Cody Kiss & Tell: Trump & Clinton, Hedges, Apple calls & 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. Are you surprised by Trump and Clinton’s strength? How will each win affect the market?

A. I’m surprised that Trump’s initial popularity was sustained. I fully expected that we’d see a rise of populist candidates in the Republican party but I am surprised that Trump has been able to convince people he’s at all populist. I think Trump would basically do whatever the banks and giant corporations think is best but that the market might be scared about a Trump candidacy if he were to actually win the general election. I’m not surprised at all that corporatist bankster-loving Hilary Clinton is going to win the Democrat nomination. I fully expect she’ll be our next president. Clinton will mostly do whatever the drug/healthcare/biotech/bank/global corporatist lobbyists/overlords demand her to do.

Q. Is this a good time to buy some protection (i.e. hedge our longs)? I was thinking about gold and/or buying puts on the FANG stocks.

A. I’ve also been thinking about buying some puts on some of our stocks to further hedge our portfolio. I might do a small hedge here and there in a FANG name or two sometime soon and would probably be more likely to do it on the next big market rally.

Q. With the negative vibes surrounding VRX spreading to other pharma stocks (and in your judgment, a continuing trend), would you say it’s still a good time for $IBB puts, or is it too late for now/are we just chasing and should we wait for a pullback? And does it makes sense to tranche in — which puts?

A. I think the $IBB and a lot of health care stocks have a lot further to fall, unless this market is actually entering a new leg in the Bubble-Blowing Bull Market. There’s no limit to how high stocks can go in Bubble-Blowing Bull Markets, so we want to be careful. I don’t think it’s too late to buy some $IBB puts and/or just short the index a little bit itself. But remember that I mostly consider my shorts to be “hedges” and not something I’m trying to make a bunch of money on except to offset potential losses in my longs.

• Subscriber Follow-up: That being the case, recommendation on which puts/strikes? Further definition question on hedges: does it (only) make sense to hedge in the SAME category? For example, does hedging $IBB make sense only if one is long in pharma? (Still hoping you can recommend that IBB put if we go that way…)
• The premiums on the $IBB puts are quite high, seeing as going out to September and dropping your strike prices down all the way to $200 would still cost your nearly $10 per put. Maybe on the next $IBB spike you might bid on some out-of-the-money puts dated out six months or more and even then I wouldn’t want to pay the full asking price.

Q. How do you size the amount of your hedges?

A. How I size the amount of my hedges at any particular time is dependent upon my analysis and my markets/economic/stock outlook. From 2011-2013 I had very little or no short hedges and was aggressively long common stock and calls. I started scaling back in 2014, raising cash, cutting the size of my long positions and the number of my long positions. And throughout 2015, I raised more cash and reduce my number of long positions even more and started adding more shorts. Right now, I remain cash heavy with just a few shorts and my core longs. Does that help answer your question?

Q. Hi Cody, what is your opinion for $POT, $ANET? Thanks

A. $POT saw sales decline 15% last year as demand for Potash and all things farm related were down. The company has $3bb in debt and $2bb in cash, so that balance sheet keeps me out of it, though I do expect it will see growth top-line and bottom-line this year.  $ANET looks interesting. Market cap of $3.8BB, $600MM in cash, $41MM in debt, growing topline at 20% plus per year, trading at 18x 2017 earnings estimates and 3x 2017 sales estimates for the cloud networking company. With the stock being at near 2 year lows, there’s an argument that it’s quite cheap. I’ll do some more homework on this one. Thanks for flagging.

Q. Good morning Cody, thank you for what you do. Just wondering if you took a look at $MITK?  Wanted to share an idea; Mitk – Leader in mobile deposits (used by 4,500 banks), and growing. Almost 100% of the mobile deposit market (current % of checks in the US deposited with mobile deposit= 5%); simple capital structure (all common stock); 42% annual QoQ growth; GAAP profitable; no debt, positive cash flow; trading at less that 12x forward P/E; getting into other products/services like ID checker, Photo fill, photo verify; only international revenues are from Canada; legislation in the works to expand mobile deposit in Brazil and other markets; $25M 2015 revenues, forecasting about $32M for 2016 in revenues; cash balance $26M, market cap $135MM; accelerating growth of mobile deposit, by expanding into commercial checks; big cost advantage for banks to promote mobile deposit vs. branch deposits.

