August 12, 2021

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Portfolio Changes:
None.

The Power of Manufacturing
Novonix (NVNXF) shares surged 30% in the stock’s first week as an Explorer recommendation as Phillips 66 (PSX) agreed to acquire a stake in a deal valued at $150 million. Fisker (FSR) shares were up 15% this week as Morgan Stanley came out with a positive outlook and $40 price target. Palantir Technologies (PLTR) reported solid financials this morning.

Total revenue grew 49% year-over-year to $376 million with non-government commercial revenue growing 90%. Unfortunately, Virgin Galactic (SPCE) lost some altitude after an analyst downgrade.

Markets reacted well to yesterday’s inflation data that showed evidence of cooling as the economic recovery continued amid pandemic-related strained supply chains and signs that the recent rise in Covid-19 infections is starting to slow some business activity.

This might reverse the recent momentum among industrial and manufacturing stocks that over the last decade or more have been vastly outperformed by tech and financial stocks. The reason is quite simple: The latter have much lower capital requirements plus higher growth rates and profit margins.

First-level thinking was that moving American manufacturing offshore to lower the cost versus China was a no-brainer for American executives looking to boost profits and share price. Second-level thinking is to ask what happens when your supply chain breaks down and you lose your technology and the critical skills and capabilities to execute advanced manufacturing.

According to the McKinsey Global Institute, while manufacturing in America represents just 11% of its gross domestic product and 8% of direct employment, it drives 20% of the country’s capital investment, 30% of productivity growth, 60% of exports and 70% of business research and development. This multiplier effect is why manufacturing is such an important base for any healthy economy.

This partially explains China’s recent crackdown on internet platform stocks such as Didi and Tencent. They want to make it clear that a higher priority is advanced manufacturing, which they plan to keep above 20% of total economic output. This is why some of the country’s manufacturing is moving to China’s interior where it is then shipped by rail to Europe.

This highlights how China is looking west to seek a leadership role in the largest landmass in the world – Eurasia.

Its ambitious infrastructure blueprint aims to tie China and Asia with Europe. This should be sounding alarm bells in Washington but American companies are actually aiding this effort. Two dozen container trains arrive each week in London and the Netherlands from China filled with Hewlett-Packard computers made in Chongqing, China, and then the trains head back filled with BMW automobiles. This journey takes just 12 days, which is less than half the time it would have taken had the computers been shipped by sea – and half the cost if they had been transported by air.

Portfolio Updates
Altimeter Growth Corp. (AGC) shares treaded water this week after Grab Holdings announced that second-quarter deliveries demonstrated strong year-on year-growth of 49%. Grab is Southeast Asia’s leading super-app platform with over nine million users in Southeast Asia offering them a wide range of delivery, mobile payments, and financial services. I suggest you buy a half position here if you have not already done so. BUY A HALF

Cloudflare (NET) shares have risen 75% in the past three months. During this same timeframe, the S&P 500 has only risen 5%. The fundamentals backing up this performance include: second-quarter revenue rose 53% year over year to $152.4 million, gross profit margin was 77%, and Cloudflare added a record 140 large customers, bringing its total large customer count to 1,088. This company provides network security, performance and reliability services to a growing portion of global web traffic. I’m going to keep this a hold though more aggressive investors can add to their position. HOLD A HALF

Fisker Inc. (FSR) shares were up 15% this week as Morgan Stanley came out with a positive outlook and $40 price target. This was offset somewhat by the company announcing its intention to raise $500 MM through a convertible bond offering. Fisker’s Ocean EV has a sub-$40,000 retail price point, making it a more affordable EV option. We have to accept that the company will have little or no sales revenue in 2021 and that the company’s first product will be launched in 2022. This is an aggressive stock but I confirm a buy rating on Fisker. BUY A HALF

