Please ensure Javascript is enabled for purposes of website accessibility
Explorer
The World’s Best Stocks

Cabot Global Stocks Explorer 731

Markets seemed to rotate and flatten this week, and the Explorer portfolio was relatively steady as well. The Federal Reserve pledged to keep its spigot open by continuing to buy $120 billion per month of Treasury debt and mortgage-backed securities and hold short-term interest rates near zero through 2023. This is encouraging to markets but unnerves me a bit as we already seem awash in liquidity.

In our new recommendation today, we explore a new technology that could shift the electric vehicle market into another gear.

Cabot Global Stocks Explorer 731

[premium_html_toc post_id="227312"]

Investing at the Edge of Technology and Space
You can often find exciting and profitable investment ideas at the edge of new technologies.

China is accelerating its government-sponsored satellite initiative to beam Internet from space, taking on American rivals SpaceX’s Starlink and Amazon’s Project Kuiper, as well as the United Kingdom’s OneWeb, in the competition to dominate the age of space connectivity. According to the Asia Times, China’s “StarNet” could launch up to 10,000 satellites by the end of the decade as it joins the race to provide inexpensive broadband access to 4 billion people in the world without it.

Virgin Galactic (SPCE) founder Richard Branson is looking to bring another space satellite company public through a SPAC. Virgin Orbit, a spinoff of Virgin Galactic, launched 10 satellites into space in January. Virgin Orbit and Virgin Galactic were split in 2017 so Virgin Orbit could focus on low-cost launch services for the U.S. military and other customers. It has a $35 million deal with the Space Force.

You may not have noticed, but Volkswagen (VWAGY) surged 16% this past week following some ambitious goals on the technology front that underscored its plans to leverage its size and scale to be a leader in electric vehicles. Each year Volkswagen and Toyota battle each other for the largest automaker in the world and Volkswagen already sells about 40% of their production to China. This leads us to my new recommendation.

New Explorer Recommendation
QuantumScape (QS)
California-based QuantumScape is working on some breakthrough electric vehicle battery technology backed by some heavyweight industrialists, as well as Volkswagen.

Current lithium-ion batteries are heavy, expensive to produce, don’t last all that long and take considerable time to recharge. QuantumScape believes they will fairly soon be rendered obsolete by solid-state batteries.

Let me explain why, though this is all a bit technical. Lithium-ion batteries are made up of three layers: a positive cathode and a negative anode, each with an electrical contact, and between them is a porous polymer separator, and the whole cell is flooded by a liquid electrolyte.

In a QuantumScape solid-state battery, there is only a cathode connected to an electrical contact through a solid-state ceramic separator. No anodes needed.

In layman’s terms, this means more energy can be stored in a smaller space, giving QuantumScape’s battery greater energy density. Greater density means these batteries can achieve greater range, superior reliability and a longer life than their lithium-ion cousins. In addition, they’re also capable of charging to 80% in as little as 15 minutes—half the time it takes the fastest Tesla Supercharger to charge.

Even better, these batteries will be much cheaper than lithium-ion ones once production scales up because of fewer and cheaper materials. The chief asset of QuantumScape is the backing of respected technologists such as co-founder and CEO Jagdeep Singh, who was educated at Berkeley and Stanford University.

Next comes QuantumScape’s chief technology officer, Dr. Timothy Holme, with degrees in physics and mechanical engineering from Stanford. Tesla co-founder J.B. Straubel and venture capitalist John Doerr are on the board as well.

You may recall that Doerr is famous for backing Google in 1999, turning a $12.5 million stake into $2 billion when Google went public. Bill Gates is also a prominent investor and is keenly interested in battery tech.

The next positive is the company’s partnership with Volkswagen, the largest automaker in the world and a big player in China, where its sells about 40% of its vehicles. Volkswagen has partnered with QuantumScape for close to a decade and, in 2018, the company set up a joint venture to make solid-state batteries

In 2020, Volkswagen invested $300 million in QuantumScape, securing 20% equity ownership of the company. When Volkswagen’s QuantumScape batteries go operational, Volkswagen and its brands such as Audi, Porsche and Bentley could offer cars with 450- to 500-mile range batteries.

This partnership could vault Volkswagen to the front of the pack of EV players. In 2020, fueled by its strong market position in both Europe and China, Volkswagen electric vehicle sales were up 200%. VW is also selling EVs in America as well as many other markets.

