Stocks to Avoid

If you’re a trader, you have no business owning stocks into earnings. Remember who you are, a vagrant OTB guy betting on the horses. You are not known for thinking through your investment ideas. Who are you kidding?

But if you insist on owning stocks through earnings, there are some you must avoid.

First off, get yourself a Briefing.com subscription so that you can utilize its search function to do research. When researching your holdings, look through the earnings notes for the past 2 years to ascertain their respective track records with regards to meeting expectations. By no means should you hold a name into earnings that missed last quarter. Don’t be tricked into believing that if XYZ warned last quarter, they must’ve lowered expectations to a level where they can easily beat them.

WRONG.

A loser is a loser is a loser.

Look at the gross margins and inventory levels. If margins are eroding and the company’s inventory levels are expanding, that can be an early warning sign of end user demand weakness. You want to avoid those names.

Granted, if a company missed earnings the previous quarter then smashes them the next, more often than not the share price will explode on the upside surprise, like EXPR. But for every EXPR there are 5 BODY’s.

If your company is losing money and in the midst of a turn around, the earnings may not affect the share price. Speculative IP and biotech stocks do not pop and drop on earnings. They are event driven stocks, beholden to courtrooms and FDA hearings.

In summary, if you’re not in a stock for its fundamentals, you have no business owning it through earnings. Sell it and go buy yourself a week’s worth of bath salts, so you can sniff it all up and go on a zombie face eating binge.

I’m not even going to acknowledge this morning’s euro/yen/dollar action and get sucked into a conversation about topping out markets. The market will never “top out” because we only go higher.

Thus far this month, the S&P 500 is +3.2%– almost matching last year’s +4.6% return. In 2011 we were up +2.33% in January, which snapped a 3 year losing streak for the first month of the new year.

Providing the market can sustain a gain in January, typically it’s a very good omen for the markets.

Since 2011, here is what the market has done from Feb-May.

2011

Feb

+3.47%

March

+0.02%

April 

+2.9%

May

-1.13%

2012

Feb

+4.34%

March

+3.22%

April

-0.66%

May

-6.0%

As you can see, based upon recent history (I promise you older history looks the same), the market is in for some smooth sailing until late March. You fine gentlemen can take your glasses of Basil Hayden and head over to the hammock for a little R&R until then. There is nothing that can derail this market, not even self-inflicted, purposeful and an utterly childish national default.

Even though the GOP wants to destroy the credit of the United Steaks, they still love the country in the same manner that an African Black Eagle loves its discarded young (if you don’t know, you don’t know).

I will not entertain any ideas from the reading class on this site. Please cease and desist offering advice of the financial nature until the month of April.

Thank You.

I’m up 5.66% for the year, thus far. Gains in VHC have propelled me, being 30% of my book. Naturally the plan is to reduce the size of the position into strength. I’ve been buying the stock for over 6 months now and have intertwix myself with the outcome of their litigatory claims.

Being on the long side of such a heavily shorted stock requires one to endure a certain level of vulgarity with respect to the prospects of the company. There are numerous parties attempting to derail my efforts to attain “extreme luxury” by peppering the news wires with ridiculous stories and pecking away at the price through 100 share sell orders. Soon the good judge, Leonard Davis, will put an end to this mortifying conference and slap an injunction on the hucksters over at AAPL.

Last year this time, “The Fly” had lofty goals, designs to make triple digits in the markets–mostly through sheer will. The outcome was one of a milquetoast rollercoaster ride, booking just 11% in 2012. For 2013, I only expect to beat the SPY by 2x. Gone are the days when I’d take an imperious stance against the natural order of the market. It has ruined scores of men throughout time and will continue to do so, as long as expectations remain great, unreasonable, and out of reach.

This is exactly the type of market that produces epic short squeezes, as the wall of worry and disbelief grows larger.

Naturally, my top pick is VHC.

The criteria is as follows:

-Stock price underperformance over the past 3 years
-Market Caps between $1-25 billion
-Net Cash per share/price ratios above 0.1 (meaning its net cash is 10%+ of market cap)
-Ex out financials, healthcare and ridiculous Chinese burrito scams
-Profitable

Here are my top candidates to go private and help generous bankers leverage up the balance sheets in order to, umm, generously pay themselves dividends under the shroud of secrecy.

VECO
NVDA
MRVL
NTAP
SYNA
PLCM
DLB
LRCX
CREE
MSTR
FWLT
MDR
JNPR
LOGI
EA
CAJ
ERIC
ISIL
IM
GLW
GVA
ADTN
GES
ADBE
SLAB

All of a sudden, AAPL is un-investable. It appears the “laws of large numbers” have finally applied to the company, leaving buyers of the name exposed to a massive Exodus and institutional strike. I always knew Tim Cook would destroy the company. Anyone who bothered to read S Jobs’ biography knew that the company could never thrive under different leadership. It was his eccentricity, aka insanity, that fueled Apple’s innovation. Tim Cook is just a technocrat.

