Video game stocks, Snap update, Devices with eyes and more

Here’s the second half of this week’s Trading With Cody Conference Call Q&A.

Q. Cody, I have been looking into picking up a video gaming stock maybe $TTWO. Do you have an opinion on the segment?

A. $TTWO and the video gaming segment itself has been up, up, up. $TTWO is near an all-time high right now. The stock’s gone from $8.00 in 2012 to $76.00 right now. It’s doubled in the last year. I feel about that sector and that stock about like I do in that opening statement about much of the broader markets, where I don’t really want to chase $TTWO up after its already made these kinds of big moves.

Stepping back and looking at the video game sector though, well, the general trajectory of video games is clearly still headed higher. $TTWO is a very well run company, very profitable and maybe the best run company in the video game sector. $EA maybe the second best or maybe it’s the best but the best and $TTWO is the second best. Regardless, the point is that kids and adults today are playing more video games than they ever were. Millions of people are still are buying the television-based consoles like Xbox and Playstation. People certainly play a lot of games on their smartphones. They play some games on their iPads.

If you step back and think five years from now will there be hundreds of millions of more people having access to video games on more devices than there are today. Absolutely $TTWO will benefit from that general trend.

All that said, I am not going to buy it. I like the sector. Video game growth is not cyclical, it’s secularly growing. It has been secularly growing my whole life time.

And, of course near-term, the Nintendo Switch is a huge hit. Kids are loving being able to run around and play video games. Whether that is a long term win or not with dedicated devices or video games, it doesn’t matter right now. Doesn’t matter long-term for $TTWO. They are going to be on all the platforms, whether it is a smartphone or a virtual reality room that you sit in.

Speaking of Virtual Reality, when I was in Las Vegas a couple of weeks ago at the SALT Conference and at the MoneyShow, the SALT conference had a really high end VR booth set up. It was being run by an $NVDA system. Acer and another company had created a joint venture, STARVR Corp. The demonstration was really cool, incredibly realistic except for one thing. The future of the VR has got to have something besides the goggles. I think we all recognize that. Whether it is a really cool pair of glasses or glass sized-goggles or a VR holo-deck (see Star Trek Holodeck) that you pull up around yourself to play these video games. The future of gaming is going to get to virtual reality eventually.

Q. Cody, hope your family is doing well. Current thoughts on $SNAP options we bought. Are they a hold for now?

A. Yes, I guess “hold” is about the right word for my Snap call options that are dated out a few months from now still. That’s what I’ve done, I’ve held them. I didn’t sell them in the panic after the disappointing earnings report. It was a disappointing report, even to me. Disappointing to everyone. The users growth wasn’t as good as I thought it should be.

You guys know that I don’t often invest in a company until it has a couple of quarters of earnings reports as a public company under its belt. But I made an exception here as we used a tiny bit of capital to buy these Snap call options a few weeks ago when the stock was below $20. We are actually up a bit on the calls now overall as the stock has come back since the earnings report.

Point is that these Snap call options are a lottery ticket for right now. I am just going to leave them be. I didn’t throw very much capital at them as you know. I figured we’d either have a huge home run or lose everything on them. I am just going to sit tight for now. I might even end up selling them or buying some more at some point. I read everything that I see, all the news, analyst’s report on $SNAP. The company and what it’s doing and its near/long-term potential have got me intrigued enough that I am holding on to them for now.

Q. Did you cover $HUBS yet?

A. No, I have been wanting to have some shorts in the portfolio to help hedge our overall long positioning and HUBS is one of those hedges. I still want to be net long, and I still want to have large exposure to the most revolutionary companies on the planet. I want to own the next FAANNG stocks like we did the ones that now make up the FAANNG (FB, AAPL, AMZN, NFLX, NVDA, GOOG) stock acronym. But I also want to have some short hedging on the portfolio at this point in the market’s move.

