January 6, 2022

Happy New Year to everyone - I wish you and your families a healthy and prosperous New Year. As we turn the page to 2022, let’s review some trends before getting to a company with a new device to shake up and lower costs in healthcare at home and around the world.

New Recommendation

Exploring New Trends
Happy New Year to everyone – I wish you and your families a healthy and prosperous New Year.

As we turn the page to 2022, let’s review some trends.

Tesla reported that it delivered a stunning 936,000 cars in 2021, or an 87% increase from the year before, despite the computer chip shortage that has disrupted auto production around the world. In the fourth quarter alone, the company delivered more than 308,000 vehicles.

The S&P 500 recorded 70 closing highs in 2021, according to S&P Global. That’s the most for a single year since 1995. And yet, while the Dow, the Nasdaq and the S&P 500 were hitting fresh records in late 2021, the average U.S. stock was down nearly 30% from its 52-week high.

Let’s take a quick look back at the long view and then stock and asset class returns in 2021 before moving on to the Explorer’s new recommendation.

We can’t much complain, as the S&P 500 has certainly delivered since 1979, as indicated by the chart below.

I also find it an interesting coincidence that over the last five years, while the big six platform tech stocks have added collectively about $10 trillion to their market value, the U.S. national debt has also increased $10 trillion to reach just under $30 trillion.

In terms of asset classes, Bitcoin, commodities and oil led the way in 2021 while international equities and gold lagged.

New Explorer Recommendation
Butterfly Network (BFLY)
Butterfly is a revolutionary medical device powered by artificial intelligence that is already saving lives and will ultimately improve healthcare for Americans and billions more overseas. It addresses the need for the country to improve the efficiency of its medical complex that accounts for an incredible 20% of our economy but still delivers uneven, slow and costly services.

The scientist who founded the company’s device, which has been described by Inc. magazine as “a device will change healthcare forever,” is Dr. Jonathan Rothberg. He has been awarded the National Medal of Technology and Innovation, America’s highest honor for technological achievement.

Bill Gates backs the company and the Butterfly’s products are FDA-approved. Sales are soaring (up 44% last quarter) and profits are expected in 2022 as shares trade for a bit under 7 a share.

The Butterfly device addresses a number of issues that afflict American medicine, such as costly and slow medical imaging services. Based in Guilford, Connecticut, Butterfly Network can make medical imaging accessible to everyone around the world – at the lowest possible cost.

Let me explain. Right now, most medical imaging services are far more expensive than they need to be. But Butterfly Network is changing that. It makes a handheld, battery-powered probe – so small that it fits into a doctor’s pocket – called the Butterfly iQ+.

When attached to a smartphone or tablet, it provides a window into the human body, enabling health professionals to check a patient’s heart, lungs, liver, arteries and more without ever leaving the examination room.

The FDA has already approved the device for 13 indications. The key technology is its patented “Ultrasound-on-Chip.” The combination of hardware, software and artificial intelligence allows it to detect disease and solve problems early rather than after a patient becomes sick.

Butterfly’s breakthrough software can be tied into a medical network to provide instantaneous images and improving 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 have to pay for another appointment.

If your doctor has the Butterfly iQ+ in his/her pocket, he/she can just connect it to an iPhone that scans your body and has a digital image right in front of him/her.

Plus, while an MRI machine can cost more than a million bucks, the Butterfly iQ+ costs a little over $2,000. But it also requires a subscription service, a steady source of recurring revenue for the company.

The top 100 hospitals in the country already use Butterfly iQ devices. These devices are also a boon to emerging markets. About 60% of the world has no access to medical imaging. In Africa and Latin America, for example, most pregnant women never receive an ultrasound before giving birth. According to Butterfly, more than 4.7 billion people around the world lack access to medical imaging. In line with that, the company just signed a partnership to bring Butterfly’s iQ+ device to the Middle East, North Africa, Turkey and India.

In the second quarter, Butterfly also launched new solutions in obstetrics that will be delivered through the iQ+ platform to reduce maternal and fetal mortality.

The device is already available in the United States, Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Ireland, Italy, the Netherlands, New Zealand, Norway, Poland, Portugal, Spain, Sweden, Switzerland and the United Kingdom. And anyone can purchase it on the Butterfly Network website.

The Butterfly could also save Medicare a bundle in postoperative care. Medicare alone spends over $20 billion a year hospitalizing heart failure patients but sending them home with the Butterfly iQ+ will significantly reduce those costs.

Butterfly Network estimates the target market to be worth an $8 billion per year. While sales are growing at a 40% clip, the company is not yet profitable. However, there was progress. The company reported a net loss of $13.6 million in its most recent quarter, compared to a loss of $92.2 million in the same period in 2020.

