(QCOM) Archives

The End of Samsung

Samsung, Korea’s stalwart chaebol, is toast.

Remember the past two years when lockdowns were in vogue?

Digital products were the hottest item in the world as everybody was stuck in their homes.

Growth brought forward is never a bad thing for a company, especially tech companies.

However, it sets the stage for hard comps to topple and a reversion back to the mean which can look messy.

The world needed chips and phones back then, the world is now traveling, getting on planes, and taking cruise ships to the Caribbean.

This is why video game growth is quite subdued this year.

Samsung internally has also been taking a machete to its forward-looking estimates multiple times in order to front-run collapsing demand.

The boom bust nature of chips and devices is an inherent beast in the industry that is hard to tame.

Samsung was able to hit watered-down targets in the second quarter, but that was mainly due to a 7% currency tailwind of the Korean won sliding fast just like many Asian currencies.

Take a look at the Japanese yen, it’s gone off a cliff all the way to 136 per $1.

I remember when I took a vacation to Tokyo in 2011, Japan felt awfully expensive at 77 yen to $1.

The currency tailwinds are a transitory elixir yet under the hood, these economies are weakening fast.

The aging population and cost of living crisis are also crushing sales.

Internal data reveals deeper damage than initially thought.

Operating profit missed by a wider margin than revenue beat and prices for its premium products isn’t fetching the prices they once did.

For example, Samsung markets its Exynos 2200 chips as on-par rivals to the Snapdragon 8 Gen 1 and Apple’s (AAPL) A15 Bionic chip found in smartphones.

However, the Exynos fails to compete with its supposed flagship chip comps, performing at levels lagging almost a generation behind in speed and functionality.

It’s clear that devices made with Exynos chips simply won’t be able to sell for as much as flagship Android phones with Snapdragon 8 Gen 1 or Apple iPhones with A15 Bionic chips.

I fully expect the operation profit to go from 6% to 3% for Samsung.

US rival Micron (MU) has already rung the alarm. While the world’s third-largest maker of DRAM posted revenue and operating profit for the quarter in line with estimates, its forecast for the coming three months was 20% lower than expectations.

It now sees the PC and smartphone markets much weaker than previously thought.

Tech has experienced a massive downgrade in terms of sentiment and sales while massive pressure on the supply side costs.

Cloud computing and streaming services which all need chips have been the poster boys of underperformance.

Growth stocks have also gotten killed.

I do believe this is more a signal of deeper individual malaise at Samsung and an indication they are getting trounced by Chinese firms who just do it better for cheaper.

Margins won’t ever come back up for Samsung as they lack the nimbleness of the Chinese and brute power of the American tech.

They are essentially stuck between a rock and a hard place where products will become less competitive, face rapidly shrinking margins, and participate in a Korean economy that lacks vibrancy.

Once chip stocks bottom, avoid Samsung, and get into Qualcomm (QCOM) and Micron (MU).

samsung

July 8, 2022/by Mad Hedge Fund Trader

February 17, 2021

Diary, Newsletter, Summary

Global Market Comments
February 17, 2021
Fiat Lux

Featured Trade:

(HOW TO HANDLE THE FRIDAY, FEBRUARY 19 OPTIONS EXPIRATION),
(TSLA), (MS), (BA), (BLK), (GS), (AMD), (KO), (BAC), (NFLX), (AMZN), (AAPL), (INTU), (QCOM), (CRWD), (AZN), (GILD)

February 17, 2021/by Mad Hedge Fund Trader

February 12, 2021

Diary, Newsletter, Summary

Global Market Comments
February 12, 2021
Fiat Lux

Featured Trade:

(TEN STOCKS TO BUY BEFORE YOU DIE)
(MSFT), (AAPL), (GOOGL), (QCOM), (AMZN),
(V), (AXP), (NVDA), (DIS), (TGT)

February 12, 2021/by Mad Hedge Fund Trader

January 15, 2021

Tech Letter

Mad Hedge Technology Letter
January 15, 2021
Fiat Lux

Featured Trade:

(THE CHIP BONANZA)
(MU), (QCOM), (TSM)

January 15, 2021/by Mad Hedge Fund Trader

April 8 Biweekly Strategy Webinar Q&A

Diary, Newsletter, Summary

Below please find subscribers’ Q&A for the Mad Hedge Fund Trader April 8 Global Strategy Webinar broadcast from Silicon Valley, CA with my guest and co-host Bill Davis of the Mad Day Trader. Keep those questions coming!

