Google's prospects

At the time of IPO of Google (GOOG or GOOGL), my wife asked me if we should buy some Google shares. I said no as I thought it would be too expensive at IPO. Indeed it was kind of expensive with the P/E at about 30 times or something like that. I have never bought or traded any Google shares only until very recently. I can tell you I have kept kicking myself all the time for this stupid decision of mine. Google has never looked back since its IPO and has almost always beaten the estimates on its earnings.

Don’t get me wrong that I suggest to simply buy IPOs. I don’t since there is usually a lot of euphoria around IPOs and the prices are generally very expensive. But after seeing the great performance of Google with one after another top-notch earnings, I should have used any weakness to at least get some Google shares in the past few years. I must say I have significantly underestimated the Google’s ability to generate money. This is a very unique company with full of innovations and I don’t see any limit with it. While its core business is still advertisement associated with its search engine, it is a heavy-weight player in the mobile business and other high-tech areas: Google glasses, automatic car, smart lens…….you name it! I really think everyone should have something in Google. Using Dollar Cost Averaging to buy a small portion initially and adding more at its weakness is a good strategy to establish your position for Google. 

Reading glasses may become obsolete soon

Shortly after I passed 45 years of age, I became very frustrated about my eye-vision. Almost like suddenly, I could not read anything small. For all my life, my eye vision was always excellent. As such you can imagine how much frustration I had during this transition. Now many years have passed and I have got used to it, presbyopia. I now have probably 10 reading glasses, in cars, different rooms, in my office bags etc. I’m sure many of you with my age have experienced the same. We can hardly survive without reading glasses now! But there is a hope now that reading glasses may become something obsolete and of history.

If you haven’t noticed, Alcon, the eye-care division of Novartis has just announced a deal with Google to develop health care products by using Google’s technology: smart lens. One very promising product from this partnership that may materialize in just a few years is the contact lens for presbyopia. In other words, people like me and you over 40-50 will not need reading glasses anymore as the smart contact lens will automatically adjust for either looking out in distance or looking in near field. Just imagine and try to visualize what kind of freedom you will have if you don’t need to always remember to carry reading glasses wherever you go.  This is going to be a huge market as there are about 2 billion people in the world who have some difficulty reading. Even just a fraction of this population who choose to use this smart contact lens would mean a big chunk of money for Novartis and Google. In addition to the strictly eye-related clinical use of this new technology, it is also under development to use the smart lens to monitor glucose levels for diabetic patients (DM). If successful, DM patients, which again is a huge population and increasing, will not use needle to spike their fingers anymore to measure their glucose levels. Also imagine what kind of potential this will be!

Both Novartis (NVS) and Google (GOOGL) are the powerful dominators in their respective sectors. Novartis is focusing on pharmaceuticals, eye-care and generics. The two joining together may lead to something really revolutionary benefiting both patients and investors! 

McDonald is severely oversold

McDonald (MCD) is one of the best value stocks in the world. You can simply rely on it to generate tons of money for you as long as you trust it and keep your faith with it. Right now you have a great opportunity to buy it for long-term investment. You may have heard a lot of bad news for MCD recently, which has pushed down its prices dearly. But all of it is just short-life noise and will soon be forgot. Technically speaking, MCD is way oversold: a large divergence from its 50 day MA (moving average); dropping below its lower Bollinger Band; and RSI at 20. At the current price around $95, it is sitting right on its strong support line. I bet MCD is unlikely declining too much further from here but there is a good chance that it may have some strong rebounding. Regardless if you want to invest for long term or trade for speculation, it is a good spot to be in for MCD!

Another orphan drug opportunity

Sarepta Therapeutics (SRPT) is a Cambridge biotech company, focusing on orphan drug development. It was just announcing a positive phase 3 study results last week about the indication of Duchenne muscular dystrophy (DMD), a fatal, muscle-wasting disease. However, its shares plunged 13% on the day. The Street was apparently not happy with the results but I think it was wrong and this could be a good opportunity to buy SRPT.

DMD is a rather rare disease, occurring in about 0.03% of boys and destroying muscle function and quality of life over time. Duchenne patients will gradually lose their waling ability and eventually the respiratory muscles are destroyed. They usually could not live past their 20s. Sarepta said that the results are good enough to seek approval from the FDA later this year and target to get the drug, called eteplirsen, to be approved in 2015. If successful, it would be Sarepta's first marketed drug. I bet the company will try its best to get ready for the submission and the stock will become hot again towards the end of the year or early next year.

I underestimated Intel's bullishness

Intel (INTC) is on fire again following very positive earning results reported on Tue. As I have said several times, don’t simply listen to those Wall Street analysts who are usually late in the game and don’t have the long-term view. They tend to look at the rear mirror and overreact to bad news. Intel  has been considered dead money for many years and almost no one believed it anymore that it would continue to grow. It was one of the most hated stocks in the Street.  But not me as you can see from my blog starting 4-5 years ago. Here is the prove from one of my positions for Intel. It is a combination of 3 option arms I made one and half a year ago (Nov 2012) when Intel was trading at low $20s:

-          The top one is a bullish bet with long call options. 

