Coronavirus Can Benefit Revolutionary Companies, China Needs Friends, Disney+ Saved DIS, and More
Here’s the transcript to this week’s live video Q&A chat, organized by trends/markets/politics, then strategies and individual stocks.
Subscriber:
Thanks for all your writing these last number of years. You’re into revolutionary stocks, and also of course stocks that have great business models. It seems like a lot of your stocks are in a really good position right here. Some obvious ones are Amazon and Slack and a number of them. It looks like a lot of them are going to do well coming out of this situation.
Cody:
Sure. Let me address your underlying concept there about the fact of the matter is that we, our approach, Trading with Cody, is fundamentally prepared for this shift that coronavirus is accelerating. A shift towards videoconferencing, ordering online, working from home, all of the stuff that everybody clearly sees these trends here right now. It is probable that these trends continue after. The things that I focus on — these disruptive, world-changing technologies — are set for this time. The Coronavirus Crisis accelerates that. That being said, we don’t want to just be like, “Well, these trends are going to be real, so all the stocks will go up from here.” There can be pain along the way. These trends are here and they’re being accelerated, and we’re invested in front of many of them, and we have the best names in front of many of these trends, but valuations can get hit anyway. These companies can still be affected by the market having a vacuum in it underneath these valuation levels if that is the case. And while I don’t think we’re going to woosh down to those recent lows, I don’t know that we’re going to whoosh up any time soon unless a miracle happens or if this coronavirus crisis really clearly peaks or something.
Subscriber:
Do you believe China’s global standing has been significantly damaged Cody? That likely means they have their backs against the wall and they have to do something significant to regain their global position. One thing not priced into these markets in an infrastructure cyber attack while the US is distracted. Our response, our ready could be viewed as a financial attack by devaluing our currency. How much should we plan for China escalating this into something much more grand?
Cody:
Number one, as I pointed out from the beginning of the great Trump China trade US trade war thing, is that I didn’t even understand when they’re like, “China subsidizes all of their industries.” I’m like, “Were you guys here in 2008? We subsidized every financial institution. Every company, every energy company, every technology company, every company that I’ve ever seen for the last 20 years was subsidized.” If you’re a big business, you’re subsidized by the United State government, state government, county government, city government. It’s hypocritical the amount of subsidizing that our republican/democrat regime does to giant businesses and even small businesses, medium size businesses, and then they turn around and pretend that they can take a holier than thou stance with China or anybody else who’s subsidizing their industries. Nowadays when the Cororavirus Crisis is causing trillions of dollars of subsidies and bailouts to be thrown at all industries in the US, of course, nobody in the republican/democrat regime is going, “Wait, we can’t subsidize businesses or we’ll lose the trade war.”
Furthermore, it’s not like China has any leg to stand on and they’re going to be like, “Those United States guys are now subsidizing their industries and devaluing their currency, and now we should fight back to them, too.” China, the entire world is having a cataclysmic economic event, and it’s 100% traced to inside China in the kinds of markets that the same kind that caused the same kind of much smaller epidemic with SARS and with the swine flu or whatever. The world at some point has to be like, “Look, China. You’re done with these exotic meat markets. You’re risking people. You’re risking my daughter Emarus in Alto, New Mexico because someone in China wants to eat insects and bugs.” Society itself, mankind itself is going to demand that that stops. So, China is largely to blame because they could’ve stopped those exotic markets the last time. They were supposed to have been stopping that the last time, and they’ve got to outlaw the consumption. And whatever else they’re doing with exotic mammals has to stop and has to be outlawed. The entire world is mad at China about that.
If you step back and look at it, I don’t think China can even pretend that they can respond to our currency and bailouts. If China does an infrastructure attack, we’ll know it was from China. Then it’d game over for China. China needs the United States more than ever. China needs any comrades. It needs someone on their side.
