Predicting the Market

A friend of mine has repeatedly suggested I start detailing my stock predictions, given my recent history of calling out tops and bottoms for specific stocks.  A few recent examples:

BP 
The stock hovered close to $60 in the days after the Deepwater Horizon oil spill.  I was astounded, and recognized that the market had not yet priced in any bona fide "risk of ruin", probably due to the massive amounts of cash BP was sitting on, and pulling in.  I believed the stock had at least a 50% downside risk over the next 6-12 months, as details of the real impact of the spill would begin to emerge.  This considered both the new laws that put BP at risk for indirect damages, as well as the historical profile of oil spill damage estimation (always wildly underestimated).  I told Will that betting against BP for the next 6 months was the "no-brainer of the century".  Within months, the stock was down to $27, a 55% drop

Netflix 
I was bullish on Netflix for years, but as the stock rocketed past $200, and content providers began rolling out their own streaming platforms, I became increasingly bearish.  I sold my holdings on 2/24/2011 at a price of $213.   To my suprise, the stock continued to shoot the moon - closing in on $300 even as rumors began to swirl around difficulties in the Starz negotiations.  The tipping point for me was the first time I tried out the new HBOGO platform from HBO, on my iPad.  Amazing.  In only a few months, HBO had rolled out an appealing, easy to use interface to every piece of content they have ever created.  "Content is King" was already axiomatic by that time, and Netflix was starting to look like the Court Jester.  I told Will that Netflix would soon be well below the price I sold them for... that the fall was imminent.  At $300, I told Will it was time to place puts against Netflix.  It began tanking the very next day... and is now close to $100.

Sprint
My current bet is on Sprint.  That is correct - I am betting ( via January 2013 calls ) on the long-term success of an over-leveraged second tier telecommunications company.  I made this bet with the stock at $2.50 recently.  Why?  Because I am confident that market has significantly underestimated the chance of that success.  Don't get me wrong - their fundamentals smell like gym socks, and there is a likelihood that they will end up restructuring... but I believe the long-term upside via options far exceeds the downside risk.  Personally, I *loved* the aggressive bet the company made on Apple's new iPhone.

The street vomited on the "bet the company" take-or-pay contract that Sprint established for the iPhone 4s, and discounted the popularity of the new iPhone, because it was not an iPhone 5.  Not me... I consider the enthusiasm of Apple consumers to be boundless, and I believe Siri is a legitimate game-changer.  People said the iPad was a "joke" when it was announced, and yet all jumped on board as they realized the benefits of the tool.  So what if Sprint has to buy every unit... they will sell every unit.  So what if they subsidize a few hundred bucks per phone... With average revenue of $50/month, it takes little time to pay back that investment... and revenue per customer will be higher with the iPhone.  There is simply no other low cost provider for the iPhone.  Sure, Verizon and AT&T have better coverage, but there are more than a few folks out there who care primarily about price, and the functionality of their phone. Consider that under the current plans, an iPhone 4s with Verizon can approach $200/month for Unlimited Voice, with Unlimited Texts & 12Gb Data.  On the other hand, you can get Unlimited Voice/Texts & Unlimited Data for $100 with Sprint.  That is compelling.

They the street punished Sprint further for acknowledging that WiMax was a failure and LTE was the future.  Yep, Sprint blew it.  Massive waste of money.  But that failure should already have been baked into the price, and their willingness to cut bait should be viewed as a positive, not a negative.  If they can get their debt under control, they finally have a technology direction that actually makes sense...

Don't get me wrong... I think Sprint facing Ch. 11 is a coin-flip.  The good decisions they are finally making may well be too little too late.  But, if they are able to restructure without Ch. 11 and execute on their plan, then their stock could easily get back to $10 or higher... and that is a 3-1 upside opportunity on the $2.50 stock price... and a 10x or more upside on the $7.50 calls out in Jan/13.

LinkedIn

I bought put options when LinkedIn was over $100, for March/2012.  I would not be surprised ot see it get down to $45.

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So there you have it.... a few recent successes and my current picks.