Trimming GOOG here

Yes, GOOG is going much much higher. But not in a straight line. I have a strong feeling that the Democrats are going to take back the House (possibly the Senate). This will roil the markets. Higher taxes, the threat of a long protracted impeachment, and other specters loom over the horizon. It's not good for anybody.

Keep in mind, I'm not a huge fan of the current administration. But I am worried that the Democrats will mistakenly think they have a mandate from the people. And they will interpret that mandate as a license to push protectionist, isolationist failed policies back into the political discourse. This is worrying for American economic competitiveness.

The Democrats might also interpret a House win as license to begin investigating all aspects of the Iraq war. I think there is a lot to investigate here! But its also not productive. We're there and we have to build a democracy in Iraq. No other choice at the moment. As the Economist puts it, I am worried about a long period of "navel gazing".

So I'm reducing my exposure to GOOG here. I'm selling into strength today. (What a trade!)

As I mentioned before I'm starting work at GOOG in a few weeks. Thus I will need to stay away from trading GOOG in the near future. Might as well get used to it.

earnings mistake on ALK

I must confess I made a huge mistake on Monday: Alaska Airlines. The mistake wasn't going long with Nov 40 calls ahead of an atrocious earnings call. The mistake was that I didn't blog about it before hand. The reason that I do this is so that I can justify my own trades in writing before I execute. This time, I didn't do it. There wasn't any rigor behind my ALK long than an ebullient recommendation by Cramer and some nonsense about American Airlines and Continential reporting blowout quarters. Sure, its pin action. But Alaska isn't best of breed. And I've flown Alaska and it is not the greatest experience in the world. They still run McDonnell Douglas MD 80 planes! I hadn't been on one of those beasts since I was five years old.

Thankfully it was not too costly. Nonetheless, I won't be repeating it again.

unbelievable upside move in GOOG

I hope everyone got a chance to see Cramer dancing around with GOOG written on his forehead on Thursday. I was in Miami over the weekend and I did the same thing. What a quarter! And it's up another 15 points today.

My Dec 470 calls were originally purchased at $10. They are now trading at about $26. Not bad! There is still plenty more upside here.

Unfortunately I will be joining the Google team shortly and as such I won't be allowed to make derivative transactions. I will need to exit this position over the next few days for that reason.

on the money after all

With Yahoo closing at $23 today, it turns out my analysis was right on the money after all. I closed out my position this morning at around 10:30am which I'm pretty happy with. Given the initial overreaction on the positive side I think this trade worked out reasonably well.

That said I believe that YHOO is forming a nice bottom here. We've got the New York Times effect plus the rally attempt on horrific news plus new expectations that YHOO might actually ship Panama soon. I will be looking at Yahoo over the next few weeks to see if any buying opportunities emerge.

I don't play takeovers but it seems to me that Yahoo would be a phenomenal addition to the Microsoft stable.

Note: Apple Computer reported blow out earnings after the bell and is trading up about 5% after market.

high risk, low reward

Well both Intel and Yahoo were little changed on their numbers today. Intel is slightly up -- with weakness from yesterday, I'm about even on the position (I bought a little yesterday morning on the dip). Yahoo is slightly down. Although their numbers were horrific and they were downgraded across the street, Semel announced Panama for Q1 2007 and that took a lot of the downside out.

Continuing to play the numbers game, I opened a GOOG 470 Dec call today. Based on Google's revenue growth I think they will report around $2.70 a share. The consensus estimate is $2.42 which seems like sandbagging to me. If you annualize the $2.70 this implies that GOOG is trading at about 38x earnings at the moment. Cheaper than Yahoo! If this multiple goes to 50 as is warranted by this growth monster, GOOG becomes a $500-550 stock.

yahoo and intel earnings plays

I love earnings season! I've taken some time out this morning to do some analysis and place some bets on upcoming Q3 reports for the following companies:

* Intel (INTC). Intel has been beaten down from highs of $27 per share primarily because of increased competitive pressures from AMD. But the new Intel Core Duo is rapidly gaining traction among the computer elite. I think that Apple is going to report a monster number for Q3... and that means good things will be happening for Intel on Tuesday. And it's not just a one off good quarter - Intel should raise guidance for the next year and that means that the price should be going way up. Right now Intel has a multiple of around 20 or so. The combination of the Windows Vista release, new gaming consoles and exploding Macintosh sales should be able to boost earnings and even justify a 30 multiple as well.

