Is This What A Three-Bagger Portfolio Looks Like?

by: Rocco Pendola

When I set out to construct the $10,000 portfolio I had the stated goal of doubling it by the end of 2011. With that feat in the books way ahead of schedule, I am beginning to wonder if a triple lies in wait. If it happens, I'll need everything to go my way, considering I forced myself to hold my core positions through each company's earnings report.

As of Friday's close, here's how things stand. Of course, the only position I must keep holding is the most profitable one because RIM does not release its next quarterly report until December.

Option Quantity Entry Price Midpoint Price, Friday's Close Profit/Loss
Apple (NASDAQ:AAPL) April 2012 $450 call 1 $19.18 $17.30 - $188 (NASDAQ:AMZN) April 2012 $220 call 1 $30.00 $22.63 - $737
Research in Motion (RIMM) March 2012 $20 put 30 $2.70 $3.75 + $3,150
Sirius XM (NASDAQ:SIRI) March 2012 $3 put 25 $1.58 $1.32 - $650
PowerShares QQQ ETF Trust (NASDAQ:QQQ) March 2012 $50 call 1 $6.68 $9.25 + $257
Netflix (NASDAQ:NFLX) June 2012 $50 put 8 $4.50 $3.68 - $656
Pandora (NYSE:P) June 2012 $15 call 9 $2.55 $2.75 + $180
TOTAL P/L + $1,356

That brings the total value of the $10,000 portfolio to $24,887, as of Friday's close. It also begs the question - Could a triple be on the way?

Here's how I am playing things going forward. If AAPL or AMZN do not reestablish the momentum each showed on their respective post-earnings drops in the next week or two, I will likely take the relatively small losses and close the positions. It's not that I don't believe in their 2012 prospects, but I simply do not want to rack up potentially irreversible losses in this portfolio on holdings that (A) require considerable upside advances and (B) carry expiration dates.

If SIRI somehow manages to retouch $1.80, I might have to consider closing the position, however, I simply don't see how the company can deliver the number of net additions it needs in Q4 to hit its full-year guidance. That's one reason for my short-term bearishness; missing guidance of any type tends to cause investors to put the hammer down. Whether the company hits its number or not, I remain bearish long-term, primarily due to Sirius XM's poor competitive position in the audio entertainment space, but, again, my position has an expiration date. I need to be mindful of that.

I'm holding and banking on full implosion at NFLX.

RIMM and P are probably the two most important positions and, ultimately, they'll dictate if I hit a triple with this thing by the end of the year.

There's not much more to say about Research In Motion. As usual, you make the case and then wait for the company to open its mouth. They do that with their next earnings report come December. If investors only hear about something underwhelming that might get released someday (and maybe on time) alongside further deterioration in the here and now, expect the stock to fall deeper into the mid- to low-teens. If not, my position probably will not get crushed, but it sure will not be as profitable as it is today. It would be nice to unload all or part of it now, but that goes against my own rule.

P is the wildcard. This could be a $20 stock after the next report (November 17th). I expect more color on the company's business efforts, which fellow Seeking Alpha contributor Spencer Obsborne nicely tackled in a recent article. While I would not be shocked if Pandora reports a surprise profit for the most recent quarter, I don't expect it just yet. What I do expect is more massive revenue growth that portends a clear path to profitability much sooner than many people, even bullish analysts, expect.

But back to the news that Pandora now has an offering for retail establishments and other businesses. Here's what I had to say about it just after the announcement:

From a brand and adoption standpoint this is nothing short of earth-shatteringly huge. I've made the case for several stocks on the basis of their appeal to high-end urban-dwelling consumers. This news allows me to add P to that list.

Without question, Pandora will dominate retail establishments in the places where these consumers live. That's Manhattan, San Francisco, Seattle, parts of Southern California.

I don't think it's possible to overstate the impact of what's taking place here. If Pandora can keep up with demand, I think they'll be as ubiquitous as Apple's iPod is now behind the counter, tucked in the corner or hidden in the back room, plugged into a Bose sound system or something. While I think Pandora can score large-scale deals with national chains and such, a massive opportunity exists locally in markets like the ones mentioned above. If you have a strong, hip 18-34 year old clientele, it should be impossible for a sales rep to not be able to sell you on what the company has to offer.

If you are or ever have been an urban dweller or navigate great city neighborhoods regularly, I think you can picture what I am describing in your mind's eye. Of course, the big questions are how much will this add to the bottom line and how fast? As with selling web and mobile ad space, Pandora's biggest problem here will be keeping up with demand.

Disclosure: I am short NFLX.

Additional disclosure: I am long P.