Chat Transcript for Mar 28, 2012: Apple suppliers, the RIMM report, AMZN, LVLT 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. what do you think about AAPL suppliers like BRCM, QCOM, SWKS, CRUS? Are they worth investing ahead of earnings? Thanks!
A. I sure like your logic in looking down the supply chain for Apple given how strong the new iPad and its other businesses have been the last couple months. And most of those stocks haven’t run as far as fast as King Apple has of late. That said, I think the path of least resistance is likely down as we hit earnings season because the markets have been so darn consistently strong. The upshot is that I just don’t know yet whether I’ll want to be long or short those Apple suppliers until we see some market reactions to earnings once the season gets here. Stay tuned, because if I do see a good trade into any of those earnings calls, you guys will be the first to know!

Q. AMZN is looking overextended to me at 142X ttm, why do they get to trade at such lofty valuations when AAPL and GOOG don’t? Are they due for a pullback or do you think they will keep marching ahead?
A. Amazon’s margin expansion potential — the fact that they’ve gotten so big and do such a huge topline — and the fact that their Amazon Prime TV/Movies/Tablet platform is going to be a huge part of the future competition for Apple’s iOS/iTunes and Google’s Android — is why the stock is so “expensive” on last year’s (or this year’s) earnings. It’s a great company and it’s likely to continue to grow into its valuation over the next few years. That said, I sure don’t like Amazon as much right now right here as I have in the past. I’m not chasing Amazon and am likely to sell my calls sooner rather than later.

Q. Cody any updates on CY?
A. Cypress acts terribly and I’m still not happy about the recent quarter and the inventory issues these guys are letting impact their business. I’m also more likely to sell my remaining Cypress than to buy more.

Q. Your thoughts on MBI: call prices seem up today relative to stock price. Volume also seems relatively active for this issue. Is the market telling us something?
A. I never read too much into any single day’s action in a single stock (or in a single market). I think MBI’s chart seems to be telling us that it’s broken and ready to crack, but that’s not what it’s saying today. I’m worried about MBI, but I’m always worried about all my positions and I have to trust my homework and the history of success I have had in my approach. And my homework says MBI is busted.

Q. Hi Cody, I’m a new user and I’ve been reading your books on tech stocks. Surprised to not see Teradata in there. Any thoughts on how to trade TDC?
A. No good reason for me not having TDC in the books except the fact that I can’t get every tech stock in a 50 or 10 or 30 stock book. Anyway, “Teradata Corporation provides analytic data solutions worldwide. The company offers various data warehousing solutions that comprise software, hardware, and related business consulting and support services.” And the short answer is those are definitely growth businesses. I like TDC but I don’t own it.

Q. Hi Cody, I am a recent subscriber and have been enjoying your commentary and the forums. I had the same question as pmcnabb02, why is there such a premium to AMZN compared to AAPL and GOOG, when during the last release it seemed that their growth might be slowing a bit. Do you think there are significant risks at the upcoming ER?
A. Your final question there: “Do you think there are significant risks at the upcoming ER [for AMZN]?” My short answer is: YES! There are always risks into any earnings report, especially if a stock is trading at a 142x TTM multiple.

Q. Thoughts on Ubiquiti Networks, UBNT?
A. UBNT is another company in a sweet growth industry — supplying wireless carriers technologies that help them advance their networks. The company’s supposed to grow earnings from $1 to $1.25 this next year and that’s not enough growth to justify the $30 price tag on the stock right now for me. I’d rather own FFIV.

Q. Are you still planning on releasing two books that you previously mentioned, “investing basics” and apple component companies that stand to benefit?
A. Yes, we’ll be publishing both a “Cody’s Rules of Investing and Trading” (I still can’t come up with the right title for this book) and the Apple component supplier book. I thought we’d have them both done by now, but my help has struggled to keep up with my rate of publishing and we’re still editing/writing/putting the books together right now. Stay tuned!

Q. Hi Cody, while your latest update comments that we probably couldn’t “game tonight’s report” on RIMM, don’t you think the price swing post-earnings would warrant a calculated risk/reward options play? If so, do you have one in mind?
A. Feet to fire, I’d rather be short than long RIMM (or I’d rather own RIMM puts than RIMM calls) into tonight’s call — Do you know ANYBODY who willingly bought a Blackberry in the last three months? No? Neither do I. It’s like a bad joke at the airport the other day on my way back from LA when I asked the businessman next to me in line why he still had a Blackberry when he’d pulled it out to email me something. He was literally embarrassed and the people around us chuckled too. I felt bad. But yeah, anecdotally that story alone tells you everything you need to know about RIMM into tonight’s call. That said, what if the company is totally optimistic and raises numbers because they think their “new line” is really gonna sell….or because the company’s going to start opening up their Blackberry email platform to iPhone and Android users….or some other thing that pops the stock given how badly it’s already been crushed. Just not worth the risk/reward for me right now when we’ve got the gains and positions we’ve got in the portfolio right now.