Q: Is it premature to be buying long-term LEAPS?

A: Absolutely not—a long-term leap is a bet that your stock will recover beyond your strike prices in two years, which I certainly believe is the case with all of the quality tech and biotech names. These are pretty illiquid so the only way to get a good price is to have a bid in place on one of those absolute puke out days. You will never buy these at the bottom.

Q: Do you see a rally in the stock market in the fourth quarter of this year after the election?

A: For sure—we should be well clear of the pandemic by then, and all of the $6 trillion stimulus will be hitting at the same time.

Q: With the rally in the S&P 500, would you double up on the (SPY) put spread—the May $300-$310?

A: No, keeping your leveraged positions small is crucial in this kind of environment, and the big short play is basically behind us. Better to add the 2X ProShares Ultra Short S&P 500 (SDS) to catch a smaller move down.

Q: Will gold work if the market sells off as a safety trade?

A: Yes, it will. Gold (GLD) had that big 15% selloff a couple of weeks ago when it looked like all financial markets worldwide were going to completely freeze up, and everyone got margin calls all at the same time. We are clear of that now and I expect gold and other traditional hedges like shorting volatility, for example, to also work as a hedge. Gold is going to a new all-time high soon. Buy (GLD), (GDX), (GOLD), and (NEM).

Q: When do you think international borders will open up again, and will that have a positive effect on the economy?

A: Absolutely. You can expect the market to rally 10% into the opening of borders, and then another 10% afterwards depending on where the starting point for the market is in that. As for timing, they may open up in June, and then close up in again in the fall when a second Corona wave hits.

Q: Will you teach us how to buy LEAPS?

A: Just go to my website, type in LEAPS in all caps, and everything you need to know about leaps is there. I will also be following up soon with more individual stock LEAPS ideas, but I don’t want to put them out now because we have just had a $5,000-point rally on the Dow.

Q: Please talk about 5G.

A: The best play is Qualcomm (QCOM). They have a near-monopoly on a 5G chip which virtually the entire world has to buy. The stock has also held up incredibly well. Buy two-year LEAPS on Qualcomm with probably a $90 or $100 strike price.

Q: What level in the S&P do you think this will fail?

A: I think it will fail right around here, so that's why I have been adding on the short positions on every rally. We are exactly at halfway point between the February high and the March low, which is a perfect bear market rally.

Q: What’s the definition of the next big dip?

A: You give up the 5000-point rally we just had, and whether we give up 4000 or 6000 of it, at these kinds of conditions, 1000 points in the Dow (INDU) is a round lot, like the daily move. So, looking at the charts and these lows, it could be a $19,000, $18,000, or $17,000.

Q: Fundamentals may tell you the virus may be peaking, but the worst of the economy is yet to come.

A: True. Do all the markets follow fundamentals now? No, they will look at the virus numbers. Economic numbers are utterly meaningless and out of date here. I wouldn’t depend on them at all, just look at the new cases every day from the Johns Hopkins website, and that gives you a better buy signal than any economic indicator can.

Q: Are all the good shorts are over?

A: When I say shorts are over, from here you’re not going to get the 80% and 90% down moves that we have seen so far; those are gone. The reason I bought the 2X ProShares Ultra Short S&P 500 (SDS) is to play for the bottom end of the range, which could be down 2000 to 4000 points from here, and also to hedge the short volatility (VXX) puts that I already have. A rising market should make the (VXX) go down, and a falling market will make the (VXX) and the (SDS) go up. So, it's both a hedge and a view on a range of a market.

Q: Could the Federal Reserve buy shares?

A: Yes, they have done that already in Japan, with no success whatsoever in helping the economy, but I doubt the Fed will buy shares here. The government will take minority share ownerships in the troubled industries like the airlines, much like they did with (GM) and the top 20 banks during the 2008-09 crash and sell them later at huge profits. I don't expect them to go beyond that. The Fed here has too many other things to buy, like all of our different bond and money markets; those don't exist in other countries like Japan or Europe. Stocks are often the only thing they can buy, and in Japan’s case, they already own the entire government bond market, so they had nothing else left to buy besides stocks.

