Portfolio Changes:
Paysafe (PSFE) Moves from Buy to Hold
Inflation and Capital Gains Taxes Going Up
Cloudflare (NET) earnings are out today as sector rotation and scrutiny of SPAC-acquired target company valuations continue. Electric vehicle (EVs) stocks are struggling a bit and could be presenting us with attractive entry points.
Treasury Secretary Janet Yellen raised concerns about inflationary pressures earlier this week and then walked it back the next day. Markets said thank you, with the Dow reaching another all-time high yesterday.
Capital gains taxes, the most sensitive of all taxes, are going up and some are saying not to worry, it will only impact 2% or 3% of all Americans.
What they forget is that this elite group owns more than half of publicly traded stocks and a great proportion of property and private companies. This hike in rates will definitely slow and divert private capital flows, leading to less innovation and economic growth.
You may see some marketing content for the Explorer online. While this is intended for new subscribers I thought I would mention that the Explorer has been rebranded a bit as we focus more on picking growth sectors and then the best stocks to play these global growth trends.
Specific key sectors will be at the heart of global competition and the ongoing U.S.-China rivalry. This is because they are strategic, are tied to critical technology, and therefore they will attract government resources and private capital.
The sector battlegrounds in this competition include technology and finance broadly and then specifically space, 5G infrastructure, artificial intelligence, cybersecurity, robotics, drones, electric vehicles, advanced manufacturing, semiconductors and clean tech.
For example, China is already well on its way to creating the Silicon Valley of electric vehicles. In financial technology, the battlegrounds are digital payments and digital currencies, and of course e-commerce.
The Explorer will continue to identify opportunities within these battleground sectors.
Portfolio Updates
Altimeter Growth Corp. (AGC) shares were off marginally and I don’t think we can expect too much from this stock until the merger with GRAB gets nearer to completion and is listed on the Nasdaq.
Grab Holdings, Southeast Asia’s ride-hailing and food-delivery giant, is the first Southeast Asian tech unicorn to go public through a SPAC. Altimeter Capital, which organized the initial public offering of Altimeter Growth in September 2020, is putting $750 million into the deal.
I suggest you buy a half position now, in advance of the merger being finalized, if you have not already done so. BUY A HALF
Anglo American (NGLOY) shares are in a slight uptrend, up 5% yesterday as talk of a “commodity super-cycle” gains traction. This play on infrastructure basic materials is also the largest producer of platinum with about 40% of world output, and explores for diamonds, copper, platinum group metals, coal, iron, nickel, and manganese ores. HOLD A HALF
Cloudflare (NET) shares were up 21% in April but gave back six points this week to close at 79 on Wednesday. Earnings are expected out today. I’m going to keep this a hold. Cyber is still a strong power trend and Cloudflare has built a global cloud platform that delivers a broad range of network services making them more secure, and eliminating the cost and complexity. We have already taken some profits but aggressive investors can purchase additional shares on dips. HOLD A HALF
Draganfly Inc. (DFLYF) is the Explorer’s newest position; it fell from 1.7 to 1.5 this week. Not a great start for the speculative Canadian commercial drone company but some turbulence with a small stock like this has to be accepted.
Draganfly manufactures and sells commercial drones, also known as unmanned aerial vehicles (UAVs), worldwide. Its products include quad-copters, fixed wing aircraft, ground based robots, and hand held controllers, as well as software used for tracking, live streaming, and data collection. The company also offers custom engineering and training, simulation consulting, and flight training services, as well as wireless video systems. The consulting and software services are high margin, the products less so but with a sizable market that will only grow with time.
Draganfly has scored a number of industry firsts such as the development of the first quadcopter drone, the first drone to save a life, and the first drone to be inducted into the Smithsonian National Air & Space Museum.
