Case Study of a “Marked” Stock
- The Netflix story the mainstream isn’t covering
- Why Netflix is the biggest “buyout bait” ever
- Obamacare fiasco in D.C. tanks the dollar, propels gold
- Escape from the dollar: Russia and China’s golden scheme
- The second coming of the Juicero
- The Fed and manipulated markets
There’s still life in at least one of the “FAANG” stocks: Netflix is up 12% on the day. But a few readers of The 5 have managed to double their money on NFLX in just over three weeks.
Today we bring you a real-time case study in a takeover target — a fertile field of opportunity being plowed by our own Louis Basenese. “We couldn’t ask for a more perfect storm for takeovers,” he said here only last week.
You haven’t heard of Netflix as a takeover target? Well, that’s a story you won’t hear from the mainstream — which is obsessing instead about the obvious stuff in NFLX’s latest quarterly numbers, and the resulting 12% pop in the share price.
Let’s dive in…
“Netflix just demonstrated to the world why it’s such a compelling takeover target for Apple Inc.,” says Louis.
Yup, Apple. Louis says everything that makes Netflix attractive to AAPL was underscored in spades by the numbers NFLX issued after the closing bell yesterday.
“The company torched expectations for subscriber growth, adding over 5 million new users,” he tells us. “It crossed the critical 100 million total subscriber mark. And now international users account for 50.1% of its business.
“Thanks to the business momentum and strong content additions, Netflix went a step further and raised guidance for the third quarter, too.
“The company now expects to add 4.40 million new subscribers in the current quarter, versus expectations for 3.99 million.”
OK, you say, but why is Netflix a takeover target and why is Apple the obvious suitor?
It comes back to something we’ve been pointing out for some time — the $256.8 billion in cash sitting on AAPL’s balance sheet. “That’s the largest cash balance on record,” Louis reminds us.
“Companies aren’t supposed to hoard cash, though, which I’m convinced sets the stage for Apple to set yet another record — the largest technology acquisition ever. After all, the reality of being the world’s biggest technology company is that growth isn’t an option. It’s a requirement.
“And the only way to keep growing at impressive double-digit rates is to make a big, BOLD move in the M&A department.”
And the only acquisition that makes sense, Louis says, is NFLX. “Apple has its sights on streaming content.”
When it comes to video streaming, AAPL is playing catch-up. Really, its online video business is still stuck in the mid-2000s — renting or selling individual titles via iTunes.
“It does not offer a subscription service to stream, which impedes its growth,” Louis explains. But by baking Netflix’s streaming video service into the 700 million-plus iPhones in use today, Apple would unlock a $68 billion profit center — almost overnight.
“More importantly, the merging of their two ‘user bases’ would create a devastating competitive advantage. (Don’t forget Netflix’s 100 million subscribers.) As a result, Apple wouldn’t just have a new space in which to operate; it would have a new space to dominate.
“Apple also happens to be the one company that needs to make the acquisition the most,” Louis goes on.
“As you can see in the chart, it’s a surefire way to supercharge profit growth, as Netflix is growing profits faster than any other tech giant.”
All of the foregoing was the case Louis made back in June 26 to charter subscribers of The Takeover Alert. Netflix, he said, was a classic “marked stock.” Conservative investors could buy NFLX shares — which as of this morning are up 16%. For the more aggressive-minded, he recommended call options dated one year out. As of this morning, those options have doubled in price; Louis is urging readers who bought them to sell half their position and lock in that 100% gain.
“Of course, we’re convinced the upside is much higher on a takeover offer from Apple,” Louis says this morning. “And the prospects and probability of a deal only increased based on NFLX’s latest report.”
Louis has four other “marked stocks” in the Takeover Alert portfolio — with potential new deals and new recommendations coming every week.
The glow from Netflix is not extending to the rest of the stock market.
The Dow is adding to yesterday’s losses; at last check the Big Board was at 21,545. But with tech stocks coming on strong — Netflix isn’t the only one — the Nasdaq is slightly in the green and flirting with a record at 6,328.
Elsewhere, the market story today is about the dollar — and Obamacare.
As you’ve no doubt heard, “Obamacare Lite” really appears to be dead now. The Senate’s version of the bill — which kept many of Obamacare’s most egregious tax increases — couldn’t muster enough Republican votes to pass. That doesn’t bode well for passage of tax reform, a big public works program or any of the other GOP priorities that are supposed to get the U.S. economy out of low gear.
When the news emerged from Washington around 9:00 p.m. EDT last night, the dollar immediately took a dive relative to the globe’s other major currencies. And gold fulfilled its function as the anti-dollar, jumping a bit. At last check the bid is up to $1,244 — the highest it’s been all this month.
