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The Post-Christmas Post

Image result for thailand you are here mapGreetings from Thailand! 

I'm on the other side of the World working to finalize a deal for PSW Investments and two of our Investment Projects:  Hemp Boca (a CBD company) and New Age (manufacturer of Jade House Genetics THC products) to help create a Hemp and Cannabis Farming Industry in Thailand.  It's a huge project and I just got here this morning, which was last night for most of you and now it's 8am, EST and 8pm in Thailand and I already over-napped from trying to be up at 7.

Also, I have to be up at 3am to catch a 5am flight north from Bangkok up to farm country and that's only 7 hours from now and then I have 2 very full days of meetings so I'm going to be realistic and say that this is the post that is going to cover both Thursday and Friday's markets and I will try to catch up in the Live Member Chat Room but, for the next week – your "live" and my "live" are happening at very different times of day – so bear with me…

Not much has happened since Christmas Eve and the time between Christmas and New Year's is notoriously the slowest market week of the year.  Only 20M shares traded on the S&P Index (SPY) on Tuesday, the lowest level of the year, so we can't draw any conclusions from the trading action, which has generally been flat since Dec 20th at 3,230 on the SPX (/ES Futures).

Before that we were flat since the 16th and, before that, flat since the 9th so it's been 3 flat weeks in a row on the S&P 500 yet we've gained 100 points (3%) thanks to one big surge on the 12th and another one on the 20th.  Other than that – flat!  That's an entire month's "rally" that actually has very little support should the markets decide to pull back once the volume returns in a couple of weeks. 

So we're still approaching the market with a bit of caution and Asia was pretty flat today, waiting for the US to open and now Europe is flat too – so it's all up to US markets and what kind of mood they are in in about an hour.   It's going to be very difficult for stocks to keep up the 2019 pace – especially when you consider that Apple (AAPL), for example, begain 2019 at $150/share and is ending it at $284, which is up $134 (90%) and each point of a Dow component moves the index 8.5 points so Apple alone bumped the Dow 1,139 points or over 20% of the 5,500 points (24%) the index added for the year.

Pie chart showing the weighting of components in QQQAAPL is also 12% of the Nasdaq, along with Microsoft (MSFT), Amazon (AMZN) and Alphabet (GOOG) and, if you throw in Facebook (FB), you have 5 company making up 46% of the entire index – so why do the rest matter at all?  For AAPL to gain 10% last year meant the stock had to add $60Bn in value but now, for AAPL to gain 10% in 2020 – it will have to add $120Bn in value – that's getting to be a tall order and if MSFT, AMZN and GOOG want to keep up – that's getting close to $1Tn that has to be justified. just in those 4 stocks, to get another 10% gain out of the Nadaq.

Keep in mind that we're asking this of a GDP that has grown and is forecast to grow less than 2% in 2019 and 2020.  As much as I love AAPL (it was our Stock of the Year selection for 2013, 2014 and 2015), we thought $135 was well-valued in 2015 and did not pick it again fro 2016, even as AAPL faded back below $100 and they were flat that year (WPM was our pick) but then exploded higher to $175 in 2017 and then $225 during 2018.

AAPL made $71Bn of Operating Profit in 2015 and this year (their year ended in Sept) they made $64Bn in operating profits – that's a lot less!  NET Profit, however, is up from $53Bn to $55Bn – almost 5% yet AAPL is almost 200% higher than it was in 2015 so I feel we were VERY justified in picking sub-$100 AAPL as our Stock of the Year 3 years in a row but also – don't you think maybe we're over-valuing things a bit in 2019?  In the very least, here's an example of traders paying 200% more for $1 of profit than they did just 4 years ago – can that pace continue?

