Google, Amazon, Sony, AMD, solar: Be paranoid, but not scared

Here’s a podcast version of this week’s inaugural Trading With Cody Q&A Conference Call:

Cody Underground: Google, Amazon, Sony, AMD, solar. Be paranoid, but not scared

And here is the transcript of it.

Cody: Welcome to the first ever old-fashioned telephone conference call for Trading With Cody.

Let’s start with today’s news. Everyone is looking at the healthcare bill. Will it be passed or not? What will the market’s reaction be to it after it is or is not passed?

Feet to fire, I don’t think it will get passed today in its current iteration and I think the market will be flattish to up afterwards. I think everyone is expecting the markets to sell off if it doesn’t pass. Everyone expected the markets to crash after Trump got elected or never come back after Brexit.

Over the course of the years, we’ve all seen especially in short term swings, short term day to day movements in the markets, sometimes look like there is a catalyst or reason behind them, but as I always tell people, it is really hard to read too much into 10s of 1000s of stocks and how they are trading intra-day with billions people with tens of billions of reasons for buying or selling them. Clearly, I wouldn’t try to game the vote one way or the other.

Now let’s just jump into questions:

Q. Doesn’t seem like Google is doing much recently? General thoughts?

A. Let’s talk about Google. I am surprised stock isn’t down more today. The headlines since the close of trading yesterday have been dominated with Google and its struggles with advertisers. The fact is that a lot of their biggest advertisers from Verizon to AT&T here in the United States and whole lot of others in Europe and a lot of global corporations are frustrated with Google showing their advertisements on what is perceived as hate or terrorist-related videos,  blogs, websites or whatever the Google ad network is showing their ads on.

Frankly, I am shocked that Google is still having that problem. I remember when YouTube was launched twelve or thirteen years ago and they had so many problems with copyright content being uploaded and major media companies were coming down hard on Google after they subsequently bought YouTube. Within weeks Google had software that was able to route out all that copyrighted content. Here we are thirteen years later and their entire business model and cash flow rests on their ads and ad networks and this same issue apparently has not been taken care of thirteen years later. They are still having issues with ads being shown on places they shouldn’t be. It is shocking to me frankly and I am disappointed in hearing that. I thought the stock would be down maybe 3-5% on that news today, but it’s currently down about 1.5%.

Just earlier this week, on Tuesday morning, I trimmed it and it was probably around $845 or so at the time. Not even 2 ½-3 trading days later and stock is down 30-40 bucks from that level to $816. So, maybe some of that is getting priced into anyway. Then again, if you go back 3 months and Google was at $760 or $770 so it is up $100 from its lows just 90 days ago and it is having a pullback.

Grand scheme of things, bigger picture, revolution investing perspective on Google, is very much about Android and the internet of things. Google browsers, the self-driving cars, the ventures they have put together over the years and the company’s search ads are all part of it too, of course.

The biggest threat to Google both on the ad and search side and the Android side is — one of our other biggest holdings, Amazon and Alexa, as I’ve talked about the last few months. That was a long-term and short-term perspective there for you on Gooogle.

Q. Google. What is a good entry point?

A. Google could catch a little of a doghouse kind of effect for a while. You know, the pendulum swings back and forth. What the market is willing to pay for Google’s earnings is bigger than what they’ll pay for Apple’s earnings but for now that multiple might contract for Google for a little bit and for Apple expand. We have seen that kind of interplay between those two stocks over theyears. I am not in a rush to buy any Google. I sold some on Tuesday, but I have to say I sort of regret not selling more. I sold 10% and maybe should have sold 15 or 20%. Of course, hindsight is 20-20 and it down about $30 bucks so that probably colors my regret a little bit. Anyway, I might look to buy Google closer to $750 or $700. I’d give it a $100 to pullback from the $850 range. Maybe around $720, I’d start scaling in a little more, but I’d give it some range right now.

Subscriber follow up: So you are definitely not buying today?

