Cody Kiss & Tell: Corporate taxes, 3D Printing, Tech’s 4 Horsemen and much more
Here’s the transcript to this week’s Q&A from TradingWithCody.com. We have a cool new feature that we’re trying out this week — a video and sound generated from an edited version of the transcript. My band has been making some music videos using this technology and I realized it might be cool to use for these weekly chat transcripts. You can see the video at the bottom. Let us know what you think.– Cody
All rightie guys, let’s rock n roll. Let’s try to stick with strategy/concept questions and stray away from specific stock questions — the “teach a man to fish” idea.
Q. Hi Cody, This is my first month as a subscriber, I have been following you in marketwatch. One of the reasons I subscribed is to understand and learn how you pick stocks (mainly because I like to know what I’m doing and also I’m still saving money), it looks easy how you see a product and understand how it has a future, for example the 3D printing analysis, I see that you have a very good understanding of market dynamics and things that I have not, so I wanted to ask you if you could recommend a book, a course or maybe a degree that could allow me to understand all these things. And I’m also eager about the book about the investing terms you mentioned a few months ago.
A. Thanks for joining the Trading With Cody community and thanks for the kind words. I sometimes teach a college course called “Revolutionomics” and in it I always start my students out with the book “Information Rules” by Hal Varian and Carl Shapiro. It’s an excellent tutorial of the major concepts that drive technological markets. That said, I always shock my students when we open class on the fourth week with me throwing a copy of “Information Rules” in the trash all dramatically and then explaining how much of those concepts have been thrown out the window with the advent of the Internet and the ability for users to always find a better/freer/more agnostic alternative. http://www.amazon.com/Information-Rules-Strategic-Network-Economy/dp/087584863X I’m still working on the Investment Basics book, but it’s turned out to be a lot harder than I thought.
Q. Everything is shifting…paradigm shifts/,medium is the message / mobile revolution / what company is going capture the masses attention/ are “they” going plant smartphones in our brains? This revolution is looking revolting…as if the quest for money is some kind of panecea, meanwhile where I am in the Dominican republic. For the native dark people it is hand to mouth a daily struggle for basics easily 70% with no work or work that is so minimal the police bribe you to have them work for the community rather than the thieves. Now you want to make money on water? Are there human rights like WATER all people deserve access to portable water and that it is immoral for to turn this resource into a source of profit/exploitation?
A. Wow, challenging concepts. I am not advocating investing in business models that profiteer from water supplies, but rather I’m investing in companies that sell products to individuals, farmers, companies and municipalities that enable more water delivery to the masses. I think doing so is a very good thing, not a bad thing. Here’s an article I wrote for the Financial Times a few years ago about why I think investing in horrible areas is the best way to help them: http://www.ft.com/intl/cms/s/2/bda5df12-f4ce-11db-b748-000b5df10621.html And finally, if you’ve ever read or watched me on any political stuff, you know that I am actively fighting these Regimes In Power around the world that are creating these artificial and violently-enforced wealth discrepancies in this country and around the world. One of the unfortunate reasons I have been so bullish for the last three years is precisely because the US corporations are getting ever better at paying no taxes while plundering our own country’s wealth and plundering the resources of developing countries around the world. There are no easy answers for the moral questions you ask, but my main point in that regard is that if you are forced to deal in fiat currencies as we indeed are, we have to figure out the best ways to defend the value of our hard work, capital, and other property.
Q. Hi Cody, How do you see the ‘Big companies not paying taxes’ issue playing out over the coming years – IMO it is one of the very biggest economic as well as social issues out there?
A. At some point the system either collapses or we start to make Google, GE, and Apple pay their fair share of taxes. GE pays nothing in taxes, gets 0% loans from the government for GE Capital, gets all kinds of no-bid contracts from the government and then gets a $2.4 billion welfare check at the end of the year from the government. We can talk about “entitlements” but tax loopholes, subsidies and bailouts shift trillions of dollars every year into the biggest corporations’ shareholders pockets and that’s where the real action is. Nobody wants to talk about that on TV though, trust me, I know. I don’t care what the tax rate is, but if me and other small businesses have to pay it, so should every major company. We either swing the pendulum back towards equal application of the law or we end up in a revolution at some point. I’d guess we’re probably a good five to ten years from the collapse/revolution, so we better at some point get busy simply enforcing tax law equally.