A third positive is the recent announcement that VW is ramping up its EV plans and that QuantumScape is now capable of producing multilayered battery cells. Its four-layer battery is still short of the 12 or so needed to be commercially viable. But the company is confident enough to build a “pre-pilot” production facility.

Last November, VW hiked its planned investment in EV technologies to 73 billion euros ($86 billion) over the next five years. Volkswagen also announced plans for a vast expansion in EV charging infrastructure. By 2025, it sees 18,000 public fast-charging points in Europe, a fivefold expansion from its coverage today. It’s also expanding public fast-charging networks in the U.S. and China.

QuantumScape stock climbed sharply in late 2020 from around 20 to 114 before coming back to Earth (as low as 42) in January 2021. Since then it has moved modestly upward and the recent positive news has renewed interest in the company. As usual, we will begin with a half position.

BUY A HALF POSITION

QS-031721

Model Portfolio

StockPrice BoughtDate BoughtPrice 3/18/21ProfitRating
Afterpay (APT.AX, AFTPF)789/17/2011346%Hold a Half
Anglo American (NGLOY)202/18/21215%Buy a Half
Atlas Corp. (ATCO)14.103/4/2114.301%Buy a Half
Cloudflare, Inc. (NET)244/30/2075212%Hold a Half
Fisker (FSR)152/4/212244%Hold a Half
Foley Trasimene Acquisition II (BFT)191/21/2016-14%Buy a Half
International Business Machines (IBM)1301/7/211290%Buy a Half
Logiq (LGIQ)7.1210/15/207.526%Buy a Half
QuantumScape (QS)New59.88Buy a Half
Sea Limited (SE)152/8/192241410%Buy a Half
Taiwan Semiconductor (TSM)818/6/2011946%Buy a Half
Virgin Galactic (SPCE)7.3412/5/1933.74360%Hold a Half

Portfolio Changes
Sea Limited (SE) Moves from Hold a Half to Buy a Half

Updates
Afterpay (APT.AX) shares have been struggling a bit lately even though the company has been delivering solid numbers. Part of this may be new competitors that are emerging to capture the growth of the “buy now, pay later” trend as well as the normal post-holiday lack of attention to some of these payment stocks. Afterpay’s balance sheet remains healthy with cash and equivalents of over $1.7 billion. Because the stock has lost some momentum over the last month, I’m keeping it a hold for now. HOLD A HALF

AFTPF-031721

Anglo American (NGLOY) shares are relatively new to the Explorer portfolio but so far have been nothing to brag about. The shares seem to be facing some resistance even though copper recently reached its highest price level since 2011 and prices of even iron ore are also moving briskly. The company is the largest producer of platinum, with about 40% of world output, and explores for diamonds, copper, platinum group metals, coal, iron, nickel, and manganese ores. I recommend you buy a half position if you have not already done so. BUY A HALF

NGLOY-031721

Atlas Corp. (ATCO) shares represent the most recent Explorer recommendation and are up 6% in the last week. The company charters a fleet of 118 containerships and the pandemic has led to distorted trade flows and a worldwide container shortage crisis. Demand for these shipping containers is surging, yet supply is frozen so shipping rates are skyrocketing. Atlas posted in its last reported quarter operating margins of 40% with revenue increasing for the quarter, year over year, 36.6% and earnings growing 96.6%. I look at Atlas as a trading position with a target price of 20. BUY A HALF

ATCO-031721

Cloudflare (NET) shares have bounced back 20% over the last two weeks. Given the growth potential of this sector and stock and the fact that we have taken some profits off the table, I’m going to keep this a hold and will watch the stock to see if it forms a base and then a new uptrend. Cyber is still a strong power trend and Cloudflare’s strategy and metrics prompt me to hang on to this stock, though everything has its limits. The next quarterly earnings report (not until early May) will be crucial to the direction of this stock. HOLD A HALF

NET-031721

Fisker Inc. (FSR) shares, after climbing to 31 in early March, have pulled back to 21. While we still have a nice profit, I’m watching this stock closely. Foxconn announced it plans to build Fisker’s second generation EV, a development that captured quite a bit of media attention though the company will have little or no sales revenue in 2021. Luxury auto veteran Henrik Fisker heads up Fisker and the company’s first product is the Ocean, a mid-priced SUV. I’m maintaining a hold rating on this stock until it develops an uptrend. HOLD A HALF

FSR-031721

Foley Trasimene Acquisition II (BFT) shares were up 7% this past week. Foley Trasimene is merging with Paysafe Group and plans to eventually 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. I still rate this stock a buy and recommend you purchase shares if you have not already done so. BUY A HALF

BFT-031721

International Business Machines (IBM) may seem like a pretty boring stock but we need to give it some time. Over the past two weeks, it has moved from 119 to 129. IBM is a conservative, quality play on the high-growth markets of quantum computing software and cloud computing.

