Sandisk analysis and what I’ll do with it next
Not all of my stocks go up in a straight line. In fact, none of them do. Today my position in Sandisk is down 16%. So of course I sit here and think to myself, “I should have sold more Sandisk, I should have sold it all and locked in my triple back when it was over $100 a share just a few months ago.” But more realistically, this move in Sandisk today is just another chance to use our Revolution Investing playbook.
First some history, as I originally bought Sandisk for my personal portfolio and added to the Revolution Investing model portfolio back in 2011 when the stock was in the $30s. My reasoning at the time as I outlined in “Cody Willard’s new stock pick for the App Revolution“:
This company has really added the cash from good ol’ profits in the last decade. And that’s really one of the remarkable stories here at Sandisk — the impressive balance sheet. We’re talking about $15 per share in net cash — more than a third of the stock’s market cap. With Apple using flash memory in just about every mobile product they make these days, including the MacAir, Sandisk and the other flash players are scrambling to add capacity.
The stock subsequently tripled over the next three years and when it was at $100 per share last July, I wrote “Sell stocks when you can, not when you have to“:
Sandisk SNDK announces a billion dollar acquisition today and the stock goes up to yet new all-time highs again for it. I’m going to trim about 1/5 or so of my positions in SNDK today. I’m also selling half of my remaining $AAPL call options which leaves me with about 1/4 of my original number of call options which are up huge since we bought them.
Unfortunately, I bought those Sandisk shares back again when the stock tanked and was near $80 a share a few weeks ago. I outlined the trade in “Trade Alert: Scaling into two of my favorite tech stocks“:
Last week, I’d noted that I’d want to scale into $GOOG below $490 and into $SNDK below $90. We’re here. I’m following my playbook. I’m scaling into a 1/6th size tranche position in GOOG common stock. I’m scaling into a 1/5th size tranche position in SNDK common stock today too. We’ve owned both of these stocks for several years now and are up big from our original purchase prices. We’d also trimmed both higher, so I step into a buy flow while the markets are ebbing (we trimmed SNDK near $105 or so back in June last year, and we trimmed GOOG back in April last year in the $570s).
With the news today that Sandisk has had to warn us investors that they are failing to meet their own expectations for sales and earnings, the stock is down 16% to multi-year lows of $66. What do I do now?
First, we dig into the company’s report and do other fundamental checks to see if the market is wildly over-reacting and giving us a chance to sneak in and buy more.
The company told us in their press release today that pricing is weak but some of that is due to the big rally in the dollar and other currency swings the company is navigating globally. That said, they also said demand from enterprises is weak. Meanwhile, their own problems with supply is hampering them too, as they are low on inventory and struggling to build more. Lots of cross-currents there in that press release from the company and I don’t like to see that. But let’s continue with our analysis.
Has anything really changed from our original thesis back in 2011? Apple and every other computer, tablet and mobile phone maker is using more flash than ever before and that trend has no sign of slowing down. And the company’s net cash per share hoard has grown from $15 per share to nearly $25 per share since I’d mentioned that back in 2011.
With the stock at $66 per share, subtracting that $25 per share in cash cushion, gives Sandisk a P/E of 8 assuming the company doesn’t grow earnings at all from last year’s $5 per share level. Regardless of the near-term fundamental issues that Sandisk let us know it’s still facing, looking out into next year and over the next few years, I see billions of wearable devices hitting the market — most of which will require flash memory. That’s not factored into Sandisk or many other’s projections yet.
I’m not a day trader and you’ve heard preach “Slow Money” (here are some clips from old TV show literally called “Slow Money with Cody Willard“) many times over the years and I’ll be moving slowly when I make my next move on Sandisk. It was my third smallest position the last time I analyzed my personal portfolio in “Cody’s Latest Positions” and after today’s big drop in the stock it’s tied for Lindsay as my smallest long position.
If I were to sit down and look at the Sandisk analysis I’ve done in this column here today, I’d probably look to start nibbling on this stock after it settles down a bit in the next week or two. And that’s exactly what I’m planning to do with my own portfolio. And of course you will get alerted in real-time when I make this or any other trade as part of your TradingWithCody subscription.
