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Monday Market Momentum – Lost Due to Trade Setback

Trade off!

Over the weekend we had a little setback in the trade negotiations as Trump said he has NOT agreed to remove tariffs on Chinese goods and that news came after Chinese markets had closed on Friday so this morning,  the Shanghai Composite wwas down 1.8% and Hong Kong's Hang Seng dropped 2.6%.

Also in Hong Kong, tensions escalated even further this morning as the police opened fire on protesters while Hong Kong's Governor said the Govevernment won't "yield to violence."  A man was also "set on fire" – apparently by the protesters.  Around midday, crowds of office workers were seen fleeing clouds of tear gas filling the streets. Some rushed into the lobbies of buildings to seek shelter and poured water over their eyes to relieve the pain. Police made a number of arrests as people chanted abuse at them.  

Combine that level of chaos in a densely packed city AND have the market start to collapse – that's a recipe for disaster and one of the main reasons we've been leary about re-committing our capital to the market.  Chinese protests, however, also gave us our shorting premise on Booking.com (BKNG), as we discussed last week in our Short-Term Portfolio Review.  We felt the earnings would be impacted by the protests – which have been going on all quarter and we got a nice dip in BKNG on earnings, leading to a massive $18,872 (19%) portfolio gain in just two days – your welcome!  

Our BKNG spread is now up $34,600 out of $40,000 potential in just two months but the way we've set it up is to generate quarterly premium income selling puts and calls – and it's right on track to make us $40,490 this quarter alone so no, we're not going to be cashing in this one early – despite the massive gains.  This is why I started Phil's Stock WORLD 15 years ago – Global Events matter, Politics matter – and most investing sites ignore them or only pay them lip service at best and ignore them at worst, while we find ways to profit from them instead!

We will be starting a brand new portfolio on Wednesday as I'll be on Money Talk at 7pm and we cashed out our prior Money Talk portfolio up 148% in two years so we'll see if we can repeat the magic in this cycle – possibly starting off with an early Trade of the Year Idea – since it's almost Thanksgiving anyway.:

Our Trade of the Year for 2019 was IBM, which we announced way back on Nov 21st, 2018:

This is our favorite kind of market because so many stocks are going at ridiculously cheap prices as babies get thrown out with the bathwater and we just cashed in $100,000 worth of hedges and we're either going to plow the money back into $300,000 worth of additional hedges (if the weak bounces fail) or we'll put the money to work buying $300,000 worth of longs for $100,000 – either way, we're going to have a good time!  

IBM, for example, came back down to our buy zone ($115) yesterday and our Top Trade Alert from Oct 31st was:

  • Sell 5 2021 $120 puts for $20 ($10,000) 
  • Buy 15 2021 $120 calls for $11.30 ($16,950) 
  • Sell 15 2021 $145 calls for $5 ($7,500) 

That's a net $550 credit on the $37,500 spread so $38,050 upside potential (6,918%) if IBM is over $145 in Jan 2021.  

We got a quick $10 pop but now it's fading back but we love IBM, who have made $6.7Bn in the first 3 quarters of the year yet you can buy the whole company for $105Bn at $117, which is about 10x current earnings.  That's for a company that made over $12Bn a year all decade except last year, when they took restructuring charges and reorganized the company to accomodate future growth.  Nonetheless, "investors" panicked out of the stock and continue to do so, despite almost being back to normal $10Bn+ earnings already.  Idiots – did I mention that the average investor is an idiot?  Keep it in mind…

IBM's CEO, Ginni Rometty just bought $1M worth of stock at $117 and another $2M for her retirement fund along with a couple of Directors who bought $250,000 each recently.  Now, when Elon Musk buys $1M worth of TSLA stock, I'm quick to point out it's just a stunt as he's worth $22Bn and most of that money is tied up in TSLA stock so all he's doing is pumping up his own bank account by creating a stir.  Ginni is no slouch but worth "just" $45M so, when she puts $3M into her company's stock – it's making much more of a statement, isn't it?  

As you can see, they've also been busy buying back their own stock, at a pace of about 8% per year, which means that $10Bn+ in earnings will be divided by a lot less shares going forward than it was in 2016.  IBM did overpay for Red Hat (RHT) at $34Bn but it's money that was burning a hole in their pockets anyway and they had strategic reasons for doing so and no, there won't be a bidding war because RHT will owe IBM $975M if they don't complete the deal – the opposite of a ususal buyout condition.  

Image result for red hat market shareRHT only makes $250M a year on $3Bn in sales so, on the surface, it seems insane for IBM to buy them but Red Hat has 33% of the Global Server Market (and it's the fastest-growing) and, though Linux is basically free, those same companies buy hundreds of Billions of Dollars in Services, which Microsoft (MSFT) is able to parlay into $60Bn worth of sales and $10Bn in profits.  NOW does buying RHT make sense for IBM?

Red Hat is IBM's foot in the door to customers who do buy all those services that IBM sells – just not from IBM.  Now the first interacton they will have is with IBM sales people, coming to the office to deliver their free version of Linux while discussing all the ways IBM can help them install, host and service that software – it's brilliant actually…

That's why IBM, who were our runner-up for Stock of the Year in Nov 2015 at $140, are now our official stock of the year at $117 and that makes the above trade our PSW Trade of the Year and usually we promise to give people who buy an Annual Subscription between now and Dec 31st a full year bonus if our Trade of the Year doesn't make 100% before the renewal next year (you don't have to make the trade but you do have to subscribe), but this one is so cheap we'll simply guarantee that, by November next year, this trade makes at least $5,000 – or your renewal is FREE!  

