May 16, 2024

Portfolio Change: None

Neo Performance (NOPMF) Up 17% in its First Week; SMCI Continues to Soar

Major indexes are at all-time highs as data indicated inflation retreated a bit.

Neo Performance (NOPMF) shares were up 17% during the stock’s first week as an Explorer recommendation as the company reported a swing to profitability (see more below).

Both Toyota (TM) and Honda (HMC) announced breakthroughs in developing solid state batteries for electric vehicles (EVs). This could shake up global EV markets and spur stronger EV sales growth.

China announced this week it is selling $140 billion worth of 40 years and longer bonds. China has only issued these kinds of bonds three times before, including saving big state banks after the 1998 Asian Financial Crisis and during the Covid pandemic. This means something big is up.

Meanwhile, many Chinese companies and wealthy individuals have decided that the best place to make money right now is outside of China. Beijing is watching carefully and will increasingly scrutinize these transactions as it works to get a handle on capital flight.

Also, this week, Russian President Vladimir Putin visited with Chinese leader Xi Jinping in Beijing, as the two leaders try to highlight a strong partnership. In the wake of the Ukraine conflict and sanctions, Beijing has been very supportive of the Russian economy. China accounts for around 33% of Russia’s overall trade while Russia makes up only 4% of China’s trade.

China is clearly the dominant partner. For example, about 60% of newly sold cars in Russia are Chinese, double their 2022 share. China clearly has the upper hand.

Finally, I’m working on a profile of the “Quant King” Jim Simons, the mathematician/code breaker/investor who passed away this week at 86. Mr. Simons created the world’s best quant moneymaking through his Renaissance Technologies.

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 20% trailing stop loss in place.

Cloudflare (NET) shares added two points to get to 74 this week as Oppenheimer analyst Shaul Eyal upgraded the stock with a 48% upside potential, highlighting “a dozen unique AI projects” in the pipeline. Cloudflare is an expensive stock from a valuation point of view, but I agree with Eval that this cybersecurity stock is a buy at its current price. Buy a Half

Franco-Nevada (FNV) shares were steady this week after recently reporting that cash flow and net margins were up for this debt-free company, but revenue and profits were a bit lower on a year-over-year basis. This gold-silver-platinum royalty and streaming company remains a buy. Buy a Full

Neo Performance (NOPMF) shares were up 17% during the stock’s first week as an Explorer recommendation. First-quarter net earnings swung to profitability and operating income for Q1 2024 was $5.9 million, vs. a Q4 2023 operating loss of $5.5 million. Neo manufactures the building blocks of permanent magnets and powers many modern uses of these technologies and advanced industrial materials. Neo has ample cash and very low debt levels. The stock also offers us an excellent hedge on China/Taiwan risk, and a forward 6.9% dividend. Buy a Half

Novo Nordisk (NVO) shares zoomed from 126 to 134 this past week as a study found Novo Nordisk’s blockbuster obesity drug cut patients’ risk of heart attacks and strokes irrespective of how much they weighed. This could broaden and deepen the market for Novo’s products such as Wegovy. Hold a Half

PayPal (PYPL) shares were unchanged this week as the company’s new CEO Alex Chriss is looking harder at Venmo, its peer-to-peer mobile app. Venmo users can connect and send money back and forth, often to split the cost of a meal or similar group activity. Venmo needs to find a way to keep more of the approximately $18 billion worth of funds that flow into the platform every month. Payments is a big $1 trillion-plus market, but is also quite competitive. Hold a Half

Sea Limited (SE) shares are up 30% in the last month and this Singapore-based company reported better-than-expected sales this week, helped by its flagship Shopee e-commerce business. Sea operates in Southeast Asia and Brazil – some of the most dynamic markets in the world. Buy a Half

Super Micro Computer (SMCI) shares were up 16% yesterday to follow last week’s gain of 11%. This is a volatile stock driven by AI tailwinds and the fact that clients are consistently choosing Super Micro over competitors in the server business. The consensus on Wall Street projects that Super Micro revenue will rise by 122% to $20.6 billion in 2024 so expectations are high. Hold a Half

Explorer Dominator Blue-Chip Recommendations – More Buy and Hold

International Business Machines (IBM) shares were steady this week and present us with a good buy point after pulling back 10% over the last several weeks. The full impact of Watsonx AI may still be a few years away from taking growth to the next level. IBM still stands out as a quality, inexpensive play on AI and cloud computing, trading at just 16.5 times forward earnings projections. Buy a Half