Year End 28th Sep 2014 2015 2016 2017 2018 2019 2020E 2021E CAGR / Avg
Total Revenue
$m

182,795 233,715 215,639 229,234 265,595 260,174 275,599 296,713 7.31%
Operating Profit
$m

52,503 71,230 60,024 61,344 70,898 63,930     4.02%
Net Profit
$m

39,510 53,394 45,687 48,351 59,531 55,256 56,488 61,009 6.94%
EPS Reported
$

6.45 9.22 8.31 9.21 12.2 11.9     13.0%
EPS Normalised
$

6.45 9.22 8.31 9.21 12.2 11.9 13.1 14.9 13.0%
EPS Growth
%

+13.6 +42.8 -9.88 +10.8 +32.6 -2.65 +9.94 +14.2  
PE Ratio
x

          23.9 21.8 19.0  
PEG
 

          2.41 1.53 2.31  
 

And you could almost justify paying what is now $1.3 TRILLION (22x) for AAPL's $55Bn in Net Profits because AAPL is really, really cool but is that enough to justify an 80% rise in the ENTIRE 2,000+ stock Nasdaq?  I could, of course, give you just under 2,000 examples where that is clearly the case – AAPL is an exception but not because their performance grew but because they were so ridiculously undervalued coming into 2015.  Finding stocks at that kind of value (below 10x earnings with solid growth) as 2019 draws to a close is almost impossible.  

At this point, we're just letting the year play out and we'll see how things start off 2020 next week and, if things haven't collapsed by Jan 6th, when I'm back at the Command Center – we will have to rummage through the rest of the Nasdaq and the entire NYSE to find a few more bargain stocks.  Meanwhile, we have our Secret Santa's Inflation Hedges for 2020 to play with because, if 2020 is going to be like 2019 – Inflation cannot be far behind.

 


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  1. Hi Phil, have a great trip – keep safe, keep alert and enjoy yourself.

    Thanks for all the wisdom and insights shared and look forward to more of the same in 2020.



  2. Most indices are up close to 10% since October. Are earnings also up 10%? Is the world growing 10% faster. It looks like we are simply trying to push these indices as high as we can to make some good numbers for year, fundamentals be damned! I am happy to take the money but I am worried about the price to be paid later.


  3. It's amazing that we keep on talking how the economy is so great – although growing at 2% was not considered great when Obama was in charge. But it's easy to grow at 2% when you pile on the deficit:

    Image


  4. Democratic insiders: Bernie could win the nomination


  5. American Dream: can this giant New Jersey mega-mall revive US retail?




  6. We calculated emissions due to electricity loss on the power grid


  7. occasionally I like to highlight interesting option trades.  On Dec 24 someone bought 5300 August $80 calls on BYND. Previous open interest was 14.   Almost $6,900,000 premium.  Phil might say  they could have been sales but the trade was closer to the asked price. Either way , looks interesting. 

    (batman)


  8. Good evening!

    There was a very cool eclipse today:

    It didn't look that cool in Thailand but it was very long – from about 10am to 2pm the sun was partially blocked.  It was apparently better further south.  Other than that, things have been uneventful on my first day in Thailand but we leave at 4am (5 hours) to head up to 2 days of non-stop meetings.

    Thanks Winston, Happy Holidays. 

    Big Chart – Bubblicious!

    Deficit bubblicious too….  If we add $1Tn in a "good" economy, what will we have to add in a crisis?  Can we pop our deficit 10% higher in a year?  20%?  And the QE marches on as well.

    I'm off to bed soon – will try to get some notes in before I leave (and before the close).  





  9. The insane news cycles of 2019


  10. Best short for 2020?

    CMG

    TSLA

    NFLX


  11. colter All gambling stock. I posted this morning the following comments, slow but surer.

    We need to look at some more basic trades!!!!

    Yodi 

    Sorry tried to copy my trade on CBRL, which I recommended Dec 14th. but I just can not get the copy to show up. Interesting how this trade did develope in just 12 days.
    yodi
    December 26th, 2019 at 3:54 am | Permalink | Tweet thisIgnore this user    

    The same, my IBM poor man's trade of same date shows on two option trade only a profit of 448.00.


  12. That certainly helps:

    https://www.engadget.com/2019/12/26/huawei-denies-75-billion-china-aid-report/

    Huawei may not be as much of a self-made success story as founder Ren Zhengfei has consistently made the company out to be. According to The Wall Street Journal, the Chinese government has granted as much as $75 billion worth of financial assistance to Huawei, allowing the company to spend more freely than it would have otherwise been able to.