Finally, in 2021, Fortune magazine put this “under-the-radar” firm on its elite Change the World list, which highlights companies that use the creative tools of capitalism to address society’s unmet needs. BUY A HALF POSITION

Portfolio Changes and Updates

Model Portfolio

Portfolio Changes
Coupa Software (COUP) – Move from Hold a Half to Sell

Updates
ChargePoint Holdings (CHPT) has fallen from 20 to 18 in the past week on little news. ChargePoint owns a bigger charging network than Blink Charging. ChargePoint has around 163,000 charging ports, 45,000 of which are in Europe. By comparison, Blink Charging has sold or deployed 18,730 chargers. ChargePoint generates roughly 70% of its revenue from hardware sales. BUY A HALF

Coupa Software (COUP) shares have broken down over the past two weeks so I am moving this to a sell. Coupa specializes in software providing cloud-based business solutions that help companies deal with supply disruptions. MOVE FROM HOLD A HALF TO SELL

Fisker Inc. (FSR) shares advanced from 16.1 to 16.8 this week as the company showcased the all-electric Fisker Ocean SUV in Las Vegas, following the vehicle’s global reveal at the 2021 Los Angeles Auto Show. Fisker revealed its Intelligent Pilot, which integrates four types of sensors: an industry-leading surround-view camera suite, a camera-based driver-monitoring system, ultrasonic technology, and a Digital-Imaging Radar System that Fisker expects will be first to market when the Fisker Ocean begins production in November 2022. This is a speculative stock but I confirm a buy rating on Fisker as the market looks forward to the Ocean going into production late this year. This is a good entry point. BUY A HALF

Ford (F) stock had a good week, going from 21 to 23, as it announced a strong fourth quarter of sales and that it will sharply boost production of its first electric truck roughly a month after closing reservations for the F-150 Lightning pickup due to strong demand. The automaker is pulling out all the stops to nearly double F-150 Lightning production to meet the soaring customer demand. By the middle of 2023, Ford plans to ramp up to build 150,000 F-150 Lightning trucks per year. CEO Jim Farley has said he wants Ford to be the second-largest electric vehicle maker in the U.S. in two years. Ford is a low-risk way to play the electric vehicle boom and I encourage you to buy if you have not already done so. BUY A HALF

Grab Holdings (GRAB) shares started this past week strong and then fell back to finish just about where they started. The stock has not performed well in the last few weeks probably due to the announcement that Tencent’s Lazada is ramping up its business in Southeast Asia. Grab is Southeast Asia’s ride hailing and food-delivery giant and according to App Annie, the Grab app is installed on more than 40% of all smartphones in the Southeast Asia region.

Grab, the market leader in Southeast Asia for so-called super apps for consumer services, expects its addressable market to expand to more than $180 billion by 2025 from $52 billion in 2020. According to a report from Bain in cooperation with Google and Temasek last year, online spending in the region will almost triple to more than $300 billion by 2025. Grab is an aggressive growth stock and is heavily investing in growth. BUY A HALF

Marvell Technology Group (MRVL) shares were up 84% in 2021 but are sitting about where they were a month ago.

A Needham analyst picked Marvell as his #1 semiconductor pick for 2022, with a price target of 115 (it’s currently at 84). It is a great semiconductor play with seven out of the top 10 automotive original equipment manufacturers (OEMs) purchasing Marvell chips; the company is set for a solid growth trajectory in this market. BUY A HALF

Novonix (NVNXF) shares have more than quadrupled in the last six months and are up over 30% in the last month.

Based in Australia, the technology and advanced materials supplier is focused on synthetic graphite for the electric vehicle and storage battery industry. This is an aggressive idea but the company has a strong partner in Phillips 66 so this stock is still a buy and, as a bonus, it is strategically important to America’s EV battery production. BUY A HALF

Nu Holdings (NU) shares, which I recommended about a month ago at their IPO, have been a bit disappointing. Given market conditions, I expected the company to come out with a lower valuation but it was priced rather aggressively. However, Nubank is a high-growth company with a huge market opportunity. It already serves more than 1 million small- and medium-sized business banking customers in Brazil and Latin America. Nubank has also amassed an incredible 48 million retail customers. And there is plenty of opportunity remaining, with 652 million people in Latin America. BUY A HALF

Oracle Corporation (ORCL) shares were strong in early December, breaching 100, but have settled back to where they were a month ago. I still like this conservative cloud computing play that recently announced that it will look to double its clients in Latin America and it plans to train 40,000 young workers in the region. Oracle is the world’s largest database management company, and also an emerging cloud company. It offers us growth at a very reasonable price. The stock is at only 20 times earnings with big profit margins and a high return of equity. ORCL is well paired with higher growth, higher risk stocks. BUY A HALF

Sea Limited (SE) shares slid this week after China’s Tencent Holdings cut its stake in the gaming and e-commerce giant, driving the stock down from 223 to 185. Given that the sale will only reduce Tencent’s stake in Sea to 18.7% from 21.3%, the share pullback seems an overreaction. However, since there could be more sales by Tencent and because Sea is still short of profitability despite its enormous growth over the last two years, other investors are likely taking profits.

Though there is more competition from new entrants such as our Grab recommendation, Sea’s story is still intact.

We have taken partial profits several times over the past year so aggressive investors and those with a long-term horizon should be a buyer of this stock after the rather sharp recent pullback. BUY A HALF

Veeco (VECO) shares were up marginally this past week and are up about 20% over the past month. This is not an exciting story but has been a steady performer. Revenue growth for 2021 is expected to be up 30% and earnings are supposed to be even better. VECO represents a backdoor play on semiconductors. I recommend that you acquire shares if you have not already done so. BUY A HALF

Virgin Galactic (SPCE) shares slid another point this week on no news. Sir Richard Branson must be under pressure to get this company back on track to compete with Blue Origin. The stock, now at 12, reached 55 last February and again in June, so the stock still has potential to get back to these highs. This has turned into a speculative stock as the company has missed targets. I recommend that aggressive investors incrementally buy this stock as the potential outweighs the risk. BUY A HALF

The next Cabot Explorer issue will be published on January 20, 2022.