November 11, 2021

Inflation stays high, infrastructure week arrives, and Rivian stock surges while markets sold off a bit yesterday. The weakness yesterday halted some good rallies among Explorer stocks. We continue to explore new ideas and for this week’s recommendation, we go into the Cloud for a familiar name.

New Recommendation

Reach for the Cloud
Inflation seems stubbornly persistent at about 5% and is likely to hit a three-decade high in October, due to supply shortages and continued strength in consumer demand. In addition, the shortage of workers is also putting upward pressure on wages, pushing companies to raise prices to offset higher labor and other costs.

American ports and warehouses in Long Beach, California, which handles 40% of America’s imports, are full of goods and short of workers and trucks. Since 80% of world trade is moved by sea, this part of the supply chain is acute. According to Trading Economics, the Baltic Dry Index – a shipping market bellwether – is up 157% over the past year.

But that’s just part of the supply-chain chaos issue. Most important is the tremendous shift over the past few decades of manufacturing to Asia such as China, South Korea and Taiwan as well as Southeast Asian nations like Vietnam. This was already a problem since the supply line ran thousands of miles and changes in orders was a challenge. To make matters worse, companies squeezed inventories to the bone to increase profitability.

Then we were hit by the pandemic. Economies went into lockdown. Many factories shut down. In response, shipping companies cut their operations. That proved to be a big mistake and led to the current supply chaos.

One simple solution is to make more of this stuff in the good old USA.

Far above the supply chain reigns cloud computing. Just what is it? Cloud computing is the on-demand access to computer system resources, especially data storage and computing power – without the costs of buying and managing the storage and computer servers. This gives companies flexibility and lower costs. And that brings me to this week’s new recommendation.

New Explorer Recommendation
Oracle Corporation (ORCL)
Oracle is the world’s largest database management company, with more than 430,000 customers in an incredible 170-plus countries. For close to 50 years, the company has offered its software and, more recently, cloud-engineered systems.

Oracle has the world’s first and only autonomous database. It also has the industry’s broadest and deepest suite of cloud applications. More than 18,000 patents worldwide protect Oracle’s business model and profit margins. Most importantly, Oracle is now taking on the “big three” in cloud services.

The big three are Amazon Web Services, Microsoft Azure and Google Cloud Platform. These big three players currently dominate the U.S. public cloud market. Instead of corporations running up bills building and maintaining their own data centers and servers, they can purchase what they need from cloud players – and then scale up or down as they wish.

Many major companies have moved some computing to cloud services and this trend is picking up speed. Oracle has reinvented itself for this new trend, offering a cloud-only version of its core database software business while offering both speed and security.

While most investors still view Oracle primarily as a software company but the company itself wants to increasingly be seen as a cloud company, first and foremost, so sales and earnings should expand. Oracle can build on its already hundreds of thousands of corporate customers by moving them to the cloud. In addition, Oracle has been on the prowl for new companies, spending more than $80 billion on 150 acquisitions. This is doable since it still has cash of more than $39 billion.

Some of this cash has also been used to buy back its own shares, reducing its share count by 40%. Oracle also offers us growth at a very reasonable price. ORCL stock is at only 20 times earnings with big profit margins, a high return of equity, $39 billion in cash, and I like the fact that 42% of the stock is held by insiders.

BUY A HALF POSITION

Portfolio Changes and Updates

Model Portfolio

Portfolio Changes
None.

Updates
Bombardier Inc. (BDRBF) shares dipped from 1.68 to 1.59 this past week on no new news. Bombardier is a player in aviation and a bet on renewed activity in private and corporate markets. Headquartered in Montréal, Canada, Bombardier is active in more than 12 countries and supports a worldwide fleet of more than 4,900 aircraft in service with a variety of multinational corporations, charter and fractional ownership providers, governments and private individuals. Momentum for the sector and company is picking up and the stock is in a positive trend. BUY A HALF

ChargePoint Holdings (CHPT) shares made a nice move from 25 to 28 before falling back on Wednesday’s selloff. ChargePoint announced this week that the next quarterly financials would be released on December 7.

The company offers drivers in North America and Europe more than 118,000 places to charge their electric vehicles (EVs) and has 200,000 partner ports. I believe that the stock is a buy at its current levels with good momentum. BUY A HALF

Cloudflare (NET) shares were steady as the company announced third-quarter revenue increased 51% year over year to $172.3 million. Cloudflare also announced a partnership with Oracle (see above) and now both organizations that use both Cloudflare cybersecurity solutions and Oracle’s cloud infrastructure will automatically save money by avoiding data transfer fees charged by cloud providers outside of the Bandwidth Alliance.

