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If you've been following me for a while, you'll know Netflix Inc. (NASDAQ: NFLX) is one of seven companies I trade every day before breakfast; it's that big and liquid.
And after a dynamite Q4 earnings report, more investors than ever are piling in. The stock is just - only just - off all-time highs.
The thing is, it also only just beat revenue expectations - $6.64 billion against estimates of $6.63 billion. That's good enough for Wall Street. But where Netflix really stood out was in new subscribers; it added 8.51 million new customers versus an expected 6.03 million.
That officially puts Netflix north of 200 million subscribers for the first time ever, and it's proof positive that the October price hike that lots of analysts thought would turn customers off really didn't. We've got the triple-whammy of a cold winter, a pandemic, and spreading lockdowns; viewers are clearly desperate for more content.
Now, like I said, I trade this stock all the time - but here's where I think buy-and-hold investors should come in...
The Stock Has Hit the Top
Netflix absolutely exploded on Wednesday, going up nearly 17% by that afternoon. You can see its five-day chart looks like the start of a very steep cliff, and investors who found themselves at the bottom of it are feeling pretty great right now.
So, if you don't already own Netflix, you're probably asking yourself, "If I get in now, am I topping the stock?"
In a word... yep.
The thing is, the company just saw a massive spike in subscribers - a 41% beat by the Q4 numbers.
Winters don't last forever, and the end of the coronavirus pandemic is at least in sight now. And some of those subscribers will almost certainly drop out.
But a lot of them will be with Netflix for the long haul. That's consistently been the case. Netflix has steadily grown its base to the tune of nearly 1,300% over the past decade.
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Netflix is spending a fortune to develop new content for hungry subscribers, and it's promised one new movie a week in 2021. Competition is getting stiff from the likes of HBO Max, Disney +, and CBS All Access - all of which have big hit movies and series on their hands - but the pattern that's played out so far is that if subscribers like what they see in a streaming service, they just add it to the mix without cutting back on existing subscriptions.
All that's great, and I love the stock, but where's your entry point? After all, getting in at these highs, again, isn't necessarily the smart move...
Here's When to Buy
I think we'll get a correction - there's almost always a correction in NFLX. That's your moment to strike.
Netflix has had two sharp drops of more than 10% over the past six months, along with three drops not quite as sharp.
Sentiment on a stock like Netflix can turn on a dime, even if the fundamentals are usually pretty good. Investors tend to return, time and again, to the worry that Netflix is burning through too much cash in its quest to generate more and more content. That worry turns into a 5%, 8%, or 12% drop over the course of a week or so, then investors come to their senses.
There's no reason to believe this time will be any different. In fact, Netflix is already down nearly 2% from its midweek highs - the opportunity may already be shaping up. If Netflix drops another 3% over the next two or three sessions, that's your green light.
Like I said, Netflix is just one of a handful of stocks I trade regularly.
It's all part of my system - it could make for a "recession-proof" portfolio. While a lot of investors watched their money evaporate in 2008, I collected thousands every week, by developing the ultimate indicator. I used it to identify the moves all the big players were quietly making; it helped put me in the know weeks before others caught on.
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About the Author
Andrew Keene is a globally known trader and a renowned expert on all things options.