* Yahoo (YHOO). Yesterday after talking to my buddy who works at Yahoo, I was convinced that this stock had bottomed. An extremely negative article was publishing in the New York Times about Yahoo, which is a Cramer bottom signal. But then I started to do some analysis on the numbers and frankly, I think this stock has a tremendous amount of downside left.

Yahoo's revenue guidance is in the $1.15B range. This revenue number is considerably below the past two quarters in which they delivered $1.5B at the top line. The last time they reported numbers near this it would have been a loss if not for one time interest and investment income (sales of GOOG stock). This time around, Yahoo can't pull one of these accounting tricks to produce big numbers. On 1.1B of revenue I see approximately a $660M gross profit. Assuming that their R+D and admin costs are fixed, this actually is about a break even result. If Yahoo can produce some cost savings they will be able to eke out a small profit, maybe $100M or so. In my book that is $0.05 or $0.06 EPS. The street estimates are still $0.11 per share -- I don't understand how this is possible. Maybe I'm missing something. But I'm putting my money where my mouth is on this one and going short.

The bottom line is that I bought some October 25 puts on Yahoo because I think they will really disappoint tomorrow.

adding to my positions here

Feels like a nice calm before the breakout here. I'm buying some more TOL on weakness, some more SBUX here and opening a new position in Microsoft.

Why Microsoft? Well I'm definitely no fanboy -- in fact, I don't use any of their products. But that's because I'm in the position not to. Most people aren't. New versions of Windows (Vista) and Office are coming out next quarter. XBox 360 sales are strong since the PS3 looks so weak. I also like some of the things they are developing under the banner of "Unified Communications." They are tackling the VoIP space with some very innovative products.

Bottom line is that Microsoft has a virtually unassailable competitive position in the operating system and office productivity markets. With new product cycles starting, this should mean increased earnings. And right now, the multiples are just so low. With consumer staples selling off and these funds looking for a home, I think MSFT is the place to go.

well that sucked

Ouch, not a good start to earnings season! DNA reports solid earnings but still eases two percent this morning. Infosys reports a solid quarter and only trades up a small amount. Incidentally my call options strategy for INFY showed some bizarre results... even though the stock was up, it traded solidly down as expected volatility got eliminated.

Fundamentally, I'm not liking the tone of the markets here. I think its time to get solidly into safe haven plays like financials and stocks levered to cheap oil. I'm going to continue to move into homebuilders.

Note that I closed out my GOOG position today, since I am worried about what the market's reaction to earnings next week will be. I also think there will be some underlying jitters about the YouTube deal. For now, I'm staying on the sidelines hoping GOOG will rechallenge its $380-390 support levels before hitting new highs before the end of the year. If there is any sign of flagging growth in the online advertising market for Q3, I think the stock will take a massive beating.

genentech wobbles

Uh oh... genentech (DNA) reports a great quarter, but the stock is slightly down in after-hours trading. Not sure what to make of this. Apparently revenue growth on some of the more established drugs was less than stellar. But it was made up for in spades by strong Lucentis sales. I'm not sure why the stock would be down on this news -- it seems as though Lucentis and Avastin provide DNA massive upside in the medium-term and justify the multiples.

It may be that the market has started pricing in these big upside surprises. If that's the case, Q3 is going to get ugly for the longs.

earnings plays!

Ah Q3... lots of opportunities for short-term speculation. Here are my long plays today:

* DNA. Consensus estimates for Genentech are only $0.53 per share! They came in at 52 cents per share last quarter. This estimate is quite conservative. I think strong sales of Aventis (for off-label uses) should provide considerable revenue growth and an upside surprise here. I am playing this with October calls struck at 85 (at-the-money). I may exercise and turn this into a position if things go nicely this afternoon as I do not have a biotech/pharma play at the moment.

* INFY. Infosys is the leader in Indian IT outsourcing. Infosys was able to push through a significant price increase this quarter. I don't think analyst estimates are factoring this in. The consensus estimate is only $0.32 per share. Since they reported $0.31 per share last quarter, these estimates are also extremely conservative. I don't think they are factoring in the secular trend towards helpdesk/IT outsourcing or the price increases. Both of these things should solidly impact the bottom line and provide us a nice upside surprise. Unlike Genentech, I am strongly exposed to tech here and this will not become a long term position for me.

caution in front of the Google/YouTube buy

Yesterday morning (before jetting off to wine country in wonderfully beautiful Santa Ynez) I further trimmed my Google options position ahead of the expected purchase of YouTube. The purchase was announced this morning at the expected 1.6B. I figured that there would be some jitters about the deal. First, you have the dilutive effect factored into any buyout of a loss making company like YouTube. Second, as a shareholder of GOOG I am concerned about lawsuits over all of the copyrighted content there. Google has deep pockets and I can't imagine that certain content owners will just let this infringement slide.

