Portfolio Changes: None
Tariffs, Walmart, and Bitcoin
Centrus Energy (LEU) shares jumped almost 19% this past week and are up 70% in the last six months. Dutch Bros (BROS) shares gained 6.3% this week following weekly gains of 10.6% and 36%.
Tariffs took center stage this week as the incoming Trump administration indicated day-one 25% tariffs on Canada and Mexico and some more for China as well.
This is a bit surprising since Canada buys more from the U.S. than China, Japan, France and the U.K. combined, and provides about 60% of all the oil the U.S. imports from foreign countries. I think this is more to push Canada to spend more on defense. Canada is one of just eight nations in the 32-member alliance that doesn’t meet the benchmark of spending 2% of their GDP on defense. Ottawa currently spends about 1.37% of its GDP on defense though it has the sixth-largest GDP among NATO allies.
The bitcoin surge has pulled back a bit after failing to breach the $100,000 mark probably due to profit taking. Another concern is the use of leverage (debt) to supercharge bitcoin returns raising both risk and volatility. The momentum is building to turn the U.S. into a global crypto hub, forming a strategic national crypto stockpile, and replacing Securities and Exchange Commission Chair Gary Gensler, who last week announced he would resign.
Target’s (TGT) earnings miss last week is partly due to Walmart’s (WMT) gain in market share by expanding its appeal beyond middle America. It appears that more affluent shoppers are migrating to Walmart’s 4,600 U.S. stores. According to the company, about 75% of Walmart’s market share gains in the last quarter came from households earning more than $100,000 a year. Perhaps not coincidentally, WMT shares are up 74% year to date, while TGT is down 10%.
The book From Click to Boom highlights how in just two decades China has built a $2 trillion e-commerce market that accounts for nearly 50% of global online retail sales. But Alibaba (BABA) is down 54% in the last five years. Difficult for this behemoth to regain past glory of growth.
Finally, the market value of the top 10 companies in the S&P 500 makes up just under 40% of the index’s value. This is the highest since 1965. But the “Magnificent Seven’s” stock market dominance may be waning.
Does the growth in their top and bottom lines justify this dominance?
In 2023, the seven stocks generated a 76.3% return, against a 13.8% return for the others, about a 63-point difference.
In 2024, so far, that “premium return” gap is 22 percentage points.
Goldman Sachs projects that premium gap could decline to as little as 7 percentage points.
The trend is clear. Time to diversify your portfolio.
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 a 20% trailing stop-loss in place
Agnico Eagle Mines (AEM) shares were up two points this week to follow up on last week’s 9% gain. The company’s year-over-year cash flow growth is 23.5%, which is higher than many of its peers with an industry average of 3.9%. A stronger dollar is dampening sentiment for gold, but higher geopolitical risks seem to be driving investors to safe havens such as gold. Buy a Half
Airbus (EADSF) shares were steady this week as the company works to address a backlog of more than 8,600 orders to fill. Airbus last year beat Boeing for the fifth straight year in the orders and deliveries race, with 2,094 net orders and 735 delivered planes. Airbus just reported a 28% quarterly increase in net profit as it gained market share by beating Boeing to develop a line of fuel-efficient, mid-sized aircraft. Fuel is one of the airlines’ biggest costs. Airbus’s new A321XLR model will also enable airlines to use cheaper narrow-body jets on long-haul flights. Buy a Half
Banco Santander (SAN) pulled back 4% this week as the bank’s fully digital bank launched operations in Mexico. Banco Santander has added almost 5 million new customers over the last 12 months and has a total of 171 million customers. Banco Santander’s strength is in Latin America and Europe where it has more than 8,000 branches and about 55% of deposits and loans are in Europe with the balance in Latin America. Buy a Half
Centrus Energy (LEU) shares jumped almost 19% this past week and are up 70% in the last six months. We will have to watch this uranium supply issue as well as regulatory issues closely. Interest in nuclear energy is increasing with new technology and the AI needs for powerful data centers. Nuclear energy now accounts for about 75% of low-emission energy in the United States. Buy a Half
Cloudflare (NET) shares were up 6% this week and the company expects its revenue to grow 28% this year and 26% in 2025. Analysts expect its adjusted earnings per share to grow 52% this year. Cloudflare sits at the center of cybersecurity and AI computing services. Buy a Half
Dutch Bros (BROS) shares gained 6.3% this week following weekly gains of 10.6% and 36%. The company recently reported revenue growing 27.9% year over year to $338 million in the third quarter. The drive-thru coffee chain operator and franchisor is focused on the West Coast and the key going forward is to open new stores that meet aggressive expectations. Buy a Half
Sea Limited (SE) shares were unchanged this week following a recent better-than-projected 31% rise in revenue for the September quarter. Shares are now up over 190% for the year so you may consider selling some shares to take profits off the table as I moved the stock to a hold last week. The company focuses on consumers in the Southeast Asia region, offering e-commerce, digital entertainment, and digital financial services.
