February 25, 2021

If Only General Electric Made Electric Vehicles

You may have seen that a relatively new Explorer idea, Fisker (FSR), was up 38% yesterday. It turns out that my analogy of comparing the company to Apple’s relationship to Foxconn was truer than even I could imagine. The news yesterday was that Foxconn will be making a future Fisker model electric vehicle, and even better, it may be doing so in my home state of Wisconsin.

The Dow Jones index hit a new record yesterday after Federal Reserve Chair Jerome Powell stressed his intention to maintain zero short-term interest rates and continue the bank’s asset-purchase policies.

I’m no Fed hater but I just wish Powell would keep the market and traders guessing about his intentions. My view is the Fed has become a fourth branch of government and is preventing the economic benchmarks from sending signals to investors. The Fed should just stay in its lane and let the economic data roll in. Furthermore, I think a little higher interest rates and inflation might in the end be a sign of strength and good for the market.

I find that it is sometimes helpful to look back in history to understand the companies that are dominating the global economy and stock markets. Perhaps no company represented the weight of American industry, and later reflected the creeping financial sector, more than General Electric, a proud company established in 1892.

Thomas Gryta and Ted Mann chronicle the saga of GE in their book, Lights Out: Pride, Delusion and the Fall of General Electric.

From the beginning, science and finance were combined since the company was born from the combination of Thomas Edison and J.P. Morgan. General Electric electrified America, evolving into a global industrial colossus and a brand hardly different than America itself. Over time it spread its tentacles across a myriad of industries and services and was at the forefront of the conglomerate trend of the 1970s.

Then came “Neutron Jack” Welch.

Born and raised in Salem, Massachusetts (Cabot’s headquarters), bristling with Irish combativeness and charm, Welch was a force unto himself. From 1980 to 2000 he devoured companies, slashed about 100,000 jobs, attacked bureaucracy, and terrified executives on the way to building a machine that churned out earnings that went from $1.5 billion in 1980 to $12.7 billion in 2000. GE was then the most valuable company in America.

Employees grumbled quietly but shareholders were delighted as the stock went up an amazing 40X during these two decades of growth.

A new board member sat through a GE meeting where board members questioned nothing. Afterwards, she asked a colleague, “What is the role of a GE board member?” The reply was, “Applause.”

Few realized or cared that GE had become more of a financial company than an industrial company. It acquired Kidder Peabody but it was GE Capital, fueled by debt, that expanded at double the rate of the overall company to represent almost half of GE’s earnings by 2001 as the stock price surged.

Then came the tech bubble implosion, leading to General Electric’s market value plummeting by $500 billion; it eventually had to let go about half of its workers.

The global financial crisis of 2008-2009 dealt another crushing blow to the company requiring it to seek financial backing from the Federal Reserve to survive. Summing up the humiliation of the company, GE bought back $24 billion worth of stock from 2016 to 2017 only to see its stock price decline.

I’m eager to learn more about the lessons of GE’s humbling through the eyes of former GE CEO Jeffery Immelt, who came out with his own book this week, The Hot Seat: What I Learned Leading a Great American Company.

I can’t wait to wade into his sorry tale.

Position Updates

Afterpay (APT.AX) shares lost a little ground this week despite announcing a partnership with Stripe, a technology company building economic infrastructure for the Internet. The two companies are joining forces to offer Afterpay’s payment service to Stripe merchants through an easy and seamless integration. This momentum stock’s valuation is quite rich so I suggest you take partial profits here if you have not already done so. HOLD A HALF

Anglo American (NGLOY), the Explorer’s most recent idea, was up marginally this week. The company is the largest producer of platinum with about 40% of world output; it engages in exploring, mining, and processing various metals and minerals worldwide. The company explores for diamonds, copper, platinum group metals, coal, iron, nickel and manganese ores. Anglo American plc was founded in 1917 and is headquartered in London. BUY A HALF

Cloudflare (NET) shares are now right where they started 2021 and are down sharply over the last two weeks. I’m going to keep this a hold and will watch the stock to see if it forms a base and then a new uptrend. HOLD A HALF

ElectraMeccanica (SOLO) shares were crushed on Tuesday but rebounded sharply yesterday. This is an aggressive electric vehicle play, way ahead of the fundamentals, which is why I have been recommending taking some profits. HOLD A QUARTER

Fisker Inc. (FSR) shares were up 38% yesterday on news that Foxconn will be making a future Fisker model electric vehicle, and it may be in my home state of Wisconsin. The company will report its fourth-quarter and full-year 2020 financial results after market close today (February 25). Luxury auto veteran Henrik Fisker heads up Fisker and the company’s first product is the Ocean, a mid-priced SUV. With this jump in stock price, I’m moving this stock to a hold. MOVE FROM BUY A HALF TO HOLD A HALF

Foley Trasimene Acquisition II (BFT) (merging with Paysafe) shares lost a point this week. This company is a Special Purpose Acquisition Company (SPAC) formed in October 2020 by Bill Foley. Foley Trasimene is merging with Paysafe Group 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. BFT stock has pulled back a bit but I still rate it a buy. BUY A HALF

International Business Machines (IBM) shares are a conservative play on the high-growth markets of quantum computing software and cloud computing. IBM stock is trading close to 10 times projected earnings, which is less than half the average for the S&P 500 index, and offers a 5.4% current dividend yield. I encourage you to buy IBM as a great core holding if you have not yet done so. BUY A HALF

LogiQ (LGIQ) shares traded in their normal choppy fashion this week, but ended in the black. LogiQ is a New York-based leading global provider of e-commerce, mobile commerce, and fintech business enablement solutions in Southeast Asia, Europe and the United States. LGIQ stock is attractive for aggressive investors at about four times 2020-projected revenue. BUY A HALF

NovoCure (NVCR) shares since last Friday have come back from a high of 190 to 173. I’m moving this to a hold pending a return to an uptrend. MOVE FROM BUY A FULL TO HOLD A FULL

Sea Limited (SE) shares were off a bit this week but are still up about 25% so far in 2021 after a stellar 2020. The company announced this week it is expanding into food delivery on top of its core drivers of gaming, e-commerce and fintech. I see further upside potential to Sea’s share price from: (1) strong momentum in its gaming portfolio; (2) the ramp-up of e-commerce revenues; (3) major new game launches; and (4) the company’s move into India. HOLD A HALF

Taiwan Semiconductor (TSM) shares didn’t do much this week but are up 144% over the last year. Taiwan Semiconductor is the undisputed leader in this sector and the company recently announced it will raise capital expenditures to $28 billion in 2021, a 47% year-over-year increase. With a microchip shortage making headlines every day, I maintain a buy rating on the stock. BUY A HALF

Virgin Galactic (SPCE) is expected to report another quarter with sharp losses (again) after the close of the market today. Earlier this month, this space tourism company delayed a powered test flight of its SpaceShipTwo vehicle and it may announce a new target flight date that could come with today’s quarterly report. If the retest is successful, the company plans a second powered flight, a key step needed before revenue-generating commercial flights can begin. Shares have more than doubled so far in 2021 and we are up 7X since we added the stock to the Explorer portfolio.

We recently sold a half position and will let the remaining half position ride.
HOLD A HALF