by Travis Johnson, Stock Gumshoe | January 18, 2019 6:34 pm
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AAPL is trying hard to improve sales in China. Reputable but inofficial channels (i.e. JD.com) now have discounts of up to 1000 RMB off the retail Apple store price ($160) and it remains to be seen if Hong Kong is factored into China sales.
The phones are so expensive now that it’s worth it just to fly for a weekend trip to Hong Kong and bring a couple for friends, given that Hong Kong is tax free. The Chinese people are always crafty about this. Then there are also grey market Hong Kong import sales on Taobao and all kinds of electronic markets in China.
The new phones look hideous with the gigantic double lens cameras and hardly offer much revolutionary, but they’re still status symbols in China.
If I’m right about the huge Hong Kong import grey market the sales impact might not be as bad as expected and people are just shifting away from the official channel.
Would have to check, but I believe that when Apple says “China sales” they mean “Greater China”… including Hong Kong and I think also Taiwan.
Hi travis, when a stock hits a stop loss how do you evaluate how much to sell? For momentum stocks you have lost faith in do you sell all and just leave your profits in for others that you are more positive about? I was just surprised you sold out of all the teledoc shares when the core business hadnt really shifted and you had been so positive about it a few weeks previously (it seemed more about the errant ex CEO if i remember correctly)
Yes, when the stop loss trigger was hit for that stock the deciding factor for me was the board’s incompetence.
A stop loss for me is an alert that it has left the “normal” trading range, and I use that to re-evaluate — the decision is not always the same, but for momentum stocks that I still have some confidence in as businesses but realize could also fall another 30%+, I’m likely to sell something between 1/2 and 3/4 of my position to reduce risk (and hopefully book profits, depending on where I bought).
None of this is automatic, and I often hold through stop loss triggers if I have some confidence in the underlying valuation — it’s just that momentum growth stocks have such frightening current valuations that I often can’t justify keeping money at risk in them if sentiment has shifted enough to jolt them down sharply.
Travis,
Have you written any article on your portfolio risk management system and exit strategy? If yes, would you please share the link? Do you change your exit plan based on the market condition?
i do not understand why people think tariffs are bad , especially republicans who always spout a user tax , well guess what , the tariff goes to the government only at the expense of those who are un-American and buy foreign ! a user tax !
, its how America paid for itself when formed !
but u all think u get foreign goods cheap ? , you are actually supporting greedy executives in big corporations who do not care about you to begin with ,
they sent American jobs overseas and pocketed the difference for them selves , with no pay raise for the remainder of their workers
then they wonder why less sales ? idiots , they took paying jobs that would have bought and put them on the governments back !
TRADE NOTE
Crazy times from NVIDIA as they first reassured investors about the inventory overhang and said they should have mostly worked through it as this year comes to a close (their fourth quarter of fiscal 2019 ended yesterday), and then came out today with a shockingly bad cut to their forecasts for the quarter.
There are two factors at play in my deciding what to do: First, whether or not this is a blip in their datacenter/AI and gaming businesses that are likely to be the most important divisions for the company for a long time; and second, whether the company actually knows what’s going on in its business.
For the first part, the downgrade was essentially across the board — they cut their revenue forecast for the quarter by about 20%, which is MASSIVE… and the fourth quarter is their biggest, typically, so that’s a big deal. That has nothing to do with the inventory overhang, which I talked about above and had already been reflected in the stock and, to a large part, has now worked through the system…. this is a demand problem, not a one-time supply overhang like they had when cryptocurrency mining disappeared. Demand for their high-end gaming chips has disappointed, perhaps partly because not many new games take advantage of their features yet, and that means they’re slowing down advances in new products and the rollout of new higher-capability chips.
That’s a rational business decision, perhaps, but it’s also possibly a disastrous one in the long run. If a company has a six-month technical and R&D lead on their main competitor (AMD, in this case), what happens if it slows itself down? I don’t know what NVIDIA’s lead over AMD might be at this point, in many ways they’re similar and it comes down to brand — especially if the new chips from NVDA aren’t selling well, despite the features that AMD doesn’t yet offer…. and AMD is suffering, too, but this is a worrisome development.
And perhaps more important, both Intel and NVIDIA are now saying that the wild pace of cloud adoption is slowing to some degree… and that data center builders are slowing down their orders and being at least a little cautious. Whether that’s because of the market upheaval late last year, or the trade war, or fears about economic growth in general, I have no idea… but if NVDA and INTC are both reporting that data center chip buys disappointed, that should make us all sit back and wonder just how cautious companies are being in other areas. I suspect NVDA and INTC will be fine on this front in terms of market share and continuing growth over the long run, but it might be slower growth… caution from buyers isn’t something that necessarily evaporates immediately, and the chipmakers have been building their products willy nilly in anticipation of never-ending demand, so demand slowdowns could easily bring down prices.
And that’s what happened in the fourth quarter, at least, with both much lower sales AND much lower profit margins (gross margin will have dropped from 62% to 56%, the worst fourth quarter number in a couple years). If margins aren’t going to keep climbing, as they had been since 2011, and revenue is actually going to be dropping, no one will want to pay a premium multiple for NVDA shares.
It’s still a good company, but now that I’m permitted to trade some shares I have to lighten my position following this latest bombshell. It seems likely to me that this weakness will trickle through to the future as well, and there’s meaningful risk of another leg down if they forecast the next quarter without any bounce-back in the business (earnings are now on February 14, not the Feb. 8 previously predicted). I do still like NVDA’s leadership, but the business is not nearly as good as it appeared and the cryptocurrency boom was clearly a larger part of the gaming GPU demand than anticipated, which will continue to have an impact on the mid-range gamers (the world is awash in secondhand GPUs at low prices now that so many folks have given up on “mining”), and after their past six months it’s becoming pretty clear that NVDA is not the “price maker” industry leader at this scale, to some degree it’s still a “price taker” maker of semiconductor products, and that’s a riskier and lower-margin business than they’re (still) priced as. I don’t know whether the weakness in their core gaming business is going to be persistent, whether tastes are changing (more Fortnite, less of the more technically-demanding games) or it’s just a slowdown because of product transition cycles and consumer caution in China, but clearly the gaming GPU business is not a demand always rises/price doesn’t matter business as it sometimes seemed to be in recent years.
So given my long-term hopes about their self-driving car and AI capability, and the strong possibility that they will continue to provide a key operating system that many future AI businesses are built on, I will hold on to part of my NVDA position — but I’ll also sell it down considerably to reduce my exposure. The shares I’m selling are roughly a break-even, a small gain, but, of course, they’re far below where I could have sold them had I anticipated this decline.
Travis, take a closer look at AMD. Another advisor I have predicted NVDA’s and INTC’s downdraft and AMD’s rise about 18 months ago. AMD had the best gain in the S&P last year. His share price forecast is $30 later this year and $40 in 2020.
Hi Travis, OKTA is down big today on a downgrade from buy to hold based on valuation. You previously stated that you were thinking of holding for the next earnings report which is scheduled for Thursday. Is that still your intention or does today’s market action change your mind?
Thanks
I came close to shaving off a little profit, but it didn’t quite hit my price for that so I’m still holding. I’m leery of the valuation, of course, and the crazy-high valuation (23X sales) means that people will take any excuse to sell and lock in their profits… an analyst downgrade is one good excuse.
I still like the company, and it hasn’t hit my stop loss point (or come close) or my “shave a little profit off” point, so I’m holding through earnings. Will update my thoughts on OKTA then.