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One tech stock you should never sell

Aug 30, 2022

Good morning!

‍Futures are up as I type with hopes rising for a rally that’ll stop back-to-back losing sessions.

Many traders are focused on what “might” happen but successful investors are focused on what will.

It’s not a coincidence.

Here’s my playbook.

One tech stock you should never sell

Right idea, wrong focus. I hear from people all over the world about this stock or that … it’s got cool tech, a breakthrough way of doing things, a new patent or something else that’s caught somebody’s fancy. Those things come and go like the wind on a Kansas prairie.

Ask yourself when was the last time you heard of somebody who gave up their iPhone or Mac products? I haven’t heard of one person. Not one …

Why it matters. Apple’s expected to roll out four new iPhones, an updated watch and more next week. Further, the company has just seeded the 8th beta of iOS 16 to developers. The bozo squad will start talking about deliveries as if they’ve captured lighting but that’s really just to make themselves sound smart.

Think twice if you’re not buying Apple at these levels. Chances are good that you will be kicking yourself at much higher prices in the near future. The company has nearly 2 billion devices already installed worldwide.

Labor Day sales are bigger and deeper but …

Labor Day sales are already in play. No doubt you're getting bombarded by the same advertising my wife and I are.

You’d think that retail stocks will do well but not so fast. Remember that even the biggies – Walmart, Target – have excess inventory they’re gonna unload. And they’re great stocks.

Imagine what happens to companies on the margin like BBBY or Kohls where just keeping the doors open is a struggle. Don’t be a bag holder.

Trade idea. Buying puts on the likes of BBBY, L Brands, GPS etc or bearish spreads on the same.

Japan wants citizens to “Drink more alcohol”

Things are so bad that the National Tax Agency has invited anyone aged 20 to 39 to submit ideas for strategies to increase alcohol consumption, including promoting drinking at home. (Read)

Why this is happening. Because tax revenue from alcohol sales – long a staple of the drink-heavy corporate culture there – took their biggest hit in 30 years. Beer-related tax revenues are down -20% alone!

The lesson. The Law of Unintended Consequences is very real when massive exogenous shocks like COVID plow through society. People stopped going to Japanese bars where getting faced has been an entrenched corporate behaviour for the better part of a century.

The investment. We talk a lot about the differences between buying stocks in “must have” companies and those making “nice to have” products … including booze.

Thought bubble. Cannabis stocks have never been about medicinal use, recreational adoption or even losing the war on drugs. Behind closed doors, widespread adoption has always been about raising tax revenues. Take Colorado, for instance. Alcohol excise taxes in Colorado are $0.025 per shot of hard liquor, $0.013 per glass of wine, $0.01 per pint of beer. Combined those things raised $53 million in taxes last year. Cannabis taxes are $0.16 per 5 mg for an edible and raised $396 million.

“But Mr. Hand?” (a movie reference those of us of a certain vintage will no doubt appreciate)

This will not end well

You’ve heard about BNPL – buy now pay later. That’s a scheme cooked up to induce otherwise debt-strapped or cash-poor buyers to purchase goods and services they otherwise couldn’t afford. Affirm is perhaps the best-known company in this space.

Now there’s DNPL - donate now, pay later. A VC-backed startup called BGenerous has started offering ways for people to donate to charities and pay later. (Read) The company makes money by inducing individuals to donate more even when they don’t have the means.

Reminds me of a certain stock trading company that was supposed to “democratize” investing or payday loans that are little more than organized thuggery under the guise of predatory debt.

The big picture. Wall Street is so jaded that even giving away money you don’t have has created a perverse financial incentive to profit at the expense of people who can’t afford it.

If you want to trade VLO

What they’re saying. Heating your home is gonna cost a fortune this year, especially if you live in the NE where fuel oil supplies are 63% below the 5-year average in New England and 58% below the 5-year average from Maryland to New York.

A possible trade idea. Valero (VLO). Sell the 21Oct22 $100 puts as a cash secured put for $1.95. If Valero drops to that level or lower by expiration, your basis is $98.05 and congratulations are in order because you’ll be getting an 18% discount to where the stock is trading today. If it doesn’t, you keep the $1.95. Or, just buy the dang stock because it may crest to new highs by early 2023.