Portfolio cash position: 20%
Portfolio changes:
Afterpay (APT.AX) MOVES FROM BUY A HALF TO HOLD A HALF
Cautious Optimism
The Explorer portfolio came alive this week as ElectraMeccanica (SOLO) shares are up 33% in 2021 after surging 179% in the fourth quarter of 2020. LogiQ (LGIQ) shares jumped 22% this week, NovoCure (NVCR) shares made a nice move going from 162 to 177, and Sea Limited (SE) shares continued their upward surge in 2021, moving from 199 to 227 as the company announced it is acquiring an Indonesian bank.
The phrase you hear more than ever from market prognosticators these days is that they are “cautiously optimistic” about the state of the stock market. In some ways this is pretty useless advice, but in another it hits the nail on the head. The market clearly wants to continue to rise; the world is awash in liquidity, and the Fed seems determined to keep interest rates low for some time. In addition, momentum tech stocks seem unstoppable.
Under these conditions, it makes sense to stay about 75% invested in a diversified portfolio, keeping some cash as a buffer and to take advantage of any pullbacks. Take partial profits from time to time.
You may have seen some conflicting articles on the China de-listing issue.
In addition to banning the purchase of shares of dozens of Chinese companies with links to the Chinese military, the Trump administration has also moved to restrict transactions with Chinese payment applications including Alipay and WeChat Pay. Digital payments through Chinese software applications such as Alipay and WeChat Pay exceed $40 trillion annually – almost 150 times the volume of transactions executed by U.S. companies like PayPal and Venmo.
Finally, in 2020, China’s economy grew 3-4% and is expected to account for 16.8% of the world economy compared to 22% for the U.S., according to Moody’s Analytics. China’s economy is expected to grow 9% this year compared to just 3% for America.
Position Updates
Afterpay (APT.AX) shares pulled back a bit from 114 to 110 this past week though the company had a strong holiday season and revenue surged 132% in its last reported quarter. The average basket size for Afterpay users increased 30% and traffic to Afterpay’s brand partners was also strong, as the company saw a 145% year-over-year increase in referrals to global merchants from its Shop Directory. Afterpay has proven to help customer conversion rates increase by more than 20% and average order values increase by more than 25% compared to all other payment methods. I suggest we take partial profits here and I’m moving this stock from a buy to a hold. MOVE FROM BUY A HALF TO HOLD A HALF
Cloudflare (NET) shares increased from 76 to 82 as the company announced that it would report its next quarterly earnings on February 11.
Identity and security needs continue to make this a viable and even preferred cloud play. Think of it as an internet infrastructure play that helps deliver and secure the data and services traveling across the internet. Another positive for this company is its diversified client base. No single customer accounts for more than 5% of Cloudflare’s revenue, and the top 20 customers account for less than 20% of revenue.
I will keep NET a hold at these levels and again advise you to sell some shares to lock in some profits. HOLD A HALF
Companhia de Saneamento Basico do Estado de Sao Paulo: SABESP (SBS) shares treaded water again this week and the stock is getting close to our trailing stop loss. SABESP is a conservative water play with plenty of room to grow in its monopoly territory of Sao Paulo with 18 million not yet connected to its services. In addition, the company is expanding to other regions in Brazil, and even into neighboring countries. It is trading at about 12 times projected earnings, quite a bit off its 52-week high. SBS is an excellent water play in a country with a stock market in a strong uptrend. BUY A HALF
ElectraMeccanica (SOLO) shares went from 7.3 to 8.2 this week and are up 33% in 2021 after surging 179% in the fourth quarter of 2021. A month ago, I advised to sell half of the shares you purchased and this seems to have been a wise move. This is a speculative idea that will attract some serious media attention into 2021 and has a chance to scale up in America and beyond. If you have not yet bought shares, let’s hold off for now. HOLD A QUARTER
International Business Machines (IBM) shares in their first week in the portfolio were quiet though the U.S. Patent Office announced that IBM in 2020 ranked first in the area of quantum computers. Kathryn Guarini, chief operating officer of IBM Research, said, “We see cloud, AI and quantum as the trifecta of technologies for the IT industry.”