A. No, I don’t try to game short term moods like this. But if I were a swing trader, yeah, my feet to fire guess is that maybe Google does head back down below $750 in part because of these headlines and in part because they might have to cause Google take their guidance down next quarter or something. Again, longer term, I don’t think it is anything more than a blip on the radar. That said, I am in no rush to buy Google right now. I think it will have some weakness, but near term.

Q. What is your take on $SNE? You were a little hesitant before.

A. Sony, Sony, Sony. Part of the thing with Sony, nearp and long-term is dollar versus yen action. The fact that Sony is a large net exporter for the image sensor modules, movies, hardware, TVs, cameras. They are exporting that and based out of Japan. So these are situations that really impact their ability to generate cash flow as measured in US dollars and/or as measured in Japanese yen. Over the last few months, since Trump was elected (whether catalyst or not is a different discussion) the dollar-to-yen chart has been very volatile. It used to take $1 to buy 100 yen and now $1 can buy 111 Japanese yen. Sony makes more money if the Yen is falling. But we don’t want to game that currency impact on $SNE — that’s not the reason we own it. Over time, as history shows, the dollar is still the reserve currency and is viewed as safer than the yen and/or any other developed major economy’s currency much less a developing economy’s currency (Bitcoin and gold are obviously a different thing entirely.) The US dollar is still over time going to be stronger versus any other currencies whether that is the yen or the euro or any developing countries, certainly for the next 5-10 years or for foreseeable future, unless at some point we end up not as the reserve currency or if the petrodollar concept were to go away.

Let me get back to Sony. Sony’s in the business of movies and having a huge library of TV shows that they can license, sell or put out on Netflix, Hulu, etc. They haven’t monetized those assets as well as I think they should be, but I think that is coming and over the next 5-10 years we are all going to stream a lot more movies and videos. Sony is in a position to benefit from that. The image sensor business is dominant and they are growing it and they are winning business and that is good. I still think at some point Sony’s robots or wearables could end up gaining traction. Looking out over 5-10 years, I think Sony could double or even triple from here if they actually deliver on some of that stuff. If they don’t, it is what it is. We started at $18 and scaled all the way down to $15 and could be back there. That is just sort of the reality of it if they don’t deliver. But I don’t think it is the currency itself by the way.

Q. Any new information on Axogen? Did you finally talk to your hand surgeon friend?

A. Axogen. I did finally speak to Dr. Jamie Shores yesterday and unfortunately it was a brief conversation, maybe 15-20 minutes. I could talk to him for 25 hours frankly. I didn’t get to have a long conversation with him and that is what I am waiting to do. When I did briefly mention Axogen to him, he regretfully told me that never did buy the stock. He felt like there was a potential conflict of interest. He was regretfully saying it was a great company and he doesn’t own it. I do want to talk to him and ask him if he’s using Axogen’s nerve products more or less now than last year. Is he seeing other surgeons using it more or less? When he speaks at conference on dual hand transplantation, does he see other surgeons talking about it? Do they even know what Axogen is? I’ll get a full update. It has been several months since we actually delved into the Axogen analysis and its position in his world. We are both working lots of hours and he is doing more work than ever before. We don’t get to talk as much as we used to when we were in college together playing bad acoustic guitar.

Q. Amazon announced new credit card where they give 5% back if you are a Prime member rather than 3%. Do you think that this is another leg up for growth for them at some point? Very profitable for a credit card issuer like Amazon.

A. Short answer is Yes. Short answer is if Jeff Bezos is doing it then there is a smart strategic reason for doing it and/or it is going to end up being a really profitable thing for him. People have questioned him about his seemingly loss-leader strategies for 20 years now. He gave free shipping initially and people questioned him and if he could ever be profitable with it, but he figured out how to do it and be profitable doing it. It wouldn’t surprise me if Bezos getting into “credit card” business in 2017 means that he is seeing something in next 5-10 years in electronic payment industry or some other futuristic kind of payment thing that he is wanting to get ahead. And/or it could be something where he is trying to make sure there are reasons where people stay or become Prime users. The Amazon world has become its own ecosystem from Alexa, to Amazon.com to the Amazon App. The stealth ecosystem of Amazon, and I am not even talking about the corporate side and the Amazon Web Services as part of that ecosystem too, but the consumer side of Amazon is stealing a playbook out of the Apple ecosystem concept. The Amazon eco-system is in the very early stages and, of course, payments would be a part of that. And it is surprising frankly that they haven’t been more active in the credit card world. I would buy Amazon over Google right now. I think both short term and long term. I think both will go up long term. I think Amazon could be another dark horse that ends up the first trillion-dollar company frankly.

