Betting against Facebook’s Outlook and Scaling into a call option position
KEY POINTS FROM THIS ALERT:
- We are adding a short-term Sell recommendation on Facebook (FB) shares and adding a short position to the Tematica Options+ Select List with a buy stop order at $185.
- We are scaling into the GSV Capital (GSVC) Jun 2018 10.000 calls (GSVC180615C00010000)that closed last night at 0.18.
- We continue to have a Buy on the Paccar (PCAR) May 2018 70.00 calls (PCAR180518C00070000) that closed last night at $1.60.
- Ahead of next week’s March Retail Sales report, we continue to have a Sell rating and short position in the shares of both Target (TGT) and Funko (FNKO).
Adding a short-term short position in Facebook ahead of 1Q 2018 earnings
You probably read my comments on Facebook (FB) in yesterday’s weekly Tematica Investing issue and thought to yourself, “rising expenses paired with a likely disruption in revenue and user metrics sure sounds like a short opportunity, especially after running back up some 10% over the last two weeks.”
My answer would be “yes” but we don’t short stocks in Tematica Investing – we save that for the more aggressive service that is Tematica Options+.”
Granted FB shares were oversold soon after we removed them from the Tematica Investing Select List, but sometimes the charts do not tell the full story, especially when the fundamentals have yet to be reflected in the share price. In this case, I’m referring to how Wall Street expectations for 1Q 2018 and 2Q 2018 have not budged despite all that that has happened over the recent weeks and the telegraphed step up in spending that is coming at Facebook. Again, I covered all of this in yesterday’s issue of Investing.
Given this combination, I’m making a short-term short call on Facebook shares ahead of the company’s April 25 1Q 2018 earnings report. This means that soon after Facebook’s report – good or bad – we’ll likely exit this short position. Full well knowing that higher beta stocks can trade quickly higher as well as lower, I’m recommending a protective buy stop order at $185.
- We are adding a short-term Sell recommendation on Facebook (FB) shares and adding a short position to the Tematica Options+ Select List with a buy stop order at $185.
Scaling into our GSV Capital calls
Over the last week, shares of cloud storage company Dropbox moved 5% higher, while shares of music streaming service Spotify (SPOT) climbed 4%. These moves higher bode very well for the net asset value of GSV’s investment portfolio, and let’s remember that GSV’s positions are priced well below current levels. I’ll admit it’s frustrating not to see GSV’s shares move up in lockstep with these two holdings, but we have to remember that GSV Capital is a far smaller company than those two and has next to no analyst coverage.
As we remain patient given the June expiration associated without GSVC calls, let’s remember that in the coming weeks the underwrites and advisors for these two going public transaction will soon be issuing equity research coverage on DBX and SPOT shares. In my view, this is looking like yet another time when the herd will catch up to our forward view, but we’ll use the sharp fall in our GSV calls – down more than 60% since we added them in mid-January – to improve our cost basis.
- We are scaling into the GSV Capital (GSVC) Jun 2018 10.000 calls (GSVC180615C00010000) that closed last night at 0.18.
Sticking with our Paccar calls
In yesterday’s weekly issue of Tematica Investing, I reiterated the stellar truck orders that were recorded for 1Q 2018 that I shared here last week. Despite that huge increase in orders for both heavy and medium-duty trucks, there has been no increase in earnings expectations for Paccar (PCAR) for either the June quarter or for all of 2018. In my book, given the magnitude of the year over year order increase for the industry, Wall Street expectations will need to move higher to match the demand pattern of the last several months.
The next point of confirmation will be had in next week’s March Industrial Production report, which is a leading indicator of truck demand.
- We continue to have a Buy on the Paccar (PCAR) May 2018 70.00 calls (PCAR180518C00070000)that closed last night at $1.60.
Next up for Target (TGT) and Funko (FNKO), the March Retail Sales Report
Over the last few weeks, we added a short position in the shares of retailer Target and pop-culture and toy company Funko (FNKO) reflecting my concerns over the financial health of consumers as well as the pending fallout from the Toys”R”Us Bankruptcy. Recently, Telsey Advisory noted the closing of more than 800 US Toys”R”Us stores is underway, with discounts up to 30% off. Per Telsey, this inventory clearance and closeout activity should pressure toy and baby product sales across retail for the next few months
Since those additions to the Select List, both shares have vacillated back and forth as we wait for a true catalyst to emerge. One of them will be had this coming Monday in the form of March Retail Sales.
I’ll be watching the general merchandise and the sporting goods, hobby, book & music stores line items in this March report. Department sales over the last three months through February have been running behind the prior three months, which is no surprise given the seasonal downtick in spending. Sporting goods, hobby, book & music stores sales, on the other hand, were down 4.8% year over year for the three months ending this past February.
- Ahead of next week’s March Retail Sales report, we continue to have a Sell rating and short position in the shares of both Target (TGT) and Funko (FNKO).