Well, it's November so let's see how we did with IBM significantly off its highs (we cashed out in late September): 

  • 5 IBM Jan 2021 $120 puts are now $7.45 ($3,725) 
  • 15 IBM Jan 2021 $120 calls are now $22.20 ($33,300) 
  • 15 IBM Jan 2021 $145 calls are now $8.50 ($12,750)

That's net $16,825, up $17,375 (we had the credit to start) and that's up 3,159% in a year but only "on track" to make the full $38,050 if it gets back over $145 into next January.  While making another $20,675 (118%) in 14 months would probably be the Trade of the Year for most sites – it doesn't qualify for us anymore as our Trades of the Year are the trade we fell is most likely to generate at least 300% returns over the next two years.

Notice that IBM was $115 when we made the trade and still short of target at $137 but we've already made almost half of our potential gains because the options PREMIUM that we sold has decayed considerably – and that is the secret to all of our success.  We are not Options Strategists – we are FUNDAMENTAL investors who use options both to Leverage our Trade Ideas as well as to Hedge them – it's a very powerful combination that gives us a tremendous market advantage.  IBM went up $22 (19%) and our trade returned 3,159% on cash!

At the moment, I have no idea what our 2019 Trade of the Year will be.  We will be discussing it in our Live Member Chat Room today and tomorrow.  We are still in the thick of earnings season with hundreds of companies still reporting this week though most of the big boys have gone so we're better able to make guesses on the remaining plays.  This week we have:

Image

Cisco (CSCO) to me is a long-term no-brainer though this past Q may have been impacted by tariffs and that may also cloud (get it?) their outlook.  CSCO makes about half their money selling Infrastructure Platforms these days, 25% on Network Services and the rest is Applications and Security Tech.  They also have $9Bn in cash sitting around with $52Bn in sales generating $12Bn in profit and you can buy the whole company for just $207Bn at $49 – a p/e of 17.25 that should go much lower over time.

At the moment, you can sell the 2022 $45 puts for $6.50 and that gives you a net entry of $38.50 and we can use half of that money to buy the 2022 $42.50 ($9.50)/50 ($5.80) bull call spread at net $3.70 for an overall net $2.80 credit on the $7.50 spread so 10 of those costs $2,800 and can return $7,500 at $50 for a profit of $4,700 (167%) 

We have 7 Fed speakers this week including Chairman Powell on Wednesday morning.  Fed GDP expectations have been crashing this month and, if we lose our trade catalyst, it may be a lot harder to maintain these market highs.

 


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  1. Lucy holding the trade football in front of the traders! Why would Trump give up $7B of tariffs each month?


  2. 20 years ago, it was the complete opposite:

    Image

    Cell phone service was 3-4x cheaper in the USA. Now, we simply have a telco cartel who colludes on prices.


  3. Adding to inequality:

    https://www.theatlantic.com/ideas/archive/2019/11/income-inequality-getting-worse/601414/

    Using government data and scanner data from retail stores—the bar codes that get swiped at Target, the produce codes that get punched in at grocery stores—Xavier Jaravel of the London School of Economics found that from 2004 to 2015, the prices of the products purchased by the bottom income quintile increased faster than the prices of the products purchased by the top income quintile. As a result, low-income families experienced an annual rate of inflation conservatively estimated at 0.44 percentage points higher than that of high-income families.


  4. Good morning!


  5. Phil / CBS-

    From Friday- Thank you for the analysis, much appreciated!

    As a reminder, you wanted to look at selling CBS puts for the STP-

    'I think, in the STP, we should at least sell some puts – the 2022 $40 puts are $8 so 5 short gives us $4,000 to play with – remind me on Monday."


  6. StJean – an interesting addition to that broadband cost graphic would be a speed comparison….


  7. TEVA – Now profitable.  Finally !

    Closing out 1/3 of position.


  8. Good morning! 

    Little dip this morning but already reversing.

    Big Chart – NYSE over the 5% line would be impressive progress.  Nas heading for +30%.

    Cells/StJ – North America is just crazy compared to the World – so ridiculous.

    Inflation/StJ – That's very true.

    You're welcome EMike – thanks for the reminder (and the idea):

    CBS/EMike – I think you were right $10 ago but it might take some time to get back to $50.  Still, $38 is a ridiculous $14.25Bn valuation for these revenues:

    Year End 31st Dec 2013 2014 2015 2016 2017 2018 TTM 2019E 2020E CAGR / Avg
    Revenue $m 14,005 13,806 12,671 13,166 13,692 14,514 15,263 15,576 16,246 +0.7%
    Operating Profit $m 3,025 2,544 2,658 2,691 2,460 2,768 3,260     -1.8%
    Net Profit $m 1,879 2,959 1,413 1,261 357 1,960 3,072 1,889 2,012 +0.8%
    EPS Reported $ 2.79 2.41 3.18 3.46 3.53 5.00 8.01     +12.4%
    EPS Normalised $ 2.81 2.91 3.24 3.86 4.38 5.44 7.55 5.00 5.44 +14.2%
    EPS Growth % +19.4 +3.7 +11.4 +19.1 +13.4 +24.1 +52.2 -8.15 +8.84  
    PE Ratio x           6.95 5.01 7.56 6.95  
    PEG x           n/a n/a 0.86 0.45
    Profitability

    Call it a p/e of 7 and they even pay 0.72 in dividends.  Though it's been up and down, the company is changing with the times and adjusting.  In their 2nd year, CBS All Access has 10M subscribers and NFLX has 100M and 12 valued at $125Bn.  Not that NFLX is worth that but consider that that small, new part of CBS is worth $12.5Bn according to that valuation.

    I think, in the STP, we should at least sell some puts – the 2022 $40 puts are $8 so 5 short gives us $4,000 to play with – remind me on Monday.

    So that's official for the STP, we're going to sell 5 CBS 2022 $40 puts for $8 ($4,000) in the STP.