    As they note, other countries help their domestic companies (see Boeing, Airbus and others), but that's a lot of money!


  13. StJ, in PSW you are an asset by yourself and Yodi is the other one!


  14. Thanks Avill only few listen see above. Curious to know if any one followed these plays.


  15. yes Yodi , a lot of us follow your plays….thank you!


  16. Yodi, Also among who follow your recent and older posts closely. Your recent discussions with Winston were very informative.

    I have followed you into a small position on WVE. Thx


  17. Good morning!

    I see we're holding those opening gains – that's nice.  

    Of course the Dolllar has been sacrificed to get us there.

    BYND/Stock – One of our Stocks of the Future.   That's a list we have to get back to accumulating after New Year's.  They actually made $5M last Q and, while that's a mile from justifying a $4.7Bn valuation at $76, they are manufacturers and should scale up well and they have been supply-constrained in sales with growing demand so I think they do $600M next year and make $100M and that's still 47x but I think they cover it by 2022 easily and they can grow from there (fish, chicken, pork, better meat) so I like them for a long-term accumulate – starting with short 2022 $60 puts at $14 – that's a net $46 entry (26% off) as a worst case. 

    Best Short/Coulter – TLSA too scary to short, could win in Batteries, Cars or Solar and burn the shorts.  NFLX has such an audience they would be hard to dismantle quickly and, though $333 is $147Bn and they only make $1.2Bn – they do spend about $12Bn on content so it's POSSIBLE, at any time, for them to dial that back 10% and double profits (only have to do that in any Q to make the trend their friend) and burn the shorts.  I would play NFLX to ultimately be doomed – but could be a lot of short-term pain while you play.

    CMG, on the other hand, is a F'ing RESTAURANT.  They already have 2.500 locations and 80,000 employees (MCD has 210,000) so there's a physical limit to growth and $833 is $23Bn and they are making $391M this year and even if you give them $500M next year, still 46x earnings for a RESTAURANT that doesn't have any serious chance of giving you an upside surprise so they could either miss a Q or risk appetite could change and down they go.  That makes them the best short to me.

    For a CMG short, I would:

    • Sell 2 CMG June $900 calls for $40 ($8,000)
    • Buy 4 CMG June $875 puts for $80 ($32,000) 
    • Sell 4 CMG June $825 puts for $55 ($22,000) 

    That's net $2,000 on the $20,000 spread that's $16,000 in the money to start with an $18,000 upside potential if CMG drops $12 (1.5%) while a 10% gain to $920, would cost you $4,000 more (assuming a total loss on the bear spread and no intelligent rolls).  

    It's risk/reward that makes a "best" short – not just whether or not you think a company is over-priced….

    CBRL/Yodi – Now that's a restaurant with a reasonable price. 

    I trust our Phil is an expert in restaurants.

    I looked at CBRL (154.21, for my member friend today), a bit pricy stock with a div. of 3.37%, or 1.30 per quarter. Please note the stock is on the low side of the scale, my favorite positions, positive cash flow. PE 16.95.

    Due to the high price I will set up two plays for you to choose.

    A)    Armchair but on short monthly strangles.

    Simple buy the stock 154.20 2x and sell the jan20 2x 157/150 strangles @ 4.32 giving a combined average monthly income of 2.75%, buying 200 stock and running two option strangles, provides an income of 849.00/ p.m. Your capital investment is 34,850.00, yes a hefty sum. Obviously you can start with one, half the cost and half the income.

    You wish to make the armchair more lazy you sell the Mar 20 160/150 strangle @ 8.85 but your monthly income is reduced to 2.06% p.m. as you see as lazier you are as less you will receive.

    B)    My poor man’s trade. Here NO div.!

    Buy the Jan 22 2x 135 call @ 23.80. Just for comparison the Dec 19 135 call is sold for 18.95! So you are paying a premium of 4.85. or 970.00

    Your initial cost 23.80 x 200 = 4,760.00. should the stock be at Jan 22 the as today the long option would pay 18.95 x 200 = 3,790.00 minus 4,760.00 initially paid = (-970.00)

    Sell Jan 22 1x only 120 put @ 9.80 = 980.00.

