March 24, 2022

Portfolio Changes:
Veeco (VECO) MOVE FROM HOLD TO SELL

StoneCo (STNE) Jumps 59% in its First Week
Brazil-based StoneCo (STNE) surged in its first week as an Explorer recommendation, recovering from a sharp sell-off and spurred along by stellar fourth-quarter 2021 financials in which revenue grew by 87% compared to the last quarter of 2020 and the company reported 1.8 million active customers – 2.3 times more than in 2020.

As NATO leaders meet in Brussels and the Russian stock market opens, the Ukraine-Russia conflict continues to send energy and commodities up (see graphic below, courtesy of Bloomberg, as to why). The Euro Stoxx 50 is down 8.7% this year, versus -5.3% for the S&P 500.

Conventional wisdom is that emerging markets will struggle in the current environment but I’m not so sure about this. Commodity-based countries such as Brazil, which has already gone through a series of interest rate hikes, might be the top performers. Also, at some point we can expect this group to catch up as their valuations have fallen way back behind American and European markets.

Emerging market stocks have returned 3.3% on an annualized basis over the past 10 years, compared with 11.1% for global equities and 12.1% for U.S. companies, according to indexes from MSCI and S&P Global.

Supply-side economics are alive and kicking in Beijing as it announced a $393 billion in tax cuts this month.

Back in America, is Elon Musk getting into nuclear power? Musk tweeted that nuclear is “critical to national security,” while venture capitalist Marc Andreessen called for a thousand new nuclear plants right now. Last year, venture investors plowed a record $3.4 billion into nuclear startups aiming to increase safety and lower costs by pursuing fourth-generation modular technologies.

These developments should help drive several stocks in the Explorer portfolio in the coming months…

Portfolio Updates
Fisker (FSR) shares were up marginally this week. While higher material costs such as nickel are a concern depending on the company’s contracts with its partners, the company still expects to begin delivering its first car – the Ocean SUV – later this year. This custom EV maker has a respected CEO and an asset-light strategy that gives it a chance to capture the custom mid-priced EV market.

Next up after the Ocean SUV is the PEAR, a smaller vehicle with pricing starting at under $30,000. The Fisker Pear will be built in Ohio with a production rate of at least 250,000 vehicles per year. BUY A HALF

Ford (F) shares were up this week though it was reported that the Ukraine situation is impacting Ford’s important European markets. The company’s announcement that it’s splitting the company into two, with Ford Model e in charge of its EV business and Ford Blue handling its legacy combustion engine business, was eclipsed this week by Volkswagen’s announcement of $7.1 billion investment in EV manufacturing in America. Ford targets $50 billion in EV investment through 2026.

For its part, Ford said it would introduce three new electric passenger vehicles and four new electric commercial vehicles in Europe by 2024, adding it plans to sell more than 600,000 EVs in the region by 2026.

As part of its push, Ford deepened its existing partnership with Volkswagen. BUY A FULL

Harley-Davidson (HOG) shares lost a point this week on no news. This leading motorcycle maker is banking on its LiveWire electric motorcycle to open new markets and recently reported a fourth quarter that saw motorcycle revenue surge 54%. In 2021, the company delivered a 39% rise in motorcycle shipments. Harley also announced it would be spinning off its LiveWire all-electric motorcycle business into a stand-alone publicly traded company. BUY A HALF

Marvell Technology Group (MRVL) shares were flat this week as CEO Matt Murphy stated that “5G wireless is a hot spot for Marvell, with growth up 30% sequentially for this quarter alone.” Recently, the California-based company reported that fourth-quarter earnings jumped 72% on a 68% increase in sales as revenue increased in all five of its end markets. Murphy projects that year-over-year growth could be more than 80%. Because the stock is down sharply this year after being up 82% in 2021, we will give it a bit more time to develop an uptrend. HOLD A HALF

Novonix (NVNXF, NVX) shares were up 13% this week, reflecting the company’s critical role as a strategic provider of domestic synthetic graphite. Its products are both higher quality and lower priced than Chinese graphite and the company has a strong partner in Phillips 66. This is an aggressive idea but it remains undervalued and a buy. BUY A HALF

Oracle Corporation (ORCL) stock was flat this week as the company continues to shift to cloud computing with higher growth and wider margins. Together with an undervalued price relative to its peer group, this blend represents a quality technology core holding for conservative investors that seems undervalued. Oracle’s co-founder Larry Ellison owns 43% of the company and this significant ownership indicates that he has prioritized equity instead of cash returns and therefore is focused on the long-term success of the company. BUY A HALF

QuantumScape (QS) shares were up 10% this week but are still about 70% off their 52-week high. QuantumScape is viewed as a leader in promising solid-state battery technology and it expects to start commercial production within two years. The potential of QuantumScape’s technology has attracted some high-profile, influential investors such as Bill Gates, and Volkswagen has invested $200 million in the company. While it will take some time, its technology is on track to develop a battery that will charge to 80% of capacity in 15 minutes. You will need some patience with this one but solid-state batteries could be one of the most promising technological breakthroughs of the EV revolution. BUY A HALF

Sea Limited (SE) shares had another great week, zooming from 110 to 127, and over the last two weeks have surged from 92 to 127. Opinions on Sea stock are all over the map; in its most recent quarter, the company more than doubled its sales year over year while its net loss grew by 18%. Sea’s e-commerce wing, Shopee, is still strong while profit-making gamer Garena has been at least temporarily banned in India. HOLD A HALF

StoneCo Ltd. (STNE) shares were up 59% this week as the company reported a quarter with revenue growing by 87% year over year and 1.8 million active customers – 2.3 times more than in 2020.

Based in Sao Paulo and founded in 2000, StoneCo is a digital payments company providing financial technology solutions for merchants to conduct electronic commerce across in-store, online, and mobile channels in Brazil.

Warren Buffett’s Berkshire Hathaway invested $340 million in this Brazilian fintech company at its IPO in late 2018, which is a bit unusual for the value titan. No doubt the fact that Brazil is largely a cashless society and that 45 million Brazilians don’t have a bank account made this global gambit appealing. BUY A HALF

Veeco (VECO) shares were again largely unchanged this week and despite the company’s strong balance sheet and steady growth, I‘m moving this to a sell to make room for new ideas with more upside potential. Veeco makes the equipment and technology essential for chip fabrication game and some of you may want to continue to hold this stock since it is a quality stock with low downside risk. MOVE FROM HOLD TO SELL