It is important to note that Draganfly is an aggressive, speculative idea as a small company with an annual revenue run of just $5 million and a cash position of $2 million. Draganfly has started the process of preparing for a listing of its common shares on the Nasdaq and has engaged a New York-based investment bank to begin the listing process. AGGRESSIVE INVESTORS CAN BUY A HALF
Fisker Inc. (FSR) shares have been pulled into the SPAC bloodbath over the last month. I’m sure some of you using trailing stop-losses have exited the stock. It is now trading at a bit more than 11 after trading as high as 28 in February. Since we took some profits near its high I have shown more patience than normal with FSR, liking the contract production model and their niche EV market. A key element to the Fisker story is that it won’t manufacture its own vehicles, at least not from the beginning. Rather, it will use large contractors, such as Foxconn, to build Fisker’s vehicles.
Electric vehicle stocks have come back in the last month or two after a good run. The company will have little or no sales revenue in 2021 and the company’s first product will be the custom Ocean, a mid-priced SUV to be launched in 2022. BUY A HALF
International Business Machines (IBM) is one stock you don’t have to worry much about. Last week it announced another increase to its quarterly dividend, the 26th year in a row it has done so. That means it is one of the S&P 500’s handful of stocks (called Dividend Aristocrats) that have lifted their payouts at least once annually for a minimum of 25 years consecutively. IBM already has more than 20 quantum computers connected to the cloud and is offering free access to half of them so that researchers and the general public can experiment. IBM will continue to build supercomputers and operate IT systems but the key emerging growth driver in the company has become the hybrid cloud. This is a great core holding and performing well, with a dividend yield of 4.5%. BUY A HALF
Marvell Technology Group (MRVL) shares closed yesterday at just under 45 after the company completed the acquisition of Inphi Corporation. The combination creates a U.S. semiconductor powerhouse positioned for end-to-end technology leadership in data infrastructure. Marvell designs, develops and sells a wide variety of semiconductor products that are at the core of 5G-capable networks. The company’s processors and products are cutting-edge and already generate $3 billion in annual sales.
Marvell’s key growth markets include drones, data integration and consumer and industrial robotics. The company expects to post double-digit growth in both sales and net profit in 2021. Despite these high-growth markets, the stock is trading at a reasonable 22 times earnings. I suggest we take advantage of the pullback in tech stocks to begin with a half position. BUY A HALF
Paysafe (PSFE) earnings are expected out next Tuesday, May 11, and this will largely determine what we end up doing with this stock. Its core business is to enable businesses and consumers to connect and transact seamlessly through payment processing, digital wallets, and online cash solutions. With over 20 years of online payment experience, Paysafe connects businesses and consumers across 70 payment types in over 40 currencies around the world. In advance of next week’s earnings report, I’m downgrading PSFE from a “Buy” to a “Hold”. MOVE FROM BUY A HALF TO HOLD
Sea Limited (SE) almost completely retraced its gain from last week on no news. Earnings are expected out on May 18. There is no reason not to expect another great quarter so I’m keeping this stock a buy. We have taken profits several times over the remarkable rise of this stock. It is a great momentum stock in the world’s fastest growth markets of Southeast Asia. BUY A HALF
Taiwan Semiconductor (TSM) shares have been trending down since reaching 138 high in February. Over the last week they fell from 119 to 115. We all know about the chip shortage so this is a bit confusing but keep in mind that this time a year ago it was trading at a mere 49 a share and that the company is spending huge amounts of capital on expanding capacity.
The company announced this week plans to open five new fabrication facilities in Arizona in addition to the one announced last May which may be up and running by 2024.
Taiwan Semiconductor is the dominant player in the global chip market. Last year, TSMC made an operating profit of $20 billion on revenues of $48 billion and 62% of revenue came from customers with headquarters in North America and 17% from those domiciled in China. I would take advantage of recent weakness to be a buyer of this dominant, strategic semiconductor stock. BUY A HALF
Virgin Galactic (SPCE) shares again lost ground this week, trading just short of a price that’s three times our entry point. Since we have taken profits several times at higher prices, I think we should keep holding our remaining shares to see if the company can get back on track and be operational this year. It will likely be summer before the ship, designed and manufactured in California, undergoes glide flight-testing. I’m keeping this stock a hold for now. HOLD A HALF
