DJ 25k, Trump v CNN is now DOJ v AT&T, $PANW pops

Here’s part 1 of 3 of the transcript to this week’s Live Trading With Cody Q&A Chat.

Cody: Welcome to another episode of Cody Underground, or maybe we should call it The IAm Cody Show. Today we’re going to talk stocks, we’re going to talk markets, I’m sure we’re going to talk some politics, the driverless revolution, the voice revolution. Boy, it’s been a bull market hasn’t it?

Look at the headlines first thing this morning you’re going to see either more allegations of sexual harassment and powerful figures being taken down for bad behavior and/or you’re going to see the stock markets at all time highs or very near all time highs. The DJIA is at 23,600.

Long time investors, if you’ve been around twenty years, you’ll remember the dot com bubble in the late 1990s and one of the things that the end of that bubble was famous for. Darn near the top of the market came, not just when AOL and Time Warner merged, but also around the time that there were guys publishing a book called DJIA 25,000. We’re almost there!

I don’t think they were predicting for it to happen in twenty to twenty-five years, they were picturing getting to DJIA 25k much more quickly. The stock market promptly crashed after they wrote the book of course.

Hey, now that I mention it, Time Warner was buying AOL back at the top in March 2000 and now today in the news AT&T is trying to buy Time Warner — though the government is going to step in and try to stop it.

What’s interesting when I listen to all of the commentary around and read the articles talking about all of this, a month ago all of the articles and commentary was about Trump and CNN and the personal battle they were having, and wondering if whether that was part of the Justice Department being hard on this deal.

Now that the suit has actually been fired you don’t hear them saying that; you don’t hear many people talking about that. Even this morning on CNBC the commentary was mostly around how astonishing it was that the Justice Department would crack down on this stuff. And they didn’t talk about Trump vs CNN, they just talked about how astonishing it was.

But the idea that the DOJ might be trying to block this deal simply because of a personal vendetta between Trump and CNN does make some sense because the Department of Justice (DOJ) has not done its antitrust job for decades now.

I’ve talked about this for twenty years how one of the reasons we have such a bubble blowing bull market is because competition has been whittled away. The consolidation in any major developed industry; any industry that’s got billions of dollars in sales in total whether it’s chickens, whether it’s semiconductors, or cars; whatever, they have consolidated down to the point where there’s very few competitors. Margins go up when there’s less competition — the whole reason for antitrust laws is to keep prices from going up and so that giant powerful corporations can’t profiteer on consumers. Which again, if you’ve got three major chicken dealers in the country then prices for chickens are going to be higher than they otherwise would have been if there were thirty chicken suppliers.

So, on those grounds, it doesn’t make any sense to me that the DOJ would suddenly decide that there’s real competitive threat because of AT&T plus Time Warner. I don’t see that when there’s Revolutionary companies like Netflix, Amazon, and Facebook where we watch TV and we stream things on these. You can stream the NFL on Twitter sometimes and you can get the NFL on Verizon wireless.

I wouldn’t be for this merger and acquisition if I were the DOJ, but I wouldn’t have been for the Comcast merger with GE’s, Universal, NBC’s assets either. I would have been a lot harder on all of the consolidation in this country if I were in charge of the Department of Justice. But, for the last thirty years, under Republicans and Democrats that has not been the case. There’s been freeform consolidation; very little push back from the DOJ. Beer consolidation! I mean, what is it? Eighty to ninety percent of beer distribution in this country is owned by two companies or something; one company has sixty percent or something.

It’s ridiculous what has been allowed to happen in mergers compared to what AT&T and Time Warner would be, but politics is as politics does. You guys know that I don’t play the Republican Democrat partisan game anyway. I’m just looking at that from the outside being an objective and concerned observer as I always am.

Q: Cody, I remember $FFIV being a long time favorite of yours. What made you move on from FFIV and now you own $PANW?

A: And the reason why is, as much as anything, $FFIV’s growth rate has slowed down significantly over the years. I mean, fifteen years ago when I was writing about $FFIV the stock was at $25 a share. I think I wrote a couple of articles in the Financial Times and elsewhere about it. The growth rate back then was twenty to thirty percent topline, and nowadays it’s running at two, three, five percent at best. The company is going to earn maybe eight-nine-maybe ten dollars per share next year and trading at a twelve-thirteen multiple, but that’s because there’s very little growth.

Meanwhile $PANW, it’s more of a pure play on cyber security and Palo Alto is going to grow maybe twenty-five or thirty percent topline this year. They’ll earn $6 per share. The stocks trading at twice the multiple that F5 is trading in, but that’s because of the growth rate. And when you’re growing thirty percent every year you’re doubling the size of your company every two and a half or three years; you do that five-seven-nine years in a row as Palo Alto, Amazon, Facebook, and some of our other companies have done, and you’re going to have some growth. Tha is exactly the case that we’ve seen and that’s why the stocks are higher; you have a higher multiple, because the growth rate enables those companies hopefully to grow into those multiples.

Any questions? I’m not really sure what’s going on with the free 1-800 number conference call, but I’ve been having some technical difficulties. Fifteen years ago you couldn’t do simultaneous live streaming, conference calls, and other technological stuff. It’s funny that a good old fashioned telephone call would break down. It’s supposed to be 99.99999% reliability- the telecom sector. But alas, no.

Q: Palo Alto, Cody! Wow! Cody, you have it as a nine-rated stock. Do you think it could be a $1,000 dollar stock in three to five years?

A: Cody: Nine out of ten rated stocks. I told everybody a two weeks ago I thought that thing was about to pop. In fact, if you watched one of these live streams two weeks ago I told you I thought $PANW was about to pop and that it was a good short term trade in addition to being a great long term investment. Let’s look at the valuation on Palo Alto already. Market cap is already up here at $13 billion. To get to a thousand we need to go up seven fold; seven times thirteen is going to put you at $90 billion to $100 billion dollar market cap. Yeah. I mean, this company could grow sales 30% per year for the next five years and that would put you at about $450, $500. And in a bubble blowing bull market, who knows? $1,000 dollars is a high price target. Let’s pamper down our expectations a little bit. We’ve had some great 500% and 300% gains in the last eighteen months, two years, or five years here at Trading With Cody, but let’s just pamper down our expectations. You know, let’s hope for three. I think that might be a little more reasonable.