Market is Going Higher
“Bull-markets are born on pessimism,
grow on skepticism, mature on optimism and die on euphoria.”
- John Templeton
The Portfolio Performance
The portfolio is up 3.57% YTD
Our benchmark, the S&P 500 is up +12.66% YTD
Market is Going Higher
Investors have been moving money around chasing both growth and value stocks. Since 2009, growth stocks have significantly outperformed value stocks. Over the past 12 years, several bull markets carried the stocks of companies investing in the biggest trends to very rich valuations. In 2020 growth stocks reached all time highs, some with dizzying valuations. Investors finally decided to take profits and put the money to work in areas that were beaten down by the pandemic. Year-To-Date the best sector has been energy. The chart below tracks Healthcare, Energy, Financials, Technology and the S&P 500. The light blue line is energy, specifically oil and oil services. If we looked at a 1-year chart we'd see a very different story as energy has been a horrible investment over the past year and even the past five years.
Legend: black (S&P500), Blue (Energy), Purple (Financials), Pink (Technology), Red (Biotech)
As vaccinations increase and more people get out of their homes we are going to see explosive demand for services. During the pandemic lock down we saw unprecedented demand for stuff, products that made living and working at home possible. The next phase of economic growth will come from services like hotels, restaurants, movie theaters, plays, rental cars, Air B&B, cruise lines, RV rentals until RV sales can catch up with demand, motorcycle rentals until manufacturing can catch up with demand, and all the other experiences we all crave.
We will see a temporary spike in prices mainly due to wage pressures. Employers are offering higher wages and sign on bonus' to attract employees at the same time the federal government is offering enhanced unemployment benefits. Ending the extra unemployment benefits will help get more people back to work and dampen wage pressures. More competition for available jobs will also dampen wage pressures. Currently there are estimated to be 9.3 million job openings, while the pandemic was estimated to have ended 7.7 million jobs. Either the numbers are off, or there is way more economic activity going on than we really know from the data. One thing I know for sure, millions of jobs were lost, many businesses closed forever, and those entrepreneurs are out there forming their next business venture that needs new employees. The second half of this year is going to boom and I think we're entering the inflection point right now.
Consumption is about to shift from stuff to services and that's going to be huge for the economy and for growth stocks.
Inflation
I've been asked so I'll make a brief comment. I don't see run-away inflation in our future. The fear mongers remind us of the 1930's and 1970's, but I just don't see anything confirming that hyper inflation is coming. There are a number of outliers in the economy that are creating pricing pressure in very specific areas, but nothing is suggesting that we're going to see a sustained, out of control hyper inflation. Forget about the money printing, that isn't actual what causes inflation. Look instead at people buying homes when lumber is in short supply and lumber prices are at all time highs. Lumber prices are now down 30% from their highs and will continue to decline as tariffs are reduced. Look at the demand for rental cars at a time when rental agencies are short cars, because they sold them at a time when they couldn't replenish their fleets; because a semi conductor shortage reduced auto supply. There's dozens more examples, but all are near term, transitory pricing pressure, not inflation.
The best metric is to look at the bond market. Long term rates are not signaling inflation ahead. The bond market is usually ahead of the Fed and the stock market when it comes to gauging inflation. Since March the U.S 10-year has declined 30 basis points. We may see 10 year rates climb 40-50 basis points suggesting a 2.0-2.2% 10-year bond, that has averaged 4.51% long term, so please tell me, what is the fear?
Rates are low, rates are remaining low, investment is high and getting higher, investors are sitting on $5 trillion in uninvested cash, savings accounts and bonds aren't paying savers anything, so the stock market is the only game in town to grow your personal wealth.
Adding to Several Positions
Today I went shopping and added to several names the portfolio already owns, including Apple, Amazon, CNRG, Generac and the GBTC our Bitcoin fund. All these buys were made to bring these positions up to a full position.
Apple just delivered an excellent quarter, released a new iOS that I think will be well received and even with all the fury over iStore pricing to developers, Apple's services revenue continues to grow. Upside from the current share price to consensus is 25.2%.
