February 16, 2023

Conservative Internationalism and a Core/Explore Strategy

Portfolio Changes: Ford (F) – Moves from Hold to Sell

Retail sales rose 3% in January, the Census Bureau said yesterday, reversing November and December’s declines. Manufacturing output increased by 1%, following a steep 1.8% decline in December. Positive but slow growth right now might be just what we need to avoid more interest rate increases by the Fed.

Let’s face it, a larger concern for some is that the world looks like a beautiful mess right now. Taiwan, Ukraine, Iran, North Korea, the South China Sea, and spy balloons are but a few of the flashpoints.

So foreign policy pundits are having a field day arguing back and forth about when and how America should intervene. On one extreme are some neoconservatives who appear to want to aggressively jump into every fray. At the other end are those who instinctively recoil from taking any action at all.

A balanced approach is consistent with what George Washington University’s Henry R. Nau calls, in a great and timely book with the same title, “conservative internationalism.”

It would include a mix of spreading freedom but doing so “primarily on the borders of existing freedom” – and with the use of “armed diplomacy” against adversaries outside of negotiations.

This common sense and balanced “there is no virtue in the extremes” approach can be applied to many aspects of life – including global investing.

Therefore, I’m going to be re-introducing my core/explore strategy, developed when I was a Forbes columnist and editor. This consists of a core of diversified ETFs as well as Explorer stock ideas.

Over the coming months, I will be sharing with you ETFs mixed in with stock recommendations and sharing more about how this approach might be the best strategy for you. Stay tuned.

Weekly Explorer Stock News

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 and will be followed by a new recommendation every other week.

Butterfly Network (BFLY): Shares for this digital health company developing handheld, whole-body ultrasound pulled back marginally this week. The next earnings are now expected on February 28. Buy a Half.

Centrus Energy (LEU) shares surged from 40 to 45 as the company announced yesterday that it has completed construction of advanced uranium enrichment centrifuges, putting Centrus on track to begin in 2023 a first-of-its-kind production of High-Assay, Low-Enriched Uranium in Ohio. Buy a Half.

Corteva (CTVA) shares held their ground this week as CEO Charles Magro recently bought $2.4 million worth of stock, at a price of around $60 a share. Agricultural chemicals and fertilizers to improve crop yield remain in demand. Hold a Half.

Exscientia (EXAI) had a tough first week as an Explorer recommendation and for some may be close to a sell-stop price. My inclination is to give this new idea a bit more time as it uses artificial intelligence (AI) to develop new medicines as fast as possible. It is attracting high quality partners and turning this into explosive growth. Buy a Half.

Ford (F) shares had another less than stellar week and the brand needs to regain momentum. Ford posted a net loss of $2 billion in 2022, falling short of expected sales by 100,000 units. Ford also stated this week that it will suspend production and shipment of the F-150 Lightning, the electric version of the iconic F-150 pickup. Then there are the price cuts that will impact future earnings. Ford also has had a significant markdown of its Rivian investment. On top of this, the stock does not look good from a technical point of view. It’s time to part ways with Ford. Move from Hold a Half to Sell.

Kraken Robotics (KRKNF) was steady this week and this maritime/undersea and defense stock remains a buy for aggressive investors. Buy a Half.

MP Materials (MP) shares were up two points this past week. The next earnings report is expected on February 23. The company’s cash position and rare earth price projections are positive. The largest risk is not meeting operational goals, which are ambitious. Hold a Half.

Novo Nordisk (NVO) shares finished the week unchanged after rising six points last week after the company reported positive fourth-quarter 2022 earnings. Hold a Half.

Novonix (NVX) shares were off 12% this week and it seems that investors are becoming impatient with the company getting the Chattanooga factory up and running, which may now slip to 2024. The company also needs to become cash positive and then a leading global supplier of synthetic graphite. Buy a Half.

Polestar (PSNY) shares drifted a bit this week on no news. The company has about $2 billion in cash and dependable financing and manufacturing support from Volvo. Buy a Half.

Explorer Stocks Summary

Brief company overviews that will not change week to week.

