Even for a summer Friday by any definition other than the scientific one, the markets were too quiet today. Stocks were down, but just slightly, as Broadcom's (AVGO) bearish guidance has hit the always-volatile semiconductor group. I believe the lack of fireworks belies some underlying signs of potential turmoil, though.
As I have mentioned in prior columns, I am setting up a new venture that will allow me to short stocks again after a five-year hiatus. My existing asset management clients convinced me years ago to reform my cowboy ways and go long-only. A quick glance at a five-year chart of the S&P 500 shows just how smart those clients have been, and how lucky I am to associate with them.
Entering year-nine of the current expansion, though, and with the S&P 500 today only 2.0% from its all-time high, it is time to do what I do best. Leave the macro to the talking heads on CNBC and focus on the micro. I cannot wait.
My new vehicle is going to use high-yielding names -- I mentioned four favorites, Evolution Petroleum (EPM) , Exxon Mobil (XOM) , Annaly Capital Management (NLY) and Newtek Business Services (NEWT) in my previous Real Money column -- as ballast to support a leveraged trading strategy.
My new strategy will focus on betting against individual stocks either through short-selling, options strategies (long puts and/or short calls) and other, more esoteric derivative securities. We'll get paid the ~6% annual dividends from the aforementioned four names and other high-yielding securities. I will then add the spice to the portfolio by picking the next blowups.
Time has taught me that I am much better at calling future blowups in names like Tesla (TSLA) , Biogen (BIIB) , Blue Apron (APRN) , Ford (F) and General Electric (GE) than I am at picking the next Amazon (AMZN) . Or even trading the existing Amazon. It is what it is. If that makes me a miserable human being then so be it. Doug Kass seems like a pretty happy guy and he and I both know the market is due for a pullback, which of course provides a tailwind for short bets.
Where will I be focusing my (negative) energies?
I don't want to front-run myself, but I will be throwing whammies in the following directions.
It's the summer of 2000 all over again in terms of financing companies with zero regard to profitability (or, more importantly, cash flows,) with classic financial metrics replaced with buzzwords.
This year's "disruption" is 2000's "pageviews." It's not quite dot-com frenzy, but I just cannot wait to get on the other side of Uber (UBER) , Lyft (LYFT) , Pinterest (PINS) , PagerDuty (PD) , CrowdStrike Holdings (CRWD) and, yes, of course, the valedictorian of the IPO class of 2019, Beyond Meat (BYND) .
Valuation matters. The market will be reminded of that regardless of what the Fed does this summer.
Yes, after I admitted three paragraphs ago that I have been unable to predict moves in Amazon, I will be shorting it as soon as my venture is up and running. Alphabet (GOOGL) and Netflix (NFLX) will also be on my hit list, and I feel that shorting Facebook (FB) will actually be performing a public service, given the company's horrible record on privacy issues.
Regulation is going to permanently impact the valuations of these stocks, and that is not reflected in today's share prices. Also, employee protests like those at Google show that the culture wars are invading Silicon Valley. If the outsiders don't get them, the insiders might.
Note that I wrote "FANGs", not "FAANGs." Apple (AAPL) does all the right things with its cash flows while management and boards at the other tech titans could but don't, and that is a key factor.
Similarly, I am not foolish enough to take a shot at Microsoft (MSFT) , even after its recent epic run. I'll stick with the FANGs for now.
I seem to be the only one who noticed that salesforce.com (CRM) management added back Tableau Software's (DATA) net cash in proclaiming a "$15.7 billion acquisition." Actually DATA's $650 million net cash should have been subtracted from its enterprise value, making the acquisition value $14.4 billion, not $15.7 billion.
I won't be shorting Marc Benioff's behemoth because I believe it is run by innumerate boffins, however. Everyone makes mistakes. At big corporations those mistakes are usually caught by a member of the herd, but, in this case, I believe salesforce's acquisition of Tableau was a rushed, knee-jerk reaction to Google's purchase of Looker. Haste makes waste in M&A.
I will short any company that doesn't perform thorough due diligence on an acquisition.
I have written so many columns about Tesla that I do not feel the need to revisit my short thesis here. But, make no mistake, TSLA shares are still overvalued by 50% at the current price of $214 per share.
Tesla has been the worst performer in the Nasdaq 100 in 2019 and "funding secured" seems like a distant memory.
When valuing individual stocks, however, relative performance is meaningless. It's all about real figures like earnings per share and cash flow, and consumers are not buying enough Tesla cars to turn those figures from red to green.