    As you can now already see the extra premium you paying for the call is taken care of just by selling one Jan 22 120 put option!!!!

    Now the above is you leap position, which if the stock stays the same will be at zero cost.

    By just selling one monthly strangle only  the Jan 20 157/150 @ 4.32, brings 432.00 per month on zero cost investment. You can naturally sell two strangles per month at 864.00.

    TOS PM margin shows 2,615.00. By selling one monthly strangles, it will give you more options if you have to roll any options.

    The above can be done obviously in any multiples as suits you pocket.

    Huawei/StJ – Yeah, I'd say $75Bn is a lot but who know's what's true these days?  Ren doesn't actually own it – he only has 1% and the other 99% is supposedly "employee owned" yet no one's ever met a millionaire employee of Huawei and suspicions are it's 99% owned by the Chinese Government and Ren is just a figure-head so their $75Bn investment in the company making their surveillance tech does make sense from that perspective. 

    Huawei’s ownership is a murky matter because the company has never, in more than three decades of existence, sold shares to the public. The firm says that it is entirely owned by its employees, and that no outside organizations, including any affiliated with the Chinese government, own shares.

    But these assurances have never quite dispelled American officials’ suspicions that Beijing and the Communist Party are somehow pulling the strings. Top American officials have also been alarmed by new Chinese laws that require companies to assist in national intelligence work.

    The chief secretary of Huawei’s board of directors, Jiang Xisheng, spoke for more than 90 minutes to a small group of reporters on Thursday. The goal was to help explain the company’s ownership after two American researchers wrote a report accusing Huawei of being misleading about the issue.

    Mr. Jiang’s explanation boiled down to this: On paper, he said, Huawei is owned by a labor union that solicits donations from employees when their colleagues have health problems and the like. The union also supervises the company basketball club, Mr. Jiang said.

     

    Huawei showed reporters on Thursday what it described as evidence of its independence: a big blue book, kept behind glass and under lock and key in a drab white room at the company’s headquarters in Shenzhen, a southern Chinese city.

    Within its 10 volumes are said to be the names of all the Huawei employees who hold “restricted phantom shares” in the company — proof, the company says, that no piece of Huawei is owned by the Chinese government.

    Sounds like when they try to claim Trump doesn't benefit when Foreign Nationals and Companies trying to curry his favor stay in his hotels spending millions of Dollars….


  18. CMG trade Phil / Once more into the breach. Ease off the thai sticks! Your tenacity on trying to bury CMG with a winning short is so bodacious that against my better judgement I am following you into this trade. I want to be by your side in either victory or defeat.

    But there's no doubting the risk/reward of that setup.


  19. I gave up on CMG 100 points ago.

    Seems to me that there are less stressful trades.

    But at some point Phil, you will be right.  Just not for me.


  20. Shorting things……

    Why is everything up?, if we can’t answer that, then is prudent to calculate still 1/3  up …2/3 down


  21. CMG/Winston, Albo – I still say it's a $650 stock max in the long run.  


  22. Phil

    Have safe travels we are in the same time zone

    I am in Bohol in the Philippines across from you

    LOL


  23. Glade to hear from you guys. Thought I was trading alone on this board.
    The WVE trade. I decided to day to add still a Jan 20 put to the set. Sell 12.5 put for 2.40. Brings your break even, if you bought the stock when set up 15.80 less the 4.04 I received for the 17.5 caller. net 9.36. So having bought the stock at 15.80 and collecting 6.44 for a month play, gives me a 40% return in a 30 day play.
    You guy please set me up a similar trade with CMG and see what you get!!!!! The margin only will knock your pence off on a Jan 20 trade!!!!
    Now I go mostly for 2x so I should receive 480.00 on a 255.00 margin max loss 2020.00.
    If you are extreme careful you can sell the Jan 20 Vertical by selling the 12.5 put and buying the 10 put try to get 1.10 so the two option bring 220.00.
    Margin 65.00 and the max loss is 280.00. Break even 11.40. Well and if you did sell already the caller for 4.04, just you do the math.
    And for some members, the stock closed for 16.13 yesterday.
    You can still do the trade today, you will have to buy the stock for say 16.13 but you should get 4.15 for the caller.
    See how things work out I received here .11 less on the call but gained on the stock .23 cents.
    This is by the way always the outcome if you buy the stock in a covered call trade, naturally in a rising market. (Armchair trade)
    With the poor man’s trade it can sometimes happen that the short monthly call will rise faster than the leap long call, even that the delta of the leap is much higher. But then you are playing for the monthly gains and only you using the leap as your back-bone.
    As they say you can’t have the cake and eat it!!!!


