March 7, 2024

Super Micro Surges Again, Sea up 22%, Bitcoin Hits Record

Portfolio Changes: None

Luxury leader LVMH Moët Hennessy (LVMUY) CEO Bernard Arnault has a mantra that can be applied to business and investing: “In times of uncertainty, be patient.”

I would add that this requires playing both defense and offense.

For offense, Super Micro Computer’s (SMCI) share price was up another 40% this week and is now up 300% since the start of the year. Sea (SE) had a good first week in our portfolio as well after an encouraging financial report.

Defense included avoiding the worst of the lithium bloodbath as prices and lithium companies such as (former Explorer holding) SQM and other lithium stocks struggle to maintain stock prices and cash flow.

Handling China’s current struggles will also be challenging as it seeks to deliver roughly 5% growth to meet its other economic target of creating 12 million jobs this year. So, for only the fourth time in the past 25 years, Beijing will issue $139 billions of special treasury bonds to spur economic growth.

Apple’s iPhone sales in China fell 24% year-on-year in the first six weeks of 2024, according to research firm Counterpoint, as the U.S. company faced increased competition from domestic rivals such as Huawei. Huawei saw unit sales rise by 64% in the period, according to the report.

Back to LVMH, China is the world’s second-biggest luxury goods market, and it still has room to grow. Chinese shoppers spent $50 on luxury goods in 2022 on a per capita basis, according to Morgan Stanley. That compares with $280 in the U.S. and $325 in South Korea. Most of the luxury company’s China investments are concentrated in its 28,000 employees and 1,300 stores but they are leases, so the company has few tangible China assets at risk.

Finally, Japan’s benchmark stock index is up 20% so far this year and closed above 40,000 for the first time, fueled by stronger corporate earnings and a surge in chip and AI stocks.

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) pulled back from 46 to 42 this week on no news. Its products are used by almost all the top global research institutions and pharmaceutical companies in the world and are protected by 1,750 patents. Buy a Half

Cloudflare (NET) shares popped from 96 to 99 this week as the company acquired the technology of Nefeli Networks – a multicloud networking startup focused on reducing the complexity of IT. This allows clients to easily mix and match the best features from each cloud provider. Cloudflare offers exposure to cloud computing, AI, cybersecurity, and edge computing. Buy a Half

Exscientia (EXAI) shares were firm this week as this biotech company and potential takeover candidate continues to expand partnerships with mega drug companies to develop new products. Buy a Half

Novo Nordisk (NVO) shares were up three points again this past week after results of an Ozempic trial showed that its weight loss drug delayed the progression of chronic kidney disease in patients reducing the risk of a cardiac event by 24%. Hold a Half

PayPal (PYPL) shares at 58 represent good value based on the company’s powerful network and ease of use. A recent survey found PayPal the most popular digital payment app and it is increasingly available as a seamless checkout option at more and more websites. The stock trades at a forward price-to-earnings ratio of just over 11 even though the company generated $4.2 billion of free cash flow and bought back $5 billion of shares during the past 12 months. Buy a Half

Sea Limited (SE) shares were up 22% in their first week as an Explorer recommendation after a fourth-quarter report showed a net profit for 2023 and all three of its businesses stabilizing or growing strongly. These three segments are Garena, a leading global online games developer, Shopee, the largest e-commerce platform in Southeast Asia and Taiwan, and Sea Money, a leading digital payments and financial services provider in Southeast Asia. Buy a Half

Super Micro Computer (SMCI) share price was up another 40% this week and is now up 300% since the start of the year. If you have not already done so, I suggest you take some partial profits. I’m going to keep this impressive AI momentum stock a hold. Hold a Half

Explorer Dominator Blue-Chip Recommendations – More Buy and Hold

ConocoPhillips (COP) shares were again largely unchanged this week. This is a great core energy holding but, given the little change in news week to week, I’m thinking of moving this to the watch list to make room for new ideas. Hold a Half

International Business Machines (IBM) had a good week as its share price approaches 200, fueled by rising demand for its hybrid cloud and artificial intelligence solutions and cloud data platforms. Buy a Half

Visa (V) shares were quiet this week in the wake of reporting steady growth, with revenue growing 9% and earnings per share increasing 20% year over year. Over the past five years, the company has boosted the size of its dividends by an impressive 15.7%, on average, per year. Buy a Half

Watch List – BYD (BYDDY)

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. Lately, this has been a great play, as Bitcoin prices have hit new highs and GBTC is up 55% in the last month. 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 a 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.

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 at 5.42. 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 $677 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.

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 430 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 which was an Explorer recommendation in the fall of 2019 at around 30 and became more than a 10-bagger on the way 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 $14.8 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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