Cody Kiss & Tell: The New iPhone, the LIBOR Scandals, Dollar vs. Dollar and much more…
Here’s 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.
Q. Hi Cody, I would like your thoughts on DG vs DLTR. You have both in the portfolio as shorts rated at 8. DG gave an upbeat forecast with their latest earnings and appears to be holding firm while DLTR was downbeat when reporting a few weeks earlier and seems to be breaking down. I am short both and thinking about covering DG while letting DLTR run. What do you think?
A. Correct me if I’m wrong, but you are a relatively new investor/trader? The reason I ask is because that is a very good, seasoned question, and I’m impressed. The answer to your question is, that I’ve also had that same thought as you, and am probably about to lower the rating on DG to a 7. I wish I’d bought puts when I put those shorts on so that I could really take some nice profits on both stocks’ declines, but as it is, I’m holding both steady. I am not covering either one yet, but I am considering covering at least a little bit of DG and letting all of DLTR run. As usual, I’ll note that trading is always more an art than a science. Good luck.
No, I’ve been doing this for a long time, treading water mostly. It’s a long story.
Would you be interested in telling us more about your “long story” and how you’ve been treading water and/or the top few most important lessons you’ve learned along the way? I’d love to hear it and I bet there’d be a lot of valuable insights in it for everybody. And on that note, any of you who would want to share your investment/trading stories, especially the hardship tales, I’d love to hear them. We won’t share your name with anybody else unless you specifically want us to for some reason.
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You will make money following Cody.
Man, I hope so! I do my best and I know a lot people have indeed made a lot of money following me over the years.
Q: I have a question for Cody: I’m a long-term investor who bought a significant number of Apple shares when they were priced at $368. My gut is telling me to sell off a portion of that stake and to take the profits. My wife is against it. My question is, why would I want to take some profits now, particularly when the stock seems poised to go higher in the coming months and in view of my long-term horizon? It seems as though the only reason to take profits now would be to reallocate funds into a different vehicle that may increase in value more than where they are now. But I’m having difficulty identifying other options; I mean, Apple has gone up 64% this year alone. What else could give me that kind of return? Am I missing something here, Cody? I know you must get a truckload of questions like this every day, but I sure would appreciate some insights on selling and taking profits and the conditions in which one would do so. Thanks for your time!
A: I always suggest taking a little bit off the table whenever a position is worrying you as this one seems to be. You’ll think more clearly just selling a even a tiny bit of your position at first and then I’d suggest re-evaluating all of this. You could also consider buying some puts to hedge your Apple and they’d help protect you on the downside if the stock were to crash.
Q. The new iPhone looks good, most rumors proved true, but no big surprises. Seems to play into the setup where market will yawn and sell off apple a bit before they realize that millions of people are lining up to buy it. So when do we start looking at more AAPL calls? I saw you say you thought it could go to $800 by year-end? What about some APR 2013 $800 calls? Too risky/bullish?
A. I’d wait for the next 5-10% pullback in the AAPL stock and then I’d probably start loading up on long-dated out-of-the-money Apple calls. But this stock could just go ahead and steadily keep climbing from here with today’s iPhone 5 announcement just a forgotten blip on the radar.
Q. Any thoughts that Sprint will jump with new iPhone since they will have an unlimited data plan and 4G eats up plenty of that?
A. Na, that Sprint stock is simply a bet that they can manage cash flows long enough to keep from going bankrupt when they have to roll over their billions of debt.
Q. Are you impressed by physical iPhone features so far or is it too early to judge – do you need to see the OS? The decline in DDD from your checks is just ordinary Profit taking or something else for the 15-17% so far?
A. Yea, I dig what I’ve seen of the new iPhone thus far, but as always, it’s not about this particular iPhone, it’s all about building on the Apple eco-system.
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I can’t find any good reason for the recent DDD pullback. I added to the position near $38 the other day.
Thanks for the reminder about adding to DDD when it dropped.
Don’t thank me yet….we could end up losing on it. Ha. Sorta ha.
Q. Hi Cody, I would like your thoughts on the MS and JPM puts. At one point you said you thought there would be a libor investigation and this hasn’t happened and perhaps it was a mistake to short the Morgans, did you close this position? I have MS and JPM puts expiring in Jan 2013. Thank you.
A. I am shocked at the ongoing complacency of the regulators, the mainstream media and the general public over the LIBOR scandals on top of all the other fraud and bailouts and ongoing subsidies to the banks involved in the scandal. I frankly feel like a fool typing that sentence, because why would I possibly expect anything different than more of the same complacency. All that said, the short of the Morgans is as much a hedge as it is a bet on that scandal developing, and our continued net long positioning with lots of calls that I bought at lower levels in our long positions means that I’m likely to just continue to hold these two shorts for at least the short-term. Wise man says, “May you lose money on all your hedges.”
Q. Cody, I went short MBI on your advice but I have kept the position. When you closed it you said you would rather have your money in MS and JPM (short). But you said you still believed the MBI was in trouble. So I kept my position and they have moved considerably after the last earnings call. Do you have a new position on MBI? Should I terminate my position or wait? Also, MS and JPM have run up considerably since you (I as well) initiated short positions in them…..do you still feel they were the right call? Thank you for your time and the service.