I really don’t think China can fight anyone right now. All bets are off if they do because the flip side of it all is if China really gets desperate, war becomes a way of coalescing support domestically and drum up nationalism. War is a distinct possibility if the Chinese communist government, as it now stands, were to actually be threatened. There’s a lot of cross currents with it, but none of them do I think China has the power to fight us in any way, shape, or form right now, unless they’re all in on that fight, which I don’t think they would be.
Subscriber:
Hey Cody, any thoughts on any psychology the market? You’re a good student of that. Everything is just so extremely bearish. 80% of the people from your recent tweet survey think we’re going to retest the lows or crash further. Have we just gotten potentially too negative with all the news feed that it’s just every day, Chinese water torture for all of us?
Cody:
Number one, I suggest not watching TV news for one week. Get yourself a break, a mental break. You described it right. It’s that Chinese water torture, the endless drip of non-changing news. It’s like we wake up the first morning, and the first 15 minutes of the headlines are you’re going to know what the coronavirus crisis updates are for this day. Everything else is just this drip. It doesn’t really move the ball at all. You’re just being inundated with it. It’s already exhausting to be living through this, but to have your brain bashed with that, it’s not healthy. I suggest doing that first of all.
The answer to your question is the key word in your question was “potentially.” Yes, potentially we have way too much negativity, and stocks being down 30, 40, 50% is ridiculously cheap already. Potentially, blah blah blah blah blah. The problem is this … If there is a snowballing economic effect caused by all of this, the snowball has just now been formed. It’s not rolling down the hill yet. I spoke to my hedge fund advisory board yesterday, for example, and everybody on the call is cautious and defensive. I wanted to be contrarian like I always am. “If everybody’s cautious and defensive, even my advisory board, this might be a great time to be buying stocks and getting bullish.” But it’s not that easy. Just because everybody’s cautious, doesn’t automatically mean the market will go up in a collapsed global and US economy. So I keep my core longs and a few index shorts and cash. I’m not sure it potentially is going to be okay in the next six weeks. That’s why I’m trying to have my cake and eat it, too. Stay hedged. Raise cash on both longs and shorts, from both longs and shorts, and keep your core revolution theme stocks in tact.
Subscriber:
What are your general thoughts if Microsoft and Apple are such a big part of the S&P that we’re not going to bottom until they actually get back to their lows or crater? If you look at the S&P equal weight versus Microsoft and Apple, which are such a big component of the S&P overall, they’ve held the index up. The average stock is down 30, 40%. Do these stocks actually crater for them to give up on these stocks before the market can actually bottom?
Cody:
The answer to your question is “probably.” I flipped on CNBC Monday, maybe, and watched for 15 or 20 minutes for the first time in a week or two trying to get the vibe on what they were going with. In the 15 minutes I watched, three guys talked about how strong Microsoft was — and if you want a signal that not all is lost in the market, it’s Microsoft hanging in there. “Did you know Microsoft’s actually up on the year?” I had the same thought you just had. I’m not sure we’re going to be done with this crash. It’s been a crash. Let’s call it what it is. Worst first quarter in the history of the market. Maybe it’s not over until Microsoft, until the guys on CNBC are like, “You better sell Microsoft and everything else.” Apple has not hung in there very well, frankly, but Microsoft sure has, and same with Amazon.
Amazon and Microsoft, feet to fire, feel crowded. Uh oh. They feel crowded to me. Maybe it’d be more likely that they sort of need to get whooshed down than taken up with the market. But trying to game the markets in short terms and stuff is never a good idea. We can talk about it and maybe strategize a little bit defensively to hedge when we see something that we think is likely, or the risk-reward scenario is in our favor to hedge or something. The answer to your question is I don’t know and I’m not going to try to guess and really game it or something.
Subscriber:
When are you going to publish a Latest Positions with the ratings our stocks?
Cody:
I have started it five times in the last three weeks. But the way my latest position’s analysis works is I’ve got some updated analysis in my head, and when I go to write the Latest Positions analysis, I go and I look at things like, have the analysts’ estimates changed? Have I missed a headline? Is there something new to think about with each name? I dig into it for 15, 20 minutes, each one maybe. 30 minutes if it gets interesting. We’ve got 30-35 stocks between longs, shorts, everything else that I need to write about then, including some of our baskets that have three stocks in it or something. Let’s do 30 times 30 minutes, that’s a lot of hours. It takes three, four days of me cranking through that stuff to get it written.
