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Today’s News (Jan 13, 2021) : ROIC Portfolio up 59%, GM launches electric delivery truck, Zoom plans a big raise and Target posts strong winter holiday sales numbers.
Morning Cents will be taking a break tomorrow (Jan 14) and Friday (Jan 15) due to travel and appointments on our team. We will be back next Tuesday (Jan 19) after the MLK holiday!
Market Summary (11:30 A.M. ET): “The yield on 10-year U.S. government bonds edged lower after seven consecutive days of gains following strong demand at an auction of new debt.” WSJ writes.
On the ROIC Big Board, I have closed our position in Asana ($ASAN) at $35 per share, which was a core holding we added back in November at an average cost of $21.66.
- This represents a 62% return over two months and is obviously a huge win for the portfolio.
- I’ve also made a couple other moves on the Big Board, so if you’re a ROIC member, check out the Big Board.
As of this morning, the Big Board portfolio is up 59% over the five months since we started it (in earnest) in August.
- Splitting the returns out, the Equity + Cash portion of the portfolio is up 43% and the Bitcoin portion is up 170%.
- This is all while taking much lower risk than most other “growth only” portfolios. We’ve achieved this return despite having a healthy mix of value stocks and having kept an average cash position of 14%. For reference, a fund like ARK Innovation ($ARKK) only keeps a 0.5% to 2.0% cash allocation at any given time.
- I look forward to continuing our risk-adjusted returns we can deliver in 2021!
Congrats to all ROIC members that followed me into $ASAN, among others, and I hope you feel like the membership is worth every penny!
- If you follow the content you know that we are working on delivering even more content and features as we grow, and we are working on doubling down on content.
- If you’re not a member, consider joining us here. And don’t worry, we will always continue our free content and coverage for more casual community members.
“General Motors Co. is launching a new electric-truck business geared toward delivery services, the latest in the company’s efforts to commercialize battery technology it is developing in-house,” WSJ writes.
Why It Matters: GM CEO Mary Barra, who’s been on the job since 2014, has “pinned her growth strategy on electric cars, earmarking $27 billion to develop plug-in and driverless vehicles by mid-decade.” As many firms try to figure out what their companies look like in a post-pandemic world, GM is hoping to capitalize on the expansive nature of multiple booming markets including e-commerce, home delivery and electric vehicles.
- The division is called BrightDrop and also plans to introduce motorized electric dollies for warehouses.
- The demand for delivery vehicles in large cities could tick up 36% by 2030, according to projections from the World Economic Forum.
And it’s paying off already. GM’s stock closed at $47.82 on Tuesday, a record-mark since it returned to the public markets following its 2009 bankruptcy.
- BrightDrop plans to roll out later this year with a commercial vehicle that can travel 250 miles on a single charge.
- FedEx is expected to be GM’s first customer on this project, with “the package-delivery company agreeing to purchase 500 of the new electric trucks for delivery later this year.”
- This pits GM against Ford Motor Co’s new electric delivery van and Rivian Automotive, which makes plug-in vans for Amazon.
Looking Ahead: GM’s EV plans don’t stop here. The company intends to “ratchet up” its electric vehicle offerings this year, beginning with the new Hummer truck that runs on battery power only. All in all, the company is planning to have 30 new plug-in models by 2025 and “expects 40% of its U.S. lineup to be fully electric by that year.”
Ok so GM is now launching EV trucks, so what happened to GM’s deal with Nikola? It seems like we were right from the very beginning that Nikola doesn’t actually have their hydrogen fuel cell technology ready, if it even will succeed in going to market.
These legacy auto manufactures ($F, $GM, $FCAU) need to get their act together in bringing competitive electric vehicles to market soon because each year that goes by is another year Tesla extends their technology lead.
All in all, I am still not seeing anything that would make me particularly bullish on the legacy auto manufacturers catching up.
Zoom is planning to raise $1.5 billion in an upcoming stock offering, WSJ reports.
Why It Matters: Zoom’s video conferencing capabilities became essential in the pandemic, but even if remote work has forever changed the world, people have to return to offices eventually, right? The move is Zoom’s largest stock offering since its trading debut two years ago, and the proceeds from the raise could open up a wide range of options for the video chat provider as it prepares to adapt to post-pandemic life.
Refresher Course: Zoom was founded in 2011 and raised $447.9 million through its initial public offering. Its share price has soared over the past year as “homebound workers and students have been using the company’s services during the coronavirus pandemic.”
- Zoom’s Closing Price Tuesday: $356.81
- Market Cap: $102.05 Billion
Zoom’s turn of fortune has put it center stage, alongside big tech firms vying to push their services for managing pandemic life such as Microsoft and Facebook.
- In November, Zoom posted record sales of $772.2 million in quarterly sales and raised its outlook.
Preparing For The Future: “With the uncertainty of the longevity of the pandemic, it is unclear how long gross margins will be impacted as we remain committed to supporting the global community,” Finance Chief Kelly Steckelberg said.
- Zoom said it expects to grant its underwriter a “30-day option to buy up to an additional $225 million of Class A shares at the public offering price.”
For months here at Cents, we’ve called out how overpriced Zoom ($ZM) stock was, which turned out to be the right call.