    TEVA/Albo – What a long, strange trip it's been.

     

    Jackie just texted me "What was the robot girl song you used to torture us with in the car?" 

    When we would go on car trips we would take turns picking songs but if the girls picked a long song they knew I wouldn't like – I would then pick a long song I knew they would hate in retribution.  This was one of my favorites – though I actually really like Laurie Anderson.

    "'Cause when love is gone, there's always justice.

    And when justice is gone, there's always force."


  9. ETM is on a tear!  Glad I stuck with it. 


  10. Phil / Natural Gas,

    As winter is approaching, Would you recommend buying into dips? 

    Thanks 

    Pat


  11. OK, this is going to be a working Monday.  First of all, let's go over the Watch List to date:

    Submitted on 2019/09/23 at 2:56 pm

    VLO is one we like to play when they are cheap and either oil prices are going lower (good for them) or gasoline prices are going higher (good for them) so $84.24 is $35Bn and they make $2Bn in a bad year and $3.5Bn in a good year so p/e between 10 and 17 – depending which way the wind blows. 

    Good for OIH too:

    So OIH is still in play and VLO has already popped.  

    Submitted on 2019/09/23 at 2:56 pm

    Now that HOV made a comeback LEN is on the top of my list at $55 in the real estate space.  That's $17.3Bn and they are good for $1.2Bn at least so p/e around $14 and I like that they do mortgage and title and rentals – they squeeze money out of every part of the transactions.  

    Damn, we have to get back to these sooner!  

    Speaking of stocks for the Watch List, Coulter put up some good choices yesterday with high short interest (3 we already like):

    GME BBBY SKT

    I'm tempted to make SKT my Trade of the Year but there is risk we can't control from the Fed and broad economy.

    Submitted on 2019/10/07 at 12:11 pm

    There's a trade:  We like Sunpower (SPWR) anyway and they went on sale since we got our and we'd LOVE to own them at $10 for the long run as $10/share is $1.4Bn and we know SPWR is capable of earning over $200M for the year and they did make $121M last Q though probably still a loss this year but, going forward – I think they'll do great.  

    Year End 30th Dec 2013 2014 2015 2016 2017 2018 TTM 2019E 2020E CAGR / Avg
    Revenue $m 2,507 3,027 1,576 2,553 1,794 1,726 1,670 1,974 2,217 -7.2%
    Operating Profit $m 158.9 251.2 -206.3 -371.9 -1,025 -849 -288.5      
    Net Profit $m 95.6 245.9 -187 -448.6 -929.1 -811.1 -216.3 -53.9 28.2  
    EPS Reported $ 0.69 1.55 -1.39 -3.25 -4.49 -5.76 -1.66      
    EPS Normalised $ 0.70 1.62 -1.36 -2.57 -1.48 -3.15 -1.75 -0.34 0.19  
    EPS Growth %   +131.5                
    PE Ratio x           n/a n/a n/a 55.5  
    PEG x           n/a n/a n/a 0.58
    Profitability

    They can go lower, so we shouldn't go crazy but 2022 options are out so I'd say selling 10 2022 $10 puts at $3.90 ($3,900) is a no brainer and we can put 1/2 back to work on a spread like this:

    • Sell 10 SPWR 2022 $10 puts for $3.90 ($3,900)
    • Buy 15 SPWR 2022 $12 calls for $3.40 ($5,100) 
    • Sell 15 SPWR 2022 $17 calls for $2 ($3,000) 
    • Sell 5 SPWR Jan $12 calls for 0.85 ($425) 

    That's a net $2,225 credit on the $7,500 spread and, if it goes lower, we'd be happy to roll down the long calls at $2.50/$5 roll ($3,750), which would put us in a $10,000 $7/17 spread for $1,525.  If it's flat or down, we sell 8 more sets of short calls for $3,200 or more and that puts us back to a credit anyway so figure net $8 on 1,000 shares is our worst case.  If SPWR goes up, we roll the short calls but we'll be happy to buy more long spreads if that becomes a problem.  Lots of ways to win – not many ways to lose – that makes it a nice trade! 

    Think or Swim says ordinary margin is $3,889.62 on the short calls so not very efficient but it's a stock we'd REALLY like to own long term – certainly going on the Watch List!  Assuming no fancy stuff we could make $9,725 (437%) because of the credit PLUS whatever bonus money we make selling a few calls along the way.  

    Still a good price on them and a huge return potential – this one is in contention too.  The trick is not finding the 300% returns but how sure we are that we can make them?


  12. Speed / Snow – True, we can then see that we get screwed even more in the US:

    Related image

    Image result for internet speed comparison countries


  13. Nat Gas/Pat – Quite a pullback but went up so fast it never built support – which makes it dangerous.  I would not try to guess a floor – I'd wait for it to show us.  

    $2.60 should be some support so look for an 0.09 bounce (weak) there from the drop from $2.90 and then over $2.78 (strong) is back on a bullish track but it will still consolidate below $3, so I don't see a big hurry.  $2.30 would be very exciting to get back in, not so much $2.60.  

     Never forget where we came from!  

    So the BIG move is from $2 to $3 and the retraces there are 0.20 so $2.80 (weak retrace) should have held better if they were going to break higher but $2.60 (strong retrace) has a better chance but, if that fails, then we just have to watch $2.20 and $2.40 as those would be the weak and strong bounces from a fall from $3 (which we failed) back to base. 

    Notice /NG went down and down into the end of last year so I doubt traders are going to be very brave coming into the time we dropped 33% in two weeks a year ago.

    Winter was approaching then too – and look what a disappointment that was!  

