March 16, 2023

Portfolio Changes: Novonix (NVX) – Move from Buy a Half to Sell

Silicon Valley Bank Seeds Financial and Liquidity Concerns

This was a week to remember. The Explorer does not have any financial stocks, thankfully, though a couple of our small-cap ideas did not have a good week.

Federal deposit insurance was introduced 90 years ago during the Great Depression. Ever since then, small depositors within the FDIC limit of coverage have escaped the fear of a bank failure.

But in the last few days, given the F.D.I.C.’s extension of coverage, why will any depositor worry about risk? A good question is, Will banks be free to take all sorts of risks? It would have been better in my view to cover only about 70% of deposits over the $250,000 deposit FDIC insurance guarantee.

U.S. Treasury bonds are the core of the financial markets, setting lending and borrowing interest rates across the economy, serving as collateral for loans and how other assets are measured. This week’s stress in the market is leading to a flight to quality and concerns about liquidity.

The upside for us is that any Fed interest rate hikes will likely be muted.

The big news regarding Explorer stocks this week is that Novo Nordisk (NVO) is set to cut its U.S. list prices for several insulin drugs by up to 75%.

On the electric vehicle (EV) front, Volkswagen is planning on spending about $200 billion over the next five years to increase its business in China and America. The German automaker plans to allocate about 70% of that investment, or about $131 billion, to support electric vehicles. Competition for China’s EV consumers has led to a bit of a price war. BYD (BYDDY) is offering discounts of up to $1,000 a vehicle, according to Evercore ISI, in an effort to stand out amid the more than 30 automotive brands competing in China.

In other EV news, this week Volkswagen offered a first look at its ID. 2all concept, a car that will cost less than 25,000 euros ($26,400) and go into production for the European market in 2025.

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 2.0 to 1.9 this week as the company seeks a new CEO. While not profitable, the company has reached gross margins of 50% and expects revenue growth of about 20% this year. Hold a Half.

BYD (BYDDY) shares fell from 55 to 50 this week as EV automakers cut prices in response to Tesla’s recent moves. China’s plug-in hybrid and battery electric car sales were up 23% from the same period a year ago. BYD accounted for four of the country’s top eight models sold last month. Buy a Half.

Centrus Energy (LEU) shares held firm this past week. Centrus Energy is making progress to produce of a fuel called high assay low enriched uranium (HALEU) and will share the $150 million cost on a 50/50 basis with the Department of Energy. Buy a Half.

Corteva (CTVA) shares were steady this week as the company announced it is collaborating with Chevron Corp. and Bunge Ltd. to produce renewable fuels from canola crops. Corteva was created out of the DowDuPont merger and subsequent breakup. Hold a Half.

Kraken Robotics (KRKNF) shares were off about 10% this past week as micro-caps overall had a challenging week. No company-specific news although the company announced last week an order for sonar systems that will be part of NATO’s Autonomous Underwater Vehicles for mine hunting. This small maritime and defense stock remains a buy for aggressive investors. Buy a Half.

Novo Nordisk (NVO) shares were steady this week despite market turbulence. The company, which develops therapies for diabetes and obesity, is set to cut the U.S. list prices for several insulin drugs by up to 75%. Novo plans to also increase production of the weight loss drug Wegovy to meet high demand, which should translate into higher revenue growth and profits. Hold a Half.

Novonix (NVX) shares were off from 4.1 to 3.8 this week and I think that, given market conditions, we should move this to sell. The stock has underperformed, and uncertainty has risen regarding when the company will get the Chattanooga factory in operation. Move from Buy a Half to Sell.

Polestar (PSNY) shares had a disappointing week as the company announced it does not plan to cut prices in response to Tesla. The Volvo-backed EV maker expects sales volume to increase by 60% this year to 80,000 units and recently raised $1.6 billion, which management says is more than enough to fund operations this year. For 2022, total revenue increased 84% year on year. 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. Buy a Half.

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). 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.

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.

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.

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.

Corteva (CTVA) uses emerging technology to help farmers improve crop yields and boost output. Stocks like Corteva are recession-resistant and outperforming the market on a relative basis. In terms of partnerships, a year ago it signed a $5.2 billion collaboration with French drug giant Sanofi (SNY). It has expanded a Bristol-Myers Squibb (BMY) collaboration to include drug targets in both immunology and oncology. This is on top of a design partnership with a French drug giant, Germany’s Bayer, and Japan’s Sumitomo Dainippon.

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.

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.

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. By the end of this year, the company plans for its cars to be available in 30 markets. 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.

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. 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).