Chat Transcript for Apr 4, 2012: SNDK, FIO, Apple suppliers and much more

Here’s the transcript of today’s chat. See you next week at 2pm EST at for more Q&A where you can ask me anything.

Q. Hi Cody, not surprisingly my question is about SNDK. What do you think caused the lowered estimate? How does their performance relate to AAPL? Has the market over-reacted and what price to go back in at?
A. The biggest problem with Sandisk is their customer base — which mainly consists of Nokia, RIMM, and Motorola…not exactly the Big 3 of Smartphones right now. They also supply some to Apple, but Apple mostly buys its Flash from, believe it or not, Samsung. And Samsung and Apple are dominating the smartphone market right now and while Sandisk does benefit directly from both Samsung and Apple whenever they use Flash (because Sandisk owns a lot of patents and gets paid for every bit of Flash sold on the planet), but they don’t benefit nearly as much with those royalties as they do when Nokia or Rimm or Mot buys a bunch of Flash drives directly from Sandisk. Sandisk is a dominant force in a secularly growing market, Flash, and that keeps me in it for the long-term, even as I am now worried we’ve got some dead money on our hands for a couple months or so.

Q. OCZ seems to me to be a natural participant in the inevitable recovery of the current “mess”. Your comments and criticisms please.
A. I’ve been working OCZ for a few weeks now and I like the company a lot. I like FIO better and they’re similar enough that I want to bet on only one of the two so I stick with FIO. Both companies probably have a lot of upside ahead of them if/as the Flash-for-server-storage market takes off over the next decade as I expect it to.

Q. Hi Cody, so as SNDK falls, any similar stocks you see getting over aggressively hit that we should look at? Like CY for instance?
A. Yes, I’m worried about CY and not just because of Sandisk’s warning today — there was a good bit of inventory build up and Cypress hasn’t been executing in their marketplace like I expect them to. I’ve got a small core position in Cypress from much lower levels and am holding onto it for now….will re-evaluate that stance now in the face of Sandisk and other data points though. Stay tuned.

Q. Earlier, Mysitc asked, “Samsung is #1 in smartphone shipments and they make their own flash. Apple is #2 but supposedly buy most of their flash from Samsung, then why buy SNDK?” Why is samsung’s NAND superior to Sandisk’s? Should we be worried about the long term prospects of Sandisk? Good news is, in their January conference call, Sandisk stated that they expect the bulk of their profits to come from the second half of 2012. Do you believe this is still true and do you expect the stock to pick up in the near future?
A. Good analysis and very similar to what I just laid out above about Sandisk’s customer base coming back to haunt them right now. And yes, it could be a couple quarters before Sandisk’s customers start ramping up another line or two of new smartphones. Nokia’s Windows bet is ailing already and I expect Nokia to jump on the Android bandwagon this year or early next year and they’ll ramp up orders for that even if their Windows phones bomb as badly as it looks like they are going to. RIMM’s going to do something similar and Motorola is now owned by Google and which will also ramp up production and/or sell Motorola off…meanwhile, the smartphone growth and demand for Flash in servers and in laptops and in desktops is only going to increase over the next few years and Sandisk is the purest play on that secular growth trend so I stick with Sandisk for the long-term despite the near-term issues.

Q. Thanks Cody! How about FIO – as SNDK falls? FIO has taken a pounding today partly due to the market tanking, how much is due to SNDK? I believe in the long term value in both stocks, but shorter term is it not wise to wait a while?
A.Your FIO analysis is also very good. Yes, it’s down today because all things Flash-related are down today. And yes, I think longer-term FIO is headed much higher. But no, I don’t have enough confidence in it and the broader markets for the near-term to add to my FIO just yet. I’ve already got a core FIO common position and I have some longer-dated calls and am sitting tight with those positions in FIO for now.

Q. Cody, I like this full screen chat room. I’d love it if you guys had these over on your other site at Wall Street All Stars over the 3 column view. Maybe you do and I just don’t know where to find it.
A. Yes I could do this for each diary of and will do so. I had thought you’d want the ability to see the chat side bar and also two other chat rooms at the same time, but you’re the customer and I bet you’re not the only one who thinks my design on those chat rooms need improvement. Thanks for the constructive feedback.