Cody, you are singing a sweet, sweet song right there. (RE equal tax law enforcement)
Q. Hi Cody. Hope conditions are improving out there. Any thoughts on INVN (InvenSense)? It’s getting some good reviews from Investor’s Business Daily and Motley Fool.
A. I like INVN down here near $10. It’s in the business of selling ” micro-electro-mechanical systems (MEMS) gyroscopes for motion tracking devices in consumer electronics. The company delivers motion interface solutions based on its multi-axis gyroscope technology by targeting applications in video gaming devices, smartphones, tablet devices, digital still and video cameras, smart TVs,” and much of that is a growth business for the next five to ten years. The stock is down big from its highs and I like its set up, though I don’t own it and don’t plan to.
Q. Hi Cody. Love the DDD pick. Two questions there: 1. Will you wait to buy more at $30 or below, or tranche buy more before $30 (If it even gets there)? Also, to what extent is a possible buyout part of your valuation equation…for this stock in particular and even for other stocks in your portfolio like a FIO for example?
A#1. I have barely a toehold in DDD so far and just common stock and it will likely take me some time to feel comfortable enough on this one to use any options. I will probably add another tranche to my DDD common stock in the next week or so regardless of where the stock is to continue to build it up, but I would be more aggressive if it drops to or below $30 a share.
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A#2. Great question. I don’t think it’s wise to buy a stock simply on the hopes that it gets bought out by a bigger company or taken private. I prefer to buy stocks that I think will go up regardless of whether they become a buyout target or not. Valuation usually plays a huge part in my investments, but I’ll often use different metrics to determine a valuation — for a big cap stock like Apple, I focus on its enterprise value (total market cap – net cash balance) to earnings multiple (or EV/E). In FIO’s case, it’s a small cap/venture capitalist style investment that will either pay off 10-fold or will be a 50% loss.
Q. Cody, how do you anticipate AAPL suppliers will fare in the current earnings season given that expectations are for a poor showing this season by AAPL. Also, anything we need to be watching for FB and FB suppliers?
A. Even though expectation are low for the Apple (and all smartphone) suppliers heading into earnings season, I’d still be leery of most of the suppliers. They just haven’t been able to leverage the booming demand into much earnings traction in the last couple years anyway, and with a softer demand at least for now, these guys are probably going to guide lower. I’m very bullish and excited about FB’s earnings, though we have no history to lean on. That’s probably more than priced in right now, as everybody I know is outright scared to touch FB before earnings.
Q. Cody, looks like AAPL just retested it’s 601 lows. Any thoughts on direction from here?
A. I think Apple’s recent weakness is more of a reflection of the markets general weakness of late. Apple is likely going to sell off less than the markets on down days and will likely rally more than the markets on up days.
Q. Cody, love your service but I am bit perplexed by your bullishness on GOOG given two shots you’ve taken at it recently in talking about longs in other stocks. In your recent piece on AAPL you said, “Android is totally fragmented and totally sucks ….” And in writing about AMZN, you said the company as a fulfillment platform terrifies GOOG, and “If consumers come to see Amazon as the lowest cost option, they’ll stop searching on Google to buy stuff and that would be an enormous hit to AdWord revenues.” I can only assume there’s enough else going right with GOOG to remain bullish?
A. Your assumption is correct. Even though I think that Android sucks, it’s already captured so much of the smartphone market and has so many more developers and consumers than Windows Mobile ever will, I want to stick with Google. I’ve probably been too harsh in my wording on some of my Google and Android analysis of late, but that’s probably more a function of my hating my HTC Thunderbolt so badly that I am almost ready to just go get an iPhone 4 instead of continuing to wait for the next iPhone. Sigh.
Q. Cody, any comment on GOOG’s action today?
A. Google, like Apple, is likely to trade up more than the markets on up days and to sell off less than the market on down days. That said, today’s nasty markets have Google down more than the Nasdaq. Main point is that I’d not read anything at all into the last four hours of trading of millions of shares from thousands of traders and computer algorithms for Google.
