Chat Transcript for May 23, 2012: Facebook, Apple suppliers, is Greece priced in? And much more…

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

Let’s rock!

Q. What are your thoughts/opinion regarding Aruba Networks (ARUN)?
A. At 52 week lows and trading at less than 20x next year’s earnings, ARUN at $14 is interesting. FFIV is a faster grower and has better management whom I’ve met who do a good job of executing and I’d rather own FFIV than ARUN. For a trade though, and a risky one, with a time horizon of six months to a year, I think ARUN could be a winner.

Q. At 31.50, is that a good number to start a tranche in FB? I’d be looking at a year out at least with this of course, making tweaks around earnings reports, particularly the first one which is I believe 3 months away.
A. I do like the rather remarkable amount of bearishness and outright disdain for FB and how it came public from a contrarian perspective and I might buy some FB at some point if it drops much further or if I see another catalyst for upside besides just contrarianism.

Q. Your thoughts on FB and FB suppliers out of the gate?
A. As I’d noted earlier, I’m starting to get interested in FB from the long side, at least for a trade. I do think we’ll see it with a $100BB plus valuation again sometime this year. The question is from where it bounces, I guess. To loop back around to that prior question about maybe starting a tranche in FB here, I’d probably say yes, but don’t expect to flip it tomorrow and expect that you’ll probably get the chance to add more under $30 at some point before you flip it, if my feet were to the fire.

Q. If I remember,  you considered STX more a tactical stock rather then a strategic one. Are you still feeling the same? Any idea or explanation on the recent selloff ? Back to January levels now, thanks.
A. WDC, the short part of the paired trade that goes along with our STX long is down huge since I added it as a hedge for this kind of a drop in our STX. Recall that I also unloaded all my STX calls and rolled them up to longer dates with higher strike prices while locking in some huge profits as STX ran from $17 to $30 after I’d initially flagged it as a long for you guys. Point is that I sure don’t like what I’m hearing about hard drives after DELL’s ugly PC numbers last night, but the STX long being paired with the WDC short should remain a great trade if we continue to use our tranche method and work both sides of the trade the way we have been.

Q. Given that I can only buy common, would you consider buying at these levels or wait for consolidation / dip?
A. Here’s what Bob Marcin sent me about STX this morning and I think he’s dead right in many ways about it: HDD markets normalizing as expected. PC sales a bit sloppy, but enterprise big data stronger than expected. Its 6 months of repurchase for stx before a big dividend boost so get used to a trading range. I have always maintained I would buy more stx when it filled in the big gap from $19-$23.50. PC biz a little sloppy, big data a bit better. i am not buying ANYTHING until we get a disorderly blowoff. btw, monday was a one day wonder, and by definition, lower lows ahead. keep some powder dry. when it gets really ugly, we will have room for a tradable bounce.

Q. Any advice on FIO other than wait and hope for the best?
A. I’m as frustrated about FIO’s recent price action as anybody, of course. That said, as I always tell you, consider yourself a venture capitalist in a very early fast growing company here. With the company focusing so much on growth and trading present earnings potential to capture market share and add capacity for more sales as their market explodes, there’s the potential for huge upside in coming quarters and years. However, without an earnings base to put a valuation metric floorline on the stock, there’s certainly the potential for more downside too. Don’t get too big into any one position and use patience and tranche buying is my advice.

Q. FIO technology will remain UNIQUE for how long? Technology changes / upgrades are very rapid . IT will be a commodity-like by when?
A. Best case scenario — FIO’s technology is to future server sales what IBM/DELL’s were for the present batch of servers that drive our Internet thingee. That would take five to ten years. Worst case scenario — FIO’s technology gets bypassed by something none of us saw coming and we see it crash and burn in the next two years.

Q. Whats best way to play 4g?
A. The best way to play 4g is AAPL (iPhone 5 and next iPad, etc) and Google (android, chrome notebooks, mobile search, etc).

Q. Any particular reason why you forgot/disregard AAPL suppliers in these low? Or, again, WAIT more?
A. I consider FIO, LVLT and GOOG to all be Apple suppliers and have been adding to them all recently, as noted.

Q. Cody I know you are cautious on foreign stocks, but EZCH is a compelling play on web traffic growth. Their recent CC and that of Cisco point to a powerful growth story. Any plans to cover it?
A. EZCH is expensive but growing fast. It’s in a lot of the right sectors for semiconductor growth in future years. But no, I have absolutely no interest in buying an Israeli tech stock with all the geopolitical and questionable financials that come with any foreign stock, including those from Israel.

Q. Cody any thoughts on DDD?
A. Are you a mind reader? I’ve got my analysts cranking on the 3D printing sector because I do indeed think there’s a huge future in 3D printing in many applications, including say, pumping tubes for water stations and sewage systems, which would eliminate much of the need for shipping and warehouses. DDD is on our radar. Here’s a great video about another potential app for 3D printing — musical instruments! http://phys.org/news/2012-05-spider-guitar-dazzles-style-video.html ADSK and SSYS are also potential 3D printing plays.

