You Should Be on Drugs

Plainly and simply, biotech is where the money is flowing.

Why?

Because in a slow growth environment, high growth can always be had in the business of death. Look at the oil barrel sector: getting lit up in the face of a flamboyantly proud rally. We are seeing a divergence between crazed faced oil stocks and everything else. The energy trade, for now, is in the ‘fag box‘. Look at SLCA, EMES, FMSA and HCLP; they’re trading as if it was the end of the world. Surely there is opportunity to be had in this wanton liquidation, no? I’d love to muster the courage to triple my SLCA position here. But I already have big positions in both TRN and CLR.

No, I am convinced the path to prosperity is through drugs. The only issue with the drug stocks is valuation. So many of them are up 20-50% in recent months. One that I am long, which is still reasonably prized, is JAZZ. People are sleeping on this one (pun intended).

In summary, oil focused hedge funds are being dismantled and tossed into the meat grinder. Everything else seems A-okay–for now.

Something tells me today is a pivotal day in the history of mankind. Does this admission, deserving of God given gifts of homosexuality, beckon lower or higher prices? Quite frankly, I do not know.

The market was looking awfully dreamy this morning. But now, now it looks like a bedraggled booze hound being ripped to shreds by hell hounds. Most of my important positions are lower. SLCA just reversed fantastic gains into drek. The world, as we know it, is on the precipice of something significant. I can smell it.

Utilities are higher and they haven’t rested for a single day since I sold them.

Tis’ October, a month designed by devils for devils. The Turkey Gods can’t come fast enough (no Cook).

Why did they take QE away from me? Surely they can find it in their hearts to give me just a little more QE, right? I swear, after this round of QE, that’s it–I am done. Christmas is around the corner and the kids need presents. Please, give me that shit…man. I only want it for like 5 minutes, then you can have it back. Why the fuck did you take it away? I didn’t do anything to you.

Come on…man, just one more hit.

Futures are sharply lower and oil is hysterical to the downside, Saudi camel style, sticking pins into the head of Vladimir Putin.

In other news, HAR smashed earnings. I am long. The auto sector has been ravaged in recent weeks, almost as bad as the oils–which makes no sense. But they’re coming back strong now. We just had solid numbers out of CMI (I am long) the other day and now this. I think it’s fair to say the economy is plodding along just fine.

GPRO reports earnings tonight and many people are betting against them. Frankly, I have never, ever, seen a stock so hated. I don’t think anyone, but me, is going to hold into earnings. Here is how I look at it.

This is a super young company, with a product that is in high demand. There are a select few electronics companies worth investing in. This is one of them. With fuel expenses dropping, nationally, I like GPRO’s chances at a blockbuster X-mas. The problem is, I cannot simply wait to buy GPRO AFTER a blow out quarter. If they smash tonight, the stock will be on a bee-line to $100. But if they miss and the stock drops 20%, I will gladly double down, betting on that blow out X-mas.

In case you’re looking for precedent, a time when an electronics manufacturer traded at a similar multiple to GPRO, go take a look at GRMN back in the early days of navigation systems. The stock traded above 10x sales for awhile, then grew into their multiple. I am not making the case for valuation here. GPRO is momentum and they need to show a big number tonight, in order to properly set fire to the faces to the savage swine who remain short the stock–into the hole.

Take notice of the shares of CJES in the after hours trading session. You’d be remiss not to learn something from it, which is: earnings are going to blow the barn doors off this quarter. Expectations cannot be lower in the oil patch. Many of these companies are down 40-70% from recent highs, all because oil dropped a hard 20 dollars per barrel.

The poor oil barrels. What to do with the oil barrels?

The fact of the matter is, a great many of these oil companies are cash cows who will begin to buy up their own shares, in earnest, patiently waiting for the price of crude to rebound. After it does, by the 2nd half of 2015, these stocks are going to blast off, as their share counts are greatly reduced and volume greatly enhanced.