Sea’s digital entertainment segment is often overlooked but it serves 628 million users, up 15% from the year-ago period. Hold a Half
Explorer Dominator Blue-Chip Recommendations – More Buy and Hold
International Business Machines (IBM) shares were up 8.8% this week as the company indicated that it would be announcing a series of key AI partnerships with Amazon. IBM offers us conservative exposure to a blend of cloud computing, data analytics, cybersecurity, and artificial intelligence (AI). Buy a Half
Unilever (UL) shares were up 2% this week and have gained 26% this year compared to 6.8% for Europe’s FT 100 index. The company continues to adjust product strategy and pricing across the world to mitigate risks from higher tariffs since Unilever has manufacturing bases in both Mexico and China. Buy a Half
Visa (V) shares have not moved much in the past three weeks as the U.S. government seeks to make the case that Visa is a near monopoly on the debit card side of the business. This is no doubt weighing on shares. Keep in mind that since Visa’s business largely runs off software, it is very profitable with profit margins above 50%, while returns on equity are also around 50%. Buy a Half
Watch List – Stocks we like but do not follow week-to-week
BYD (BYDDY), ConocoPhillips (COP), Franco-Nevada (FNV), MOOG (MOG-A)
Explorer ETF/Fund Positions
Aberdeen Asia-Pacific Income Fund (FAX) is a closed-end fixed-income mutual fund launched and managed by Aberdeen Standard Investments (Asia) Limited in Singapore. 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
iShares MSCI India Small-Cap ETF (SMIN) is a $960 million fund that holds a basket of about 500 small-cap India stocks. It is nicely diversified with the top 10 stocks accounting for just 12% of assets. The lead sector is industrials at 25%, followed by finance at 15%, consumer goods at 14%, basic materials at 13% and healthcare at 10%. Buy a Half
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 top Chinese-listed stocks. Buy a Half
Oberweis Micro-Cap Fund (OBMCX) stands out for several reasons. The fund’s sound investment process and strong management team earn it a rare Morningstar Medalist Rating of Gold. Over the past five years, it has posted an impressive average annual return of 18.9%. 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 Full
Explorer Stocks Summary
Brief company summaries that will not change week to week.
Agnico Eagle Mines (AEM) follows a conservative strategy and with a history spanning more than 60 years, and now operates a sizable portfolio of 11 assets located in four countries. Management forecasts gold production of approximately 3.45 million ounces in 2024. The company estimates it has about 54 million gold ounces of proven and probable reserves. Furthermore, Agnico Eagle has paid a dividend for 41 consecutive years with a dividend compounded growth rate of 23% per year since 2005 and plans to pay a dividend of $1.60 per share in 2024.
Airbus (EADSF), along with Boeing, is one of only two manufacturers that make the full-size commercial jets needed by the world’s airline industry. China’s COMAC is making gains but probably a decade away from being a competitive rival. Boeing’s troubles are Airbus’s opportunity. Airbus, incorporated in the Netherlands but based in Toulouse, France, is making planes as fast as it can and has a backlog of more than 8,600 orders to fill. Airbus last year beat Boeing for the fifth straight year in the orders and deliveries race, with 2,094 net orders and 735 delivered planes. I visited its facilities recently and while it shares some of Boeing’s supply chain challenges, Airbus has a clear edge right now. Airbus is benefiting from its decision deliver the fuel efficient to launch the A321neo, a single-aisle aircraft with 180 to 230 seats. Fuel is one of the airlines’ biggest costs. Airbus’s new A321XLR model will also enable airlines to use cheaper narrow-body jets on long-haul flights.
Banco Santander (SAN) was founded in Spain in 1857. The bank’s U.S. headquarters are in Boston, but its strength lies in Latin America and Europe where it has more than 8,000 branches with 171 million customers as well as 58 million digital accounts. In the second quarter, it welcomed over 4 million new customers compared to the previous year. About 55% of deposits and loans are in Europe with the balance in Latin America. In its most recent quarter, Santander’s revenue was up 8% while net profits increased 16%.
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.
