If you have no idea what this series is, please go read the post before this one. But for those who are rebels, I am attempting to generate higher returns than a benchmark index (S&P 500) over the next year by actively managing a $100,000 paper portfolio using different strategies such as long/short, long-term derivatives, covered calls, wheeling, and cash-covered puts.

To generate this excess return, also known on the street as alpha, I will attempt to use my knowledge of the markets to select and invest in specific individual companies that fit my criteria. Throughout the process, I will give explanations as to why I am taking specific trades and the reasoning behind them.

Yesterday was the official start date of the BTM series but each and (hopefully) every Friday I will post my weekly gains, trades taken/sold, and current positions. I want to offer clarity and insight into how a portfolio is managed. That being said, let’s jump right into my current positions.

As seen above, you can see most of the positions I took yesterday went red today, led by $ROKU. Here are the trades I took:

By market value I will explain the reasoning behind the trades:

• $ATVI: 100 shares @ $75.07
  • Recently the SEC announced they had opened an investigation into Activision over workplace practices. As one can imagine, this sent shockwaves through the company and inevitably through the stock price. Activision was already being beaten down from a lackluster performance, but the company has strong fundamentals and continues to have high growth rates.
    • Why?
      1. Current ratio = 4.83 — Ability to pay debts is not a concern here
      2. Pending releases of the new Call of Duty game = potential bump in forecasted earnings
      3. 14% P/E discount to the peer mean; 18x PE vs. 20.8x Peer Mean
      4. Investors get jittery around any investigation (sometimes rightfully so), but most of the time it ends in a smaller-than-usual fine and a slap on the wrist (sadly). It would not surprise me if this happens to $ATVI

Note: I probably will not add any more to this position (barring unforeseen circumstances such as another massive drop of 10%+). To maintain a keen eye on the exposure, we must keep an eye on the investigation. If any news drops that would warrant a sell, we would potentially reduce, sell, or flip our position.

• $ROKU: 20 shares @ $332.92
  • Why?
    1. High growth — 41x compounded annual growth rate (CAGR). Markets have discounted growth names for a while as yields have started to head north some, allowing for potential dip buys in massive growth names
    2. TAM — Roku’s total addressable market grows by the day as streaming services pop up left and right. It seems as if a new service hits the market each month. The more streaming services, the higher the potential for Roku earnings
    3. Major support — Roku’s weekly chart shows buyers have been willing to step in between $300-$320 since the beginning of the year.

Note: Like $ATVI, I probably will not add to this position. This is more of a “buy and forget” investment as most growth names should be.

• $DKNG: 100 shares @ $53.24; Sold Oct21 $58 Call — Covered Call Position
  • Why?
    1. TAM — Sports betting is on the rise and so is Draft Kings’ revenue
    2. Changing Customers — With the connections social media give us, paired with quarantines last year, sports have jolted into the spotlight more than already before. If you didn’t watch sports before the pandemic, chances are you have seen or even keep up with a specific sport or team.

Notes: This is a high-growth, risky stock pick. Gambling still isn’t legal in much of the country, but I foresee that changing eventually. Even with legalized gambling, there is tough competition in this niche market.

• $FDX: 20 shares @ $227.78
  • Why?
    1. The shipping won’t stop — Just because people are out shopping in person more doesn’t mean that they don’t shop online any less. Government stimulus has provided more discretionary income for the general public than we have had in years; most people usually spend it.
    2. Attractive Equity Relative Valuation — $FDX’s P/E is at a 49% discount to competitors mean. In almost every respect, $FDX is trading sharply below competitors valuations
    3. It’s a Hybrid — $FDX is unique in that it provides a portfolio a mix of growth and value characteristics. As a reputable and cash-generating company, it still has a lot of room to grow.

• $FCEL: 500 shares @ $7.15
  • Why?
    1. Liquidity — After a recent secondary offering, $FCEL is flush with cash to pursue high-risk/reward opportunities
    2. Growth dependent on government regulation — Electric cars are supposed to be the ‘future’. While it is farther away, Biden’s administration (and that of the Democrats in general) is to become less dependent on oil. Something overlooked is marine transportation applications. FuelCell has contracts to develop its fuel cells for this purpose.

Note: Out of all the current holdings, this is probably the riskiest. In order to beat the market, one has to take chances though.

