July 20, 2023

Portfolio Changes: ChargePoint (CHPT) – Move from Hold to Sell

America is a Stock Superpower but International Opportunities Abound

One reason I’m positive on the economy and stocks is that while the U.S. economy has its challenges, everything is relative, and America remains the largest economy and stock market in the world.

For example, the American economy has grown much faster than the 17 countries of the Eurozone (EU) over the past 15 years. In part, this is due to the persistent U.S. consumer which last year spent $19 trillion while EU consumption was $12 trillion.

With 4% of the world’s population, America produces about 23% of global GDP (followed by China at 16%) and U.S. publicly listed companies account for 43% of the total value of all the public companies in the world.

And keep in mind that U.S. multinational companies in the S&P 500 index garner about 40% of their total revenue from overseas markets, and this number is even higher for many tech companies.

Nevertheless, international stocks should certainly not be ignored since they outnumber American stocks and can offer great value and growth. America does not by any means have a monopoly on innovation, technology, growth, and skills.

Meanwhile, China is struggling to get its growth mojo back as foreign investment, exports, and property prices are all, for the time being, going the wrong way.

U.S. exports to Mexico are now more than twice that to China and from a big-picture perspective, America’s direct financial exposure to China is also minimal. The Vanguard Total World Stock Index Fund has 3.1% of its assets in Chinese stocks and the Vanguard Total International Bond ETF has only 1.2% of its assets in Chinese bonds.

Regarding electric vehicle (EV) news, Tesla (TSLA) announced that it has started producing its much-delayed Cybertruck pickup, and General Motors (GM) is expected to soon begin delivering an electric model of its popular Chevrolet Silverado truck. Ford Motor (F) has reduced prices of its F-150 Lightning electric pickup truck by between $6,000 and nearly $10,000.

Part of this is price competition and some is due to price pullbacks in some critical metals EV inputs.

Toyota (TM), which I recommended earlier this year as a core holding, has done well with the overall Japanese market but is also playing into a hybrid theme that uses fewer critical metals that have volatile prices and are environmentally unfriendly to mine and process.

By Toyota’s calculation, the amount of minerals needed for one long-range electric vehicle would be enough for either six plug-in hybrids – or 90 of the type of hybrid that can’t be plugged in and whose batteries are recharged from the engine.

The overall carbon reduction of those 90 hybrids over their lifetimes is 37 times as much as a single battery electric vehicle, Toyota’s analysis argues.

This is a powerful argument for hybrids which is why I have been arguing that America’s focus should be on incremental hybrid technology rather than full EVs such as those dominated by Tesla.

Nevertheless, in April, the Environmental Protection Agency (EPA) proposed new rules to ensure that two-thirds of U.S. new passenger cars and a quarter of new heavy trucks sold in the United States are all-electric by 2032.

This goal not only is unreachable – it is also not the right policy.

Weekly Explorer Stock Updates

Below is a brief update on each Explorer stock. Any changes in ratings will be highlighted. This section is all you need to read each week and will be followed by a new recommendation every other week.

BYD (BYDDY) is expected to report earnings soon and the company has put high expectation for sales and net profit growth. June sales surged 88% vs. a year earlier and, in the first half of 2023, selling 1,255,637 EVs. BYD has also announced plans to invest $1 billion in India and $620 million in Brazil. Buy a Half.

ChargePoint (CHPT) shares were again flat this week so I’m moving this to a sell. The announcement that the company would start supporting the North American Charging Standard (NACS), the standard technology designed by Tesla, has not been favorable for ChargePoint since it commoditizes the market. Move from Hold to Sell.

ConocoPhillips (COP) shares were flat this past week after jumping from 103 to 109 last week. ConocoPhillips stock is coming back a bit as energy prices rebound and is among the lowest-cost producers which delivers a relatively strong cash flow. Conoco is a quality core energy holding. Buy a Half.

Geely Automobile Holdings Limited (GELYF) shares were up a bit even as the Chinese economy struggles to regain its strong growth path. Geely is in a strong position to gain market share and last quarter sales were up 59% and net profit was up 50%. Buy a Half.

International Business Machines (IBM) shares finished the week at 135 and released earnings after the close yesterday. They were solid but underwhelming with revenue slightly under expectations and net profit slightly better. Bright spots were software sales up 7% and Red Hat cloud sales up 11% year over year.

IBM is a play on data, software, cloud computing, and artificial intelligence (AI). The stock sells at a discount to both the S&P 500 and the information technology sector. Buy a Half.

Neo Performance (NOPMF) was steady in its first week as an Explorer recommendation. Neo manufactures the building blocks of many technologies and advanced industrial materials. These include magnetic powders and magnets, specialty chemicals, metals, and alloys – all using rare earths and critical metals.

This stock is also an excellent hedge on rising U.S./China/Taiwan tension. Buy a Half.

Novo Nordisk (NVO) broke above 160 as sales remain strong for this Danish drugmaker, especially in the diabetes and weight loss segments. However, there are more competitors coming into the market so I will leave this a hold for now. Hold a Half.

Pfizer (PFE) shares were up marginally this past week reflect the relative weakness of the healthcare sector this year and the fact that Pfizer is coming off a record $100 billion year fueled by the pandemic. The stock trading at an attractive valuation and the drugmaker’s plans to launch 19 new drugs within 18 months are two big reasons to buy the stock. Buy a Full.