A: I still think MBI is in big trouble longer-term, but I don’t know what will finally make this stock crack again. I thought the Morgans would crack sooner rather than later as a result of the LIBOR rigging scandal that they are both neck-deep in, but that was wrong too. I have no current position in MBIA, but I might move back into one the next time I think the banking system is back in big trouble. And there will be a next time sometime in the next few years.
Q: Hi Cody, Thanks for answering my question about investing in real estate last week. I was wondering if you could answer a follow up question for this week’s Q&A: I’ve been reading about a potential backlog of foreclosures that are being held back until after the elections this year. Just wanted to get your thoughts on this and any effect or lack thereof on a potential further downturn in real estate. Thanks Cody!
A: Let’s be clear, there is a shadow inventory of millions of home stuck in foreclosure limbo because of corrupt legal settlements between the banks and the Feds and the robosigning mess thanks to the likes of Lender Processing Services LPS. And at some point that inventory will have to be sopped up or perhaps torn down when overly dilapidated and there will definitely be another substantial downturn or two in real estate prices in many areas around the country in coming years, but if you have a time horizon of fifteen years or more, I’d think there’s plenty of upside from any area that’s currently down 20% or more from their highs.
Q. Hey C.W., what is your outlook on BIDU ? Can I keep buying at these levels?
A. When I bought the last tranche of BIDU around $111, I wrote that I’d be an aggressive buyer closer to $100 per share, but I’m not sure that we’ll get there. I still think that.
Q. Are there any upcoming stimuli that would help BIDU bounce back to the 120-130 level? It seems like BIDU took more of a hit than it should have from QIHOO. Your thoughts?
A. Apple pulled back 30% a few times over the years that I’ve owned it from $7, and sometimes you just couldn’t imagine what would possibly make that stock start going back up again. Perhaps the time to buy this stock is when there is no catalyst that you can see?
Q. Hi Cody. I recently re-read your clean water post. Are you considering adding CCC or TTEK to the portfolio? Does that analysis still stand unchanged?
A. Yes, that analysis still stands. And here, you can read a lot of articles by searching for “water” on TradingWithCody.com.
Q. Haven’t heard you comment at all about Zynga since you bought your “non-expiring calls”…The senior management exodus is in high gear it seems, and sentiment about the company at an all time low. You still optimistic on making some good coin on your $3 Zynga?
A. My favorite thing about the ZNGA non-expiring call trade that I have courtesy of paying $3 per share for the stock itself which itself has no expiration date other than a takeover or a bankruptcy…and that sentiment is at all time low for the company. I do not like the management turnover but we’re paying $400 million for the entire company at these $3 levels when you include the net cash per share.
Q: Hi Cody, any thoughts about INVN? Thanks for all your great ideas and coverage!
A: Worried about the STM lawsuit, I think nintendo, a big customer is in secular decline and i think edom is slowing faster than analysts realize (China handset growth is slowing in the very short term, the secondary market looks nothing like ours, phones don’t get put in drawers they get resold). Plus I hate they are not an apple supplier.
Q. Wondering if you have ever looked at ULTA – great story, balance sheet and lots of room for growth.. btw my wife turned me on to the company.
A. Ha, I didn’t know the stock off the top of my head and now I know why. Not exactly my specialty area of the markets: “Ulta Salon, Cosmetics & Fragrance, Inc. operates as a beauty retailer that provides prestige, mass, and salon products; and salon services in the United States. The company offers cosmetics, including products for the face, eyes, cheeks, lips, and nails; haircare products comprising shampoos, conditioners, styling products, and hair accessories; salon styling tools, such as hair dryers, curling irons, and flat irons; skincare, and bath and body products consisting of products for the face, hands, and body; and fragrances for men and women. It also provides private label products that comprise Ulta branded cosmetics, skincare, bath and body products, and haircare products; and other products, which include candles, home fragrance products, and other health and beauty products. As of July 28, 2012, the company operated 489 retail stores in 45 states. It also operates full services salons in its stores; and distributes its products through operating ulta.com. The company was founded in 1990 and is based in Bolingbrook, Illinois.” But wow, look at the five year chart on that sucker. It’s now trading at 30x next year’s earnings, which is a helluva a steep price to pay for a make up company. But I have no edge for you other than that snapshot analysis.
Thanks for the response on ULTA – remember women will spend more on cosmetics than just about anything else – and ’tis the season’ going into the holidays.
Q. Have you heard Paul Gilbert? He plays the guitar very good.
A. I know a little of who you’re talking about. But I just found this and I’m now listening to it in the background. Wow, incredible finger work. Let me ask my brother about him on gchat, my bro is a killer guitar player and expert.
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My brother’s answer about Paul Gilbert, btw: “Oh hell yeah. Paul Gilbert is the man behind Racer X. I’d have to go pull out my old Racer X cassettes to remember any of their songs though.”
Focus, guys. Talking Fingerstyle With Cody is a sister site. 🙂
Technically it’s a “Brother Site”, as in my older brother. Check out his music here, btw.
Nice. Gotta be a hot guitarist to do it in Austin, TX.
Okay guys, that’s it. Thanks for the great chat and please do consider sending in some of the most important and hardest lessons you’ve learned over the years that we can share with everybody.