International Business Machines (IBM) shares gained marginally this week as the company moves ahead with its restructuring while delivering steady returns and dividends. Total cloud revenue was $7 billion in the latest quarter, up 13% from a year earlier. IBM stock now trades at just 13 times prospective earnings – half the level of the S&P 500 – and yields 4.6% while sitting on $8 billion in cash. BUY A HALF

Marvell Technology Group (MRVL) shares drifted from 62 to 59 as the company announced a series of acquisitions, including buying startup Innovium for $1.1 billion of stock following its $10 billion purchase of Inphi last year. Marvell designs, develops and sells a wide variety of semiconductor products that are at the core of 5G networks. Marvell’s outlook for the second quarter is $1.06 billion in revenue, up 46% year over year and I recommend buying at current prices if you have not already done so. BUY A HALF

Novonix (NVNXF) shares surged 30% in the stock’s first week as an Explorer recommendation as Phillips 66 (PSX) agreed to acquire a stake in a deal valued at $150 million. Novonix is an Australian technology and advanced materials supplier focused on synthetic graphite for the electric vehicle and storage battery industry.

Wood Mackenzie, a research and consultancy firm, projects that demand is expected to grow from 165,000 tons in 2018 to almost one million tons by 2030 – and the higher purity of synthetic graphite “makes it preferable for use in premium batteries.” This is an aggressive idea but this stock has been in an uptrend since May and is a play on an important clean technology. BUY A HALF

Palantir Technologies (PLTR) reported solid financials this morning as this data and software company looks to expand its commercial client base.

Total revenue grew 49% year-over-year to $376 million with non-government commercial revenue growing 90% year-over-year. The company reported closing 32 deals of $5 million or more and 21 deals of $10 million or more.

The company’s software and data platform is primarily used by government agencies and this revenue jumped 83% year over year. However, Palantir offers highly secure data compared to most competitors. This is a competitive advantage for Palantir. I encourage you to buy shares if you have not already done so. BUY A HALF

Pershing Square Holdings (PSHZF) shares were quiet in their second week as an Explorer recommendation. The stock trades at around a 27% discount to its net asset value. Pershing Square Holdings has a concentrated portfolio of about 10 stocks, and offers you access to the highly respected value investor Bill Ackman’s stock selections and his expert judgment in hedging markets. BUY A HALF

Porsche (POAHY) shares were flat this week. This company offers a broad range of vehicles under the Volkswagen umbrella such as Audi, Bentley, Bugatti, Lamborghini, Porsche, Ducati, Scania, and MAN brand names. Porsche stock trades at less than seven times consensus forecast earnings for 2021. The stock trades at about 70% of book value and has only $37 million in debt. I encourage you to buy a half position. BUY A HALF

Sea Limited (SE) shares are up 600% over the last 18 months but pulled back a bit from 300 as the company continues to exceed high expectations.

I see further upside potential to Sea’s share price from strong momentum in its gaming portfolio, the ramp-up of e-commerce revenues and the opportunity for growth through Sea Money. I would be an incremental buyer of this stock but long-time holders should definitely take partial profits from time to time. BUY A HALF

Taiwan Semiconductor (TSM) shares were quiet this week. The global semiconductor foundry market could grow at a compound annual growth rate of 7.3% from 2021 to 2026, according to Mordor Intelligence. If TSMC matches analysts’ expectations for $56 billion in revenue this year then it could be on track to generate $74 billion in revenue by 2025 and $80 billion in revenue by 2026. TSM currently trades at about 12 times trailing sales.

A potential headwind is that the company plans to boost its capital expenditures by roughly $100 billion over the next three years. I encourage you buy this dominant, strategic semiconductor stock if you have not already done so. BUY A HALF

Virgin Galactic (SPCE) shares opened lower yesterday morning after Morgan Stanley downgraded the stock’s rating to a sell based on valuation while maintaining a 25 price target. The issue now is what news will keep the stock’s momentum moving forward. The company has opened up bookings again with price points as high as $450,000 a seat. I believe a hold rating right now is appropriate, and for the time being I would hold off on taking some partial profits. HOLD A HALF