The potential for an accelerated timetable for the Fed to raise interest rates and the ongoing Russia-Ukraine situation led to volatility this week. As always, other events and news also moved stocks. In particular, Sea (SE), after bouncing back the previous two weeks, was off sharply on Monday following reports that India has banned its popular mobile hit “Free Fire”. The stock has since recovered half of this pullback to close Wednesday trading at 141.
New Recommendation
Revving Up an American Icon
The electric vehicle (EV) movement and revolution has been a rocky one, presenting investors with the challenge of navigating an increasingly competitive marketplace.
But that EVs have passed the inflection point is hard to refute given that global sales doubled last year to over 6 million cars.
Garrett Nelson, an analyst at CFRA Research, estimates that 50 new electric vehicle models will come to market before 2024. Global electric vehicle sales were up from 2.5% of total auto sales in 2019 to nearly 9% of total sales last year, according to the International Energy Agency.
Mercedes-Benz sold nearly 100,000 electric cars and vans in 2021, a 90% increase from the previous year. Ford (F) will soon start selling the Lightning, an electric version of the F-150 pickup truck, which has topped U.S. sales charts for decades. It initially planned to make 75,000 a year. But demand has been so strong that the company is racing to double production.
In 18 European countries, including Britain, more than 20% of new cars were electric, according to Matthias Schmidt, an independent analyst in Berlin. America is lagging, as about 4% of new cars were electric last year in the United States, up from about 2% in 2020. Tesla still dominates, delivering almost a million cars in 2021, up 90% from 2020.
But what about premium electric motorbike markets?
New Explorer Recommendation
Harley-Davidson (HOG)
In 1903, in a small shed in my hometown of Milwaukee, began an enterprise that would grow and spread across the world.
Their innovation and technical creativity on two-wheel vehicles sparked a transportation revolution and an adventure lifestyle that would make Harley-Davidson the most valuable motorcycle brand in the world. Today, the company continues to define motorcycle culture. Now, Harley-Davidson through its LiveWire electric motorcycle line, is the world leader of this category.
Harley-Davidson stock roared to life this week after the motorcycle maker reported a stunning fourth-quarter profit that saw motorcycle revenue surge 54% as U.S. demand for big bikes returned.
Demand for Harley-Davidson bikes is in an uptrend. This could be the start of a turnaround but Harley needs to now back this up with several consecutive quarters of sales growth. With rebel CEO Jochen Zeitz at the helm, Milwaukee-based Harley has renewed its American brand and focus on the U.S. market.
America is Harley’s biggest, most important market, which is why last year was the first year of implementation of Harley’s five-year roadmap called the Hardwire, which doubles down on domestic sales while also pursuing international growth.
Harley-Davidson reported a $0.15 per-share adjusted profit for the fourth quarter of 2021, handily beating analyst forecasts of a $0.38 per-share loss and a complete turnaround from the $0.68 per-share loss it recorded a year ago, although its motorcycle business is still operating at a loss of $102 million.
Harley also announced during the quarter it would be spinning off its LiveWire all-electric motorcycle business into a stand-alone publicly traded company through a reverse merger with special purpose acquisition company (SPAC) AEA-Bridges Impact. I hope this SPAC is priced at a reasonable valuation.
Harley will still own 74% of the new EV bike company.
Meanwhile, H Partners increased its position in the maker of iconic motorcycles to 12.6 million shares. That figure partly accounts for 300,000 Harley-Davidson shares purchased daily from Jan. 14 through Jan. 24 at prices ranging from $33.23 to $37.91. H Partners now holds 8.2% of Harley-Davidson’s outstanding stock.
Better still, Harley-Davidson is becoming more profitable as it advances its Hardwire strategic plan. CEO Jochen Zeitz is focusing the company’s efforts on its most profitable motorcycles while overseeing a more disciplined expansion into its most important international markets.
Harley-Davidson’s revenue jumped 40% year over year to $1 billion, driven by a 39% rise in motorcycle shipments. The company also enjoyed solid growth in its general merchandise and parts & accessories divisions, which saw revenue increase 46% and 13%, respectively.
Looking forward, management projects full-year revenue for Harley-Davidson’s motorcycles and related products segment to rise by 5% to 10% in 2022.
