Cody Kiss & Tell: Romney’s IRA, Apple dividend, Nuance rising and more…
Here’s the transcript to this week’s Live Q&A chat. Join me next Wednesday at noon at http://tradingwithcody.com/chat or send me an email with your question at support@tradingwithcody.com.
All rightie guys, let’s rock n roll.
Ask me anything.
Q. You said yesterday you aren’t selling but for those who cant sleep sell some as we had a nice run, Why is that you are not selling? Do you feel a breakout is coming?
A. First, I’m not selling because I do indeed think a bigger break out is more likely than not. There’s been some real momentum to the moves during earnings season and with these stocks brushing up to their 52-week highs, there’s a good chance of fireworks once they get there. I wouldn’t be surprised if it took a couple more weeks and maybe another scary decline of 2-3% in a day or two before the breakout rally comes, but I’d buy more on a decline as I think the set up here into year end is looking very bullish both technically and fundamentally for many of our stocks.
Q. Why don’t we hedge more Cody? Ie. buying puts when AAPL reported would of got us some gains… Rather then sell up here are there any hedges you would consider instead? Ie. out of the money puts in AAPL and GOOG for September?
A. That is a great question and one I have been asking myself recently too. It’s partly a function of running less money now that I only trade my own money instead of running a bigger hedge fund. That is, I think we can end up losing more on our hedges and the costs of trading options with the time decay and the large bid/ask spreads in options trading than we can effectively hedge. If you’re running tens of millions or more, I would probably be a lot more aggressive in trying to hedge specific positions with matched options, instead of as I currently try to keep the portfolio hedged with longs and shorts overall.
Q. Hi Cody – When you advise people to considering “trimming” their position, can you give a rough sense percentage wise of what you mean by trimming? Thanks very much.
A. In this case, http://tradingwithcody.com/2012/08/07/if-you-were-losing-sleep-at-the-bottom-its-time-for-you-to-trim/ , I meant that you should trim any percentage amount, whether that be 5% or 30% or 50% (or in my case 0%) of each position, that would enable you to sleep at night the next time the markets pull back 5-10%.
Q. A political question: Romney has a $100M IRA.. Cody how is that possible?
A. Let’s say you come from an insane amount of money in your family and you realize that the tax code has changed to the point where you can take a lot of that money and go buy a firm that is generating a billion dollars in sales and only making $50 million in profits each year for $200 million and and put a bunch of your shares, (and you personally now have the majority shares of the company because you are the CEO of the private equity firm that your rich family and friends funded for you) in your IRA and say they are worth whatever the maximum limit you’re allowed to donate to your IRA each year. Then you go borrow a billion dollars from banks who are backstopped by the government and issue the shareholders of the company all of that money in a giant one-time dividend. Then over the next two years, you go lay off everybody not totally essential to the company over to really jack up cash flow and pay your shares hundred-million dollar dividends each year. The “best” news is that all of those dividends coming into that IRA are tax free since they’re going into your retirement account. Now after doing that to just one company over a three year total period, you’ve now paid out about 600% in dividends on your original investment since you bought the company for $200 million and you now have paid yourself out some $1.3 billion dividends or so, so far. Do that over and over a few times for a couple decades and you’ll have gutted America’s middle class, but you too can have a $100 million IRA! Woohoo for the Republican/Democrat Regime System!
Q. Would you consider shorting WDC again if it gets to mid 40’s?
A. No, if not only because some other Romney-esque private equity firm could come into WDC and do to it what Romney did to dozens of huge companies at Bain over the years. Prediction for you: Obama will work in private equity after his presidency and will be the first billion dollar ex-president, and whether it’s Romney this time or whoever the next Republican/Democrat Regime Puppet president is who takes over from Obama in four more years, we’ll also have our first billion dollar incoming president. Woohoo for the Republican/Democrat Regime System! Oh, wait, you asked about WDC. No, I wouldn’t short WDC right now unless it were as a paired hedge to a STX or some other long.
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Wait, who am I kidding? The Bushes are already billionaires I’m sure, and I bet the Clintons are already close too.
Q. Hi Cody, AAPL broke through its July high of $620 amid new iPhone release rumors, but it seems that the momentum is slowing, what do you think would be the next catalyst(s) for it to climb higher? Is this a good time to add more positions @$620? Thanks!
A. Why do you say the momentum appears to be slowing for Apple? I think the action’s been very strong post-earnings and it continues to rally as you noted. I bought more Apple calls back when it was in the mid $500’s and I’m not chasing it now, but I do think it’s headed to $700 if the markets can break out as noted above.
