April 17, 2025

Portfolio Changes: Cloudflare (NET) – Move from Buy a Half to Sell

The Priority is Protecting Assets

As markets weigh tariff and trade risks, we will continue our efforts to protect assets through portfolio rebalancing while remaining alert to trading opportunities. Our diversified and global Explorer stocks are doing well.

International investors will be important at the margin since they account for 18% of U.S. stock ownership.

The retreat of the U.S. dollar, down 10% in the last six months, and the emerging premium for U.S. bond markets is leading to higher yields (interest rates).

Short term, the bond market volatility is unlikely to threaten the greenback’s status since central banks hold almost $7 trillion in U.S. dollars in reserve, almost three times as much as much as euros. Furthermore, the $28 trillion Treasury market is the world’s largest and most liquid. In comparison, there is only $1.4 trillion German government bonds outstanding.

Japanese officials are in Washington, D.C. to negotiate away the proposed 24% tariffs and the additional auto tariffs. I assume both Japan and South Korea will be dealt with quickly since they are way too strategically valuable to be left hanging. Both markets are opportunities, and I join Warren Buffett in liking the Japanese trading companies.

How the U.S.-China tariffs work out this year is the million-dollar question.

Both sides are dug in, both have leverage, and both seem confident they will prevail.

This will likely take time and there will be considerable collateral damage and opportunities.

One likely group that will suffer are American multinationals. A considerable number of these consumer giants such as Nike (NKE), Tesla (TLSA), Intel (INTC) and Starbucks (SBUX) have over 20% of sales revenue coming from China. I would also be wary of Nvidia (NVDA) as its stock price pulls back in the wake of restrictions on and investigations into its sales of chips to China and Asia.

The American market represents only about 14% of Chinese exports and China’s roughly $20 trillion economy will struggle to adjust to a loss of exports it sent to the U.S. last year. The U.S. exported $143.5 billion in goods to China in 2024, while $438.9 billion worth of goods went in the other direction.

President Trump’s exception for smartphones and computers already restored about a third of these exports. Cornell University reports that 73% of smartphones, 78% of laptops, and 87% of video game consoles sold in United States come from China.

Chinese stocks are outperforming this year, and many have little international exposure such as Luckin Coffee (LKNCY) and Chinese automakers which sell virtually no cars in the United States. Financial service companies will also avoid tariff issues, such as American Express (AMEX) and our Visa (V) recommendation.

China has some cards to play. China’s central bank also holds roughly $760 billion in U.S. Treasuries. China has some $6 trillion of foreign exchange assets, if you include the holdings of state-owned banks.

China has also ordered its airlines not to purchase any Boeing (BA) jets and halt purchases of aircraft-related equipment and parts from U.S. companies.

China is also pushing back by restricting rare earths. Chinese state-owned companies have taken over all foreign-owned rare earth refineries in the country and have designated its techniques around rare earth mining and refining as state secrets. China will now require special export licenses for six heavy rare earth metals, which are 90% refined in China, as well as rare earth magnets, again 90% of which are manufactured in China. According to the Defense Department, an F-35 fighter contains around 900 pounds of rare earth materials and strategic submarines need more than 9,200 pounds.

This struggle is being largely framed through the fight over manufacturing output, jobs, and exports.

Autos and auto parts are critical to manufacturing and their supply chains are complex and international. Below is just a partial snapshot, courtesy of the BBC. The supply chain for semiconductors or smartphones is infinitely more complex.

Explorer Weekly Stock Commentary

Below is a brief update on each Explorer stock. Any changes in ratings will be highlighted. This section is all you need to read each week.

Explorer Disrupter Recommendations – need to watch more closely and have a 20% trailing stop-loss in place.

Agnico Eagle Mines (AEM) shares were up 15.8% this week as investors continue to move to gold to protect assets. Agnico offers us a global footprint with mines in Canada, Australia, Finland, and Mexico, with exploration and development activities in Canada, Australia, Europe, Latin America, and the U.S. Buy a Half

Airbus (EADSF) shares were off 2% this week but stand to gain from China giving Boeing (BA) the cold shoulder and handing arch-rival Airbus a virtual monopoly over civil aircraft exports to China. The Chinese market is expected to account for 20% of global demand over the next two decades. Airbus has been gaining market share by beating Boeing to develop a line of fuel-efficient, mid-sized aircraft that are cheaper for airlines to fly. Buy a Half

Banco Santander (SAN) shares posted another solid 6% gain this week and have captured the role of Europe’s best stock in 2025. This is a good stock to hold right now as it escapes the tariff turmoil and is significantly outperforming bank and European indexes. Buy a Half

BYD (BYDDY) shares were up 6% this week as the company is gaining traction in Brazil, the world’s sixth-largest auto market. BYD sells no EVs in America but does have a footprint in Morocco and Mexico, two countries with free trade agreements with the U.S. and the EU. BYD projects total vehicle sales for 2025 of 5.5 million. Buy a Half