Q. Cody to you, who are the new four horsemen of tech?
A. The modern-day four horsemen of tech are: Apple, Google, Amazon and soon-to-be Facebook.
Q. Out of the stocks in your portfolio that have dropped substantially lately (think FIO, FFIV, JNPR for example) are there one or two that you would buy more of today to average down?
A. I like all three of those stocks right here. FIO at $20, JNPR below $15, FFIV near $90, probably in that order.
Q. Hi Cody, any thoughts on SSDs and in particular OCZ? Seems they had a decent quarter with a few issues with regards to execution. Also seems PCIe pickup is not as fast as imagined?
A. OCZ and FIO are both trying to revolutionize old markets with innovative solutions but I like FIO’s management and positioning better. FIO’s been a go nowhere stock for a while now though.
Q. My question relates to our PCX play and I went back AMR’s bankruptcy pattern which was … Closing Prices 11/28/11: $1.62 11/29: .26 (83.95%) the day it tanked after announcing 11/30: .32 +23.08% 12/1: .33 +3.13% 12/2: .39 +17.42% 12/5: .42 +8.77% 12/6: .70 +67.02% 12/7*: 1.12 +59.09%
A. That’s great info, thanks! That said, I wouldn’t look for the action to be identical in any bankruptcy trade to any other particular bankruptcy trade, but I do expect that over the next couple weeks that we should see some similar type pops in PCXCQ. But remember this is a very risk short-term gamble and not a Revolution Investment.
Q. Cody any opinion on yelp?
A. We are actively working on a book that analyzes every major tech IPO from the last 18 months. I haven’t looked at Yelp yet, but it’s on the list.
Q. Cody, what’s your take on the recent price action in APOL? Was the recent post-earnings jump simple short covering? I’m holding Jan $28 Puts. Does that seem like a reasonable play on this stock? TIA.
A. The stock went up after the report because APOL’s earnings were indeed “better than expected” but that doesn’t mean they were good or that the future is brighter. That said, with January $28 puts, you’re betting aggressively that the stock will tank and tank hard between now and year end. While I also have traded APOL puts and made some big money on it, the stock was up above the $50 level when I was aggressive on the APOL puts. I do think APOL will be a teenager stock price some day in the next couple years, but I’d be careful about betting too aggressive on that collapse between now and year end, partly because the stock is already down 40% in the last few months.
Q. Hi Cody, Thanks for the great service – re: PCXCQ trade – If it stays around 0.20 for the next 2 days will you just off load or wait another few days?
A. I’ve sold the prior two bankruptcy trades too quickly, even as I made some huge money in both of them. So I’m going to try to learn from history and hold this one for at least a couple weeks and let the trade dynamics play out for better or worse. That said, you know how often I’ve tried to learn from historical misses over the years only to see the opposite play out when my money’s on the line. Trading is a tough business. Easy does it on these types of trades.
Thanks, good advice.
Q. One more on PCX and all bankruptcy trades, just a thought but wouldn’t the short coverers want to get out on day one or two after the announcement and why would they wait 5 days or more to cover? Are they that married to the idea of said bankrupt company going to 0.00?
A. I have been short and have seen many great traders be short stocks when they declare bankruptcy. You often have 90% plus gains and are happy to see it declare final bankruptcy and then you simply go in and buy back shares to cover your shorts so you can get busy on the next one. And if you’re short millions of shares and/or you are trying to affect the bankruptcy proceedings, you have to move in and buy a lot of shares, moving the stock higher. We’ll see.
It can take days to get completely out of a short position like that, and usually does.
Thanks Cody…Have a good one.
Q.Thoughts on the Kayak IPO? Thank you.
A. I just don’t like these travel-dependent business models enough to get me excited about Kayak. Very crowded, competitive field, though Kayak’s done a great job of establishing itself so far.
Q. Thanks for the Dollar store recommendation. Those are the only stocks I have in the green recently.
A. Me 2!
Okay folks, that’s a wrap! Thanks for another great Q&A and I’ll see you later.
And in the meantime, here’s the video cartoon of an edited down version of this week’s transcript. Let us know what you think and whether it’s cool, helpful, stupid, hilarious, etc.
