Chat Transcript for May 2, 2012: Panick vs. non-panicked dips, ZNGA, FIO, and 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, any opinion on MRVL here? The stock seems way too cheap!
A. I owned MRVL a few months ago and didn’t make a dime on it, but it sure does have a lot of fundamental pieces that go into a lot of new revolutionary technologies, from new flash drive motherboards and Xbox Kinect chips. It’s still on my radar, and I’ll take a fresh look at it.

Q. Hi Cody. GREAT SERVICE! I love your thought process and insights. Any thoughts on Teradata Corp. (TDC)?
A. Thanks for the kind words! Please spread the word and if any of you guys refer us a new subscriber, just let us know and we’ll rebate your next month’s $99 fee. That goes for any and all of you — please help us spread the word! Thanks. Back to your question, now. TDC reports tomorrow morning before the open and I don’t have any kind of an edge on that report (tho feet to fire, I’d rather be long than short it) but from a more fundamentally-analytical perspective, here’s my analysis: Not enough net cash per share ($800 million net cash on a $12BB market cap company) to make it meaningful to our analysis, so I’m just using a straight P/E analysis instead then. At 35x last year’s earnings, but at 20x this year’s earnings, the stock sure ain’t “cheap”, but it’s growing its bottom line fast enough I am piqued to look at its topline growth. Estimates are that TDC’s topline goes from $2.65BB to $2.93BB, and let’s round that latter number up because the company’s been growing faster than the analysts can keep up with and that’s probably still the case (at least until proven otherwise, such as is possible if tomororow’s report is disastrous), so let’s go to $3BB plus on the topline for next year, which gives us topline growth of nearly 20% or so. Paying 20x forward earnings on a 20% topline grower with a positive, but insubstantial net cash balance, ain’t bad at all, if you really believe the company can growth the topline 20% for the next couple years. That all make sense, everybody?

Q. Cody, you recently recommended FIO September $30 Calls. Any updated thoughts on your part, given the recent price action in the stock? Lower strike price? Longer time frame?
A. You mean some updated thoughts besides being ticked off at myself for buying that recent batch of FIO calls? Yes, I think you’d want to go out a little further and buy yourself more time to get it above $30, and you can probably get three more months or so than I got for the same price that I paid for the calls when the stock was higher. I’m looking at adding to my FIO again soon, but I don’t want to get crazy large in it. At least not yet.

Q. Off-topic, but in one of your posts you said you were moving back to NYC. Are you completely leaving the great weather of New Mexico?
A. I’m not moving back to NYC, but I’ve always planned on spending a lot of time there and maybe even buying a place in the city. I just ended up buying such a dream piece of land and then getting the opportunity to add adjacent land since I got here in NM and then I started building my dream NYC-loft-style-apartment-in-a-barn out here on the land and then it’s just been so much fun to clear and settle all this land since I got here…well, I haven’t been back to NYC as much as planned, but I’m quite okay with that.

Q. I still have August $630 AAPL calls, FIO sep $28 call, and GLD Sep 160 put on hand. Should I hold them for now?
A. I can’t advise you on what to do with your own individual positions, as the answer truly depends on such things as — how much money do you have in these positions relative to the rest of your stock portfolio, how much money do you have in your stock portfolio relative to the rest of your assets, how much income do you have relative to your stock portfolio, etc. So I’ll just analyze each position as if I were considering buying it and give you my best analysis. Your August $630 call is probably not a bad bet given how far the stock could run if and when the buzz for the iPhone 5 starts hitting and if earnings/growth/the economy stay steady/strong at AAPL and the US. Same with the FIO Sept $28 calls, in that you’ve got a long time especially relative to how volatile that stock is. GLD September $160 put still seems like a pretty good bet/hedge too, though gold sure has steadied lately and we should be wary of a near-term rally in the precious metal off these bases its been building of late.

Q. Hi Cody, I am wondering what you think of this: Next time when you want to game an earnings call, instead of going all in one way (obviously with a little amount of money) and losing all of the amount, what would a good strategy be for collaring so you can get an upside potential and a downside potential? Does this strategy make money, or does it just make it so that you don’t lose anything? Basically, is the only way to make money on a risky earnings trade to bet one way and stick with it? I appreciate your service and wish I had enough money to do all of your trades, I seem to miss out on a lot of winners.
A. As you’ve heard me say before, as long as it’s legal and ethical and it works, I say go for it. That said, the reason I bet on earnings reports the way I do — small and in one direction, rather than any other way, is because it works for me and it has for a long time. When I used to run a hedge fund and I’d do pre-earnings gambles sometimes and would write about it, Jim “Rev Shark” De Porre asked me a very similar question and used to pester me when I’d get a pre-earnings directional trade wrong. So I went back and tracked every single pre-earnings directional trade I’d done since I’d launched the fund and found two things: One, I got about 65-70% of the directional bets right. Two, when I got those directional bets right, I made 2-3x my money because I’d stuck with betting on just one direction and not hedging it and thereby guaranteeing a lower return on the capital outlayed into the trade. I would venture to guess that my track record on these pre-earnings trades since I launched more than a year ago (which means we’ve had more than four earnings seasons to look back upon, which makes the analysis somewhat, but not terribly, statistically significant — you’d need three years or more worth of track record on these types of trades to truly see if I’m still consistently batting 65-70% and doubling/tripling the money when we get it right) are indeed still running at about 65-70%. Read “Bringing Down the House” the book, for more on the concept of statistically significant tracking while maximizing returns.

