April 21, 2022

Portfolio Changes:
Sea Limited (SE) - MOVE FROM HOLD A HALF POSITION TO BUY A HALF

Could Ford Match Tesla’s Lightning?
Markets searching for direction received a boost yesterday as Tesla left earnings estimates in the dust. Quarterly profit was $3.3 billion on revenue of $18.8 billion. Despite the shutdown in China, Elon Musk said the company likely would produce more than 1.5 million vehicles in 2022, up 60% over last year.

Tesla has certainly captured a substantial lead in electric vehicles (EVs) and has ambitions well beyond cars, but with EVs passing an inflection point, the competition from start-ups to traditional automakers seeking to get in on the game is getting intense.

The Explorer recommendations of Fisker (FSR) and Ford (F) represent two sides of aggressive and more conservative options available to investors wanting to invest in this exciting and challenging emerging industry. Ford is making a major bet on reimagining its moneymaking F-150 as it rolls out production next week and begins deliveries around April 26^th of its stunning F-150 Lightning that is relatively affordable, starting at $40,000.

Tesla’s cheapest car is the compact Model 3 sedan, which starts at more than $48,000. The Lightning has ample storage, including a giant front trunk (see above picture), which is appealing to families and businesses alike. It also has some zip, as the 4,000-pound truck can go from a dead stop to 60 miles an hour in just four seconds.

The Ford F-150 has traditionally been both a workhorse for consumers and a profit center for Ford shareholders. Ford operates three U.S. factories that each make a truck per minute, on average, and support the jobs of a half-million Americans and contribute almost $50 billion to the U.S. gross domestic product, according to the Boston Consulting Group. Amazingly, the only U.S. product that generates more sales revenue each year is the iPhone.

This rivalry is captivating. Elon Musk’s Tesla is rapidly expanding and is valued by investors at about 16 times as much as Ford. While Tesla almost doubled the number of cars it sold around the world last year to nearly one million, Ford sold four million cars worldwide. In good years, the company sells close to 900,000 F-Series trucks, and if the series were a stand-alone company, it would bring in more revenue than Nike or Starbucks.

Tesla’s Cybertruck will probably be on the market in 2023 giving Ford a rare jump, and Ford also has the Mustang Mach-E, an electric sport utility vehicle. We all know about the genius of Elon Musk, but Ford CEO Jim Farley also intrigues me. His grandfather worked at a Ford factory and his career started not in the auto industry but at IBM. He then spent a long time with Toyota.

No question that Tesla will remain the EV leader, but perhaps Wall Street is underestimating both Ford and Mr. Farley’s determination to floor it. While Tesla’s market value is now a bit over $1 trillion, Ford sits at just $65 billion.

Portfolio Updates
CVS Health Corporation (CVS) shares gained a couple of points in its first week as an Explorer recommendation. While Rite Aid (RAD) is shrinking, CVS is one of the nation’s leading healthcare companies, with almost 10,000 stores. While Rite Aid stock has fallen more than 50% so far in 2022, CVS stock is in the black. Nearly 70% of Americans live within three miles of a CVS and it has more than 102 million pharmacy plan members. CVS is also a technology leader using blockchain, cloud migration and intelligent automation to improve operations and results.

The proof is in the latest quarterly results. Total revenues grew 11% to $73 billion and earnings of $2.42 a share were 17% ahead of consensus estimates. The company also paid down close to $8 billion of debt and paid out $650 million to shareholders through dividends. CVS stock sells for about 15 times forward earnings – versus 25 times for the S&P 500 – and sports a dividend yield of 2.4%. BUY A HALF POSITION

Fisker (FSR) shares were down slightly this week as the company announces first-quarter results on May 4th. The quarter will of course be of little value since production will not begin until later in 2022 with the exception being a report on new reservations. Fisker has already announced 40,000 initial reservations for its fully electric Ocean SUV. Production is expected to begin in November and the SUV models range in price from $37,499 to $68,999. This stock will likely be flat for a while until it gets closer to production of what could be a breakout custom EV SUV. BUY A HALF POSITION

