Cabot Global Stocks Explorer 728

Years from now, I wonder how historians will label this new decade. Will it be the “Terrific Twenties” or the “Turbulent Twenties”? It’s obviously too soon to tell, but we remain optimistic about the future today with a new idea at the fringe of the powerful clean energy trend that has moved past an inflection point. Meanwhile, the Explorer’s group of stocks had another good week as Virgin Galactic (SPCE) launched into space. I wonder if its take-off might be wrapped up in the Reddit revolution?

Cabot Global Stocks Explorer 728

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Four Powerful Explorer Trends
There are four powerful trends in the market that the Explorer is trying to tap into these days. Whether the companies and stocks are based in emerging markets, Europe, Asia or the United States doesn’t matter much anymore.

The first trend is clean energy and clean tech, which has received a boost from the new administration, concerns over climate change, as well as aggressive emission standards in Asia and Europe. This sector covers a lot of ground but at the forefront are electric vehicles, electricity storage, and the specialty commodities that are required to build clean tech. The major attraction here is that we are starting at a very low base with huge growth potential. For example, of the 65 million autos sold in 2020, only about 2.5 million were electric vehicles (EVs). By 2025 that number is expected to reach at least 12 million, and by 2030, 30 million. China accounted for 44% of EV sales in 2020 followed by Europe at 28%, America at 16% and Japan and South Korea combined at 11%.

The second trend, which has been accelerated by the pandemic, is financial technology, better known as fintech. This includes e-commerce, mobile payments, software, cybersecurity, cryptocurrencies and logistics.

The third trend is the continued growth of advanced medicine and medical devices, which is driven both by scientific advances and the growth of the global middle class.

The last trend is infrastructure, which is clearly on the rise both in America and around the world. This is perhaps the most difficult to tap into since it is capital intensive and led by very large firms limiting upside potential.

Today, my latest recommendation taps into the first of these four mega-trends. It’s an electric vehicle maker.

New Explorer Recommendation
Fisker (FSR)
While Tesla has about an 80% market share of U.S. electric vehicles sales, competitors are coming alive, from giants like Ford to smaller, more niche players that are now being largely overlooked by the market.

One such company is Fisker, a company headed up by luxury auto veteran Henrik Fisker and based in swanky Manhattan Beach, California. Fisker is merging into a SPAC (Special Purpose Acquisition Company) brought public by FS KKR Capital. Its first car is the Ocean, a mid-priced SUV with modern, upscale styling and flair, and full of recycled materials and the latest gadgets. The Ocean offers 2WD and 4WD option, a 250- to 350-plus-mile range, and recycled material interior. The SUV is also decked out with a large, curved screen and unique ‘California Mode’ that opens nine glass panels with one touch, and a PV solar roof to enhance efficiency. A production-intent prototype is slated for a summer 2021 unveiling.

I like this company and stock for five reasons.

First is its price point, starting at $37,500, which seems to me to be a sweet spot for a midsized five-person EV SUV. Second, Fisker has logged over 10,550 reservations for the Ocean and has $1 billion in the bank to fund its launch in the second half of 2022 with an estimated volume in 2025 of 250,000 units. Third, I like its Apple-like model of outsourcing the production of the EV to Magna much like Apple lets Foxconn assemble the iPhone while keeping 38% profit margins. Fourth, the company is going completely digital from sales to servicing, which will translate into lower costs.

Finally, unlike many other EV-related SPACs, FSR shares have not yet moved significantly beyond the SPAC IPO price.

BUY A HALF POSITION

Model Portfolio

Portfolio Changes
NeoGenomics (NEO) Moves from Buy to Hold

Updates
Afterpay (APT.AX) shares picked up a few points this past week to get to 144 but seems to be facing some resistance near this level. We have taken some profits and I’m going to keep this a hold for now as we await the next earnings report. This momentum stock is growing fast but its valuation is quite rich. I suggest you take partial profits here if you have not already done so. HOLD A HALF

Cloudflare (NET) shares demonstrated some strength this week, jumping from 77 to 82 as we await its next quarterly report on February 11.

Identity and security needs continue to make this a viable and even preferred cloud play. Think of it as an Internet infrastructure play that helps deliver and secure the data and services traveling across the Internet. I will keep NET a hold at these levels and again recommend that you sell some shares to lock in some profits. HOLD A HALF

ElectraMeccanica (SOLO) shares bounced around again this week, winding up unchanged. Like many electric vehicle plays, this stock is ahead of the fundamentals, which is why I have been recommended taking some profits.

SOLO recently announced that the company is expanding its retail footprint to three new West Coast locations in the United States, slated for a March opening. These additions will bump the company’s total retail location count to 13 across 10 major markets. This is a speculative idea that will attract some serious media attention into 2021. HOLD A QUARTER

Foley Trasimene Acquisition II (BFT) (Merging with PaySafe) shares were up 8.6% yesterday and have climbed back from 15 to 18 in the last week.