Subscriber follow-up: The funny thing when you think about it, is you get 5% back and you get 5% as a prime member, that is quite a bit and once it gets in people’s hands could grab a lot a sales for him.

A. Yes, I think the markets certainly have faith now in Jeff Bezos doing that and not end up destroying his company because it is a loss bleeder or something crazy like that. As a husband of someone whose wife shops quite a bit on Amazon, especially when she is up all night with Amaris and bored, I am thrilled and I think we are going to have to get us an Amazon card for some nice cash flow. Haha.

Q. Solar Edge? What do you think? Getting hit since beginning of month.

A. Let’s talk solar industry for a moment. The Republicans and the Democrats are always giving a lot of benefits, welfare, subsidies to the solar companies and energy companies writ large. The conventional wisdom is that Democrats are more friendly to renewable/solar than Republicans are. As you know I see a lot more gray than black and white on that stuff. But the point being, with Trump being elected and Republicans have taken power, at least conceivably within the Republican/Democratic regime world they live in, solar is getting hit. It is out of favor and the subsidies might be a little bit less for three or four years than if Clinton had been elected. The market was probably pricing that in and now it is pricing in the opposite and perhaps even over-correcting to that side. The entire solar sector and renewables are getting hit and I think at some point there is going to be a great buying opportunity to buy the best of the best in the renewable/solar industry, whether that is this week, three months or two years is the more immediate question at least. I am going to end up nibbling some $FSLR in the next few days or week or two. At 26-27 bucks, I am going to get real interested in it. Solar Edge, that is a much smaller position for me. It is a much smaller company and is more volatile and risky. It’s a name that Robert Marcin, a friend and legendary investor turned me on to. I’ve talked to him and talked to the company. He thinks the company has a huge technological edge in the solar component stuff. I respect him enough that is what got me started on it and the more homework I did on it, the more I think he is on to something. If Solar Edge gets a few contracts this year, could be huge. I don’t think I’ll buy more, but will hold on to the position I got. I don’t know if I could take pain below $10. I think it could be $30 stock if they deliver in next eighteen months to two years.

Subscriber follow-up: I actually own Solar Edge product in house. The biggest concern here in Hawaii, and going nationwide, is that they are getting rid of net metering meter.

A: Is it? I wonder though. Certainly, it is somewhat a subsidy. I guess you could argue that net metering is not necessarily a subsidy, but the idea is that the costs of energy per unit could continue to come down towards fossils and if you get there over the next 2-5 years or something and if Solar Edge leads and gets us there, then how much do we need net metering? How bad do we need subsidies?  Just give us really cheap renewable energy and it will take care of itself. I don’t own solar stocks for any other reason except that I think over the next 10-30 years, solar is the answer to our energy needs.

Subscriber follow-up: I agree. The biggest problem is not the cost of the product but the over-charging of installation.

A: Well and again, just looking over the 5-10-15 year cost of solar energy. Instead of buying am metal roof for your house out here in NM, you are going to order your solar panel roof. It is going to get built into windows, roofs, cars. Solar will be on anything that is exposed to sun that could be generating electricity. Solar’s getting to the point that a company that just got spun out of Sandia Labs here in New Mexico is moving forward to commercialize putting these solar technology things into high rise windows themselves so that window is generating electricity. That’s the future. I want to be exposed to it. I think Solar Edge and First Solar are best ways to be exposed but maybe there are other better ways. I am always looking for other great solar investments type concepts and I do think it is a place I want to be in next 10-20 year.

