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Faltering Friday – Amazon and Other Earnings Not Enough to Hold S&P 3,000

We're slipping again.

Keep in mind, there's still the underpinning to the market that the Fed is going to save us next week with another rate cut on Wednesday.  40 S&P 500 companies reported mixed results yesterday with 3M (MMM), Ford (F), Twitter (TWTR), eBay (EBAY) and Amazon (AMZN) noteably cutting guidance and disappointing inverstors.   MMM said "the macroeconomic environment remains challenging" and F mentioned lower volumes in China – a theme with many companies as Chinese Consumers begin to avoid American goods altogether.  

With about 1/3 of the S&P 500 reporting so far, 81% of the companies reporting have beaten low expectations but still, we're on pace for a 4% decline from earnings a year ago, when the S&P topped out at 2,950 in October and fell to 2,350 (-20%) by Christmas.  We are still very much Cashy and Cautious and maybe this time is going to be different but down 4% from the quarter when the markets dropped 20% is a good reason to stay on the sidelines, isn't it?

Not much is happening otherwise and we're coasting into the weekend but next week, as Friday is the 1st, we get our NFP report already and the Fed has the doveish John Williams speaking at noon and 2:30 that day – so I think they think they are going to need some spin.  Other than Williams and Powell's speech on the 30th (2:30), there is no Fed Speak next week due to the meeting so we're on our own with the data – and earnings!

A lot of companies are having steep sell-offs on earnings but are they bargains or just CORRECTIONS – moving to more realistic prices.  We looked at Twitter (TWTR) yesterday and decided it was simply moving to a more realistic price after a 20% drop back to $30 and Amazon (AMZN) is now more interesting at $1,750 but that's still $880Bn in Market Cap for a company that made "just" $10Bn last year and maybe $12Bn this year, despite last night's miss.

While that's still 20% growth, $880Bn/$12Bn is 73.33 so 73x earnings is what you are paying for AMZN, a stock that is growing 20% a year – so doubling every 4 years.  That means we can expect 2024 earnings of $24Bn and 2028 earnings of $48Bn (finally getting close to AAPL's current earnings) and THEN they will only be trading at 20x earnings.  Meanwhile, AMZN is essentially a commission reseller so Revenues would have to grow along with sales and currently they are $250Bn so they need to be selling over $1Tn of merchandise and services to get to $48Bn in profits – that's the GDP of Australia!  

Walmart (WMT) is currently the World's largest retailer and they "only" sell $500Bn worth of stuff and they also make $12Bn/yr yet, at $120, you can buy the whole company for "just" $338Bn – less than 1/2 of what you are paying AMZN for the same earnings.  Something is wrong with these valuations and you have to ask yourself if we should be paying 60x earnings for WMT to catch up to AMZN or if AMZN is still way overpriced at $1,750?

Have a great weekend, 

- Phil

 


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  1. Good Morning!


  2. AMZN strategy? Ty


  3. Bausch Health (BHC) initiated with an 0utperform at Cowen; tgt $35.

     


  4. Phil/PSW/Dividends,

    Can you help me with your top 5 dividends stocks? A small group here is planning to do a small investment to start with, in 5 dividends stocks and distribute the dividends to charity on regular basis. Even couple of them is fine to start with.

    thanks as always

    regards


  5. Good Morning!





  6. How SoftBank made WeWork an offer it had to accept


  7. Good morning!

    AMZN/Chicken – Staying away is a great strategy…

    BHC/Albo – Yeah, they were oversold.  

    Dividends/Pat – Well that's great but please remind me over the weekend so I can do a proper job.  T is the most obvious to me as they pay $2.04 on the $37 price tag so more than 5%.  I don't particularly like them this high in the channel but it's a good, steady payer.  If you want to use options as well, my trade would be:

    • Buy 1,000 shares of T at $37 ($37,000) 
    • Sell 10 T 2022 $35 calls at $4.60 ($4,600)
    • Sell 10 T 2022 $30 puts for $2.95 ($2,950) 

    That's net $29,450 and getting called away at $35 ($35,000) makes a nice $5,550 (18.8%) or, if assigned 1,000 more shares at $30, then average entry is $29.275 – which is where we like to buy T anyway.  That will pay $2,040/year for each 1,000-share block in dividends, another 13.8% over two years so a very nice, conservative trade for anyone to add to a portfolio but, again, I'd rather wait for a pullback and, if I REALLY wanted to jump in now, I'd just sell 5 2022 $33 puts for $4 ($2,000) and that's the same $2,000 you'd collect in dividends but a much lower net entry to the downside and, next January, I'd sell 5 more more for the next year's collections (if it hasn't come down low enough to buy and DD and cover).  


