Cody Kiss & Tell: VW fraud, Sony video, chasing stocks and more
Howdy folks, let’s get started on this week’s LIVE Q&A Chat. Ask me anything for the next hour or so and you’ll get my best answers in real-time. PS. I try to stop by in this Trading With Cody Chat Room at least a few times every day, so come by anytime and ask me anything and I’ll try to get your questions within a few hours of your having asked them.
Q. When do we add to AMBA and GPRO?
A. I’d nibbled both $AMBA and $GPRO recently and I’m not ready to add to either unless there’s a big move down or something in the broader markets and/or those two individual stocks in the near-term. I wrote this about each of them Monday: ‘I wouldn’t rush into either $GPRO or $AMBAat this moment, though I do think a small tranche of $AMBA first then$GPRO to get started if you don’t either isn’t a bad idea, as both remain very high beta, highly volatile, stocks and can always get “cheaper” no matter how much they might probably earn in the next year or two.’http://tradingwithcody.com/201…
Q. What do you think about SONUS NETWORKS (SONS), the Stock showing signs of recovery. Also what do you think of short DGX (quest) with development of new technologies which would allow patients to check their own labs at home ..their labs are poorly run and outdated.
A. Funny you should ask about Sonus $SONS. I talked in the Cody Underground Podcast about how I ran a screen of stocks looking or companies trading below their net cash per share back in late 2002 and early 2003 and more than a hundred names came up at one point or another.$SONS was one of those very names.
It was just two weeks after I’d launched my hedge fund. $SONS came up on the screen because they had about $1 per share net cash and the stock was all the way down to 20 cents per share. The spread in the stock from 20 cents to 21 cents per share was 5%. And I was running a new hedge fund at the time and the stock was falling from 40 cents to 30 to 20 cents over just a few weeks’ time and I didn’t want to start buying this thing too aggressive and/or be down 5% if the stock were to drop just another penny. In one of the biggest mistakes from when I was running that hedge fund was that I went out and bid 20 cents per share instead of just at least putting a toe in the water with a 1/10th-sized tranche positioned or something. The stock bottomed at 20 cents per share without my order ever having been filled and the next day it was at 22-23 cents spread and then was up to 30 cents per share and just three weeks later it was back to par with its $1 per share cash balance. I’d missed it. The stock was at $40 per share less than one year later and I’d missed out a 200-bagger because I was worried about near-term performance and spreads. You see me apply that lesson learned the hard way here and we don’t make that same mistake here on Trading With Cody that I made that day back in 2002.
Q. Market doesn’t seem to like the A- rating on AMAT unsecured debt. Seems to me they are paying down expensive debt with less expensive debt – can that be a bad thing?
A. Can you imagine making a decision on owning a stock or selling a stock or even shorting a stock based on some ratings agency’s opinion of their debt? I proudly stick with my own analysis when it comes to balance sheets (though I do make mistakes and/or get burned myself sometimes) and I think $AMAT‘s $4 billion in cash vs their $2 billion in debt leaves us $2billion net or about $2 per share for shareholders. AMAT is a tiny little starter of a position and I’ve not yet added to it and not planning to anytime soon. Maybe near $12 I’d buy my next tranche.
Q. Thanks ahead of time, how would one best handle tranche buys and especially profit taking on smaller accounts? If a full position is 4-5k and someone only starts with a 1/4 or 1/2 position and it runs quickly like@fit did, what is the best way to handle a couple hundred dollar gain? It seems with ST capital gains and commissions taking a large amount there is significantly less reward in trying to capitalize on the very lucrative and frequent pops and drops than on larger $ figures. On a related note, what would be a reasonable minimum dollar/transaction amount on a $100,000 account. Best of wishes to you and your family through it all.