• $BIDU: 15 shares @ $160.45
  • Why?
    1. China Under Pressure — Evergrande is exposing cracks in the Chinese system currently, and while it seems as most people are running from Chinese equities, few are pouring into them. I like to buy stocks when there’s blood in the streets.
    2. Liabilities under control — Unlike most Chinese companies, $BIDU has been diligent with the amount of debt used.
    3. Discount to Everything — Similar to $FDX, $BIDU is trading at near historical lows in BV, P/E, and EV/EBIT ratios.

Note: Some of you know I do not like Chinese companies, but I could not help myself to the ‘Google of Asia’ at a massive discount.

• $MYPS: 300 shares @ $4.86
  • Why?
    1. Mobile Gaming Booming — Mobile gaming has been a bright spot in the gaming industry for many years; the pandemic exacerbated it further.
    2. Small-Cap Diversification — In order to diversify, I added a few small-cap names such as $MYPS and $RKDA (below)
    3. Analysts Love It — $MYPS has an 80% analyst buy rating with a 12-month target price of $9.00

• $RKDA: 500 shares @ $2.12
  • Why?
    1. Healthy for the Win — It seems like most new people I meet are conscious about where their food is sourced and whether pesticides or herbicides were used. $RKDA is vertically integrating new products such as nitrogen use crops, salt-tolerant plants, sunflower oil, and more.
    2. Multiple Avenues — Investors love to invest in name brands, but only a few understand the earning potential of non-name brand companies. $RKDA has developed their “GoodWheat” product that has already landed placements into major shelf-products (think pancake and muffin mixes, etc.)
    3. Hemp Too — Arcadia Biosciences also has developed “GoodHemp” through gene editing to provide supply to the quickly-growing hemp market

• $BABA: Sold 2 Nov21 $135 Puts @ $7.34/each
  • Why?
    1. ‘I like the stock’ — I sold two puts at the $135 strike because I wouldn’t mind owning $BABA at $135/share. If $BABA is above $135 on expiry day, I keep the $1,500 in credit.
    2. Support — Dating back to 2018, the $135 level was held twice during the 4Q tech meltdown

• $X: Short 100 shares @$21.97
  • Why?
    1. Evergrande and his pals — Evergrande won’t be the only Chinese developer that might need a bailout. If multiple Chinese property developers start to come to a halt waiting on debt restructurings, the demand for steel would start to drop.
    2. Indirect Exposure — China doesn’t get a ton of steel from the U.S., but I do believe a real estate crash in China could prove deadly to construction material prices going forward regardless
    3. Broke below 200 DMA — Prices are already starting to show the weakness whether it’s related to China or not.

• $NAVI: Short 100 shares @ $22.09
  • Why?
    1. Revenue Decreasing — Next quarter $NAVI’s revenue is expected to drop by 14%. Last quarter $NAVI’s revenue dropped a whopping 23.5% causing a significant hit to the bottom line.
    2. Student Loans Paused — Student loan repayment plans have been paused and interest rates on those loans have been set to 0% for the remainder of the year. I have an inkling that the amount of students not ready, able, or willing to start their payments back is higher than the market is anticipating.

• $TSLA: Short 5 shares @ $753.32
  • Why?
    1. If you know me I hate Tesla. Great cars, but the company is overvalued by almost EVERY metric.
    2. The current Enterprise Value to Revenue is at 12.1x… The peer mean is 1.5x, meaning $TSLA’s EV/Revenue is at a 722% premium to competitors
    3. Did I mention it’s overvalued?

Note: Most people don’t even try to short Tesla because of the cult-like following behind the stock. It got worse when it was added to the S&P500 I might add. Regardless, I will keep this short on the books because deep down I know I’m right.

Overall, this week the portfolio was down $801.61 or 3.51%. This is perfectly acceptable as I’ve only started scaling into these positions and still have $71,500 in buying power. I will continue to search for new trades and investments, but, remember, this is a long-term account. Therefore, we don’t care what a stock is doing on the day. Take the investor approach– buy and hold.

Happy investing.

-Thomas

Disclaimer: Nothing in this article should be considered investment advice or advice to buy or sell specific securities. The opinions expressed are of the author alone and are for educational purposes. Please consult a financial professional before investing.