Q: How about buying Boeing (BA)?

A: I would buy Boeing LEAPS here, something like a $170-$180. If you’re going to make a 1,000% return on LEAPS on any one stock, it's going to be Boeing. That company will be around somehow, and you could get literally a 10-fold return just by going 50% out of the money on two-year LEAPS.

Q: How is liquidity on 2-year 30% out of the money LEAPS?

A: It is practically nonexistent. You have to put in a limit order and then wait for a dump in the market to get filled. That’s how all the people who have been doing LEAPS have been getting them. Put in a bid and when you get these cataclysmic, down-1,000-point days, they hit any bid. The algos go in there and they just say hit any bid, and you can get done at incredible prices in those situations.

Q: Are the fees on (SDS) a problem?

A: No, your standard equity commission is all you should be paying. They trade like water.

Q: Would you short junk bonds short-term?

A: No, because you short the (HYG) or the (JNK), you are shorting a 7.5% yield which you have to pay if you’re short, so the great short in junk bond play was in February when it was yielding 4.5%. It’s too late now.

Q: Will treasuries go to zero?

A: They could, but we’re close enough to zero where you might as well think of them at zero.

Stay healthy all.

John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader

April 14, 2020/by Mad Hedge Fund Trader

April 9, 2020

Diary, Newsletter, Summary

Global Market Comments
April 9, 2020
Fiat Lux

Featured Trade:

(TEN LONG TERM LEAPS TO BUY AT THE BOTTOM)
(MSFT), (AAPL), (GOOGL), (QCOM), (AMZN),
(V), (AXP), (NVDA), (DIS), (TGT)

April 9, 2020/by Mad Hedge Fund Trader

Ten Long Term LEAPS to Buy at the Bottom

Diary, Newsletter

I am often asked how professional hedge fund traders invest their personal money. They all do the exact same thing. They wait for a market crash like we are seeing now, and buy the longest-term LEAPS (Long Term Equity Participation Securities) possible for their favorite names.

The reasons are very simple. The risk on LEAPS is limited. You can’t lose any more than you put in. At the same time, they permit enormous amounts of leverage.

Two years out, the longest maturity available for most LEAPS, allows plenty of time for the world and the markets to get back on an even keel. Recessions, pandemics, hurricanes, oil shocks, interest rate spikes, and political instability all go away within two years and pave the way for dramatic stock market recoveries.

You just put them away and forget about them. Wake me up when it is 2022.

I put together this portfolio using the following parameters. I set the strike prices just short of the all-time highs set two weeks ago. I went for the maximum maturity. I used today’s prices. And of course, I picked the names that have the best long-term outlooks.

You should only buy LEAPS of the best quality companies with the rosiest growth prospects and rock-solid balance sheets to be certain they will still be around in two years. I’m talking about picking up Cadillacs, Rolls Royces, and even Ferraris at fire sale prices. Don’t waste your money on speculative low-quality stocks that may never come back.

If you buy LEAPS at these prices and the stocks all go to new highs, then you should earn an average 131.8% profit from an average stock price increase of only 17.6%.

That is a staggering return 7.7 times greater than the underlying stock gain. And let’s face it. None of the companies below are going to zero, ever. Now you know why hedge fund traders only employ this strategy.

There is a smarter way to execute this portfolio. Put in throw-away crash bids at levels so low they will only get executed on the next cataclysmic 1,000-point down day in the Dow Average.

You can play around with the strike prices all you want. Going farther out of the money increases your returns, but raises your risk as well. Going closer to the money reduces risk and returns, but the gains are still a multiple of the underlying stock.

Buying when everyone else is throwing up on their shoes is always the best policy. That way, your return will rise to ten times the move in the underlying stock.

If you are unable or unwilling to trade options, then you will do well buying the underlying shares outright. I expect the list below to rise by 50% or more over the next two years.

Enjoy.

