September 23, 2021

Portfolio Changes:
No Changes

Seasonal Investing
A recent survey by the American Association of Individual Investors (AAII) showed that the percentage of investors who think stocks will rise over the next six months plunged to its lowest level in more than a year.

Bullish sentiment sank 16.4 points to 22.4%, one of the fastest drops in history. Meanwhile, bearish sentiment rose 12.1 points to 39.3%. That marks the seventh week of the last nine that pessimism has exceeded the historical average. Yet we had only a mere 4% pullback in the S&P 500 from its recent highs, and now stocks appear to climbing again.

Perhaps the mood is gloomy since September has been a difficult month for the U.S. market. The S&P 500 has been up just four out of this month’s 13 trading days, which puts the index on track for its first down month this year. Since 1950, the Dow Jones Industrial Average has averaged a 0.8% decline during September. The S&P 500 has averaged a 0.5% decline.

This seasonal trend is also indicated in Wall Street’s most famous adages. A “Sell in May and Go Away” strategy focuses on the period between October and April – typically the strongest months for the stock market.

Research by Sandro Andrade, Vidhi Chhaochharia and Michael Fuerst examined the returns of 37 markets from 1998 to 2012. They found that the “sell in May” strategy generated 6.9% outperformance in U.S. stocks. The average outperformance across the global markets was 9.7%.

These up and down cycles reflect the psychology of markets and investors.
While the outperformance in certain seasons is hard to argue with, selling your whole portfolio and then putting it back together is not a practical strategy unless your stock portfolio is all in a deferred account and trading costs are rock-bottom low. In addition, surprises can come any day – regardless of season – and put a dent in the market, and your portfolio.

For example, Evergrande is a giant 25-year-old developer based in Shenzhen, China that is in the middle of a debt crisis. Chinese authorities are asking local governments to prepare for the potential downfall of the company. On Monday, Evergrande’s problems were felt in U.S. markets, as the Chinese developer’s debt problems were at least partly blamed for sending U.S. stocks plunging more than 2%.

Yet another out-of-nowhere, portfolio-damaging surprise that can arrive at any moment.

Portfolio Updates

Explorer Trading Stocks
ChargePoint Holdings (CHPT) shares are way off their 2021 highs despite reporting that the most recent quarterly revenue grew 61% year over year. ChargePoint has developed an EV-charging network that offers drivers in North America and Europe more than 118,000 places to power up their EVs.

It is the leading North American Level 2 charging network, which uses 240-volt power. It also has more than 2,000 publicly available fast-charging stations and is growing its network in European countries. This lead is a huge advantage because of network effects as the company already has partnerships with more than roughly 60% of the Fortune 50 companies. Therefore, while competition is intense, I believe that the stock can be accumulated at its current levels. BUY A HALF

Cloudflare (NET) shares are up sharply this year and this week have jumped from 125 to 137. This is one my favorite stocks given its aggressive sales strategy, and the company is protected by several moats, including network effects and high switching costs, and the co-founders are still heavily involved. The company grew revenue 53% in its most recent quarter. This company provides network security, performance and reliability services to a growing portion of global web traffic. I’m going to keep this a hold though more aggressive investors can add to their position. HOLD A HALF

Fisker Inc. (FSR) shares over the last week have gone from 12.3 to 13.7 as investors take a wait-and-see approach to the stock. Fisker’s Ocean EV has a sub-$40,000 retail price point, making it a more affordable EV option. We have to accept that the company will have little or no sales revenue in 2021 and that the company’s first product won’t be launched until 2022. This is an aggressive stock but I confirm a buy rating on Fisker. BUY A HALF

Glaukos (GKOS) joined the Explorer last week. Based in Laguna Hills, California, Glaukos is a medical technology company focused on innovative therapies for the treatment of glaucoma, corneal disorders and retinal diseases.

Glaucoma can develop in one or both eyes – it’s actually a group of diseases that damage the eye’s optic nerve, causing loss of vision or blindness. The disease creates pressure inside the eye. Symptoms move incrementally and without treatment, people with glaucoma first lose their peripheral vision and can become blind. There is no cure for glaucoma and patients usually begin treatment with eye drops. But many eventually opt for cataract surgery. Glaucoma currently impacts 3 million Americans and the usual surgery is invasive and can have serious side effects, including bleeding and retinal detachment.

