January 23, 2025

Portfolio Changes: iShares MSCI India Small-Cap (SMIN) – Move from Buy a Half to Sell

Big Trends to Watch as Centrus (LEU) Soars 31.8% this Week

The Trump Administration is off and running along with Cabot Explorer stocks as markets closely watch the potential for tariffs on Canada, China, and Mexico.

Mexico and Canada are America’s two largest trade partners, and both countries are bracing for major economic disruption should Trump follow through. Mexico and Canada send about 80% of their exports to the U.S. Market turbulence in stocks based in Mexico or Canada could create an opportunity for us.

The super-VIP inauguration reflected U.S. stock market concentration with prominent positions for mega tech leaders such as Elon Musk, Jeff Bezos, Tim Cook, Sam Altman, Sundar Pichai, and Mark Zuckerberg. All great innovators and leaders, but I couldn’t help but think that their prominence highlights that some of these stocks, which make up a good portion of the market value of the S&P 500, are likely peaking and overvalued.

Perhaps the reliable indicator of this is the cyclically adjusted price/earnings ratio developed by Yale University economist Robert Shiller because it looks back a decade and adjusts for inflation. One way to look at it is that American stocks are now 83% more expensive than when Bill Clinton first took the oath of office, 145% more than when Barack Obama first did and four times Ronald Reagan, which is when markets were priced for a long bull run.

This doesn’t mean that you should go out and sell all your big tech stocks. What the Cabot Explorer has been advising is to take some partial profits and rebalance and diversify to small and mid-cap U.S. stocks and undervalued sectors and countries offering attractive relative valuations and less risk and volatility.

For example, the spread between U.S. and foreign stocks has rarely been this wide. An MSCI index of non-U.S. developed-market stocks tracked by MSCI is about 35% cheaper on a P/E basis and 60% cheaper on a price-to-book value basis compared to their U.S. counterpart.

Emerging market stocks are even cheaper at barely half of the S&P 500 index on a P/E basis which is why I’m headed to Southeast Asia next week to gather intelligence and stock ideas for Cabot Explorer subscribers.

We need to be careful and pick our openings. For example, I would not invest in India right now because although the country could overtake Japan as the world’s fourth-largest economy, growth is slowing and its currency is trending downward while its stock market, even after a haircut, is still quite expensive.

Japan offers some opportunities, but I would avoid the auto sector as it is facing stiff competition from China not in its domestic market but rather in Southeast Asia, where it has dominated for decades.

A backdoor play on China might be Vietnam as it benefits from both sides of the U.S.-China rivalry and offers low-cost manufacturing and booming exports. Remarkably, China is also exporting quite a bit to Vietnam and my guess is Vietnam is adding some value and then re-exporting to get around U.S. restrictions.

Explorer Weekly Stock Commentary

Below is a brief update on each Explorer stock. Any changes in ratings will be highlighted. This section is all you need to read each week.

Explorer Disrupter Recommendations – need to watch more closely and have a 20% trailing stop-loss in place.

Agnico Eagle Mines (AEM) shares were up 7% this week and about 15% so far in 2025. Agnico’s most recent net profit was up 165% and the company announced it will report its next earnings on February 13. Buy a Half

Airbus (EADSF) shares were up 5.5% this past week as its CEO lauded its performance in the Airbus Defence and Space and Airbus Helicopters groups. He also confirmed that it will reach its target of manufacturing 75 single-aisle aircraft a month in 2027. Airbus delivered 766 jets in 2024 and seeks to maintain leadership of the jet-making industry for a sixth year straight. Buy a Half

American Superconductor (AMSC) shares were up over 10% this week as the company looks to build on reported third-quarter revenues of $54.47 million, up 60% year on year. Its products coordinate the power grid, and it is already the leading supplier of high-performance superconductor cables. Its strategically important growth markets such as maritime, Maglev technology, and AI data centers are all huge growth opportunities. Buy a Half