Unilever (UL) shares tacked on two points this week and are still on sale. About 3.4 billion people use its products daily and 59% of its sales are from emerging markets. This consumer giant is trading nearly 20% below its all-time high share price. It has 14 brands with sales exceeding $1 billion and 30 “power brands” that account for almost 75% of Unilever’s total sales. Buy a Half

Visa (V) shares followed last week’s 10-point rise by adding another five points to reach 282. Yesterday, it announced a suite of new digital features such as the Visa Payment Passkey Service that confirms a consumer’s identity and authorizes online payments through biometrics. When shopping online, Visa passkeys will replace the need for passwords or one-time codes. Buy a Half

Watch List

• BYD (BYDDY)
• ConocoPhillips (COP)

Explorer ETF/Fund Positions

Global X Lithium & Battery Tech ETF (LIT) offers solid exposure to other beaten-down lithium names at a low cost. With an expense ratio of 0.75%. 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

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 the largest Chinese-listed stocks. 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

WisdomTree’s Japan Hedged Equity ETF (DXJ) offers exposure to a broad basket of dividend-rich Japanese stocks hedging for yen currency fluctuations. Buy a Full

Explorer Stocks Summary

Brief company summaries that will not change week to week.

Watch List: BYD (BYDDY) switched to producing only all-electric battery vehicles (BEVs) and plug-in hybrid electric vehicles (PHEVs). The company also manufactures and supplies EV batteries, including to Tesla, and makes its own chips. This is vertical integration that would make Henry Ford proud. BYD is in a strong position to be one of, if not the leader of the EV revolution in terms of size, scale, and growth.

Cloudflare (NET) is both an aggressive and dominator recommendation offering products and services in four cutting-edge fields: cloud computing, AI, cybersecurity, and edge computing. 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.

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 28 consecutive years of dividend increases.

Neo Performance (NOPMF) manufactures the building blocks of permanent magnets and powers many modern of these technologies and advanced industrial materials. These include magnetic powders and magnets, specialty chemicals, metals, and alloys – all using rare earths and minerals critical to permanent magnets. Neo has a global platform that includes nine manufacturing facilities located in China, the United States, Germany, Canada, Estonia, and Thailand, as well as one dedicated research and development center in Singapore.

Neo stock is down 14% this year as rare earth stocks have pulled back due to weak prices; the stock trades at just 17 times forward earnings and 40% of book value. Neo also has ample cash and very low debt levels. The stock also offers us an excellent hedge on China/Taiwan risk, a forward 6.9% dividend, and incentives are aligned with about 20% of the outstanding stock held by management.

Novo Nordisk (NVO) specializes in treatments for diabetes, hemophilia, and obesity. The company supplies half of the world’s insulin, and its diabetes care products are used by over 34 million people today. Novo highlights that more than 750 million people are currently living with obesity and that this is up a multiple of 3X since 1975. In summary, based on sizable and growing demand for this weight-loss drug, this well managed, highly profitable company with an excellent growth profile and potential to develop new products has limited risk.

PayPal (PYPL) is a digital payment giant. With 430 million active accounts generating over $1.5 trillion in payment volume annually, PayPal retains a strong leadership position in the e-commerce payment ecosystem. PayPal has been cutting costs and expanding margins and earnings growth. In addition, PayPal’s new CEO is spearheading an innovation drive doubling down on growth efforts and boosting crypto capabilities.

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. Some of you may recall this stock was an Explorer recommendation in the fall of 2019 at around $30 and became more than a 10-bagger to its 2021 high.

Super Micro Computer (SMCI), commonly known as Super Micro, manufactures enterprise computer server hardware for cloud computing, artificial intelligence, data storage and telecommunications. Super Micro stock looks relatively inexpensive right now for the growth that it has been delivering. The company trades at just two times sales. Super Micro has two larger rivals, Dell (DELL) and Hewlett Packard (HPE), but it is forecast to grow five to 10 times faster. Furthermore, both Dell and HPE have relatively high debt whereas Super Micro has a net positive cash position. This is an aggressive pick in a sector experiencing extraordinary growth.

Unilever (UL) is a dominant consumer goods giant with a trove of 400 recognizable brands in its diversified portfolio – from Vaseline to Dove – that it sells in over 190 countries. However, 30 “power brands” account for almost 75% of Unilever’s total sales. It is a steady, stable stock for an uncertain environment and for a change, its stock is selling at a rare discount – down about 25% from all-time highs and at roughly two times sales. Two other reasons I like Unilever are that 78% of its sales are outside North America and almost 60% are from emerging markets that offer higher consumer sales potential due to better demographics.

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. This leaves it much better poised to outperform the latter going forward.

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