In contrast, Glaukos’ revolutionary product is the iStent, a tiny L-shaped titanium implant. This is reversing and the company’s second-quarter revenue soared 148%. Glaukos has the most comprehensive pipeline in ophthalmology. New product launches will expand its market opportunities including acquisitions and expansion into international markets. The timing to invest in the stock is logical since its share price is down more than 49% from its 52-week high and its balance sheet is solid with more than $400 million in cash. BUY A FULL

Marvell Technology Group (MRVL) shares have been stuck in a trading range over the past month. On a year-over-year basis, Marvell earnings in the recent quarter jumped 62% while sales surged 48%. The stock is up about 45% since May. Credit Suisse upgraded the stock, calling Marvell “one of the most strategic assets in semiconductors.” Marvell’s semiconductor products are state-of-the-art and in high demand, allowing businesses and consumers to take advantage of new 5G capabilities, and the majority of those products are proprietary and made in-house. I recommend buying at current prices if you have not already done so. BUY A HALF

Novonix (NVNXF) shares have doubled since early August. It is an Australian technology and advanced materials supplier focused on synthetic graphite for the electric vehicle and storage battery industry. Novonix is a non-Chinese synthetic graphite producer, making it effectively immune to any potential disruptions caused by either Chinese politics or its international trade disputes.

Novonix is a technology-first company that traces its corporate lineage directly to a Tesla-sponsored battery research lab at Dalhousie University in Nova Scotia and has quite a bit of technical brainpower behind, all of which is based in Australia. This is an aggressive idea but this stock has been in an uptrend since May and is a play on an important clean technology. BUY A HALF

Palantir Technologies (PLTR) shares broke through to 29 this past week only to settle back at 27. The “big data” market opportunity is massive and should lead to growth in the years ahead. Palantir is growing its government business in the short term while taking a long-term approach with commercial clients, plus investing in start-up type companies. This data and software company looks to expand its commercial client base, with its non-government commercial revenue growing 90% year-over-year.

The stock is bit expensive but not totally out of whack considering its potential growth and accelerating free cash flow generation. I encourage you to consider buying shares with a medium-term outlook if you have not already done so. BUY A HALF

Sea Limited (SE) shares were flat this week after a nice surge the previous week. Garena’s popular hit game Free Fire continued to be the highest-grossing game in Southeast Asia, Latin America, and India and achieved a record of over 150 million peak daily active users during the quarter. Total revenue in the quarter was $2.3 billion, up 159% year over year, and total gross profits were $930.9 million, up 363% year over year. I would be an incremental buyer of this stock but long-time holders should definitely take partial profits from time to time. BUY A HALF

Taiwan Semiconductor (TSM) shares are up over the past month but regrettably sit just above where they were six months ago. This is despite the company announcing plans to raise prices in line with increased demand. Consensus expectations are for TSMC to post $56 billion in revenue this year; it could generate $75 billion in revenue in 2025. A headwind is that the company plans to spend roughly $100 billion over the next three years. I encourage you buy this dominant, strategic semiconductor stock if you have not already done so. BUY A HALF

Veeco (VECO) shares ticked up to 22 and change over the last week.

The company is an American high quality provider of state-of-the-art semiconductor fabrication equipment. It delivers the leading edge technology to U.S.-based and international high-end class chip makers, some of which are 100% reliant on Veeco technology to deliver next generation chips.

On the numbers side, analysts expect business to pick up nicely in 2021, with revenue growth close to 30% and with up to 50% earnings growth, from 86 cents per share to $1.29, and then to grow further in 2022.
If this comes to pass, VECO is growing earnings at a solid 20%-plus rate but is valued at about 18X current-year earnings and about 15X forward earnings estimates. BUY A HALF

Virgin Galactic (SPCE) shares have held steady despite a good bit of uncertainty concerning the timing of progress and future revenue expectations. This has weighed on the stock throughout 2021. I believe a hold rating is appropriate for the time being. HOLD A HALF

Explorer Core Stocks
International Business Machines (IBM) shares have pulled back since early June and are now trading at 134. While the Wall Street adage “nobody ever got fired by buying IBM” is certainly true, some must be wondering if IBM is dead money or a potential turnaround play. The positives are pretty clear. IBM has a new CEO and ambitious plans for the future. Big Blue will split into two companies by the end of the year and the stock’s valuation is cheap, trading at just 11 times prospective earnings – less than half the level of the S&P 500. Plus, it yields 4.9% while sitting on $8 billion in cash. This is an ultra-conservative income play that should probably find a home in any global portfolio. BUY A HALF