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Cabot Global Stocks Explorer 722

Markets are choppy, which is normal considering uncertainty is high and we’re less than a week from the presidential election. Today I look at what history can teach us about politics and markets and why it might be a bit different this time. The Ant Technology giant IPO moves forward as China flexes its muscle, and it’s a signal for coming events. Today’s new idea is an electric vehicle play from Canada that is under the radar of even the trends of most avid supporters.

Cabot Global Stocks Explorer 722

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Ant, China, and Politics
For investors worried about how the stock market will fare in the event of a divided government or a sweep by the Democrats, history offers an important lesson. Stocks tend to go up regardless of which party controls Washington. But this time may be a bit different.

From 1929 through 2019, one party controlled both chambers of Congress and the presidency in 45 of those years—roughly half the time. The S&P 500 on average rose 7.45% during those years, according to Dow Jones Market Data. The index was up 30 times and down 15 times. In the other 46 years when there was a split government, the index climbed 7.26% on average, rising 29 times, falling 16 times and remaining unchanged once.

There is one wrinkle this time: a Joe Biden administration would likely increase effective capital gains rates and lean towards redistribution and away from asset holders. Given the significant outperformance of the Nasdaq in 2020, if I were going to lock in some gains and raise cash, I would start there as well as trim some underperformers, as we are doing with Visa (V) this week. Other headwinds are of course the lasting impact of the pandemic and growing tensions with China.

America and New York can no longer take their global leadership role in finance for granted. China’s Ant Technology’s highly anticipated giant IPO on both the Shanghai and Hong Kong exchanges will give it a valuation a bit larger than JPMorgan Chase’s. And it doesn’t even have one branch.

Ant’s Alipay mobile payment service has more than 730 million monthly users and handled $17 trillion in digital payments in the first half of 2020. By contrast, PayPal has half as many users and only a fraction of Ant’s payments. Ant’s systems can process 459,000 transactions a second while Visa says it can handle 65,000 transactions a second.

Ant has been able to develop in China while the government kept out foreign firms such as Visa and Mastercard for four decades.

According to Deloitte, stock exchanges in Shanghai, Hong Kong and Shenzhen will claim first, third and fifth positions in the global IPO ranking by total funds raised in the first nine months of 2020. China is also far ahead of the U.S. and the rest of the world in developing a central bank digital currency (CBDC). Unfortunately, none of these issues were seriously discussed during the campaign.

For our new Explorer recommendation, I have a twist on the hot trend of electric vehicles through a Canadian company with global ambitions.

New Explorer Recommendation
ElectraMeccanica (SOLO)
An Under-the-Radar EV Play
In 2020, despite the pandemic, there has been a surge in investor interest in electric vehicles (EVs). Part of this is due to Tesla’s amazing bounce back since March, a sharp increase in EV sales in China and Europe, and new EV companies that in some cases have merged with Special Purpose Acquisition Companies (SPACs).

Under the radar, a Canadian company has been quietly laying the groundwork to bring to the U.S. west coast and then Europe and Asia a single-seat, three-wheel electric car (dubbed Solo). Heretofore, these Solos have been manufactured in China on a contract basis and shipped to America, but the company’s plan is to open an assembly plant in either Arizona or Tennessee.

The initial rollout next month will be primarily in Los Angeles, followed by Scottsdale, Portland, San Francisco and Seattle. There are 4.6 million commuters in Los Angeles with an average 30-minute commute – an ideal market for the Solo. The product is intriguing, though at first glance it seems a bit ridiculous as well. See for yourself.

Solo Three wheel Car

The Solo strategy hinges on key demographic and cultural trends. The prospective car buyer demographic in the 2020s will increasingly include a larger number of young, single people, who live in urban neighborhoods, with smaller incomes, with many of them deeply conscious of climate change – just the type that will go for a single-seater, cheap electric car.

In short, they want cheap, small and electric. The opening retail price is $18,500 but as the company scales up the price will likely drop. And you can recharge simply by plugging it in to an outlet. No extra equipment necessary.

The Solo’s unique features include:

  • 100-mile range per charge
  • 80-mph top speed
  • Fully charged in under 4 hours (using 220V)
  • Ability to charge on common electrical outlets (110V) or utilize (220V)
  • Technology enabled – Bluetooth stereo, heated seats, rear-view camera
  • Minimal maintenance - 99% fewer parts than ICE vehicles and total cost of ownership is estimated by company to be 78% lower than Nissan Leaf EV

Then there are safety features such as:

  • Electronic power steering (EPS)
  • Torque-limiting stability control
  • Robust impact and roll protection
  • Wider front track for enhanced drivability

ElectraMeccanica is more than just the maker of Solo electric vehicles, however. It is also launching derivatives of the Solo as utility and delivery vehicles. These are expected to hit the market in 2021. The potential for commercial adoption here could be significant since this cheap EV with sufficient cargo space will appeal to last-mile delivery and security companies, as well as first responders.