  8. Phil/Dividends,

    How can I remind you over the weekend? Is there a post here on a weekend? Never visited on a weekend :-)

    Thank you for T, how about NLY or ARR? Any interest in those?

    regards


  9. Pat I NLY SKT and F as my dividend paying stocks SKT and F I also sell calls against and sell outs when they are low in the channel 


  10. M pays almost 10% in div.


  11. Sorry, been on calls non-stop from early on and no time for the Big Chart this morning… Will update later today. 


  12. For reits go to IRM and under news their is a list with the highest paying dividends and FFO with other info. Utilities were the next highest performing regarding interest and ENB which is basically pipelines is at 6.06% so doesn't have the energy variables.


  13. Pat looking at my milk cown most are on the high end of the scale like T at 37. I did enter most always at the lower end.

    But look at VTR dropped 5$ today, GILD at 62 bargain, M as mentioned above, F but I think the auto industry is not looking to good. Yess ARR is on the low side of the channel, NLY also good, XOM good runner, just to get you starting.


  14. SIG – Nice move today.


  15. AIMT -New recovery high.  Covered a little with Feb 30 calls at $3.50.

    Bird in the hand.


  16. Pat some more for Phil to bite his teeth on All need to be studied but in general good cows. VTR is gone up already a $ from above!!!

    CCL, CHL, EMN, ET, ETM, FCAU Cars!!!, GIS,IBM, KHC,NOC,NWL,NYCB good cow but was better at 10, PDCO,PFE always good, Pru, SKT,SLB,UBS,WBA,and WMB.

    So now you can get to work !!!!

    You combined them with some options and you have some good armchair trades to sleep on, just be carfull with the short puts in this type of market, and not be to greedy,


  17. any thoughts on the futures situation today phil 


  18. TSLA holding over the 300 mark


  19. Tsla-almost 5 days of short covering so far. Not worth half of this valuation, if that!


  20. Apparently TSLA valuation can stay irrational a bit longer!


  21. Weekend/Pat – Whatever my last post is, I still check comments on the weekend.  I like the REITs but I'm very alone there so it depends how charitable you really are as it's tricky to actually make money on them outside the dividends.

    NLY, for example, is $8.83 and the 2022 $7 calls are $2 and the $10 puts are $2.60 (the $7 puts are 0.60 and not worth selling) so net $4.23 is great and they are paying $1 so massive dividend bang for the buck going out but, historically, they have been going down as much as they are paying out each quarter (faster even) so almost certainly you will be assigned 2x at $10 for $7.115 avg and very possible NLY will be around $6.50 unless conditions change with the Fed over 2 years so yes, you will have generated $2 for charity but lost maybe $1 which is efficient and possibly even tax-effective – but it goes against my nature to play that way.

    SKT/Bert – That's a good one and so is F.  SKT I thought was ridiculously undervalued.  It already came back a bit but still cheap – that could be a nice earnings play next week.  F is suffering from China but should turn around one day.  

    F pays a very nice 0.60 so that's one I can certainly endorse:

    • Buy 1,000 shares of F at $8.68 ($8,680)
    • Sell 10 F 2022 $7 calls for $2.05 ($2,050) 
    • Sell 10 F 2022 $7 puts for 0.85 ($850) 

    That's net $5,780 and called away at $7,000 would be a $1,220 (21%) gain and $1,200 in dividends is another 21% for the charity so a very nice set-up in both respects!  The downside is an average entry of $6.39, a 26% discount to the current price is your worst-case – not even including the collected dividends…

    M/Pirate – Also a good suggesting but a little more scary than F.  I'm a believer but that doesn't always work out.  

    GILD/Yodi – That's a very good one too.  VTR seems a bit expensive to me. XOM I'm not keen on with all the uncertainty ahead.