Ford (F) shares were up this week as the company’s much awaited EV pick-up, the F-150 Lightning, goes into production. Please see the introduction for more information on how Ford hopes to challenge Tesla. By 2030, it expects half of its global sales to be fully electric vehicles and targets $50 billion in EV investment through 2026. Trading at less than four times trailing earnings, a fraction of its sales, and just seven times the free cash flow, this is perhaps the best value of the leading EV makers, so I encourage you to buy if you have not already done so. BUY A FULL POSITION

Local Bounti (LOCL) shares were up 7% this week and it has climbed into the black as a relatively new recommendation. The company closed its acquisition of California-based Hollandia Produce Group, which operates under the name Pete’s. Local Bounti uses proprietary technology to grow leafy greens, as well as cilantro and basil, using 90% less land and water than traditional agricultural methods – and without pesticides.

Local Bounti exceeded its pre-SPAC 2021 revenue projections with 32% gross margins in its last quarter. The company raised, through the SPAC, $125 million, including from agriculture giant Cargill, which is providing $200 million in debt financing. The company is poised to expand distribution to major food retailers and there is also the potential opportunity to license its technology to major agriculture players since the company already has more than 50 patents. Local Bounti is a company and stock with significant potential operating within a robust trend. BUY A HALF POSITION

Marvell Technology Group (MRVL) shares added a couple of points this week with signs that its cloud-based segment is growing nicely year over year. 5G wireless related sales are also steady with an annual growth rate of about 30%. The average projection by Wall Street analysts for Marvell in the current fiscal year is overall revenue growing 37% and earning per share up 46%. I believe our patience with this stock is deserved given its value price and strong fundamentals. HOLD A HALF POSITION

Novonix (NVNXF, NVX) shares were flat this week – which is a bit unusual for this somewhat volatile stock. The Australian company plays a strategic role as a provider of U.S. synthetic graphite that is both higher quality and lower priced than Chinese graphite. It has a very strong partner in Phillips 66. This is a speculative idea and the company is at least a year away from reaching breakeven in terms of profitability, but it has more than adequate funds to further its production and technology until it plans to be profitable next year. Novonix seems undervalued and remains a buy recommendation. BUY A HALF POSITION

Oracle Corporation (ORCL) stock is back above 80 as its cloud business shows growth. The stock is at about where it was last month, a period when many tech stocks had been weak. Oracle’s newly released Java 18 is being well received by the market as it delivers better performance, stability and security that will further improve developer productivity. This is a solid, well-run company that will likely resume its upward trend when markets are acting better. BUY A HALF POSITION

QuantumScape (QS) shares pulled back a bit this week as Wintergreen Research predicted that the solid-state battery market could grow just under 150% from 2021 to 2028. Quantum’s technology is a leader in solid-state batteries, which could allow us to create electric vehicles that could last for thousands of miles without needing to be recharged. We will need to give this stock some rope to reach some more milestones, but solid-state batteries could be one of the most promising breakthroughs of the EV revolution. BUY A HALF POSITION

Sea Limited (SE) shares pulled back 10 points this week to close at 100. I’m moving this to a buy. Like Amazon, Sea Limited is more than just an e-commerce company.

It’s e-commerce segment Shopee is delivering staggering 400% growth, and it blends this with a robust gaming menu and an emerging digital payment segment called Sea Money which surged by 671% for the year, although it accounted for less than 5% of Sea Limited’s overall 2021 revenue. A Goldman Sachs analyst picked up the company for the first time last week with a buy recommendation and a 196 target. MOVE FROM HOLD A HALF POSITION TO BUY A HALF

StoneCo Ltd. (STNE) shares broke 11 but finished the week down a bit on no news about this fintech Brazilian stock. The stock is still a mile below its high of 95 posted last February. Based in Sao Paulo and founded in 2000, StoneCo is a digital payments company providing financial technology solutions for merchants to conduct electronic commerce across in-store, online, and mobile channels in Brazil. Warren Buffett’s Berkshire Hathaway invested $340 million in this Brazilian fintech company. Fintechs like Stone gain market share by charging less than the big banks.

Brazil’s central bank is well ahead of the Fed as its central bank started hiking in March 2021, taking the benchmark rate to 11.75%. This means that the worst is hopefully in the rearview mirror. BUY A HALF POSITION