A. Thanks for the kind words. And great question. If you barely have a 1/4-sized position on the sheets whether your account is worth $50,000 or $5 million, you should basically try to employ the same strategy for navigating short-term moves. A 30% gain that comes over just a few days like we had with $FIT recently or a 50% gain over a few months’ time, sometimes, you just have to ride them out. Sometimes you have to pay up a little bit for a stock you really like even if you didn’t get much of it started. See that story I told about me missing a 200-bagger with SONS for example. If I’d gotten filled at 20 cents and had a full-sized position back then I probably would have trimmed some at 30 cents to take a profit after a 50% quick pop like that. But if I’d only gotten a 1/5th-sized tranche filled on that first order and even if I’d just paid what the extra 5% they were asking for, I probably would just hold that position at 30 cents and it would have been smartest to have just added another tranche even at 30 cents, since the stock was on its way to $40.
Q. I’ve been trimming my BIDU position over the last 12 months. It was a large position and I sold much of it for big gains but I’m still holding a fair amount but playing with house money twice over. At this stage of the China meltdown would you suggest I ride it out?
A. I’ve long said that $BIDU is probably the only Chinese-based stock I’d ever want to own. As I wrote earlier today, “Feet to fire, my analysis of what the Chinese economy and stock market will do for the next year or two is that it’ll still grow some and that there will still be millions of Chinese citizens who will move into middle-class-like income levels and will want smartphones. I expect that the growing Chinese smartphone vendors like Xaomi and Huawei and Lenovo will continue to take marketshare from Samsung.” So I’d probably say that if you believe it $BIDU for the long-run, I’d probably just hold it.
Q. Hi Cody. I can’t make the live chat today. But I do have 2 questions if you’re able to answer them: (1) what do you think of SSYS? (2) would you short BBBY? Their stores are old and dated, AMZN is major competition and I believe they must be spending a lot on their 20% off coupons I get weekly in the mail. Hope all is well with you and your family!
A. Thanks for the kind words about my family, we are doing quite well. $SSYS is the only 3-D printing stock I’d want to own, but the margins there haven’t been holding up. I’ve said before that I’d probably like to buy some $SSYS if the margins stabilize and they show a couple solid fundamental quarters. I also think $BBY is probably a much better short than it is a long, but I’ve not pulled the trigger yet and the risk there would be that someone tries to take it private if it drops too far.
Q. In reference to your answer to smaller versus bigger accounts, does that address the question of whether the effects of commissions and short term gains should affect decisions in the short term? Conceptually, should a smaller investor, whose tranches are smaller dollarwise, make the same # and frequency of moves as someone for whom a tranche sold will yield a lot more bottom-line? Or does it all proportion out?
A. Certainly commissions are more costly percentage-wise for a$50,000 stock portfolio than they are for a $500,000 stock portfolio — but with commissions at like $5 each or $8 per trade at most online brokers these days, you’re still talking about a tiny effect overall on the portfolio if you’re using my Trading With Cody playbook approach.
Q. Any thoughts on VW? The company or the stock? (Other than whether you agree with me that they ought to throw that CEO and maybe put others in jail even AFTER they levy the fines.)
A. I looked at Volkswagen $VLKAY yesterday and I’m telling you what — if it were a US-based company, I’d probably have started nibbling on it. The valuation is at like 4x earnings or something but I just don’t like all the added risks that come with investing overseas. I’d asked Robert Marcin about it and he said he wouldn’t buy it til he had a better idea of just how big the fines/costs of fixing this emissions fraud stuff are going to be — $5B or $25BBis the range he threw at me. Sounds about right.
Q. And jail for senior management? There’s something about this one that really got to me . . .
A. I still want to see executives, bankers and traders and scammers at Goldman, Citigroup, et al do some prison time. Not sure any VW individuals will get punished either.
Q. Are you still bullish on $SNE?
A. Yes, I think $SNE‘s video library alone is going to kick off billions of dollars in cash flow/earnings over the next three to five years as the streaming video wars heat up and Netflix, Hulu, Amazon, Microsoft, Apple — all with billions to spend — license the content. The market cap for $SNE is just about $25 billion right now and I think it could be a $50-100 billion valuation in three years.
Okay, thanks folks. Another fascinating Q&A.
