Brinks Trolls our “Gap-Down Garage.” StockJaw comes to terms with NFLX. We raise cash, and lash some back at United Health.
UPDATE: 11-14-17. As you will notice we released “Think Tank” yesterday. In our piece we muse momentarily on the notion of the GOP floating healthcare for yet a 4th time. That happened today.
The wave of earnings season just crested and rolled out into a hissing foam, of what? Terra-stomping victory. If you’re in, smile. StockJaw.com has enjoyed amazing progress this year. The market has been a dream. Changes to our portfolio prior to earnings season made perfect sense(see full portfolio details “Our Portfolio” above.) Why change? Surging shareholder expectation, successive all-time highs for indexes, and we are historically overdue for a correction.
Indexes are at all time highs repeatedly, as the underlying companies continue to beat-and-guide right on up. Saddle up yo. It’s called volatility risk. We only play on the freeway when being paid. With risk thick in the air, we locked down the bunker to think. In the Quiet Hours we knew what to do.
StockJaw “Think Tank”– unauthorized photo .
What did StockJaw do? We reduced risk by raising cash by taking profits. When you take profits you “realize” profits. That’s called “realized gains.” When you realize gains you reduce risk. By trimming our winning positions we lessen our exposure to both individual issue risk and general market risk. That’s a two-fer.
Netflix(NYSE: NFLX). We’ve tracked Netflix and the entertaining Reed Hastings show for years. Twice we wrongly concluded that the easy money of early days seemed finished. Really, we should have done better. We had taken profits earlier, too early, and the shares never offered us a good reentry point. Up 89%(non-CAGR) on our remaining half-position, we cleared it off.
StockJaw watching the Big Board. “Where’s the headphones?”
We continue to love the company, it’s truly visionary founder and CEO Reed Hastings, and believe that shares will continue higher, at a noticeably slower rate now. We remain intrigued, but cognizant of the gathering panoramic competition: Disney, Direct, Dish, Amazon Prime, HBO, Fire TV, Sling TV, Time/Warner, RoKu, Hulu, Starz, Showtime, etc.
The circus clown-car act best depicts the SVOD(streaming video on demand) industry. Absolutely everyone is scrambling for a profitable secure seat. No one knows how many SVOD seats will ultimately exist, in this highly-fractured industry under hyperactive transformation. NFLX is clearly the industry leader; super service at a super cheap price, with a yet tiny piece of a planet-wide TAM(total addressable market). Yet we think better growth opportunities exist.
How is the U.S. economy, and our bull market? Look at the drum-beat of robust jobs #s. Look at earnings season–75+% of companies reporting beat estimates. This bull lives, and it’s planet-wide.
We are entering a new global growth wave.
StockJaw squeegees Brinks(NYSE: BCO). Brinks is a turnaround story. In FY 2014 BCO earnings per share(EPS) went negative -$1.12. That’s loss per share. Now Thompson/Reuters forecasts 1 year EPS growth of 35.8%. Over the last 12 months BCO has exploded EPS by 347%. Is that a turn around?
Brinks’ reinvigorated revenue growth is real and their business is growing in all segments. Brinks’ growth is also extremely close to 50/50 organic vs. acquisition. Very impressive. We still love the mutt.
Q3’s revenue advanced 12%y/y, 13% non-GAAP. The twelve month EPS growth of 347% was one obvious reason we bought. We think the story’s still good but more pressurized.
Brinks sinks double-digits post earnings, to troll our Gap-Down Garage. No one exits without paying up. You see that dog?
Why did we decide to exit? What technical shift might bring us snapping back? The post earnings sell-off came with fury on triple volume. Checking the BCO daily chart we see the sickening 9% gap down directly on the heels of reporting. Steep stairsteps downward followed on subsequent days. This level of dissatisfaction and dumping clearly documents the clamorous level of expectation for these shares.
What we individually may believe about a stock can prove at least temporarily meaningless. Sellers are often wrong. But the market, not our conviction, determine share prices, and the swings which lead to them. Individual shareholders are in a big boat, and they are not piloting.
StockJaw views down-gaps as a serious warning. Gaps are an undeniable sign of real dissatisfaction. Stocks are held by people. People get nervous. Thus market action is often irrational. Particular stocks behave in particular ways. Yet down-gaps are not good for any share. What technical shift would have to happen for a stock suffering this fate, before it again becomes potentially investable? We need a chartable show of shareholder faith.
Markets are fully rational only on occasion.
Charming isn’t he–you feed him. Nice, he said the same about you yo. Give this guy your cash and you’ll never see it again.
A 5% or greater gap down is your warning. It’s like cracking ice–oops, we mean shattered ice. Shares failed to hold their current level, dropping through to seek support somewhere lower. StockJaw looks for the refilling of any such gap prior to any possible reentry. Any such retracement must be on strong volume.
This rule of thumb applies most to the shares of companies turning around previously lagging sales and revenue numbers. Gaps can be buying opportunities, but for proven winners, or the once strong returning.
StockJaw has been bunkered-up for weeks, busy with earnings, and utilizing market tranquility to dig deeper for new ideas, and what’s coming here next. New on the burner is our purchase of in-the-money call options on Huntsman International(NYSE: HUN), a world leader in the performance chemicals industry. More later.
We also took an additional small IV-drip of United Health Group(NYSE: UNH). No time exists to read that chart now. But if you enjoy hospital hijinx, like snatching sleeping patients toiletries, pay attention if the GOP attempts healthcare reform for a fourth time. Keep looking.
Images sourced from Pixabay.
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