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Q. You’ve called the top in many companies. How do you know when a company is at a top or about to top out?
A. Thanks for the kind words, but I don’t know how many tops I’ve called right over the years vs. how many times I’ve thought it might be a top and then wasn’t. You have to look at fundamentals and sentiment around the stock to find a top. A few weeks ago, I thought IBM might be topping near $200 a share, but I haven’t pulled the trigger on it because the momentum upward and sentiment was too strong my blood. That said, now that it’s cracked today, it might very well be topping and since it’s been a huge go-to/favorite for tech fund managers for the last few years, it’s likely a “crowded” long and I think there’s a chance $210 will be a top for IBM’s stock for a long-time to come.
Q. Hi Cody, thanks on DDD. It is volatile, but I kept on buying tranches in weakness from $38 down to $32 and now I’m well in the black. Despite today’s drop, why do you think the stock is so volatile? Is it simply down to the fact that it is such a revolutionary technology that many investors (and others) do not yet fully understand?
A. DDD and FIO are alike in their volatility and the reasons for it. They both are very expensive on any kind of an earnings or a sales multiple and so the price can contract 20-30% and they still are “expensive”. You’re paying a big premium for the valuations for these stocks because they have so much growth potential over the next 3-5 years, and the market won’t always be willing to pay as much of a premium in downturns and/or for whatever reason at various times.
Q. Cody: what should be our current strategy for FIO? Violin Memory has a IPO lined up to file. Insiders are selling again.
A. I trimmed down some FIO calls after its huge pop last quarter and I’ve got some nice gains across the board with the positions of FIO common and calls that I have left and I still think that the company’s scrambling to meet the demand of its customers like Facebook and Apple as they build out data centers using FIO technology. Violin’s IPO might very well cause a pop of hype in FIO as much as it might cause a drop of panic.
Q. Were you able to get the new iphone? Thoughts? iMaps used yet? Interested in any LNN today?
A. I ordered the iPhone 5 in white yesterday from Verizon. Will be here first week of November. I think the media cares more about the maps issue than Apple’s customers. I am up pretty big on LNN and it’s a fair-sized position, so I’m sitting tight on LNN for now, but if you wanted to build it up, I’d sure look at doing a tranche buy today while it’s down.
Q. What impact do you think the mini iPad will have on Apple stock?
A. Unless the new iPad mini or whatever Apple showcases next absolutely blows people’s mind the way the original iPhone did that the stock might sell off that day and perhaps a for a few days after too. Feet to fire, I’d expect a run up in the stock into the event and then a sell-the-news afterward.
Q. At what point would you buy AMZN Calls and how far out? Buying Jan 14 APPL calls has worked well for me. Thinking same for AMZN.
A. The problem with Amazon and a expiration date only 90 days out is that you’re probably going to need a broader market and an Amazon-specific rally by that time. And that’s only 65 trading days by the way. I do think Amazon’s platform strategy is going to work out well for shareholders over the next three to five years and that Amazon could even be a multi-hundred-billion-dollar company when all is said and done. I don’t know if the market will rally this stock over the next 90 days though. So I’m sticking with AMZN common for now.
Q. Good Afternoon Cody! I know your not a fan of Sprint and I only have a couple of minutes to jump on write a question and head out of the house before the wife locates me…hahahah…..At this time I am currently a stockholder with sprint. I bought them 2.20 and 3.33 last year in September at a extremely risky time at that point. Myself and the boys (the guys I work at started to lose our nerve and sold at $5.00. The plan was to hold onto them until 7 or more but with the election and other unstable situations going on we pulled the panic button 2 weeks ago. Just recently softbank has a deal with bank to buy approx 70percent of Sprint. This deal can take up to 6 months and there is fine print behind all these deals. I been keeping up with the chatter and the chatter I’m hearing is that sprint stock has a cap on the deal until its made. Can you enlighten me and explain how a deal like this comes together? Also can you also throw some light on the issue if I should buy back in at the current rate? I sold at $5 and is approx 5.73 ? Thanks for your time I appreciate any information that you can give on this type of situation. Thanks again.
A. Congrats on catching a double in S on the way up. Okay, several answers for you. A deal like this comes around as Dan Hesse, the CEO and the board of Sprint have been hustling to raise capital to try to compete better with AT&T and Verizon who have access to 10x more capital than Sprint did. Softbank has made some good money buying struggling wireless companies and turning them around with investment in technology and they think Spring affords them that opportunity here. While the deal is being finalized over the next six months, the stock will like likely bounce near these $5.70 levels. The biggest problem for minority shareholders going forward is the big convertible issuance that Sprint is going as part of this deal with Softbank. Softbank can technically short the hell out of this stock at these levels to hedge their equity bet but still keep huge upside if the stock can actually run more from the levels Softbank is buying in at. That can weigh on the stock for years to come — see Alcatel’s and JDSU’s convertibles from years past for more on that. I have no interest in risking my capital on Sprint here with that overhang but that has nothing to do with where you sold it at and the fact it’s up since then. As I always tell you guys, it doesn’t matter where the stock came from, it depends on where you think it’s heading.
Q. Hi Cody, wondering what you think about RIMM as a small position. I feel like they may have a nice little niche in third place. The company has been receiving really bad press but they seem to have been able to grow their user base despite the two 800 lbs gorillas in the room.
A. I just can’t see how RIMM survives over the next three years. I said it was doomed when it was over $100 and I guess I still feel that way. It might not make for a bad trade down here right now, but I wouldn’t consider it a viable long-term investment. Microsoft will likely be a distant third in the smartphone business and RIMM will end up being bought for change by HP or Dell or somebody who then ends up taking a write-off for the purchase three years later. Best guess anyway.
Thanks for the advice…I’ve been learning lots on your site. You have made me a much more aware investor. Thank you.
Q. What do you think about shorting Treasuries such as with TBT? Thanks again.
A. Same with shorting Treasuries as I was saying with IBM and gold earlier. I want to see them crack first.
Okay folks, that’s a wrap. Go play http://ThatMattered.com and see if you can win a free month of TradingWithCody. You’ll learn a LOT about how to trade and invest successfully by playing the game too. The game is now free!
Cody Willard writes Revolution Investing for MarketWatch and posts the trades from his personal account at TradingWithCody.com. At time of publication, Cody was net short Apollo. Follow Cody on Twitter at twitter.com/codywillard.