Butterfly Network (BFLY): Butterfly’s breakthrough software can be tied into a medical network to provide instantaneous images and improve both the speed and quality of healthcare. This is so much better than scheduling a test in a week and then having the patient come back and must pay for another appointment.

However, if your doctor has the Butterfly iQ+ in their pocket, he (or she) just connects it to an iPhone, it scans your body and has a digital image right in front of him. Plus, while an MRI machine can cost more than a million bucks, the Butterfly iQ+ costs a little over $2,000. Since it also requires a subscription service, it’s a steady source of recurring revenue for the company. The top 100 hospitals in the country already use Butterfly iQ devices.

Centrus Energy (LEU) is a nuclear fuel supplier for utilities in U.S. and abroad has net income margins are above 50% so far this year with new nuclear fuel sales contracts and commitments worth an estimated value of $270 million. Nuclear power provides 20% of the power for our electricity grid and more than 50% of U.S. emission-free energy, according to the Department of Energy.

Corteva (CTVA) uses emerging technology to help farmers improve crop yields and boost output. Stocks like Corteva are recession-resistant and outperforming the market on a relative basis.

Exscientia (EXAI) is using artificial Intelligence (AI) to develop new medicines as fast as possible. It is attracting high quality partners and the company is turning this into explosive growth. Exscientia has the first AI platform clinically validated to improve treatment outcomes for cancer patients and the world’s first AI-designed drugs to enter clinical trials. It has a rapidly growing pipeline of more than 30 projects in motion.

In terms of partnerships, a year ago it signed a $5.2 billion collaboration with French drug giant Sanofi (SNY). It has expanded a Bristol-Myers Squibb (BMY) collaboration to include drug targets in both immunology and oncology. This is on top of a design partnership with a French drug giant, Germany’s Bayer, and Japan’s Sumitomo Dainippon.

Ford (F): I have decided to sell this stock (see above).

Kraken Robotics (KRKNF) is probably the most speculative of Explorer stocks, but it is a well-run company and a prime takeover candidate in the growth defense sector, coupled with a strong management team. Based in Newfoundland, Kraken Robotics is a marine technology company providing ultra-high resolution, software-centric sensors, and underwater robotic systems.

MP Materials (MP) is an effective way to play clean tech, defense, semiconductors, and other advanced and emerging technologies. It is America’s only active rare earth mining and processing site, producing approximately 15% of the rare earth content consumed in the global market in 2021.

Novo Nordisk (NVO) specializes in treatments for diabetes, hemophilia, and obesity. The company supplies half of the world’s insulin, and its diabetes care products are used by over 34 million people today. Novo highlights that more than 750 million people are currently living with obesity and that this is up a multiple of 3X since 1975. In summary, based on sizable and growing demand for this weight-loss drug, this well managed, highly profitable company with an excellent growth profile and potential to develop new products has limited risk.

Novonix (NVX) is an Australian technology and advanced materials supplier to the electric vehicle and storage battery industry. Founded by members of a research team at Canada’s Dalhousie University, the company is a supplier of high-performance materials, equipment, and services for the global lithium-ion battery industry with a focus on North America.

Novonix is an unusual blend of both exploring and mining graphite and developing synthetic graphite, a key lithium-ion battery material. The focus is on electric vehicles, which are projected to go from global sales of 3.1 million in 2020 to 15 million in 2025 and then on to about 40 million in 2030.

Polestar (PSNY) is a Swedish premium electric vehicle manufacturer. Founded by Volvo and Zhejiang Geely Holding Group in 2017, Polestar enjoys technological and engineering synergies with Volvo. By the end of this year, the company plans that its cars will be available in 30 markets. Polestar cars are currently manufactured in China, with 2024 manufacturing planned in America. Polestar has an edge on much of the competition for two reasons. It has an “asset light” strategy through access to world class owner/partner Volvo’s factories. In 2023, Polestar anticipates global volumes to increase by nearly 60% to approximately 80,000 cars.

Explorer ETF/Fund Positions

WisdomTree Emerging Markets High Dividend Fund (DEM) offers a high dividend yield and some of the highest quality emerging market stocks. This ETF gives broad exposure with an emphasis on income and value. BUY A HALF