This company is a SPAC formed in October 2020 by Bill Foley, who has been involved in more than 100 acquisitions and many spinoffs. His success stories include Fidelity & Guaranty Life, which he took over in 1984 and made into a Fortune 500 company, Black Knight, and Dun & Bradstreet.

In December, Foley Trasimene signed an agreement and plan of merger with Paysafe Group. Upon closing of the transaction, the newly combined company will operate as Paysafe and plans to list on the New York Stock Exchange under the symbol PSFE.

Founded in 1996, Paysafe, based in London, is a payments platform that connects businesses and consumers across 70 payment types in over 40 currencies globally. This SPAC is relatively under the radar and given Paysafe’s business and the attention the SPAC will receive as it nears a merger with Paysafe, this could work out well. I would add that this is an aggressive idea so I would suggest you put in place a 20% trailing stop loss. BUY A HALF

International Business Machines (IBM) shares have been moving around the 120 area after reporting mixed earnings last week. This story will take some time to develop as IBM is increasing its cloud and AI portfolios through acquisitions and strategic partnerships. CEO Arvind Krishna expects the cloud industry to soon reach $1 trillion, as only 25% of workloads have been moved to the cloud so far.

IBM stock is trading at just over 10 times projected earnings, which is less than half the average for the S&P 500 index. This is a solid, conservative growth play to begin 2021 and on top of all this, IBM offers a 5.5% current dividend yield. I encourage you to buy IBM as a great core holding if you have not yet done so. BUY A HALF

NeoGenomics (NEO) shares lost a couple of points this week and have lately been lackluster so I’m moving this to a hold until the stock develops an uptrend. NeoGenomics is a leading operator of a network of cancer-focused testing laboratories in the United States, Switzerland, and Singapore. As the world’s leading oncology testing company, revenue should accelerate in 2021 as the pandemic recedes and pent-up demand drives catch-up in-person testing. This is an aggressive play in a critical, high-growth market. MOVE FROM BUY A HALF TO HOLD A HALF

LogiQ (LGIQ) shares dipped from 8.7 to 7.8 and appear to be stuck in a trading range after performing well in late 2020. LogiQ 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 an aggressive idea that is trading at under four times 2020-projected revenue. I would be a buyer here but only incrementally and if it doesn’t start showing some momentum, I will likely move this to a hold. BUY A HALF

NovoCure (NVCR) shares surged from 157 to 174 after testing resistance levels. Two weeks ago, the company released preliminary numbers for calendar 2020 with $494 million in net revenues, representing 41% annual revenue growth. NovoCure launched three new clinical trials, expanding its development pipeline to include eight ongoing global studies. Yet this is still a relatively small company and its Tumor Treating Fields delivery system – for glioblastoma, the most common primary brain cancer—is gaining traction. I rate this stock a buy for long-term investors that have not yet purchased shares. BUY A FULL

Sea Limited (SE) shares jumped to 244 this past week and are now firmly in an uptrend. Sea is Southeast Asia’s biggest gaming, e-commerce and payments firm with more than 40 million daily active users in a region populated by 655 million tech-savvy consumers. Sea’s strategy so far is relying on its gaming group Garena to generate sufficient cash to fund surging growth in its e-commerce and digital financial services segment.

Shopee, the e-commerce arm of Sea, is scaling up its operations in Brazil and evaluating the long-term potential of Latin American markets. The Singapore-headquartered technology group’s shares surged more than 400% in 2020. Another growth driver with huge potential is SeaMoney, a digital payments platform that ties together its gaming and commerce segments. I’m maintaining a hold rating on the stock but feel free to take some profits from time to time of this impressive stock that was up over 500% in 2020. HOLD A HALF

Taiwan Semiconductor (TSM) shares rose a few points this week as microchip shortages in Asia and Europe made headlines. The lack of chips is hitting the auto sector hard and China is taking measures to stockpile chips and purchase semiconductor fabrication equipment as it struggles to keep up with the latest technology. Taiwan Semiconductor is the undisputed leader in this sector and announced it will raise capital expenditures to $28 billion in 2021, a 47% year-over-year increase.

Taiwan Semiconductor dominates global chip making with a market share over 50%. It also benefits from secular trends of advanced computing and 5G going into next year and beyond. The chip-making business is both capital and brain intensive with half the company’s workforce having postgraduate degrees. The company delivered an impressive return on equity of 31% with operating margins in excess of 40% in its most recent quarter. I maintain a buy rating on the stock. BUY A HALF

Virgin Galactic (SPCE) shares have rocketed from 23 to 57 ahead of all expectations and fundamentals. We recently sold a half position and will let the remaining half position ride. This stock may be becoming wrapped up in the Reddit/Robinhood trading game. On the positive side, private companies in the space sector are limited and there are three ETFs being planned for this sector, which will clearly generate demand. Given all the uncertainty regarding the timing of tests and then the launch of the spaceplanes, I will keep this stock a hold but you should feel free to sell some shares based on your time horizon and risk tolerance. HOLD A HALF

The next Cabot Global Stocks Explorer issue will be published on February 18, 2021.

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