The company considers hybrid cloud as a $1 trillion opportunity. The company’s new focus on cloud computing, analytics and cybersecurity are big reasons why sales are likely to reach $77 billion in 2021 as earnings could grow by more than 50%. This is a conservative growth and value play to begin 2021. IBM stock is trading at just over 10 times projected earnings, which is less than half the average for the S&P 500 index. This is a solid, conservative growth play to begin 2021 and on top of all this, IBM offers a 5.1% current dividend yield. BUY A HALF
LogiQ (LGIQ) shares jumped 22% this week. LogiQ is a New York-based leading global provider of e-commerce, mobile commerce, and fintech business enablement solutions for three big markets: Southeast Asia, Europe and the United States. LogiQ’s stock is an aggressive idea that is trading at less than four times 2021-projected revenue. I would be a buyer here, but only incrementally. BUY A HALF
MP Materials (MP) shares are trading at 34 on the back of higher prices for rare earths, which are critical to electric vehicle (EV) motors. MP Materials is the only major rare earths resource in the Western Hemisphere. Its primary rare earth products are key ingredients in permanent magnets that power the traction motors of EVs, robotics, wind turbines, drones and many other technologies. This is a speculative idea so feel free to take some profits. I’m keeping this stock a hold until it comes back a bit more. HOLD A HALF
NeoGenomics (NEO) shares were flat this week and I’m losing some patience with this stock. We will give it some more time as NeoGenomics is a leading operator of a network of cancer-focused testing laboratories in the United States, Switzerland, and Singapore. It is the world’s leading oncology testing company for doctors, pathologists and hospitals serving more than half a million patients each year. Revenue should accelerate in 2021 as the pandemic recedes and pent-up demand drives catch-up in-person testing. This is an aggressive play in a critical, high-growth market. You can still buy shares here if you have not yet done so. BUY A HALF
NovoCure (NVCR) shares made a nice move this week going from 162 to 177 as the company released preliminary numbers for calendar 2021. The company had $494 million in net revenues, representing 41% annual revenue growth, and launched three new clinical trials, expanding its development pipeline to include eight ongoing global studies.
Yet this is still a relatively small company. In 2011, the company launched Optune – its Tumor Treating Fields delivery system – for glioblastoma, the most common primary brain cancer. Studies are underway with other brain cancers as well as pancreatic, ovarian, liver and lung cancers and its technology has succeeded in every clinical test. I rate this stock a buy for long-term investors who have not yet purchased shares. BUY A FULL
Sea Limited (SE) shares continued their upward surge in 2021, moving from 199 to 227 as the company announced it is acquiring an Indonesian bank.
In December, it was granted a license to operate a full-service digital bank by the Monetary Authority of Singapore. This is a big deal but I would again recommend that investors take some profits here. Expect this story will likely continue into 2021 since Sea is Southeast Asia’s biggest gaming, e-commerce and payments firm with more 40 million daily active users in a region populated by 655 million tech savvy consumers. HOLD A HALF
Taiwan Semiconductor (TSM) announced today it will raise capital expenditures to $28 billion in 2021, a 47% year-over-year increase. The company also reported record quarterly revenue and net profit increased 23% compared with the same period a year earlier. Taiwan Semiconductor dominates global chip making with a market share of more than 50%. It also benefits from secular trends of advanced computing and 5G going into next year and beyond. The chip-making business is both capital and brain intensive with half the company’s workforce having postgraduate degrees. The company delivered an impressive return on equity of 31% with operating margins in excess of 40% in its most recent quarter. I maintain a buy rating on the stock. BUY A HALF
Virgin Galactic (SPCE) shares made some incremental gains this past week, increasing from 25 to 27 as investors await progress on launching flights in the first quarter of 2021. Virgin Galactic CEO Michael Colglazier recently outlined how from just a single operational VSS Unity spaceplane today, Virgin Galactic plans to build entire fleets of spaceplanes and fly them out of multiple spaceports around the world with the goal of bringing in annual revenue of $1 billion. Given all the uncertainty regarding the timing of tests and then the launch of the spaceplanes, I recently moved this stock to a hold. HOLD A FULL
