Author Archives: 2cv

$NFLX – $100bn market cap now – can it go higher?

Back in 2015, posted that $NFLX could reach a $100bn if you look a the total addressable market the company could tap with its great streaming service and content.

The post mentioned it could get to 320 million subs and be worth $100bn – well it has reached $100bn with only 120 million subs! So $100bn estimate vs. 320 million subs could be too low … $NFLX could easily reach $150bn market cap, and perhaps even $200billion over the next 2 years.

If you are long stick with $NFLX – traditional valuation methods do not work with companies like $NFLX and $AMZN as they need to invest heavily to grow into something serious – companies which keep wall street happy by declaring great earnings per share in the early stages, will never become great, so always have a different perspective when looking at companies which have the potential to dominate the world.

2CentView performance in 2017

At beginning of 2017 stated the following

"2CentView is that 2017 could be a great opportunity to make 15-20% if Trump delivers on his election promise, tax cuts and infra-structure spending could really boost company earnings." – this has turned out to be true and the US market performed well in 2017.

2CentView portfolio returned 17% for year vs 12% benchmark, outperforming by 5%.
The benchmark return for the portfolio is 50% of S&P 500 return (18% for the year) = 9% + 50% FTSE100 return (6% for the year) = 3% so 12% in total.

Overall return since 2013, 103% (20.6% annually).

Unlike 2016, 2017 was not volatile and global stock markets had a good year – except perhaps the UK market which rallied a bit on the last few days of the year – Brexit still a concern for investors.

2CentView did well holding core position in FaceBook, Apple, Google and Nvidia. Financials also did well – MS, GS and HSBC. 2CentView also had a small position in Bitcoin though the XBT tracker and holds a core position after it doubled. X (US Steel) also did well as US Infrastructure rally on hopes of Infrastructure spending in 2018.

Biotech – namely Celgene (down 35 per cent in one week!), Acordia, Alexion all had a tough ride costing the portfolio around 2%. Positions in UK stocks (DLG, TW. etc) were fairly flat.

Themes for 2018

  • The scale of US tax reform and tax cuts is huge and will lead to US Companies being awash with cash leading to a higher US Stock market as money is spent on on infrastructure, technology and buy backs. However, wages will rise (unemployment already at lows), leading to inflation and interest rates going higher – stay long the banks as an inflation hedge. Keep an eye on US 10 year bond yields – above 3.50% could trigger a major correction
  • Economies in Europe – which are lagging the US by 18-24 months should play catch up and perform well in 2018 if inflation stays low.
  • BlockChain technology will be adopted by the Banks and perhaps also other industries such as HealthCare as we look for more secure , transparent and cheaper ways to transact and hold information. Be careful of the hype though – an ice tea company put the word BlockChain in its name and rallied 500 per cent!
  • Commodity prices could be poised for a rally according to Jeffrey Gundlach (the ‘Bond King’) who sees commodity prices at a relative low with respect to potential growth in the economy. Energy stocks which have under-performed in 2017 could also do well in 2018 as they repair balance sheets and as oil stabilizes and could head towards $75, having some energy exposure is also a natural hedge against rising domestic fuel costs.
  • Bitcoin and crypto will be volatile – if you decide to get in prepare for volatility and invest small – only 2-3% of your portfolio. XRP could be a winner in 2018. Crypto and Digital currency will transform the method and cost of making cross-border payments.
  • There may be some rotation out of tech and into more value stocks (the so-called reflation trade), but long term tech will do well as US companies spend their excess cash on tech- stay long names like FaceBook, Amazon, Google, Nvidia, Apple and Microsoft. Driverless cars will soon become a reality on our roads – Google’s share price does not reflect the potential of Waymo.
  • Volatility remains very low – look at the chart of of the VIXY ( it looks like a reverse image of BitCoin peaking at 15000 in 2008) – but 2018 could see a pick up in volatility which tends to pick up as economic activity increases – there are also still geo-political risks out there like North Korea and Israel/Middle East following the decision to make Jerusalem the capital. 2CentView has taken a long position in the VIXY.
  • Retail and Media – 2 industries being threatened by a secular decline, will continue to stage their fight back: [2017: Shopping malls consolidate (Hammerson buys Intu, Westfield/Rodamco and in the US General growth properties by Brookfield), retail stocks rally and Disney announce a deal buy  media assets of Fox]

For full list see Conviction ideas in the sheet (requires subscription).

If there is not a single stock you like in a sector then , look at ETFs rather than single stocks – there are thousands of ETFs – e.g. XLF, XLE etc. including the BitCoin investment trust – all of which are pension fund eligible.The NYSE also plan the so-called ProShares Bitcoin ETF and ProShares Short Bitcoin ETF which would track the markets for bitcoin futures. Look for a good commodity or materials ETF like the XLB.
Be careful with Bitcoin and BlockChain investments and investment trusts – seek specialist financial advice on these.

Finally, keep your portfolio diversified across sector and geography and have a mix of stable, growth, recovery and speculative plays. If you need some help in constructing your tweet me direct.

Happy 2018 from the 2CentView team.

AA Fair Vale update

August 3rd, posted the AA idea, but advised to wait for the stock to go back up above 225 – which it has failed to do – dropping to as low as 155 post results.

Consensus target price now 270, but clearly the market disagrees with stock so much lower.

If they sell their Insurance business which generates around 17% of earnings, they could get around 50p a share (assumes a 10x multiple), which leaves the Road Side assistance business which is the bulk of trading on a EPS of around 7x.

This seems cheap but the debt load is fairly high – they need to start paying down debt and the business could attract a higher multiple.

Fair Value now 200. The stock seems to have found a base around 160.

Trade: Buy at 160, take profit target 195, stop 145.

