January 5, 2023

A New Year with a World of Opportunities

Portfolio Changes: None

Butterfly Network (BFLY) shares were marginally up in the stock’s first week as an Explorer aggressive recommendation. No update on the new CEO transition.

Centrus Energy (LEU) shares added two points to reach 33 as this stock is trading at a remarkably low price multiple of 10 times forward estimates.

Corteva (CTVA) announced it will release its fourth quarter and full year 2022 earnings on Wednesday, February 1, 2023, after the stock market close. The stock of this DowDuPont agricultural sciences spinoff has 82% of its shares in the hands of institutional investors.

Ford (F) shares moved in the right direction this past week as Ford won the best-selling truck title in America for the 46th year with its F-Series of pickup trucks.

Kraken Robotics (KRKNF) shares were flat his week but up over the last month and have almost doubled over the past six months. In 2023, CEO Karl Kenny will move to Chairman, passing the CEO role to current COO Greg Reid.

MP Materials (MP) shares inched up to 25 this week after some weakness the month prior so I will keep it a hold pending more positive developments.

Novo Nordisk (NVO) shares were up four points this week as its weight loss and diabetes drugs were highlighted in the media. This healthcare stock should carry its momentum into the new year.

Rolls-Royce PLC (RYCEY) shares were up 8% this past week as this historic and strategic aerospace and nuclear and hydrogen power play looks ahead to 2023.

Toyota Motors (TM) shares were unchanged this week. While fourth-quarter sales increased 13.1%, for all of 2022, sales fell 9.6%. For electrified vehicles (EVs), the company sold 504,016 vehicles in 2022, making up 23.9% of total sales. The market awaits Toyota’s sportier new Prius in 2023.

Market Brief

U.S. conglomerates, all the rage in the 1970s and into the 1980s, are still alive and kicking though investors prefer a more sector and global approach.

Yesterday, General Electric (GE) completed the spinoff of its healthcare business, GE HealthCare Technologies (GEHC). GE HealthCare, which makes MRI machines and other medical equipment, now trades on Nasdaq under the ticker symbol GEHC. The stock ended its first day of trading at 60.49 a share. GE’s own shares rose 5.9% to 70.20, as it issued GE HealthCare shares to existing shareholders and will retain about 20% equity in the spinoff.

Almost every S&P 500 companiy is active in international markets but it’s also important for most investors to have some overseas stocks in their portfolio. The pullback in the U.S. dollar could well trigger a rally in international stocks. As you see in the below chart, the U.S. in 2022 accounted for about a quarter of the world’s GDP of $101 trillion.

American multinational companies account for 62 of the world’s top 100 publicly listed companies by market value (number of shares outstanding times stock price) even after the 2022 stock market pullback. See the below chart, which is quite interesting.

This contrasts with China leading the Fortune Global 500 rankings, which ranks companies by total revenue, and in the 2021 ranking China led America by 135 companies to 122 companies.

Explorer Stocks in Brief

Butterfly Network (BFLY) Butterfly’s breakthrough software can be tied into a medical network to provide instantaneous images and improve 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 must pay for another appointment.

However, if your doctor has the Butterfly iQ+ in their pocket, he (or she) just connects it to an iPhone, it scans your body and has a digital image right in front of him.

Plus, while an MRI machine can cost more than a million bucks, the Butterfly iQ+ costs a little over $2,000. Since it also requires a subscription service, it’s a steady source of recurring revenue for the company. The top 100 hospitals in the country already use Butterfly iQ devices. BUY A HALF

Centrus Energy (LEU) is a nuclear fuel supplier for utilities in U.S. and abroad has net income margins are above 50% so far this year with new nuclear fuel sales contracts and commitments worth an estimated value of $270 million. Nuclear power provides 20% of the power for our electricity grid and more than 50% of U.S. emission-free energy, according to the Department of Energy. BUY A HALF

Corteva (CTVA) uses emerging technology to help farmers improve crop yields and boost output. While the market is down sharply over the past year, CTVA is up about 25%. Although the down market does create bargain prices for quality companies growing revenue and net profits, a strong case can be made for stocks like Corteva that are recession-resistant and outperforming the market on a relative basis. Recently, Corteva reported a 12% increase in net sales and beat earnings expectations by about 50%. BUY A HALF

Ford (F) is making the transition to a leader in both conventional and electric vehicles (EVs). Ford has a forward price to earnings ratio of just over 6 with a dividend yield of 5.2%. It continues to see rising demand for its electric vehicles and Ford stock will benefit from the big $7,500 EV subsidies. Ford remains my favorite conservative stock despite a challenging market and supply chain issues. Ford wants to produce EVs at annual rates of 600,000 cars by late 2023 and more than 2 million by 2026. BUY A HALF

Kraken Robotics (KRKNF) is probably the most speculative of Explorer stocks, but it is a well-run company and a prime takeover candidate in the growth defense sector, coupled with a strong management team. Based in Newfoundland, Kraken Robotics is a marine technology company providing ultra-high resolution, software-centric sensors and underwater robotic systems. BUY A HALF

MP Materials (MP) is an effective way to play clean tech, defense, semiconductors, and other advanced and emerging technologies. It is America’s only active rare earth mining and processing site, producing approximately 15% of the rare earth content consumed in the global market in 2021. HOLD A HALF

Novo Nordisk (NVO) specializes in treatments for diabetes, hemophilia, and obesity. The company supplies half of the world’s insulin, and its diabetes care products are used by over 34 million people today. Novo highlights that more than 750 million people are currently living with obesity and that this is up a multiple of 3X since 1975. In summary, based on sizable and growing demand for this weight-loss drug, this well managed, highly profitable company with an excellent growth profile and potential to develop new products has limited risk. BUY A HALF

Rolls-Royce PLC (RYCEY)
Now Rolls-Royce operates as an industrial technology company in the United Kingdom and internationally. The company operates in four segments: Civil Aerospace, Power Systems, Defense, and New Markets. The Civil Aerospace segment develops, manufactures, and sells aero engines for large commercial aircraft, regional jet, and business aviation markets, as well as provides aftermarket services. Rolls-Royce stock has been hard hit by the impact of Covid on air travel and thus the miles flown by Rolls-powered commercial jets, which is how it derives much of its revenue. The result is the company has taken on quite a bit of debt. However, downside risk is offset by how important the company is to the U.K. government because of its strategically important aerospace and defense business.

Keep in mind that trading at a bit over $1 a share, RYCEY is an aggressive idea. BUY A HALF

Toyota Motors (TM) pioneered hybrid cars in the late 1990s with the Prius. Today, hybrids, including plug-in cars, account for around 20% of Toyota’s U.S. sales, as of September. Toyota remains the No. 1 hybrid seller in America, led by a gas-electric version of the RAV4 sport-utility vehicle, the nation’s top-selling hybrid. The new Prius will join eight other hybrid models, plus the all-new Toyota Crown, and two plug-in hybrid models. BUY A HALF

Explorer ETF/Fund Positions

WisdomTree Emerging Markets High Dividend Fund (DEM) offers a high dividend yield and some of the highest quality emerging market stocks in the world with an average price-to-earnings ratio of around 5. This ETF gives broad exposure with an emphasis on income and value. BUY A HALF