Cabot Explorer 747

Facing the usual uncertainty and mixed earnings reports, stocks were a bit choppy this week, prompting the Explorer to exit two positions (details inside). Conversely, Novonix (NVNXF) is up over 100% since August and Cloudflare (NET) continues its strong upward trend. This week we highlight the supply-chain chaos and recommend a new company that’s helping its clients untangle and profit from the disruption.

Cabot Explorer 747

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Profit from Supply-Chain Chaos
There are many ways to get investment ideas, but more than one successful investor has told me it all begins for them with reading the humble front page of a national newspaper. Try scanning the headlines and read the stories that make the front page. It’s usually a problem and a trend that deserves attention. Solving these problems will make some companies very successful and some investors very rich. But not before they study the trend and identify what companies will profit from it.

The most persistent headline these days has to be supply-chain chaos and rising prices. U.S. ports and warehouses, especially Long Beach, California, which handles 40% of America’s imports, are full of goods and short on workers to get the containers to rail transport and trucks. Because 80% of world trade is moved by sea, this part of the supply chain is hitting the headlines. The big forces driving this latest crisis are the rise in offshore manufacturing in Asia, Covid-19 uncertainty, the impact of weather, less dependable clean energy such as wind and solar, and geopolitics.

One long-term trend causing shortages is that businesses adopted outsourcing and off-shoring, just-in-time inventories, and “capital-light” models that separated design from manufacturing. For example, investors poured capital into software design to capture 40% profit margins but shunned the actual making of the microchips.

As with other major developments, supply-chain chaos will have its losers and winners. Possible winners are logistics companies with the technology and reputation for helping clients manage their complex supply-chain issues. Which brings me to my latest recommendation…

New Explorer Recommendation
Coupa Software (COUP)
Founded in 2006, Coupa specializes in software that provides cloud-based business through its spend management platform. Its platform connects organizations with suppliers globally, and provides visibility into and control over how companies spend money, optimize supply chains, and manage liquidity, as well as enables businesses to achieve savings that drive profitability.

Its platform connects its clients with over 7 million global suppliers, helping them purchase the goods and services they need to run their businesses. At the same time, Coupa’s tools help companies build more robust supply chains and save money through strategic procurement such as pre-negotiated discounts with suppliers and pooling client purchase orders.

All of these transactions create data to which Coupa applies artificial intelligence to gain insights that clients can capitalize on to give them an edge over rivals. Some specific services include procurement, invoicing, expense management, payment platforms, contract management, contingent workforce, supplier risk management, and supply-chain design.

The company markets its payments platform and services primarily through a direct sales force. In addition, Coupa has a strategic joint venture with Japan Cloud Computing, and Coupa has an app allowing clients to integrate data and tools with companies such as Microsoft and Workday.

The company already has 2,000 clients, including Amazon and Wal-Mart, with some analysts estimating its potential target market at $94 billion. While the company is still unprofitable, in its most recent quarter Coupa’s revenue surged 42% and free cash flow reached $643 million.

BUY A HALF

Model Portfolio

Portfolio Changes
Glaukos (GKOS) – MOVE FROM HOLD TO SELL
Else Nutrition Holdings (BABYF) – MOVE FROM BUY TO SELL
Virgin Galactic (SPCE) – MOVE TO BUY FOR AGGRESSIVE INVESTORS

Updates
Bombardier Inc. (BDRBF) shares were marginally up in their second week in the portfolio. Bombardier is a global leader in aviation with a niche in private and corporate markets. Headquartered in Montréal, Canada, Bombardier is active in more than 12 countries and supports a worldwide fleet of more than 4,900 aircraft in service with a variety of multinational corporations, charter and fractional ownership providers, governments and private individuals.

Bombardier received a firm order worth $534 million for 20 units of an upgraded variant of its Challenger 350 aircraft, marking its biggest business jet deal this year. The company now has total cash of $3 billion and a manageable debt load of $8 billion. Momentum for the sector and company is picking up and the stock is in a clear positive trend. BUY A HALF

ChargePoint Holdings (CHPT) shares continued their uptrend, edging up another point this week. The stock is well below its 52-week high but rebounding well on the back of developing an EV-charging network that offers drivers in North America and Europe more than 118,000 places to charge their electric vehicles (EVs), and it has 200,000 partner ports. This lead is a huge advantage because of partner network effects; so while competition is intense, I believe that the stock is a buy at its current levels with a medium-term outlook. BUY A HALF

