Cody Kiss & Tell: Santa Rally, Energy, Pandora, and lots of stock questions
Here’s some of the highlights from the Trading With Cody Chat Room today. If you’re still looking for a special gift for someone in your life this holiday season, why not help them become a better investor and trader by giving them a subscription to Trading With Cody? Email Cathy at support@tradingwithcody.com and she’ll set it up with you and work with you on when/how you let the person know about their Trading With Cody gift.
Q. Do you see a Santa rally? How about a “Solstice Rally” ?
A. I’m starting to think we do get a Santa/Solstice Rally into the year end, but I’m not going to try to game it.
Q. Does the proposed end the the oil export ban change anything in regards to a sooner turnaround in energy, thoughts? Thanks for a quality year of guidance!
A. Thanks for the kind words. The problem with thinking that the end of the oil export ban would create a turnaround in energy is that there’s no shortage of oil out there floating on boats and stored up in containers and so on, all over the world right now. Oil/energy is a global market and if anything, allowing US firms to export their oil would probably put more pressure on the price of oil as it creates more competition and eases artificial global unbalances/marketplace friction.
Q. On the GWPH short, it seems like a big deal they failed to show clinically the medicine was any better than a placebo for treating pain in cancer patients !! and say more about it going into the teens eventually. Thanks.
A. Most of the GW Pharma tests have failed. The valuation of the stock even at these levels 25% lower than we shorted it at, is still $1.5 billion and is trading at 25x next year’s revenues. The company is very unprofitable and will continue to be so unless they finally get a big hit on one of their tests, and even then, they’ll have to successfully bring that product to market and fight competition/patents and hope the product takes off in the market.
Q. So how to tranche into this GWPH short? Building a short position as it spikes up to eventually continue its downward path? and you have already locked into some profit..which I can do even though I want to short some more stock ….this is a good one.
A. There’s more art than science to the answer of how to tranche into more of a winning short trade like $GWPH. I kick myself every time I look at it for not having shorted more when it spiked above $90 right before it reported earnings and right before the stock commenced this 30% drop. If your risk tolerance can handle shorting more and you do expect this stock to continue falling from here, you can do more. I’m just going to hold my GWPH short steady for now.
Q. Is it too late to buy a put or to short GWPH?
A. I’ll repeat what I wrote earlier about trying to short GWPH here. There’s more art than science to the answer of how to tranche into more of a winning short trade like $GWPH. I kick myself every time I look at it for not having shorted more when it spiked above $90 right before it reported earnings and right before the stock commenced this 30% drop. If your risk tolerance can handle shorting more and you do expect this stock to continue falling from here, you can do more. I’m just going to hold my GWPH short steady for now.
Q. Why FFIV? Do you see a lot of growth for security this coming year?
A. $FFIV has a billion dollars cash (or $13 per share), should make $8 per share next year with a 12x forward P/E. It’s very cheap compared to any other “network security” play and I know the CEO there and I like him and his vision and past performance. I think network security industry is ripe for consolidation and wouldn’t be surprised if there are buyers out there considering picking up F5.
Q. Is it too late to get in AMZN now? I bought some calls before the August crash and got scared and sold them all off before it shot up to $680. Needless to say, it was very painful to watch it soar past me.
A. Don’t look back at the Amazon trade you had but missed. It happens. We’ve all had our times of selling something out of fear and then regretting it later. I do think there’s more upside to Amazon in years ahead, but I’m not sure I’d chase the stock right now other than to just get a toehold of common. It’s important for you to let go of the missed Amazon call opportunity rather than trying to re-create it. Being part of Trading With Cody will help you avoid making trades based on emotion rather than analysis in the future. 🙂
Q. Any thoughts about trip stock here (trip advisors) ?
A. I’ve long been shocked at how defensible and profitable the App/Web Travel businesses have been. $TRIP is growing 15-20% per year, has a little bit of net cash and is trading at 43x next year’s earnings and 7x next year’s revenue estimates. It’s not a screaming buy to me, but certainly would not short this stock without a good reason either.
Q. We’re all loving Facebook, and it’s a good thing, but the clock is now ticking on my $95 January ’16 calls — up about 24%. Is it time to think about calling it a (successful) day? Want to stay in or get out — no tranching. (Haven’t got that much.)
A. I’d rather be long than short $FB into those expirations, but you’re pretty much just gambling on whether they work out more for you or less. You handicap yourself when you don’t want to use a tranche, even if you just have two calls, maybe sell 1 and hold the other.
Q. I absolutely understand the value of tranching in or out — but guess what? That’s what I did earlier (thanks) and made some bucks, and now I’m holding on to a single contract. Hence my quandary. Whaddya think? I guess the “gamble” is when does the time premium overtake the possibility of a near-term rise, right? Hard question to answer, I know.