    Image result for winter is coming


  14. Comment content omitted because it is too long.


  15. From our:  "Thrilling Thursday – 5 Trade Ideas to Make $25,000 in 5 Months"

    For our third trade idea, on 8/22, we went back to our 2017 Stock of the Year runner-up, L Brands (LB) who own Victoria's Secret and have gotten very cheap recently as they are in the middle of a difficult restructuring.  

    Sometimes we like a company, not because it's likely to go up but because it's unlikely to go any lower.  LB closed 50 Victoria Secrets this year out of 957 so about 5% of the stores and, taking that into account – the decline in sales should not be a surprise.  They added 3 new Pink stores (144 total now) and netted 13 new Bath and Body Works to get that segment up to 1,632 stores (US numbers) so the fluctuations we're seeing in sales and margins will normalize, but obviously not while they are shutting 5% of their stores.

    Forgetting the potential upside down the road, how much should we pay for a company that's making $650M a year?  Well, certainly 10x earnings doesn't seem too crazy and that would be $6.5Bn or about 25% above the current price of $19, so $23.75 seems fair as long as there is no additional bad news and, having just had earnings, none is likely to come until November's report.  

    Meanwhile, we can take advantage of the opportunity and put our foot down at the $20 line (even though we're a bit below it now) and set up the following options play – the 3rd in our series of 5 Trade Ideas to Make $25,000 in 5 months:

    • Sell 10 LB Jan $17.50 puts for $2.80 ($2,800) 
    • Buy 25 LB Jan $15 calls for $3 ($7,500) 
    • Sell 25 LB Jan $17.50 calls for $1.85 ($4,625) 

    That's net $75 on the $6,250 spread so there's $6,175 (8,233%) upside potential if LB can get back over $20 by Jan 17th (option expiration day) and it's an efficient trade as the ordinary margin requirement is just $3,834 so a very good way to make $5,150 into the holidays!  

    Our final trade idea came in last Friday's chat room and we went with Tanger Factory Outlets (SKT) a shopping mall REIT we feel is ridiculously undervalued:

    #5 of our 5 Trades to Make $25,000 in 5 months is going to be Tanger Factory Outlets (SKT), which took a deeper hit today to $14.29.  I just did a whole Top Trade write-up on them on Aug 1st - $1 higher, so no need to get into that but, for the purposes of this series, the trade idea will be:

    • Buy 50 SKT Jan $12.50 calls for $1.85 ($9,250) 
    • Sell 50 SKT Jan $14 calls for 0.95 ($4,750) 
    • Sell 20 SKT Jan $15 puts for $1.85 ($3,700) 

    That's net $800 on the $7,500 spread so $6,700 (837%) of upside potential if SKT is over $15 on Jan 17th.  Since we're selling puts over the current price, the ordinary margin is $5,741, so more than we'd like but, as noted on Aug 1st, I think SKT is ridiculously under-priced.  

    Retailers rallied this week on good news and SKT rents to retailers and the CEO has been buying shares at $14.50 and the company just beat expectations and raised guidance and is simply caught up in a rate-drive REIT sell-off that doesn't really apply to their type of business.  I think one more quarter is enough time for buyers to step in on this one.

    Both of those are still good for new trades – the other 3 took off too much already.

    Submitted on 2019/10/01 at 9:36 pm

    LABU/Batman – An old favorite.  This is where we liked them in 2016 and they went to $100 and I agree with your premise – a lot of stocks in the sector got oversold and there's still so much potential going forward.  Not sure I want to be the knife-catcher but very worthy of putting on the Watch List and we'll play close attention to earnings and guidance from their top holdings:

    Oops, turns out they are very diverse actually.  Top 10 only 13.47% of Total Assets:

    S&P Biotechnology Select N/A 3.71%
    Genomic Health Inc GHDX 1.27%
    Invitae Corp NVTA 1.25%
    Sarepta Therapeutics Inc SRPT 1.11%
    Immunomedics Inc IMMU 1.07%
    FibroGen Inc FGEN 1.04%
    Neurocrine Biosciences Inc NBIX 1.03%
    bluebird bio Inc BLUE 1.00%
    Mirati Therapeutics Inc MRTX 1.00%
    Alnylam Pharmaceuticals Inc ALNY 0.99%
     

    Still worthwhile.

    Submitted on 2019/09/25 at 3:49 pm
    • ArcelorMittal's (MT +3.2%) South Africa unit says it may close some operations, as it battles cheap imports, rising costs and a weak local economy.
    • The unit says it plans to review some of its major operating sites, individual plants and production areas, but will exclude its coke operations and the Highveld Structural Mill.
    • MT says it has started consultations with employees and trade unions on jobs but does not offer further details; the unit said in July it planned to cut more than 2K jobs.

    That's another one for the Watch List!

    Europe economy is very tricky but I love MT for the long run.

    Other possibilities for the Watch List:

    BBT – Kind of like STT – doesn't get the respect the other big banks do.   They are buying out STI so that's hurting them for now but it's a good acquisition that will make them the 6th largest bank in the US.

    Now that HOV made a comeback LEN is on the top of my list at $55 in the real estate space.  That's $17.3Bn and they are good for $1.2Bn at least so p/e around $14 and I like that they do mortgage and title and rentals – they squeeze money out of every part of the transactions.  

    TRV is in the Dow but I like them anyway and $146.85 is $38.2Bn and they are making a very steady $2.8Bn so 13.6 p/e but bonus points for being an insurance company.  Also, consider the low rates they are getting for their investments (insurance companies have tons of reserves to invest) and it's even more impressive.  TRV doesn't do health so big bonus there – more than 1/2 is Business Insurance and Bond Insurance is 25% and the rest is mainly homeowners.  Hopefully they come down with the Dow.