This stock offering is probably them raising money to build out additional features to become a bigger platform than just a video calling service. This will be important for their survival and continued growth after the pandemic subsides.
I believe Zoom has a great product with a great lead over other video conferencing platforms, but I am still concerned about the following:
- Zoom is built on the same tech as Ring Central ($RNG), although they execute the product better.
- There are no inherent network effects with video conferencing yet. Each individual can have Zoom, Ring Central, Teams, Slack, Skype, Discord, Hangouts, WebEx and it really doesn’t matter other than call performance.
- I believe video conferencing subscriptions will take a hit after the pandemic subsides. We just don’t know how big of a hit that will be.
Clearly Cathie Wood and ARK Invest does not have these concerns and has built an almost 2% position in the stock.
Zoom ($ZM) is expected to grow at 38% in 2022 and is trading at 46.7x forward Gross Profit. For the ROIC Big Board, if we’re willing to pay this kind of multiple, I would rather have more certainty around growth and stickiness than with Zoom.
Target reported its winter holiday sales “rose solidly as more shoppers bought goods online, adding to a series of strong results from the retailer during the Covid-19 pandemic,” WSJ reports.
Why It Matters: While retailers have mixed results to show for the usually lucrative period, Target, and other large retail firms, have had good fortunes during the pandemic, primarily those who stayed open during the early part of lockdown or sell food, home goods or other essential products for those staying home. But for the top performers, having “robust e-commerce businesses already in place before the pandemic” has proved vital as more shopping transitions online.
Numbers To Consider:
- Comparable Sales For November and December (Store or Digital Channels Operating For At Least 12 Months): +17%
- Store-Based Sales: +4.2%
- Digital Sales: More Than Doubled
- Target said around 95% of the company’s sales in the period were sourced from stores.
- Lululemon raised its Q4 guidance after a strong holiday season.
- Bed Bath & Beyond’s comparable sales rose 2% on the year.
What To Expect: “A clearer picture of holiday sales will emerge Friday when the U.S. releases retail sales figures for December.”
A Shifting Business: Many retailers opened the holiday deal season early this year to reduce in-store crowding and manage the strain on e-commerce supply chains. Target plans to carry that trend into 2021 after the “revised promotional calendar proved effective.” Target was one of many retailers to close on Thanksgiving and announced it will do so again in 2021.
Target ($TGT) is trading for 12.7x forward EBITDA and a 3.75% free cash flow yield. Given this is twice the valuation of where it’s traded in 2018-2019, this stock does not pass my initial smell test.
“Lenovo Group Ltd. is capitalizing on two booming markets, Chinese stocks and the global PC industry, to list in Shanghai. The company is the world’s largest maker of personal computers and is well-known for acquiring IBM’s ThinkPad unit and the Motorola Mobility smartphone business. The news that Lenovo would join the STAR Market, China’s answer to the Nasdaq, boosted its Hong Kong-traded shares, which on Wednesday hit their highest level since 2015.”
“Mobile adoption continued to grow in 2020, in part due to the market forces of the COVID-19 pandemic. According to App Annie’s annual “State of Mobile” industry report, mobile app downloads grew by 7% year-over-year to a record 218 billion in 2020. Meanwhile, consumer spending grew by 20% to also hit a new milestone of $143 billion, led by markets that included China, the United States, Japan, South Korea and the United Kingdom. Consumers also spent 3.5 trillion minutes using apps on Android devices alone, the report found.”
“Affirm Holdings Inc., which provides installment loans to online shoppers, priced its U.S. initial public offering above its marketed range to raise $1.2 billion. In the first major U.S. technology listing this year, Affirm sold 24.6 million shares for $49 each, according to a statement on Wednesday, confirming an earlier Bloomberg News report. The San Francisco-based company had marketed the shares for $41 to $44 apiece, a range that it had raised Monday from $33 to $38.”
|Companies Raising Capital|
|Rapyd||$300 Million||To Boost Its FinTech-As-A-Service API|
|Cockroach Labs||$160 Million||Makers of CockroachDB, A Competitor To Google Spanner|
|Bryte||$24 Million||Pivoting From Selling $8K AI-Powered Mattresses To Licensing Its Tech|
“Tuesday was a big day for several hot tech stocks which reached all-time highs. Those include DoorDash, Asana, Uber, Pinterest and Snap. That’s possibly driven by investors positioning themselves ahead of fourth quarter earnings reports.”
“Megvii, owner of facial recognition software Face++ which had been put on a U.S. blacklist, will seek a domestic initial public offering. The artificial intelligence company had earlier sought a listing in Hong Kong.”
“For ski towns in the U.S., it’s feast or famine this season, with record growth in some businesses and shutdowns in others. To understand the impact of the pandemic, WSJ visited California’s Lake Tahoe region, which has the country’s largest concentration of resorts.”
“Visa Inc. abandoned its $5.3 billion planned acquisition of financial-technology firm Plaid Inc. amid a Justice Department antitrust lawsuit that challenged the deal.”
“Boeing Co.’s drone unit has agreed to pay $25 million to settle civil-fraud allegations that it overcharged on more than half a dozen contracts signed with the U.S. Navy and special forces between 2009 and 2017.”
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