This is a rosy picture, no doubt. But what if I am right?

Get long the names who have the best earnings power, forget about the scraps.

Here are 10 names to bank on, should oil recover.

SN
BTE
FANG
SLCA
CLR
HAL
TRGP
COP
CXO
BCEI

Post TRN conference call, the stock dropped $1.50. For the life of me, I can’t figure out why. The call was entirely bullish, with management claiming they’ve seen zero evidence of a slowdown, despite the drop in crude.

Listen to me: today’s decline is 100% horseshit. You will soon begin to understand that we are in fact residents of Dante’s inferno. The pin action in TRN is designed to drive people mad, flush them out of the stocks and into a life of manual labor.

I am a railman, always have been and always will be one. I was born inside of the coach of a train car, worked the tracks as a lad, and helped connect this great nation from coast to coast–no matter the cost. I will not be shaken out of my position, all because a bunch of milquetoast carousel operators couldn’t hold their butter.

Today was a dreadful day for me, losing more than 1.5%. On the bright side, I am still up 1% from yesterday’s open.

I intend to partake in a little cold blooded revenge tomorrow.

Post YELP, TWTR and FB earnings, the sector is being marked for dead. All of the people who make believe they know something about stocks are announcing victory over social media–insisting that the bubble has popped and anyone long is a headlong idiot.

These people are betting against the internet.

At any rate, I’m not a fan of buying high growth at any cost. For example, TWTR, BABA and FB are all trading above 20x sales. I have zero interest. I own FB from $32, so I will not sell it here. But, on the other hand, I am certainly not buying it after this minor pullback.

All jokes aside, this is the premier part of the tech sector, the area with the highest growth. So when will some of these stocks become buys, and which ones are worth targeting?

My favorites are YELP, TRIP and Z. But let’s have a look at the sector, revenue growth, p/s ratios and YTD returns to get a clear view of what we’re looking at.

(Stock, Rev Growth, p/s ratio, YTD return)

TWTR, +124%, 30x, -32%
BABA, +46%, 26x,
FB, +60%, 21x, +39%
Z, +68%, 17x, +29%
WB, +105%, 14x
LNKD +47%, 13x, -7%
GRUB +74%, 13x
YELP +67%, 12x, -16%
TRIP +31%, 11x, +5.5%
CTRP +38%, 7x, +14%

Clearly, as you can see, this is hardly a sector on fire. It’s been under fire all year long and valuations are coming in fast. With share prices lagging and growth still soaring, many of these names are setting up for big runs in 2015.

I will be making some minor adjustments to my long term portfolio, which is listed–in full–inside The PPT. A few broad strokes: I am reducing tech, reducing basic materials, reducing healthcare, reducing industrials, upping finance, upping utilities, upping staples.

I know that sounds somewhat bearish–but it’s not. I am simply overweight those industries and need to adjust the weightings. Part of the reason is outperformance in some of my holdings, like GILD, PANW, N and JAZZ.

But, make no mistake (extra Bush), there is a new reality on the ground, one of cheaper fuel prices, which disproportionately helps certain industries, while being punitive to others. Going down the stretch, in a year that has been punishing for me, I am not interested in tossing hail marys, in order to bolster my pride. The fact of the matter is, the losses I incurred are behind me and I am not managing to redeem myself, but to do the best possible job with the market that is in front of me.

I woke up the angriest man in the world. I am sure none of you are angrier than me right now. I don’t have a reason to be mad, per se. It’s more of an overwhelming feeling of frustration (No Freud), brought on by a culmination of separate events that has led me to this dark hallway of mental violence.

I see all of the fucking geniuses on StockTwits are predicting GPRO to miss earnings– and get summarily flushed down the toilet today. These are, without a doubt, some of the dumbest people I have ever had the displeasure of not knowing. These same animals, genuine thieves, were spreading idiotic rumors about TRN last week. There isn’t anything wrong with StockTwits. There is something wrong with the human race.