    VLO is one we like to play when they are cheap and either oil prices are going lower (good for them) or gasoline prices are going higher (good for them) so $84.24 is $35Bn and they make $2Bn in a bad year and $3.5Bn in a good year so p/e between 10 and 17 – depending which way the wind blows. 

    WFC is worth watching as they are still very cheap (scandals) but mostly out of the woods.  You would think their reputation would be shot and people would avoid them but no – no one seems to care.  $49 is $216Bn and this year they will "only" make $22Bn while they rebuild their reputation – awww….  

    GS is also still very cheap at $213.50 ($76.75Bn) as they are dropping $9Bn to the bottom line so p/e below 10 is kind of silly.  Hopefully it gets sillier. 

     

    URI mostly makes money renting construction equipment and $128.68 is a bit less than $10Bn and they made $1.3Bn in 2017 and $1.1Bn last year and in Q1 and Q2 they made $440M so I certainly want to wait and see if they can pull over $300M this Q to be on track for $1.1M  – the revenues are there, the earnings were just light but could just be a buying cycle for them.  Long-term, it's a rock-steady business.  Might even be good for a Butterfly.

    CAT is still cheap below $130 and I pray for another sell-off on them.  

    So there's a few to build a list off of.  Of course I like to watch them for a while and also see which ones have the best-priced options but that's a nice group we can begin building a portfolio off of – when they go on sale!


  16. CarMax (KMX) has earnings tomorrow and is pretty interesting at $86.50, which is $14.3Bn.  They are on a good path towards $1Bn in earnings in 2022 so $15-20Bn valuation brings them up to about $110ish.  They also have a block ($12.9Bn) of non-recourse debt on the balance sheet that isn't the same kind of detriment collateralized debt it (though they still have to pay it, of course).   

    The notes are how they secure funding for used cars, which they buy at auction and sell.  They get the cash from outside investors rather than borrowing it but KMX is more of a broker of the notes than a holder – just silly accounting rules put the NR's on the balance sheet.  Stuff like this just doesn't fit in standard valuation models so KMX keeps trading below its real value.

    In the markets CarMax operates in, they have a 4.4% market share but only 3.3% of the US Market – so there's your room for 33% growth right there.  You know I hate to chase though so this is on our Watch List and we hope they miss tomorrow though they average a 7.5% beat and expectations ($1.33) are not very high for the summer quarter (ended 8/31).  

    Year End 28th Feb 2014 2015 2016 2017 2018 2019 TTM 2020E 2021E CAGR / Avg
    Revenue $m 12,574 14,269 15,150 15,875 17,120 18,173 18,747 19,629 20,751 +7.6%
    Operating Profit $m 797.3 969.3 1,010 1,006 1,064 1,113 1,144     +6.9%
    Net Profit $m 492.6 597.4 623.4 627 664.1 842.4 870.5 873.2 907.7 +11.3%
    EPS Reported $ 2.16 2.73 3.03 3.26 3.66 4.79 5.05     +17.2%
    EPS Normalised $ 2.16 2.73 3.03 3.26 3.66 4.79 5.05 5.27 5.67 +17.2%
    EPS Growth % +15.5 +26.2 +11.0 +7.5 +12.3 +30.7 +30.5 +10.0 +7.53  
    PE Ratio x           17.7 16.8 16.1 14.9  
    PEG x           1.77 1.68 2.13 0.95
    Profitability

    You can sell the 2022 $70 puts for $8 and that's net $62 – I think that's very reasonable and, in the LTP, I would sell 5 for $4,000 and then see how things play out but we have no LTP at the moment – so we'll just see how it goes.


  17. CBS and VIAB are supposed to merge, not sure if that changes the recommendation


  18. Phil / MU – on watch list…. this one is a bit tougher.   While I think Trump will sign a deal and at a minimum delay Dec Tariffs as well as rolling back the Sept ones…. I'm not sure what he will do with Huawei  with is the main culprit behind MU's woes – They are more into the Comms side of Huawei.  This should be a 55 to 60 stock w/ 5G as that main catalyst…  Worst putting on Watch list


  19. Submitted on 2019/09/20 at 11:32 am

    Long-Term Portfolio Review (LTP) – Part 1:  $1,724,780 (up 245%) is a very nice way to finish off our slightly less-than 2-year run, adding just under $500,000 since our last review, which was down $319,238 from the 7/19 review and what did we do?  We ADDED to our positions while they were down and we doubled down and we rolled down and we bought back short calls – not on all of them – but on the ones we had the most faith in.

    THAT is why we now have a net $200,000 (ish) gain since July 19th – well that and the market's insane ability to snap back from pretty much anything.  Again, this is why we cashed out – we could just as easily lose $300,000 next month so we'd have to spend $100,000 more (at least) protecting the LTP in the STP and, right now, we can just quit with a combined $2.5M from a $600,000 start – that's up over 300% in our paired portfolios in 2 years – why risk it at all?

    I will note the "keepers" – which means for me they are going straight to our Watch List and, IF they get cheaper – THEN I may want to start a new position but I'm very happy with where we've gotten to and, as I noted yesterday, the current global uncertainty is going to require a different kind of portfolio than the ones we've used for the past two years – and a lot of contemplation.

    • NAK – Keeper, very speculative.

    FTR – Keeper.

    GOLD – It's a $20,0000 spread at net $8,700 so plenty of room to run and I have faith and it's a great inflation hedge so – keeper.

    • AAPL – Still my favorite stock.  This is a $120,000 spread that's in the money netting $32,837 so of course it's a keeper!  10 Sept $190 calls at $32 would have to be rolled to 10 March $220 calls at $14.80 and 10 March $200 puts at $7.60 but that's a very nice $30 ($300,000) roll on the short calls for net $9,600.
    • ALK – $30,000 spread in the money at net $6,050 and it's risky with high oil prices but generally a keeper for the same reasons we liked them in April.
    • BBBY – Finally profitable but too crazy to keep in a risky market. 
    • BNS – Great dividend payer at the money so keeper.