    SIG/Albo – Hopefully they can keep it up.  SIG is a good dividend payer at $1.48 and my hand is sore from banging the table at $12-15 so hard to pay $17 but, since you can sell the 2022 $13 puts for $4.70 – I'd say that's a no-brainer so we could just do that, or we could:

    • Buy 1,000 SIG at $16.95 ($16,950) 
    • Sell 10 SIG 2022 $13 calls for $6.60 ($6,600)
    • Sell 10 SIG 2022 $13 puts for $4.70 ($4,700) 

    The net $5.65/share entry makes this a solid 2020 Trade of the Year candidate.  Even called away at $13 ($13,000) is a gain of $7,350 (130%) without the dividends.  Another $2,960 (52.4%) in dividends makes this an amazing play!  

    That's so good we're going to put it in a $100,000 Dividend Portfolio, along with F and T above!  Since our intent is never to touch these plays again, it won't take much effort to maintain.

    And, by the way, I'm sure some may wonder why we are playing so conservative but that's the attraction.  Our worst-case is being assigned another 1,000 at $13 to average $9.325 on 2,000 shares – barely more than 1,000 shares costs now.

    Also, very important note to investors:  I just got off the phone with Thailand and we (Hemp Boca) have been selected to supply their National Health Service with CBD.  We already have Memorandums of Understanding from 3 major hospitals to purchase long-term and we've secured permits and hundreds of acres of farmland to grow on.

    That's all great but now we need Millions of Dollars for seeds, greenhouses, equipment, etc.  We have Thai partners who will put up half (including Thailand's Minister of Health) but we need to put up the rest (or our partner share will be whittled down) so if you know ANYONE who might be interested – please let us know. 

    You can Email Greg (at philstockworld dot com).  I'm most interested in finding people who are in Asia who speak Thai (we are also working deals in Japan, Vietnam and Laos) and are able to attend meetings over there.  This is a huge opportunity – hopefully we can get right on top of it!


  22. TSLA $317 – yikes!   I don't even see a reason.

    Trade news boosting the markets in general and we knew that would give us a boost – but we also think it will be the final push to the top before a correction and the risk of no deal is why we didn't wait to cash out.

    • Stocks get a boost after signs that U.S. and China are close to finalizing some sections of their phase one trade agreement.
    • The S&P 500 rises 0.5% to 3026.31, poised to break its all-time intraday high of 3,027.98.
    • Nasdaq advances 0.7% and the Dow gains 0.8%.
    • SPDR S&P China ETF (NYSEARCA:GXCrises 0.6%.
    • The Office of the U.S. Trade Representative issued a statement after U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin had a conversation with Chinese Vice Premier Liu He.
    • “They made headway on specific issues and the two sides are close to finalizing some sections of the agreement,” USTR said.

    Should have thought of this one – it's a company we used to play:

    • Generac (GNRC +0.9%) touched an all-time high before easing back, after CEO Aaron Jagdfeld appeared on CNBC to highlight surging demand in California for its backup power generators in the wake of the state's power cuts.
    • "This caught us totally off guard," Jagdfeld said. "We didn't see the largest utility in the U.S. coming out and saying, 'look, our only solution is to turn the power off."
    • California has become a "new element for our business," and GNRC has enjoyed "300%, 400% increases in volumes out in California," the CEO said, adding that generators are also in heavy demand in the Northeast as hurricanes and ice storms hit.
    • "Everyone uses a wireless device now, and those networks go dark when they don't have power," Jagdfeld said. "We're one of the largest suppliers of backup power to all of the major wireless carriers, but the penetration rates are still very low, less than 30%."

    • October Consumer Sentiment (Final): 95.5 vs. 96.0 consensus and 96.0 prior.
    • Current economic conditions 113.2 vs. 108.5prior.
    • Index of consumer expectations 84.2 vs. 83.4 prior.

  23. AMZN/Phil – fundamentally agreed, but took advantage of the psychology. Quick buck in and out.

    Hemp BOCA/ Phil – I seem to be late to the party. Is this still open for investors and if so, how would I get information about the investment?

    ty!


  24. Phil/Yodi/PrivateInvestor/BertII,

    great..great information and valuable too…enough for us to start and all good for all.

    thanks as always.

    regards


  25. Wow that is quite a fall on SIG since its peak in 2015.  But it was also quite a rise from the low in 2009.  Related to something happening in gold or diamonds or ….?


  26. I cannot tell what you really did with T  ?  Did you take positions now for the 3 bullet amounts or do the "if I really wanted to jump in now" positions or wait?


  27. AMZN/Chicken – Nice job, what a crazy run back to $1,750 already.

    As to Hemp Boca – That's a PSW Investment thing and yes, you can contact Greg at philstockworld dot com for info on investing there.  