  24. Hi Yodi!  You are not alone  LOL  Thanks for all your ideas!


  25. Hi Willson Thought I made a mistake, I guess everyone is asleep on this board???

    But let's face it there is not really any trading. But I sold the F Jan 22 10 put for 2.05 and slod the WVE Jan 20 12.5 put for 2.75 already showing spouts.

    Any one having questions which I can try to answer. Na don't make it difficult!!! Possible all nursing hangovers.


  26. I went into your WVE trade.  Don't usually the wild trades but gotta role the dice once in a while.

    Happy New Year:)


  27. Somebody called away 1/8th of my NLY at $7 last night! Must've been a few pennies to make somewhere in there. This is the second time I've had some called away right around dividend time, but I do like the downside protection of the short calls. 


  28. Obviouly if the call price plus div is less than the stock strike price even one or two cents you can expect to be called at any time especially one or two days before ex div. date, even if it is a leap call!!!!


  29. Willson Well I got 4.05 for the 17.5 call 2.75 for the 12.5 put 6.80 so how low can the stock still go.

    But who knows we wills ee.

    Happy New Year to you too.


  30. was called away on Nly 8.covers,was expecting it.still like the stock and may re-enter trade if I can find decent covers but no hurry. overall pretty flat outcome.


  31. Hard to find still horses in the stable, even my recommendation on R 11/1 has taken off great guns.

    TD is still reasonable priced to fit the armchair trade. MO is still a contender but one should have bought it at 45 now 50.


  32. Asleep/Yodi – guess so. It's the wee hours of the morning in Thailand, so Phil's either zonked out or about to wake up with jet lag.

    I noticed the indices dropping like a rock after a nice overnight rise, and if I had to guess and say it's a combination of profit taking and the plane crash on takeoff in Kazakstan. It was funny to then watch Boeing's stock price go shooting up as it was noticed that the crashed plane was an older Fokker, not a 737-max.


  33. VTR we discussed the other day I hold quite some substantial stock at 47.11. so the drop from 71 to 54 did not hurt me, but I fell for a new trade at 57 is not too bade but unfortunately it has a PE of 43.7 however a div. of 5.49 % so it is a tough one to decide. But at present at near bottom of the scale. I am running armchairs on it.


  34. UVXY- added more to an earlier position. Just a short term bet on a volatility spike assuming the melt up stops to catch some wind. 


  35. Good afternoon!

    It’s 1:30 am in Buriram and i’m just waking up after passing out around 9pm, so not quite adjusted though, in my defense, we started today at 3am in Bangkok, flew up north and spent the next 18 hours walking around farms and having meetings.  

    So, rather than ramble incoherently at 9 am, I can ramble even more incoherently now that I’ve had a few hours sleep. It appears that I have missed a lot of excitement though…

    I mean, WTF people?


  36. Hola QC!

    Thanks for pitching in with all the trade ideas, Yodi, much appreciated!

    NLY/Ati – if the premium that remains is less than the dividend about to be paid, it is worth it for someone to call the stock away and collect the dividend although, personally, I would not do that as the stock often drops the amount of the payout, negating the dividend gain.   That’s why we generally try to sell calls that have more premium than a single dividend payment so that, even if we are called away, we still got the same premium and then we just buy back the stock (hopefully cheaper than it was pre-dividend) and sell another call with more premium.  

    And what Yodi said (I should really read ahead before answering).  

    BA/Snow – What a ride! 


     


  37. /NG with quite a pullback:

    Gold is blasting higher, someone is nervous about something:

    Something wrong with China, maybe?

