When asked if anything should be done to prevent members of Congress from owning individual shares of stock, Nancy Pelosi recently said, “No. We’re a free market economy. They should be able to participate in that.”
And before you think I’m being politically biased, look at this quote from Alexandria Ocasio-Cortez (AOC) that I agree with, “Because we have access to sensitive information and upcoming policy, I do not believe members of Congress should hold/trade individual stock and I choose not to hold any so I can remain impartial about policy marking.”
But Pelosi and her family’s history of buying individual securities – and the amount of money involved in those purchases – has certainly raised some eyebrows from media and traders alike.
Jacobin Magazine has even sarcastically given her the title of 2021 Wall Street Trader of the Year.
And a recent report from Business Insider, detailing how 52 members of Congress have violated a law designed to stop insider trading from members of Congress called the STOCK Act, has created a spotlight on the stock market activity of lawmakers.
According to the report, the standard fine for violating the STOCK Act is a mere $200. These lawmakers offer excuses including “ignorance of the law, clerical errors, and mistakes by an accountant.”
All the while, some of these politicians throw around amounts as high as $17.53 MILLION.
Now, Pelosi has never been found guilty of violating this rule.
But her husband has had a great 2020 and 2021 in the stock market, according to her reports. In fact, one of his trades made him $5.3 million exercising call options for shares of GOOGL.
And he isn’t done with GOOGL calls yet… here is the first of her most recent trades.
Alphabet, Inc. (GOOGL) – Purchase on December 17th, 2021
Trade: On December 17th, Pelosi reported a purchase of 10 call options with a strike price of $2,000 and an expiration date of 9/16/22.
Total invested: Estimated $982,500
Despite hints from Pelosi herself that Silicon Valley’s self-regulation days are over, very little has been done to reign in the size of big tech. And the search engine giant has continued to perform well, up 68.77% from Jan 1st – December 31st 2021.
Pelosi’s purchase of a call with a $2,000 strike price while the underlying stock was trading for $2,834 means that these call options are “in the money,” giving the option “intrinsic value.” This is traditionally a much safer bet than buying options that are far out of the money (OTM), but it is an investment that GOOGL will continue to go up.
My Analysis
Through 2021, it appeared serious regulatory restrictions were coming for big tech giants. Although there have been contentious hearings with big tech CEOs, very little has come of them as far as regulations.
This type of trade is impossible for the average person. The minimum investment required to copy this trade exactly, as of this writing, is $96,250. Not exactly a small bet, nor one that a person should make without millions and millions of dollars to offset the risk of this trade.
Having said that, let’s look at the stock itself.
Top-line revenue has grown year-over-year in every quarter so far in 2020. In Q3, sales were up 40% compared to Q3 of 2020. EBITDA was up an eye-popping 65%. In that time, the price has gone up 87.6%. Still, the stock trades at a PE Ratio of 28.05, which is relatively low compared to other big tech giants like AMZN (65.84) and AAPL (31.79). The consensus rating on this stock is that it’s “Undervalued” with an estimated return of 36%, meaning it could be a good time to buy.
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Now, we turn our attention to another trade she disclosed in a recent report. And this one easier for the average investor to get into.
It is also, however, a little bit more eyebrow-raising than the GOOGL trade. With the U.S. economy experiencing a massive chip shortage, Congress has considered legislation to reduce its dependency on foreign semiconductor producers.
In fact, Biden has called for a $50 billion boost to the U.S. Chip industry according to the Wall Street Journal.
And if you haven’t guessed it already, one of the trades Nancy Pelosi reported is an estimated $435,000 investment into a semiconductor manufacturer.
But you can copy this trade with $4,570.
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Micron Technologies (MU) – Purchase on December 21st, 2021
Trade: Pelosi reported a purchase of 100 call options with a strike price of $50 and an expiration date of 9/16/22.
Total invested: Estimated $435,000
Pelosi’s purchase of a call with a $50 strike price while the underlying stock was trading for $90.68 means that these call options are “in the money,” giving the option “intrinsic value.” This is traditionally a much safer bet than buying options that are far out of the money (OTM). It is a bet that MU will continue to go up.
The report that Pelosi files doesn’t given an exact amount of investment. Rather, it gives a range. In this case, the range is between $250,000-$500,000. The intra-day range of this call option was $42-$45 on 12/21, so I have used the middle of that range to estimate her purchase price. Since Pelosi placed this trade, the value of these calls has risen from an estimated $43.50 to $45.70.
