February 3, 2022

The Facebook/Meta stumble will weigh on markets today as we await earnings on Amazon (AMZN) and Ford (F). Explorer stocks did well this week as markets continue to be volatile. Total electric vehicle sales in 2021 including hybrid vehicles doubled the number from 2020, which brings us to the Explorer’s new recommendation.

New Recommendation

National Debt and Electric Vehicles Hit Milestones
The Treasury Department announced this week that the U.S. national debt broke through the $30 trillion barrier. Even more troubling than the number is that the debt has risen almost $7 trillion over the last two years, and is up about $10 trillion over the past five years. The pace of the economy needs to pick up along with some spending restraint in order to bend the curve of this spending and debt juggernaut. As the Omicron wave loses strength, pent-up consumer services demand could boost the economy this year. This will also give the Fed a better shot at both increasing revenue and the “soft landing” scenario.

Switching gears, while electric vehicle (EV) related stocks are out of favor right now, the numbers from 2021 paint a much more upbeat picture.

Total EV sales including hybrid vehicles came in at 6.2 million, which is double the number from 2020 and represents more than 5% of annual auto sales for the first time. For 2022, the projected number is over 10 million. You can see from the above chart how right now, Tesla is far and away the biggest player in America, Europe has momentum, and GM is doing very well in the China market. Ford (F) hopes to surge into the picture in 2022. But remember that the EV revolution and electrifying the grip is about more than EV manufacturers, which brings us to a new recommendation.

New Explorer Recommendation
QuantumScape (QS)
It is time to re-visit California-based QuantumScape, a company that is working on some breakthrough electric vehicle battery technology backed by some heavyweight industrialists as well as Volkswagen (VWAGY). The reason is two-fold: a stock price that is about 75% off its 52-week high and a new, large, high-growth market outside of electric vehicle batteries.

To summarize the background, current lithium-ion batteries are heavy, expensive to produce, don’t last all that long and take considerable time to recharge. QuantumScape believes they will fairly soon be rendered obsolete by solid-state batteries. Reports are that independent test labs have confirmed that QuantumScape batteries can charge to 80% capacity in just 15 minutes and are completely safe

Let me explain why, though this is all a bit technical. Lithium-ion batteries are made up of three layers: a positive cathode and a negative anode, each with an electrical contact, and between them is a porous polymer separator, and the whole cell is flooded by a liquid electrolyte.

In a QuantumScape solid-state battery, there is only a cathode connected to an electrical contact through a solid-state ceramic separator. No anodes needed. In layman’s terms, this means more energy can be stored in a smaller space, giving QuantumScape’s battery greater energy density.

Greater density means these batteries can achieve greater range, superior reliability and a longer life than their lithium-ion cousins.

Even better, these batteries will be much cheaper than lithium-ion ones once production scales up because of fewer and cheaper materials.

Backers of Quantum include Tesla co-founder J.B. Straubel and venture capitalist John Doerr. You may recall that Doerr is famous for backing Google in 1999, turning a $12.5 million stake into $2 billion when Google went public. Bill Gates is also a prominent investor and is keenly interested in battery tech.

The next positive is the company’s partnership with Volkswagen, the largest automaker in the world and a big player in China, where its sells about 40% of its vehicles. Volkswagen has partnered with QuantumScape for close to a decade and, in 2018, the company set up a joint venture to make solid-state batteries. In 2020, Volkswagen invested $300 million in QuantumScape, securing 20% equity ownership of the company.

The stakes are huge. 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.

However, to add some more sizzle to the story, QuantumScape’s focus is no longer on the EV battery market alone. The company has branched into a much larger and fast-growing energy storage market. In a new partnership, QuantumScape and established stationary energy storage manufacturer Fluence Energy (FLNC) agreed to incorporate QuantumScape’s technology into Fluence’s storage products. This second growth market for Quantum is significant because some market analysts expect stationary energy storage installations to grow by more than 2,000% from 2020 to 2030, representing a potential $385 billion global market opportunity.