Q. This should be good news for all the negatives I’m reading here: Reuters Top News ‏@Reuters Jury finds Google did not infringe on Oracle’s patents http://reut.rs/KLSB1n.
A. I’m not sure that the Oracle/Google infringement case is anything but a distraction and a topic for bored tech writers to write about. The whole patent litigation thing is such a mess and so random and usually doesn’t influence the fundamentals one way or another except in very rare cases. Ignore the patent litigation headline noise is probably the right idea.

Q. Your top 3 signs of a panicked drop did not include a spike in the VIX. Was this a deliberate omission? The reason I ask is that all of your three signs are currently there more or less, but the VIX is about 50% lower than its peaks of last summer and fall. To me at least, it does not feel like a real panic now – does it to you?
A. Great points! It was not a deliberate omission per se but the VIX taken in isolation is more random than most analysts admit. Of course, all of my Top 3 Signs of Panic are somewhat objective in their own right, and as always, trading is more of an art than a science in many ways. Anyway, I think you are right that the fact that the VIX is still just half of what it was when the markets were last crashed and the fact that the markets themselves are still down less than 10% from their recent highs keeps me from going crazy on Panic Bottom Calling Duty.

Q. Hi Cody – What’s your view on my portfolio balance of about 45% long and 55% short? Longs and shorts are largely the ones you are playing – although I have a big short on JPM and I am a little heavily weighted on FIO long. Thanks.
A. I’m overall bullish on technology and the corporate earnings economy for the foreseeable future, so that would make me hesitant to ever get more than 50% short and as you know, I recommended selling/adding to shorts back when the markets were at their highs and now I’ve been recommending buying/adding to longs after we’ve declined nearly 10% from those highs. So my take is that you are probably too aggressively positioned for downside exposure, but as you know I could be wrong.

Q. Thanks Cody, most of my short position is on ‘broken’ banks and financial companies. In the short term, I still have some short side in this sector until Greece is resolved. I am 80% sure that Greece will default in the next 2 months – 20% they do not and the banks will still have to take a big hit on some kind of deal.
A. Regarding your 80/20 scenario for Greece — what do you think the markets have priced in, if anything regarding an all-out Greece default? Further, didn’t Greece just default on all of their debt a few months ago when all their lenders agreed to take a huge hair cut on what they were owed? They didn’t call it a default, but it was a default. And isn’t that probably the most likely scenario again this time? The natural forces of the markets and the inability to pay back the money they borrowed and gave to the TBTF banks in the name of saving the Greek/EU economies means that they will indeed “defaut” but the political realities and propaganda from the mainstream media will again refuse to call it a “default”. And the markets will be off the races again when the move past this default and we’ll rinse and repeat the whole cycle again just as we have been for the last four years now.

Q. You respect directness so here’s a direct question for you. If you follow the subscriber chat, you know your credibility has taken a bit of a hit due to SNDK, FIO, RVBD, CY, GLW, and MRVL. At least some of us are understandably hesitant now to mirror your trades. It seems you are less focused on your stock portfolio than you have been in the past – your attention seems elsewhere, which may make sense if only a small fraction of your portfolio is in equities. (Of course we have no way of knowing this because you have refused to give any meaningful indicator of how weighted your portfolio is in the equities.) Would you care to address any of this directly? Do you feel like you’re at the top of your game here? Should we be concerned?
A. Tough crowd, eh? Let’s see, I told you to prepare for the Greece/EU/Spain debt crisis when we were at the highs…three times in a row since we launched. I loaded up aggressively on tech and got extremely long when we were at lows three or four different times since we launched TradingWithCody. I’ve nailed LPS at the top and helped you cover much/most of it as it crashed. Got us into the Apollo short at the top. AONE was down 90% since I tried to short it in front of you guys but couldn’t locate enough shares. AAPL and GOOG have been our biggest positions almost without exception since we launched and they are two of the best performing stocks in the markets extant since we launched TradingWithCody. I spend 60 hours a week researching/studying and 20-30 hours a week writing this stuff for you guys. I know I have made my mistakes too and I’ve admitted any and all of them that I know of but I know there are many more mistakes that I don’t dwell on. But yes, I do think I’m as on top of my game right now as I’ve ever been in my life. And with all the experience and knowledge I’ve gained during the 15 years I’ve been moving up on Wall Street in various capacities, I sure hope my game is better now than it’s ever been. I could be wrong though.

Q. Cody, I think paypal in ebay will be huge. Any opinion?
A. Online payments and electronic clearing is the future, but I can tell you from experience that I regret the day I locked my companies into paypal for these online businesses that I did so. We are so frustrated with the technology and customer service we get from Paypal.

Okay guys, that’s it. Thanks for all the feedback and questions — even the “tough” ones! And thanks for subscribing to TradingWithCody.com.