    And the weak dollar is masking a lot of other weakness in the indexes and also helping to boost gold and oil (but not helping natural gas, obviously).

     

     
     


  38. For some reason none of the images posted today work.  They all show the broken image icon.



  39. Germany Calls for European Firewall Against U.S. Sanctions


  40. Rite Aid’s stock has nearly tripled in 9 days






  41. 25 Tech Predictions for 2020






  42. Sorry about the images, they we’re just charts from the futures to illustrate my notes. I guess the copy function doesn’t work properly on my iPad. I did not bring my laptop on this day trip.   


  43. Yodi , Winston, STJ, Albo – thank you for the ideas and discussions you've shared on this board.  They are very educational.

    Have a good weekend everyone!


  44. Bai2r – You're welcome.  

    BTW, MDR is up 90% in the last 11 days.  Hope you're in that one.

    And thanks to Yodi, Winston, StJ and many others .  Great ideas on thus site.


  45. And , Phil, of course !


  46. Have a great weekend folks!

    - Phil


  47. CHK, Phil or anyone, wondering if it’s worth it to keep losing position, rolling, etc or too much of opportunity lost in process. Thinking bail


  48. bai2r, albo – thanks, much appreciated.


  49. Thanks guys, and while we still on the same page, You can look at it for Monday morning.

    Looking at some poor man’s trades
    ABMD 169.27 from high of 459.00!!! PE 35 positive cash flow, tumbled due to problems with their heart pump. Stock looks like being on the bottom of it’s scale!!!!
    Here my play spend 57.40 by buying the Jan22 150 call sell equal Jan 22 145 put @ 27.40 reduces your cost to 30.00.
    Sales price value of the Jan 19 150 call shows 22.60 with 3.30 of extrinsic value, so we call it 19.30, quite a drop in value, reducing my theoretical outlay to 30-19.30= 10.70
    With a theoretical cost of 10.30 on hand what do we look for?
    We start selling the Feb20 180/155 strangle for 19.05. As you can see your first strangle sale is nearly double of your theoretical cost lay out. For being even more courses, you can go for 185/150 for 15.90, 50% of your 30.00 cost.
    As always don’t take my word for it and do your own research.
    DD 63.75 bottom of scale positive cash flow PE given as 60! Forward PE 14.95, div. 1.88%.
    My play buy Jan 22, 50 call  @ 17.50, Jan 20 sales value 14.50 ( too low to find any extrinsic value) so theoretical net cost 3.00
    Sell Jan 22, 47.5 put @ 3.20, wiping already out your 3$ theoretical cost!
    Sell Feb. 20, 65/60 strangle @ 3.41, a steal at net cost of zero!
    AA 21.53 A straight bottom runner from its high days of 62 to 16.46, I think it has a hard time under the clown’s capriccios, but still for a 2 or 4x option play, it can pay my monthly camp fees.
    Buy Jan 22, 15 call and sell Jan 22, 15 put net cost 6.95.
    Sales price of Dec 27th 15 call is given at 6.50. So for .45 cents you can start selling the Feb 23/20 strangle @ 1.37 and take it from there.


  50. Question for the group/techies re Apple Air Pod Pro wireless headphones- has anyone used these to connect to a TV? I have been told of latency problems, i.e., audio/video out of sync? 


  51. Pstas/ AirPod pro – I have been using them with Apple TV. No latency, terrific product.


  52. thecrazychicken- great. Have you used them just with for "regular" TV, i.e., watching programs not through Apple TV?


  53. This one I would call a two sided knife.
    HTGC 14.10  div 9% .32 per quarter, not on the lowest side of the scale, so I would do the following,
    Sell Jul. 20 15 put for 1.50 to 1.55, having at present an extrinsic value of .60 cents, just about  the same as two quarter div., but without the purchase of the stock.  PM margin 190.00 / 1 x option play.
    The break even on stock is 13.50, so .60 cents lower than at today’s price.
    Should the stock go over 15.00 we get away with 1.50, but obviously no capital gain? Should the stock go below 13.50, well I am happy I did not buy the stock at 14.10 and I have the opportunity to roll to the next six month.
    Take it in small doses!!!!