Cabot Global Stocks Explorer 732

The second quarter and major league baseball opens today after a good week for Explorer recommendations. Tech stocks struggle a bit but some EV stocks bounce back as investors look to play the long game. The Biden infrastructure plan captures media attention and today’s new recommendation should benefit from one of the plan’s more ambitious goals—universal broadband access

Cabot Global Stocks Explorer 732

[premium_html_toc post_id="228170"]

Electric Vehicles, the Internet, Semiconductors
All of the above are connected. An upscale electric vehicle (EV) has 3,000 microchips, is massively tied to the Internet, and some producers of EVs are facing slowdowns due to the shortage of semiconductors.

American investors can easily miss the electric vehicle opportunity by focusing only on the U.S. marketplace. Less than 2% of cars sold last year in America were fully electric and Tesla dominates that market with 205,600 sales, followed by GM’s Chevrolet Bolt at 21,000 and Nissan’s Leaf, with 9,500 sales of electric cars.

In 2020, there were about 3.2 million battery electric cars (BEVs) sold throughout the world. Europe led the way, closely followed by China. Roughly 23% of all cars sold in Europe are BEVs; the proportion in China is only 9%. By 2025, China expects total auto sales of 40 million and that 20% of them, or 8 million, will be BEVs.

Semiconductor producers stand to benefit from Biden’s $1.9 trillion infrastructure package that goes beyond fixing roads and bridges to expanding broadband Internet access and boosting funding for research and development. Taiwan Semiconductor Manufacturing (TSM) highlighted this week just how capital intensive this game is as it announced plans to spend $100 billion over the next three years to expand its chip fabrication capacity.

The other big news this week is the challenges western firms are facing in managing relations with China and the risk of Chinese boycotts of their products. Swedish retailer H&M faced a fierce backlash from its pullback from using cotton sourced from Xinjiang this week. Scores of large foreign companies have a presence in Xinjiang, including 50 American firms listed in the Fortune 500.

Finally, please note that Foley Trasimene Acquisition II (BFT), a special purpose acquisition company (SPAC), yesterday announced that they have completed their merger, which was approved and closed on March 30. The combined company now operates as Paysafe and its common shares will began trading on the NYSE under the ticker symbol “PSFE”.

New Explorer Recommendation
Marvell Technology Group (Nasdaq: MRVL)
The best play on 5G may be smart devices – what is known as the “Internet of Things”. This is the name for all the web-enabled devices that collect, send and act on data using sensors, processors and other hardware to talk to each other.

5G is much more than just a faster Internet with data rates more than 100X over 4G technology; it will have a major impact on many industries and services from robotics to artificial intelligence, self-driving cars and, of course, smartphones.

Within the next few years, billions of devices will connect at speeds no one has ever experienced, leading to smart buildings, smart industries and even smart cities.

The 5G launch is off and running with AT&T, Verizon, Sprint and T-Mobile among the leading international carriers all moving forward. Many investors still don’t appreciate just how revolutionary 5G will be. Because its bandwidth has a much higher capacity, network data speeds will be 10 times faster than under the current 4G standard. Mobile data speeds will be up to 100 times faster.

The first 5G smartphones have already hit the market.

My recommendation on all these developments is Marvell Technology Group (MRVL). Marvell is headquartered in Bermuda with operations in the U.S., China, Taiwan, Japan, India, South Korea, Vietnam and several other countries.

Marvell designs, develops and sells a wide variety of semiconductor products that are at the core of 5G-capable networks, processors and devices as they partner with and transition from 4G to 5G. The company’s embedded processors and products are cutting-edge and already generate $3 billion in annual sales

New markets are emerging in which Marvell has a first-mover advantage such as virtual reality, drones, data integration and consumer and industrial robotics. These are all huge markets, giving Marvell a long runway of growth as the company expects double-digit growth in both sales and net profit in 2021.

Marvell is also growing through acquisitions.

A few months ago, the company announced a buyout of fiber-optic component and data center chipmaker Inphi (IPHI) for $10 billion. Marvell also announced this week that it has partnered with Samsung Electronics to jointly develop a new System-on-a-Chip (SoC) to support 5G networks while reducing chipset power consumption by up to 70% more than previous solutions.

Despite its cutting-edge technology and these high-growth markets, the stock is trading at only 22 times earnings. In the company’s latest fiscal year, which ended in January, adjusted net income soared 41% on a 10% increase in revenue. I suggest we take advantage of the pullback in tech stocks to begin with a half position. BUY A HALF POSITION

Model Portfolio

Portfolio Changes
None.

Updates
Anglo American (NGLOY) shares inched up a point this week and the stock seems to be facing some resistance even though copper and other infrastructure basic materials recently reached price levels not seen in close to a decade. The company is the largest producer of platinum, with about 40% of world output, and explores for diamonds, copper, platinum group metals, coal, iron, nickel, and manganese ores. I recommend you buy a half position if you have not already done so. BUY A HALF

Atlas Corp. (ATCO) shares were flat this week at 13.7. This stock has been a bit of a disappointment as a trading play on dislocations in container shipping caused by the pandemic. Atlas charters a fleet of 118 containerships and the pandemic has led to distorted trade flows and a worldwide container shortage crisis. Demand for these shipping containers is surging, supply is frozen so shipping rates are skyrocketing. Atlas posted in its last reported quarter operating margins of 40% with revenue increasing for the quarter, year over year, 36.6% and earnings growing 96.6%. I view Atlas as a trading position with a target price of 20. BUY A HALF