    SIG/Tangled – The actual peak was $100 back in the 1990 then $5 by late 1992 then $50 (pretty steady gain) into the Big Crash in 2008, back to $7, then steady gains to $150 in 2015 and then steady losses since.  It's pretty  much a business that goes in and out of favor and I just want to be there for the next 20x run.  The big recent change is artificial diamonds are really hurting the industry but SIG doesn't mine diamonds, they just sell them.  Of course they probably get less mark-up on artificial ones – but it's not destroying their business.  

    T/Tangled – This is an official play for our Dividend Portfolio:

    • Buy 1,000 shares of T at $37 ($37,000) 
    • Sell 10 T 2022 $35 calls at $4.60 ($4,600)
    • Sell 10 T 2022 $30 puts for $2.95 ($2,950) 

    That's net $29,450 and getting called away at $35 ($35,000) makes a nice $5,550 (18.8%) or, if assigned 1,000 more shares at $30, then average entry is $29.275 – which is where we like to buy T anyway.  That will pay $2,040/year for each 1,000-share block in dividends, another 13.8% over two years so a very nice, conservative trade for anyone to add to a portfolio.

    It's going to be like the Butterfly Portfolio but even lower-touch.  Just a tool to help point out that we can make perfectly nice returns with just a few set and forget-type trades.  

    I know I said I wouldn't jump in with the whole trade but, since we're setting up a portfolio – why not?


  28. TLSA almost $320!


  29. Tesla really squeezing the shorts (me included).


  30. KO (4%), GSK (4.25%), GLW (2.6%), NYCB (5%) and T (5.5%) are my go to Dividend players that I have had for years.  


  31. Having one of my high density days I guess.  Can you explain the math on your average entry $29.275 for T if assigned?


  32. Actually net 29.725 I believe.

    30,000 for $30 shares plus previous net of 29,450 = 59,450 / 2,000 shares = 29.725


  33. That's my calculations as well rperi!

    1000 shares at 37-4.60 = $32.40 and if you get assigned on the puts, another 1000 shares at $27.05 average.


  34. Calculation, cost of the stock less the credit of the Stangle !!!!!!! This is your net cash layout.


  35. NYCB/Rperi – I like that one to.  GSK I should look at and KO would be great around $50 but $54 is a bit much.

    T/Tangled – Should be $29.72, I must have mixed up the 2 & 7.

    And what Rperi said! 

    And what StJ said!

    And what Yodi said!

    Unintended consequences:

    • In a statement, the FDA reports that the availability of certain medical devices could be affected by the recent closure a Sterigenics ethylene oxide sterilization facility in Illinois, the temporary shutdown of another Sterigenics site in Georgia and the potential closure of Becton, Dickinson's (BDX +0.5%) large sterilization operation in Georgia.
    • Recently, the EPA in Illinois ordered Sterigenics to stop using ethylene oxide, the most commonly used agent to sterilize medical devices in the U.S. (more than 20B units each year), due to a higher-than-acceptable level of the gas in the air around its Willowbrook facility. The closure caused a temporary shortage of pediatric breathing tubes.
    • Concerns about the excessive release of ethylene oxide into the environment have prompted other states to take action. Sterigenics closed its facility in Atlanta in August while it undergoes construction aimed at reducing emissions of the compound. It does not plan to reopen the Willowbrook site.
    • The agency is asking device makers to keep it informed about potential supply issues. It is hosting a public advisory committee meeting on November 6 & 7 to discuss the best ways to encourage innovation in medical device sterilization.
    • The total count of active drilling rigs in the U.S. plunges by 21 to 830, its eighth decline in the past nine weeks, Baker Hughes says in its latest survey.
    • Oil rigs sank by 17 to 696 while gas rigs fell by 4 to 133; 1 rig remains classified as miscellaneous.
    • WTI December crude trades roughly flat at $56.26/bbl.

  36. As a dividend (income) vehicle, have you given any consideration to these despised monster size entities with their monster size distributions:  ENB, EPD, ET, SHLX, MPLX & TCP


  37. Phil are you doing anything with the fund's Tesla position?


  38. T slowly going down, would recomment any trade after 28th!



  39. Dividends/CSL – Those energy plays are kind of complicated so I haven't been playing them, a whole other thing that has to be studied very carefully but I'm sure there are some bargains so I will take a close look on the weekend.

