Stocks slipped a bit yesterday after minutes from the Federal Reserve’s last meeting showed officials increasingly in agreement about pulling back on the central bank stimulus. This was prompted by increasing evidence of mounting inflation. Markets are a bit choppy against this backdrop but earnings continue to be relatively strong, such as Sea Limited (SE) posting another superlative quarter yesterday. This week you will see I have divided Explorer stock updates into two categories: “trading” and “buy and hold,” as we turn to clean tech infrastructure for a new recommendation.
Cabot Explorer 742
What has been propelling electric vehicles forward and what will power them into the mainstream across the world? It is a combination of growing political concern over climate change, the need to get air pollution under control in big cities with urban congestion, and breakthroughs in electric vehicle batteries that lower costs and expand range.
Governments are pushing everything forward by mandating both strict emission standards and aggressive target dates to go all electric. As technological progress in the electrification of two-/three-wheelers, buses, and trucks advances and the market for them grows, electric vehicles are expanding significantly. Ambitious policy announcements have been critical in stimulating the electric-vehicle rollout in major vehicle markets in recent years.
In the United States and around the world, governments support EV sales in different ways, from simple lump sum grants and subsidies to tax breaks to more complex formulas that vary with the type of vehicle or the incomes of buyers. Government spending on incentives has played a critical and increasing role in encouraging consumers to purchase EVs over the last decade.
The infrastructure for electric-vehicle charging continues to expand. In 2019, there were about 7.3 million chargers worldwide, of which about 6.5 million were private, light-duty vehicle slow chargers in homes, apartment buildings and workplaces. Convenience, cost-effectiveness and a variety of support policies (such as preferential rates, equipment purchase incentives, and rebates) are the main drivers for the prevalence of private charging.
All this leads to today’s new Explorer recommendation.
New Explorer Recommendation
ChargePoint Holdings (CHPT)
An indirect but powerful way to play the electric vehicle (EV) revolution is through companies providing battery-charging ports and stations. Many analysts point to the lack of charging ports as perhaps the most important impediment to the growth of EV adoption.
With more than 112,000 charging points in North America and Europe, ChargePoint is one of the biggest EV charging companies in the world. The company claims to control 70% of the public charging market share in North America. This lead is a huge advantage because of network effects as the company already has partnerships with more than roughly 60% of the Fortune 50 companies.
ChargePoint also has teamed up with automakers like BMW so that their charging locations are seamlessly integrated into in-car navigation systems, plus the company has a widely downloaded app which allows EV drivers to easily locate ChargePoint charging stations.
It’s worth highlighting that between 2010 and 2020, the U.S. installed a daily average of 30 charging ports. Considering the outlook for EV adoption, the country needs to install 380 charging ports on a daily basis over the next decade.
The electric-vehicle charging station market is expected to be worth $103 billion by 2028, translating to a compound annual growth rate (CAGR) of 26.4%.
ChargePoint’s cloud subscription platform and software-based charging hardware include options for home and multifamily to workplace, parking, retail and transport fleets. One ChargePoint account provides access to hundreds of thousands of places to charge in North America and Europe. So far, more than 92 million charging sessions have been delivered, with drivers plugging into the ChargePoint network every two seconds.
ChargePoint went public through a SPAC and the stock traded as high as 49 last December, but has fallen all the way to 21. The stock was down 32% in July alone and part of the problem was that ChargePoint announced on July 14 that its underwritten secondary public offering of 12 million shares by some current stockholders would be priced at $23.50 per share.
In short, the stock got way ahead of itself in terms of valuation as EV mania in the market overtook common sense. The stock does appear to have some support around 20.
In its most recent quarter, ChargePoint generated revenue of $40.5 million compared to the $2.2 million generated by its main competitor, Blink Charging. Revenue grew 24% year over year in the first quarter and the company expects revenue between $195 million and $205 million for its fiscal year ending January 31, 2022. Looking ahead, ChargePoint projects that it will reach 425,060 charging ports and $2.1 billion in revenue by 2026.
I believe the market may be undervaluing ChargePoint’s strong growth outlook. Consequently, I believe that the stock can be accumulated at its current levels. The stock traded at a 52-week high of 49 and I would not be surprised if the shares regain that level in the next 12-18 months. The company is expected to release financial results for the second quarter after market close on Wednesday, September 1.
