Chat Transcript: BK, LPS, AMZN, Romney and more
Here’s the transcript of today’s chat. We broke the questions and answers down into two sections as usual — Economy/markets/trading/strategy and Stocks. See you next week at 2pm EST at http://tradingwithcody.com/chat for more Q&A where you can ask me anything.
Economy/markets/trading/strategy
Q. Cody, what do you think about this Israel / Iran business? Do you see Israel attacking Iran this Spring / Summer? Oil stocks would skyrocket.A. Yeah, I can see an Iran/Israel escalation. The fog of war is in constant motion in the Middle East, even as the wars/border disputes/fears/deaths there seem almost steady-in-nature from the US investor’s perspective (as a human being, my prayers, hopes and efforts to help EVERYBODY there are non-stop). http://en.wikipedia.org/wiki/Fog_of_war Oil and oil stocks would likely spike on an outbreak, but as a trader I’d think that much of that is already priced in and I might even look to slowly short oil if Iran/Israel go at it officially.
Q. Cody, just got my hands on some new capital and since you are expecting a rally, was looking to get some more long positions….out of all the longs you have what 3 or 4 do think are the best to invest in at this time and should i buy calls or common??? (and as you always do, will buy in tranches)
A. You have the right mentality, heading into allocating your capital — using tranche and allowing the markets to come to you. Yes, since I am “expecting” a rally here (though we’ve already had a huge rally), I’d look to step into some of the best longs now, maybe 1/3 of a position in common stock to start. And then if and when the time and price look right, you can also add some calls. But don’t rush. Start with 1/3 into your favorite 3 or 4 stocks and expect to end up with about 10 or more total positions to get some diversification into the portfolio and expect to allocate the full amount of capital you’re looking to deploy over the next couple months as you see me add here and there. Easy does it. It’s, as I always remind you guys, not about the next 100 days, but the next 10,000 days of trading.
Stocks
Q. Hello Cody…I know you’re always hesitant to give direction so let me preface it as always…feet to the fire on SIRI and V ER today? bullish? Might just do some common SIRI ahead of it, but seems to be on the uptick which makes me nervous…
A. I’ve got no edge on either V or SIRI. SIRI’s a penny stock and unless they somehow suddenly convince the market that they’re turning outright profitable and in a hurry with huge cash flows on tonight’s call (which would mean we’d have plenty of time to buy it and chase it higher if that’s the case even if we had to pay up…it would be like buying Nextel back when it finally turned its cash flows back in ’03/04) then I don’t know what the catalyst for the stock on a single day’s trading action will be. I just don’t follow V closely enough to give you an opinion on that one.
Q. Dear Cody, in today’s post you wrote: ‘I don’t want to be crushed by a serious move higher. Always, always, always respect the market, it is the ultimate arbiter of your fate, it is always ‘right’.” From this I interpret that you expect an overall ascend. How is this paralell with adding puts on LPS for example? Or I am missing something? Please explain it to me! Thank you!
A. Yes, I expect the market to continue its overall ascension here and in fact, I sacrificed BK to the trading gods today. But that doesn’t mean I don’t want to stop hedging my overall portfolio. LPS puts are risky because of their time-nature and the fact that LPS could very well continue to outperform even the broader markets in the near-term, but I am confident that in coming quarters and years that LPS is headed much lower from here. So I have LPS common short and I also have LPS puts that I will probably continually buy slowly but surely over time to complement/limit my losses in the LPS short positioning. And of course, if the markets/Greece/mortgage debacles/prosecutions kick in, LPS is a great way to capture some of that potential downside thereby helping to hedge the overall portfolio. Discipline trumps conviction.
Q. ek; any thoughts on ability to sell patents $2 bil … and for the equity to come out undiluted …
A. I highly doubt and WILL NOT BE BETTING ON ANY LONGER TERM EK come back. This, like the AMR trade before it, was a short-term technical trade post-bankruptcy filing. We’ve had some great gains in both and I WILL BE SELLING ALL OF MY EKDKQ in the next few days.
Q. You cut loose the BK position while at the same time adding to the LPS short. Are you thinking that the government might basically let the big banks off the hook while at the same time letting LPS take the fall?
A. Sort of. I’m worried that the recent settlement negotiations (read: bribes and corruption) from the Administration and the DAs and especially Eric Schneiderman’s recent “suing of MERS” is truly turning the tide for the banks once again. And that might likely help LPS, big-time too, as the recent stock action in LPS has clearly indicated. I was too heavily short the entire financial sector and needed to let out a little pressure. But LPS remains a highly suspect company whose past business practices I am confident will be found to be very illegal. If the government and our regulators and representatives choose to allow such a company to continue to prosper far into the future is beyond my comprehension of even the sad state of America in the 21st century. But eventually, one way or another, I think LPS is doomed. So I bought some more puts and I might lose my butt on them, but that is the nature of trading.