Microsoft (MSFT) - March 18 2022 $180-$190 bull call spread at $2.67 delivers a 274% gain with the stock at $190, up 16% from the current level. As the global move online vastly accelerates the world is clamoring for more computers and laptops, 90% of which run Microsoft’s Windows operating system. The company’s new cloud present with Azure will also be a big beneficiary.

Apple (AAPL) – June 17 2022 $210-$220 bull call spread at $6.47 delivers a 55% gain with the stock at $226, up 14% from the current level. With most of the world’s Apple stores now closed, sales are cratering. That will translate into an explosion of new sales in the second half when they reopen. The company’s online services business is also exploding.

Alphabet (GOOGL) – January 21 2022 $1,500-$1,520 bull call spread at $7.80 delivers a 28% gain with the stock at $226, up 14% from the current level. Global online searches are up 30% to 300%, depending on the country. While advertising revenues are flagging now, they will come roaring back

QUALCOMM (QCOM) – January 21 2022 $90-$95 bull call spread at $1.55 delivers a 222% gain with the stock at $95, up 23% from the current level. We are on the cusp of a global 5G rollout and almost every cell phone in the world is going to have to use one of QUALCOMM’s proprietary chips.

Amazon (AMZN) – January 21 2022 $2,100-$2,150 bull call spread at $17.92 delivers a 179% gain with the stock at $2,150, up 15% from the current level. If you thought Amazon was taking over the world before, they have just been given a turbocharger. Much of the new online business is never going back to brick and mortar.

Visa (V) – June 17 2022 $205-$215 bull call spread at $3.75 delivers a 166% gain with the stock at $215, up 16% from the current level. Sales are down for the short term but will benefit enormously from the mass online migration of new business only. They are one of a monopoly of three.

American Express (AXP) – June 17 2022 $130-$135 bull call spread at $1.87 delivers a 167% gain with the stock at $135, up 28% from the current level. This is another one of the three credit card processors in the monopoly, except they get to charge much higher fees.

NVIDIA (NVDA) – September 16 2022 $290-$310 bull call spread at $6.90 delivers a 189% gain with the stock at $310, up 19% from the current level. They are the world’s leader in graphics card design and manufacturing used on high-end PCs, artificial intelligence, and gaining. They befit from the soaring demand for new computers and the coming shortage of chips everywhere.

Walt Disney (DIS) – January 21 2022 $140-$150 bull call spread at $2.55 delivers a 55% gain with the stock at $116, up 31% from the current level. How would you like to be in the theme park, hotel, and cruise line business right now? It’s in the price. Its growing Disney Plus streaming service will make (DIS) the next Netflix.

Target (TGT) – June 17 2022 $125-$130 bull call spread at $1.40 delivers a 257% gain with the stock at $130, up 16% from the current level. Some store sales are up 50% month on month and lines are running around the block. Their recent online growth is also saving their bacon.

Looks Like a “BUY” signal to Me

April 9, 2020/by Mad Hedge Fund Trader

The Corona Drag on 5G

Tech Letter

It will be inevitable – the 5G shift in 2020 will be delayed.

Last year, 5G was available on only about 1% of phones sold in 2019 and demand has cratered this year because of exogenous variables.

Up to just recently, Apple (AAPL) was the bellwether of the success of tech with wildly appreciating shares due to the expected ramp-up to a new 5G phone later this year.

Well, things are more complicated now.

I will be the first one to say it - the new Apple 5G iPhone will be delayed until 2021 – the project has been thrown into doubt because of a demand drop off and headaches with the supply chain in China.

The phenomenon of 5G cannot blossom until consumers can upgrade to 5G devices.

Concerning all the media print of China Inc. going back to work, don’t believe a word of it.

People of the Middle Kingdom are sitting at home just like you and me by navigating around top-down government edicts.

Instead of the perilous commute in a country of 1.4 billion people, Chinese workers are fabricating attendance figures per my sources.

Overall data is grim - global smartphone shipments dropped 38% year-over-year during February from 99.2 million devices to 61.8 million - the largest fall ever in the history of the smartphone market and that is just the tip of the iceberg.

The new data point underscores the magnitude of how the coronavirus is sucking the vitality out of the tech ecosystem in China and thus the end market for global consumer electronics.

The statistic also foreshadows imminent trouble in the smartphone market as other regions have now shut down not only in China but the manufacturing hubs of South East Asia.

