Portfolio Changes:
None
Earnings Good, Uncertainty Bad
Markets are a bit jittery despite strong earnings and expected strength as America opens up its post-pandemic economy. China is already at a 5% growth path while India, Japan, and other important economies struggle to get the pandemic under control.
It has been extraordinary to see Larry Summers pushing back on President Biden’s stimulus and infrastructure plan as well as the Fed’s expansionary policy. Since his opinions carry weight, this will be a real fight. Although Fed officials have said the economy is still in recovery mode and requires stimulus from the central bank, that prospect has led tech stocks and other riskier assets to wobble in recent weeks.
After selling two weaker positions last week, Explorer stocks performed fairly well this week given the circumstances as Sea (SE) came out with strong revenue growth as usual, and Fisker (FSR) rebounded.
Stocks are likely to remain volatile due to ongoing inflation fears and the possibility of the Fed tightening way ahead of expectations.
Investors have clearly turned risk averse as Bitcoin is down sharply. The recent price fall has accelerated after three Chinese entities published a statement that financial institutions shouldn’t accept virtual currencies for payment or provide services using them.
Meanwhile, China Mobile announced plans to sell billions of dollars’ worth of shares in Shanghai, days after learning it would definitely be ejected from U.S. markets. The world’s largest mobile operator, which also has a listing in Hong Kong, announced plans to list on the Shanghai Stock Exchange. As part of that plan, China Mobile will issue up to 965 million shares. That implies a deal size of nearly $6.1 billion based on its shares’ closing price in Hong Kong on Monday.
Portfolio Updates
Altimeter Growth Corp. (AGC) shares have held pretty firm over the last week and month. This SPAC’s acquisition company, Grab, will be sending top management to present next week at high profile Goldman Sachs and JPMorgan tech conferences.
Grab is the leading super-app platform in Southeast Asia and the Grab app has been downloaded onto millions of mobile devices, giving users access to over nine million drivers and merchants. Grab offers a wide range of on-demand services in the region, including mobility, food, package and grocery delivery services as well as mobile payments, and financial services in eight countries. On April 13, Grab announced that it intends to go public in the U.S. via a merger with Altimeter Growth Corp. Upon closing of the merger, the combined company expects its securities to be traded on Nasdaq under the symbol “GRAB”.
I suggest you buy a half position here if you have not already done so. BUY A HALF
Anglo American (NGLOY) shares were off a bit this week despite record high copper and iron ore prices 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. This stock has been a disappointment and I’m going to keep this a hold as I look for a better play on clean tech growth. HOLD A HALF
Cabot Corporation (CBT) shares were up marginally in their first week as an Explorer recommendation. Headquartered in Boston, the company was started in 1882 and now operates 45 manufacturing facilities in 21 countries around the world with strong growth in emerging markets.
Cabot’s edge is a combination of technical, commercial and manufacturing talent among the best in the industry, leading to constant innovation and technology. One of the company’s key growth end markets is material used to make lithium-ion batteries. Cabot recently reported its second-quarter results, posting earnings per share that were up a record 79% year over year to $1.38, and pre-tax earnings in materials increased 46%.
For fiscal 2021, Cabot projects earnings of around $5.00 a share meaning that the stock is trading at just over 12 times forward earnings. In addition to a healthy balance sheet, Cabot also has a dividend yield of 2.3%. The stock is an effective hedge on inflation, a play on economic recovery with exposure to the lithium-ion battery sector. BUY A HALF
Cloudflare (NET) shares have been flat over the last month, which we will take as a win given the weakness in tech markets. Revenue in the first quarter came in at $138 million, compared to the consensus estimate of $131 million. That resulted in an (expected) net loss per share of $0.03. The company’s retention rate, which measures spending from existing customers, hit a record 123%. Cloudflare now has four million total customers, with its large customer count up 70% year-over-year, accounting for more than half of total revenue.
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. We have already taken some profits but aggressive investors can purchase additional shares on dips. HOLD A HALF
Fisker Inc. (FSR) shares, while still way off highs and down in the last month along with most SPAC-birthed companies and electric vehicle stocks, bounced back 20% over the past week. My stubbornness in hanging on to this pre-revenue company will hopefully work out but we need to watch this closely. It reported its first-quarter results for 2021 with cash equivalents of $985 million and zero debt. Loss from operations totaled $33.1 million.
As I mentioned recently, I’m sure some of you using trailing stop-losses have exited the stock. It is now trading at 12 after trading as high as 28 in February. Since we took some profits near this level I have shown more patience than normal, 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. Rather, it will use large contractors, such as Magna and Foxconn, to build Fisker’s vehicles.
We have to accept that the company will have little or no sales revenue in 2021, but the light at the end of the tunnel is the company’s first product, the custom Ocean, a mid-priced SUV to be launched in 2022. This is an aggressive stock. AGGRESSIVE INVESTORS - BUY A HALF
International Business Machines (IBM) shares were steady as she goes as this stock has only been mildly impacted by the tech sell-off. IBM is doubling down on hybrid cloud and artificial intelligence as the company unveiled a whole host of new initiatives aimed at pushing the tech giant into areas of potential growth. This is a great core holding and performing well, with a dividend yield of 4.6%. BUY A HALF
Marvell Technology Group (MRVL) shares were up 4.9% yesterday and have gained ground over the last week. 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. BUY A HALF
Sea Limited (SE) shares soared from 202 to 226 this past week after posting another quarter of strong revenue growth. The company reported a 147% year-over-year total revenue growth for the first quarter of 2021. Its digital entertainment segment grew 117%, but it was the e-commerce segment that surged 250% in revenue that really drove the share price increase. The company reported total adjusted (before income taxes and depreciation) profits of $88.1 million, compared to $48.7 million a quarter ago and a loss of $69.9 million a year ago.
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 stabilized over the last month and eked out a small gain this week to close at 112. Taiwan’s tech-heavy stock market, the Taiex, has pulled back in the last several weeks after a good run.
The company recently announced 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. Importantly, the company controls 84% of the market of the smallest, most efficient chips. About 60% of revenue came from customers with headquarters in North America and 20% from those based 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 were up for the week as the company continues to work on technical issues prior to its launch of commercial space flights and, even before that, making sure that the VSS Unity is complete and the space plane is ready to start pre-flight procedures.
Virgin Galactic stock is trading at a price that’s just over two times our entry point. Since we have taken profits several times at higher prices, I will keep hanging on to shares in the Explorer portfolio but more conservative investors may want to sell their shares as they come with a high degree of uncertainty and the stock has broken down from a technical standpoint. It will likely be late 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