Q. near term thought on amzn and nflx… up or down??
A. AMZN: near-term flattish, mid- and long-term much higher. NFLX: near-term higher, mid-term higher, long-term, maybe much higher, maybe much lower.
Q. With AMZN’s margins getting pinched, them forecasting little to no profit, growth slowing, and its high multiples, what makes you bullish on the stock?
A. AMZN doesn’t care about what Wall Street wants it to do. I remember people shorting Amzn because margins weren’t there, growth was slowing and them forecasting little or no profits for years back when the stock was at $30. And $60. And then $15. And then at $100. And still at $150. And still today. I think Amazon’s building a “Kindle/Prime” platform that will be a major competitor to iTunes/iPhone/iPad and Android and Windows. You heard it here first: Amazon will be selling its own Kindle phones (built on, but not recognizable as Android) by the end of next year. And by the end of 2015, the Kindle phone and the iPhone will likely be the dominant mobile phones in the US. You heard it here first. Stick with Amazon. I am.
Q. thoughts on AKAM? It has er today
A. Oh that Akamai. It’s burned me so many times on earnings that I hesitate to even give you a “feet to fire” guess. But fine — feet to fire, I’d guess the stock trades lower tomorrow.
Q. With the AMR trade you only held it until the end of that week, but EKDKQ was held for at least a couple of weeks so far. Can you explain what was different between these two in your timing of their sells?
A. Great question. Part of the difference is that I’m more comfortable doing the post-bankruptcy technical (let’s call that the PBT) trade this time than I was last time. I hadn’t done the PBT trade in years when we did the AMR and I wanted to be in and out of it like I used to be. But much more importantly though correlated to that, is the fact that one of the most important lessons any trader can learn is that “technical rules” ALWAYS CHANGE OVER TIME. What worked when I used to watch Altucher do the PBT trade all the time (and do it occasionally myself), five and ten years ago probably doesn’t work exactly the same way today. So I changed my strategy a little bit this time and have held it longer. But I will tell you holding a bankrupt stock even for the last couple weeks, even as we’ve made great profits on it, stresses me out badly and I hate doing these trades except for the fact they’ve paid.
Q.there is an interesting dynamic going on with OPEN. The tech crowd likes it. The restaurant investor in me does not. Which way do you see this stock going? Remember OPEN is one of the largest shorts out there in the market.
A. I’ve just not been on top of OPEN enough lately to give you an educated opinion. The contrarian in my does love buying stocks that the shorts are big in.
Q. whats your fav optical stock??
A. Optical is tough still. Need to see AT&T ramp up the spending and the biggest problem ahead looks to be the fact that the Chinese, which subsidizes their corporations even more than Canada and the US does (JDSU has roots in Canada), are pushing hard into optical and margins seem endlessly UGLY in the industry. Jiggly Dumps Sure are Ugly.
Q. Cody, can you give us your take on how lps stock will perform through earnings next tue
A. Unfortunately, I don’t think LPS is trading off earnings expectations or earnings reports at all for the last few quarters. This is either going to be prosecuted into oblivion or not. That’s what’s driving the stock. Unless we get an update about prosecution, which the company is NEVER forthright about, on their earnings call, I don’t know if there will be much catalyst from that call. We’ll see though. Easy does it.
Q. How about NUAM…north or south after ER?
A. Nuance — it’s up sooo much heading into earnings, the bar is definitely set high. I am not making any pre-earnings moves on NUAN for now.
Q. any view on grpn??
A. I mentioned in a post yesterday that I’d rather be long than short GRPN for the next few weeks and months. At some point along the way though, would probably would rather be short.
Q. What are your thoughts on GOOG around at these levels? Buy in or wait for another pull back? Thanks
A. I think GOOG goes much higher if this market breaks out. Might go higher even without a market break out. I’m a GOOG bull.
Q. Cody, have not heard anymore analysis on FIO recently, now that EMC has something they say is better, is there any real growth left for FIO? Longer term? And what is your guess on the next “apple”?
A. It’s way too early to count FIO out. That market’s still being created. There will be lots of competitors claiming that they can destroy FIO. And someday one might. It’s a risk. But I am sticking with a long-term bet on FIO for now.
Q. any further analysis on BVSN? it makes FIO look tame
A. At some point I think that BVSN is a great short. I just can’t find any to borrow to sell short and there are no options on BVSN…yet. Boy, I hope they start offering options on BVSN before it pops. Prediction: BVSN will be back below $10 a share by the end of 2013. Who knows where or when it tops before it goes back down though.
Q. APOL
A. No change in my APOL stance. I cringe when I hear Romney touting these same taxpayer-funded private college scams that Apollo Group puts out. But longer-term, I think it’s in big trouble. Easy does it along the way though.
Okay folks. That’s another round of Q&A in the bag. Let’s stay focused out there.