BUY A HALF POSITION
Portfolio Changes and Updates
Model Portfolio
Stock | Price Bought | Date Bought | Price 2/17/22 | Profit | Rating |
Exscientia (EXAI) | 22 | 1/20/22 | 20 | -6% | Buy a Half |
Fisker (FSR) | 15 | 2/4/21 | 13 | -14% | Buy a Half |
Ford (F) | 20 | 11/23/21 | 18 | -11% | Buy a Half |
Harley-Davidson (HOG) | New | - | 42 | - | Buy a Half |
Marvell Technology Group (MRVL) | 50 | 4/1/21 | 72 | 45% | Buy a Half |
Novonix (NVNXF) | 2.24 | 8/6/21 | 4 | 90% | Buy a Half |
Oracle Corporation (ORCL) | 94 | 11/11/21 | 79 | -16% | Buy a Half |
QuantumScape (QS) | 16 | 2/3/22 | 17 | 6% | Buy a Half |
Sea Limited (SE) | 15 | 2/8/19 | 142 | 853% | Buy a Half |
Veeco Instruments Inc. (VECO) | 23 | 9/10/21 | 29 | 26% | Buy a Half |
Portfolio Changes
None
Updates
Exscientia (EXAI) shares were flat this week at around 20. Founded in 2012 and based in Oxford, England, Exscientia is using Artificial Intelligence to develop new medicines and the company is turning this into explosive revenue growth. Exscientia boasts a growing pipeline of more than 25 projects in motion. You still have an opportunity to get in on the ground floor of this stock while it’s still below its IPO price if you have not yet done so. BUY A HALF
Fisker (FSR) shares gained 5% this week after last week’s gain of just short of 10%. The company’s sequel to its Ocean SUV is the PEAR, which is short for personal electric automotive revolution. It’s a smaller vehicle than the Ocean, and is set to debut on roads in 2024, with pricing starting at $29,900. This remains a speculative stock but I confirm a buy rating on Fisker for new investors as the market looks forward to the Ocean going into production in the fourth quarter of 2022. It is at the sweet spot of the mass affluent EV market with a smart Apple-style manufacturing strategy. BUY A HALF
Ford (F) shares treaded water this week, further frustrating investors after its market value hit $100 billion in January. In short, an investment in Ford is a bet on the automaker transforming itself into a rival to Tesla, but it will take some time to make this transformation, led by former Apple and Tesla exec Doug Field.
Ford’s investment in electrification helped push shares to a 140% gain in 2021. Ford is planning to increase its investment in electric vehicles by $20 billion, according to Bloomberg News. Ford remains a conservative way to play the expected EV revolution. BUY A HALF
Marvell Technology Group (MRVL) shares lost a little ground this week, going from 75 to 72 after two positive weeks of appreciation. Marvell shares were up 84% in 2021 but are off with the market to a challenging start so far in 2022. Still, it’s demonstrating some relative strength in a tough tech market so this semiconductor stock is till a buy. BUY A HALF
Novonix (NVNXF, NVX) shares slid from 4.9 to 4.3 on no news. While we are considerably above our entry price, this stock needs to get its momentum back on track. The company recently began trading on the Nasdaq but you need do nothing since the shareholder rights are the same. This technology and advanced materials supplier is focused on synthetic graphite for the electric vehicle and storage battery industry – two major growth markets. This is an aggressive idea but it remains undervalued and a buy. BUY A HALF
Oracle Corporation (ORCL) shares were up modestly this week. Oracle offers us cloud-computing high growth and margins coupled with a reasonable price. Oracle cloud services provide organizations with a single point of contact, faster computing speeds, plus lower overall costs. This allows clients to move critical workloads in weeks, or even days, instead of months. In terms of valuation, Oracle is currently trading at a forward price to earnings ratio of 15. For comparison, its industry has an average ratio of 32, which means Oracle is trading at a 50% discount to the group.
I encourage you to buy if you have not already done so. BUY A HALF
QuantumScape (QS) is the most recent Explorer recommendation and was up this week to reach 17 but it is likely to open a bit lower after reporting fourth-quarter earnings after the close on Wednesday. The company lost $70.8 million, or 16 cents a share, compared with a loss of $1.3 billion, or $4.42 a share, in the year-ago period. A loss was expected as Quantum is developing a solid-state battery more efficient than their lithium-ion cousins. Even better, these batteries will be much cheaper than lithium-ion batteries.
A recent Fortune Business Insights report predicts that the global electric vehicle battery market could grow from about $27.3 billion in 2021 to more than $154.90 billion by 2028. QuantumScape’s stock price peaked in late December 2020 at an all-time-high of 133. The current price provides us with an attractive entry price into this speculative stock. BUY A HALF
Sea Limited (SE) shares, after going from 143 to 174 the previous week, were off sharply on Monday following reports that India has banned its popular mobile hit “Free Fire”. The stock has recovered half of this pullback since then to finish yesterday at 141. A key date is the next earnings report on March 1, when the stock will likely pivot.
This is a $100 billion company putting up triple-digit growth rates. Overall, revenue for the most recent quarter grew 122%. Orders on Shopee, which is their e-commerce platform, grew 123%. Gaming growth is also strong. We have taken periodic partial profits along the way so I have this stock as a buy. BUY A HALF
Veeco (VECO) shares gained two points this week due to a vote of confidence in its technology as multiple leading semiconductor manufacturers have placed repeat, multi-system orders for Veeco’s advanced systems. Veeco also came out yesterday with quarterly earnings of $0.43 per share, an earnings surprise of 19.4%. Revenue for 2021 was $583 million, 28% growth over 2020, driven by semiconductor and data storage.
This quality company makes the equipment and technology essential for the chip fabrication game, a business with technological and high capital barriers to entry which leads to high margins and return on equity. Veeco has a high quality balance sheet and I recommend that you acquire shares if you have not already done so. BUY A HALF
The next Cabot Explorer issue will be published on March 3, 2022.
JUST PUBLISHED — New book from Chief Analyst Carl Delfeld