Seeking Alpha

Aaron Kabucis'  Instablog

Aaron Kabucis
Send Message
Aaron Kabucis currently heads the Investment Board at Adaptive Capital Investment Club (ACIC), based out of Toronto, Canada. He holds a Bachelor Degree in Honours Finance and Economics from the University of Windsor and is a CFA Charteholder. As an investor, Aaron's primary concern is... More
My company:
Adaptive Capital Investment Club
View Aaron Kabucis' Instablogs on:
  • Netflix short ideas
    NFLX is one of those stocks which is dangerous to own on both the long and short side; shorts have been continuously squeezed as the market has paid more attention to the growth in subscribers rather than any sane metric of profit potential or valuation; longs are undoubtedly scared at these levels as even the most bullish of NFLX proponents have yet to reasonably justify the continuously skyrocketing forward P/E.

    That being said, NFLX has been a momentum story and will continue to behave as such... until the momentum stops. It will inevitably stop, but the question for investors is when exactly that will happen. It seems as though all the signs are pointing towards an eventual collapse of the NFLX party and the hangover promises to be a big one. The company's management has transitioned to an environment of less transparency surrounding its quarterly earnings release and conference call, leaving out critical information like content acquisition costs while refusing to take live questions from analysts. What strikes me as more egregious is the blatant cash flow massaging that is taking place where operating cash flow is being artificially inflated because of the recent change in the expense recognition method employed.

    When the market eventually comes to realize that the capacity for subscriber growth can't keep up with the costs for media content acquisition and free cash flow has turned out to be an illusion, the era of P/E contraction and an awareness of reasonable valuation will take hold. How long that takes depends on how long management can continue to deceive the market and more importantly, how long the analyst community will continue to sanction the bad behavior.

    Conclusion: Given that the nature of prevailing momentum in NFLX, it is essential to define the downside risk of any short position in this stock; I would recommend utilizing a bear put spread to take advantage of the high volatility premium in the OTM puts to reduce the premium outlay from the long put position.

    (Disclosure: short NFLX via puts)
    Tags: NFLX
    Apr 25 3:23 PM | Link | 1 Comment
  • HOGS Getting Slaughtered
    A lot of Chinese reverse merger (RTOstocks have been hit very hard over the last several months as prominent stocks like RINO and CCME have been outed by "researchers"/short sellers as having questionable operations, if not outright frauds. In this type of environment, the due diligence that many investors take for granted must be emphasized; it is not enough to assume that red flags which stand out in the financial statements can be easily explained, they must be thoroughly explored.

    One such company who seems to be unfairly discounted is HOGS; the leading Chinese pork product producer has seen its stock retreat significantly from the $19 level down to below $15 since the beginning of March. On a technical basis, if it can hold the current support level at $14.50 the stock should be bought in anticipation of a bounce.

    On a trailing basis, P/E is 8.6 and Est. forward looking PEG is 0.5; at these valuations, the risk/reward profile is attractive enough even in the presence of the negative RTO overhang.

    At these levels, given the stated inflection point at $14.50 and more possible downside risk with RTO headlines, I would prefer an out of the money call spread as opposed to going outright long the stock. The September $15 - 20 call spread looks to be attractive, providing a profit range of $16.40 - 20 for a net debit of $1.20.
    Apr 14 12:27 PM | Link | Comment!
  • Canadian Dollar and Commodities

    Being from Canada, we have watched as our dollar has been in a decade plus bull market against that of the currency of our Southern neighbour. Currency trends tend to move in long term cycles as the determining valuation factors (think Government and Monetary Policy) tend to be relatively sticky, whereas equities ebb to shorter term cycles where their formative factors are more transitive in nature. In this regard, two relationships stick out as nearing points of interest in their respective relationships and are the subject of this note.

    Firstly, it is no secret that the Canadian dollar is highly correlated to a variety of commodities as it is rightly seen by the marketplace as a “Commodity Currency” (like NZD and AUD). During points of low volatility, the relationship seems to be stronger then when volatility is high. As WTI crude oil has spiked to reconcile above $100, gold has recently reached new nominal highs and silver is at multi-decade highs, CAD has moved past parity with USD, but risen in a much smaller multiple; CAD appears to be reaching resistance levels set in the last commodity boom of late 2007/08 and may be ready to make a move back to below parity. Similarly, according to Bloomberg data on PPP, the Canadian dollar is about 20% overvalued relative to the US dollar. I interpret this data to mean that the CAD bull market may be somewhat tired at these levels and if commodity prices begin to stall or trend downward, the overextended CAD may feel the brunt of this effect.

    If Canadians are over-weighted in commodities, it would be advisable to reposition their currency exposure to favour USD over CAD to mitigate some of their exposure risk.

    USD/CAD Exchange Rate:
    CAD-USD Exchange Rate

    CRB/Reuters Commodity Index:
    CRB Commodity Index

    Apr 13 4:45 PM | Link | Comment!
Full index of posts »
Latest Followers

Latest Comments


Most Commented
  1. Netflix short ideas (1 Comment)
Posts by Themes
Instablogs are Seeking Alpha's free blogging platform customized for finance, with instant set up and exposure to millions of readers interested in the financial markets. Publish your own instablog in minutes.