Q. Hi Cody, enjoying your video inserts! Hey how far out and what are the strike prices of the APOL puts you still hold? Maybe I missed this along the way.
A. See these articles for the specifics of what APOL puts I own: And then I added to those puts and detailed the dates and strike prices of the APOL puts here:

Q. Thanks for the shirt cody! On lvlt, whats a good entry point/ and are you concerned about their debt and will they do a secondary to raise cash?
A. Without a doubt, my single biggest worry for LVLT is their debt. That said, the company has been doing a great job of rationalizing their industry by rolling up competitors and the stock is trading down 99% plus from its all-time highs…I’m worried about all my stocks, but LVLT and its debt are definitely not for the faint of heart. Here’s just about the ugliest stock chart you’ll ever see…LVLT 12 year chart:

Q. I’m trying to learn more about option trading, haven’t done a trade as of yet. Is it always best to place an option trade closer to the Friday in the third week of the month as to get the most available time for the trade to develop?
A. Great question and my short answer is that you should not trade options at all until you’ve been reading me and other sources on how to trade options. I’d suggest creating a fake brokerage account where you can trade options on paper so that you can learn more. The longer answer to your question is that the 3rd Friday of the month is simply an arbitrary recurring date that Wall Street has long used as the option expiration date for every month. I mostly buy options that give me 3-12 months of time before they expire and only rarely will you guys see me do a short-term option trade and only then because I think I see a clear near-term catalyst. Don’t buy options until you’re sure you know what you’re doing — instead of using options, you can simply buy common stock when I buy a call in something and simply short common stock when I buy puts in something.

Q. Cody – enjoy your advice. For MBI, there are so many people shorting stock that no shares are available to borrow. If I wanted to play your recommendation, how should I do it with options, just buy puts. Isn’t there a chance if MBI is insolvent and say they file for bankruptcy if I had puts I would lose my investment. Keep up the great work!
A. If MBI goes bankrupt while you own puts in it, I’d be absolutely shocked if you don’t make a mint on the trade. The stock will fade, fall and crash as the company heads into Bankruptcy, if it heads into bankruptcy. I’m likely to add some MBI puts to my short MBI common position in coming days if the stock rallies much more from here.

Q. On a pullback what are the first 1 or 2 stocks you are itching to buy?
A. Hmm, probably Sandisk, LVLT and FFIV. But let’s see what happens if and when the pullback comes. I’ll try to err on the side of being cautious given the run we’ve already had this year.

Q. Can you give your views on PCLN? A company with a bigger market cap than the biggest aviation company in the industry it is serving.
A. Interesting statistic you pointed out there. Then again, I remember when RIMM was worth $30 billion and AT&T was only worth $20 billion and all the analysts were saying that wasn’t possible…RIMM went on to triple before it crashed. PCLN could too.

Q. Cody why do you think FIO is pulling back? If I don’t own common stock on FIO, Should I get in now?
A. I don’t know why FIO is pulling back and I can’t tell you what to do with your own portfolio, but I suggest you take a look back at the archives on this site by searching for all the articles I’ve written about FIO and how volatile I expect it will continue to be.

Q. Hi Cody, given that bond yields are at 30 year lows, do you think there is a short position to play?
A. I do think there’s a bubble in Treasuries and in bonds in general, but as I keep telling you guys I’d rather wait to see that bubble pop and then ride it down. I’ll miss the top, but I won’t have to scramble to try to catch the top.

Q. Is SNDK still a buy here? I bought when it fell to $49 should I stand my position after today’s analyst rating downgrade or take profits and look else where?
A. I didn’t even know that some stupid analyst downgraded SNDK today and I couldn’t care less what anybody on Wall Street thinks about Sandisk when I’ve done as much homework on it as I have. In fact, I’d rather have every single analyst on the planet hating on SNDK than recommending it. Contrarianism is a way of life.

Side note: The Trading With Cody One Year Anniversary caps and shirts came in and they look great. We’ll start this week sending them out this week so be on the lookout for them!

Okay guys, I think we ran into some capacity problems with our servers as so many of you logged on/tried to log onto today’s chat. We’ll get that fixed before next week’s chat. Thanks and see you then!