March 3, 2022

Despite a Ukraine conflict that’s roiled markets, Explorer stocks had a good week. And while Sea (SE) reported a mixed and disappointing quarter, Ford (F) made a big announcement as it moves into a new era.

New Recommendation

Volatility and Opportunity
Market turbulence for stocks and commodities is at historical levels as oil recently crossed $100-plus, highs not seen since 2011. Russia’s unjustified invasion of Ukraine has created the sort of uncertainty that markets hate.

It is hard to believe how this could end well for Russia or Vladimir Putin since sanctions and export controls will cut off more than half of Russia’s high-tech imports, energy export revenues, and all access to U.S. dollars. As a result, the U.S. dollar rose by as much as 40% against the ruble as Russia’s stock market crashed. And interest rates have spiked to more than 20%. One clear win is that Russian financial assets – including those of Putin and his gang – are being seized.

Some key questions are whether all this will push China and Russia closer together. Also, can Europe and America sustain their closer cooperation over time or will a blame game develop? Could some of these sanctions backfire and cause lower growth and profits for American companies?

Chaos can also present opportunities.

No doubt there are many hedge funds and speculators circling stocks, like one of the largest nickel and tech metal producers in the world, Norilsk Nickel (NILSY), which has seen its stock plummet from 23 to 5 and change in less than a week.

But for most of us the smarter strategy is to look within our portfolios and select some high quality companies that we hope will hold for some time and scoop these up at discount prices. We do this today with Ford (F), a company that is also getting a boost from an important announcement.

New Explorer Recommendation
Old Ford, New Ford (F)
I love the expression Ford’s CEO Jim Farley used yesterday to announce splitting Ford into two parts to jumpstart its electric vehicle (EV) initiative.

“We are going all in.” This is in reference to Ford Motor’s decision to separate its fast-growing electric vehicle operations (Ford Model e) from its legacy combustion engine business (Ford Blue) in a historic reorganization of the 118-year-old company.

Ford outlined that it expects to produce two million EVs by 2026 and Ford intends $50 billion in EV investment through 2026. The new Ford Model e unit will scale up the automaker’s EV offerings and develop software and connected-vehicle technology and services for all of the company. Ford Blue will focus on combustion vehicles by cutting costs and simplifying operations.

Ford’s grand ambition is “to become a truly great, world-changing company again, and that requires focus,” Farley said in a statement just yesterday.

Ford’s split represents a “better allocation of dollar and human capital,” according to Bank of America Securities analyst John Murphy. Accelerating Ford’s transition to an electric future has been a major goal for Farley since becoming Ford’s helmsman and now it is clear that this strategy has backing of the founding Ford family, which controls the automaker through a special class of stock.

Farley has been working closely with Doug Field, the former head of Apple’s EV project, on reviewing Ford’s operational and manufacturing structure to prepare for the company expanding its EV offerings. It’s increased output of the electric Mustang Mach-E and prepared more production capacity for the F-150 Lightning pickup going on sale this spring. Under the new structure, Farley will also assume the role of president of Ford Model e, while Field will be the unit’s chief EV and digital systems officer.

I suggest you double down on Ford as one of the likely winners from the EV revolution.

MOVE FROM BUY A HALF TO BUY A FULL

Portfolio Changes and Updates

Model Portfolio

Portfolio Changes
Ford (F) - MOVE FROM BUY A HALF TO BUY A FULL
SEA (SE) - MOVE FROM BUY A HALF TO HOLD
Marvell (MVRL) - MOVE FROM BUY A HALF TO HOLD

Updates
Fisker (FSR) shares clawed back their losses from last week, going from 10.4 to 12.2. CEO Henrik Risker stated that the company was on schedule to start deliveries in November this year. Fisker has secured production partnerships with Austrian auto manufacturer Magna Steyr, a subsidiary of Magna International (MGA) and Taiwanese multinational electronics contract manufacturer Foxconn, for its new product lines. This custom EV maker has a respected design pedigree and an asset-light strategy. 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 Fisker’s Ocean, set to make its debut on roads in 2024, and pricing starts at $29,900.