The firm is increasing its cloud and AI portfolios through acquisitions and strategic partnerships. And 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. Meanwhile, IBM trades at just 11 times prospective earnings and seven times the company’s cash flow guidance. Plus, IBM is sitting on $13.8 billion of cash even after paying off $3.9 billion in debt in last year’s fourth quarter. As a bonus, IBM delivers a 5.1% current dividend yield. BUY A HALF

IBM-031721

LogiQ (LGIQ) shares increased over the past week from 6.8 to 7.5. A week ago the company announced that it plans to acquire Boulder, Colorado-based Rebel AI for $8.1 million with the deal expected to close in the next few weeks. LogiQ is a New York-based leading global provider of e-commerce, mobile commerce, and fintech business enablement solutions in Southeast Asia, Europe and the United States. LogiQ’s stock is attractive for aggressive investors. BUY A HALF

LGIQ-031721

Sea Limited (SE) shares are under some pressure since reaching a 2021 high of 276 in mid-February, but this growth story is intact. The company recently reported fourth-quarter and full-year 2020 numbers, with 101% year-over-year revenue growth. Revenue increased to $1.6 billion in the last three months of 2020 from $777.2 million a year earlier. We have taken profits several times over the remarkable rise of this stock but with this sharp pullback, I’m moving this stock to a buy. BUY A HALF

SE-031721

Taiwan Semiconductor (TSM) shares have come back over the past month and this is an excellent entry price if you have not purchased shares yet. If you have a position, feel free to incrementally add to your position in the 115-120 price range. Taiwan Semiconductor is dominant in the premium microchip sector and the company recently announced it will raise capital expenditures to $28 billion in 2021, a 47% year-over-year increase. BUY A HALF

TSM-031721

Virgin Galactic (SPCE) shares had a good week, gaining six points to 33, but are substantially down from their 2021 high five weeks ago, at 59.

The news over the last few weeks has not be favorable, with the SPAC founder Chamath Palihapitiya selling his entire personal stake in Virgin Galactic, though he still owns 15.8 million shares via his special purpose acquisition company, Social Capital Hedosophia Holdings, which took SPCE stock public. The company is spending around $16 million per quarter and has over $660 million in cash, lessening concerns that the company’s next test flight will not take place until May.

The stock still has a devoted following and shares have quadrupled since my recommendation last year. We have taken some profits several times so we will hold remaining shares for now. HOLD A HALF

SPCE-031721


The next Cabot Global Stocks Explorer issue will be published on April 1, 2021.

Cabot Wealth Network
Publishing independent investment advice since 1970.

President & CEO: Ed Coburn
Chairman & Chief Investment Strategist: Timothy Lutts
176 North Street, PO Box 2049, Salem, MA 01970 USA
800-326-8826 | support@cabotwealth.com | CabotWealth.com

Copyright © 2021. All rights reserved. Copying or electronic transmission of this information is a violation of copyright law. For the protection of our subscribers, copyright violations will result in immediate termination of all subscriptions without refund. No Conflicts: Cabot Wealth Network exists to serve you, our readers. We derive 100% of our revenue, or close to it, from selling subscriptions to its publications. Neither Cabot Wealth Network nor our employees are compensated in any way by the companies whose stocks we recommend or providers of associated financial services. Disclaimer: Sources of information are believed to be reliable but they are not guaranteed to be complete or error-free. Recommendations, opinions or suggestions are given with the understanding that subscribers acting on information assume all risks involved. Buy/Sell Recommendations: All recommendations are made in regular issues or email alerts or updates and posted on the private subscriber web page. Performance: The performance of this portfolio is determined using the midpoint of the high and low on the day following the recommendation. Cabot’s policy is to sell any stock that shows a loss of 20% in a bull market or 15% in a bear market from the original purchase price, calculated using the current closing price. Subscribers should apply loss limits based on their own personal purchase prices.