Banking Massive Pandora Gains, Getting Aggressive With Lululemon

Includes: LULU, P
by: SA Editor Rocco Pendola

It's not all that often that I do a $100,000 portfolio update two days in a row. To warrant an immediate encore, something big must have happened.

In fact, something massive happened just after the bell on Wednesday: Pandora (NYSE:P) put the rest of the radio industry on notice. The disruption it has caused up to this point is just the beginning. The best - or worst (it all depends whose "side" you're on) - has yet to come.

If you're smart, you'll follow the lead of radio sales people from across the country and bail from terrestrial radio companies while the bailing is good.

Yesterday, the 3,000 shares of P I held in the $100,000 portfolio traded at about $10.31 each for a total value of $30,930. This morning I closed the virtual position at $12.01 for a gain of $5,940 (operating from a cost basis of $10.03 per share). That generates proceeds of $36,030.

For the record, in real-life I have not sold and do not plan to sell any shares. My cost basis there is $10.15. I am up roughly 18%, but that changes often as the stock gyrates intraday.

Because they have not changed in a meaningful way from Wednesday, we'll use values as of intraday yesterday to calculate portfolio totals:

  • Long 100 shares of Apple (NASDAQ:AAPL) at $565, as result of an ITM May $565 put. Value: $56,161. (- $339).
  • Long 3 AAPL October $530 calls. Cost basis: $69.75 ($20,925). Value: $20,655 (- $270).
  • Long 7 AAPL October $700 calls. Cost basis: $11.35 ($7,945). Value: $6,790 (- $1,155).
  • Long 2 Netflix (NASDAQ:NFLX) January 2013 $47.50 puts. Cost basis: $4.40 ($880). Value: $1,150 (+ $270).

The Pandora sale gives us a cash balance of $36,030. Add in the other active positions and the portfolio sports a value of $120,786.

So, after a few early bumps in the road, we're up about 21% year-to-date. And, it's likely more than that because, as I write, AAPL trades for $568.23 and NFLX is down more than a buck. It all evens out in the end, so no worries.

Looking ahead to June, Lululemon (NASDAQ:LULU) gets set to report earnings on or around the 7th of the month. Generally, I stay away from stocks, especially volatile numbers like LULU, ahead of earnings. Usually, I would use options to make this play, but, in LULU's case, they're thinly-traded.

Therefore, I am going long 500 shares of LULU at $71.50. That takes up $35,750 and leaves the portfolio with just $280 in cash.

My Seeking Alpha article history on LULU nicely illustrates my bullishness. Bottom line: I expect a blowout quarter. LULU is an emerging and sustainable phenomenon, not a mere fad.

Lululemon knows its market as well as, if not better than, any other company. And it locates stores where that upper-echelon customer roams. LULU is a retail success story on par with Starbucks (NASDAQ:SBUX), but it's really just in its infancy.

Obviously, LULU targets a much smaller market, but it also commands a much higher average sale. You could go to Starbucks every single morning, yet spend more at LULU if you only shop there once a month.

Come to my Spinning class in Santa Monica sometime; I cannot take my eyes off of the LULU logos adorning the waistlines and napes of my fellow cyclists. I know that I am hardly alone.

Disclosure: I am long LULU, P.

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