So lately, I start writing it, and it’s Sunday. Then I’m like, “Cool. I got a quarter of the way done with this stuff. I’ll get the rest done today and tomorrow and send it out Tuesday night.” Then Monday, the market moves 9% down. I’m like, “Well, let me start over. Start my analysis again.” Truly, stocks get 20, 30% differently priced vs what I just wrote two days ago. Then I do the same thing over, and I’ve done this five times, and I guess what I’ll probably have to do is just write the first part and get it sent. And then I’ll send out another part in three days, and then I’ll send out another part in two days or something. I’ll just have to start doing that instead of trying to get an entire one article featuring all of our stocks. I’ll break it down a little more. It’s amazing the price changes if not the fundamental analysis changes that have been happening in the last three or four weeks since I’ve been trying to write the latest positions for you and been promising it.
Suscriber:
Cody, do you still think the TLT puts are an attractive hedge? The treasury bond fund has risen steadily since you initiated this position and the puts are down significantly in value. Can you please explain again the thesis for this hedge and would you be inclined to buy more possibly with maybe longer expirations?
Cody:
Yeah. Again, the TLT puts dated out to May or June, July, you’re hedging against a doomsday scenario for the United States that interest rates spike to 2 or 3% — which I don’t think will happen actually. But if the economy comes unwound like it potentially could here … The potential for interest rates to spike 2 or 3% is a lot higher now than it was two months ago. It’s still not extremely high, though. I don’t actually think this trade will work out, but you are using TLT puts as a hedge because if interest rates go to 2 or 3% in the next two to three months, the S&P 500s probably going to be down 10, 20, 30, 40 percent from these levels. If you buy June puts that are 10 or 20, 30% out of the money, that would be really expensive. To even do that because of the premiums in those puts, the S&P 500 would have to drop like … If you bought puts that were 15% out of money, the S&P 500 is probably going to have to drop 22 to 25% for those to even break even. Meanwhile, the TLT puts, if interest rates spike to 2 or 3% on the treasuries, the TLT puts, they’ll be far in the money. You didn’t have to spend that much to get big returns if that happens. It’s a much cheaper way of hedging against a doomsday scenario in your portfolio than buying an S&P 500 puts right now. Now the problem is, and why you don’t want to just to do TLT puts and why you have to have some S&P 500 puts and/or some hedges in place outside of the TLT puts is the S&P 500 could drop 10 or 20 or 30% from here and interest rates stay around these levels. It’s not a direct correlation that interest rates rise when stocks drop or something. I’m just sort of saying, this is a cheap way of having insurance that everything comes unwound in this country. Buy it knowing that that is the goal in mind anyway, not hoping that we make money on TLT puts. Although, obviously, if markets went through the roof, our stocks went through the roof, and interest rates spiked, then we’re making money on our hedges and our non-hedges, our actual core positions. That’s ideal.
Subscriber: Can you talk about some some of the companies that might not be positioned to benefit from the new trends this world is facing? I’m think particularly about Splunk, about Uber, some of the less obvious things that maybe aren’t doing quite as well. Can you talk a little bit about those as well?
Cody:
Uber at this particular moment, can they get to the other side of people not riding in Ubers, and will people want to ride in a stranger’s car? The flip side is that it’s still going to be a lot safer and anti-coronavirusey to ride in an Uber with just one person who might have an issue with Coronavirus versus riding in a bus or public transportation, subway or something, bumping elbows with lots of people. I don’t know the answer to that question. Uber has a great balance sheet but certainly does not have the kind of money that guarantees they make it through six or nine months of a fundamental vacuum in their business model.