Banco Santander (SAN) shares were steady this week and up 7% in the new year. This quality international bank currently has a forward P/E ratio of only 5.5 and is trading at about 60% of book value. Banco Santander is profitable and is adding millions of new customers in Europe, Latin America, and North America. Buy a Half

BYD (BYDDY) shares broke 70 this week as the company announced it plans to complete its $1 billion plant in Indonesia by the end of 2025, highlighting its ambition to dominate a market traditionally led by Japanese automakers. This is the only Chinese stock among Berkshire’s current holdings. Buy a Half

Centrus Energy (LEU) shares were up 31.8% this week as it is increasingly seen as a proxy for the growth of AI data centers which will likely rely on SMR nuclear facilities to generate their massive electricity needs. According to research from Goldman Sachs, data center energy consumption is expected to surge by 160% by 2030. Buy a Half

Cloudflare (NET) shares were up 9.5% this week as a Citi analyst upgraded Cloudflare from neutral to buy, adjusting their price target for Cloudflare stock from 95 to 145. The company will report its financial results for the fourth quarter after the U.S. market closes on Thursday, February 6. Beyond enabling AI models to run on its network, Cloudflare offers clients an AI Gateway to help developers manage AI models. Hold a Half

Dutch Bros (BROS) shares are up 14% so far this year as the company capitalizes on its Dutch Rewards loyalty program. The key going forward is staying disciplined in opening new locations and not being too aggressive. As coffee giant Starbucks stumbles and slows in China, Dutch Bros has captured the imagination of investors as a compelling growth story. Hold a Half

Sea Limited (SE) shares were up 7% this week as it was selected as a “Stock of the Day” by IBD and looks attractive from a technical point of view. I will soon be at the heart of its Southeast Asia empire in Singapore which has three legs: e-commerce Shopee platform, digital financial services (SeaMoney), and the digital entertainment wing (Garena). The stock is getting expensive, however, trading at more than eight times book value. Hold a Half

Explorer Dominator Blue-Chip Recommendations – More Buy and Hold

Alphabet (GOOG) shares were up 4.7% this week to just under 200 as the company benefits from steady growth in the cloud and connection to AI. Alphabet will report quarterly financial results on January 27. Buy a Half

International Business Machines (IBM) shares were up a couple of points this week as it executes a low-risk AI strategy with IBM’s watsonx platform providing all the tools enterprises need to train and manage AI models that can be run on multiple public clouds. The company has also built the world’s largest quantum computing network through its “Quantum Platform.” Buy a Half

Visa (V) shares were up 4.7% this week and Visa is a great company which over the last decade has an average profit margin of 48% generating a strong cash flow, but until this week the stock has struggled of late as the U.S. government seeks to make the case that Visa is a near monopoly on the debit card side of the business. Buy a Half

Watch List – Stocks we like but do not follow day-to-day

ConocoPhillips (COP), Franco-Nevada (FNV), Moog (MOG-A)

Explorer ETF/Fund Positions

Aberdeen Asia-Pacific Income Fund (FAX) is a close ended fixed income mutual fund launched and managed by Aberdeen Standard Investments (Asia) Limited in Singapore. Buy a Half

Grayscale Bitcoin Trust (GBTC) offers investors a way to track very closely to the day-to-day or “spot” movement of bitcoin prices. For aggressive investors comfortable with volatility. Buy a Small Allocation

iShares MSCI India Small-Cap ETF (SMIN) is an $856 million fund that holds a basket of about 500 small-cap India stocks. It is nicely diversified with the top 10 stocks accounting for just 12% of assets. The lead sector is industrials at 25%, followed by finance at 15%, consumer goods at 14%, basic materials at 13% and healthcare at 10%. Unfortunately, as I mentioned in the opening, India’s economic growth has slowed of late and its stock market has pulled back. Thus, our position in SMIN has been a disappointment, down 14% in the five and a half months since we added it to the portfolio. It’s time to move on. Move from Buy a Half to Sell

JPMorgan Equity Premium Income ETF (JEPI) offers double-digit yield coming from both option premiums and dividends using a value-focused strategy. Buy a Full