Market Analysis
Before we get into Micron Technologies itself, I have to address the elephant in the room: the chip shortage.
This is a wildly popular topic of conversation both in politics and in the investment community alike. Like Pelosi apparently, we are big fans of this stock. I wrote up this stock just two days after this trade was made and before it was disclosed. A political insider making this trade when there are potential political implications are both reassuring as an investor, and certainly eyebrow-raising as an American citizen.
As we discussed on 12/21, Intel (INTC) CEO Pat Gelsinger has echoed his previous comments on the semiconductor supply shortage, according to the Nikkei Asia news service. While manufacturers have taken attempts to enhance production, he said the company expects the current problems to last until 2023.
He has previously stated that the corporation would increase its production capacity in Malaysia to assist alleviate some of the shortages.
While Gelsinger believes that these initiatives will assist to alleviate current supply-chain issues, the pandemic’s influence on the sector might cause significant disruption.
Prior to COVID-19, the sector had been growing at a rate of 5% per year on average. However, the interruptions caused by the epidemic, along with a 20% increase in demand, contributed to a major supply and demand imbalance.
Company Analysis
Micron Technology (MU) is a semiconductor company established in the United States that specializes in memory-based semiconductors.
DRAM stands for dynamic random access memory. DRAM, on the other hand, is a type of computer RAM (memory) that stores data on individual capacitors. As a result, it often takes up less space than other types of RAM to store and transfer data.
As a result, this technology is critical for the data-center industry, as data centers are brimming with computers that process and store data at breakneck speeds.
And, because to the rise of 5G and AI, the need for these facilities is only going to grow, helping Micron in the process.
This is evident in its December earnings report. For the first quarter, the company said its earnings per share were $2.16 compared with the estimated $2.10. Micron’s revenue was $7.69 billion, also greater than the consensus of $7.68 billion.
These figures have the company confident the trend will continue as well. Micron projects that its second-quarter earnings per share may be around $1.85 to $2.05 versus the expected $1.84. The chipmaker also forecast that revenue may be between $7.3 billion and $7.7 billion.
So, while it will take time for companies in the space to boost their overall capacity, Micron should continue to see strong demand. This is especially true considering the company is already shipping units at a higher level than it did in 2019 – bolstering businesses’ overall reliance on Micron moving forward.
I know most people don’t have $4,570 to place on options trades. If that sounds like you, you may be interested in the message below.
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On December 20th, Pelosi invested an estimated $296,500 into call options (bets that the stock price will go up) on Roblox Corporation (RBLX).
This company is considered a play on the emerging “metaverse,” something that sounds confusing at first, then stupid, then game-changing. If you find yourself in either of the first two camps, as you continue to understand this technology and how rapidly it’s emerging, you’re going to change your mind.
In October, CEO Mark Zuckerberg changed Facebook’s name to Meta Platforms. While the company will continue to operate Facebook, Instagram, and WhatsApp as it always has, the social media giant also wants to play a major role in building out the “metaverse.”
In fact, some are saying that one of the technologies that will be part of the metaverse could replace the iPhone entirely.
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Roblox’s platform contains millions of games that can be played across Apple, Google, Amazon, as well consoles like Microsoft’s Xbox and Sony’s PlayStation.
But this company has yet to report positive earnings. But that isn’t nearly as bad as it sounds, if you take a closer look at the financials.
You see, the trailing twelve-month average earnings per share for RBLX is -$.1. However, if you look at their cash flows, they are positive, and growing.
2020 was a year of historic growth for Roblox. With much of the world in lockdown or in some form of social distancing protocol, Roblox’s user base soared.
But 2021 was an even better year. In fact, their free cash flow grew in every single quarter of 2021.
It appears that the growth of 2020 wasn’t just a fluke.
But just this week, it was announced that Roblox removed its LuoBuLesi app, which was created in partnership with the Chinese company, Tencent Holdings.
This means that kids in China are unable to play this game. And it has no replacement ready yet.
For a full month, China has had no access to Roblox’s games, which should be cause for concern for this company.
On Friday alone, RBLX was down over 5%. In the past month, it’s down 32%. It might be time to scoop up a few shares, while keeping an eye on the news out of China as to whether Roblox is available in world’s most-populated country.
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