Cloudflare (NET) shares were steady this week, but the stock is underperforming and has lost momentum, so I am going to move this stock to a sell. Move from Buy a Half to Sell

Dutch Bros (BROS) shares were down 4.4% and the stock has not had a good month but is still up 10% in 2025. Unlike Starbucks (SBUX), which benefits from 20% of sales from food, Dutch Bros has little to offer in this regard. It finally has added mobile ordering. I’m leaving it a hold for the time being as it seems to be facing some resistance after a nice run. Hold a Half

Luckin Coffee (LKNCY) shares were steady this week as the company sidesteps the U.S.-China trade conflict. Last week they were up 10%. The company is looking at other overseas markets as well. Luckin’s model of flexible formats and menus and advanced mobile ordering is working well. Buy a Half

Sea Limited (SE) shares were steady again this week as it is unclear how tariff issues will impact the stock. The stock had a great 2024 with a nice rise so far this year. All three of its market segments are backed by a strong balance sheet but I will leave this a hold. Hold a Half

Subaru (FUJHY) shares gave back much of last week’s 4% gain as Japanese negotiators arrived in Washington, D.C. for trade talks. The company is somewhat protected by making in America most of its vehicles it sells in America. Based in Tokyo, Subaru stock sells for only five times trailing earnings and about 70% of book value. Buy a Half

Explorer Dominator Blue-Chip Recommendations – More Buy and Hold

DBS Bank (DBSDY) shares were up 6.9% this week reflecting the bank’s stellar reputation in Southeast Asia. Headquartered in Singapore, DBS is the largest constituent of the Singapore Straits Times Index. Buy a Half

International Business Machines (IBM) shares edged up this week and the company offers us exposure to growth opportunities in areas from cloud computing to quantum computing. IBM deployed the world’s first cloud-based quantum computing system in 2016, and it subsequently deployed more than 80 quantum systems which are used to run more than 3 trillion programs daily. Buy a Half

Visa (V) shares were steady this week as the company has increased its dividend without fail every single year since its initial public offering in 2008. This is another stock in a dominant market position. You may want to add some shares to your portfolio. Buy a Half

Watch List – Stocks we like but do not follow day-to-day

ConocoPhillips (COP), Franco-Nevada (FNV), MOOG (MOG-A)

Explorer ETF/Fund Positions

Aberdeen Asia-Pacific Income Fund (FAX) is a close ended fixed income mutual fund launched and managed by Aberdeen Standard Investments (Asia) Limited in Singapore. Buy a Half

Grayscale Bitcoin Trust (GBTC) offers investors a way to track very closely to the day-to-day or “spot” movement of bitcoin prices. For aggressive investors comfortable with volatility. Buy a Small Allocation

JPMorgan Equity Premium Income ETF (JEPI) offers double-digit yield coming from both option premiums and dividends using a value-focused strategy. Buy a Full

Morgan Stanley China A Share Fund (CAF) offers exposure to a basket of top Chinese-listed stocks. Buy a Half

Oberweis Micro-Cap Fund (OBMCX) fund stands out for several reasons. The fund’s sound investment process and strong management team earns it a rare Morningstar Medalist Rating of Gold. Over the past five years it has posted an impressive average annual return of 20.7%. Buy a Half

Sprott Platinum and Palladium ETF (SPPP) offers direct exposure to both platinum and palladium which are selling at a sizable discount to gold offering potential upside appreciation. Buy a Half

VanEck Junior Gold Miners ETF (GDXJ) is a basket of junior miners that has 84 positions with the top 10 accounting for 44% of total assets. Half of the stocks are Canadian, 21% Australian, and 7% from South Africa. Buy a Half

WisdomTree Emerging Markets High Dividend Fund (DEM) offers a high dividend yield and some of the highest quality emerging market stocks. Buy a Half

Explorer Stocks Summary

Brief company summaries that will not change week to week.

Airbus (EADSF) has gained market share by beating Boeing to develop a line of fuel-efficient, mid-sized aircraft that are cheaper for airlines to fly. Airbus is one of only two manufacturers, along with rival Boeing, that make the full-size commercial jets needed by the world’s airline industry. China’s COMAC is making gains but is probably a decade away from being a competitive rival. Boeing’s troubles and the U.S.-China trade battle are Airbus’s opportunity.

Agnico Eagle Mines (AEM) follows a conservative strategy and with a history spanning more than 60 years, and now operates a sizable portfolio of 11 assets located in four countries. Management forecasted gold production of approximately 3.45 million ounces in 2024. The company estimates it has about 54 million gold ounces of proven and probable reserves. Furthermore, Agnico Eagle has paid a dividend for 41 consecutive years with a dividend compounded growth rate of 23% per year since 2005 and paid a dividend of $1.60 per share in 2024.

Banco Santander (SAN) was founded in Spain in 1857. The bank’s U.S. headquarters is in Boston, but its strength lies in Latin America and Europe where it has more than 8,000 branches with 171 million customers as well as 58 million digital accounts. About 55% of deposits and loans are in Europe with the balance in Latin America. In its most recent quarter, Santander’s revenue was up 8% while net profits increased 16%.