Q. Thoughts on AMD?

A. Advanced Micro Devices: Let’s run through some analysis. Top line level. I don’t think $AMD’s technological road map is as good as Nvidia’s. I think Nvidia has done research and development to put it on a superior playing field to Intel and AMD. That doesn’t mean $AMD can’t catch them, but I think $NVDA is the clearest de-facto standard for self-driving cars, artificial intelligence and so many of these industries we are trying to be in front of. AMD’s market cap has gone from $1.5 billion to $13 billion in the last 18 months.

Subscriber comment: Because they are anticipating new products.

A. And maybe they deliver those incredible products and maybe those produce do compete successfully and do take market share and disrupt Nvidia. But, you are betting on that stuff coming out; whereas, I think Nvidia is already starting to prove itself. What would make me bullish on $AMD is if they did a secondary. Problem I have with $AMD more than anything is their balance sheet.

Subscriber comment: You mean a secondary stock offering?

A: Yes, if they would do a secondary stock offering of $1.5 or $2 billion, I would be a lot more bullish. They currently have $1.2 billion of cash, but $1.4 billion dollars of debt. So they have more debt than they do cash. The good news is three years ago they had $2 billion dollars of debt and they only had $800 million dollars of cash. So, they have done a good job of getting cash balance down and raising cash. At the same time, I don’t think that balance sheet is nearly strong enough to compete with companies like $NVDA with $60 billion market cap and has billions of dollars of cash and access to billions of dollars of more cash to do stuff if they want to. Intel has $10s of billions of cash and access to tens of billions of dollars of more cash if they wanted to. If $AMD were to have $3 or $4 billion of cash on their balance sheet, I would be more comfortable. As it is now, it is $13 billion market cap up from $1.5 billion market cap. Up 1000% in eighteen months and that is a little rich for me, especially if I am just not a fan of the company.

Subscriber follow-up: I was thinking about getting out of it. I bought into it 4-5 months ago.

A: Why don’t you have your cake and eat it too. Sell 1/3 of it today. Sell 1/3 of it in a month. Keep 1/3 and maybe consider selling 1/3 of it if it goes to $25 or cracks $10. That way you don’t have to be all in or all out. You don’t have to worry about it so much. Can be sort of like “I got a win”. Take some of it off the table.

Subscriber follow-up: I tend to ride it. I don’t like a 10% pullback.

A: Well, sell 1/3 or 20%. There is no science to it. If you sell all of it and it goes to $50 then you are really upset. If you sell all of it and it goes to $2, then you feel like a genius. That’s why I am saying have your cake and eat it too. Sell a little bit and if it goes to $50, you feel like a genius. And if it goes to $2, you feel like a genius.

Subscriber follow-up: That is true. I can always feel like a genius. It is a worrisome stock with incredible potential. Why wouldn’t they want to do a secondary?

A: I don’t know. Looking at market cap up by $1000% in eighteen months and a balance sheet that needs cash, why wouldn’t they do it? Then again, they didn’t do it in 2007 when it was at $15.

Q. On the semiconductor side, anything you are looking at or liking right now?

A. Let me ask you, Kevin. I’ve quoted you several times over the year, because you are a technology analyst, and not just a technology analyst but a very good technology analyst. I’ve enjoyed and learned a lot from interacting with you over the last three or four years. Tell us quick, how long have you been a Trading With Cody subscriber?

Subscriber: I am not sure. It has been several years.

A. Well cool and thank you. So, my question would be this to you: Are there any semi-conductors stocks that aren’t either having some serious problems or questions about accounting or something that aren’t already up 100-200-1000% in the last in 3-5 years?

Subscriber: The answer to that is probably no.

A. Right. So, what do you see out there that you like, that you could see initiating a position.

Subscriber: I am going to stretch semiconductor to kind of pull in the optical space. A lot of the rumors or people trying to figure out what the next iPhone8 is going to be. There is talk that there will be a 3D component with facial recognition and the phone will have two different components–front and back facing and it seems like there is a really a strong possibly that front facing will happen with optical components. One company that seems to be favored is $LITE. If they happen get 40 to 50% of the product they sell into the iPhone 8. It is only like $1.8 billion market cap company. It was up 6% yesterday because Apple came out yesterday with an announcement about including new technology in some of their apps.