Look, I am not your teacher. We are peers. We both play this asinine game together and hope to come out ahead. There are too many experts in this world, people trying to tell others how to eat, sleep, work, fornicate, etc. I am especially amused to hear people on the donut line lecturing others about success and how one should achieve it, as if they knew the first thing about it.

Speaking of success, Dr. Benjamin Bernanke was the most successful Fed chief in the history of the Federal Reserve. He literally saved western finance and should be revered as a national hero. Instead, the slime-balls of this country deride him and make false claims that he destroyed the dollar and how QE fucked up the economy. For the love of upside surprises, these scandalous lies, these perversions of the truth, are too much to bear. If I listen to any more of it, I will snap and end up in an asylum.

There isn’t any inflation and the dollar is doing just fine–fuck you very much. The President of the Cleveland Fed is tire-changing retard. QE is here to stay–because it’s all we have.

Regardless of what happens today, post Yellen, the market will demand moar QE. Without it, we’re simply a bunch of assholes getting sucked into the deflationary vortex of nothingness, which was brought on by the failure of the banks in 2009 and still persists to this very day.

Getting long oil, as a play on reflation, might truly be the best trading set up of 2014. Oh, I am also long GPRO because 99% of the people cannot be right about them missing earnings tonight.

All of the stories you’ve ever read about in the journal of men who’ve made fortunes in the market revolve around a singular trend: buying stuff no one else wants for pennies on the dollar, then selling it later on when everyone wants it for absurd premiums.

Using the powerful screening tools of The PPT, I put together a list of under performers that might offer outsized gains. Or, they might wash away with the sands of time. It’s high risk/high reward, son.

NOTE: Debt/equity levels above 4 suggests the company is in dire straights, financially. It’s not the entire picture. But, generally speaking, companies with high debt/eq ratios and dead stock prices are heading towards $00.00.

(Stock, 3 yr return, debt/equity ratio)

WLT, -97%, 20x
MCP, -96%, 4.6x
ANV, -94%, 2.5X
AVEO, -94%, 0.28X
SWSH, -94%, 0.09X
ANR, -91%, 7X
DNDN, -91%, 3.6X
WAVX, -89%, 0X
IAG, -89%, 0.7X
TRGT, -87%, 0.01X
ONE, -86%, 0.9X
CLF, -82%, 2.4X
CETV, -81%, 2.6X
WPRT, -80%, 0.2X
ARO, -78%, 0.6X
JCP, -77%, 2.3X
BTU, -76%, 2.1X
KEG, -76%, 1.4X
FRO, -74%, 7X
ARCO, -71%, 0.9X
PWE, -69%, 0.9X
EXK, -67%, 0.08X
PRGN, -67%, 2.3X

Let me know if you have a preference. For members, the full list is here.

I post a lot here, mostly for entertainment, in order to get a few laughs out of the plebeian hordes. Every so often, I will post something that should be saved, not because I wrote it and I am awesome and amazing (extra Mrs. Fly). I am merely a cog in the giant wheel of speculation. I am not the best investor, or the worst. However, I am keenly aware of my surroundings and have enjoyed a modicum of success, greater than most market mavens.

I wrote this on October 10th, into the teeth of the recent sell off. It will always be relevant.

Bear in mind, the day to day operations of this market are hard to wade through. Nevertheless, if you’d simply avoid the classic pitfalls that have ruined men for the past 200 years, investing can be very rewarding.

Here are a few.

1. Invest in companies with market caps greater than 2 billion. And, if you’re gonna invest in small caps, make it a minor portion of your portfolio.
2. Diversify amongst all principle industries and do not concentrate in any one sector, no matter how hot it is.
3. Avoid leverage.
4. Separate your trading money from investing money.

The last one is probably the most important. Get your foundation right and you can build a strong house that will last for decades.