All that being said, $HUBS has done quite well fundamentally over the last couple quarterly reports that we’ve seen. They have done better than I expected. As I am saying that out loud, I know again that I am going to cover this short. You can expect a Trade Alert this week. I am going to cover $HUBS and maybe $HLF this week. I’ll look for another short or two to add to the portfolio. But it’s pretty clear that $HUBS has not struggled as a business as I thought they would. Their fundamentals have been strong enough and I’ve been short this stock for two quarters and I’m down on it, so it is probably time to go ahead and cry “uncle”.

Q. $PI, are you still happy with it?

A. Clearly I’m happy with it right now, just like you, as it’s great the stock has rallied 50% since we bought it. It got some really nice coverage in Barron’s a couple of weeks ago. Their most recently quarterly report was strong. Yes, I still like it. I would sell it if I didn’t. That said, I might want to trim some, maybe 10% soon. I think that is a stock that could be up five or ten-fold in the next five or ten years if they become the de facto standard in RFID and in retail inventory. This is a company that is still less than a one billion dollar market cap. I’m a believer that there’s a big future for the RFID industry and $PI is a pure play and it looks to be the dominant company set up to be the de facto standard. So, yes, I like it.

Q. How did we not short Hertz as a victim of the Uber/Lyft ride-sharing revolution?

A.”How did we not short Hertz as a victim of the Uber/Lyft ride-sharing revolution?” Yes, I literally said these words the other day to Eddie who owns the Zocca coffee shop I frequent most workday mornings.We’ve got revolutions all around us every day and we see the world changing. We need to continue to be cognizant of those changes and trying to figure out those companies and sectors that will not only benefit but be decimated. You all remember about three years ago I wrote a book called, A Dozen Companies with Failed Business Models. Fossil was one of those. We talked about how smartwatches were going to decimate demand for Fossil-kind of watches. That stock got demolished. Five years ago, Fossil was at $100 when I wrote the book. Today, it is at its lowest level in fifteen years.

Q. $AMBA. I don’t have a position in $AMBA, but I might start one. How long have you held it and what was your cost basis?

A. We’ve owned $AMBA I think for three years and our cost basis was in the high $20s. Another big reason to own Amberalla for the long-term is that one of the big revolutions that is coming five or ten years down the road is a different interface for us to play video games, to read, to engage with our smart devices, smartphones specifically.

Those future smart devices and interfaces must have eyes, just like the driverless cars and robots must have eyes. And those eye must have chips. They need to be able to record. $SNE, $AMBA, $NVDA are all plays on that revolution.

We want to be sure to catch those companies that are going to create these new and future interfaces. Amazon is obviously creating and driving forward the speech interaction interface. I guess to be accurate, Amazon didn’t create the speech interaction interface, but they are clearly driving it forward. And over the next year or three, we will all talk to our smartphones and devices much more than we do today. Google and Apple will continue to improve their speech and artificial intelligence platforms to try to catch up to Amazon’s burgeoning lead.

And tere are going to be different ways for us to interface besides talking to these devices. We will still be looking at these devices and they will be looking at us. We need to be in front of those revolutions. We’ve got some of those names already. We’ve already made some great profit off of those names. Some of the companies that will drive, power and supply these new and future interfaces are still private. But we will see some really interesting names on that theme over the next two to three years. I’ll be on top it and we will write a book about it as those names start to unfold. It is still a little early right now.

Final note today: Jake Fistes, whom many of you know from over the last few years as a fellow long-term Trading With Cody subscriber, has started helping me as a Research Analyst. And Zilvinas Speteliunas who has been a reader and fan of mine for years too is going to be helping keeping things flowing in the Chat Room. He’ll try to direct you to my prior commentary any time you ask a question that I have recently answered. Both of those guys read everything I write and both are in the Chat Room all the time. The point I am getting to is that we are going to be writing a book or two about two or three of the most important revolutions and the companies that are in them. You will know some of them.

We are talking AI, autonomous vehicles and maybe, once again, robotics. We are still playing with theme and doing early research on the idea of the book. You can expect in the next four to six weeks and you can expect that we are  going to have a whole bunch of new names in those sectors for you to ponder. I’ll have full research analysis and revolution ratings on them and I will probably be doing some Trade Alerts because I will probably be nibbling on them myself.