Every so often I want to pat myself on the back since I'm my harshest judge - I'll do it in the case of this trade on Netflix (NFLX).  Yesterday morning as the stock detached from the stratosphere and was nowhere near any of its moving averages, I dumped almost all Netflix we had left in the portfolio, keeping only a 0.1% exposure.  I sold over $139 to lock in profits.  In the past 16 hours the stock has sold off by 8.5%, and now has pulled back to its 10 day moving average.  I will rebuy the shares I sold yesterday (plus a bit more) in the $127s and begin rebuilding the position here.   In this case the timing was perfect.

I prefer to be a buyer at the 20 day moving average but if the S&P 500 breaks over 1100, I'd expect NFLX to bounce and the 10 day might be all we get.  So I'll get the position back to a 1% allocation and then see if we can get another purchase down at the $120 area.  If the S&P 500 begins to run, this will be one of the positions I add to first.

Looks like an analyst downgrade helped out today; I disagree with the assessment here about profit margin crunch.  If Netflix went to all streaming and exited the model where they have to pay big bucks to the US postal service I'd be all for it.  I do agree the valuation is excessive but most of the stocks making the biggest runs are in 'egregious valuation' mode.

  • Shares of Netflix Inc. fell Wednesday after an analyst downgraded the stock, saying that a further push into online streaming could erode profit margins.  Morgan Keegan analyst Justin Patterson cut his rating on the shares to Underperform from Outperform based on his price target for the shares of $100, which is 25 percent below Tuesday's closing price.  Even at $100, that would mean the stock is trading at 27 times Patterson's estimate for the company's fiscal 2011 adjusted earnings per share.
  • Patterson lowered his estimate for 2010 net income per share to $2.77 from $2.84 previously. He also cut his estimate for 2011 net income per share to $3.41 from $3.77.  He expects adjusted earnings per share of $3.06 in 2010 and $3.71 in 2011.

  • Last week, Netflix announced a deal to stream movies from Viacom Inc.'s Paramount Pictures, Metro-Goldwyn-Mayer Inc. and Lions Gate Entertainment Corp., through their joint pay TV venture, Epix. The deal was worth $1 billion over five years, which Patterson estimates costs about $1.11 per subscriber per month.

  • He outlined three ways Netflix could add to its streaming movie library without hurting profit margins: cutting down the number of DVDs it buys, reducing marketing spending, and increasing subscription prices. Either method could hurt its subscriber growth, he wrote.

  • Netflix is moving away from its mail-order DVD rental business to one that relies on online video delivery over the Internet, mainly to save on postage costs.

Long Netflix in fund; no personal position

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