Amazon is perfectly positioned for reopening, has a ton of exciting initiatives underway, just announced an at-home COVID test kit and continues to be one of the biggest hiring employers in the country. Estimates are roughly 38% growth per annum for the next 5 years. I'm going to fill this position out now, maintain an equal weight holding and pretty much let this one sit. Upside to consensus is 28.8%.
Our clean energy fund, the Kensho (CNRG) has everything going for it. The fund is full of great companies that are in one of the most transformative trends in the world, its a great ESG investment, and covers EV's, hydrogen, wind, and solar. The ETF is down 30% from the year-to-date high and has just started a new uptrend. We have a small gain and this buy doesn't hurt our cost basis.
Generac just received an upgrade from Keybank reaffirming their $400 price target. For the record I have a $415 price target. Generac is in all the right places, has a great management team that continues to execute well year-after-year. The stock trades at 33 times forward earnings and is expected to grow revenues 44.5% this year. Most people think of Generac as a standby generator company but with the acquisition of multiple software companies, battery technology and solar panels, Generac is quickly becoming a decentralized utility that is enabling its customers to have reliable power, store energy and sell it back to the grid. Storm season is part of Generacs cyclical story, but the larger story is 5G. 5G requires hyper reliable power, so telecom companies, internet service providers, data warehouses will all need to upgrade their standby power systems. Generac is already the leader in standby power for telecoms. Upside to consensus is 16.7%.
The Grayscale Bitcoin Trust (GBTC) is Stay Invested's way of participating in Bitcoin. While the GBTC comes with a premium fee, its more liquid that buying Bitcoin through an exchange and the volatility in error tracking makes it ideal for arbitraging when the fund gets ahead or behind Bitcoin. Bitcoin is currently trading below its 200-day moving average, I like this metric as a buy level. Combined with an emerging uptrend, El Salvador adopting Bitcoin as legal tender and increasing institutional ownership, I plan to own the GBTC until and ETF from a larger firm appears on the market.
Today's Actions
BUY AAPL 60 shares @ $127.06
BUY AMZN 8 shares @ $3,294.21
BUY CNRG 16 shares @ $102.74
BUY GNRC 68 shares @ $345.19
BUY GBTC 737 shares @ $30.15
"Markets don't go to zero, Portfolio's do.
Buy quality, be patient...and look twice for motorcycles."
- Clay Baker
Stay Invested,
Clay Baker
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Keep Me Honest 2021
The S&P 500 will achieve year-end earnings of $170-$175 (1-1-2021).
We are likely to have a significant pull-back during the 1st quarter, about 5%-10% (1-1-2021).
Stocking picking will outperform algorithmic trading again as it did in 2020 (1-1-2021).
Clay's Rules
Rule #1: Don't lose money
Rule #3: Portfolios go to zero, markets don't, Stay Invested
Rule #4: When good stocks you own drop 10% below your cost basis, add shares
Rule #5: Bull markets aren't sustained without the Transports
Rule #6: When Forward P/E is lower than TTM P/E, expect earnings to increase
Rule #7: When an investment bank sells below book value, buy it
Rule #8: Tips are for waiters. Do your own homework.
Rule #9: Don't sell a stock because you're bored with it. Do your own homework.
RULE #10: Being early and being late is the same as being wrong...move on.
Disclosure: I am personally invested long in some or all of these stocks or funds that appear in the Stay Invested portfolio and may purchase or sell shares within the next 72 hours. I am also invested in other stocks and funds that do not appear in the Stay Invested portfolio but may be mentioned or related to this article. It is not my intention to advise or encourage the purchase or sale of any security. I am invested long in these securities mentioned in this post:
AMD, AMRN, AMZN, AAPL, ARKK, ARKG, CNRG, ENPH, FB, GNRC, GBTC, GLD, HRTX, HD, IPOD, MSFT, NVDA, PSTH, TWLO, VBIV
I am invested short in these securities mentioned in this post:
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. This article is not intended to offer investing advice, guarantee 100% accurate predictions, or to be interpreted as providing a personal recommendation.