Splunk, it’s an interesting one because in some sense, it can help make money for companies. But like everything else, guys, spending budgets are going to be down. Anything that you were thinking about investing in that’s not directly related to fixing these current issues, of if it somehow generates new money or something for you, you’re not going to spend on it unless it does it immediately. And Splunk’s valuation’s not terribly cheap. It sure is a lot cheaper now at $100 than it was at $150 if you’re looking out three to five years, but looking out over the next year, it might be more expensive right now than it was at $150 because the E from the PE is maybe not going to be near what people thought, just because the whole economy’s spending is in a vacuum.
Subscriber:
Disney+ launched in Europe last week and is now being deployed in other countries like India. Will the impact on the stock be short term?
Cody:
Not sure there will be much. The furloughing of every United States employee by Disney, the amount of companies that are … All of the cruise ships, Disneyland, Disneyworld, Shanghai Disneyworld, Paris Disneyworld, ESPN, these things are crushed. That’s a lot to ask Disney+ to make up at $5 a month. I don’t care how many hundred million people sign up for it.
Subscriber:
Netflix, the market gap $158 billion versus Disney at $170 billion. Is there some efficiency here on pricing one company’s longterm prospects versus another? Seems like Disney should be worth considerably more based on content and characters, especially looking at five years when Disney+ is profitable and marketing to the world.
Cody:
You know what’s interesting here? If Disney+ were its own company, I could see it being worth a hell of a lot more than it is probably worth inside of the Disney crowd. Disney+ as its own standalone business has incredible margins and incredible growth prospects in front of it. However, I don’t know that it would be worth as much as Netflix because Netflix is on every remote control TV, it’s on every … Its critical mass is worth a lot. It’s much larger in total number of hours that you can consume of content at Netflix, is worth a lot. Back to Disney, like we mentioned though, Disney+ is just a small part of its overall company. Those other sectors that the company operates in are in trouble though. If Disney Cruise was its own company, it would be down 90% and going bankrupt just like Carnival and the other airline companies are. Disney theme parks and hotels would be down 50, 60, 75% like Marriott and all the hotels are. You’re already keeping a lot of value in that Disney stock, which is “only down” 35%. The market’s recognized that there’s values in Disney+ and keeping Disney higher than it would’ve otherwise have been.
Subscriber:
Sony has taken a hit. Disney as well. Any other great content plays worth collecting for the long term, at least at these lower prices?
Cody:
Sony hasn’t taken much of a hit, but I like Sony here. This is where I’ve been buying it. Disney we just hit on. Content plays. Maybe look at Lionsgate. I bet it’s off 80 or 90%. Let’s just see what Lionsgate is at. Yeah, $5. One year. It was at $15 this time last year, now $5. Of course, what’d they buy, Stars or something? They got into the distribution business a little more than I would’ve liked. I wish they stayed pure content creation. Sony’s the one. I don’t know that I like any other content plays at this moment, but I will dig in and look for some more.
Subscriber:
Square? What’s the thinking on Square right now?
Cody:
The Square Cashapp has hit critical mass. I think it’s displacing Venmo. I think it’s the Zoom to PayPal’s Skype. I’m deep in the trenches of technology analogies there, so never mind. Let me just answer the question. Square’s Cash app is huge. I tell people these days that if you want to just figure out how to buy bitcoin as quickly and easy as possible, just go use the Square Cash app and then you can figure out the rest of where you’re going to store it and all this stuff later. Square Cash app is the real deal. Square has clearly done a great deal of establishing themselves as one of the de facto standard point of self-checkout technologies, platforms. That being said, how many small businesses are closed right now? How many coffee shops that use the Square point of sale that Square gets a cut off every time you buy coffee at that shop? It’s not happening.