Polestar (PSNY) shares were quiet this week after two consecutive double-digit weekly gains following strong deliveries in the month of June. Recently, Polestar signed an agreement with Tesla to adopt the new North American Charging Standard (NACS), which will enable access to Tesla’s expansive Supercharger network for all Polestar drivers in the United States and Canada. Hold a Half.

Solid Power (SLDP) shares were unchanged after last week’s nice 12% gain. Solid Power announced it is adding two new experienced board members to support efforts to develop high density solid-state battery technology. This is an aggressive Explorer recommendation. Buy a Half.

Explorer ETF/Fund Positions

JPMorgan Equity Premium Income ETF (JEPI) offers double-digit yield coming from both option premiums and dividends using a value focused strategy. Current yield is about 11%. Buy a Full.

WisdomTree Emerging Markets High Dividend Fund (DEM) offers a high dividend yield and some of the highest quality emerging market stocks. Buy a Half.

WisdomTree China ex-State-Owned Enterprises Fund (CXSE) is a way to gain China exposure without any state-owned enterprises (SOEs). Buy a Half.

Explorer Stocks Summary

Brief company summaries that will not change week to week.

BYD (BYDDY): In 2022, China auto giant BYD (for Build Your Dreams) switched to producing only all-electric battery vehicles (BEVs) and plug-in hybrid electric vehicles (PHEVs). The company also manufactures and supplies EV batteries, including to Tesla, and makes its own chips. This is vertical integration that would make Henry Ford proud. BYD is in a strong position to be one of, if not the leader of the EV revolution in terms of size, scale, and growth.

ConocoPhillips (COP) is a global energy industry giant and one of the largest independent exploration and production (E&P) companies in the world, as measured by production levels and proved reserves. The company, founded in 1917 and based in Houston, has operations in 13 countries, although almost half the company’s production is derived from U.S. sources.

Follow Warren Buffett into big oil and take a stake in the Arctic by purchasing a half position in Conoco which is trading at just eight times trailing earnings. The company also delivers 20% net profit margins, a return on assets of almost 17%, and a return on equity of 32%.

Geely Automobile Holdings Limited (GELYF), headquartered in Wan Chai, Hong Kong, is a nice complement to Explorer recommendation BYD (BYDDY), China’s electric vehicle (EV) leader. Geely also owns Lotus in the U.K. and half of Mercedes’ Smart brand. It also owns the London Electric Vehicle Company, which produces electric black cabs. Then there is the Volvo car connection. Volvo, which is majority-owned by China’s Geely, has stated that sales in China were up 46%. Volvo sales of fully electric cars nearly doubled to account for 17% of total sales.

International Business Machines (IBM) is a blue-chip artificial intelligence (AI) and India play with a nice dividend yield. Known as “Big Blue,” IBM now primarily helps businesses and governments manage their information technology in the cloud era. The stock sells at a discount to the S&P 500 multiple and the information technology sector’s forward earnings multiple. IBM has paid a dividend every quarter since 1916 and has had 28 consecutive years of dividend increases.

Neo Performance (NOPMF) manufactures the building blocks of many modern use of these technologies and advanced industrial materials.

These include magnetic powders and magnets, specialty chemicals, metals, and alloys – all using rare earths and minerals critical to the performance of many important products and emerging technologies. Based in Toronto with offices in Denver, Singapore, and Beijing, the company is organized along three segments: Magnequench, Chemicals & Oxides, and Rare Metals.

Neo has a global platform that includes nine manufacturing facilities located in China, the United States, Germany, Canada, Estonia, and Thailand, as well as one dedicated research and development center in Singapore.

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.

Pfizer (PFE) served more than a quarter of a billion patients that were treated with its medicines and vaccines in the first quarter of this year. Pfizer has 10 products with sales greater than $1 billion a year. Annual revenue tops $92 billion as the company closes in on annual revenue of $100 billion. Over the next 18 months it expects to launch at least 19 new products.

Key launches this year include vaccines for respiratory syncytial virus (RSV) and meningitis, as well as drugs to treat atopic dermatitis and multiple myeloma – a blood cancer. Pfizer is also pushing ahead with a diabetes and weight-loss product that will be taken orally that is now in clinical trials and could generate annual sales of $10 billion.

Polestar (PSNY) is a Swedish premium electric vehicle manufacturer. Founded by Volvo and Zhejiang Geely Holding Group in 2017, Polestar enjoys technological and engineering synergies with Volvo. Polestar cars are currently manufactured in China, with 2024 manufacturing planned in America. Polestar has an edge on much of the competition because it has an “asset light” strategy through access to world class owner/partner Volvo’s factories. For 2023, Polestar anticipates global volumes to increase by nearly 60% to approximately 80,000 cars.

Solid Power (SLDP) is a Colorado-based developer of all-solid-state battery and sulfide-based electrolyte technology. Solid Power replaces the flammable liquid electrolyte in a conventional lithium-ion battery with a proprietary sulfide-based solid electrolyte.

Solid Power’s all-solid-state battery cells are expected to be safer and more spread out across a broad temperature range, offer an increase in energy density compared to the best available rechargeable battery cells, and enable less expensive, more energy-dense battery pack designs. The company has a partnership with BMW and Ford and received a $5.6 MM U.S. Department of Energy (DOE) award to continue its development of nickel- and cobalt-free solid-state battery cells.