Analysis: PANW AMGN

Shortly after the opening bell, we will be selling 50 shares of Palo Alto Networks (PANW) at a bid/ask of $245.20/$249.12. In addition, we will be selling 50 shares of Amgen (AMGN) at roughly $187.50/$190.28. Following the trades, PANW (225 shares) and AMGN (300 shares) will represent 2.14% and 2.20% of the portfolio, respectively.

We are raising cash this morning, mixing in a big gain with a small loss. Our biggest worry in the market right now isn't about the yield curve or corporate earnings. Rather it is the amount of large companies becoming public and how this rush in supply of stock will outweigh demand, causing broader prices to fall. The stock market is not immune to the law of supply and demand, and simple economics 101 calls for prices to drop when this occurs. In addition, we are concerned that index funds, which make up about half the market, may not be able to sop up all this new supply without selling stocks because the new cash inflows simply aren't there. We want to be tactical about this short-term issue in the market. With the broader market sitting not too far from its highs and the Lyft IPO set for this Friday, we think now is a good time to get ahead of the action and build up our cash position to a far more flexible level.

We expect shares in Palo Alto Networks to trade higher this morning in reaction to Mizuho coverage initiation with a Buy rating and $285 rating. We'll use that strength to lock in additional big gains in this cyber-security company. We want to be clear that our profit taking here isn't a call on the company or CEO Nikesh Arora's vision. Instead, it is about taking a win and raising cash ahead of the IPO flurry which may include a big cyber-security play in Palantir. Should Palantir become public this year, room will have to be made by selling other cyber-security names. We will realize a big gain of about 20% with this sale.

In addition to our desire to raise cash, we also want to limit our downside exposure to Amgen's upcoming intellectual property court ruling on Enbrel, the company's top selling drug of 2018 that is facing biosimilar risk. We previously did some selling at a slightly higher price in our Alert here, but we are taking further action today to limit the potential losses of a negative outcome. Now you may ask, why not sell all of it? Although we are certainly down on Amgen's chances of a favorable ruling, we've still seen several predictions from the sell-side lean towards Amgen successfully defending its patent. It is certainly plausible that Amgen's patents are upheld, causing the stock to rally in relief, however we are more focused on limiting downside than capturing upside at the moment. We also want to be clear that we still think Amgen is a terrific company that will do well after the Enbrel decision. The management team is committed to returning capital to shareholders through dividends and buybacks, and we think the breakthrough migraine prevention drug Aimovig is still being underappreciated by analysts. This cash raised will provide us with greater flexibility to buy into weakness. We will realize a loss of about 4% with our Amgen sale.