Portfolio Changes: Kirkland Lake Gold (KL) – From Buy a Half to Sell
Portfolio cash position: 25%
Stocks trading on U.S. markets faced some resistance as hopes for some sort of stimulus bill fade and as mixed earnings report begin rolling in. A key question is whether the pandemic boom stocks will have the revenue and earnings growth to support their sharp advances.
Our Explorer portfolio had another solid week, led by last week’s new recommendation, Logiq (LGIQ), which was up 30% in its first week.
No changes to the portfolio with the exception that I’m removing our gold allocation to make room for new ideas and to raise some cash. Unless I come across something special, my intention is to find a SPAC idea for next week’s issue.
Position Updates
Afterpay (APT.AX) shares jumped another eight points this past week after a gain of 10 points last week, building on momentum and the announcement this week that its in-store solution is now available to all U.S. customers at some of the best retail stores nationwide. Shoppers can use Afterpay to buy items in select retail stores using their Afterpay card, a virtual, contactless card stored in their digital wallet. Just like using Afterpay online, customers can pay for their in-store purchases in four installment payments, without the need to take out a traditional loan or pay upfront fees or interest.
Afterpay shares are now up about 30% since being added to the portfolio.
If you have not already done so, I suggest you purchase shares, which trade on the Australian stock exchange. BUY A HALF
Alibaba (BABA) shares are showing relative strength, having moved from 295 to break 310 over the last two weeks. This week China’s regulators have approved the IPO of Ant Technology, in which Alibaba has a 30% equity stake. Ant is currently seeking a record $35 billion in dual IPOs in Shanghai and Hong Kong. Once listed, Ant, which was formed in 2004, could have a similar value to JPMorgan Chase, the world’s biggest bank, which traces its roots to 1799. Quite amazing.
Alibaba also has huge upside in cloud infrastructure in China given that its global market share at present is a modest 6%, according to Statista. BABA remains a legacy hold and is an essential core holding for investors looking for a quality stake in the Chinese consumer. HOLD A HALF
Cloudflare (NET) shares lost a little ground this past week after surging 42% last week. Last week, the company announced the launch of its new cloud-based platform Cloudflare One, an easy-to-use platform that promises to secure and connect companies and remote working teams anywhere and on any device. The company also said that it has integrated the Cloudflare One platform with all major providers of identity management and device-security solutions, including Microsoft Active Directory, Google Workspace, and Okta.
This stock is showing impressive momentum as Cloudflare’s management projects revenue growth of 40% in the third quarter and for the full year. NET is a hold for now but I will reassess after we get through the election. HOLD A HALF
Kirkland Lake Gold (KL) shares have been largely treading water for the last month and given that we need to make room for new ideas and that there is little news on the stock from week to week, I’m going to move this premier gold stock to a sell. I hasten to add that if you want an allocation to gold in your portfolio, I have no problem whatsoever with you keeping Kirkland Gold as a long-term gold allocation. MOVE FROM BUY A HALF TO SELL
Logiq (LGIQ) shares jumped 30% in their first week in the Explorer portfolio. The company 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. In short, it’s the “Shopify of Smartphones.”
Logiq’s stock is trading about two times 2020 projected revenue while Shopify (SHOP) is at 30 times and Sea (SE) is trading at almost 60 times revenue. Even allowing for different stages of development and risk factors, this massive gap will likely close. This valuation also makes the company an attractive acquisition target in this high growth strategic space. I like that institutional investors hold only 2% of outstanding shares, so as this story gets out the opportunity for discovery in the investment community is quite high. This is an aggressive idea with significant upside potential. After its surge this week, buy incrementally and more aggressively on dips. BUY A HALF
NovoCure (NVCR) shares suffered some profit taking over the last couple of days, but continue to outperform the market and its industry. Over the past six months, the stock has gained 84%, compared with the industry’s 52% growth. For 2021, its earnings growth rate is anticipated to be 94.4%, which is favorable compared with the industry’s 26%. I still rate the stock a buy and encourage you to buy shares if you have not done so. BUY
Sea Limited (SE) shares took a rest this week after surging 10 points the previous week. We need to keep an eye on the progress that Amazon (AMZN) is making in Southeast Asia, where it launched operations one year ago. Amazon is bringing to Singapore free two- to three-day delivery on a broad assortment of local products for all customers with an order minimum, free one-day delivery for Prime members, and free two-hour delivery on groceries.
But Forrest Li, Sea Limited’s CEO, recently summed up the company’s momentum well: “We are moving into the second half of 2020 firing on all cylinders. Each of our businesses is successfully adapting to capture the immediate growth opportunity in front of us. Each of them is also ideally positioned for the long-term with a significant runway ahead … Garena had another excellent quarter and achieved several historical highs.”
Keep in mind that a majority of Sea’s sales come from its Garena digital gaming platform, which would not be disrupted by Amazon. No change in my hold rating but aggressive investors can add to their position. HOLD A HALF
Taiwan Semiconductor (TSM) shares were choppy and flat this past week after impressive third-quarter earnings were released. Revenue was up 29%, earnings per share were up an even higher 36%, and the company’s return on equity expanded 5% to an impressive 31%.
Fueling those gains is the company’s leading position at the most advanced semiconductor nodes, which includes the highly popular 7-nanometer node, which made up 35% of sales, and the new 5-nanometer node, which just began volume production and made up 8% of sales. The new Apple (AAPL) 5G phone is powered by the A14 bionic chipset, and features 11.5 billion transistors – 40% higher than the A13. I maintain a buy rating on the stock. BUY A HALF
VanEck Rare Earth/Strategic Metals ETF (REMX)’s share price was up this week as lithium and rare earth stocks moved. Rare earths’ global production is not much more than $1 billion each year but they are essential to more than $15 trillion tech products. I view this ETF basket of rare earth and strategic metals stocks serving as an effective hedge on rising U.S.-China tensions and green energy, electrification and climate change tech. BUY A HALF
Vipshop Holdings (VIPS) shares are starting to move ahead of the world’s biggest shopping day – China’s big Singles Day splurge, which could reach $4.8 billion. You might think of the company as the Chinese online version of T.J. Maxx, Ross and Marshall’s all rolled into one. On a price-to-sales and price-to-book-value basis, VIP looks inexpensive compared to its larger rivals so I suggest you buy this stock if you have not already done so. BUY A HALF
Virgin Galactic (SPCE) shares were off yesterday after climbing to 24, more than three times our entry price of 7. This stock has been a bit more volatile as some of the targets for the company have slipped from the fourth quarter of 2020 to the first quarter of 2021. Last week the company gave an update on the next steps for its SpaceShipTwo-powered test flights. I remain positive on this stock and encourage you to build a position if you have not already done so. BUY
Visa (V) shares were flat this week as Visa announced it is launching Visa Tap to Phone, making the product available in more than 15 markets with plans to expand in the U.S. in 2021, and accelerate global product growth in the rest of the world via more than 35 new partners. “With billions of phones around the world at the ready, the opportunity that comes with lighting them up as payment acceptance devices is enormous,” said Mary Kay Bowman, Visa’s global head of buyer and seller solutions. Tap to Phone lets merchants use current-generation Android smartphones or tablets for contactless, or tap to pay, software-based point of sale terminals without additional hardware.
Visa represents one of the most conservative fintech stocks because of its dominant position in the marketplace, and because it has no loans to worry about collecting so its profit margin consistently stays at or above 50%.
I recommend you buy shares if you have not already done so. BUY
