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Cody Kiss & Tell: Leap Candidates, No Set Rules on Shorts and Gimme Three Steps
Here is the transcript to this week’s Friday Special Live Q&A chat. Join me next Wednesday at 2pm EST at http://tradingwithcody.com/chat or send me an email with your question at support@tradingwithcody.com.Q. So happy to be here. My first time. How is the snow at Ski Apache?A. Hi Jeff, it’s still a little early in the Ski Apache ski season but it’s been snowing here in Ruidoso yesterday and there was a bit of a base up there already. Haven’t gone skiing up there yet but am going to go try to learn to snowboard with my niece in law in a few weeks. Let you know how it is after I see it first hand.Q. Ok, serious question: Do your recommend buying Leaps (1-2 yr out calls) for any of your holdings? Do you see anything that looks good for leaps?A. Yes, we’ve used LEAPS before in some of our stocks, including Facebook LEAPS back when it was in the teens, which paid off hugely for us. Right now, feet to fire, I’d say the best possible names as LEAP candidates would be: INTC, TQNT, CREE and JNPR.Thanks.Q. GM; Thanks for getting up so early for us. Regarding LEAPS, I usually have trouble with them because they usually seem very expensive. I burned myself badly last year in AAPL options and don’t want to repeat the experience. Do you have any benchmark for how far out of the money (% or $) you feel comfortable?A. Believe it or not, I haven’t had an alarm clock for decades and these days, living on a ranch in NM, I get up every day before the sun. I usually spend the mornings reading every analyst report, newspaper and other such things I can get my hands on before you guys see a first peep from me. I suggest just sticking with common stock if you don’t feel comfortable with the options. To answer your question, how far out of the money and time I go on an option depends upon my analysis for the stock and the company and the stock market for that time frame. No set answer on that one. Remember when we bought long-dated FB calls with $30 strikes back when the stock was at $18? That was a big % difference. But I’d look at a $25 or $27 strike on the INTC LEAPS for now which is only a bit out of the money.Q. Thanks Cody; I’m trying really hard to manage expectations and avoid over paying or chasing momentum stocks. I’m trying to use your recommendations to look at LEAPS before they get overpriced. I already own INTC Jan 16 $27s that I bought in Sept; bought some CREE Jan 15 $72½s today.A. Manage your expectations and your emotions and you’ve about three steps ahead of most traders. Gimme Three Steps – Lynyrd Skynyrd “I said, “Wait a minute, mister, I didn’t even kiss her. Don’t want no trouble with you. And I know you don’t owe me But I wish you’d let me Ask one favor from you.” (Chorus) “Won’t you give me three steps, Gimme three steps mister, Gimme three steps towards the door? “Q. Gold is shooting up- are we finally going to see a little inflation- one of the rare times gold and the mkts go up together- I have seen the best gold rallies when the mkt is also going up- $SLW my favorite pick. Any thoughts Cody? I know the gold market is the hardest to predict- there is not much rhyme or reason. A. I’m a buyer of gold coins at $1200/ounce if and when somebody’s willing to sell them to me for that price.Q. I have about 35% of my portfolio in cash. Should I be buying more aggressively?A. I have no way of knowing such a specific detail for you, as it depends on: Your age, your income, your potential for more income, your inheritance potential, your risk tolerance, etc. I can tell you that I’ve gone from being very aggressively net long three years ago to having started raising cash and lessening my exposure slowly over the last year or so.Q. You have mentioned that you see the $HLF business model as something that will eventually crumble. If they release their audit before the end of the year it looks somewhat clean will you be trimming your short position; or adding to it in expectation of its longer term failure?A. I would likely add to the HLF short. But let me be clear that with my continued expectation that this Bubble Blowing Bull Market is still going on for another year or two, I’m not being aggressive or looking for alpha in these shorts. They are hedges and they’re not big and I won’t get killed if they spike on us.Thank you.Q. What triggers you to add to a short position, for example, HLF that you added to recently? Inversely, what triggers you to withdraw from a short position? Using HLF as an example, will you add to your short position if it goes to $90 or would you look at closing your short position? What is your style with that or the trigger points that affect your short position moves?A. No set rule to answer your question about what triggers a move when or why on a short. That is, I take the shorts as they come. I did make a lot of mistakes and laid them out for you in the recent MS debacle and won’t make those mistakes again for a long time. I would probably look to scale into more HLF up to about $82 or so and if it got to $90, I’d probably take my lumps and cover it for a loss. I’d like to see it head to single digits if it truly plays out as badly as I expect it to long-term, sorta like I predicted with RIMM. 