The company has also developed two appealing prototypes: the Tofino and the eRoadster concept. The latter is more my style and it’s the first EV concept which blends electric technology with vintage car design.

solo tofino concept car
eRoadster concept car

The Solo is a three-wheeled, all-electric fit for the urban environment and lifestyle. Management seems to have its act together and is executing a well-thought-through plan.

Beyond America, it anticipates expanding into Europe, which saw EV sales increase 44% in the first half of this year. Southeast Asia is another target market, and by now you should know how bullish I am about this market. Oddly, the company has little to say about the Chinese market. A joint venture would seem like a home run.

The major attraction here is the company’s valuation is just a bit over $200 million compared to the $8 billion-plus for some other EV plays such as Nikola (NKLA) that are far from production. It is difficult to project sales since it appears that pre-orders did not require a deposit.

SOLO is a speculative idea that will attract some serious media attention into 2021 and has a chance to scale up in America and beyond. BUY A HALF POSITION

Model Portfolio

StockPrice BoughtDate BoughtPrice 10/29/20ProfitRating
Afterpay (APT.AX)789/17/209624%Buy a Half
Alibaba (BABA)1021/27/17313207%Hold a Half
Cloudflare, Inc. (NET)244/30/2054126%Hold a Half
Logiq (LGIQ)7.1210/15/20931%Buy a Half
NovoCure, Ltd. (NVCR)687/23/2011975%Buy
Sea Limited (SE)152/8/191691035%Hold a Half
Taiwan Semiconductor (TSM)818/6/20854%Buy a Half
Van Eck Rare Earths (REMX)356/11/204014%Buy a Half
Vipshop Holdings (VIPS)1610/1/202133%Buy a Half
Virgin Galactic (SPCE)7.3412/5/1918143%Buy
Visa (V)2119/3/20183-13%Sell

Portfolio Changes
Visa (V) from Buy to Sell.

Updates
Afterpay (APT.AX) shares, after gapping down on Tuesday, climbed back 7% yesterday as an update on results for the quarter ended September 30 indicated continued strong growth. Underlying sales increased 115% to $4.1 billion on a year-over-year basis. Active customers globally increased 98% to 11.2 million with the U.S. reaching 6.5 million and active merchants increasing by 70% to reach 63,800. Shoppers can use Afterpay to buy items in select retail stores using their Afterpay card, a virtual, contactless card stored in their digital wallet. Just like using Afterpay online, customers can pay for their in-store purchases in four installment payments, without the need to take out a traditional loan or pay upfront fees or interest.

If you have not already done so, I suggest you purchase shares on the Australian stock exchange. The stock also trades OTC in the U.S. under the ticker symbol AFTPF, but the liquidity there is poor. BUY A HALF

APT.AX-102920

Alibaba (BABA) shares were down sharply yesterday but overall are showing relative strength and the stock will gain support and attention from the approaching IPO for Ant Technology and the upcoming Singles Day shopping extravaganza on November 11. Ant is currently seeking a record $35 billion in dual IPOs in Shanghai and Hong Kong. Ant’s Alipay mobile payment service has more than 730 million monthly users and handled $17 trillion in digital payments in the first half of 2020. BABA remains a legacy hold and is an essential core holding for investors looking for a quality stake in the Chinese consumer. HOLD A HALF

BABA-102820

Cloudflare (NET) shares were relatively quiet this week on no news. Recently, the stock has been surging as the company announced the launch of its new cloud-based platform Cloudflare One, an easy-to-use platform that promises to secure and connect companies and remote working teams anywhere and on any device. This stock is showing impressive strength ahead of its next quarterly earnings report, expected November 5.

I will keep NET a hold at these levels. HOLD A HALF

NET-102820

Logiq (LGIQ) shares have been a bit volatile this week, pulling back sharply and then jumping yesterday to get above where they started at 9.5. Yesterday, the company announced that it has been selected to provide mobile microlending and related services to 48 million Indonesians in an exclusive strategic alliance with the country’s social security program provider, Koperasi Mona Santoso Berjaya (KMSB).