So far trimming the position looks like the right thing to have done. Google shares are down about 1% today.

I will however be stepping back in on any weakness. The YouTube purchase is great for Google long term, especially because it prevents a key competitor (read: Yahoo) from getting the dominant player in the online video space.

nice moves in Starbucks and Marvell

Two nice moves today. First, Starbucks reported better same-store sales than were expected. I think this stock has lots of room on the upside as people start to recognize the compelling Starbucks growth story. The vision is there but we're still nowhere near saturation.

Secondly, a strong day for Marvell on a mostly down session gives me an opportunity to sell into strength and reduce my position. I think Marvell was a bad trade to start and as such, I am going to be eliminating it.

Here's my portfolio these days. Google calls are looking nice here!

AAPL Apple Computer, Inc. 74.96 -0.42 (-0.56%)
AIG American International Group, Inc. 67.32 +0.17 (0.25%)
F Ford Motor Company 8.34 -0.22 (-2.57%)
GOOG Google Inc. 414.15 -1.55 (-0.37%)
KMB Kimberly-Clark Corporation 66.25 +0.04 (0.06%)
SBUX Starbucks Corporation 38.51 +2.55 (7.09%)
TOL Toll Brothers, Inc. 28.66 -0.11 (-0.38%)
WFC Wells Fargo & Company 36.53 -0.10 (-0.27%)

cheap oil and nervousness about the democrats

In preparation to rotate out of MRVL, I have started a new position in Kimberly-Clark (KMB). It looks like the Democrats will be winning the House in November based on the insane sexual depravity of one of the Republican members of congress. These guys just stink. I think the country is fed up with the hypocrisy and complete lack of progress from this Republican administration.

When that happens, we'll see a poisonous business climate because the Democrats will mistakenly believe that their populist rhetoric is actually what people want. And we'll get a very unfortunate backlash against pharma and oil companies, which is unwarranted.

In preparation for this I am going into a secular play, Kimberly-Clark, which also happens to be levered to cheap oil. If investors are worried about soft vs. hard landing, the Democrats won't be doing anything to allay those fears. If anything they will be stoking them towards the hard landing camp. This is good for seculars. A hard landing is also good for cheap commodities. In conclusion, I think KMB works on both of these levels.

marvell implodes

Last night after the close Marvell Technologies (MRVL) preannounced another disappointing quarter. They already guided lower last quarter but things for Q3 are even worse than that guidance apparently. And they are plagued by options backdating investigations.

This is a stock that I probably should not have been in to begin with and I am paying the price. First of all, I don't have a complete understanding of their business and this is always a recipe for disaster. Second, it is a play on PC sales after Vista. Personally I don't think that a strong wave of PC buying will follow Vista's release. Vista is underwhelming. Most people will be far better served by getting a Mac or waiting a couple of quarters for the 1.0 bugs to get sorted out. It's not something that I feel will significantly drive PC sales.

Ultimately I got into MRVL because Cramer recommended it. That's just a bad reason. Cramer's brings a lot of ideas and discipline to the table. His constraints and timeframe are far different than mine. If I'm going get into a semiconductor play I need to get into a company that I really believe in. At sixteen and a half this looks like a buying opportunity for the longs. I don't have enough confidence in the MRVL story and the management team to pull the trigger here.

Asleep at the Wheel

Yikes! I went long NVDA Oct 30 calls for mark-up week and then forgot to sell into strength yesterday morning! Hello? McFly? In about 24 hours the stock has retreated from 31, solidly in the money, to 29. This means a massive reversal of fortune for me... I won't repeat this mistake anytime soon.

More Rebalancing on Weakness

Continuing the trend from yesterday, I'm taking advantage of weakness in some of my holdings to add to positions and continue to rebalance. I've added the following:

* TOL. I continue to like the homebuilders here. Despite lackluster numbers and a downward revision in home sales numbers for last month, they are rallying. It feels like these stocks have nowhere to go but up.