    TSLA/Palotay – Went from success to disaster as IB raised margin requirements and stopped us out so we have to reposition next week – flattish into the weekend on them as it's too crazy to leave open.  Hopefully it gets back to $380 so we can short the hell out of it!

    We were just discussing the merits of shorting the 2022 $250 puts for $52 against short term short calls.  Let's say we sold 100 of those for $530,000 and then, each month, we sell $100,000 worth of short calls, like 100 Nov $340s at $10.  If TSLA goes up, the Jan $375s are $10 and the June $450s are $10 – so that's our rolling path and any month it fails to make its target, we cash $100,000, which is enough money to roll the 100 2022 $250 puts $25 lower.

    So, we have $600,000 in our pocket from the sales and if TSLA fails $340 but holds $300, we keep the $100,000 and sell April whatevers for $100,000 (now we have $700,000).  If it pops over we roll, of course and, if it sells below $300, we spend $100,000 to roll $25 lower and sell April whatevers and then we have $600,000 again….  

    We're not doing it in the Fund because TLSA's a bit crazy but, in the STP, why don't we do it with 5 contracts and see how it goes.  So, for the STP, let's:

    • Sell 5 TSLA 2022 $250 puts for $52 ($26,000) 
    • Sell 10 TSLA Nov $340 calls for $10 ($5,000) 

    Will be interesting to see how it plays out.  The margin is $25,000 on the short puts and $27,500 on the short calls so it's NOT for a portfolio with just $100,000 – that's for sure!  In a PM account, they will balance out but this is for a $100,000 STP that has $500,000 of LTP money sitting on the side as well.  If TSLA goes up or down suddenly, margin requirements could go up fast!  Of course, they are already up and might go down, but not worth the risk for smaller player.

    Speaking of the STP, BKNG came back and burned us.

    T/Yodi – Usually it comes back if you are patient enough.  Like CAT!

    Schumer/Palotay – Damn, I forgot about that plan!   The flaw in the plan is the gas cars he's replacing don't just disappear – they simply get sold to other countries so it will take longer than he thinks to have a global effect – but I still agree with the concept.  

    If the GOP would have let Al Gore have his 0.05/gal gas tax back in 1994, that's 25 years x 9Mb/day = 378M gallons x 365 = $3,449,250,000,000 we could have put towards Shumer's $450Bn plan!


  40.  

    Tesla shares are trading higher after the company announced it started to sell its China-made Model 3 with autopilot function starting at 355,800 Yuan. – TDAM


  41. Dividends

    Most if not all have investment grade debt and although in the "energy" business are not particularly sensitive to price of energy. All of them transport primarily via pipelines under "take or pay" terms. 


  42. TSLA – Does anyone know when the 10Q comes out?


  43. My current play on TSLA is not to play TSLA because I am worried that irrationality will win over solvency!


  44. Great choice STJ. It has been a rough couple days…


  45. China!/Coulter – That is the elixir for anything that ails an outlook.

    Energy/CSL – I know, that's why I want to take a look – we've been ignoring them.

    10Q/Batman – They have been releasing on the 1st of the month following earnings, not sure if it's an actual schedule.

    Irrationality/StJ – Too late for that!  

    Have a great weekend everyone, 

    - Phil


  46. TSLA selling cars in China, not DELIVERING cars:

    On Wednesday, the automaker confirmed that trial production of Model 3 in Shanghai has begun, but they still need to meet some more “governmental requirements”:

    “We have cleared initial milestones toward our manufacturing license and are working toward finalizing the license and meeting other governmental requirements before we begin ramping production and delivery of vehicles from Shanghai.”

    The automaker also still notes that availability is subject to regulatory approval and delivery is not expected before the first quarter of 2020.

    The Model 3 Standard Range Plus with Autopilot starts at ¥355,800, which is equivalent to about $50,000.

    It’s unclear how many cars Tesla plans to deliver from Gigafactory 3 this year, but the automaker aims to ramp up production to 1,000 units per week by the end of the year and quickly ramp up to 3,000 units per week next year.


  47. Hemp Boca – Phil – will do, ty.


  48. Bitcoin Jumps 12% as China’s Xi Embraces Blockchain, Boosting Crypto Sentiment

    https://finance.yahoo.com/news/bitcoin-jumps-12-china-xi-171515529.html

    Up 26% today total. 


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