March 21, 2024

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Portfolio Changes: None

Super Micro Computer (SMCI) Pulls Back on Convertible Offering

This week the Fed left interests rates again unchanged and Super Micro Computer (SMCI) became part of the S&P 500 index. An announcement of a two million convertible shares offering by Super Micro led to a pullback in the stock though long term, it’s smart to raise capital after the sharp rise in the share price.

Washington is fixated on the potential push to force a change in the ownership of TikTok while China, as strongly expected, objects. This is a bit ironic since X, Instagram, Facebook, and Google aren’t available to Chinese citizens.

On a related issue, U.S. sanctions on Huawei (a Chinese telecommunications giant) had an impact but the company has managed to weather the storm and is coming back strong.

Revenue at Huawei’s consumer division, mainly smartphones, more than halved between 2020 and 2022. That’s partly because it sold its budget brand to save the business from sanctions. But in 2023, its revenue increased around 9% and smartphone sales have increased 64% in the first six weeks of 2024, according to Counterpoint Research.

More importantly, Huawei’s share of the world telecom-equipment market remains robust at roughly 30%. Despite an economic slowdown, China still produces a third of the world’s manufactured goods, more than the United States, Germany, Japan, and South Korea combined, according to U.N. statistics.

Our earlier recommendation of Toyota (TM) as a play on the growth trend of hybrids relative to full electric vehicles (EVs) has been supported by sales and new models with improved technology and performance. Meanwhile, Tesla (TSLA) sales are heading toward a decline in 2025, according to Wells Fargo.

The number of hybrid models on sale in the U.S. grew 40% over the last five years. U.S. sales of hybrids jumped 50% in the first two months of the year while EV sales were up 13%, in both growth and volume. The hybrid version of the Ford F-150 pickup is now more powerful than most gas versions of the truck while Ford recently slashed production plans for its F-150 Lightning fully electric model.

Explorer Weekly Stock Commentary

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.

Explorer Disrupter Recommendations – need to watch more closely and have 20% trailing stop-loss in place

10x Genomics (TXG) shares stayed steady at 38 this week as it is reported that Cathie Wood’s Ark fund is accumulating shares. 10x’s products are used by almost all the top global research institutions and pharmaceutical companies in the world and are protected by 1,750 patents. Hold a Half

Exscientia (EXAI) shares followed last week’s nice gain to inch up this week to just shy of 7. We await a new CEO and positive news from today’s earnings report to maintain the recent momentum. Buy a Half

Cloudflare (NET) shares were up around 5% this week and were trading in pre-market this morning right at 100. McKinsey projects that cybersecurity could be a 10X growth opportunity over the next decade and that the market could grow to $2 trillion. Cloudflare operates the fastest cloud network on the market while offering exposure to cloud computing, AI, cybersecurity, and edge computing. Buy a Half

Franco-Nevada (FNV) shares reached 117 (up from 115) in the stock’s first week as an Explorer recommendation. More than half of its revenue comes from gold, but it also offers exposure to platinum, silver, and oil and gas. Franco-Nevada’s focus on royalties and streaming reduces risk and enables a positive cash flow and profits as its mining partners finance and complete exploration and expansion projects. That cash flow enables it to invest in new deals, pay a dividend, and operate debt-free. Buy a Half

Novo Nordisk (NVO) shares pulled back from 135 to 130 this week. The company’s diabetes and weight loss drugs are in strong demand, leading it to recently acquire Catalent to increase its production capability. There are an estimated 800 million people with obesity worldwide, and only 2% of these patients are being treated. Hold a Half

PayPal (PYPL) shares were up again this week but are still 80% off their peak price. Its 423 million users in 200 countries leads to PayPal wallets being accepted by 80% of retailers in North America and Europe. PayPal accounts for nearly half of the worldwide web’s payment processing activity. Buy a Half

Sea Limited (SE) shares gave back some gains this week, falling from 63 to 56. The key to unlocking Sea’s value is getting its Garena gaming segment back to growth. It’s leading Free Fire game appears to be an “evergreen” brand, but another winning game would be a boost to the stock. Buy a Half

Super Micro Computer (SMCI) share price pulled back sharply even as its surge so far this year led to its inclusion in the S&P 500 index on Monday. An announcement of a two million convertible shares offering prompted the pullback in the stock this week. Long term, it’s smart for the company to raise capital after the sharp rise in the stock price. The company is best known for its specialty servers used to facilitate AI processing, so it is at the bullseye of this super trend. I’m going to keep this aggressive AI momentum stock a hold. Hold a Half

Explorer Dominator Blue-Chip Recommendations - More Buy and Hold

International Business Machines (IBM) shares hit their highest share price since 2023 this week, and are up 18% so far this year. Its share price is now roughly 7% off the all-time high. Buy a Half

Visa (V) shares were up slightly this week and over the past decade, shares have increased 396%. The company’s strengths include more than 4.3 billion cards in circulation and more than 130 merchants in its network. Buy a Half

