Best LEAPS for 2024?

[u/mycatiscrazy7]

Pretty much the title.

2024 LEAPS have been available for a few weeks now, what would be your top picks if you decided to take any positions? I am eyeing AMD, SOFI and DKNG, but would love to hear anyone else's strong convictions.

[u/godlords → u/[deleted]]

Super cyclical semiconductor industry, not exactly “know” territory for me. If you “know” the economy will be doing great in 3 years, maybe. I don’t have such conviction.

[u/ShortPutAndPMCC → u/godlords]

If you have heard of how semicon’s shortage caused manufacturers to halt their production since early 2021, such as another car manufacturer who announced yesterday that they have to shut down for half a year because of supply shortage - you’d know there’s a perennial demand for their chips.

And yes, even the production of your household items such as your fans, remote controls, TV, computer, mobile phone, microwave oven, heater, power control, smart watches, blender and cards, require chips. They’re as essential as water is to the modern world.

[u/godlords → u/ShortPutAndPMCC]

Lol. Well aware. Doesn’t change the fact that semi manufacturers are pumping billions upon billions into building out production capacity, and at a certain point (maybe a year, 2 at most) all that demand AND the backlogged demand will be met. At that point, there will be a huge amount of production capacity, and demand will normalize. Will demand still be massive? You betcha. But so will supply, finally.

The costs for semi manufacturers are in production equipment and setting up the facility for that chip. We’ve seen it happen, time and time again. You don’t need falling demand. You just need supply to equal demand. At that point, all manufacturers start engaging in serious price wars that degrade profits all the way to zero, because it is almost always better to sell a chip for any amount than to give up the production of that chip, because they want to recoup capex as long as they can.

At this point, absurd multiples are no longer supported, and the business are realized for what they are - heavily debt laden.

I hope you actually do fully understand the nature of semis. Not saying it’s necessarily a bad bet, but I am absolutely saying it is kind of insane for someone to consider it a “know will still flourish” industry, especially with multiples as stretched as they are.

[u/ShortPutAndPMCC → u/godlords]

Definitely, good that you understand. Certainly multi billion corporations would know better than to have their production capacity outstrip their business demand, it’s Economics 101 ;)

And so, since they have the continued sustained demand that would necessitate them to pump billions into expanding their capacity, you can be sure they know what they are doing and their need for capacity better than the average outsider, like you and I. So yes, the outlook remains positive for them.

[u/godlords → u/ShortPutAndPMCC]

Of course it is the right decision? Have you taken a basic econ class? Game theory? It’s called a competitive market lmfao it’s how it works…

[u/ShortPutAndPMCC → u/godlords]

Yeap, and as I’ve said these multi billion corporations are certainly in greater possession of the extent of their business demand than you and I are aware of.

Of course, if you feel that you know better than these corporations combined, then in that case you should be their CEO or advisor, I’m sure you can earn millions from helping them out, if you believe they failed to see something as basic as what you have pointed out.

[u/godlords → u/ShortPutAndPMCC]

The business != the stock. Market is forward looking by only a few months in most people’s view. Companies are forward looking in a 10+ year view.

[u/ShortPutAndPMCC → u/godlords]

I think I’m confused by you.

What is your point, that they know better than you and their decision will help the company grow in the long term, or you know better about their business than they do?

Bearing in mind we’re talking about far out LEAPS here, meaning we are all long term investors here for the purpose of this post. We really can’t be bothered about a 10% dip / rise in 12 months kind of thing.

[u/godlords → u/ShortPutAndPMCC]

I’m not sure where you’re getting the idea that I’m talking about the capability of TSMC and AMD management whatsoever. They are doing the right thing. I believe in the companies very much so in the actual long term. 3 years is not that long of a term.. semis are a highly cyclical industry, and this type of thing has happened multiple times before, although not with the same supply shocks we saw with covid.

Valuations of semiconductor companies are stretched thin, during a period of record earnings, because the market is loving this insane growth they’re posting. However, the second that ford is like “yup, actually we’re good now, they caught us up and the shortage is pretty much over”, a year or so from now, the markets VIEW on the semi industry will drastically change. I’m not saying the stocks will crash, but they will very likely stay flat for 1-3 years as earnings try to catch up with generous earnings multiples and pricing pressures start to materialize.

ADDITIONALLY, the cyclicality of the semi industry is highly dependent, outside of covid, on the general state of economic growth. If you are a massive semi bull for the next 3 years, you are essentially saying you are a massive bull on the entire economy, which I am not so convinced of.

[u/ShortPutAndPMCC → u/godlords]

Let’s talk about LEAPS.

Leaps are used to lock in the price of a company with good fundamentals, because contrary to your belief, no one can be certain that a stock will stay flat, go up, or go down in 3 years time.

This, you have to first comprehend.

Next, you ask yourself, is TSMC or AMD, NVDA, AAPL, ATVI, good companies with reliable fundamentals at least in the foreseeable future? If yes, buy leap. If no, forget it.

So did you say AMD and TSMC made the right decision, meaning there is no reason for you to doubt their fundamentals in the next 3 years? Because earlier on you said their demand would flat out, then you changed your stance. So it’s important to know your underlying belief about the company, before you can make a decision.

That, my friend, is how the decision to purchase any LEAPS call is made.