June 22, 2023

Portfolio Changes: None

Mr. Modi and India Come to Washington

Fed Chairman Jerome Powell again threw a wrench into the market by warning that a couple of more interest rates hikes are probable this year. “The process of getting inflation down to 2% has a long way to go,” he told the House Financial Services Committee during a three-hour hearing. Not sure why they don’t get this over with.

Indian Prime Minister Narendra Modi arrives in America on his first official state visit with India’s geopolitical pull higher than at any point since he took power in 2014.

India is a big source of tech talent, both to American companies operating in India and directly to the U.S. in booming cities like Austin. Apple tripled iPhone production in India over the past year as it shifts some production from China. Roughly one-third of IBM’s workforce is based in India, equal to that in America.

Important parts of American artificial intelligence (AI) are often made in India at much lower wages than prevailing U.S. rates, as workers manually handle data to improve AI foundation models. Of Fortune 500 companies, about 60 have an Indian background – including the heads of Microsoft, Google, IBM and Adobe.

Now India is getting on the bandwagon to become a player in the semiconductor chip manufacturing business, after U.S. imports of chips from the South Asian nation multiplied more than 38 times in the first quarter of 2023.

Micron, which is under investigation in China, is close to receiving government approval on a $1 billion semiconductor plant. All this is helping India’s economic growth and has helped make the rupee Asia’s second-best performing currency this year.

But there is another side to the story that will politely be kept private this week in Washington. You can begin with human rights issues such as religious intolerance against minority religions.

It has never joined a Washington-led or any meaningful free trade agreement and India keeps sky-high import tariffs on a range of sectors including agriculture and smartphones so U.S. exports to the country were only $50 billion last year – representing only a third of U.S. exports to China.

There are also questions whether India can provide the uninterrupted power and water supply needed by international companies.

Then there are the India-Russia defense ties. Moscow is its main supplier of weapons and India is using Russia’s S-400 missile-defense system – part of a $5 billion weapons deal. India has also stood out among major democracies for its reluctance to criticize Russia and has abstained from United Nations Ukraine votes.

Welcome to a world where business, diplomacy, and politics make almost all investing global. It’s a challenge, but well worth it.

Weekly Explorer Stock News

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 went from 2.4 to 2.2 this week. Butterfly recently received FDA clearance for a groundbreaking, AI-enabled product that can empower providers to assess abnormal lung conditions easier, faster, and with more confidence. Hold a Half.

BYD (BYDDY) shares held firm at 67 this week. China auto giant BYD (for Build Your Dream) has forecast selling at least three million vehicles this year, with hopes for 3.6 million, nearly doubling vs. 2022. In 2022, total sales including hybrids tripled. It is now the world’s largest producer of electric vehicles including hybrids and the second largest producer of EV batteries. Buy a Half.

ChargePoint (CHPT) shares fell from 9 to 8 this week after an announcement that Tesla will soon start to open “select” Supercharger stations to non-Tesla EV owners in the U.S. and plans to double the size of its network to make 7,500 Superchargers available to all EVs by the end of 2024 and inked a deal that would open its charging network to General Motors EVs. This is causing a controversy with Tesla owners believe they paid for access to chargers. Markets may be overreacting to the Tesla news since the number of chargers required will be huge for the industry going forward.

In its fiscal year ended in January, ChargePoint revenue surged 94% to $486 million as its number of ports grew 53% to 225,000. Yet ChargePoint is still a couple of years from being profitable and its net loss widened from $132 million in fiscal 2022 to $344 million last year. We will see if this stock snaps back in the coming week before changing the rating on this stock. Buy a Half.

ConocoPhillips (COP) shares were unchanged this week despite generally lower oil and energy prices. ConocoPhillips is among the lowest-cost producers, so it can generate a tremendous amount of cash in the coming years even if oil prices head lower. Conoco delivers 20% net profit margins, a return on assets of almost 17%, and a return on equity of 32%. If you have not yet done so, Buy a Half.

Geely Automobile Holdings Limited (GELYF) was unchanged in its first week as an Explorer recommendation. Headquartered in Hong Kong, Geely is a nice complement to Explorer stock BYD (BYDDY), China’s electric vehicle (EV) leader. Geely is profitable with last quarter’s sales up 59% and net profit up 50%. Plus, its stock is trading at only about 60% of sales. Buy a Half.

Novo Nordisk (NVO) shares were up another point this week as Novo announced an ambitious initiative to begin researching new weight-loss drugs that prevent type-2 diabetes and medical obesity. Novo’s obesity and weight loss drugs are seen as more effective than new competitors, but it will have to continue to innovate to keep its lead. Hold a Half.

Pfizer (PFE) was off a point this week and is largely a value play as the stock is trading at a discount to the market at just 11.8 times forward earnings with a dividend yield of 4.2%. In addition, it delivers an 11.6% return on assets, and a 31% return on equity.

The company expects that sales of Comirnaty and Paxlovid will begin to bounce back next year, and Pfizer is especially optimistic about the prospects for its combination COVID-flu vaccine that could reach the market in 2025. If you have not already done so, Buy a Full.

Polestar (PSNY) shares dipped from 3.8 to 3.6 this week as the Swedish electric vehicle (EV) maker announced a joint venture with Xingji Meizu to build an operating system for Polestar cars sold in China that will offer the latest smart technologies in its vehicles. Polestar still projects 2023 global volumes of 60,000 - 70,000 vehicles following record deliveries last year. Hold a Half.

Solid Power (SLDP) shares are just barely up over the last month but tumbled from 2.6 to 2.3 this past week as Toyota expects breakthroughs in solid-state batteries. Solid-state batteries are a new frontier in battery technology, and if successfully developed into practical applications, will offer serious advantages over current liquid-based lithium-ion batteries. These advantages will include higher energy density, longer battery life spans, greater safety, and cost savings over lithium-ion batteries. This is an aggressive Explorer recommendation that comes with both risk and high upside potential. 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 11.5%. 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 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 $2,000. 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.

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). BYD sold more than 1.85 million electric cars in 2022, including hybrids. In both 2021 and 2022, BYD more than tripled sales from the previous year. Most of BYD’s sales are still in China but it has a big international expansion underway, including the U.S., Europe, and Asia markets.

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) 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 showing 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) 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.

Geely launched its new Zeekr luxury brand in March 2021 and plans to launch a new sports utility vehicle X ready for delivery later this month, Electrek reported. The Zeekr X will have three models priced from $26,700 to $29,500, with its first deliveries in China, then Europe before reaching Asian markets outside of China.

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 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 over this period.

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 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 partnerships 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

JPMorgan 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).