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September 8, 2020

The big question on investors’ minds is if this tech stock retreat is a precursor to something larger or a “normal” correction in the context of a bull market.


Nikola (NKLA) Surges On GM Deal. Downgrading Weaker Positions: BILL, BE, NET, SDGR Move to Hold

The big question on investors’ minds is if this tech stock retreat is a precursor to something larger or a “normal” correction in the context of a bull market.

I’m not going to pretend I know the answer. I could give you half a dozen arguments why tech stocks should fall further, consolidate at current levels, or march higher. But at the end of the day what matters to us is where the longer-term trends take our stocks. And a few days of weakness in extended stocks isn’t yet evidence enough that we should take significant action.

That said, investors that jumped into growth stocks with significant positions within the last two weeks likely feel differently than those that have been adding positions gradually over many months. The takeaway there is that averaging in always makes sense, even when things are going great. You just never know when a big pullback is going to come, and they are a lot easier to digest if you haven’t just plopped down a big chunk of your investable capital.

Moving on to our portfolio …

The last few days have dented some of our stocks so we’re moving incrementally more conservative and taking a few stocks from buy to hold based on their recent performance. I’ll monitor these stocks closely this week to determine if further action is required. (BILL) moves from BUY to HOLD
Bloom Energy (BE) moves from BUY to HOLD
Cloudflare (NET) moves from BUY to HOLD
Schrodinger (SDGR) moves from BUY to HOLD

Now on to more exciting news regarding Nikola (NKLA), which is up more than 45%.

This morning Nikola and General Motors (GM) announced that GM will build Nikola’s Badger truck. GM will take a $2 billion equity stake in the company and will engineer, validate, and build both the BEV and fuel cell variants of the Badger as part of in-kind services wrapped up in the deal. Nikola says the partnership will save $4 billion in battery and powertrain costs over a decade, plus $1 billion in engineering and validation costs. GM expects to see over $4 billion in benefits from aspects of the deal and will be the ex-Europe exclusive supplier of fuel cells to Nikola for Class 7/8 trucks. The Badger is expected to enter production in roughly two years (by the end of 2022). Nikola will handle sales and marketing.

Clearly this is a big deal with a lot of specifics that will matter. This is GM’s big shot at commercializing its Ultium battery system and Hydrotec fuel cell technology. And the performance of both will be critical to ensuring the success of Nikola’s vehicles.

With the stock up over 45% today it’s clear the market likes this move. GM will be an interesting stock to watch as well (it’s up 9% today and breaking out above its June high). Will this send NKLA marching higher for the foreseeable future? I’m not sure about that as this is still a very early-stage company and there is a lot of work to be done before any vehicles hit the road. Keeping at buy a half and stressing importance of averaging in. BUY A HALF