A. MITK has $30 million in net cash, no debt, trading at 20x next year’s earnings estimates with a 20-25% topline growth rate…So $MITK has a good balance sheet, isn’t terribly expensive and is growing nicely. Because it’s a microcap with a roughly $200MM market cap, I’m not likely to buy it personally without meeting the management team, but it looks like a pretty good stock pick on the surface.

• Subscriber Follow-up: Cody, Thank you for your answer and for all that you do. I have been following you for many years, and have great admiration for your point of view.

Q. Hi Cody. I sold my March $AAPL calls today. That said, what are your thoughts on the stock going forward?

A. We’ve gotten very lucky that $AAPL finally popped above $105 before our March calls expired. That said, I’m still down on the trade and am not happy about that. I’m still holding those call options steady as it’s possible that $AAPL‘s near-term momentum can continue into week end. I wouldn’t be surprised to see $AAPL stall here and trade between $100-110 or so for the next few weeks. By year end, I still think $AAPL can get back towards it’s all time highs of $130 or so.

• Subscriber Follow-up: Thank you. I hope you and your family are doing well.

Q. On those $AAPL calls – I’m also riding Mar $105s but below water on what I paid. What is the play here? Do I ride them out and let them auto-exercise at the expiration or try to move them at the 11th hr?

A. I don’t know what else to say but what I’m doing with them: “I’m still holding those call options steady as it’s possible that $AAPL‘s near-term momentum can continue into week end. I wouldn’t be surprised to see $AAPL stall here and trade between $100-110 or so for the next few weeks.”

Q. I’ve been pretty lucky picking up some JNK 2017 puts about 6 months ago – do you think there is still some energy downside that could cause more JNK pain?

A. Good trade, maybe take some profits on part of it and let the rest ride? I have no idea what high yield bond prices will do over the next few months.

Q. Do you have any opinion on ISRG’s potential?

A. Here’s what I wrote about $ISRG last year when I published the eBook 12 Stocks for the Robotics Revolution: “Price: $384.48 (Market cap $14.71B) Net cash per share: $40.60 2014 Revenue: $2.12 Billion Revolution Investing revenue growth rate estimates for next three years: 20-25% 2014 Earnings per share (consensus): $13.32 Revolution Investing EPS estimates for the next three years:: $11.90, $14.85, $17.96 For the last fifteen years, Intuitive Surgical’s da Vinci Surgical System has been shocking skeptics as its become an accepted form and often preferred method of getting surgeons doing more surgeries in more places than ever thought possible. Intuitive Surgical is now by far the global leader in the rapidly emerging field of robotic-assisted minimally invasive surgery. All that superior visualization, enhanced dexterity, greater precision and ergonomic comfort for the robotic surgery demands a plethora of high-end components, chipsets, and software. The da Vinci System enables surgeons to perform even complex procedures such as open-heart surgery and so much more. This is one of the best ways to invest in the long-term technological revolutions that will change health care over our lifetimes. Revolution Investing Rating: 8/10.” I haven’t looked at $ISRG lately, so I don’t have much new to add to that analysis, which still stands up today.

Q. As for GWPH, I DIDN’T short it when you said to and I didn’t lose any money. Should I short it now?

A. No, I wouldn’t short $GWPH just now. I’m doing more homework on it, but this note from Alpha Exposure (whom I’ve never heard of) does make me wonder if we should continue to remain short and/or short some more: “They changed their analysis from mean to median change in number of seizures… also gave no real safety data and there was a significant imbalance between the treatment and placebo arms of the trial.”

Okay folks, that’s a wrap. Gracias!