Ladies and gentlemen, it’s bear season. Maybe not in the overall market just yet, but certainly for some of our formerly beloved stocks that received massive bumps during the pandemic. We’ve done some work on these plays before, famously #rh (which we got everything right about except for the algo response to earnings) and you can read some of that content here:
Now, I think that time is once again upon us… except I think we may be able to catch one of these a bit earlier than we did #zm & pton. Which stock? Well, several. But I think the most prime target may be cost.
Costco’s time to go?
cost has been cruising along in the bear market all by itself, if you hadn’t looked at it recently, you’d probably be somewhat surprised to know that it’s currently trading near all time highs at a cool ~100% above it’s pre-COVID valuation, here’s a look at the chart and it’s current fundamentals:
cost is a company that makes money, no doubt about that, but stonks don’t go up forever contrary to popular opinion and given the current market conditions, I think that we might have a ripe entry on one of the final remaining COVID pumped stocks. It would seem that insiders agree as well:
From a technical standpoint, we’ve just double topped off ATH as of yesterday, overall market sentiment is bearish and cost’s PT’s aren’t budging from it’s current price point as they’ve done in the past. What we’ve seen before with these behemoths is that they’ll start to track downward into their earnings about a month or so beforehand. In the case of pton it was a double top off ATH about two weeks before earnings:
cost is currently about one month out from their next earnings call, which would put them at right about the correct time to start tracking downward if we’re going to see a similar movement. Using our “May 2020” target that we’ve used previously, cost was trading at roughly $295.
But it’s not just Costco
The realization stemmed from a conversation about nvda and amd. You see, they fall in line as well:
nvda for instance was trading around $80 during that time meaning it’s over 100% above pre-COVID valuation at the moment. We saw it break below meaningful support yesterday and it very possibly could be starting an even larger trek downward.
But it doesn’t stop quite there either… because amzn and goog also fit the bill:
And both of these tickers have earnings coming up next week which could potentially be the catalyst that kicks off the final “unwinding” of the COVID pump.
How do I play this?
Fuck if I know. These could all bounce and run 300% tomorrow, but, if they don’t, they could be solid targets for longer term puts or even put scalps for the somewhat medium term. The purpose of this thread is to house discussion on these potential opportunities and brainstorm ways to profit off of them most efficiently in the event they do come to pass.
I’ll always defer to others on our server when it comes to TA but I was looking for some $COST weakness a week ago, hoping after that first top that we would see a EMA crossover to indicate the beginning of a downward trend. Nice to see the double-top and here’s hoping we see the crossover!
The only thing I’ll add here is that $COST seemed to be trading in sympathy with $WMT and $TGT since the begging of February and I don’t know if the COVID valuation thesis holds up if we look at discount retailers as a whole? Like, is Wal-Mart a COVID pump stock? I don’t know the answer to that question but it’s also trading at ATH. Am I thinking too simply that in a bear market a slowing economy people will look to save money more and retailers such as Wal-Mart and Costco will benefit?
So maybe not covid related as much but airlines and cruises are way over priced imo. Most are burning cash and still not financially back to pre covid levels. Look at Delta for instance. The airline darling of wall street. They reported “record breaking sales” in their most recent ER a few weeks ago. Stock jumped to a fresh 52 week high as they gave strong guidance for the rest of the year. Also got “bullish” news masks are no longer required for flights.
The problem is the financials still look like dog shit. They would need demand to not just stay elevated but continue to grow throughout the year, and given the economic reality, I dont see that happening. Delta’s current P/E ratio sits at 99.
Technicals look like they are sitting on key support at 43.00. IF and its a big if, markets continue to sell off, I think they break through and test 37.50. Then continue to fly to the pits of hell at 29 where they belong.
Outside of Delta, its a similar story in the financials across the board. Most are actually in worse shape than Delta. If futes hold in the morning ill enter small positions at the May 20th strike as there is some decent OI. If the market stays red after the big tech ER’s this week, im planning on deploying more to this play.
I like this angle a lot. I’m seeing a lot of success with my COST positioning thus far, but definitely going to diversify and will look into the airlines as well. Certainly look to be overvalued as you’ve said.
Another covid high flier is #mkc (McCormick & Company). It’s currently sitting at all-time highs and has a P/E ratio of ~37 compared to a historical P/E ratio of 15. And this is for a seasoning company. Their balance sheet is also unimpressive and doesn’t justify the high P/E. They have liabilities equal to approximately ~66% of their assets so they have a significant amount of debt.
Also, I’m not sure how much of their growth is really sustainable. It’s possible that they have performed well these last two years because of the pandemic. Restaurants being closed and people having a lot more free time created the perfect storm for a rise in home cooking.
Even some of these “downgrades” from 3 to 4 years ago are a 50% premium to current ATH value
Edit: Oh there was a 2-to-1 stock split on December 1, 2020.
From what we’ve seen the market needs some sort of catalyst to “re-value” a company so they’ll typically enjoy their inflated valuations until that happens. They recently reported earnings and they were a beat so the stock saw a rally, however, the buying pressure has seemingly subsided. I wonder if the next earnings might be the catalyst depending on their guidance.
I’m currently out of my plays for this stage of the thesis, I think MSFT and GOOG earnings will spark a temporary market rally so I’ll be looking to reposition tomorrow.
Addng ZEN as part of the conversation here. Its another SAAS bloated company. was 130 area before 2022 and hit high 80s earnings during the Q1 fear cycle. There are now news of its buy out around 130 area and possibly 180 area that is causing this stock to stay this bloated. Im not even sure how they can keep this company that high valued.
Ran a similar analysis as in the ARKK thread for a bunch of Tech stocks that were on my SeekingAlpha shortlist of sorts for richly valued tech plays. Leaving the cherrypicking till tomorrow as its pretty late, but wanted to share in case this helps the discussion here.
Price/sales is red if > 10, revenue FWD is red if < 20%. Both fairly arbitrary thresholds. Sorted by earnings date. Excel file is attached below.
Well, babe ruth’d the fuck out of this one and didn’t really play it too much. This is actually the catalyst for working on some ideas that better help us track what plays we should be on top of.
Coinbase has been one that’s been consistently down. Even with the SPY rallies. I wouldn’t be surprised if the next earnings ends up being a big GUH. Which will happen on Tuesday.
aggregates layoff information about tech startups - this would include Robinhood and all. Most of the startups here aren’t public yet, but it’s a good thing to keep an eye on for all kinds of DD
The vertical line is the date of this post, yea I think its safe to say you called this one perfectly. I was planning to play this, no clue how I missed it, def kicking myself for that. but well done dude
We still have quite a few stonks that haven’t paid back what they took from retards…
Starting this position now, and will add one more every bullish closing week.
Should I see AAPL near 150, I’ll also start piling on even lower put spreads.
and to everyone doing work in the stagflation thread found here: Stagflation leading to Recession - The Kodiak Bear Thesis