Q. Hi Cody, great addition to the service to include the weekly roundup of the trades. Would it be possible to add a column that details whether you are adding to a trade, or closing a trade. Otherwise the Selling Calls and Buying Calls in Seagate would have been confusing. Thanks, Great job, I just wish I listened to you more on the trades…
A. Okay, we’ll put an *asterik next to new trades in the weekly round up. Bill, please make a note!

Q. Cody, in your post today you mentioned you were hoping for more signs of panic before buying aggressively. What are your top 3 or 4 signs of a panic vs. a non-panicked dip?
A. That is a great question! Top 3 signs that the market’s in a panicky sell off: 3. The headlines are all dominated with gloom and doom and explanations and reasons that you should be panicking. 2. The bears I talk to are gloating and the bulls I talk to aren’t just selling, but selling their key holdings into the downturn and are sick to their stomachs. 1. The sell-off, even at just 5%, is so straight down and so clearly full of panicky selling, that you can’t miss it. That doesn’t mean it will be easy to buy and that it won’t be hard not to follow the panicky bulls and sell, but you’ll know the panic is there when it’s so hard to buy you can’t believe you’re pulling the trigger.
Let me ask you and everybody else…even as our stocks have come down from their highs and there’s some pain and fear in buying/holding our longs, are you truly terrified to buy right now? Probably not.

Q. What are your thoughts on RVBD after their earnings call?
A. I’m leaning increasingly towards puking my RVBD and moving on. It was a huge winner for us and we took a lot off the table near the top, but I’ve also lost money on this stock and have been wrong about it for two quarters in a row now. It weighs heavy on me and that means I’m emotional about it and that means I’m struggling to remain objective in my analysis and to find the right approach to trading the stock. All of that probably means I need to sell it and move on.

Q. What is your opinion on financials, or XLF from here, please?
A. Until the entire Too Big Too Fail banking regime admits that it’s entirely insolvent and no longer wholly dependent upon legalized fraudulent accounting and 0% welfare loans, negative interest rates on capital, and all the other insanely destructive anarchy-inducing/rule-of-law-destroying systems that it has built itself on in the last twenty years and completely moved to in the last four years…my opinion will vary between: “Let them rally for a while” and “Short the hell out of any bank you get your hands on” because someday every shareholder in and most lenders to that corrupt hybrid/public/private industry deserves to lose EVERYTHING because their investments and loans are TRULY WORTHLESS by any normal banking standards.

Q. Cody, any opinion on ZNGA?
A. I’ve been dead right about being a big bear on ZNGA every time you guys have asked me about it, no? It’s true that it’s come down a lot and that certainly makes me dislike it less (like it more) and the fact that it’s now trading at just over 3x next year’s earnings, makes me interested in a lottery ticket kind of way. At $8 a share — heck, I pay $8 for puts and for calls sometimes, and you could consider buying ZNGA at $8 a high-priced call option with no expiration date. Hmm, I’m going to go back and work on ZNGA. Hmm, and they’ll likely be a big part of the coming Facebook IPO resurgence. Hmm.

Q. There is a lot if insider selling of FIO today from several execs. Any insights on what this means?
A. I don’t pay much attention to insider selling at a start up especially because you never know what’s driving the selling — it might simply be diversification. Then again, I’ve personally seen insiders bail out of a stock when they know their company’s business prospects have turned. In this case with FIO, I don’t think it matters.

Q. Hi Cody, read an interesting piece by Steve Leuthold, the famous money manager out of Minnesota. Said that since 1957 no company whose market cap was above 4% of the S&P has stayed there. MSFT GE CSCO XOM and AAPL are the five names that he mentions. Any thoughts?
A. I get the concept, but history isn’t the same as a rule. There’s been a history of companies failing to maintain a 4% threshold in the S&P 500, but that doesn’t mean it can’t happen. I would put that in my “That’s yet another reason to worry about AAPL at $600/share that I didn’t have to worry about at $15, $150 or $450 a share” box and then keep it on the radar but not base any decision on that historical fact.

Q. Cody, why should we be scared after good earnings?
A. I remember being on TV countless times with plastic reporters who would debate with me back in say, September 2007, that “Why should we be worried when everything in the economy is so healthy?” Two points. 1. You should always freak out and reverse yourself when you think you don’t need to worry about the outlook for your stocks. 2. You should always sell when the economy looks so incredibly healthy (indeed, when the Fed and the rest of the world finally realizes that we’re headed into bubbles and the capital in the markets goes crazy because everything looks so healthy) and buy when the economy looks horrid (such as when we hit DJIA 6500 and I flipped from bear to bull back in 2009).

Oh, another thing I want to tell you guys about today. If you convert from a monthly subcription to an annual subscription for, you not only save almost 20% off the monthly subscription rate, but we also rebate you back your latest month’s fee, so you actually save $300 the first year. If you do convert, just let us know and we’ll get you your latest monthly fee rebated asap. Thanks guys for helping make this business grow!

Okay guys, I’m afraid I have to cut it there. I’ve given you all the smart thinking analysis and psychology I can muster in a 90 minute period and I’m almost delirious now. Somebody get me a soda! Thanks all.