    CELG – This one you can keep until they get called away when the deal closes.  We should have sold 100,000 more puts when they dipped down to $88 in July!

    • CLF – If there's a China deal, this one could explode and, if not, I still like them so keeper.  
    • CPRI – I was going to write disappointing – I didn't realize they had popped so much.  See – that's a new one and already up $8,750 off our $300 credit entry so 3,050% gain in 3 months is not bad…  It's a $30,000 spread netting $8,450 and they were stupidly undervalued so – keeper. 

    Of course, if the LTP wasn't full of keepers then we would have been doing something very wrong, right?

    IBM – Trade of the year so keeper if you want but I'd cash out these and go with the one we put up yesterday.  

    IMAX – I think they are ready to pop into next Qs earnings (end of Oct), should be at $25 so if you cash 20 of the Jan $19 calls for $3.70 ($7,400) and roll the other 20 to the March $20s at $3.30 ($6,600, $800 in pocket) and sell 20 of the March $25s for $1 ($2,000), that's $10,200 off the table and the $10,000 spread is the keeper.

    LB – Arrrgh!  I'd buy back the 2021 $30 puts at $12.80 ($38,400) and sell 50 of the 2022 $25 calls for $3.75 ($18,750) so 1/2 covered with the year-longer calls so that's about $20,000 to keep the long spread without as much downside risk.  I'd just hate to not be there when it pops.  Earnings not until 11/20.  

    LMT – Stock of the Decade for 2020 and deep in the money on the $17,500 spread at net $115 but the Sept short $360 calls at $33.55 ($6,710) have to be rolled to the Jan $370 calls at $32 ($6,400) for $310 out of pocket and, if you do that every quarter for the next 12 months you'll have the short $410s but, if Jan doesn't work, you can just sell puts to and widen the spread.

    NLY – My favorite REIT is a keeper. 

    NYCB – Solid dividend payer, right on track is a keeper

    RH – Only $32,325 out of $50,000 potential and $39 (30%) in the money is a keeper.

    SKT – My other favorite REIT – keeper.

    SKX – Amazingly, this $28,000 spread that's $8 (27%) in the money is only net $12,625 so keeper!  

    SPWR – We should just make a portfolio for these kind of plays – it's a $40,000 spread that's $3 (25%) in the money and just net $21,690 – keeper!  

    THC – Keeper but I'd sell 15 Jan $26 calls for $2.85 ($4,275) for a 60% cover to lock in the gains.

    WBA – You know that's a keeper!  

    WHR – 15% in the money on the $45,000 spread at net $27,369 is a China trade worth keeping.

    WPM – My precious!   A $37,500 spread at net $30,305 is not worth keeping but we are always sorry to let them go and we always get an opportunity to play them again so – fingers crossed.


  20. From CNN:

     

    Winter weather 

    Winter is DEFINITELY here. The US is in for a record-breaking Arctic blast this week that could cause temperatures in some part of the country to plummet to 30 degrees below average. The National Weather Service predicts that more than 200 record lows could be tied or set from Monday to Wednesday. The Great Plains area will probably get hit first, and then the cold will move east over the week.

    Phil -Shouldn't this affect /NG ?   Or is it already priced in ?  I know you commented on it's action late last year.


  21. IBM   What was the trade yesterday?


  22. Keep in mind that last set is all from our last LTP Review – not current picks – this is our new watch list which I will hopefully formalize once we see who's still worth watching.

    HBI still a solid buy:

    From Top Trades:

    Top Trades for Fri, 08 Nov 2019 15:12 – MO

    Top Trades for Tue, 29 Oct 2019 10:22 – NLY

    Top Trades for Fri, 25 Oct 2019 11:46 – Dividend Portfolio

    Top Trades for Tue, 22 Oct 2019 14:37 – IRBT

    Top Trades for Tue, 15 Oct 2019 11:04 – MJ

    /KC) and SPWR" rel="nofollow">Top Trades for Mon, 07 Oct 2019 12:11 – Coffee Futures (/KC) and SPWR

    Top Trades for Thu, 03 Oct 2019 11:39 – LABU

    Top Trades for Fri, 27 Sep 2019 13:22 – TXN (short) and TCNNF

    As a short on TXN, I'd go for:

    • Sell 3 TXN Jan $130 calls for $6.25 ($1,875) 
    • Buy 5 TXN Jan $140 puts for $14.50 ($7,250) 
    • Sell 5 TXN Jan $125 puts for $6 ($3,000) 

    That's net $2,375 on the $7,500 spread so $5,125 (215%) upside potential if TXN is below $125 into Jan.   Ordinary margin is $7,179 but hopefully short-term and a nice return either way.

    Also, we talked about Truelieve (TCNNF) who are still cheap at $8 (I liked them at $9.15 two weeks ago!).  They failed the falling 50 dma but Kim is speaking at a conference on the 2nd in NYC so this might be a good time.

    $8/share is $883M – I'd buy the whole thing for that price!

    Top Trades for Thu, 19 Sep 2019 11:19 – MDR and CASH!!! Call

    At the moment, I'd buy the 2021 $1 calls (now $1.35) and wait on selling the $2 calls (now $1.05) as long as we hold $1.50 on the stock.  Hopefully we pop back over $2 and we can get $1.25 for the $2.50 calls (now 0.95 with a 0.75 delta).


  23. Phil, totally off on a different subject question, but in all the years I've been associated with PSW I can't remember any discussions about rental property – as in ownership of not not strictly for vacation purposes, but also when it pays for itself.  I have always valued your input on mortgages, and with your advice I have never owned a home without paying additional each month towards the principal.  You've always talked about your residences in New Jersey and now in Naples, but I'm not sure I know your views on owning a second home as a good place to park some money.

