The One Company I Love to Hate (and Why I’m Recommending Anyway)
Editor’s Note: Today I’d like to introduce you to a new and very special contributor, my son Kunihiko Fitz-Gerald. He’s studied the markets under my guidance for years and has developed a brand new approach to finding big profit potential he calls the “3 Rs” – which you’ll hear about in due time. By way of background, Kuni’s spent the last 6 years as a member of the Japanese National Team, fencing in World Cup competitions that have taken him to 28 countries before many of his peers even went to college. Speaking of which, he’s also wrapping up a degree in International Social Sciences at Gakushuin University in Tokyo, Japan with a concentration in global economics, naturally. Enjoy!
Remember when analysts were falling all over themselves to bash Apple Inc. (NasdaqGS:AAPL) a few months ago?
Now, imagine one of Wall Street’s biggest and most powerful firms lying to you the ENTIRE TIME it was doing so – while simultaneously (and very quietly) hatching plans to invest $200+ million…
… in partnership with the very company it was publicly trashing???!!!
Boy, you’re going to love this.
Apple announced this past November that it would no longer be reporting iPhone sales (among other things), and legions of Wall Street analysts went apoplectic. The stock dropped from a high of $233.47 to a low of $142.00 on January 3.
Analysts couldn’t wait to say, “I told you so,” piling on their downgrades in troves.
However there was one analyst, in particular, out therewho it would appear was trying to fool everyone into thinking the end was near – you, me, damn near every investor out there – likely knowing full well his firm was doing business with the company.
Rod Hall of The Goldman Sachs Group Inc. (NYSE:GS) even went so far as to compare Apple to Nokia and said that the company was facing the beginning of the end as he cut his price target from $182 to $140 a share.
Goldman, as you may or may not know, has a long history of saying one thing and doing another. I’d even go so far as to say the firm is the “poster child” when it comes to dirty tricks not the least of which is lining their pockets at the investing public’s expense.
Here are but four of many examples that come to mind:
- Goldman agreed to pay more than $5 billion in connection with its sale of Residential Mortgage Backed Securities between 2005 and 2007. Acting Associate Attorney General Stuart Delery at the time said that the resolution held, “Goldman Sachs accountable” for “serious misconduct in falsely assuring investors that securities it sold were backed by sound mortgages, when it knew they were full of mortgages that were likely to fail.”
- Former McKinsey & Co. Managing Director and Goldman Sachs board member, Rajat Gupta, was convicted in 2012 of providing Galleon Group hedge fund heavyweight, Raj Rajaratnam, with inside information about Berkshire Hathaway’s $5 billion investment in Goldman itself during the depths of the Global Financial Crisis of 2007-08.
- Way back in 2010, Thomas Mazarakis, who headed Goldman Sachs’ fundamental strategies group, even told clients in an email that his business unit provided investment ideas to clients that the firm – get this – had already traded on and explicitly bet against.
- Then there’s LIBOR manipulation for which Goldman paid $120 million to settle a global rate-rigging probe in 2016…
You get my point undoubtedly.
But Let’s Get Back to Apple
It turns out Goldman’s secretly teamed up with Team Cook the entire time… despite the very public bashing I just mentioned.
To develop – get this – a credit card specifically for Apple Pay!!!
Details remain vague, but the projected cost will be at least $200 million. What’s more, Goldman Sachs is in charge of all of the back-end engineering.
All of it.
This should give you pause… if not nightmares.
Tying up with Apple could give Goldman Sachs 100% visibility into the personal habits and transactions associated with more than 1.3 billion active Apple devices already out there.
Worse – or better depending on your perspective – anybody using Apple Pay is in the crosshairs even if they’re not an iPhone user!
What you buy, when you buy, and how you buy will all be run through artificial intelligence specifically engineered by Goldman’s wizards. Naturally, having interpreted this information, they’ll be able to expressly offer financial assistance in the form of loans, down payments, and other financial “guidance.”
What really stinks about all this is that Goldman and Apple will make this “offering” as attractive as they can to consumers, but at that point it’s too late. Goldman will own you, your money, and your information.
Personal feelings aside, it’s a brilliant move.
Currently, PayPal Holdings Inc. (NasdaqGS:PYPL) is the dominant player when it comes to credit offers from digital financial firms via their “PayPal Credit” program. They offer financing on all transactions over $100 and give you the option to pay it back over the next six months. But keep in mind that PayPal is for the most part an online platform, and Apple Pay is usable on most of their 1.3 billion active devices. Apple Payalready has an adoption rate of 31% with 253 million users worldwide, and the growth potential is staggering.
Logically, you may be wondering what’s in this for Apple.
Simply put, Apple will save MASSIVE amounts of money. Apple, you see, currently pays billions in transaction fees as the middle man in the equation. MarketWatch reports, for example, that if even 5% of the current transactions were moved to its own proprietary card, Apple could save a staggering $2 billion dollars. At 50%, that number jumps to a profit-enhancing $20 billion dollars.
That’s where I get interested. And I think you should, too.
If You Can’t Beat ‘Em, Join ‘Em
First, buy Apple.
My father, Keith, has talked about Apple being “beyond the iPhone” many times, including a very specific move into medical devices long before the thought even occurred to other analysts.
The move I am sharing with you today – the card creates, an even firmer foot in the name of bottom line growth for Apple’s services segment (which hit a record high $10.9 billion profits for Q1, with the goal of $50 billion in 2020).
Second, make your move on Goldman Sachs.
I suggest using Long Term Equity Anticipation Securities (LEAPS) which allow you to control large blocks of stock at a fraction of the cost – and the risk – of buying shares of Goldman Sachs itself.
I like the GS January 15, 2021 $165 Calls (GS210115C00165000).
They’re a bit deeper in the money (meaning the strike price is lower than the actual stock price) than I’d typically like, but that’s a good move in my book for this one.
That’s because one of the Greeks that “seasoned” options pros use to trade options – the delta – is a high 0.73. That means that, for every dollar the stock moves up, the option price will increase by $0.73. At the current price of $42.60 against $198.90 for the stock itself, I’d say that’s a pretty good bet.
The other thing to think about is that the option’s gamma – another Greek – doesn’t explode until much closer to expiration. So you’re literally buying time as the card gets developed.
As long as Goldman Sachs is above $215.36 at expiration, nearly two years from now, you’re making money.
Now, there are caveats of course.
Goldman Sachs could drop in price if volatility rears its head – following this headline or that. So, consider buying in on pullbacks rather than going “all in” now.
And, as always, this is a highly speculative trade, so treat it accordingly. Never buy any security with more money than you can afford to lose. The 2% Rule applies here – as in don’t risk more than 2% of your overall investable capital on this or any other trade.
At the end of the day, love ’em or hate ’em, Goldman’s made a brilliant move.
And that’s what I’m “banking” on.
Until next time,