BUY A HALF
|Altimeter Growth Corp. (AGC)
|Buy a Half
|Cloudflare, Inc. (NET)
|Hold a Half
|Buy a Half
|International Business Machines (IBM)
|Buy a Half
|Marvell Technology Group (MRVL)
|Buy a Half
|Buy a Half
|Palantir Technologies (PLTR)
|Buy a Half
|Pershing Square Holdings (PSHZF)
|Buy a Half
|Hold a Half
|Sea Limited (SE)
|Buy a Half
|Taiwan Semiconductor (TSM)
|Buy a Half
|Virgin Galactic (SPCE)
|Hold a Half
Porsche (POAHY) MOVE FROM BUY TO HOLD
Explorer Trading Stocks
Altimeter Growth Corp. (AGC) shares were largely unchanged this week after Grab Inc. recently announced that second-quarter deliveries demonstrated strong year-on-year growth of 49%. Grab is Southeast Asia’s leading super-app platform with over nine million users in Southeast Asia, offering them a wide range of delivery, mobile payments, and financial services. Grab operates across the deliveries, mobility and digital financial services sectors in over 400 cities in eight countries in the Southeast Asia region. I suggest you buy a half position here if you have not already done so. BUY A HALF
Cloudflare (NET) shares are up more than 60% since the beginning of 2021. After the company reported its 2021 second-quarter earnings recently, its stock is now pushing all-time highs. Second-quarter revenue rose 53% year over year to $152.4 million, gross profit margin was 77%, and Cloudflare added a record 140 large customers, bringing its total large customer count to 1,088. This company 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. HOLD A HALF
Fisker Inc. (FSR) shares struggled somewhat this week after the company’s recent announcement of its intention to raise $500 MM through a convertible bond offering. Fisker’s Ocean EV has a sub-$40,000 retail price point, making it a more affordable EV option. We have to accept that the company will have little or no sales revenue in 2021 and the company’s first product will be launched in 2022. This is an aggressive stock but I confirm a buy rating on Fisker. BUY A HALF
Marvell Technology Group (MRVL) shares had a quiet week in the market. Marvell designs, develops and sells a wide variety of semiconductor products that are at the core of the 5G rollout that is moving ahead rapidly as carriers have spent years laying the groundwork for it. Marvell’s products are state-of-the-art and in high demand, allowing businesses and consumers to take advantage of new 5G capabilities, plus the majority of those products are proprietary and made in house. Marvell’s outlook for the second quarter is $1.06 billion in revenue, up 46% year over year, and I recommend buying at current prices if you have not already done so. BUY A HALF
Novonix (NVNXF) shares gave back some of last week’s 30% gain but recovered 7% yesterday. Novonix is an Australian technology and advanced materials supplier focused on synthetic graphite for the electric vehicle and storage battery industry. Wood Mackenzie, a research and consultancy firm, projects that demand will grow from 165,000 tons in 2018 to almost one million tons by 2030 – and the higher purity of synthetic graphite “makes it preferable for use in premium batteries.” This is an aggressive idea but this stock has been in an uptrend since May and is a play on an important clean tech technology. BUY A HALF
Palantir Technologies (PLTR) share were up this week as the company forecast sales of its data software will grow 33% in the third quarter, reflecting heightened demand from government agencies and that more companies are beginning to sign up. Revenue will be about $385 million in the period ending in September, the Denver-based company said in a statement Thursday.
This data and software company looks to expand its commercial client base and its non-government commercial revenue is growing 90% year over year. The company reported closing 32 deals of $5 million or more and 21 deals of $10 million or more. I encourage you to buy shares if you have not already done so. BUY A HALF
Porsche (POAHY) shares have been flat over the last month, prompting me to downgrade the stock to a hold. This company offers a broad range of vehicles under the Volkswagen umbrella such as Audi, Bentley, Bugatti, Lamborghini, Porsche, Ducati, Scania, and MAN brand names. Porsche stock trades at less than seven times consensus forecast earnings for 2021. The stock trades at about 70% of book value and has only $37 million in debt. MOVE FROM BUY A HALF TO HOLD A HALF
Sea Limited (SE) shares made a nice move from 298 to 321 on the back of another stellar quarter. Total revenue was $2.3 billion, up 159% year on year, and total gross profit was $930.9 million, up 363% year on year. Shares are now up more than 600% over the last 18 months but pulled back a bit from 300 as the company continues to exceed high expectations.
Sea has become both the largest digital entertainment platform and the largest e-commerce operation in the Southeast Asia region, comprising Indonesia, Taiwan, Vietnam, Thailand, the Philippines, Malaysia and Singapore. I see further upside potential to Sea’s share price from strong momentum in its gaming portfolio. I would be an incremental buyer of this stock but long-time holders should definitely take partial profits from time to time. BUY A HALF
Taiwan Semiconductor (TSM) shares dipped slightly from 114 to 112 this week. Consensus expectations are for TSMC to post $56 billion in revenue this year and it could generate $75 billion in revenue in 2025. TSM looks expensive at 8X book value but its most recent quarter has the stock trading at a return of equity of 30% and a return on assets of 14% with revenue growth of 20%. A potential headwind is that the company plans to boost its capital expenditures roughly $100 billion over the next three years. I encourage you buy this dominant, strategic semiconductor stock if you have not already done so. BUY A HALF
Virgin Galactic (SPCE) shares were choppy but largely unchanged with its momentum a bit blunted by Sir Richard Branson’s recent selling of around a fifth of his stake in the company and Morgan Stanley moving the stock’s rating to a sell. The issue now is what news will keep the stock’s momentum moving forward. The company has opened up bookings again with price points as high as $450,000 a seat. I believe a hold rating is appropriate for the time being. HOLD A HALF
Explorer Buy & Hold Stocks
International Business Machines (IBM) shares gained marginally this week as the company moves ahead with its restructuring while delivering steady returns and dividends. Total cloud revenue was $7 billion in the latest quarter, up 13% from a year earlier. IBM stock now trades at just 13 times prospective earnings – half the level of the S&P 500 – and yields 4.6% while sitting on $8 billion in cash. BUY A HALF
Pershing Square Holdings (PSHZF) shares were unchanged as the company announced its initial stake in Universal Music Group (UMG). The stock trades at around a 27% discount to their net asset value. Pershing Square Holdings has a concentrated portfolio of about ten stocks. This fund offers you access to the highly respected value investor Bill Ackman’s stock selections and his judgment in hedging markets. BUY A HALF
The next Cabot Explorer issue will be published on September 2, 2021.
Cabot Wealth Network
Publishing independent investment advice since 1970.
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Chief Investment Strategist: Timothy Lutts
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