Q. Hi Cody, what’s your take on all of this sudden coverage of “AAPL $1K” price target by several analysts? While you suggest short term pairing on AAPL holdings, would a long dated Jan ’14 call be a good move at this time?
A. I have been buying Apple on weakness and selling it on pops since it was at $7 while holding a core position the whole time (except while I was an anchor on TV and I didn’t own any stocks during those days) and I will continue to try to be consistent in that approach. Apple’s very popular right now, more than ever, and that has me increasingly worried about it for the near-term as it continues to climb. I’d rather buy Apple and/or AAPL long-dated calls when the stock is hated and beaten down…but that doesn’t mean we’ll get that chance before the stock hits $700. I’m sorry, but there’s just no easy answer about how to buy Apple while I’m suggesting trimming it, even as I suggest making sure you always have some AAPL in your portfolio. Good luck and hope this helps.

Q. Cody, what’s your guess for FIO and AAPL Earnings Reports? I have May and June calls for both. Would you recommend selling or holding on? Thank you!
A. The problem with your question is that they’re both likely to trade at a high-beta (beta is a measurement of volatility relative to the broader markets) for the near-term and your guess is good as mine about whether this pullback continues past the 5% minimum I was looking for and we’ve already now got or whether it continues to the 10% maximum I was looking for. And the main way that either of those stocks would break from high-beta market tracking would be for them to issue some huge earnings or other fundamental update before your options expire…and to hope the market responds rationally to those fundamentals. Longer-term, I think FIO and AAPL are must-owns and will pay off huge for us, but for the near-term, I’d be careful. Good luck and again, I hope this helps.

Q. Cody, general question. Do you foresee any “safe” – and I mean, feet to the fire-hunch type – of Earnings Report plays over the next several weeks? I have some ground to make up, and a lot of it has to do with GMCR not behaving as I had anticipated. Thanks.
A. Let’s break your question down and really get some helpful analysis for everybody out of it. First, it’s good that you admit that greed has hurt your performance. Second, it’s good to recognize the specific trades that have hurt your performance. Have you analyzed your GMCR position from a fresh perspective? Did you close the GMCR trade completely and move on? If so, did you remove it from your screens entirely so you don’t look at it and fuel your emotions/greed? Third, and most importantly, you do realize this is still a “greedy” mentality (not that I’m judging, because Lord knows I’ve certainly been desperate to make up losses before too, just as everybody who has ever traded for any decent amount of time have been): “I have some ground to make up.” You can’t force the making up of that ground. You’ll end up over-reaching and making desperate trades because you’re feeling the pressure of making up that ground. Forget that ground you’ve lost. It’s gone. It’s over. Your portfolio is right now what it is. Let’s start afresh and figure out how to slowly but surely and safely build up your portfolio to new highs over the next year, two years and five years. Trying to make up that ground by aggressively trading earnings reports this quarter is simply gambling. Fourth, yes, all that said, I am sure I’ll have some great trading ideas for this earnings season as it develops, just like I usually do. I won’t force any of those types of trades though and I will, as always, try to remind you not to force any trades yourself either.

Q. How about AAPL, GOOG, and I’ll throw in BIDU for that matter? AAPL is allegedly eating everyone’s lunch. New products rolling out. Thoughts? Buy, Sell, or Hold? Thanks.
A. I think Apple’s headed to $1000 by 2013. I think Google’s headed to $2000 by 2020. I think BIDU is a must-own investment for the long-term if you’ve got the guts to bet on a Chinese company.

Q. Cody,  are you thinking of adding qcom to the portfolio?
A. Yes, I am considering QCOM as a long. I just hate to feel like I’m chasing it but that stock hasn’t given me a chance to sneak in on weakness, so I might just start a toe hold position on strength one of these days. See the new Top 10 Apple Supplier Stocks eBook for more on QCOM, by the way.

