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Q3 Earnings Review: How to grab the opportunities?
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doctorpot1 joined discussion · Nov 25, 2022 10:35

I'm choosing high growth company with no debt in this bear market

TLDR: You can't go bankrupt without debt, so I'm betting on $Palantir (PLTR.US)$ which has no debt and is still growing at double digits in this bear market. Waiting for the next bull market to reap the reward. Coupling this with sensible option strategy, it is quite hard to lose over a long period of time (unless it bankrupts or delist). Had collected $1,052 from selling options on Palatir while doing DCA in this bear market.
Story time
Many companies are bracing for a recession with hiring freeze, headcount and expenses cutting exercises. That would cause earning of companies to fall as income and spending starts to drop. which in turn should cause share price to fall unless it is being held up by other forces.
In such environment, if I were to invest in high growth tech stocks. I would look for those that are unlikely to go bankrupt in a bad economy. Either they have tons of cash to weather the storm or those that doesn't have debts. It is almost impossible to go bankrupt if you do not have any debts.
So long the company doesn't go bankrupt or delist, we can use option strategies to ensure that it is eventually profitable.
One of such company that caught my interest is $Palantir (PLTR.US)$. It is a leader in the up and coming AI space. AI is dubbed as the new internet, the new electricity, thus its growth potential is limitless for the time being. This is shown in Palantir's quarterly reports where we are seeing double digit growth every quarter.
I'm choosing high growth company with no debt in this bear market
I'm choosing high growth company with no debt in this bear market
I'm choosing high growth company with no debt in this bear market
Palatir is expected to hit $1.9b in revenue for FY2022 which is still growing at about 23.38% year on year, in a bear market. I do anticipate that this growth will be able to continue for the next 10 years. If we take a revenue growth rate of 23.38% for the next 10 years, the revenue of Palatir will be at $15.53b. If we believe that the revenue growth rate would be 23.38% for the next 3 years due to the weakening economic environment, but it will continue to grow at 40% for the subsequent 7 years in a bull market. Then revenue will be at $37.61b. Think about the valuation when we go back to a bull market
I'm choosing high growth company with no debt in this bear market
Why would Palantir be able to keep growing for the next 10 years? It is because when looking at the technology adoption life cycle, AI is still in the Early Adopters stage. It is still mainly used by very advance companies like $Amazon (AMZN.US)$, $Netflix (NFLX.US)$, $Tesla (TSLA.US)$and so on. We can see that companies that leverage on AI are performing a lot better. For example, $ByteDance Ecosystem (LIST1266.HK)$'s TikTok, which have a far more superior recommendation AI algorithm is overtaking $Alphabet-C (GOOG.US)$'s YouTube, and $Meta Platforms (META.US)$'s Facebook.
Companies with AI capabilities are having a strong competitive edge over their competitors, and thus more and more companies will eventually hop on board. Otherwise, they will probably be slaughtered. This is also seen in the annual report of Palantir where the total customer count is still growing at a double digit rate, with lots of deals that is above $1million.
I'm choosing high growth company with no debt in this bear market
I'm choosing high growth company with no debt in this bear market
Palantir also have been having positive Free Cash Flow, which means money is coming in more than money is going out. No debt, and having cash keeps flowing in... How to bankrupt? But the positive free cash flow isn't really free too. This is because a substantial amount of the salary of the high paying developers in the company is paid for using additional shares. So in a sense, we the shareholders are paying for the developers salary by having the value of our share diluting The good news is that the share dilution is slowing down as seen in the chart below.
I'm choosing high growth company with no debt in this bear market
So how to earn money from a stock that keeps crashing?
By layering 3 options contracts, we can earn money from being bullish long-term, while being bearish short-term. We can sell Cash Secured PUT and Cover CALL to earn premium while accumulating shares for cheap in this bear market as the share price falls. On top of that, we can also buy PUT option to earn from the share price falling. Then when the share price goes back up in a bull market, we will earn from the capital appreciation too .
As mentioned, I believe that Palantir will survive this bear market and when the bull market comes around, I will reap the benefit. Assuming the company will not go bankrupt or delist, that means that there will be a bottom. The company price could rebound from there or even stay flat for a long time. But the key is that there will be a bottom. There is no way to time the bottom, so instead of trying to time the bottom, I'll just keep sell PUT options at regularly at lower and lower price point (i.e. $12.5, $8, $5, etc) to DCA. Eventually it will hit the bottom.
Note: If you are new to options, or do not know what options is about is, you can click on the link below to learn more about it.
doctorpot1: Explained Simply: Options 101
I'm choosing high growth company with no debt in this bear market
The benefit of selling PUT options is that you get to keep the premium, regardless if you get to buy the shares or not. It's like getting paid to DCA. For example, Since July 2022 I had been trying to DCA at $8 a share. Since then I had collected $429. $429 for trying to buy shares at $8 a shares, to DCA in this bear market, how amazing is that? Of course, I got to buy shares at $8 each as the share price crashed to $7.

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Now it is time to sell more PUT at lower strike price . It is easy to imagine that if we keep doing so, eventually over a long period of time we will earn back every single cent spent on buying the shares and more. Since in a bear market price would be dropping down so why not double the speed of earning premium by selling Covered CALL options on the shares we have too. By selling Covered CALL at very high strike price, say $18, it is quite unlikely for the shares to get called away. However, even if it was called away, we are should still be very happy as we will earn tons from selling the shares at a high price
I'm choosing high growth company with no debt in this bear market
Just using these 2 strategy, I had collected $1,052 till date from selling options on Palatir while accumulating more and more shares of Palantir for cheap. As compared to other investors who only keep buying shares only, this is a much better strategy.
For investors who think that the share price will continue to fall, we can even buy PUT options on top of the 2 strategies mentioned. This way, we could earn money 3 ways while accumulating shares when the share price is falling By learning and using options, we can create amazing investment strategy that benefit us in both the bear market and the bull market
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doctorpot1
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crawled out of poverty, working towards FIRE!! (financial independence, retired early)
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