Portfolio cash position: 20%
Portfolio changes: MP Materials (MP) MOVES FROM BUY TO HOLD
Invest in the Future
“A desk is a dangerous place from which to view the world.”
John le Carré (1931-2020)
Some of you might have been a bit alarmed at the message attached to last week’s issue that the next issue will be out January 7, 2021. But today we have an update and rest assured, I’ll be following the Explorer portfolio next week and will send an alert if anything unusual happens. I will also have another update and some portfolio changes the following week.
The Explorer portfolio did well this week, led by an explosive 44% surge by LogiQ (LGIQ), and as we head into the final two weeks of the year, opinions on markets are all over the map. The hyper-charged recent IPOs have some investors on edge while the Fed statement today that it will keep buying government bonds until it sees “substantial” improvement is reassuring to many.
I will be watching today’s FedEx (FDX) third-quarter earnings report, with Wall Street expecting $4 a share in earnings on over $19 billion of revenue, compared to year-ago numbers of $2.51 EPS on just over $17 billion of revenue.
One trend that I’m following more closely and looking for new ideas is the aging of America’s, and the world’s, population. More than 15,000 baby boomers are retiring each day and those over 50 account for more than one-third of the U.S. population, half of all consumer spending, and 83% of household wealth. That should make investing in the aging population a lucrative opportunity akin to investing in the software boom in the 1980s or internet in the 1990s. It’s an $8.3 trillion market opportunity in the U.S. and $22 trillion globally.
This is an example of investing in the future, which is what the Explorer is all about. I sure hope we can all get out and about in 2021 to discover new investment ideas. Sitting in front of our computers all day is no way to enjoy work or investing.
Position Updates
Afterpay (APT.AX) shares resumed their rise, zooming from 97 to 120 during the past week as the company announced rapid growth in Canada. On average, Afterpay’s Shop Directory generates 19 million referrals per month globally to its merchant partners. 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. If you have not already done so, I suggest you purchase shares incrementally on the Australian stock exchange, which offers by far the best liquidity. BUY A HALF
Alibaba (BABA) shares are underperforming on a relative basis pending two issues that are clouding the company’s otherwise promising future. The first is the delay by regulators of its planned spin-off of its financial arm Ant Group, which was set to IPO in Shanghai and Hong Kong. It was going to raise a record $37 billion, making it the world’s largest public listing. The second issue is the legislation that passed the House of Representatives last week that could lead to the delisting of stocks such as Alibaba from U.S. exchanges if they don’t comply with U.S. audit oversight rules within a three-year window. You may wish to switch to Alibaba’s Hong Kong listing (9988) to avoid this issue altogether. HOLD A HALF
Cloudflare (NET) shares have nearly quintupled this year (+375%!), and have a good chance of continuing their uptrend. As companies continue to allow their employees to work from home, Cloudflare benefits. Identity and security needs continue to make this a viable and even preferred cloud play. Since October, Cloudflare’s launch of Cloudflare One added around $20 to its stock price on heavy trading volume. I will keep NET a hold at these levels but 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 were up only marginally in their first week in the Explorer portfolio. SABESP is the largest water company in Brazil. This is a great monopoly opportunity that is majority owned by the state of Sao Paulo. The company has a monopoly on providing water and sewage services to over 26 million people in 365 of the 645 municipalities in the State of Sao Paulo.
I like SABESP because the company has plenty of room to grow in its monopoly territory of Sao Paulo with 18 million not yet connected to its services. The state of Sao Paulo has a population over 44 million and represents more than 30% of Brazil’s total economic output. In addition, the company is expanding to other regions in Brazil, and even in neighboring countries. In short, this is an undervalued, underappreciated and overlooked Brazilian stock. It is trading at about 12 times projected earnings, and 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 dipped from 7 to 6.5 this week so our move to self half our position was timely. There are some short sellers out there and of course some profit taking given that the stock was up 169% in November. Electric vehicle stocks have pretty much pulled back as a group. 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 until we get a better picture of an uptrend. HOLD A HALF
LogiQ (LGIQ) shares surged 44% this past week so, while I still rate the stock a “Buy,” I would sell a few shares to lock in some profits as we head into 2021. This fintech and payments stock has done very well for us but can be a bit volatile. 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 trading at just over three times 2020 projected revenue. This is an aggressive idea and I suggest that investors who can deal with some volatility buy shares only incrementally at these levels. BUY A HALF
MP Materials (MP) shares continued their momentum, up almost 10% on Wednesday to breach 28. This makes sense given that the permanent metal rare earths they produce have also been surging. 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. Based on its rapid climb, I’m moving this stock to a hold. MOVE FROM BUY A HALF TO HOLD
NeoGenomics (NEO) shares, added to the portfolio just three weeks ago, have advanced nicely from 45 to 52. NeoGenomics operates a network of cancer-focused testing laboratories in the United States, as well as laboratories in Switzerland and Singapore. It is the world’s leading oncology testing company for doctors, pathologists and hospitals serving more than a half million patients each year. The stock has been in a strong uptrend and revenue should accelerate in 2021 as pent-up demand drives catch-up in-person testing. This is an aggressive play with a focused company 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 jumped last week from 131 to 161 but pulled back a bit to 157 this week. A few weeks ago, NovoCure reported record quarterly results. Here are just a few highlights: Net revenue increased 44% year over year to $132.7 million; sales rose 15% in Europe, 51% in the U.S., 57% in Japan and 205% in China; and net income increased 381% to $9.3 million. The company makes a cancer treatment device called Optune that uses electric fields at specific frequencies to interrupt cell division. Despite its nice move, I still rate NVCR a buy for long-term investors who have not yet purchased shares. BUY A FULL
Sea Limited (SE) shares retraced seven points to 193 as the company completed a secondary stock offering that raised at least $2.57 billion last week. This dilution, and the fact that the stock is up almost 400% in 2020, leading to profit taking, accounts for most of the weakness this past week. Last week the company announced it has been granted a license to operate a full-service digital bank there by the Monetary Authority of Singapore. I would again recommend that investors take some profits here but this story will likely continue into 2021. Sea is Southeast Asia’s biggest gaming, e-commerce and payments company, with more 40 million daily active users in a region populated by 655 million consumers. HOLD A HALF
Taiwan Semiconductor (TSM) shares were again pretty flat this week.
The company, which dominates global chip making, 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 75% of Taiwan Semiconductor’s staff having finished college, and half its workforce has postgraduate degrees. The company delivered an impressive return on equity of 31% in its most recent quarter. I maintain a buy rating on the stock. BUY A HALF
Virgin Galactic (SPCE) shares hit a little turbulence, falling from 32 to 25, as the company aborted a planned test flight of its space craft last Saturday, delaying a key step needed for Richard Branson’s space tourism company to start commercial service. The test flight was delayed after the rocket motor ignition sequence was aborted. After a swift one-day sell-off, investors seemed to take this delay mostly in stride because the move confirmed the company’s cautious approach, and it has more than enough cash to weather any delays.
As the only pure play space tourism stock in the public markets, this remains your best way to gain exposure to this megatrend. Feel free to take some profits if you bought near the recommendation level (7.34 a share). New or aggressive investors can buy at these levels ahead of 2021 developments. BUY A FULL
