February 22, 2024

Nvidia and Rivian Report as China’s BYD Launches an $11,000 Hybrid EV

Portfolio Changes: None

It was a relatively quiet week for Explorer stocks as a financial media frenzy focused an unprecedented amount of attention on the expected financials of one stock – Nvidia (NDVA).

Nvidia has quickly become the third most valuable company in the United States.

As of last Friday, about 30% of the S&P 500’s gain for the year was due to Nvidia, according to an S&P analyst.

In a demonstration of artificial intelligence (AI) influence on market values, the duo of Microsoft and Nvidia are now worth more than Amazon, Alphabet, and Meta combined.

For perspective, in Nvidia’s third quarter which ended last October, profits were up year over year 1,259% and sales tripled to $18.1 billion.

Yesterday, Nvidia did not disappoint. With its chips supporting much of the world’s AI platforms, Nvidia announced that it made $22.1 billion of revenue in its last fiscal quarter. Net profit was $12.29 billion, compared with $1.41 billion a year earlier. Revenue was up 265% from a year ago. Quite impressive.

There is a lot of news on the electric vehicle (EV) front as well this week.

Elon Musk was reported to have asked some of Tesla’s Chinese auto parts suppliers to set up production in Mexico to avoid U.S. tariffs. Bloomberg reports that BYD (BYDDY) is considering setting up its own plant in Mexico. This will be politically sensitive since the value of goods the United States imports from Mexico rose nearly 5% in 2023 to more than $475 billion while the value of Chinese imports pulled back 20% to $427 billion. And the South China Morning Post reports that BYD’s new Glory Edition plug-in hybrid EV has a starting price of $11,086.

Rivian (RIVN), on the other hand, announced that it expects flat sales of 57,000 vehicles for 2024 rather than Wall Street estimates of 80,000 units.

Rivian’s stock sank 17% yesterday. Still, I’m going to closely monitor Rivian as it plans to cut 10% of its workforce and announced that its first R2 lower-priced model is expected to go on sale in 2026 with a likely price range of $40,000 to $60,000. Rivian still loses thousands of dollars on every model sold. What is interesting is that since Rivian’s November 2021 initial public offering and my warning to stay away from the stock, its stock price has dropped by more than 90%.

Overall, about 1.4 million hybrid and plug-in hybrid vehicles were sold in the U.S. last year, compared with 1.1 million EVs, according to data from Edmunds. Combined, they represent about 16% of total U.S. 2023 auto sales. In China, the proportion of EV and hybrid sales for 2023 is about 36%.

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 20% trailing stop loss in place

10x Genomics (TXG) shares came back from 48 to 46 this week as the company reported that revenue was $184 MM for the fourth quarter and $620 MM for the full year of 2023, representing 18% and 20% year-over-year increases. The company still recorded a net loss after expenses. I’m willing to give this aggressive and innovative company a bit more time. Buy a Half

Exscientia (EXAI) shares finished the week at 6.3 as we await the appointment of a new CEO. This AI-driven biotech company and potential takeover candidate partners with mega-drug companies to launch new products. Buy a Half

Cloudflare (NET) shares cooled off 3% this past week after last week’s 24% surge following a quarterly report showing 32% revenue growth and better margins. Cloudflare is both an aggressive and dominator recommendation offering products for cloud computing, AI, cybersecurity, and edge computing. Buy a Half

Novo Nordisk (NVO) shares didn’t move much this week, but the stock remains a strong momentum stock. In 2023, its Wegovy product sales soared by 407%, while Ozempic’s sales surged by 60% year over year. The company estimates that the global obesity market delivered volume growth of 116% in 2023 and it is expected that this momentum will last for some time. Buy a Half

PayPal (PYPL) shares were flat this week and although the digital payments space is increasingly crowded, this stock still seems undervalued to me. Last week PayPal earnings for the fourth quarter were up 19% on 9% revenue growth to $8 billion. Buy a Half

Super Micro Computer (SMCI) shares pulled back a bit as the market awaited the Nvidia financial report and after some incredible growth in Super Micro’s share price. I see Super Micro as a leveraged play on Nvidia and other advanced chips for artificial intelligence (AI). Hold a Half