The outbreak squeezes both supply and demand.

Factories in Asia are unable to manufacture phones as usual because of obligatory government shutdowns and complexities securing critical components from the supply chain.

5G has been hyped up as the great leap forward for wireless technology that will usher in unprecedented new use cases supercharging global GDP — from driverless transport to robotic automation to smart football stadiums.

And coronavirus is just that Godzilla destroying 5G momentum down.

Mass quarantines, social distancing, remote work, and schooling have been instituted in American cities, meaning that the current network carriers are swamped and overloaded with a surge in data usage.

The Verizon’s (VZ) and the AT&T (T) Broadbands of America are currently focused on maintaining their current core customers, adding extra broadband to handle the increased load, and making sure the health of the network stays intact.

This is a poor climate to upsell products to beleaguered Americans who have just lost income and possibly their house because they cannot pay mortgages.

Services such as YouTube and Netflix (NFLX) have even decreased the quality of streaming on their platforms to handle the dramatic spike in extra usage in Europe with the whole continent locked down.

The Chinese consumer was the Darkhorse catalyst to ramp up the global economic expansion during the last economic crisis, picking up world spending in 2009.

On the contrary, this group of super spenders is less inclined to save the global economy this time around because they are saddled with domestic debt.

Just as unhelpful to Silicon Valley revenues, the technology relationship at the top of the governments are poised to worsen because of the health scare.

The U.S. administration has already banned the use of Chinese components in the U.S. 5G network amid suspicions the devices would be used for espionage.

Back stateside, I believe the U.S. telecoms will explicitly detail a sudden slowdown in the 5G network rollout during their next earnings report.

The telecom companies have been able to successfully handle the extra incremental load, but it has had to allocate resources to service the extra volume.

In the meantime, companies will shift to doing infrastructure and site preparation in anticipation of the re-build up to 5G, but that could be next to be put on ice if crisis management moves to the forefront.

Considering every 5G base station is being manufactured in Asia, one must be naïve in believing all is well and they will probably need to do what the 2020 Tokyo Olympics will shortly do – postpone it.

It’s not business as usual anymore.

This time it’s different.

The world just isn’t ready to digest such a shift in global business as 5G until the fallout of the coronavirus is in the rear-view mirror.

The 5G phenomenon underlying effect is to supercharge globalization into smaller networks of interconnectivity and that is not possible during a black swan event like the coronavirus which is the antithesis of globalization and interconnected business.

Just take the situation across the Atlantic Ocean in Europe, UBS Group AG, and Credit Suisse Group AG required clients to post additional collateral, and money managers in New York are preparing term sheets for ultra-rich Americans to urgently meet margin calls.

Many people are scurrying back to their doomsday’s shelter and that does not scream global business.

If you thought gold was the safe haven – wrong again – it experienced back-to-back weekly losses as margin pressures force fire sales of gold to raise cash.

Another glaring example are the assets of Eldorado Resorts Inc., controlled by the founding Carano family, which burned $28.7 million of stock in the casino entity to meet a margin call to satisfy a bank loan.

Things are that bad now!

Sure, telecom players might argue that a sudden influx of workers from home necessitates more investment in 5G, but if they have no income, all bets are off.

The capacity of 4G home broadband has proved it is good enough for today’s demands and it means the last stage of 4G will be a high data consumption longer phase before business lethargically pivots to 5G in 2021.

Verizon’s CEO Hans Vestberg said last year that half the U.S. will have access to 5G by the end of 2020, and I will say that is now impossible.

This sets up a generational buy in the Silicon Valley chip names involved in 5G after coronavirus troubles peak such as Nvdia (NVDA), Xilinx (XLNX), Qorvo (QRVO), and QUALCOMM Incorporated (QCOM).

March 23, 2020/by Mad Hedge Fund Trader

Augmented Reality is Heating Up

Tech Letter

First, what is augmented reality for all the newbies?

Augmented reality is an interactive experience of a real-world environment where the objects that reside in the real world are enhanced by computer-generated perceptual information, sometimes across multiple sensory modalities.

Augmented reality (AR) went rival in 2016 when the Pokemon Go mania captivated everyone from children to adults.