Because of news that AAPL’s suppliers have scaled back, due to lack of end user demand, any and all suppliers to AAPL are getting hit today. What’s sad about the whole ordeal is that these stocks barely benefited from the relationship in the first place. Apple treats everyone as an inferior, forcing them to supply goods and services at Walmart prices, else lose the business. Since AAPL had a virtual monopoly on handset growth, suppliers bowed down to the almighty Apple elite and lowered prices.

With the success of Samsung and possible resurgence of both Nokia and RIMM, I believe this is a net positive for the suppliers. Monopolies kill innovation and gross margins. Perhaps once the AAPL bandwagon gets derailed, the parts makers can reassert themselves and attain respectable margins.

The following stocks are getting hit today because Tim Cook has destroyed AAPL:

CRUS, NTE, QCOM, BRCM, TQNT, AVGO

In other news, the short squeeze in VHC continues, the anti-Apple, literally and figuratively.

Prime Minister Abe has the Bank of Japan in a cage, like the gimp from Pulp Fiction, forcing them to conduct perverse acts of monetary policy. He has ordered them, emperor style, to create inflation–out of thin air, mind you.

“The statement must say clearly that 2 per cent is the target. That would lead to fundamental changes” in the way it guides policy, he said.

I want you to appreciate the candor of Mr. Abe, for he is intent on making investors in Japan a great deal of money. You’re all familiar with “The Bernanke put”, correct? Well, now there is an even bigger put in Japan, in order to reverse the endless tides of recession that’s been plaguing Japan since the 1990’s.

Will it work now? Will the new mantra of “inflation by any means necessary” lead Japan to a new era of prosperity?

The answer is decidedly yes. Japanese stocks are the cheapest in the world and Abe is fixed on seeing that reverse.

Some of the internets are worried about the downward spiral in the Yen, exclaiming “OMG, it’s sooo gonna stop going down so fast, lol, LMAO, SMH.” Ignore these people are being retarded, incapable of deciphering the difference between a poached egg from one that is soft boiled.

On a much longer time horizon, the Yen has significant downside from current levels. Dare I say, it can drop another 20% and no one would think anything of it.

Hence, “The Fly” is long HMC and it is his favourite pick for 2013. He is also long SNE and would purchase “the gentleman’s ETF”, DXJ, if he was in the market for a more conservative/diversified approach to his thesis trade on Japan–which he is not at this juncture in time.

5 year chart of Volatility

We take it for granted, the seemingly endless barrage of buy orders taking the markets to new highs, compressing volatility and reducing it to a story to be woven near the fireside to the grandkids.

“Back in my days, we’d deal with this instrument called volatility. One day it really went up. Boy you had to be there.”

“Grandpa, what’s volatility?”

What is taking place in the markets is nothing short of extraordinary. The markets go up, constantly, for years and everyone doubts them. God bless the souls of Tim Knight and Zerohedge. I have no idea how they can remain on the interwebs after being treated so brambly by the markets.

Now based upon historical precedence, which doesn’t seem to mean anything these days, a $13 handle on volatility should mean we are near the highs, if not the high of the markets, and something is going to surprise us in such a way– we will regret the day our fathers decided to do without a contraceptive. Theoretically, markets are about to plunge and all of you stupid readers out there will wallow, like fat men in kiddie pools, stuck in egregious losses.

“The Fly” is immune to such occurrences, since he would be in outerspace, enjoying the view, while firing his Orbital Space Cannon (OSC) at the indigenous folks in Africa. There is nothing redeeming, whatsoever, about that God forsaken continent.

But you know it’s all poppycock. The markets will crumble no more than a person inside of the lower class will live life without bitterness, contempt and honour.

Inverse volatility has been all the rage, with XIV being the number one performer in the ETF/ETN world last year. I see no reason to believe it will stop edging higher. After all, NOTHING seems to be able to derail the markets.

Agreed?

RC

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The moment of truth awaits the shareholders of VHC. We’re coming down the stretch here, the day of reckoning for Apple approaches in the form of court ordered injunction. Court is in session starting 1/15, lasting to 1/25, to discuss the matter of settlement, because Apple infringed and a judgement of $368 million was given to the fine folks over at VHC.

Unlike Chuckard Bennitis, I do not sell when the moment of truth is upon me. I’ve been holding this stock for 6 months and have seen fortunes come and go like the seasons.

I’m all in, despite hating the way the stock trades. I won’t have it any other way.