Weekly Roundup
Howdy Friends!
This week was an interesting one in the stock market. Some economists think that we have reached a bottom, while others are pounding the alarm for recession.
The chart below is a nice illustration of how different sectors performed over the last week:
Source: Finviz
There’s a lot of green in there! Maybe the markets got a little luck from St. Patrick 🍀
My opinion is that investors are finding some buying opportunities at reasonable valuations. Over the last several weeks, companies have reported full year 2021 results and provided guidance for 2022.
Interestingly, many of these companies - particularly in technology - generated record-setting revenue growth, profit margins, and solid guidance (considering many of these companies are not immune to supply chain disruption, inflation, etc.).
However, it seemed that after each earnings report we saw more pronounced selling. One of the things I try to tell myself in investing and in life is “when in doubt, zoom out”.
It can be disorienting to see a stock fall by 20% or more, or see your portfolio continue to deteriorate in value. As an investor it is paramount to keep an even keel during these circumstances. I do not think that we are seeing sell-offs because of lack of growth, poor prospects, or questionable capital allocation. Rather, in times of uncertainty, people often flock to safe havens.
Inflation was just recorded at 7.9%, the highest it’s been in four decades. To compound this issue, Janet Yellen believes that we will experience “uncomfortably high” inflation for at least another year.
When you zoom out and see how one’s cost of living has changed so dramatically over the last year, and being told that this could last much longer, it’s not entirely surprising to witness the current selling activity in the markets.
I think that many people are selling equities to stockpile cash. However, some investors may feel that just as equities “mooned” to unreasonable valuations two years ago, perhaps they have fallen just as dramatically, and now present an interesting time to buy.
One thing that is important to remember as an investor is that earnings drive the market. If your revenue is growing 100% year over year, but your losses are double that, and you aren’t showing investors how you will reach consistent profitability, then eventually you’ll lose your fan base.
I’ve made it clear on this blog many times before that I am heavily invested in technology. I do not own stock in sectors such as CPG, Industrials, or Energy. It’s not because I do not like those sectors. It’s simply that I’ve spent my entire career in technology and I understand a lot of these companies on a deep level.
In an effort to be as transparent as possible I will admit that I have been stockpiling cash. This DOES NOT mean that I’ve sold out of my portfolio. I simply have just been banking my paychecks, waiting to deploy capital as I see fit.
Although last week was encouraging, I am a bit skeptical that we are out of the woods. I think this was a fleeting bear market rally, but that we are still very much in uncharted waters.
Below I’ve outlined my latest articles for Motley Fool, and as usual I’ve included any disclosures / positions that I may have. Additionally, I’ve included a sneak peek of what I am currently working on, as well as some interesting articles that I read this week.
Article 1: Facebook
Disclosure: 50 shares at $322/share
Summary: There’s no sugar coating it folks, I’m totally underwater on this one! In the article I provide a brief overview of Facebook’s 2021 financials and its roadmap to become a metaverse pioneer. I think Facebook is a very “tradable stock” at the moment. I am less of a trader and more of a long term investor. The biggest concern that I have is that Zuckerberg has made it clear that Facebook will be spending tens of billions of dollars to develop its metaverse platform, which could take a decade. Stated differently, he is willing to risk the strength of the balance sheet (i.e. cash) to fund a project that will not be profitable for several years. It is an immense risk/reward profile. The million (or several billion) dollar question is: Can Zuckerberg build a new company? Let’s remember, as disruptive as Instagram, Whatsapp, and Oculus are, he did not build those companies. He built Facebook. Can he do it again? Only time will tell.
Article 2: SoFi
Disclosure: 750 shares at $17/share
Summary: A week before its Q4 earnings report, SoFi announced that it was acquiring Technisys in an all-stock deal. Although I don’t love the dilution that’s coming for shareholders, I absolutely love the strategic nature of this deal. SoFi is on a mission to build a tech-first banking solution. The company has invested billions in technology infrastructure and it is slowly building the AWS of Fintech. A key reason why AWS is so powerful is because of how many features and capabilities developers have within its ecosystem. SoFi is looking to replicate this blueprint and apply it to financial services, an otherwise archaic industry. The stock has gotten pounded during the tech sell-off, but that hasn’t stopped CEO Anthony Noto from gobbling up shares. Just look at the amount of Form 4’s filed since the beginning of March.
Article 3: Coinbase
Disclosure: 100 shares at $219/share
Summary: I'll begin this by admitting I was incredibly skeptical of Coinbase when it went public. Like most investors, I tend to dislike companies that I don't fully comprehend. I began studying Coinbase a lot more after hearing some positive remarks about the CEO on some podcasts. After learning a bit more about Brian Armstrong, I started paying closer attention to Coinbase's financials. I understand that its current revenue trajectory is likely not indicative of the future (meaning that companies don't grow 500% in perpetuity). What I am most pleased to see is how Management has deployed its capital as a result of these record revenue levels. Sometimes companies will "spend more to make more" in a sense. But oftentimes this leads to net losses and higher cash burn, which management tries to deflect. Coinbase has no doubt spent a ton on marketing, the development of its NFT platform/metaverse ambitions, and M&A. However, they have seemed to pursue these endeavors while also being an efficient capital allocator, as evidenced by it strong profitability profile. For me, Coinbase is an index fund for the future of crypto. I personally do not have the stomach (or interest) investing in specific tokens or protocols. I am really happy with the company's performance and at this valuation I think it could just be getting started. Interestingly, famed hedge fund manager Jim Chanos revealed that he is shorting Coinbase and views it as a bubble stock. I think Coinbase was a bubble stock, but its current valuation is too attractive to ignore. I’m long, and as Roaring Kitty says, “I like the stock.”
Article 4: Teladoc
Disclosure: 200 shares at $109/share
Summary: Teladoc has certainly fallen from its pandemic-driven, sky-high valuation. The company is trading for roughly 1/3 its peak market cap. Although the company remains unprofitable, I have been averaging down slowly. My main concern revolves around cash flow. If Teladoc can continue trimming its losses, then I think it will gain more favor across Wall Street over time. The company is crushing its competition, and I view its real competition as better capitalized tech companies that could enter health-tech if they wanted (Amazon, Google). Interestingly, Amazon has partnered with Teladoc, integrating its technology with Alexa. From an outside perspective, this looks like a vote of confidence from Amazon, but I don't want to lean on this partnership too heavily just yet. Overall I think the company has a lot of tailwinds that could propel future growth. I'll be keeping an eye on profitability and investing/selling as I assess future earnings.
Interesting reads from this week:
OpenSea falling behind in NFT space?
The (quick) rise and (even quicker) fall of Apecoin
New remarks from CEO of Palantir
Articles I am working on:
Matterport: Is This Metaverse Stock Poised For a Comeback?
Snowflake: Is Snowflake Stock a Buy After Its Q4 Earnings?
DocuSign: What's Next For DocuSign After Q4 Earnings?
CrowdStrike: This Cybersecurity Stock Could Just Be Getting Started
Google: Why Alphabet's Acquisition of Mandiant Is a Smart Move
Amazon: Split Decision? Here's Why Amazon Stock is a Buy
Special shoutout to my Richmond Spiders for winning their first NCAA Tournament game since my sophomore year of college! Can they do it again today against Providence???
Also, shoutout to Villanova (who I picked to win the entire tournament) and Notre Dame. Incredible performances from both teams yesterday!