    Anyone else with views I would be interested to hear them.


  24. rperi – rental property – I would not say that I am an expert, but I have owned multi-family apartments and commercial income property. There are a few things I would suggest you consider:

    1. In most real estate, the money is made on the buy and on the sell. Everything in between is similar to purgatory. 

    2. You have to consider that there are times when the property in question may not be liquid. If you have vacancy during that time, it may cause cash strain.  Be prepared for the worst – can you carry the property through a 12 month vacancy?

    3. For multi-family, you may wish to avoid properties at the smaller scale where you do not have sufficient resources to hire a property manager. It sucks to be mopping up a basement on a holiday weekend, or fixing a roof during torrential rain. Are you qualified to self maintain? 

    4. Tenants come with issues as well, and you'll need to educate yourself on local laws to ensure you handle things properly. Other than the buy and sell, there is nothing more important than tenant screening. Become good at it and you'll save yourself a number of problems.

    5. Line up any local service providers you may need (electrician, plumber, carpenter, snow plow, attorney) before you buy the property. Find out in advance if they will perform service on weekends/nights/holidays, which is when you'll need some of them the most.

    6. Understand the local market at the time of your purchase. Is the smart money buying or selling? Are you aware of additional development in the area? Planned public construction? How will the latter affect your tenant(s)? 

    That's it off the cuff, but happy to discuss further if you need to. 


  25. CBS/Stock – I don't think it hurts their value so puts will still go worthless – just hard to trade out early.  That's why we're waiting on the bull call spread. 

    MU/Batman – Are you saying we SHOULD put it on the Watch List?  I like MU when they are cheap but they are not cheap now (though getting a bit less silly in the past week).  $46 is still $52Bn in market cap with $23Bn (erratic) earnings and $6Bn in very erratic profits.  

    Year End 29th Aug 2014 2015 2016 2017 2018 2019 2020E 2021E CAGR / Avg
    Revenue $m 16,358 16,192 12,399 20,322 30,391 23,406 20,724 25,101 +7.4%
    Operating Profit $m 3,082 2,950 164 5,839 14,609 6,980     +17.8%
    Net Profit $m 3,045 2,899 -276 5,089 14,135 6,313 2,773 5,876 +15.7%
    EPS Reported $ 2.54 2.48 -0.27 4.41 11.4 5.51     +16.8%
    EPS Normalised $ 2.77 2.51 -0.22 4.43 11.6 5.97 2.54 5.32 +16.6%
    EPS Growth % +894.5 -9.6     +162 -48.5 -57.5 +109.4  
    PE Ratio x           7.90 18.6 8.87  
    PEG x           n/a 0.17 0.18
    Profitability

    Let's call their profits $4Bn so about 13x earnings is fair for a company with this much up and down but I'd rather buy them in a down cycle, which they are probably heading into next year.  This is Q1 of next year for them – they report 12/17 so 1Q already shot with Huawei and not likely to be resolved by Q2 either and now they have to go 5 nm compatible to keep up with Apple's new chip sets that will quickly spread to all devices - that's EXPENSIVE!  

    Image result for what is a nanometer"

    /NG/Albo – It SHOULD but I don't like the action in face of this "news" – I think it was already priced in.  

    Homes/Rperi – I'm all in favor of owning properties if you rent them, but not just for fun – that's a waste unless you maybe live in one place and spend more than 1/3 of your time somewhere else and the convenience of having a permanent place has value.

    Any other property I own I rent when I'm not using it – seems like a total waste otherwise.  I bought a ski condo in Killington, for example, for $80,000 in 1985 and we used it maybe 3-4 weeks a year and I just sold it for $115,000 but we never paid taxes or fees as the renters covered it all so it ended up being a free place to go when we wanted to ski.  Of course, had I bought AAPL for $1/share back in 1985, I'd have $20,800,000 – but I would have spent maybe $70,000 on hotels when we went skiing – SO WHO'S LAUGHING NOW?  (Hint: It's not me…) 

    As with any investment, the question is: Do you have something better to do with your money?  As I've gotten older and wiser, I feel very confident we can average 20% in the market pretty consistently so it puts a very high bar on justifying buying real estate as an investment as it doesn't compound like portfolio money does. 

    The advantage of real estate is mainly to undisciplined investors as it forces you to put money aside into an appreciating asset (while depreciating the asset for taxes) but I, for example, I want to go to Disney for 2 weeks a year, I could buy 300 "Vacation Points" for $56,000 and that should get me a nice 2 or 3 weeks in the park for 25 years (they expire) and taxes are about $1,200 and fees are about $1,500 so $2,700 a year means I'm paying $900 a week anyway.  

    I just looked at Disney (and I already have some for 20 years), so I'm using that example but a 1Br in the park is currently $500-800/night so, for 3 weeks, I would spend $10,000 so it's a good deal and inflation goes up and the fees go up and taxes go up but my points remain fixed.  

    Anyway, so if I took the same $56,000 and played our 5 Trades to Make $25,000 back in Aug, I'd already have $26,000 in profits which pays for 2 years of vacations anywhere I want or I can let it ride and make $40,000 more and then $60,000, etc.  So, as you often hear me say re. Futures bets – my attitude is I keep it in the market and, if I do well – we get a suite on a cruise in the Caribbean or, if I do poorly, we go visit Grandma for a long weekend.  

    And what Deano said.  We had a fire in Killington (in the building not my unit but they declared the furniture totaled due to "smoke damage") and lost a season of rents AND had to buy more new furniture than the insurance covered AND they raised the association fees to cover common area damage.  

