January 28, 2021

Power Shift to Washington

This week a number of Explorer stock retraced last week’s gains, with a major exception being the explosive 45% surge in Virgin Galactic (SPCE) on top of its previous week’s 25% surge. It appears that key test flights are forthcoming as well as more space mania and space ETFs. I recommend selling a half position and holding the balance.

Also, please note that we sold MP Materials (MP) for a 150% gain last Friday. The reason was a press release I saw that another rare earths company based in Australia, called Lynas (LYSDY), had entered into an agreement with the United States government to build a commercial rare earths separation plant in Texas or Arizona.

While it will take some time for this project to get up and running, it will effectively end MP’s status as the only rare earth producer in America. In addition, MP Partners had a market value twice that of Lynas’s despite the fact that Lynas produces more rare earths on an annual basis and is also more advanced on a technological level.

As we move into 2021, some trends that began last year are likely to hold.

Financial technology (fintech), clean energy such as electric vehicles, semiconductor and healthcare stocks may all accelerate this year.

The gigantic stimulus and the Biden agenda will be a tailwind for these sectors and as long as interest rates stay low the momentum will likely continue.

But ironically, the widespread distribution of Covid-19 vaccines leading to the eventual return to normalcy could unleash a tremendous burst of consumer spending and higher economic growth rates in late 2021 or 2022.

These inflationary pressures could force the Fed to lift interest rates and put a damper on the bull market. The other issue is the U.S. dollar. If the dollar continues to decline, there will be pressure to raise interest rates to defend its value and role as the world’s reserve currency. Already we see some movement towards Chinese government 10-year bonds that offer investors 3% interest rates and a rising yuan.

We’ll see how this great game plays out. It seems more eyes will be on Washington than on Wall Street.

Position Updates

Afterpay (APT.AX) shares were up four points this past week after jumping last week from 109 to 141. The stock is up 25% over the last month as the company reported that the average basket size for Afterpay users increased 30% and the company saw a 145% year-over-year increase in referrals in the latest reported quarter. This momentum stock is growing fast but its valuation is quite rich. I suggest we take partial profits here and I’m moving this stock from a buy to a hold. HOLD A HALF

Cloudflare (NET) shares reversed recent gains to close at 75 as the company announced that it would report its next quarter 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. I will keep NET a hold at these levels and again recommend that you sell some shares to lock in some profits. HOLD A HALF

Companhia de Saneamento Basico do Estado de Sao Paulo: SABESP (SBS) shares went sideways again this week and I have lost patience with this stock. Despite its monopoly power and low valuation, I’m moving this company to a sell. MOVE FROM BUY A HALF TO SELL

ElectraMeccanica (SOLO) shares rallied in a tough market from 7.3 to 8. SOLO recently announced that the company is expanding its retail footprint to three new West Coast locations in the United States, slated for a March opening. These additions will increase the company’s total retail location count to 13 across 10 major markets. 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

Foley Trasimene Acquisition II (BFT) (Merging with Paysafe) shares were added to the Explorer portfolio last week and struggled a bit, falling from 18 to 15. This company is a Special Purpose Acquisition Company (SPAC) formed in October 2020 by Bill Foley. A SPAC is formed strictly to raise capital through an initial public offering (IPO) for the purpose of acquiring an existing private company. Bill Foley has been involved in more than 100 acquisitions and many spinoffs. His success stories include Fidelity & Guaranty Life and Dun & Bradstreet.

On December 7, 2020, it was announced that Foley Trasimene had signed a plan of merger with Paysafe Group. Upon closing of the transaction, the newly combined company will operate as Paysafe and plans to list on the New York Stock Exchange under the symbol PSFE.