Explorer Dominator Blue-Chip Recommendations – More Buy and Hold

ConocoPhillips (COP) shares were steady this week after the company released solid fourth-quarter earnings last week. This is a company with $96 billion of assets that last year generated $10 billion in free cash flow. Hold a Half

International Business Machines’ (IBM) share price dipped from 184 to 180 on no news. IBM is the tortoise to the Nvidia hare in artificial intelligence, but its AI cloud-based growth strategy is only in its early stages. Buy a Half

Visa (V) was quiet this week. This payments company handles more than 60% of all card payment volume in the U.S. In addition, about 8% of Visa’s revenue came from services not directly tied to the processing of transactions such as risk and fraud detection and consulting services. Buy a Half

Watch List – BYD (BYDDY): As I mentioned above, the Chinese EV giant is reportedly considering setting up its own plant in Mexico, which could help its value in other markets. Also, its new Glory Edition plug-in hybrid car has a starting price of just over $11,000, which should further broaden the company’s appeal to middle-class consumers. Keeping an eye on this stock, which has been holding firm in the 47-48 range since bottoming at 43-44 earlier this month.

Explorer ETF/Fund Positions

Global X Lithium & Battery Tech ETF (LIT) offers solid exposure to other beaten-down lithium names at a low cost. With an expense ratio of 0.75%. 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) is a contrarian value play on China’s beaten-down market. 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.

10x Genomics (TXG) is a leader in the emerging field of “spatial biology,” a cutting-edge life science for making new discoveries about human health and disease. Founded in 2012 and based in Pleasanton, California, 10x builds tools for scientific research to advance human health. Its instruments, reagents and software allow researchers to examine cells and molecules at a resolution and scale never imagined or experienced before. 10x helps researchers look at the roots of biology.

Watch List: BYD (BYDDY) switched to producing only all-electric battery vehicles (BEVs) and plug-in hybrid electric vehicles (PHEVs). The company also manufactures and supplies EV batteries, including to Tesla, and makes its own chips. This is vertical integration that would make Henry Ford proud. BYD is in a strong position to be one of, if not the leader of the EV revolution in terms of size, scale, and growth.

Cloudflare (NET) is both an aggressive and dominator recommendation offering products and services in four cutting-edge fields: cloud computing, AI, cybersecurity, and edge computing. Its global reach is breathtaking as 20% of all web traffic runs through Cloudflare’s network and over 95% of internet users from 180 countries worldwide access the company’s services each day. And it reaches these users within 50 milliseconds.

The firm’s client list includes more than 30% of Fortune 1000 companies and the ability to efficiently move and connect data – from where it is located to where it is needed (edge computing) – is a massive business opportunity in which Cloudflare already excels.

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.

Exscientia (EXAI) was founded in 2012 and is based in Oxford, England, Exscientia is using AI to develop new medicines and is attracting high quality partners. Exscientia (EXAI) stock is trading way off its high in an uptrend at 6.25. It went public at 22 a share so the company has about $500 million in cash on the books – a big number for a company with a market capitalization of just $780 million. Finally, keep in mind that this is an attractive speculative stock which may have a bumpy ride. It is a young company that is not and will not be profitable next year.

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 28 consecutive years of dividend increases.

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.

PayPal (PYPL) is a digital payment giant. With 430 million active accounts generating over $1.5 trillion in payment volume annually, PayPal retains a strong leadership position in the e-commerce payment ecosystem. PayPal has been cutting costs and expanding margins and earnings growth. In addition, PayPal’s new CEO is spearheading an innovation drive doubling down on growth efforts and boosting crypto capabilities.

Super Micro Computer (SMCI), commonly known as supermicro, manufactures enterprise computer server hardware for cloud computing, artificial intelligence, data storage and telecommunications. Super Micro stock looks relatively inexpensive right now for the growth that it has been delivering. The company trades at just two times sales. Super Micro has two larger rivals, Dell (DELL) and Hewlett Packard (HPE), but it is forecast to grow five to 10 times faster. Furthermore, both Dell and HPE have relatively high debt whereas Super Micro has a net positive cash position. This is an aggressive pick in a sector experiencing extraordinary growth.

Visa (V) doesn’t extend credit but provides the plumbing for financial payments and communications throughout the world. Visa has the largest card network in the U.S., processing $14.8 trillion of payment volume in the last 12 months. 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. This leaves it much better poised to outperform the latter going forward.

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