Q. Cody, one more. WDC was one of your shorts and any changes with the SNDK news? It had spiked up on an analyst’s upgrade after I shorted it and has since come down a bit. Still room to go or is today a good day to cover on the heals of SNDK?
A. Let me be clear that the main reason behind our WDC short is to hedge against our STX long. I do think that WDC is very cheap much like STX is, but I think WDC has company-specific problems that will keep the WDC the stock from being able to rally nearly as much as STX does over the next few months…and if both stocks fall, I expect that WDC will fall more than STX would over the next few months. That’s not the same as saying that I think WDC is going to fall over the next few months. WDC is part of a pair trade with STX and not an outright short bet, you see?

Q. Looking at the broad market, for those who haven’t yet raised much cash, is it too late to do so?
A. I always suggest having some cash on the sidelines and if you don’t feel like you’ve got enough cash on the sidelines, then yes, I would suggest raising some now while we’re within 5% of 12-year highs in the Nasdaq rather than waiting until its truly painful to sell. Because there will be more pain at some point and you don’t want to have to panic at that point.

Q. Cody what is your take on VirnetX VHC? I don’t follow Cramer but since I follow this stock very closely (originally bought at $9) I am aware he recently changed opinion to a buy on it. He was telling people to sell when it was in the high teens. What’s your take?
A. I’m leery of VHC. The company’s in a great market of making software and IP communications for the Internet and they’re supposedly got a mobile side too, but I’m not a buyer of a company that’s been public for 12 years and has losses projected for this year and next.

Q. Cody, do you think is it time to add more common in FIO if we are looking the long term?
A. I think FIO’s going much higher over the next five to ten years, but that doesn’t mean we won’t get a chance to buy it at $20 first. That said, if your time horizon truly is five years or more, than yes, FIO’s a must-own.

Q. Hi Cody, does the coming IPO of Violin Memory (flash memory array provider lead by Don Basile, former FIO CEO) make you worry about FIO’s long-term growth story? Thanks very much.
A. I hadn’t heard of Violin so thanks for bringing it to my attention, I’ll dig into it further. That said, your question would be like asking if Facebook’s upcoming IPO makes me more or less worried about Groupon or LinkedIn’s prospects. There will be lots of competition in the flash-for-servers market…and lots of winners. I think FIO will be one of them regardless of Violin’s IPO success or not, you see?

Q. Cody, in all honesty I sold all my common SNDK taking a loss of over 6,000 dollars. As you say its dead money for a few months so why hold the size position you now do? Would it now be wiser to take some (or most) off the table here and redeploy in a better performing stock without the ugly in it? This way that portion of funds can work for us instead of sitting there dead as you say for a few months?
A. I don’t have a crystal ball’s for the near-term and when I believe in a company’s long-term prospects, I will usually continue to hold a core position in that stock even if I think it might be “dead money” for the next couple months. Because if Sandisk’s headed to say, $150 by 2017, then I don’t know whether it will truly falter here around $45 for the next eight weeks or not. Also, as I’d noted earlier, I’d used some out of the money Sandisk calls to build part of my Sandisk net long position and those are already selling at a huge loss and have very little risk left in them relative to the amount of capital I have in them, which means that they have in some sense served as a “natural stop loss” for me already and I’m not going to lose much more money if Sandisk stays here or falls from here in the next couple months…but if the stock were to miraculously rise again before these calls expire, I’ll get my money back and then some. As you know from having been a subscriber of mine for more than a decade — there are no easy answers when you’ve been wrong. And I was wrong about Sandisk for the near-term.

Okay guys, I’ve got to run to an appointment or two and I need to pick up a new chain for my chain saw so I can clean up some more land and trim some trees tonight when I get home. Rock on and thanks and I’ll see you guys later. Three other things before I go: 1. Mea culpa again on the Sandisk. I know that I can’t be right all the time, but I am very disappointed in our losses on this one and will do my best to not let it happen again. 2. We sent out the 1-year Anniversary hats and shirts to any and all of you who requested one and sent in your address. It’s not too late to get yours if you haven’t requested it yet. Just send us an email to and let us know which one you want and where to send it. 3. Stay focused.