Founded in 1996, Paysafe, based in London, is a payments platform that connects businesses and consumers across 70 payment types in over 40 currencies globally. Paysafe operates a payments platform that enables businesses and consumers to connect and transact through payment processing, a digital wallet, and online cash solutions. The company’s core business right now is online gaming

This SPAC is relatively under the radar and given Paysafe’s business and the attention the SPAC will receive as the merger nears completion, this could work out well. I would add that this an aggressive idea so I would suggest you put in place a 20% trailing stop-loss. BUY A HALF

International Business Machines (IBM) shares drifted a bit lower as the company reported fourth-quarter earnings per share that actually beat the Wall Street consensus but sales of $20.4 billion were down 6%. I’m surprised that investors found this surprising. Total cloud revenue increased 10% in the quarter. The firm is increasing its cloud and AI portfolios through acquisitions and strategic partnerships. CEO Arvind Krishna expects the cloud industry to soon reach $1 trillion, as only 25% of workloads have been moved to the cloud so far.

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 5.3% current dividend yield. IBM also has a cash stockpile of $14 billion. I encourage you to buy IBM as a great core holding if you have not yet done so. BUY A HALF

LogiQ (LGIQ) shares have been bouncing along a range from 8 to 10 and this past week settled at 8.3. 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 2020-projected revenue. I would be a buyer here but only incrementally. BUY A HALF

MP Materials (MP) shares, after increasing 151%, were removed from the Explorer portfolio on January 22 after I noticed a press release announcing that another rare earths company based in Australia, Lynas (LYSDY), had entered into an agreement with the United States government to build a commercial rare earths separation plant in the United States. While it will take some time for this project to get up and running, it will effectively end MP’s status as the only rare earth producer in America. In addition, MP Materials has a market value twice that of Lynas’s despite the fact that Lynas produces more rare earths on an annual basis and is also more advanced on a technological level. MOVE FROM HOLD A HALF TO SELL

NeoGenomics (NEO) shares have been treading water recently as the pandemic is evidently impacting in-person testing. NeoGenomics is a leading operator of a network of cancer-focused testing laboratories in the United States, Switzerland, and Singapore. As the world’s leading oncology testing company, 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 fell with the market, from 169 to 157. Three weeks ago, the company released preliminary numbers for calendar 2020 with $494 million in net revenues, representing 41% annual revenue growth. NovoCure launched three new clinical trials, expanding its development pipeline to include eight ongoing global studies. Yet this is still a relatively small company and its Tumor Treating Fields delivery system – for glioblastoma, the most common primary brain cancer—is gaining traction. In addition, studies are underway with other brain cancers as well as pancreatic, ovarian, liver and lung cancers. I rate this stock a buy for long-term investors who have not yet purchased shares. BUY A FULL

Sea Limited (SE) shares were up from 214 to 232 last week but retraced all of this and more to close yesterday at 206. 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. Sea’s strategy so far is relying on its gaming group Garena to generate sufficient cash to fund surging growth in its e-commerce and digital financial services segment.

Shopee, the e-commerce arm of Sea, is scaling up its operations in Brazil and evaluating the long-term potential of Latin American markets. The Singapore-headquartered technology group’s shares surged more than 400% in 2020. Another growth driver with huge potential is SeaMoney, a digital payments platform that ties together its gaming and commerce segments. I’m maintaining a hold rating on the stock but feel free to take some profits as the stock is struggling a bit to regain momentum in 2021. HOLD A HALF

Taiwan Semiconductor (TSM) shares retraced last week’s gains despite a growing chip shortage as the company announced it will raise capital expenditures to $28 billion in 2021, a 47% year-over-year increase. Taiwan Semiconductor dominates high performance global chip making with a market share over 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 exploded 45% last week, on top of the previous week’s 25% surge, on signs that key test flights are forthcoming as well as more space mania and space ETFs. Given all the uncertainty regarding the timing of tests and then the launch of the spaceplanes, I will keep this stock a hold but SPCE is probably ahead of itself. I recommend selling a half position and holding the balance. The company plans to build entire fleets of spaceplanes and to fly them out of multiple spaceports around the world with the goal of bringing in annual revenue of $1 billion. SELL A HALF, HOLD A HALF