Q. Wondered how you feel the dividend issue might affect AAPL short term …. “sell the news” after the fact? Thx
A. I don’t think there’s more than a 2-3% downside on Apple from here from a “sell-the-news” dynamic after the dividend, but that’s not to say that Apple couldn’t fall 5-10% again from here in volatility.
Q. Hi Cody, I’m holding some Apple Jan 2013 $700 calls, and I’m watching the premium decrease every month, so I’m trying to get out at the right time. I was thinking kind of just before Sept 12, on the assumption that the stock might then retreat for a while, and that by the time it starts going back up, the loss of ‘premium’ will be greater than the stock appreciation. Do you have any advice for me? Thank you!
A. Feet to fire, I think Apple will run to $700 or so into early September and then will pullback some into the actual iPhone release and then as long as the New iPhone is as cool as ice, this stock could run to $800 by year end. So, I don’t know how I’d trade Apple except to say that I am holding my Apple as my biggest position as it has been for a very long time.
Thank you, Cody!!!
Q. What’s your take on NUAN today rising 7-10% off news other phone makers want it in SIRI? Will this lead apple to buy them so no one else can have her?
A. I am sick of Nuance. I just don’t think they’re getting as much earnings traction as they should be during this voice-interaction growth phase. It’s still so early in voice-interaction though, and Nuance has such a great product, that I stick with them. I don’t have much hope that anybody will buy Nuance anytime soon either. Sigh.
Q. OK sick of them- that’s the first time I heard that opinion of it from you. Either way what would you allocate the $$ to at this point then from your list of Longs if we sold out of Nuan?
A. The highest rated stocks from the portfolio, as laid out in last week’s post: http://tradingwithcody.com/2012/07/31/portfolio-run-through/
Ok thanks for the link I see the market cap ceiling you posted that may be there for NUAN. I will act according with today’s pop and have $$ on hand for that possible decline and look to see if a buying opportunity.
Q. How low does APOL go at $28…can this hit single digits by end of year? In other words APOL continues to dive sooner rather than later?
A. It’s possible that this company’s stock could come unglued at any point, but I figure we’re probably a year or two away from single digits and then eventual doomsday for this stock.
Q. I bought puts August 18 puts for MS & APOL last two days, but stocks still going higher.
A. Whoa! August 18 puts? As in for this August? As in like, two weeks away from expiration? I’m pretty explicit whenever I do any trade about the timeline for them, and my trades are rarely so short-term in nature. I do think MS and APOL are both in big trouble over the next year or two, but I can’t guess whether they’ll crack between now and next Friday.
I know it was a mistake, didn’t want to short & since stocks had a quick run up, thought they come back down. Also, need to stop listening to well known hedge fund manager on Twitter, be patient, and stay with the site. Thanks. Lesson learned.
We all have made mistakes. You’ll live to fight another day, and the fact you are saying it is a lesson learned is really what we want to hear.
Q. DDD and SYSS going gangbusters….I want to add and I know we exchanged notes about adding more in the low 30’s but…that ain’t happening now…how do you choose when to add more when all these stocks do right now is go up up up?
A. Say you own 1000 shares of DDD and you want to own 2000 shares. Buy 300 shares right now and just know you probably topticked the near-term. Then buy another 300 shares in the next day or two any time it looks weak. And then buy the next 400 sometime in the next two weeks on weakness. Knowing the whole time that you might pay up instead of averaging down since this thing is indeed on a tear.
Q. Cody, Ford has dropped from $18’s to just over $9 in 1 1/2 years. Should I buy now? Thanks.
A. I’m not a fan of F at just about any price. Too much debt.
Q. Cody, last earnings FIO was at 28. It sold off a couple points I believe. Now they are aligned with CSCO and NTAP, among others. I don’t see a lot of downside risk with earnings with the stock at 22. Am I missing something?
A. I agree that FIO’s got a lot going for it and these new deals with Cisco and NetApp could indeed help boost the topline and help make the company’s products a de facto standard in the next gen server world. That said, even at $20 a share, we’re talking about a $2 billion valuation for a company that does less than $100 million a quarter in sales right now. That’s not cheap and the lack of outright earnings means that the markets have to look at the price to sales or other valuations to maintain anything near this market cap. This remains a longer-term revolutionary pick, but hopefully these new deals and the demand from Facebook for FIO’s wares will help near-term too.