Cloudflare (NET) shares jumped to over 190 on Monday before pulling back to 178, still up 135% so far in 2021. 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; although more aggressive investors can add to their position. Cloudflare has been a steady performer aided by its aggressive sales strategy, its deal with Microsoft, and the fact that the co-founders are significant shareholders. The company will report earnings on November 4. HOLD A HALF

Else Nutrition Holdings (BABYF) shares continue to deteriorate, closing at 1.4. I know that some of you, like me, will stick with the stock waiting for a rebound, but for most it is best to cut our losses with this speculative idea and move on. MOVE FROM BUY TO SELL

Fisker Inc. (FSR) shares were firm as the company announced that it will report earnings on November 3. Fisker offers investors a custom, “asset light” and “Apple of autos” strategy relative to EV maker leaders like Tesla. Its Ocean EV has a sub-$40,000 retail price point, making it a more affordable EV option. We have to accept that the company’s first product will be launched in the latter part of 2022, perhaps ahead of some of its bigger competitors. This is an aggressive stock but I confirm a buy rating on Fisker. BUY A HALF

Glaukos (GKOS) shares followed my downgrade to a hold last week, falling from 46 to 42. Given its lack of momentum and signs that the pandemic’s impact may last longer than expected, I’m moving this to a sell. MOVE FROM HOLD TO SELL

Marvell Technology Group (MRVL) shares increased a point this week. Marvell’s semiconductor chips are used in a number of growth applications such as 5G wireless networks, cloud computing, automotive, and industrial markets. Several Wall Street analysts have raised estimates and Credit Suisse recently 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 5G capabilities. I recommend buying this stock if you have not already done so. BUY A HALF

Novonix (NVNXF) shares breached 5 this week and are up well over 100% since we added the stock to the Explorer portfolio a few months ago. The company’s mission is to support the global deployment of lithium-ion battery technologies for a cleaner energy future.

Based in Australia, the technology and advanced materials supplier is focused on synthetic graphite for the electric vehicle and storage battery industry. Novonix, which has a partnership with Phillips 66, is a non-Chinese synthetic graphite producer, making it immune to any potential disruptions caused by either Chinese politics or its international trade disputes. And the company has quite a bit of technical brainpower behind it. This is an aggressive idea but this stock is a play on an important clean technology. BUY A HALF

Palantir Technologies (PLTR) shares, after a very strong start in 2021, have been going sideways since March, in the 23-25 range, despite posting some very good numbers. However, this “big data” market opportunity is massive and could lead to growth in the years ahead.

Double-digit sales growth and the chance that the company may turn its first annual profit in 2021 may spur the stock forward. Palantir’s stock currently trades at 35 times this year’s sales and is driven by its two core platforms: Gotham, which serves government clients; and Foundry, which provides services for enterprise clients. Its third platform, Apollo, provides cloud-based updates to both markets. HOLD A HALF

Sea Limited (SE) shares pulled back a bit this week though the stock has gone from 200 to 340 so far in 2021. The company expects that its e-commerce revenue will grow 121% this year. Sea’s aspirations are increasingly global, as its e-commerce arm Shopee plans to expand into Poland, India and Spain and is looking at Brazil and France.

I also see further potential upside to Sea because of strong momentum in its gaming portfolio and increasing fintech revenues. I would be an incremental buyer of this stock but long-time holders should definitely take partial profits. BUY A HALF

Veeco (VECO) shares ended where they began in a bit of choppy trading this week. This is an American high-quality provider of state-of-the-art semiconductor fabrication equipment. The company delivers the leading edge technology to U.S.-based and international high-end class chipmakers, some of which are 100% reliant on Veeco technology. Revenue growth for 2021 may be up 30%, and earnings growth may be even better. Veeco represents a backdoor play on semiconductors. I recommend that you acquire shares if you have not already done so. BUY A HALF

Virgin Galactic (SPCE) shares took a hit this week thanks to the increasing prominence of rival Blue Origin after its announcement of plans to lead a team to build a new, privately owned and operated space station called Orbital Reef. Plus, there have been some delays with Virgin’s timetable that are wearing on investors. Still, I remain bullish on this speculative high-risk stock so at the current price of 18 I’m recommending aggressive investors buy. It would be surprising if Virgin does not have some plans to upstage Blue Origin. MOVE FROM HOLD TO BUY A HALF

The next Cabot Explorer issue will be published on November 11, 2021.
Cabot Wealth Network
Publishing independent investment advice since 1970.

President & CEO: Ed Coburn
Chief Investment Strategist: Timothy Lutts
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