May 11, 2023

Portfolio Changes: None

Inflation Cools as Debt Talks Heat Up

Consumer prices in April showed inflation pressures remain high but backed off a bit. The consumer price index came in at 4.9%, slightly less than the 5% from March. Not a big deal but a step in the right direction as the below graph highlights.

Electric vehicle (EV) prices and profits are also going down for the most part. Tesla reported $2.5 billion of profits in the first quarter, down from $3.7 billion in the last three months of last year, and $3.3 billion in the first quarter of 2022.

Tesla sold more electric cars in the United States last year than all its competitors combined but its market share fell as traditional carmakers like GM, VW, and Ford sold more electric cars than ever. In China, Tesla’s pole position has been overtaken by BYD. Tesla said it expects to sell 1.8 million cars in 2023, up from 1.3 million last year.

From a current level of about 6%, the Biden administration aims for 50% of new-vehicle sales to be electric by 2030 – a milestone Norway passed in 2019. Last year, 80% of new-car sales in Norway were electric, putting the country at the top of the shift to EVs. The country will end sales of internal combustion engine cars in 2025.

Tesla is greatly outselling Volkswagen in Norway, grabbing 30% of the market compared to 19% for Volkswagen and its Skoda and Audi brands, according to the Road Information Council. The Oslo government also subsidized the construction of fast charging stations, a high priority in a country nearly as big as California with just 5.5 million people. Luckily, Norway has abundant hydropower.

Finally, Tesla has made significant progress in the last year in the direct sourcing of critical minerals. The company now sources over 45% of its nickel directly from mining and refining companies, up from 30% in 2021. And it sources over 55% of its cobalt directly. Meanwhile, its direct sourcing of lithium hydroxide remains at over 95%. Tesla has also started building an in-house lithium refinery in Corpus Christi, Texas.

Meanwhile, MP Materials (MP), owner of the Mountain Pass rare earth mine in California, had flat rare earth oxide concentrate output in the first quarter, but revenue fell due to a drop in sales volumes and prices.

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 were up 10% this week to 2.2 as the company expects to report earnings today, May 11^. Joseph DeVivo, its new CEO, will hopefully boost growth of this innovative medical device company. Hold a Half.

BYD (BYDDY) shares were up to 62 this past week. In 2022, BYD switched to producing only all-electric vehicles and its new affordable EV the Seagull is priced at just over $11,000. BYD sold more than 1.85 million electric cars in 2022, including hybrids, as it tripled sales. Buy a Half.

ChargePoint (CHPT) shares were up marginally to 8.8 this week. The electric vehicle market is growing fast, and ChargePoint, an operator of one of the largest EV charging networks, is right in the mix with a network of electric vehicle charging stations stretching across 14 countries. I rate this an aggressive stock. Buy a Half.

Corteva (CTVA) shares were flat this week after reporting a predictable $4.88 billion in revenue for the quarter ended March 2023, representing a year-over-year increase of 6.2%. Net earnings of $1.16 for the same period compares to $0.97 a year ago. With over 100 years of hybrid corn and soybean breeding, Corteva delivers unique value to farmers. Hold a Half.

Kimberly-Clark de México (KCDMY) shares were steady this week. This is the Mexican subsidiary of Kimberly-Clark (KMB), which produces and sells in Mexico and overseas a wide range of consumer paper products. Buy a Half.

Novo Nordisk (NVO) shares zoomed from 161 to 169 this this past week after reporting strong earnings results. The drugmaker, in the first quarter this year, saw sales of its obesity medications Wegovy and Ozempic rise more than three-fold and 59%, respectively. Ozempic sales had already soared 77% last year. Hold a Half.

Polestar (PSNY) shares had another good week going from 3.7 to 4.0 after I moved this idea to a hold. We will watch this closely and see if the stock will reflect its ambitious sales targets. Hold a Half.

Solid Power (SLDP) shares rose somewhat to 2.1 as this aggressive Explorer recommendation’s earnings report suggested some progress. First-quarter 2023 revenue was $3.8 million, up $1.6 million compared to the first quarter of 2022, though its net loss was $19.2 million, or $0.11 per share. Solid Power is a developer of solid-state batteries and sulfide-based electrolyte technology. This is an aggressive idea 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. 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 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.

ChargePoint (CHPT) is an industry leader in electric vehicle 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 in 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.

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 the French drug giant, Germany’s Bayer, and Japan’s Sumitomo Dainippon.

Kimberly-Clark de México (KCDMY) was founded in 1925 and is based in Mexico City, Mexico. Its parent, Kimberly-Clark (KMB), was founded in as a paper company in Neenah, Wisconsin in 1872. According to consultant Alix Partners, Mexico has surpassed China as the lowest cost country in the world for companies looking to manufacture products for North American markets. Mexico’s wages are now about 25% lower than in China and coupled with lower taxes and tariffs, this all adds up to a competitive edge.

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 that its cars will 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.

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. In addition, the technology is compatible with traditional lithium-ion manufacturing processes.

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).