Square’s estimates for this year are off the table. Revenues, whatever the growth they thought it was going to be, are not going to be there. Their revenue could be flat. It could be down depending on how long the small businesses around the world are shut down. Valuation, again, it’s sort of like Splunk. If you look at Square on a valuation basis over the next year or maybe even 2021, it looks pretty expensive. If you look out three or five years and you assume that the world gets back to normalish, then Square is cheap right here. Your risk-reward analysis has shifted though, because it used to be you were betting on Square beating the competition, having a better platform, easier technology, critical mass. Now you’re betting on an economic outcome that is not guaranteed. That’s part of why that stock is down and you don’t see me getting excited about it. Like everything else, I trimmed it and being patient right now with it. Next question.
Subscriber:
Virgin Galactic?
Cody:
Virgin Galactic, I mentioned it last week. The analysis is the same, that you just don’t know what its access to capital is going to be like and how long they can survive. If they do survive, then it’s probably $100 stock at some point in the next five or ten years. It’s a long way between now and then, and that is a company that is going to, at some point, need more money. Here’s a thought for you. If the government hadn’t bailed out the airlines who had spent 10 years buying back their own stock, if any single one of them had decided up to build up their cash reserves and have no debt and we got to this point, one of them, and/or a company like Virgin Galactic could buy airlines out of bankruptcy. If we weren’t bailing out American Airlines, Virgin Galactic could actually buy American Airlines’ businesses out of bankruptcy, take their business over, and we would make 10 times more than what we might otherwise make. This is when I always talk about that anytime the government involves itself in the economy at all, it is unfair to someone. Bailing out airlines is unfair to the shareholders of Virgin Galactic. Bam.
Subscriber:
Ethereum has been an interesting journey. I know you’ve been on again off again, kind of, but just looking at statistics — there’s so much going on with Ethereum, so much development occurring there. I know you’re big on Bitcoin, but it just seems like everything’s built on Ethereum right now. I was just curious your thoughts. Is it still that you think everything is just so many levels below Bitcoin?
Cody:
The short answer is, yes, it’s Bitcoin and everything else secondary. This coronavirus crisis and the impact it is going to have on crypto startups around the world, every crypto startup that’s not coin based and/or someone else that’s already well established and well capitalized, is in retrenchment mode. Now instead of spending venture capitalist money to figure out how to grow and take market share and become the next Ethereum related company, every Ethereum related company that raised money is like, “Crap, how do we survive and now lay off half our employees next week?” That is, again, why I stick with Bitcoin over Ethereum or anything else.
The amount of money from established banks and giant companies that has been invested in Bitcoin is an order of magnitude, five orders of magnitude larger than what they’ve done on Ethereum. The Bitcoin startups are also going to be in trouble, but you’re not betting on Bitcoin as a platform as much as you’re betting on it as a currency. I don’t think that’s necessarily the case with Stellar and Ethereum and stuff. You’re still betting that the platforms work out, not just them as a currency. Oh, man. A bird just flew into the window. Tough day.
Subscriber:
How are you? In our last session last week, I asked you about, and got a funny answer about a, months ago, a hedge that you suggested among others, XLU. I said, “Do you have any more thoughts on it?” It’s actually done very well throughout all this craziness, and you said you really couldn’t remember why you recommended it. Sometimes you’re really in without knowing about it, which, by the way, I agree with. I want to ask you again. It’s actually held up well in the past week. What do you think of utility stocks now?
Cody:
Whoa! Another bird just flew into another window. There’s got to be a good analogy somewhere in there. We’re all birds flying around until we hit the market’s window. I don’t know.
Anyway, if you bought puts on pretty much any ETF in the last, before March, then you looked like a genius. The fact that utilities are volatile as much as they are and the XLU chart looks as wild as it does since March is indicative of the financial stress in the system because in general, the utilities are going to be the last thing that people cut. I assume, I guess what you’re maybe seeing is nobody’s going … All of the small businesses are turning off their lights. Energy company, utility companies are going to be under. Revenue’s down, impacted, certainly somewhat but costs are down since oil has collapsed. Feet to fire, if I had to buy or short the utilities at this moment, I would rather buy it than sell it. That said, there’s nothing revolutionary in the utility industry. There might be a technology that comes along to revolutionize the the utility industry, but we’ll buy the technology companies, not the utility companies.