    And what Deano said re. property manager – I only buy properties that are already managed though I do sometimes partner in multifamily homes as long as my partner is going to be the anchor tenant and on site.

    Also in Killington (and the reason we barely made money after 35 years) – we were the closest property to the mountain but then Killington closed what used to be a sledding hill and allowed a whole new hotel to be built there, right at the base – that killed the resale value of our units.


  26. Phil / SPWR –  I presume you've seen the announcement that SPWR will split into two companies sometime next year.

    "SunPower will continue as a top North American distributed generation, storage and energy services company, while newly formed Maxeon Solar Technologies will spun off as a global manufacturer and marketer of premium solar panels."

    Another company in the renewable sector is could be of interest is Enphase Energy Inc (ENPH). It's a turnaround story, where the  fundamentals are improving rapidly and it's options have extended expirations with very high IV. Worth a look?


  27. Thank you Phil and Deano, good insights and I very much appreciate it.


  28. What portfolio has the PFE short put position?


  29. SPWR/Eric – Saw it and forgot.  Won't be a good Stock of the Year then.  I will look at ENPH, thanks.

    PFE/Tangled – That's in the Dividend Portfolio. 

    PFE only pays $1.44 (3.86%), they used to pay closer to 5% so that's a shame.  The stock is $38.68 now and the 2022 $35 calls are $5.50 and the $35 puts are $4 so net $29.18 on, say, 500 shares ($14,590), called away at $35 ($17,500) is a $3,090 gain (21.1%) and the dividends are another $1,440 (9.8%) puts it a bit below our goal (like T) but we have to weigh out the safety of the pick as well, which counts for something.  I'd say strong contender but not a definite winner. 

    There's no law, by the way, that says we can't just sell 5 of the 2022 $35 puts for $4 ($2,000) and let that be that on the trade.  People get hemmed in by "definitions" and, just because it's a dividend portfolio, doesn't mean we're FORCED to buy stock all the time.  We wish we hadn't missed the pop in PFE, we WISH we could buy in at $31 and the dividend is $560 less than the short put and the margin (ordinary) is only $2,059 to collect $2,000 – I think that's efficient enough that we should play it that way instead.

    So, officially, for the Dividend Portfolio, let's sell 5 PFE 2022 $35 puts for $4 ($2,000).

    We're selling the puts for more than we'd collect on the dividends for 2 years and our worst case is the net $31 entry, so hard to lose.  


  30. PFE – Apologies.  I looked there but missed it at the top.


  31. MU

    Just because Apple is supposedly using 5nm tech to build their parts at some point doesn't mean Micron needs to follow the same time frame.  The big kicker with moving to new process tech is wafer efficiency, power consumption, and speed.  For DRAM, Micron will gain nothing on the speed front because the transfers that benefit from the node shrink are within the chip.  Access to DRAM is slow because it is routed across the PCB so it is the interface between the CPU and DRAM that is the bottleneck.  There are notable power consumption advantages to a node shrink but those aren't too big of a deal--even for mobile, DRAM power consumption is small compared to the radios or the main processor. 

    The biggest gains for Micron from a node shrink are in the number of chips you can create on a single wafer which matters for Micron's cost more than anything.  They will need to shrink to a smaller node, but that won't happen until it is the most cost efficient way of producing parts.  They won't move for any other reason.


  32. MU/JPH – Not the same time frame but it's the beginning of the next spending cycle for chip makers when a big company like AAPL starts adapting the next generation. I don't think they need to upgrade their chips so much as the interface as the memory is now beginning to slow down the processor.  I'm just saying they are entering an R&D cycle with inventory that may have to get moved at lower margins at some point – just the normal business cycle for them and then they get to coast for a few profitable years again down the road until they have to catch up with 2nm or maybe Quantum at that point….

    Researchers at Caltech have developed a computer chip that can store quantum information in the form of light, at the nanoscale. The breakthrough is the latest step towards quantum computers and networks, which would allow information to be processed and transmitted faster and with smaller devices.

    In traditional computer memory, an individual bit of information is stored as either a 0 or 1. Though still in the experimental phases, quantum computers work on the same basic principle, storing data in quantum bits (qubits). The difference is that thanks to the quirks of quantum mechanics, qubits can not only be either 1 or 0, but both at the same time, allowing them to hold data much more efficiently. Optical quantum devices like the new Caltech chip store and carry that information on photons of light, which are fast and secure because they have no charge or mass.

    "This technology not only leads to extreme miniaturization of quantum memory devices, it also enables better control of the interactions between individual photons and atoms," says Tian Zhong, lead author of a study describing the new chip.

    The Caltech chip is made up of an array of memory modules, each one measuring 15 microns long and 0.7 microns wide, making them about the size of red blood cells. These modules contain optical cavities made of crystals doped with rare-earth ions that are designed to trap and hold photons. After cooling the modules right down to about 0.5 Kelvin (-272.7° C, -458.8° F), the team used a heavily-filtered laser to beam a single photon into each module, where it was absorbed by the rare-earth ions.


  33. Phil  / MU yes – should put on watch list…  think around 40 is a reasonable place to look at selling some puts or maybe a BCS of 35 to 55  or even 35 to 60. 


  34. rperi- It depends of where you buy. It truly is location, location and stamina. Have had investment properties all my adult life and if you think the home you live in has maintenance problems just have a rental. It is literally non-stop. And stuff happens all the time.!! BYW this artic blast is for real. Northern Wisc has been 12 degrees with the wind chills below 0 all day!!! I stick with investments though I admit I have one, Lake Superior waterfront, but no mortgage and it will be gone very soon, but now is not exactly the selling season! I've had no expenses per se since I've done the airbnb, nut that's not fun either.





  35. The truly frightening thing about Nikki Haley’s big revelation