Cloudflare (NET) shares were up 6.8% yesterday, breaking 70. Given the fact that we have taken some profits off the table, I’m going to keep this a hold and will watch the stock to see if it forms a new uptrend. Cyber is still a strong power trend and Cloudflare has built a global cloud platform that delivers a broad range of network services, making them more secure and eliminating the cost and complexity. I suggest we stick with this stock. Aggressive investors can purchase additional shares incrementally. HOLD A HALF

Fisker Inc. (FSR) shares were flat this week on no news. Foxconn recently announced plans to build Fisker’s second generation EV, a development that captured quite a bit of media attention though the company will have little or no sales revenue in 2021. Luxury auto veteran Henrik Fisker heads up Fisker and the company’s first product is the Ocean, a mid-priced SUV. I moved this stock to a buy last week given its lower share price. BUY A HALF POSITION

Foley Trasimene Acquisition II (BFT), a special purpose acquisition company (SPAC), yesterday announced that they have completed their merger, which was approved and closed on March 30. The combined company now operates as Paysafe and its common shares began trading on the NYSE under the ticker symbol “PSFE” starting yesterday, March 31.

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. I still rate this stock a buy and recommend you purchase shares if you have not already done so. BUY A HALF

International Business Machines (IBM) shares continued an uptrend, increasing from 130 to 133. IBM is a conservative, quality play on the high-growth markets of quantum computing software and cloud computing. IBM trades at just 12 times prospective earnings and seven times the company’s cash flow guidance. Plus, IBM is sitting on $13.8 billion of cash even after paying off $3.9 billion in debt in last year’s fourth quarter. As a bonus, IBM delivers a 4.8% current dividend yield. BUY A HALF

QuantumScape (QS) futures indicate an opening up more than 15% this morning as the company announced yesterday that it has successfully met the technical milestone that was a condition to close for the investment of an additional $100 million by Volkswagen into QuantumScape. The milestone required VW to successfully test the latest generation of QuantumScape’s solid-state lithium-metal cells in their labs in Germany.

QuantumScape’s solid-state battery can achieve greater range, superior reliability and a longer life than their lithium-ion cousins. In addition, they’re also capable of charging to 80% in as little as 15 minutes, half the time the fastest Tesla Supercharger takes to charge. Even better, these batteries will be much cheaper than lithium-ion ones once production scales up because of fewer and cheaper materials.

When Volkswagen’s QuantumScape batteries go operational, Volkswagen and its brands such as Audi, Porsche and Bentley could offer cars with 450- to 500-mile range batteries. I recommend that you purchase shares if you have not already done so. BUY A HALF

Sea Limited (SE) shares were up 8.9% yesterday, capping a great week as they surged from 199 to 223; the company now has a market value of $116 billion. Sea’s gaming group continues to grow its user base. Sea has 610 million quarterly active users, a number that is growing at an annual rate of 120%. The company’s Free Fire game is often voted the number one downloaded game all around the world.

E-commerce is Sea’s second growth engine with gross merchandise value of $12 billion and a billion orders last quarter. We have taken profits several times over the remarkable rise of this stock but after its pullback last week, I moved this stock to a buy. BUY A HALF

Taiwan Semiconductor (TSM) shares acted better this week, moving from 112 to 118. I believe this is an excellent entry price if you have not purchased shares yet. Taiwan Semiconductor, usually referred to as TSMC, is dominant in the premium microchip sector and the company recently announced it will raise capital expenditures to $28 billion in 2021, a 47% year-over-year increase.

TSMC was formed when the Taiwan government and Taiwan’s Electronics Research and Service Organization persuaded Philips to start a chip foundry in 1986 together with several local public and private firms and provided half of the start-up cost. TSMC illustrates the potential of state-private sector collaboration, with the state making strategic investments around which private firms can profit. I’m convinced that Taiwan Semiconductor is the most strategically important company in the world. BUY A HALF

Virgin Galactic (SPCE) shares went from 28 to 30 this week as the company announced its newest spaceship as it looks to resume test flights in the coming months at its headquarters in New Mexico. It will likely be summer before the ship, designed and manufactured in California, undergoes glide flight-testing. That will coincide with the final round of testing for the current generation of spacecraft, which will be the one that takes British billionaire and Virgin Galactic founder Sir Richard Branson to the edge of space later this year.

We have taken profits several times, and the share price is four times our entry point. I’m keeping this stock a hold for now. We can afford to wait as the company has over $660 million. HOLD A HALF

The next Cabot Global Stocks Explorer issue will be published on April 1, 2021.

Cabot Wealth Network
Publishing independent investment advice since 1970.

President & CEO: Ed Coburn
Chairman & Chief Investment Strategist: Timothy Lutts
176 North Street, PO Box 2049, Salem, MA 01970 USA
800-326-8826 | support@cabotwealth.com | CabotWealth.com

Copyright © 2021. All rights reserved. Copying or electronic transmission of this information is a violation of copyright law. For the protection of our subscribers, copyright violations will result in immediate termination of all subscriptions without refund. No Conflicts: Cabot Wealth Network exists to serve you, our readers. We derive 100% of our revenue, or close to it, from selling subscriptions to its publications. Neither Cabot Wealth Network nor our employees are compensated in any way by the companies whose stocks we recommend or providers of associated financial services. Disclaimer: Sources of information are believed to be reliable but they are not guaranteed to be complete or error-free. Recommendations, opinions or suggestions are given with the understanding that subscribers acting on information assume all risks involved. Buy/Sell Recommendations: All recommendations are made in regular issues or email alerts or updates and posted on the private subscriber web page. Performance: The performance of this portfolio is determined using the midpoint of the high and low on the day following the recommendation. Cabot’s policy is to sell any stock that shows a loss of 20% in a bull market or 15% in a bear market from the original purchase price, calculated using the current closing price. Subscribers should apply loss limits based on their own personal purchase prices.