Subscriber:
A couple more stocks that are off the beaten track to talk about if you don’t mind. Solar Edge and Baidu.
Cody:
Solar Edge, I actually just nibbled a tiny bit of that today. It’s not one of my bigger positions. I had trimmed some when it had been above $90 recently. I still love Solar Edge’s technology. If it were a United States-based company, it would be twice the size as it is in my portfolio, but I factor in a little extra risk that it is an Israeli-based or any other country-based company.
As for Baidu, it’s a volatile Chinese play that’s not as positioned to benefit from the coronavirus crisis trends of staying at home, even in China and things in the same way that JD is. I’m not buying Chinese stocks. Somehow I got Ed Davis back on the screen. I hope you guys don’t have Ed again. Ed, you do have a great background. Go ahead, keep asking your question, whoever just asked that one, Jennifer Griffin. Just kidding. All right. Next question.
Subscriber:
What levels would you buy more Amazon?
Cody:
$1800, maybe $1750 it’d be really exciting.
Subscriber:
I noticed Robert Marcin was buying SLB yesterday. Do you have any interest?
Cody:
Let’s look at a five year chart. It was at $93 and now it’s at $14. Wow. I mean seriously. This is another company that was worth more than $100 billion and now it’s worth less than $20 billion. The purported dividend yield is 16%, which, that’s not going to happen. You will not get that dividend of that magnitude, if any, this year. I don’t know, man. I bet the balance sheet’s terrible on this. Let’s look. Cash, $2 billion. Current debt, long-term debt $15 billion. What’d they spend $15 billion that they can’t get that back down? For five years their debt’s been $15 billion. I bet they’ve been buying back their stock. If you’re going to buy oil, buy oil. That’s always my advice. I got no interested in this Schlumberger. At this point, this is a rolled up, oligolicical company in an industry that is secularly declining because oil discovery is not going to ever grow as an industry again. I’d rather short SLB than buy it, but I would not do either. I wouldn’t short it at $14. It’s down 85%. It’s not my game. No thank you.
Subscriber:
Have you looked at Ring Central? I love using it.
Cody:
Yes, I’m looking at it. I will do some more work on it. It could go into the basket with DocuSign and Zoom as direct beneficiary plays on the coronavirus prices, the economic trends created by the coronavirus crisis.
Subscriber:
Cody, I just saw Lori’s post about Lobo. I’m sorry to hear that. We’ll lift one to him tonight.
Cody:
Thank you. My dog, my buddy, Lobo, passed away this week. He was my original soulmate and a good, good friend.
In 2008, Mia came on my show, Happy Hour, when I was on Fox doing a segment on North Shore Animal Shelter. She had the cute little puppies on there. I thought to myself, “It might be time to get a dog.” I had not had a pet since I left home, 15 years before or something. 20 years before. So I I went into the shelter and I found Lobo. It was love at first sight. He was the smartest, coolest dog ever. Used to run next to me on leash in NYC while I rode my bike. Used to go on my show and pick stocks. See, this is relevant to Trading With Cody. You can literally Google, “Lobo the stock picking cattle dog,” because someone made a website about him. He would do a right paw to buy, left paw to sell. Anyway, rest in peace Lobo. With that personal note, let’s continue this bad country western song that we’re living through and talk coronavirus and markets and everything else.
I got Lyme disease because of Lobo, and I got Bell’s Palsy because of Lyme disease, and I took two or three weeks off of my show on Fox because of Bell’s Palsy, and for the first time since I had moved to New York, my life slowed down enough that I sort of reevaluated all of it. “What’s important, what am I doing? What are my values? What am I doing day to day with my life day to day?” I only get to live it once. It was soon thereafter when I went and asked Fox if we could please buy me out of my contract and let me go home. Lobo changed my life in a lot of ways. I’ll miss him.
You know what guys, it’s been an hour anyway. That might’ve done it for me. I’m going to leave on that note. Thank you. Peace, love, and happiness, and here’s to Lobo.