No sooner than 2021, the AR addressable market is poised to mushroom to $83 billion - a sizeable increase from the $350 million in 2018.

Much like machine learning, corporations are learning to marry up this technology with their existing products supercharging the performance.

Ulta Beauty, for example, has acquired AR and artificial intelligence start-ups to help customers digitally test the final appearance of makeup before users purchase the product.

That is just one micro example of what can and will be achieved.

Looking deeper into the guts, Qualcomm (QCOM) is hellbent on making their chips a critical part of the puzzle.

The company is better known for a telecom and a semiconductor play, not often lumped in with a list of AR stocks.

Qualcomm is strategically positioned to capitalize on the integration of augmented reality in mainstream corporate business embedding their chips into the devices.

Maximizing Qualcomm’s future role in the industry, the company announced in 2018 that it would be developing a chipset specifically for AR and VR applications.

This broad-based solution will make it easier for other developers to bring new glasses to the marketplace.

Autodesk (ADSK) is one of my favorite software stocks and a best of breed of industry design.

They sell 3D rendering software to designers and creators by offering a platform in which they can transform 2D designs into digital models that are both interactive and immersive, creating compelling experiences for end-users.

Autodesk has an array of powerful software suites to augment virtually any application, such as 3ds Max, a 3D modeling program; Maya LT game development software; its automotive modeling program VRED; and Forge, a development platform for cloud-based design.

Facebook (FB) has been piling capital into AR for years.

CEO Mark Zuckerberg wants to create an alternative profit-driver and is desperate to wean his brainchild from the digital ad circus.

One example is Facebook’s Portal TV and its Spark AR which is the platform responsible for mobile augmented reality experiences on Facebook, Messenger, and Instagram.

It supplies the virtual effects for consumers to play around with, but it is yet to be seen if consumers gravitate towards this product.

Lumentum (LITE) is the leader in 3D-sensing markets developing cloud and 5G wireless network deployments.

They manufacture 3D sensor lasers that can be used with smartphones to turn handsets into a sort of radar. Sensors are clearly a huge input in how AR functions along with the chips.

CEO of Apple (AAPL) Tim Cook put it best when he earlier said, “I do think that a significant portion of the population of developed countries, and eventually all countries, will have AR experiences every day, almost like eating three meals a day, it will become that much a part of you.”

He said that in 2016 and AR has yet to mushroom into the game-changing sector initially thought partly because the roll-out of 5G is taking longer than first expected.

Apple consumers will need to then adopt a 5G device or phone to really get the AR party started and that won’t happen until the backend of next year.

My initial channel checks hint that the Cupertino firm is planning a 5.4-inch model, two 6.1-inch devices, and one 6.7-inch phone, all of which will support 5G connectivity.

I surmise that Apple’s two premium devices will feature “world-facing” 3D sensing, a technology that could help Apple boost its augmented-reality capabilities and support other feature improvements on its priciest devices.

Apple has had a big hand in Lumentum's growth and will continue to buy their sensors, but other key component suppliers will get contracts such as Finisar, a manufacturer of optical communication components and subsystems.

Apple planned to debut AR glasses by 2020, but the rollout is now delayed until 2022.

They are clearly on the back foot with Microsoft (MSFT) further along in the process.

Microsoft already has a second iteration of its AR headset, HoloLens, and is compatible with several apps and has integration with Azure as well.

The head start of 2 years could really make a meaningful impact and might be hard for Apple to recover.

Facebook isn’t the only social media company going full steam into AR, Snap (SNAP) recently unveiled its newest spectacles, which feature AR elements.

Another application of AR is autonomous driving with Nvidia working on improving the driving experience by fusing AR with artificial intelligence.

Nvidia (NVDA) is already thinking about the next generation of AR technologies with varifocal displays, which improve the clarity of an object for a user.

It will take time to transform our relationship with AR, the infrastructure is still getting built out and many people just don’t have a device that will allow us to tap into the technology.

Investors must know that AR-related stocks will start to appreciate from the anticipation of full sale adoption and there could be a killer app that forces the mainstream user to take notice.

Until then, companies jockey for position and hope to be the ones that take the lion’s share of the revenue once the technology goes into overdrive.