Watch List

• BYD (BYDDY)
• ConocoPhillips (COP)

Explorer ETF/Fund Positions

Global X Lithium & Battery Tech ETF (LIT) offers solid exposure to other beaten-down lithium names at a low cost. With an expense ratio of 0.75%. Buy a Half

Grayscale Bitcoin Trust (GBTC) offers investors a way to track very closely to the day-to-day or “spot” movement of bitcoin prices. For aggressive investors comfortable with volatility. Buy a Small Allocation

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

Morgan Stanley China A Share Fund (CAF) offers exposure to a basket of the largest Chinese-listed stocks. Buy a Half

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’s Japan Hedged Equity ETF (DXJ) offers exposure to broad basket of dividend rich Japanese stocks hedging for yen currency fluctuations. Buy a Half

Explorer Stocks Summary

Brief company summaries that will not change week to week.

10x Genomics (TXG) is a leader in the emerging field of “spatial biology,” a cutting-edge life science for making new discoveries about human health and disease. Founded in 2012 and based in Pleasanton, California, 10x builds tools for scientific research to advance human health. Its instruments, reagents and software allow researchers to examine cells and molecules at a resolution and scale never imagined or experienced before. 10x helps researchers look at the roots of biology.

Watch List: BYD (BYDDY) 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.

Cloudflare (NET) is both an aggressive and dominator recommendation offering products and services in four cutting-edge fields: cloud computing, AI, cybersecurity, and edge computing. its global reach is breathtaking as 20% of all web traffic runs through Cloudflare’s network and over 95% of internet users from 180 countries worldwide access the company’s services each day. And it reaches these users within 50 milliseconds. The firm’s client list includes more than 30% of Fortune 1000 companies and the ability to efficiently move and connect data – from where it is located to where it is needed (edge computing) – is a massive business opportunity in which Cloudflare already excels.

Watch List: 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.

Exscientia (EXAI) was founded in 2012 and based in Oxford, England, Exscientia is using AI to develop new medicines and is attracting high quality partners. Exscientia (EXAI) stock is trading way off its high in an uptrend at 6.86. It went public at 22 a share so the company has about $500 million in cash on the books – a big number for a company with a market capitalization of just $857 million. Finally, keep in mind that this is an attractive speculative stock which may have a bumpy ride. It is a young company that is not and will not be profitable next year.

Franco-Nevada (FNV) is a company with more than half of its revenue coming from gold, but it also offers exposure to platinum, silver, and oil and gas. Franco-Nevada’s focus on royalties and streaming reduces risk and enables it to sidestep the huge capital costs that impact traditional miners. It enjoys cash flow and profits as its mining partners finance and complete exploration and expansion projects. That cash flow enables it to invest in new deals, pay a dividend, and operate debt free. Franco-Nevada has increased its dividend each year since its IPO in 2008.

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.

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.

PayPal (PYPL) is a digital payment giant. With 423 million active accounts generating over $1.5 trillion in payment volume annually, PayPal retains a strong leadership position in the e-commerce payment ecosystem. PayPal has been cutting costs and expanding margins and earnings growth. In addition, PayPal’s new CEO is spearheading an innovation drive doubling down on growth efforts and boosting crypto capabilities.

Sea Limited (SE) has three core businesses: 1) digital gaming/entertainment, 2) e-commerce, as well as 3) digital payments and financial services, known as Garena, Shopee, and SeaMoney, respectively. Garena is a leading global online games developer and publisher. Shopee is the largest e-commerce platform in Southeast Asia and Taiwan. SeaMoney is a leading digital payments and financial services provider in Southeast Asia. Some of you may recall this stock when it was an Explorer recommendation in the fall of 2019 at around $30, and became more than a 10-bagger to its 2021 high.

Super Micro Computer (SMCI), commonly known as supermicro, manufactures enterprise computer server hardware for cloud computing, artificial intelligence, data storage and telecommunications. Super Micro stock looks relatively inexpensive right now for the growth that it has been delivering. The company trades at just two times sales. Super Micro has two larger rivals, Dell (DELL) and Hewlett Packard (HPE), but it is forecast to grow five to 10 times faster. Furthermore, both Dell and HPE have relatively high debt whereas Super Micro has a net positive cash position. This is an aggressive pick in a sector experiencing extraordinary growth.

Visa (V) doesn’t extend credit but provides the plumbing for financial payments and communications throughout the world. Visa has the largest card network in the U.S., processing $12.3 trillion of payment volume in the last 12 months. Visa’s financial infrastructure also underpins much of the world’s commerce. The duopoly between Visa and Mastercard is often referred to as one of the best businesses in the world, with insurmountable moats, low operating costs, and plenty of opportunities for unlocking additional value. Visa currently trades at a discount to its archrival MasterCard. This leaves it much better poised to outperform the latter going forward.

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