July 6, 2023

Portfolio Changes: Butterfly Network (BFLY) from Hold to Sell

U.S. Investors Staying Aggressive as They Age

This is a short week as we begin the second half of 2023 with inflation down, recession fears fading, and the animal spirits of investors alive and well.

In the first half of 2023, market performance was positive and narrow, largely driven by the big tech names, and especially artificial intelligence (AI) related stocks. The Dow was up 3.8%, the S&P 500 gained 15.9%, and the tech-heavy Nasdaq was up 31.7%. We will continue to explore the world for the best value and growth stocks providing both conservative and aggressive ideas. EVs across the supply chain, resources, and emerging markets remain the focus but we have the flexibility to change course as opportunities arise.

With about 10,000 baby boomers reaching the age of 65 each day, many have wondered how this trend might impact the demand for stocks.

No need to worry. According to the Wall Street Journal, nearly half of Vanguard 401(k) investors actively managing their money and over age 55, held more than 70% of their portfolios in stocks. At Fidelity Investments, about 4 in 10 investors ages 65 to 69 hold about two-thirds or more of their portfolios in stocks. This sort of allocation may not be appropriate for your situation, but it does show that interest in the stock market remains high as America ages.

In other news, America was the top destination for businesses looking to expand internationally last year, but the inflow of capital into the U.S. fell amid rising uncertainty and interest rates. Foreign investment in the U.S. fell to $285 billion in 2022 from $388 billion in 2021, mainly due to a sharp fall in foreign purchases of American companies, according to United Nations data.

Our two China EV recommendations reflect the vast potential for growth in China and overseas. Prior to 1980, China didn’t even allow private citizens to buy a car for personal use. Even now only about 140 per 1,000 people in China own a car.

Last year, Chinese carmakers produced 27 million cars, according to the Chinese Association of Automobile Manufacturers. This is roughly a third of all global auto sales. China has about 900 million consumers and a middle class that is roughly the same size as the population of Europe.

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.

Butterfly Network (BFLY) shares have been flat for the last month and year to date so I’m moving this to a sell and will replace it next week with a stock that has the potential to perform better. Move from Hold a Half to Sell a Half

BYD (BYDDY) shares were up three points this week, and based on projected earnings, are trading at a valuation less than half that of Tesla. BYD sold 253,046 vehicles in June, up 88% vs. a year earlier and up from 240,220 in May and 210,295 in April. In the first half of 2023, BYD has sold 1,255,637 EVs. The automaker has a 2023 goal of selling at least three million vehicles. Buy a Half

Chargepoint (CHPT) shares gained some ground again this week in the wake of a recent announcement that it would start supporting NACS, the standard designed by Tesla, by adding a NACS connector option. This will allow its chargers to be used by almost all EVs. EV stocks in general are in an upward trend led by Tesla (TLSA). Buy a Half

ConocoPhillips (COP) shares were up 4% this week on the back of higher oil and gas prices. ConocoPhillips is among the lowest-cost producers, so it can generate a tremendous amount of cash even under the current market situation. Conoco has been delivering solid financial numbers and is a quality core energy holding. Buy a Half

Geely Automobile Holdings Limited (GELYF) was up a bit this week as this company which owns Volvo is profitable is well positioned to gain market share in China and overseas markets. Last quarter sales were up 59% and its net profit surged 50%. Buy a Half

International Business Machines (IBM) was up three points in its first week as an Explorer recommendation. IBM is a blue-chip artificial intelligence (AI) and play on India play where about a third of the company’s employees are based. The stock sells at a discount to both the S&P 500 and the information technology sector’s forward earnings multiple. IBM has paid a dividend every quarter since 1916. Buy a Half

Novo Nordisk (NVO) reached 160 this week as its two drugs on the market, one approved for Type 2 diabetes (Ozempic) and the other for obesity (Wegovy) both do well. There are more competitors coming into the market, so I again encourage you to take some partial profits. Hold a Half

Pfizer (PFE) shares were steady this week as the company has selected Samsung Biologics to manufacture products in two deals worth $897 million. The stock is trading at a discount to the market at just 11 times forward earnings with a dividend yield of 4.5%. Buy a Full Position

Polestar (PSNY) shares were up 11% this week as Polestar has 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 flat this week after last week’s 13% gain. Solid-state battery technology is moving ahead, and the benefits include higher energy density, longer battery life spans, greater safety, and cost savings over lithium-ion batteries. This is an aggressive Explorer recommendation. Buy a Half

Explorer ETF/Fund Positions

JP Morgan 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%.

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

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

Explorer Stocks Summary

Brief company overviews that will not change week to week.

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.

While an MRI machine can cost more than a million bucks, the Butterfly iQ+ costs a little over $2,000The top 100 hospitals in the country already use Butterfly iQ devices.

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.

ChargePoint (CHPT)

ChargePoint is an industry leader in electric vehicle (EV) charging. ChargePoint operates in both North America and Europe, with more than 225,000 charging points on its networks. ChargePoint has more than 5,000 fleet and commercial customers worldwide. The company has a 70% market share in the level 2 charging market in North America, giving it a powerful advantage over even its closest competitor.

ChargePoint has posted seven quarters in a row of increasing revenue with full-year revenue for fiscal ’23 with a year-over-year gain of 94%. We need to accept the company’s heavy investments in growth, profits will appear as the company monetizes and leverages its charging network.

ConocoPhillips (COP)

ConocoPhillips 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 Buffet 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, Geely 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 S&P 500 multiples 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.

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 treated with its medicines and vaccines in the first quarter of this year. Pfizer has ten 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 for two reasons. 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 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.

Explorer ETF/Fund Positions

JP Morgan Equity Premium Income ETF (JEPI) offers double-digit yield coming from both option premiums and dividends using a value-focused strategy.

WisdomTree Emerging Markets High Dividend Fund (DEM) offers a high dividend yield and some of the highest-quality emerging market stocks. This ETF gives broad exposure with an emphasis on income and value.

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