This remains an aggressive stock, but I confirm a buy rating on Fisker. BUY A HALF

Ford (F) shares were up 8% yesterday as CEO Jim Farley announced the company would separate its fast-growing electric vehicle operations (Ford Model e) from its legacy combustion engine business (Ford Blue) in a historic reorganization of the 118-year-old company. Ford outlined that it expects to produce two million EVs by 2026 and Ford intends $50 billion in EV investment through 2026. Please see the earlier overview for more information. MOVE FROM BUY A HALF TO BUY A FULL

Harley-Davidson (HOG) was up from 39 to 41 this past week. This leading motorcycle maker is banking on its LiveWire electric motorcycle to open new markets and recently reported a fourth-quarter profit that saw motorcycle revenue surge 54%.

Milwaukee-based Harley has renewed its focus on the U.S. market. Harley-Davidson’s revenue jumped 40% year over year to $1 billion, driven by a 39% rise in motorcycle shipments. Harley also announced it would be spinning off its LiveWire all-electric motorcycle business into a stand-alone publicly traded company and reported solid revenue growth in its general merchandise and parts divisions as well. BUY A HALF

Marvell Technology Group (MRVL) shares made a nice move from 63 to 68 after a period of weakness in line with other semiconductor chip manufacturers. While Marvell shares were up 84% in 2021, this year is a different story since so far in 2022 they are down about 20%. So despite the recent jump, I’m moving this stock to a hold. MOVE FROM BUY A HALF TO HOLD

Novonix (NVNXF, NVX) shares jumped from 3.0 to 3.9 after reaching a price of 4.9 just a few weeks ago. This is a leading provider of domestic synthetic graphite that is both higher quality and lower priced than Chinese graphite. We are considerably above our entry price and the company recently began trading on the Nasdaq, but you don’t need to do anything since the shareholder rights are the same. This strategic graphite material is needed for both the electric vehicle and storage battery industries and both are high-growth markets. This is an aggressive idea but it remains undervalued and a buy. BUY A HALF

Oracle Corporation (ORCL) stock gained ground from 72 to 78 as the company suspended sales to Russia in the wake of the Ukraine crisis. Oracle offers us cloud-computing high growth and wide margins coupled with an undervalued price relative to its peer group. This is a solid technology core holding for conservative investors. BUY A HALF

QuantumScape (QS) shares went from 13.7 to 15.8 as the company gains in credibility as it achieves technical milestones, but the stock remains a bit volatile along with EV technology companies. Its technology is on track to develop a battery that will charge to 80% of capacity in 15 minutes. Its successful tests have unlocked $400 MM investment from Volkswagen. QuantumScape’s stock price peaked in late December 2020 at an all-time-high of 133 so the current price provides us with an attractive entry price for this speculative stock. BUY A HALF

Sea Limited (SE) announced mixed fourth-quarter financials that did not allay concerns that its red-hot growth is slowing down while expenses and losses remain high. While revenue doubled from the year-ago period, losses widened to 88 cents a share.

In short, e-commerce Shopee is still growing like a weed while profit-making gamer Garena has been at least temporarily banned in India. The stock has made Explorer investors a lot of money and we have taken profits several times as it has fallen from a high of more than 300 a share, but we need to move the stock to a hold until it regains its momentum. Another concern is that it is facing stiff competition as it moves into new markets in Latin America such as Brazil.

Some good news: Singapore’s ministry of trade and industry (MTI) said on Wednesday it hoped the issue of India’s ban of popular gaming app “Free Fire” would be resolved soon. MOVE FROM BUY A HALF TO HOLD

Veeco (VECO) shares advanced from 26 to 28 in a tough week all around. Veeco recently reported quarterly earnings of $0.43 per share, an earnings increase of 19.4%. Revenue for 2021 was $583 million, 28% growth over 2020, driven by semiconductor and data storage. Veeco 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 is a high-quality idea but I moved this stock to a hold last week until markets settle down. MOVE FROM A BUY TO A HOLD

The next Cabot Explorer issue will be published on March 17, 2022.

JUST PUBLISHED — New book from Chief Analyst Carl Delfeld