A. Depends on your risk-tolerance, but if you already took some profits, then you’ve already done your tranche trimming, so let it ride?
Q. I found it ironic that all these solar stocks going higher on the promise of more cow bell money from the government … http://www.bloomberg.com/news/……. That and a big short squeeze…
A. Yes, it is ironic and if there weren’t good reasons to own First Solar in addition to it being a recipient of welfare from the government for the next few years, I would have sold it long ago. Solar technology is going to be a big part of the future.
Q. $AMBA has been flat since October. I understand the $GPRO influence but had anticipated $AMBA would show us some improvement with a diversified business model. Your thoughts going forward?
A. I think we’ll see $GPRO account for a smaller percentage of AMBA’s business in 2016 than it did in 2015, but I do think Ambarella can continue to grow strongly this year and next anyway.
Q. What do you think of defense stocks TASR and KTOS here ?
A. $TASR is probably the single best way to invest in the future of police camera wearables. I don’t like to invest in a company that needs to lobby the government for spending on weapons, as Taser’s core business requires. The company has a small amount of net cash, is growing 15-20% per year and is expected to earn 37 cents per share next year, giving it a P/E of 50. Not the stock for me. $KTOS looks like a short opportunity more than a buy opportunity. The company is a small cap that’s not profitable, isn’t expected to be profitable anytime soon, has $600mm in net debt. Ugly. I just looked up the puts on $KTOS and they’re not outrageously expensive. I might end up buying some puts on it after doing more homework. Thanks for the heads up.
Q. Thank you for taking the time to answer a few questions from subscribers. Any thoughts on VDSI? Seems like a great area to be in, but stock cannot seem to get moving.
A. VDSI is an interesting stock here. VASCO Data Security International, Inc., together with its subsidiaries, designs, develops, markets, and supports hardware and software security systems that manage and secure access to information assets worldwide. The company’s growth rate has vanished and earnings are going to be down next year, but it’s profitable and trading with a 17 forward P/E. Clean balance sheet with $130 million or nearly $4 per share in net cash. I’ll have to do some digging into the company further to see why it’s growth rate is going negative and earnings are falling, but if it’s temporary, it could make for an interesting buy opportunity here.
Q. Can you look at the non tech area of ORGANIC FOOD, mainly WWAV and HAIN, two stocks that have been hit, but could be good growth candidates or buyout targets. I appreciate any thoughts.
A. Here’s my analysis on WWAV and why I passed on the stock a couple months ago when it was 25% above today’s quote: I want to diversify the portfolio away from being so tech-centric and add a new Food Revolution name to the portfolio here. Trading With Cody subscribers have seen me asked about $WWAV, White Wave several times over the last few weeks and I have been hard at work researching and analyzing it. White Wave produces and markets and distributes many of the brands that you see in a Whole Foods or any other health-minded grocery store, including the Horizon Organic milk and dairy products, the Silk-branded coconut, almond and other dairy alternatives, and other similar brands. That sounds like the kind of healthy-eating trend I’m trying to get in front of. But then I started digging into the valuation and balance sheet and that’s when I ran into problems with getting excited about this stock. The company has little cash and more than $1.5 billion in debt. Revenue growth looks strong with analysts expecting 11% growth this year and next but with earnings expected to grow from $1.16 this $1.39 next year, you’re seeing some big assumptions that the company can deliver margin expansion at the same time. That $1.39 estimate for next year gives White Wave a forward P/E of 31 but the $1.5 billion debt added to the $7 billion market cap makes the enterprise value to earnings a bit rich at 39. One other note is that the $1.5 billion in debt is equal to 1/3 of next year’s revenue estimate, meaning there’s little leeway for the company’s finances here. $HAIN is growing 5-10% per year and is trading at only a forward P/E of 16. But the balance sheet is wrecked with $800 million in debt and only $170 million in cash. The balance sheet will keep me out of the stock.
Q. I am long TWTR and continue to hold it while it moves between a winning stock and currently a losing stock for me. I am pondering it’s future and wonder what Microsoft would gain from buying twitter. Have you thought about that angle or do you have any ideas on the matter? I know you sold your position and will look at again in a couple of months but I thought I would ask you that.
A. I could see Microsoft buying Twitter. If $MSFT were to create a killer and exclusive Twitter Search functionality for Bing, it would help Softee compete against the dominant Google Search for one thing. I don’t think it will happen any time soon though.
And that’s a wrap folks. Thanks!
FYI: Please join the CFA Society of Dallas-Fort Worth for the 2016 Annual Forecast Dinner. Wednesday, February 10, 2016 Belo Mansion SPEAKERS: William Eigen III Chief Investment Officer, J.P. Morgan Asset Management Michelle Seitz Head of Investment Management, William Blair Jeremy Siegel Professor, Wharton School, University of Pennsylvania MODERATOR: Cody Willard