* WFC. It increasingly looks like a soft landing is in the cards. Inflationary pressures are being ameliorated thanks to cheap commodity and energy prices. It stands to reason that financials like Wells Fargo will be the beneficiaries of cheap short-term and long-term rates (core business model and mortgage originations, respectively).

* AAPL. I continue to like Apple Computer, even at these levels. Apple is going to be very strong going into back to school and Christmas seasons. I'm taking advantage of a small pullback to add to my holdings.

On a side note, I unwound most of my GOOG Jan calls at 420... one misstep by these guys and it would have torpedoed my gains for the year. I'm still very bullish but don't want to be the next Amaranth!

Rebalancing into financials

One of my problems as an investor is my tendency to overweight tech just because I know so much about it. I'm very bullish on a lot of tech companies - AAPL, GOOG to name a few. Both of which I own.

Today I'm moving into financials, Wells Fargo (WFC) to be specific. I like WFC here because of lower short-term interest rates and the potential for income from mortgage refinancings and applications as we clear housing inventories. Short-term rates help the bank's natural business model. Mortgage originations will help drive revenue. With the 10 year at 4.5%, people who are in ARMs may choose to go to fixed rates.

Long NVDA Oct 30 calls

This morning, I went long NVDA with a small tranche of Oct 30 calls. My buddy Sam has profited handsomely by calling a bottom in this stock when he was out visiting me the last week of July. He went in at 19 and now it's trading at 30... nice 50% move!

I think there is some near-term upside there as our multiple is only at 33 (I think it will top out at 40). The stock will also run to end of quarter thanks to mark-up week. But I'll be getting out on Wednesday or Thursday. I think the market is too optimistic. These guys are not really as levered to the PS3 launch as people think, and there are still massive supply problems there. They may be a PC play but overall I'm not bullish on PC sales since the PC experience is getting worse and worse by the day.

Wish me luck... the calls are trading at $1.75 as I write this.

scope creep

OK, this was supposed to be a golf blog but I'm going to expand it a little bit. Now I'll be talking about what stock trades I'm making. Because I think people care about it. Below you may find my portfolio as it stands today. I just went long on SBUX and TOL, here's why:

* SBUX. To quote Steve Ballmer, "I love this company!" Starbucks has gotten beaten up recently because their lines at the stores are too long! Talk about the definition of a good problem to have. They are aggressively expanding in markets like China where the upside is huge and saturation is a very long way away. I still think they have room to grow here. I still can't find a seat in my local Starbucks most times. Take the long-term secular growth potential plus the near-term upside from consumer's extra discretionary income from lower gas prices ("consumer isn't dead") and I think you have a winner. Entered at $33.

* TOL. Cramer thinks the homebuilders have bottomed and so do I. Interest rates are coming down and these stocks rallied today on slighly improved revenue numbers from KBHome. They are about 50% off of their peak and most of them trade close to book value. The head of Toll Brothers says he can liquidate all of his land holdings today for a healthy profit. Toll Brothers is best of breed and has a phenomenal brand. The home showcases that they put together are simply unparalleled - check out Desert Canyon in North Phoenix and you will want to sign on the dotted line right there.

Here's the rest of my portfolio:

AAPL Apple Computer, Inc. 73.00 -1.65 (-2.21%)
BMY Bristol Myers Squibb Co. 25.06 +0.35 (1.42%)
F Ford Motor Company 8.00 +0.24 (3.09%)
GOOG Google Inc. 403.78 -3.07 (-0.75%)
MRVL Marvell Technology Group Ltd. 18.87 -0.44 (-2.28%)
SBUX Starbucks Corporation 34.01 +0.00 (0.00%)
TOL Toll Brothers, Inc. 27.81 +0.65 (2.39%)

Note that I am long GOOG 420 Jan calls.

Back and better than ever

Well today I hit the practice range for the first time since my trip back east a couple of weeks ago. My new favorite play to hit balls is up at Angeles National golf club in Sunland, California. Its tucked away up in the foothills about 30 mins away. The reason to go is that you can actually hit off of the grass there. Thanks to Jeff at Firefly for the recommendation.

In any case I was hitting strong and accurate with everything. My nine iron was a nice consistent 120 long and dead straight. Some problems with the driver and I still can't hit a consistently decent shot with the hybrid Titleist. My seven was easily going 150 which I'm happy with (given I'm hitting ancient pings, too).

Also starting to experiment with fades and draws with my sand wedge. Fades working nicely but the draws are a little harder!