Morgan Stanley China A Share Fund (CAF) offers exposure to a basket of top Chinese-listed stocks. Buy a Half

Oberweis Micro-Cap Fund (OBMCX) fund stands out for several reasons. The fund’s sound investment process and strong management team earns it a rare Morningstar Medalist Rating of Gold. Over the past five years it has posted an impressive average annual return of 21.1%. Buy a Half

Sprott Platinum and Palladium ETF (SPPP) offers direct exposure to both platinum and palladium which are selling at a sizable discount to gold offering potential upside appreciation. Buy a Half

WisdomTree Emerging Markets High Dividend Fund (DEM) offers a high dividend yield and some of the highest quality emerging market stocks. Buy a Half

Explorer Stocks Summary

Brief company summaries that will not change week to week.

Agnico Eagle Mines (AEM) follows a conservative strategy and with a history spanning more than 60 years, and now operates a sizable portfolio of 11 assets located in four countries. Management forecasted gold production of approximately 3.45 million ounces in 2024. The company estimates it has about 54 million gold ounces of proven and probable reserves. Furthermore, Agnico Eagle has paid a dividend for 41 consecutive years with a dividend compounded growth rate of 23% per year since 2005 and paid a dividend of $1.60 per share in 2024.

Airbus (EADSF), along with Boeing, is one of only two manufacturers, that make the full-size commercial jets needed by the world’s airline industry. China’s COMAC is making gains but probably a decade away from being a competitive rival. Boeing’s troubles are Airbus’s opportunity. Airbus, incorporated in the Netherlands but based in Toulouse, France, is making planes as fast as it can and has a backlog of more than 8,600 orders to fill. Airbus last year beat Boeing for the fifth straight year in the orders and deliveries race, with 2,094 net orders and 735 delivered planes. I visited its facilities recently and while it shares some of Boeing’s supply chain challenges, Airbus has a clear edge right now. Airbus is benefiting from its decision to deliver the fuel efficient to launch A321neo, a single-aisle aircraft with 180 to 230 seats. Fuel is one of the airlines’ biggest costs. Airbus’s new A321XLR model will also enable airlines to use cheaper narrow-body jets on long-haul flights.

Alphabet (GOOG) is becoming a play in artificial intelligence (AI) play. To dominate in AI, it takes two things: lots of data and lots of computing power (and the energy to run it). Perhaps the biggest challenge for companies hoping to capitalize on that idea has been a lack of data – the kind that Google is sitting on through decades of running the internet’s dominant search engine. But the parent of Google, Alphabet, is much more than this as evidenced by the just announced breakthrough in quantum computing with Willow, a chip that’s faster than the world’s most powerful supercomputer. This highlights the firepower of the company and long-run potential to dominate new emerging technologies. Alphabet also owns the world’s most-visited video platform (YouTube), the world’s third-largest cloud (Google Cloud), and a host of interests in other technologies, like autonomous driving, quantum computing, and smartphone software.

American Superconductor (AMSC) aims to modernize the electrical grid by helping it connect and distribute power. Its products allow and coordinate the power grid including transmission lines, substations and generators. For example, its mega-watt scale power control gear leads to safer and more resilient and efficient power grids. The company is already the leading supplier of high-performance superconductor cables and its top markets are strategically important growth markets such as: Maritime, Maglev technology, and AI data centers – a huge growth opportunity.

Banco Santander (SAN) was founded in Spain in 1857. The bank’s U.S. headquarters is in Boston, but its strength lies in Latin America and Europe where it has more than 8,000 branches with 171 million customers as well as 58 million digital accounts. About 55% of deposits and loans are in Europe with the balance in Latin America. In its most recent quarter, Santander’s revenue was up 8% while net profits increased 16%.