The company is a New York-based leading global provider of e-commerce, mobile commerce, and fintech business enablement solutions for three big markets: Southeast Asia, Europe and the United States. Logiq’s stock is trading at less than three times 2020 projected revenue. This is an aggressive idea with significant upside potential. I suggest you buy incrementally and more aggressively on dips if you do not already have a position. BUY A HALF

LGIQ-102820

NovoCure (NVCR) shares retraced this past week from 130 to 115, but the stock will likely open up this morning as the company reported a positive third quarter before the bell. Quarterly net revenues were $132.7 million, representing 44% growth year over year, and net income was $9.3 million, or $0.09 in earnings per share. NovoCure is a global oncology company working to extend survival in some of the most aggressive forms of cancer through the development and commercialization of its innovative therapy, Tumor Treating Fields. I encourage you to take advantage of the stock’s dip to buy shares if you have not already done so. BUY A FULL

NVCR-102820

Sea Limited (SE) shares were off 5.2% yesterday to close at 163.

Founded in Singapore in 2009 as an online gaming company, Sea Limited has since ventured into new business segments, notably e-commerce (Shopee) in 2015 and digital finance (Sea Money) in 2019. Historically, it operates across seven countries in Southeast Asia: Indonesia, Vietnam, Thailand, the Philippines, Malaysia, Singapore, and Taiwan. More recently, it has entered the Latin America and India markets. Its business expansion reflects favorably on its financials.

Revenue rose by more than 700% to $2.2 billion between 2015 and 2019. Sea’s strength is its focus on Southeast Asian markets. For instance, Sea launched the Shopee app in 2015 across seven markets simultaneously, in seven different versions and languages. There’s no change in my hold rating but aggressive investors can add to their position and if it pulls back with a weaker market, I will consider moving this back to a buy. HOLD A HALF

SE-102820

Taiwan Semiconductor (TSM) shares pulled back with the market from 89 to 84. I’m not concerned given the company’s impressive third-quarter earnings released last week. Revenue was up 29%, earnings per share were up 36%, and the company’s return on equity expanded to 31%.

Taiwan Semiconductor is the world’s leading chipmaker including the highly popular 7-nanometer node, which made up 35% of sales, and the new 5-nanometer node, which just began volume production and made up 8% of sales. The new Apple (AAPL) 5G phone is powered by the A14 bionic chipset, features an incredible 11.5 billion transistors – 40% higher than the A13. I maintain a buy rating on the stock. BUY A HALF

TSM-102820

VanEck Rare Earth/Strategic Metals ETF (REMX)’s share price held up nicely in a turbulent week as China announced it was putting some American companies such as Lockheed Martin, Boeing and Raytheon on a black list due to their participation in arms sales to Taiwan. I view this ETF basket of rare earth and strategic metals stocks serving as an effective hedge on rising U.S.-China tensions and green energy, electrification and climate change tech. BUY A HALF

REMX-102820

Vipshop Holdings (VIPS) shares were a bright spot in a tough week gaining two points, from 19 to 21, as we approach the world’s biggest shopping day – China’s big Singles Day splurge, which could reach $4.8 billion. You might think of the company as a Chinese online version of T.J. Maxx, Ross and Marshall’s all rolled into one. I suggest you buy this stock if you have not already done so. BUY A HALF

VIPS-102820

Virgin Galactic (SPCE) shares were came back this week from 21 to 17 after reaching as high as 24 in the last two weeks, well up from our entry price of 7. SPCE is a long-term speculative holding and a concept stock has been a bit more volatile recently as some targets for the company have slipped from the fourth quarter of 2020 to the first quarter of 2021.

This company represents big-time potential and is just one or two flights away from completing all of its necessary Federal Aviation Administration (FAA) milestones. If the next two missions run smoothly, Virgin Galactic plans to send founder Richard Branson up in the first quarter of 2021.

Goldman Sachs (GS) picked up research coverage this week with a neutral rating and target price of 19. This analyst’s comments sums up things nicely: “Long-term upside potential could be substantial, if SPCE can capture the space travel and supersonic flight opportunity. But the time to realization of the opportunity is very long, customer adoption and recurrence uncertain, and potential for competition not insignificant.”

Aggressive investors should buy on this dip. BUY A FULL

SPCE-102820

Visa (V) shares have been hit hard this week after antitrust concerns were raised over its plan to acquire leading fintech company Plaid. In addition, while Wall Street was assuming disappointing earnings in the midst of the pandemic, the number of processed transactions decreased 13% from a year earlier and cross-border volume slid 47% as COVID-19 continued to hurt travel demand. Visa’s net income fell to $2.4 billion, or $1.07 per share from $3.03 billion, or $1.34 per share, a year earlier. Net revenue fell 17% to $4.8 billion. This is only the second time the company’s quarterly revenue declined year-over-year since it went public in 2008. Given that this stock is the weakest in the Explorer portfolio and that it is close to our trailing stop-loss, I’m moving this stock to a sell. MOVE FROM BUY A FULL TO SELL

V-102820


The next Cabot Global Stocks Explorer issue will be published on November 12, 2020.

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