A. $LITE’s market cap is actually over $3 billion dollars now, by the way. $LITE is up 40% in last few weeks. If this is a company that is going to end up dominating 3D sensing in technology in viewers and smartphones, it will end up a $50 billion market cap. So, we still have a 1000% or 1500% upside, if it is going to work. Have you done some work on it?

Subscriber: I own and it and the company has publicly stated that they are working with several smartphone companies with facial recognition 3D technology and I think it is a matter of time that this comes to fruition. It is really hard to gauge if Apple includes in iPhone8. We are still six months out, so you can probably guess that Apple’s management probably doesn’t know if it is going to be there. Apple definitely have research and development version of the iPhone8 that has facial recognition.

A. Can you send me notes and let me look it over. I know it a little bit, but not well enough that I am ready to make a decision on it. That would be helpful.

Subscriber: I can do that.

Q. What do you think of IAG and the price of Gold for the rest of 2017?

A. I don’t know much about $IAG specifically, but it does look like they’ve increased the net cash balance from –$500 million to +$200 million, even as their stock has been on dire penny straits, down 90% from a few years ago. I tend to stay away from investing in gold miners and stick with gold itself. As for gold in 2017, I’d guess that the path of least resistance is higher and that it could head towards $1400 by year end with some down swings along the way.

Q. If the interest rates are being raised, why are the yields going down? Maybe I don’t understand the definition of yield.

A. There’s not always a direct correlation between the market’s broader interest rates on corporate bonds, Treasuries, etc with the Fed’s interest rates.

Okay folks, let’s wrap up with some bigger picture. Not much has changed. As long as interest rates stay low and/or just gradually rise, everything you are seeing are Republican/Democrat leaders do, the Federal Reserve do, everything that is happening in Europe, the currency wars, all of this stuff is focused on making stocks go up and expanding corporate profits.

It works while it works and we have been riding it for seven or eight years now. I promise you I have my ear to the ground and I am paranoid about another Black Swan, about another financial crisis, about geopolitical development causing a Black Swan. I spend all day, that I am not writing up specific stocks, thinking about this stuff and analyzing this stuff. I want to catch it. I am fully expecting to catch the next down turn before it happens and/or as it happens maybe. I just don’t see it yet. I just don’t.

I had a Trading With Cody subscriber or two who have canceled in the last year or two because they want me to get bearish. One guy writes us, “Hey Cody’s caught the bottom the last three times and the top twice since I’ve been following him for twenty years, but he missed this one. He missed the top that was put in.” That was eight months to a year ago that guy sent me that email.

This guy had said he had been following me for twenty years and he was canceling because I missed the top. I think about him sometimes when I hear people on CNBC or Fox Business breathlessly talking about how stocks are at all-time highs and the economy is growing. And I’m like, you know..it is. And, until we really have something to freak out about like in 2007, when I was freaking out about real estate, you know, it still is. It is what it is. I hope I catch the next top. I am doing everything I can to catch it. There is going to be a top. There is going to be a crash in our life time. It might be this year. It might be in five years. But we can’t over-anticipate it before it gets here and we don’t want to just foolishly sell our stocks and be bearish because “Hy stocks are up and the economy’s been stronger for a long time now.”

At the same time, how many pundits and newsletter people can you subscribe to that are perma-bullish or perma-bearish? Every guy who was bearish in 2010 is still bearish in 2017 and the guys who were bullish in 2005 were just as bullish in 2008 as the markets crashed. I wonder, what is the point? What is the use? Why are people even subscribing to something like that?

Guys, I am certainly not infallible and you’ve all seen me make mistakes. But until things change, until we see a reason to freak out, let’s not. Let’s prepare for bad times, but let’s not be scared.

Let’s be paranoid, but not scared. That’s the take away for today. Let’s do this again.