BYD (BYDDY), in both 2021 and 2022, more than tripled sales from the previous year. That’s hyper growth and including hybrids, BYD has already surged past Tesla in terms of sales. Most of BYD’s sales are still in China but it has a big international expansion underway, including in the U.S., Europe, and Asian markets. BYD is the world’s largest EV battery maker and with CATL and others, is working on sodium-ion batteries. Much less energy dense than lithium batteries, sodium batteries should be much cheaper. BYD will also launch a next-generation Blade battery in 2025, with longer range and faster charging. That, along with various other models, could help rev up BEV sales growth next year. BYD expects solid-state batteries for high-end models by 2027, but not fully reaching lower-end models until 2030-2032.

Centrus Energy (LEU), based in Bethesda, Maryland, supplies nuclear fuel and services for the nuclear power industry in the United States, Japan, and Europe. Centrus Energy is building an enrichment facility in Ohio and would be very likely to benefit especially if federal funding moves forward to support this and other nuclear projects. I believe Centrus stock will benefit from increasing demand for its services, and that downside risk is low while upside potential is significant.

Cloudflare (NET) is both an aggressive and dominator recommendation offering products and services in four cutting-edge fields, though cloud computing is its bread and butter. Its global reach is breathtaking as 20% of all web traffic runs through Cloudflare’s network and over 95% of internet users from 180 countries worldwide access the company’s services each day. And it reaches these users within 50 milliseconds. The firm’s client list includes more than 30% of Fortune 1000 companies and the ability to efficiently move and connect data – from where it is located to where it is needed (edge computing) – is a massive business opportunity in which Cloudflare already excels.

Watch List: ConocoPhillips (COP) is a global energy industry giant and one of the largest independent exploration and production (E&P) companies in the world, as measured by production levels and proved reserves. The company, founded in 1917 and based in Houston, has operations in 13 countries, although almost half the company’s production is derived from U.S. sources.

Dutch Bros (BROS) is an operator and franchisor of drive-through coffee stores, with 950 stores as of the end of the third quarter, including 38 that it opened in the quarter. It’s expanding at a steady pace, expecting up to 165 new stores in 2024, and it envisions up to 4,000 stores over the next 10 to 15 years.

Watch List: Franco-Nevada (FNV) is a company with more than half of its revenue coming from gold, but it also offers exposure to platinum, silver, and oil and gas. Franco-Nevada’s focus on royalties and streaming reduces risk and enables it to sidestep the huge capital costs that impact traditional miners. It enjoys cash flow and profits as its mining partners finance and complete exploration and expansion projects. That cash flow enables it to invest in new deals, pay a dividend, and operate debt free. Franco-Nevada has increased its dividend each year since its IPO in 2008.

International Business Machines (IBM) is a blue-chip artificial intelligence (AI) and India play with a nice dividend yield. Known as “Big Blue,” IBM now primarily helps businesses and governments manage their information technology in the cloud era. The stock sells at a discount to the S&P 500 multiple and the information technology sector’s forward earnings multiple. IBM has paid a dividend every quarter since 1916 and has had 29 consecutive years of dividend increases.

Watch List: Moog (MOG-A) supplies advanced primary flight controls on the most modern military aircraft. That includes the Lockheed Martin F-35 Lightning II and the Future Long Range Assault Aircraft program. The company’s major platforms include the 787, A350, Joint Strike Fighter (F-35 Lightning II). The company also supplies primary flight controls for the Boeing 787 and Airbus A350 widebody aircraft, as well as business and regional jets from Embraer (ERJ) and Gulfstream, owned by General Dynamics (GD).

Sea Limited (SE) has three core businesses: 1) digital gaming/entertainment, 2) e-commerce, and 3) digital payments and financial services, known as Garena, Shopee, and SeaMoney, respectively. Garena is a leading global online games developer and publisher. Shopee is the largest e-commerce platform in Southeast Asia and Taiwan. SeaMoney is a leading digital payments and financial services provider in Southeast Asia.

Visa (V) doesn’t extend credit but provides the plumbing for financial payments and communications throughout the world. Visa’s financial infrastructure also underpins much of the world’s commerce. The duopoly between Visa and Mastercard is often referred to as one of the best businesses in the world, with insurmountable moats, low operating costs, and plenty of opportunities for unlocking additional value. Visa currently trades at a discount to its archrival MasterCard.

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