Cloudflare provides network security, performance and reliability services to a growing portion of global web traffic. I’m going to keep this a hold though more aggressive investors can add to their position. Cloudflare has been a steady performer aided by its aggressive sales strategy, the fact that it’s protected by several moats, its deal with Microsoft, and that the co-founders are significant shareholders. HOLD A HALF

Coupa Software (COUP) shares were up early in the week and then pulled back with the market. It is expected to release third-quarter financials on December 6. Coupa specializes in software providing cloud-based business through its spend management platform. The platform connects organizations with suppliers globally, and provides visibility into and control over how companies spend money, optimize supply chains, and manage liquidity, and enables businesses to achieve savings that drive profitability.

The company already has 2,000 clients including Amazon and Wal-Mart, with some analysts estimating its potential target market at $94 billion. While the company is still unprofitable, in its most recent quarter Coupa’s revenue surged 42% and free cash flow reached $643 million. BUY A HALF

Fisker Inc. (FSR) shares were up as Credit Suisse initiated coverage with an outperform rating. Fisker offers investors a custom, “asset light” and “Apple of autos” strategy relative to EV maker leaders like Tesla. Its Ocean EV has a sub-$40,000 retail price point, making it a more affordable EV option. We have to accept that the company’s first product will be launched in the latter part of 2022, perhaps ahead of some its bigger competitors. This is an aggressive stock but I confirm a buy rating on Fisker. BUY A HALF

Marvell Technology Group (MRVL) shares were up for the week despite the tech selloff yesterday. Futures looked good on Thursday morning. Marvell’s semiconductor chips are used in a number of growth applications such as 5G wireless networks, cloud computing, automotive, and industrial markets. Several Wall Street analysts have raised estimates and Credit Suisse recently upgraded the stock, calling Marvell “one of the most strategic assets in semiconductors.”

Marvell’s semiconductor products are state-of-the-art and in high demand, allowing businesses and consumers to take advantage of 5G capabilities. I recommend buying this stock if you have not already done so. BUY A HALF

Novonix (NVNXF) shares were up early this week and then fell a full point yesterday. The stock has still almost doubled 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. Novonix, which has a partnership with Phillips 66, is a non-Chinese synthetic graphite producer, making it immune to any potential disruptions caused by either Chinese politics or its international trade disputes. This is an aggressive idea but this stock is a play on an important clean technology. It is a speculative stock but I would take advantage of the selloff to purchase shares. BUY A HALF

Palantir Technologies (PLTR) shares tumbled from 26 to 22.5 despite the company reporting a 36% rise in third-quarter revenue, as it landed more government contracts and commercial deals. The problem is this was way less than the 50%-plus quarterly growth it has been projecting. Palantir has had a steady flow of deals from the public sector, including one with the U.S. army to deploy its software to help in defense decision-making as well as a continuing contract with the U.S. National Institutes of Health.

Palantir is driven by its two core platforms: Gotham, which serves government clients; and Foundry, which provides services for enterprise clients. Its third platform, Apollo, provides cloud-based updates to both markets. We’ll keep this a hold until we can take a closer look at the quarter. HOLD A HALF

Sea Limited (SE) shares soared last week from 312 to 355, and this week settled back right in between, at 328. The company expects that its e-commerce revenue will grow 121% for 2021. Southeast Asia’s booming internet economy is set to double to $363 billion by 2025, eclipsing the previous forecast of $300 billion, according to research from Google, Temasek Holdings, and Bain.

Shopee also plans to expand into Poland, India and Spain and is looking at Brazil and France. I also see further potential upside to Sea because of strong momentum in its gaming portfolio and increasing fintech revenues. I would be a buyer of this stock but long-time holders should definitely take partial profits. BUY A HALF

Veeco (VECO) shares were slightly up for the week after the company came out with quarterly earnings of $0.40 per share, beating expectations of $0.35 per share. It also bought back more than $100 million in convertible notes. This is an American high quality provider of state-of-the-art semiconductor fabrication equipment. The company delivers the leading edge technology to U.S.-based and international high-end class chipmakers, some of which are 100% reliant on Veeco technology. Revenue growth for 2021 may be up 30%, with even better earnings. Veeco 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 were steady as space mania continues and the company mentioned that $450,000 space-tourism seats are selling faster than it anticipated. I’m still bullish on this high-risk stock but fully admit they have missed targets and there is more competition out there, such as Blue Origin. The company has to end the delays and increase revenue or more investors will jump ship. BUY A HALF

The next Cabot Explorer issue will be published on November 23, 2021.