US Financials Update – 6 Months on from Post on April 23rd – take some profit ahead of reporting..

Posted back in April the pull back was a chance to buy some US Financials, and to buy GS which looks the cheapest (prior to that it was C). They were all trading below fair value – now they are above fair value as prospects of higher rates and tax reform. Sometimes strategies do take time to play out.Take some profit, but keep a core position as these stocks may break out to new high if results are good.

Px Vs Fair Values

April: $JPM 84.5 vs 83 Yield 2.3% [Dimon top CEO!]

Now: $JPM 95 vs 90 Yield 2.3% – going to a 100.

April: $C 58 vs 64 Yield 1% – cheapest to Book value – but seems to be the least liked!

$C 69 vs 72 Yield 1% – best performer over 2 years

April: $MS 42 vs 44 Yield 1.9% – reported a great quarter, Gorman is doing a great job…

$MS 49 vs 45 Yield 1.9% –

April: $GS 217 vs 250 Yield 1.4% [ 1.1 x book value] tough quarter, but they will bounce back!

$GS 237 vs 247 Yield 1.4% – they need to report a good quarter.

April: $BAC 22.5 vs 25 Yield 1.4%

$BAC 25 vs 24.5 Yield 1.4%

2CentView has a trading position in GS average cost 225, looking to take some profit at above 245 next week. Also, have a core position, which was trimmed back at 49 ahead of results. Keeping core positions in both – think US rates are going higher.

$M (Macys) – bought some at 21.5 – here is why….

At the beginning of 2017, suggested staying clear of hard brick retail – they are SO BEHIND – you still have to wait in line to pay for something – crazy!!!

Macy’s stock dropped below 20 and the valuation is very cheap – in fact you are getting the retail business for virtually nothing – remember when Yahoo was selling at price which implied the core business was worth nothing?

Look at the sum of the parts: According to Starboard capital the real estate alone is worth $21billion (it has over 700 Macy stores plus over 125 other stores like Bloomingdales), Net Debt is $6billion and the inventory is $5billion
So ignoring any cash – and it does generate $1billion of free cash per year – the tangible asset value could be

21x.5 (assume 50% of Starboard Valuation) – 6bn Debt + 30% of Inventory (assuming fire sale of inventory) = 5=6bn = which = the market cap of the company at $20.

The yield is a whopping 7% – which the CFO recently came out and confirmed would be sustainable – the free cashflow confirms that ….

2CentView Fair value = 27 so earnings are still forecast to be positive.
Also the Credit default swaps at 250bp indicate the company is NOT going out of business – however it needs to take radical action to turn the business around – dispose of assets and invest heavily in customer service and technology – like WalMart.
The flagship store on 34 street in NYC is amazing – just visited there last week and the business is good!

If you think Macy’s is a worth a trade, suggest the following:

Buy here at 21.5, Take profit target = $27, stop 17.

2CentView is in the above trade.

$GRPN – Groupon – is this unloved stock worth a punt?

Just booked a real bargain 2 -day break with a Groupon Voucher.

Google once offered to pay $10 dollars a share pre- the IPO – post IPO the stock reached $26.
There are plenty of voucher companies out there – but Groupon is the best and the stock could be once again become a take over candidate or grow on its own merits.

Fair Value = $5.7 vs 3.9

Trade : Buy here at 3.9, take profit target 5.5, stop 3.25

Trade Idea: the AA – CEO Gets fired may be an opportunity to…

AA stock has underperformed the market over the past 12 months or so, and the recent firing of the CEO could be an opportunity to buy.

Fair Value = 310 Yield 4.6%

The AA underwrite insurance as well as breakdown cover – both could sources of recurring recurring revenue….
Stock looks cheap here at 210 but may be under continued selling pressure in the short term.

Trade Idea:
Wait for Stock to settle and buy if it goes up above 225 – there is still 75p of upside at this price. Take profit target 300, Stop loss 180.
Pays a dividend of 4.6% while you wait!
Consensus target price also 300.

Snap vs Twitter update…what to do now prices have converged..

Last tweeted mid march that snap had short term downside and twitter short term upside..snap has fallen back to the ipo price and twitter has risen after a good quarter…the prices have now converged to around 17…

2centview fair value for SNAP now 24 including cash, if you value the earnings 2 years forward where analysts predict earnings to ramp up from 2019 TWTR fair value 16

No one knows which will succeed from here and become the next facebook, Snap has hugely creative product guy in Evan Spiegel and just signed a content delivery deal with Time Warner

Twitter has the president and signed a great deal with bloomberg – data is also a important asset as we move into the world of AI, their product is good but engagement is a problem

Own a small position in one of these name
2centview owns both at a price of 17 target 22…will add more if they drop to 14.

$NVDA – dont be the greatest fool….

The greater fool is the person who buys a stock because the price is just going up and is willing to pay higher price than the previous person.

Typically this happens after the stock just keeps rising for some time and there is a fear of missing out!
The greatest fool is the person who is last in the buyers queue, and will pay price that will tempt enough sellers to outweigh the number of buyers and will start a wave of selling!

The 2CentView model is designed to make you understand whether you are paying a cheap, fair, expensive, or very expensive price for a stock – by comparing the 5Y implied growth versus the consensus growth rates over a 5 year period (the IGG ratio).

<.75 = cheap
1x = fair = 90 (the fair value of the stock)
1.5x = expensive = 135
> 2 = very expensive > 200
Consensus growth rate for $NVDA is 20%,

If you pay above 1.5x i.e above 135, makes sure you know the company really well, believe in the company long term, and are prepared for pull backs – Don’t be the greatest fool i.e. buy the stock at at peak level just because it is going up every day!

2CentView sold trading position at 135 and has a core position. Long term $NVDA Could match the market cap of Intel.