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In this edition of the Alpha Letter, we cover:
Crypto: Elon Musk has turned on Bitcoin. Will Tesla accept Dogecoin?
Stocks & Options: The option flow tells us which stocks to watch
Dividend Growth: Check out this gold miner yielding 3.2%
Will Tesla start accepting Dogecoin?
Elon Musk turned on the Bitcoin community Sunday, hinting that Tesla may sell its entire Bitcoin position after announcing that it would no longer accept the cryptocurrency as payment.
One thing remains clear: Musk is still interested in cryptocurrency. While he no longer likes Bitcoin because of the toxicity of the community and the high energy consumption, he has expressed interest in either adopting Dogecoin or creating a new cryptocurrency.
He wrote last week that Dogecoin is a binary investment opportunity: It could be a 10-bagger from here or lose half its value. Nobody could have predicted the events around Dogecoin over the last few weeks, so don’t trick yourself into thinking that Doge is a sure-fire opportunity. It may continue to surge if Musk is serious about adopting it, but one negative tweet could have the exact opposite effect.
Musk sent several tweets Sunday afternoon explaining his new views on cryptocurrency. Strangely, Dogecoin didn’t increase in value much after those tweets. While Bitcoin fell about 5% and Ethereum tumbled 8% in the hours after Musk’s tweets, Dogecoin only gained 2%. This could be a sign that Dogecoin is overbought right now and needs some sort of cool-off before it can go higher from here.
Again, it seems that Musk pivots often with cryptocurrency. He loved Bitcoin just a month ago, so keep in mind that he could cause a similar rug pull with Doge at any time.
Others on Twitter have speculated that the “correct” answer is to use Dogecoin for payments and Bitcoin as a store of value. Again, I would not peg your financial future to these kinds of speculations. Much of the world is still figuring out how cryptocurrency fits into the financial world.
Many Bitcoin enthusiasts can’t agree if Bitcoin is best used as a currency or a store of value, so I see things changing rapidly for several years to come. We’ll have many more large downswings and massive upswings in both Bitcoin and Dogecoin over the next several months and years.
Unfortunately, several people on Twitter decided to take too big of a risk and dump their entire net worth into Dogecoin at $0.72, for example. It may work out in the end, but they also could be sitting on a 30% loss (or more) for years to come.
That’s not investing - it’s gambling.
Professional investors take responsible position size and diversify so that they never get knocked out of the game by one bad play.
Stocks & Options
Let’s take a look at some of the trending option plays from Friday.
As we’ve mentioned in previous newsletters, looking at option flows can help you determine where stocks are headed. Looking at stale ratios and indicators like P/E and the 200-day moving average is the equivalent of skating to where the puck is now, rather than skating to where the puck is going.
We use Options Matrix built by our partners at Vigtec to see option flows. Check out their 7-day free trial here. All the charts you see below are from their app.
One stock we noticed with unusual put activity is Canadian Pacific Railway (CP), A few large put orders came in near the end of the close Friday. Sure enough, the stock continued to fall into the close.
One hot WallStreetBets name we noticed in the options flow Friday was AMC. Options for AMC were hot all week. Implied volatility is really high, in the 200 to 300% range for most calls.
Another WallStreetBets favorite we saw bullish options activity on is American Airlines (AAL). AAL had high call premium Friday with several calls falling into the “Heating Up” category on the Options Matrix.
The heating up scan shows us calls that with volume more than two times the 10-day average. Several AAL calls showed up on this scan Friday, including the 5/28/2021 $25 calls. Volume for the option was 7,895 Friday, 492% higher than the average over the previous 10 days.
One variable dividend growth investors look for is past dividend growth over the last three or five years. A high dividend growth rate can signal that the company is committed to increasing its dividend payout over the medium-term.
Here are a few stocks with high dividend growth over the last three years:
AbbVie (ABBV) - 84% dividend growth over the last three years. Currently yielding 4.47%.
MasterCard (MA) - 81% dividend growth, but only yielding 0.50% right now. However, the stock itself is up 281% over the last five years, so a low dividend yield is usually a given when the equity appreciates so quickly.
JP Morgan (JPM) - 76.4% dividend growth over three years, currently yielding 2.2%.
Gold Fields (GFI) - 103.8% growth with a current yield of 3.20%.GFI is a gold mining company, so its capital appreciation potential is fairly limited since it typically tracks the price of gold. But GFI is a solid midcap dividend option if you are mid-term bullish on gold.
New Top Idea
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