🙂 Trade Alert – Proven wrongThanks Cody for your short position summary and outlook pertaining to HLF!Q. GM Cody, TQNT is a one of just 2 chip companies you own directly. How % of TQNT’s business comes from apple if you think this is their main driver? Is this why you own TQNT? or any other proprietary technology they have?A. Posted by RobertMarcin … 20 hour(s) ago “$aapl china mobile news good for $tqnt. aapl about 30% of tqnt revenues for 2013 i estimate. pre launch inventory build might even be a source of eps surprise this quarter. also, starboard value, an activist hedgie w 8% tqnt ownership just nominated 6 members for board. nevers hurts when an underperforming mgt feels pressure to deliver profit margins representing competence. everyone thats boarded the $tqnt locomotive should have a decent cost basis. lets hope that mgt delivers much improved financial performance in 2014/2015 and that we have seen the last of $6ville in the shares. $avgo delivered excellent quarter last nite and cited BAW filters as a major source of growth. the avgo/tqnt duopoly in BAW fileters is the best way to play the 3g to 4glte tech transition in the stock market. i like being long technological progress.”Q. Hi Cody, I’m about half invested in CREE after selling some in the 70’s. What’s your thought on buying back at these levels?A. Great trade, that’s why we do the tranche buying and selling. I like CREE a lot down here after this pullback again, but I would be surprised if the stock were to immediately move back to the $70s like it did last quarter. I’ve bought back some cree at these levels recently and certainly would consider doing so again if I didn’t feel like I had as much CREE as I wanted.Q. Wondering if you have looked at AMBA at all?A. Dang it, that’s a nice chart and it’s a company I’ve liked and never got into. They make HD video chipsets and they’ve got clean balance sheet and estimates have been rising. Trading at an 18 EV/E makes it a bit expensive now. Good company, good industry though.Q. Thanks for the help and the advice on getting me into the stock in the first place! On another note, have you ever looked at SPLK at all? Would appreciate your thoughts on a stock in the “big data” space.A. Yes, I’ve been analyzing SPLK and man, here’s my two main thoughts: 1. What a revenue growth profile and high gross margin business it is! 2. Man, I wish that stock would crash because I want to buy it but I don’t want to pay 20x next year’s sales for that stock.Thanks Cody.Q. Can you see any scenario where BBRY doesn’t completely destroy shareholder value and Fairfax walks away from bankruptcy with all the assets?A. I could see Microsoft or some Private Equity company coming in and trying to buy BBRY assets before it goes BK. I predicted everything about the trends that have killed RIMM and why it would happen four years ago and repeatedly after that, btw: Three problems facing RIMM. “The stock’s currently trading at $61 a share, giving it about a $35 billion market cap. I think RIMM eventually gets bought out by somebody like Microsoft or even Google someday, but that day is several years off and I think there’s little potential upside and lots of potential downside because of these apps/marketshare/enterprise concerns.”Q. Cody, do you follow $PFPT at all? I am in it since the IPO, it’s been great but lately hasn’t done much- do you know anything about it? Trying to decide to sell and move on or hold it.A. I know PFPT but have never gotten very interested in it despite its business model being something up my alley, “Proofpoint, Inc. provides threat protection, regulatory compliance, archiving and governance, and secure communication solutions worldwide. Its integrated suite of on-demand security-as-a-service solutions enables large and mid-sized organizations to defend, protect, archive, and govern their sensitive data.” Thing is, they’re not profitable and there’s no expectation for profitability in the next year or two and something about that company makes my spider-senses tingle in a bad way. 25% CAGR for revenues ain’t too shabby but this one’s not a name I’ll buy.Thanks Cody, appreciate your insight…and those spider senses!Q. What do you think this China Mobile deal adds to EPS, % sales rise in apple? Does market want apple to announce this deal itself vs WSJ article and others?A. No idea why it would matter who announced the deal for Apple China Mobile. With more customers than the US has people in it, I sure think there’s potential for huge market share gains overall for Apple if it can penetrate that China Mobile base, most of which is still on flip phones. Apple could add tens of billions of additional revenue to the topline if China Mobile starts selling iPhones and iPads formally.Q. Who announces deal? Just thinking want to hear it from the horses mouth vs. other sources for it to be confirmed and accurate.A. Oh, I see, sorry. Yeah, I think the market would love to hear any such news from Apple’s own mouth, but then again, that could cause a sell-the-news reaction. The earnings and sales from any such deal are all that really matter to AAPL shareholders over the next couple to five years, so it is what it is regardless.Q. I’m wondering what thing we consider to be commonplace and necessary you think will be gone in 5-10 years. Email? Desktops? Something else?And my follow up is why, and what will likely replace it?
A. That’s one helluva big question. Let me ponder it and do a full report on it. What’s your thoughts on it?Okay folks, good session, thank you. I’m headed out towards the door. Lynyrd Skynyrd – Gimme Three Steps-1977 Live