BYD (BYDDY), in both 2021 and 2022, more than tripled sales from the previous year. That’s hyper growth and including hybrids, BYD has already surged past Tesla in terms of sales. Most of BYD’s sales are still in China but it has a big international expansion underway, including in the U.S., Europe, and Asian markets. BYD is the world’s largest EV battery maker and with CATL and others, is working on sodium-ion batteries. Much less energy dense than lithium batteries, sodium batteries should be much cheaper. BYD will also launch a next-generation Blade battery in 2025, with longer range and faster charging. That, along with various other models, could help rev up BEV sales growth next year. BYD expects solid-state batteries for high-end models by 2027, but not fully reaching lower-end models until 2030-2032.

Watch List: ConocoPhillips (COP) is a global energy industry giant and one of the largest independent exploration and production (E&P) companies in the world, as measured by production levels and proved reserves. The company, founded in 1917 and based in Houston, has operations in 13 countries, although almost half the company’s production is derived from U.S. sources.

DBS Bank (DBSDY) is one of the largest banks in Southeast Asia with a presence in 19 markets. It is headquartered in Singapore, with its main listing on the Singapore Stock Exchange, and is the largest constituent of the Singapore Straits Times Index. The Government of Singapore established DBS in July 1968 and its largest and controlling shareholder is Temasek Holdings, which is one of two large sovereign wealth funds controlled by the Government of Singapore. DBS has assets of roughly $750 billion and a growing presence in the three key Asian areas of growth, which it defines as Greater China, Southeast Asia, and South Asia, meaning India. It is the largest and strongest bank in Southeast Asia and the leading consumer bank in both Hong Kong and Singapore.

Dutch Bros (BROS) is an operator and franchisor of drive-through coffee stores, with 982 stores as of the end of 2024, including 32 that it opened in the fourth quarter. It’s expanding at a steady pace, expecting more than 150 new stores in 2025, and it envisions up to 4,000 stores over the next 10 to 15 years.

Watch List: Franco-Nevada (FNV) is a company with more than half of its revenue coming from gold, but it also offers exposure to platinum, silver, and oil and gas. Franco-Nevada’s focus on royalties and streaming reduces risk and enables it to sidestep the huge capital costs that impact traditional miners. It enjoys cash flow and profits as its mining partners finance and complete exploration and expansion projects. That cash flow enables it to invest in new deals, pay a dividend, and operate debt free. Franco-Nevada has increased its dividend each year since its IPO in 2008.

International Business Machines (IBM) is a blue-chip artificial intelligence (AI) and India play with a nice dividend yield. Known as “Big Blue,” IBM now primarily helps businesses and governments manage their information technology in the cloud era. The stock sells at a discount to the S&P 500 multiple and the information technology sector’s forward earnings multiple. IBM has paid a dividend every quarter since 1916 and has had 29 consecutive years of dividend increases.

Luckin Coffee (LKNCY) is a leading purveyor of coffee and specialty drinks in China. The price of a cup of Starbucks coffee is more than double that of Luckin coffee. In addition, Luckin is adept at adapting to local tastes and launching new products that broaden the market. For instance, it brings to market about 60 new products each year, offering a new drink every week. Its new coconut latte sells nearly $140 million worth annually. All this shows in the numbers as Luckin’s latest quarter revealed strong sales and store count growth.

Watch List: Moog, Inc. (MOG-A) supplies advanced primary flight controls on the most modern military aircraft. That includes the Lockheed Martin F-35 Lightning II and the Future Long Range Assault Aircraft program. The company’s major platforms include the 787, A350, Joint Strike Fighter (F-35 Lightning II). The company also supplies primary flight controls for the Boeing 787 and Airbus A350 widebody aircraft, as well as business and regional jets from Embraer (ERJ) and Gulfstream, owned by General Dynamics (GD).

Sea Limited (SE) has three core businesses: 1) digital gaming/entertainment, 2) e-commerce, and 3) digital payments and financial services, known as Garena, Shopee, and SeaMoney, respectively. Garena is a leading global online games developer and publisher. Shopee is the largest e-commerce platform in Southeast Asia and Taiwan. SeaMoney is a leading digital payments and financial services provider in Southeast Asia.

Subaru (FUJHY), based in Tokyo, Subaru holds a 10% market share in Japan, making it the third-largest automaker in the country. In America, the Subaru brand has a cult-like following and Subaru’s stock sells for only 4.5 times trailing earnings and about 64% of book value. It also sports a 4% dividend yield, has a market value of $12.4 billion and has a strong balance sheet with a net cash position of $7 billion.

Visa (V) doesn’t extend credit but provides the plumbing for financial payments and communications throughout the world. Visa’s financial infrastructure also underpins much of the world’s commerce. The duopoly between Visa and Mastercard is often referred to as one of the best businesses in the world, with insurmountable moats, low operating costs, and plenty of opportunities for unlocking additional value. Visa currently trades at a discount to its archrival MasterCard.

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