Centrus Energy (LEU) based in Bethesda, Maryland, supplies nuclear fuel and services for the nuclear power industry in the United States, Japan, and Europe. Centrus Energy is building an enrichment facility in Ohio and would be very likely to benefit especially if federal funding moves forward to support this and other nuclear projects. I believe Centrus stock will benefit from increasing demand for its services, and that downside risk is low while upside potential is significant.
Cloudflare (NET) is both an aggressive and dominator recommendation offering products and services in four cutting-edge fields, though cloud computing is its bread and butter. 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.
Dutch Bros (BROS) is an operator and franchisor of drive-through coffee stores, the company has about 900 locations across 17 states in the U.S. Dutch Bros has seen its share price soar but in the last month its stock has pulled back from 42 to 29 due to a combination of some profit taking and guidance from management that growth may moderate a bit. Dutch Bros has more than 900 stores as of the end of the second quarter, including 36 that it opened in the quarter. It’s expanding at a steady pace, expecting up to 165 new stores this year, and it envisions up to 4,000 stores over the next 10 to 15 years.
Watch List: 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 29 consecutive years of dividend increases.
MOOG (MOGA.A) supplies advanced primary flight controls on the most modern military aircraft. That includes the Lockheed Martin F-35 Lightning II and the Future Long Range Assault Aircraft program. The company’s major platforms include the 787, A350, Joint Strike Fighter (F-35 Lightning II). The company also supplies primary flight controls for the Boeing 787 and Airbus A350 widebody aircraft, as well as business and regional jets from Embraer (ERJ) and Gulfstream, owned by General Dynamics (GD).
Sea Limited (SE) has three core businesses: 1) digital gaming/entertainment, 2) e-commerce, and 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.
Unilever (UL) is a dominant consumer goods giant with a trove of 400 recognizable brands in its diversified portfolio – from Vaseline to Dove – that it sells in over 190 countries. However, 30 “power brands” account for almost 75% of Unilever’s total sales. It is a steady, stable stock for an uncertain environment and for a change, its stock is selling at a rare discount, trading at just over two times sales. Two other reasons I like Unilever are that 78% of its sales are outside North America and almost 60% are from emerging markets that offer higher consumer sales potential due to better demographics.
Visa (V) doesn’t extend credit but provides the plumbing for financial payments and communications throughout the world. 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.
Currently Open
Stock | Price Bought | Date Bought | 11/26/24 | Profit | Rating |
Agnico Eagle Mines (AEM) | 88 | 10/24/24 | 85 | -3% | Buy a Half |
Airbus (EADSF) | 146 | 11/21/24 | 145 | -1% | Buy a Half |
Banco Santander (SAN) | 5 | 11/7/24 | 5 | -5% | Buy a Half |
Centrus Energy (LEU) | 43 | 6/20/24 | 83 | 93% | Buy a Half |
Cloudflare (NET) | 79 | 2/1/24 | 101 | 27% | Buy a Half |
Dutch Bros (BROS) | 32 | 8/15/24 | 53 | 65% | Buy a Half |
International Business Machines (IBM) | 133 | 6/29/23 | 229 | 72% | Buy a Half |
Moog Inc. (MOG-A) | 201 | 9/26/24 | 199 | -1% | Watch List |
Sea Limited (SE) | 49 | 2/29/24 | 113 | 132% | Hold a Half |
Unilever (UL) | 51 | 4/25/24 | 60 | 18% | Buy a Half |
Visa (V) | 241 | 8/24/23 | 310 | 29% | Buy a Half |
ETFs
Price Bought | Date Bought | 11/26/24 | Profit | Rating | |
Aberdeen Asia-Pacific Income Fund (FAX) | 16 | 5/23/24 | 16 | -2% | Buy a Half |
Grayscale Bitcoin Trust (GBTC) | 47 | 2/15/24 | 75 | 61% | Buy a Small Allocation |
iShares MSCI India Small-Cap ETF (SMIN) | 83 | 8/1/24 | 86 | 4% | Buy a Half |
JP Morgan Equity Premium Income ETF (JEPI) | 54 | 5/4/23 | 61 | 12% | Buy a Full |
Morgan Stanley China A Share Fund (CAF) | 12 | 1/25/23 | 12 | 0% | Buy a Half |
Oberweis Micro-Cap Fund (OBMCX) | 42 | 9/12/24 | 49 | 16% | Buy a Half |
WisdomTree Emerging Markets High Dividend Fund (DEM) | 32 | 9/29/22 | 41 | 28% | Buy a Half |
WisdomTree Japan Hedged Equity ETF (DXJ) | 103 | 2/29/24 | 108 | 4% | Buy a Full |
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