-          The middle one is a technical component with which I generated some instant income to partially fund my bullish call option above. It is kind of covered calls. While I did get some money from it, the downside is that I virtually have capped my profit from my long call options at $30.54. At the moment, since Intel is much more than $30, this portion is basically offsetting against the top one: i.e. when one is increasing, the other will be decreasing.

-          The bottom one is another bullish bet that I did not expect Intel would go down below $20. It is a naked put trading. With it I also generated the instant income to fund my call options.

 

This is one example how to use options wisely to get paid for betting something. See the middle column with the circle. These are the prices I either paid or was paid for. For the top row, I paid $3.15/share to bet Intel would go up more than $23.15 in 2 years. For the middle and the bottom rows I got instantly paid (earned) $0.54/share & 10.50/share, respectively. So the whole position meant that I earned $7.89 (10.50+0.54-3.15) upfront when I set up this trade and my worst result could be that I had to buy Intel at $19.5 if its price went below this level by Jan 2015. I traded 10 contracts for each (= 1000 shares). With this kind of setup with being paid upfront, you may understand it is very difficult to lose money, isn’t?  While the whole position is very profitable as it stands now, in the hindsight, it was my stupidity to use the  covered call option (middle row) to cap my upside potential.  The idea was not bad to use some instant income to fund my trade. But apparently I did it too soon as it did not bring me too much income (just $540). I guess even myself was kind of underestimating Intel’s ability to move high quickly over $30 within 2 years. I thought it would already be a very good move if it could advance up to $30 and was not so much convinced for it to be over $30 in a short 2 years period.  This is kind of learning process for me as well that in the future I’d think more about the benefit/risk before setting up such kind of combo option trades.

 

So are you starting to become interested in Intel now? I hope you did so much earlier. While I think Intel is a great stock to buy and hold for long-term, I don’t like the euphoria about it at the moment. Suddenly all the analysts seem to wake up as if they are much cleverer than others to see the potential of Intel and are buy to upgrade it for buy. I don’t like it for the short-term. If you want to buy, likely you may get a better chance in a few months from now when the euphoria sets down. I think it is short-term overbought at the moment. It would be a much better buy if it can decline towards $30 or so.

Why Microsoft will be moving a lot higher

A few weeks ago, I made a bold prediction that Microsoft (MSFT) could transform itself to become another Apple. Of course, I know this would be considered a stupid prediction for most of the people out there. Who are still loving Microsoft? Well, it seems I may not be alone. I just saw a good blog talking about the wise move of Microsoft to heat up its competition in the mobile business. I suggest you also take a lot.

By the way, MSFT shares have been going up quite lot lately.

Macro: The Bottom Line (7/14/2014)

Ghosts from the Eurozone debt crisis

 

The Eurozone debt crisis has been dead for months - or so the markets have been behaving for much of this year. Few securities have illustrated this better than Portuguese government bonds. At the start of 2014, the Portuguese government was paying 6 pct to borrow for 10 years. By mid-June, that cost of borrowing had fallen below 3.5 pct! You certainly would've been forgiven for believing that the days of runaway deficits and hundred billion-euro bailouts were forever banished to the history books.

 

That was until Portugal's second-largest bank brought the old ghosts back last week. Espirito Santo International - the parent holding company of Banco Espirito Santo - delayed interest payments on some of its short-term debt obligations. The panic effect was immediate. Stock markets on both sides of the Atlantic tumbled. Portugal's 10-year bond yields shot back up toward the 4 pct market, those of Spain and Italy rose as well, while U.S. Treasury yields dropped. Greece managed to raise only half of its initial estimate of new funds in its newest bond issue. After months of complacency, markets were no suddenly bracing for a return to the horror days of 2011.  

 

But how much do we actually need to worry? Will a not-too-well-known Portuguese bank unleash the next wave of instability in the Euro area? We think not.

 

First, the payment delay at Espirito Santo was more a result of company-specific problems, rather than of broader macro issues. Sure, the operating environment in the peripheral European economies has been anything but rosy, but ultimately it was the labyrinthine, opaque operating structure of the Espirito Santo conglomerate that brought it to its knees.

Second, in terms of systemic relevance and interconnectedness with the European financial system as a whole, Banco Espirito Santo pales in comparison to banks in Northern Europe or the U.K. In other words, it definitely isn't "too big to fail."

Third, in the unlikely case that the turbulence does get out of hand, the ECB has explicitly committed itself as a last guarantor of financial stability in the region. If anything, a pickup in market stress will only prolong the ultra-loose central-bank policy that we've discussed so extensively by now. Over the medium term, that should keep asset prices well-supported.

We're certainly not arguing that the Eurozone debt crisis is over. The list of structural issues - lack of competitiveness, rigid labor markets, an overbearing public sector - has barely been touched. Incidents such as the Espirito Santo episode will surface every now and then. But - not the least given the hyperactivity of central banks - the risk of full-blown market meltdown is not where it used to be.