Thursday, May 31, 2018

Loving Twitter, with cheap downside protection - Love companies beaten down that have come back.

Twitter is a company I've used for many years as a user, but never really substantially owned the stock until now.  The one-year chart is just a beautiful sight to see.  For about a year's time between 2015 and 2016, the stock lost 75% of its value.  This is when users were growing exponentially, but the company was failing to grow revenue or to be profitable.  Many investors at this time were buying the stock as it was falling just knowing that the stock, because of the user growth, just had to perform.  Yet, it failed to for the next year.

I just love companies that have built up a rock-solid brand, have struggled, and then reinvent themselves.  The underlying support for the company, once they "figure it out", is what makes 5 to 10 baggers or more.  Think Amazon, Netflix, Apple.  I believe Twitter belongs in this category and the time to buy is now. 

Not only do the technicals look very strong, but the company has turned profitable, growing revenues and earnings for the past 2 to 3 quarters, AND, they've reinvented themselves and have diversified their sources of revenue. 

With 336 million monthly active users, this company is set up for multi-year equity gains.

I was talking with my cousin about this one yesterday, and he suggested buying a large position at market, but also buying some downside puts about a month out.  I bought the 31 puts and he bought the 31.5 puts.  The 31s cost me only 23c per contract.  The stock was up 53c yesterday when I bought the puts.  My rationale is that these puts are very inexpensive given the fact that the stock could rise by 50c or more in a day.  The 23c you give up for calamity, worst case insurance is well worth it. 

Odds are good that the stock will continue to rise as the company continues to figure things out, and potentially continues to diversify its revenue stream on the back of its 336 million MAUs.

This is a good one, in my opinion for all of these reasons.

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