QuantumScape’s stock price is down about 75% from its 52-week high. This provides us with an attractive entry price for this speculative stock. BUY A HALF

Portfolio Changes and Updates

Model Portfolio

Portfolio Changes
None

Updates
Exscientia (EXAI) shares jumped from 16.7 to 18.6 in its second week as an Explorer recommendation. 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 is a rapidly growing pipeline of more than 25 projects in motion with the goal of drug discovery in ovarian and hematological (blood) cancer. As background, Exscientia went public on the Nasdaq in October 2021 at 22 per share so you still have an opportunity to get in on the ground floor of this exciting stock if you have not yet done so. BUY A HALF

Fisker (FSR) shares posted a marginal gain this week and the company announced that it would report its fourth-quarter and full-year 2021 financial results after market close on Wednesday, February 16. This is 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. If you are bullish on EVs, Fisker offers an intriguing play on the mass affluent EV market with its stylish, eco-friendly SUV and smart Apple-style manufacturing strategy. BUY A HALF

Ford (F) shares held firm this week around 20 as the company announced yesterday that sales of electric and hybrid vehicles rose 167% to 13,169 in January. The new all-electric Mustang Mach-E SUV made up 18% of the total. Ford’s overall U.S. sales were flat in January after a 17% decline in December. Ford will announce earnings today (Thursday) after the close and attention is increasingly on the all-electric version of its bestselling pickup truck, the F-150 Lightning, which is due to hit the market this spring. Ford remains a conservative way to play the EV boom and I encourage you to buy if you have not already done so. BUY A HALF

Marvell Technology Group (MRVL) shares picked up five points this past week amidst the semiconductor shortage and volatility in technology stocks. Marvell shares were up 84% in 2021 but are off, with the market, to a challenging start so far in 2022. This is a growth stock that is demonstrating some relative strength so I continue to rate this semiconductor stock a buy. BUY A HALF

Novonix (NVNXF, NVX) shares held firm this week as Novonix’s ADRs began trading yesterday on the Nasdaq under the ticker symbol NVX. Each ADR represents four (4) fully paid shares of Novonix. If you own the NVNXF shares, you need do nothing since the shareholder rights are the same. Based in Australia, the technology and advanced materials supplier is focused on synthetic graphite for the electric vehicle and storage battery industry. Novonix graphite gives America a domestic source with a higher quality than Chinese graphite. This is an aggressive idea with some risk but it remains undervalued and a buy. BUY A HALF

Oracle Corporation (ORCL) shares held their ground this week reasonably well. Oracle offers us cloud-computing high growth and margins coupled with a reasonable price. More than 1,000 global organizations are using Oracle cloud services that provide organizations with a single point of contact and faster computing speeds as well as reducing overall costs. This allows clients to move critical workloads in weeks, or even days, instead of months.

The stock is trading at 16 times forward earnings with a high return of equity. This stock is well suited to the current tough tech stock environment so I encourage you to buy if you have not already done so. BUY A HALF

Sea Limited (SE) shares started slowly and then rallied 13 points to close yesterday at 147. Sea makes a lot of its revenue and profits on the gaming industry. This is a $100 billion company putting up triple-digit growth rates. Overall, revenue for the most recent quarter grew 122%. Orders on Shopee, the company’s e-commerce platform, grew 123%.

But even after its pullback, Sea stock is changing hands for nearly 15 times Sea’s trailing 12-month revenue. That’s way down from last fall but it’s still a very high price to pay for the shares. We have taken periodic partial profits along the way so I have this stock as a buy with Sea’s next earnings report expected on March 1. BUY A HALF

Veeco (VECO) shares finished this week flat at 27. This high quality company makes the equipment and technology essential for staying ahead in the chip fabrication game, a business with technological and high capital barriers to entry which leads to high margins and return on equity. Veeco is a solid company with a sterling balance sheet. 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 February 17, 2022.