hope this helps a little…

Q. Hi Cody, what are your thoughts on $TWTR after its report yesterday? Thank you, as always!

A.  Twitter’s management seems as lost as ever and squandering the amazing platform potential and growth they could have by leveraging the de facto standard status as a distribution outlet for all media and celebrities. I have so many ideas on how to save Twitter, but I see no action on that front.

Q. Hi Cody: I am repeatedly reading that with CPUs becoming more and more powerful these days as companies develop software based security solutions that are capable of “defending” systems on the fly. Should this be considered to be competition to our $FFIV position? Thank you!

A. The cloud in general is probably a growing threat to $FFIV. I’m doing some serious homework and soul-searching on this stock, while it’s up 25% or whatever from lowest levels when the markets were crashing in February.

• Subscriber Follow-up: Thank you! Very much appreciated! Let us know what you find out.

Q. Comment: $IPHI reports tomorrow night and has a history of surprises for the most part – will buy some options methinks.

A. Yes, $IPHI is on the Trading With Cody Watch List and I’m looking forward to getting more information on the company’s road map for data centers ahead. Here’s a good article on the company’s business: http://blogs.barrons.com/techt…

Ok that’s a wrap folks. Thanks!