Our friend Chuck Butler, longtime proprietor of the Daily Pfennig e-letter, goes so far as to say a six-year strong-dollar trend is “on its last legs.” Looking at a chart of the U.S. dollar index — which measures the greenback against the euro and five other big currencies — he’s onto something…
Sberbank, one of Russia’s largest banks, has begun trading physical gold on the Shanghai Gold Exchange, one of the world’s biggest gold trading platforms — and an aspiring rival to the London Metal Exchange.
“These developments are all part of a deepening of the Russia-China gold connection,” writes Jim Rickards in Rickards’ Strategic Intelligence. “Russia and China are two of the three largest gold producers in the world. They are also two of the six largest national holders of gold.
“Their view is to abandon dollar-based payments systems that have been dominated by the U.S. since the end of World War II. These Russian-Chinese initiatives include currency swaps, bilateral lines of credit and development of blockchain platforms for new cryptocurrencies to bypass U.S. dollar payments systems.
“The gradual demise of the dollar is now obvious to most observers — except those at the U.S. Treasury and Federal Reserve in change of protecting the dollar itself.”
To borrow a line from Spinal Tap, you are witnesses at the new birth of the Juicero, Mark II.
We told you about Juicero, the $400 internet-connected juicer, three months ago. To us, it was just another contraption marketed to people with more money than sense. But it inexplicably became the object of widespread scorn when Bloomberg did a story revealing that the company’s custom $6 juice packs filled with fruits and vegetables could be squeezed as easily by hand as they could by the machine.
To be fair, Juicero brought some of it on themselves: Founder Doug Evans literally said his company would do for juicing what Steve Jobs did for computers. (And with that promise, he raised $120 million in Silicon Valley funding!)
So now comes the aftermath: Fortune reports Juicero is undergoing a “strategic shift.” The firm is looking to launch a $200 second generation of the machine that — internally anyway — is being called the v2.
Alas, about a quarter of Juicero’s staff will be strategically shifted out of a job. Mostly sales and marketing types, we’re told.
Well, their jobs had become nigh impossible to perform anyway…
“Dave,” writes one of our regulars, “if it’s true that Wall Street is rigged, and central banks are buying up assets, and a trading veteran like Alan Knuckman sees activity he describes as egregious or insane, then I’d like to channel Jim Rickards for a moment.
“I’m not even close to being at his level. But I will humbly suggest adding a new bogey to our indications-and-warnings radar: specifically, Janet Yellen’s recent remark that she doesn’t believe we will see another financial crisis ‘in our lifetimes.’
“It’s hard to believe a Fed chair would make a comment like that without some reason — hubris and flawed models notwithstanding. Maybe the underlying message is ‘We’re all over this’ because her team is doing the egregious, insane buying.
“Whoever is manipulating the markets with these trades…
- seems to have huge resources at their disposal (maybe even a printing press)
- is above the law
- is consistently propping up stocks and knocking down precious metals
- is very sophisticated, with remarkable timing
- has awfully good insider info.
“Is there a more likely culprit in these manipulations than the Fed? As Jim Rickards has pointed out, they have a long list — indeed, dozens — of tools at their disposal. Most of those don’t seem to be working very well. Perhaps this is the ace up their sleeve!”
The 5: We know several foreign central banks are buying stocks because they tell us they are. But to date no one has found a smoking gun that proves the Fed is doing the same.
Then again, cynics have a point when they say Fed policy is itself a form of market manipulation.
In that vein, David Stockman made a credible case to his readers recently that the “retail apocalypse” and all those brick-and-mortar store closings are made possible in part by the Federal Reserve’s easy money.
Put another way: Without all the money the Fed has showered on Wall Street since 2008, how likely is it that Amazon would be trading with a P/E of [checking our screens] 191?
But as long as the Street keeps plowing money into Amazon, that’s money Jeff Bezos can plow into research and development — the better to find yet another sector of retail he can bigfoot. (To be sure, David says Amazon would be bigfooting retail even in the absence of Fed manipulations. But maybe not so much, or so quickly.)
As our old friend Chris Mayer pointed out here two years ago, Amazon would easily achieve a cushy 10% profit margin were it not for Bezos’ relentless expansion into new lines of business — that is, his laser focus on achieving an ever-stronger return on invested capital.
And as long as the easy money keeps flowing, who’s to say Bezos is in the wrong?
The 5 Min. Forecast
P.S. “We couldn’t be more thrilled about the profit opportunities that lie ahead as the boom in mergers and acquisitions kicks into high gear,” says Louis Basenese.
Considering the pop in Netflix — Louis says it’s a logical acquisition for Apple, and shares are now up 13% on the day — we can understand his excitement. Readers of The Takeover Alert who acted on Louis’ NFLX option recommendation 22 days ago have doubled their money.
Yes, there’s more where that came from. There’s a $3 trillion pile of money just waiting for mergers and acquisitions. No reason not to grab your share of it. Start here.