Cody Kiss & Tell: Bankruptcy Trading, Facebook Reassurance and Apple Stagnation

Here is the transcript to this week’s Live Q&A chat. Join me next Wednesday at 2pm EST at http://tradingwithcody.com/chat or send me an email with your question at support@tradingwithcody.com.

Howdy folks let’s ride. Ask me anything.

Q. You are always speaking of targets for your stocks and a strong market into later 2014 or early 2015 and at the same time you speak of a strong correction then 15-20% magnitude. I was wondering what you think happens first your stocks hit your targets into perhaps early 2015 or do we see that strong correction 1st and then stocks like FB to 80, LNKD, FB or ZNGA either one possibly being 10 baggers? Thanks.

A. It’s important to remember that even as the forces of governments and the central banks around the world are these days making most of the biggest stocks in the world move in tandem with the broader markets, that we are focused on finding the best stocks in the world within that broader market and those biggest stocks (and smaller stocks too of course). In other words, it’s a market of stocks, not always just a “stock market”. Here’s a chart of Apple since I bought it in 2003 vs. the Nasdaq, the S&P 500 and the DJIA.

Can you see the averages ups and downs over the last ten years vs. Apple’s performance? No? That’s because it didn’t matter overall what the stock market or the Fed or the TBTF banks did when we were buying Apple years before anybody else caught on and then rode it to the top as everybody on the planet caught on. That is, if FB can grow like I think it can over the next couple years, the stock will probably go higher no matter what the broader market’s swings do over that time period.

All of that is separate from knowing that at some point the markets are likely to crash again and the economy get crushed and the excesses and imbalances get wiped out.

Q. Hi Cody. I’m hoping you can comment on XIDE. Why did you choose this particular BK, and it seems different from the others in that you initiated your position not on the same day BK was declared, but rather about 5 days later. Can you comment on what you see as the best case here (pulling back from the BK?). There is also talk of XIDE delisting on the 24th. Thanks Cody…treading in deeper water here.

A. Great question and the reason behind my slower-motion move into XIDE is because the previous bankruptcy plays since I returned to trading in 2010 have typically taken about 3-5 trading days after the filing for bankruptcy to stabilize and then they’ve taken about 2-5 weeks to play out. Back in my hedge fund management days from 2002 to 2007 these BK plays typically had to be bought the day of the filing and then held for just a week or so. These bankruptcy filing trades are very risky but we’ve hit about 5 out of 5 since 2010 I do believe so I’m riding the play until it stops working. Which of course could be this time. But that’s why it’s called trading.

Q. I actually think we lost on the Patriot Coal BK. Remember that one?

A. Yes, that’s right! I just searched the site for it. Here’s what I wrote to close out the Patriot Coal trade. “PCXCQ is down again this morning and I’m now down more than 20% on the trade — we’d made big money on every other bankruptcy trade like this that we’ve done, but the entire coal industry has been smashed with political headlines driving the trade more than the technicals I was looking for when we bought it. I sold half for a tiny gain on Friday and I’m going to take a loss right here on the remainder and move on.”

Q. Follow up on XIDE, Cody. Don’t worry about the June 24th delisting?

A. No, I think the de-listing is irrelevant to our trade as we’ve ridden most of these BK trades into our during de-listing anyway. Again though, RISKY TRADE!

Q. If the date of the announcement is no longer the key date, I have a proposition: that when you spot a possible BK opportunity, you let us know that on the date of announcement, and then again when you think it’s time to pull the trigger. Otherwise, how will e know when in that 2-5 day period is the time to buy as things “stabilize.” Fair? Do-able?

A. Yes, do-able and fair. I’d also like to ask all of you subscribers to help me keep an eye out for any bankruptcy declarations by publicly traded stocks like these, ok?

Q. Is the key (if we’re to alert you) the level of shorting as well? And if so, where would we find that?

A. All I need is for you guys to alert me when a publicly-traded company files bankruptcy. I’ll do the analysis from there for us. Thanks!

Q. It’s easy to get nervous when BK trades drop 17% like right now…feel me?

A. And yes, it’s easy to get nervous when a stock pops too though. Great traders ignore emotions and focus on the discipline instead. This trade might not work out for us, but it won’t make or break any of us either.

