May 25, 2023

Portfolio Changes: Kimberly-Clark de México (KCDMY) – Move to Sell

Debt Ceiling Negotiations Go Down to the Wire

The Explorer had a good week with Butterfly (BFLY) up 15% and Solid Power (SLDP) up 10% this week. The S&P 500 has risen 8% in 2023 but the market gains are very narrow and concentrated, with the top five stocks accounting for most of the gains.

Banking sector volatility has eased but concern about whether interest rate hikes are over are taking a toll on the economy, and concern about the debt ceiling issue are weighing on investor sentiment. On Wednesday, Fitch placed the U.S.’s triple-A credit rating on negative watch due to “increased political partisanship” around the debt limit.

Nasdaq 100 futures are surging this morning after chip giant Nvidia (NDVA) issued a strong sales projection due to rising demand for artificial intelligence technology.

China exported over one million vehicles in the first quarter of this year, a 58% increase from a year earlier, according to official figures. By comparison, Japan shipped 950,000 vehicles abroad during the quarter, according to the Japan Automobile Manufacturers Association.

EVs shipped from Tesla’s Shanghai factory to other countries including Europe are part of the sharp increase. It exported nearly 130,000 cars from China in the first four months, according to the China Passenger Car Association. The dollar value of Chinese car exports has increased nearly fivefold in just two years.

Less positive news is that about Chinese 11.6 million college students are expected to graduate this summer, and only half of these new graduates have obtained job offers. This highlights China’s youth unemployment problem. Jobs and debt are an issue with many governments but are particularly worrisome for China at its current stage of development.

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 15% this week after recently reporting better quarterly revenue and a smaller loss than expected. This digital health company transforming care with handheld, whole-body ultrasound remains a hold. Hold a Half.

BYD (BYDDY) shares were steady this week at 62 as a bit of a price war has broken out in China, the heart of the electric vehicle (EV) global ecosystem and supply chain. In 2022, BYD switched to producing only all-electric vehicles and sold more than 1.85 million electric cars that year, including hybrids, as it tripled sales. In the first quarter of this year, sales improved by another 80%, with 410% EPS growth. Buy a Half.

ChargePoint (CHPT) shares were up marginally this week as the company will announce its earnings on June 1. JPMorgan analysts predict the company’s revenue will increase to $703.5 million this year and $1.1 billion in 2024, up from $468 million in 2022. Buy a Half.

ConocoPhillips (COP) was up 5% in its first week as an Explorer recommendation. Conoco is trading at just eight times trailing earnings and the company also 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.

Corteva (CTVA) shares were flat again this week after the company recently reported improved earnings (+5.5%) for the first quarter. This stock needs to demonstrate some momentum, or we will soon replace it with a new idea. Hold a Half.

Kimberly-Clark de México (KCDMY) shares were unchanged this week, but I’m concerned about the lack of trading liquidity coupled with very little in terms of new information about the stock and company so I’m moving this to a sell. Sell a Half.

Novo Nordisk (NVO) shares pulled back five points to 162 this week but are up 36% in the last six months. Sales of its obesity medications Wegovy and Ozempic are rising sharply, and the company expects $40 billion of revenue in 2024 across its drugs for diabetes, obesity, rare diseases, and cardiovascular disease but new competitors are emerging. Hold a Half.

Polestar (PSNY) shares finished the week unchanged as the upstart EV maker announced it will cut its workforce to control costs. Polestar now expects 2023 global volumes of 60,000 - 70,000 vehicles, representing annual growth of 16% - 36%, following record deliveries of 51,491 last year. Hold a Half.

Solid Power (SLDP) responded favorably to encouraging first-quarter earnings as the stock was up 10% this past week even after pulling back a bit yesterday. Solid Power’s liquidity position continues to be strong at $468 million. This is a developer of solid-state batteries and sulfide-based electrolyte technology. This is a new Explorer recommendation, 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. Current yield is 11.2%. Buy a Full.

WisdomTree Emerging Markets High Dividend Fund (DEM) offers a high dividend yield and some of the highest quality emerging market stocks. Year-to-date, this ETF is up 5.5%. Buy a Half.

WisdomTree China ex-State-Owned Enterprises Fund (CXSE) is a way to gain China exposure without any state-owned enterprises (SOEs). With Chinese stocks struggling, this ETF is down 11% so far this year. 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 EV charging. ChargePoint operates in both North America and Europe, with more than 225,000 charging points on its networks. ChargePoint has more than 5000 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 and its assets are spread over various locations across the globe, 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%.

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, last year 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.

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.

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 a partnership 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).