Q. I need my weekly assurance FB is still solid long term, any change and might it be time to add?

A. Funny phrasing and don’t worry about needing your weekly assurance (it’s REassurance at this point, of course) as that’s part of the service we provide here. No change in my FB outlook, the company simply has to figure out how to continue to grow the daily revenue per user over the next two to three years. That said, we need to see some acceleration of that revenue soon or the stock can flounder here for a while still.

Q. Hi Cody, It seems like Apple is dead in the water at this level. I believe the key is not about the new phone but rather than the new product category to drive future earning growth. Do you still believe Apple in long-run? Thanks.

A. I have to admit to myself and you guys that I’ve lost a lot of faith in Tim Cook since Steve Jobs’ death. I’m worried that worst case scenario here is playing out and that Time Cook is to Post-Jobs Apple what Steve Balmer has been to Post-Bill-Gates Microsoft. I’ve got enough faith in Apple to roll out some new wearable iOS devices in the next twelve months but every day they’re stagnating on the new product roll out is another day some other company is probably out there developing some new Android-based wearable computers like Google Glass. I’m holding my Apple common stock (with a much lower cost basis than today’s prices) steady and that’s the totality of my Apple position for now.

Q. Thanks Cody. I do have some call with expire date in 2015. In the case where there is no new product except iPhone and iPad upgrade in the next 6 months, would you recommend that I just sell it and take loss?

A. I don’t know how to advise you personally on that trade, as whether you buy or sell depends on more than just what AAPL’s potential for moving up and making them profitable is. I think you’ve got enough time to let it play out by 2015 but if Cook doesn’t deliver then they’ll be losers. Good luck.

Q. Same questions, time to buy some apple calls with some potential market movers coming? Or sidelines?

A. I’m in hold position on Apple for now. Holding my common.

Q. Any opinion on AMAT?

A. AMAT’s a great company selling equipment to make chips to all the biggest chip companies on the planet and AMAT’s still got a solar business to boot. And as you know I believe that the companies who survived the solar collapse over the last few years are set to boom over the next decade, so I like AMAT both for its core and its growth business opportunities. Revenue growth has been nil for the last couple years tho and the stock’s not moved. Not sure when that will change.

Q. Any opinion on YHOO?

A. With Yahoo worth LESS than Priceline, I think there’s a good paired trade opportunity to buy YHOO common and short PCLN common and close the trade when YHOO’s market cap is double PCLN. Whether that’s higher or lower from here, you’d make money on the pairing of those two stocks in that trade.

Q. Cody, what do you think of FNSR as a play on increased telecom carrier spending? They report after the bell. Do you think the report will be good?

A. FNSR’s gross margins are 30% as are most of its competitors’, which will serve to keep on lid on the profit potential on future revenue growth. Meanwhile Ciena’s got nearly 50% GMs which will expand with the topline growth or Juniper with 60% plus GMs which are also going to expand with topline growth. And I think the FNSR report tonight will be tough to match the heightened expectations from traders going into tonight’s call. It will have to be a great report with upside guidance to get the stock continue to rally.

Q. Thanks Cody. Any thoughts on INFN? They supposedly have a revolutionary 100 GB product.

A. Haven’t looked at INFN. Can you send me some reports or links on the 100 GB Revolutionary product potential that you’ve been reading?

Yes, I sure will.

Q. Last year you bought some $40 SNDK calls…are those the ones you sold most of 2 days ago or are you still holding on to a large position in SNDK calls? Thanks.

A. Mostly $40s and $50s are the strike prices on the Sandisk calls I have left. I had bought a few tranches from the past year that I bought when the stock was below $40. See Trade Alert: Trade against the panic and Trade Alert: Two tech scale-ins and a thank you to our troops for examples. And no, I’ve sold down most of the SNDK calls I had but it is still one of my largest stock positions notionally speaking.

Q. Cody what do you think of ZAGG now, its been bouncing back from that terrible earnings. Is the joystick a big product?

A. The chart sure looks better now that it’s steadied and rallied a bit out of that last horrible report. I still think there’s a chance that stock goes to $15, but management told us pointblank in that report that the Joystick wasn’t going to meet expectations for driving upside sales next year and that’s never a good sign.

Q. Cody what do you think of ADT?

A. Haven’t done any recent work on ADT, but it’s a play on housing to some extent.

Q. Cody, did you sell any of your NVDA on the spike move today?

A. No.

Okay doggies, that’s another round up. Watch the heels and don’t get kicked in the teeth!