Portfolio Update, Buys & Sells
“Finding investments is easy, waiting is hard, waiting is the hardest part”
The Portfolio Performance
The portfolio is up 5.96% YTD
Our benchmark, the S&P 500 is up +19.23% YTD
The Quote Above
I don't like quoting myself, but sometimes my own thoughts are relevant, at least to me. I haven't done anything with this portfolio in a long while because I've been waiting. I've been waiting for earnings, I've been waiting for catalysts, I've been waiting on COVID variants, and of course waiting on the Federal Reserve.
Finding investments is easy, waiting is hard, waiting is the hardest part - Clay Baker
I feel like there's enough clarity now to make some minor changes to the portfolio. Below is a list of my upgrades to price targets, a sell and a couple of buys.
Before digging into the portfolio positions, I should comment on the performance, or lack of performance, depending on your view. 2021 is the second year in the last five years that the Stay Invested portfolio has underperformed the S&P 500. We've had a stellar run since 2016, significantly outperforming the S&P 500 in 4 out of 5 years. The Stay Invested overall 5-year average is +39.23% and that return was delivered with less volatility than an S&P 500 index fund.
- 2016 +35.35% (S&P 500 +11.96%)
- 2017 +45.56% (S&P 500 +21.83%)
- 2018 +39.01% (S&P 500 -4.38%)
- 2019 +29.14% (S&P 500 +31.49%)
- 2020 +47.10% (S&P 500 +18.40%)
While the portfolio is underperforming our benchmark index, I still like all the holdings because there are still significant catalysts for growth in almost every holding. I think its possible that the next two quarters could see significant growth in revenues and earnings for our holdings, it is also possible that it could take another year for this portfolio to deliver the returns we're all looking for. Waiting is hard, waiting is the hardest part.
Below are my price target updates, buys and sells.
AMD raised 12-month price target from $124 to $136
AMD delivered an excellent earnings report and showed the company is continuing to chip away at Intels market share. AMD delivered record revenues that were up 99% year-over-year and 12% quarter-over-quarter. Gross profit up 116% y/y. Gross margin percentage increased 4% y/y. Operating expenses/revenue declined 9%. Operating income up 380%. Net income up 352% and earnings per share up 346%.
While every segment delivered, my focus has been on AMDs data center sales and growing market share in what I think is the most lucrative part of their business. AMD has struggled in years past to make inroads into the data center where high performance chips for cloud computing are critical. In the first quarter AMD announced that data center revenues doubled, and in the second quarter the growth continued for their higher end Radeon and Ryzen processors and AMD Instinct with revenue for this segment up 65%. I think in 3-5 years AMD will own a 20% share of the overall data center business.
AAPL raised 12-month price target from $184 to $192
APPLE reported significant earnings per share improvement in the most recent quarter. During the past fiscal year, APPLE earned $3.26 versus $2.96 in the prior year. This year, the market expects an improvement in earnings to $5.61 per share, a 72% increase in earnings. The return on equity increased and exceeds that of the the overall S&P 500. With a 46.77% gross profit margin that increased from the same quarter in the previous year and a net profit margin of 26.70%, I see APPLE as a strong, steady grower for years to come.
AMZN lowered 12-month price target from $4,600 to $4,200
Amazon continues to perform well on the business level but the stock has languished. YTD, Amazon has risen only 0.32% and over the past 12 months is down -0.50%. I think the move to develop Amazon department stores is strategically important as those big stores can reused as local distribution centers that further improve last mile delivery and lower costs. Those stores will also require a lot of employees and will pay significant local taxes in the communities where they are located. I would assume that Amazon will buy up shuttered mall super stores from the likes of Sears, Kmart and others. My new price target is $400 lower, but still 28.5% above current share prices.
ENPH raised 12-month price target from $194 to $213
Enphase was once the scrappy startup in the portfolio and has grown into a core holding with its continued performance, ability to upgrade existing customers and growth into new markets. The latest strategic move has been to build out a small commercial segment with their IQ9 micro inverters. Enphase has continued to grow in international markets as well which gives me confidence to raise my 12 month price target 10%, or 25.3% from current prices.
FB No change 12-month price target $463
I'm reiterating my 12 month price target for Facebook at $463, which is 26.8% above current prices. I believe that Facebook is very important to small businesses that use Facebook and Google for advertising. The biggest catalyst here is the historic levels of new business applications. However the Delta variant, slow growth in hiring, higher wages and supply chain constraints will likely reduce advertising spend or at least keep growth in ad spending lower.
FCX no change 12-month price target from $48
I'm maintaining my price target for copper miner Freeport-McMoran on lower metals prices and lower demand from China and uncertainty around the passing of the $3.5 trillion infrastructure bill. FCX is one of the best run companies in this space and growth in every technology and manufacturing sector will require more copper. For now there's no reason to raise my price target as the macro background doesn't support a raise, but in the near future demand will increase for copper in many segments and FCX will be a direct beneficiary.
GNRC no change 12-month price target $563
Generac's revenue growth leaped by 68.2% y/y. The company carries almost no debt with the current debt-to-equity ratio at 0.53. Return on equity exceeded its ROE from the same quarter one year prior. Earnings per share continues to improve by earning $5.49 versus $4.04 in the prior year. This year, the market expects an improvement in earnings to $10.10 per share versus $5.49. Net income increased by 92.0% rising from $66.15 million to $127.04 million. Generac is a core holding in the Stay Invested portfolio that I expect to own for many more years. While Generac has made a name for itself selling standby generators for residential, commercial and industrial customers, the company is rapidly building out a new business in solar, battery backup and software energy management. Home owners and businesses can now have a standby generator that runs on any fuel type, interconnected to batteries and solar panels. The entire system can be managed by Generics software and used to sell excess power to the grid to produce revenue for the owner. From my view this is the beginning of a new power grid, a distributed power generation grid that over time will become less and less reliant on major utilities. My current price target is 37% above current prices, I don't see a reason to raise my target right now. Keep in mind that hurricane season will drive sales on the east coast, while wildfires will drive sales in many other parts of the country. However, supply chain disruptions may limit sales for the next 12 months.
HD no change 12-month price target $423
Home Depot had some really tough same store comps to beat which seems to have soured investors appetite for this company. Home Depot remains one of the best ways to invest in the housing boom in the U.S for residential construction and remodeling. The Pro business has seen exceptional growth as Home Depot has been able to navigate supply chain shortages better than smaller building supply companies. My current price target is 28% higher than current price levels. Home Depot is a solid, safe holding with a reliable 2% dividend.
LRCX lowered 12-month price target from $828 to $757 BUY
Lam Research has been on a tear, up nearly 24% YTD and 65.5% over the last 12 months. Lam Research is a critical player in the semiconductor market as a supplier of equipment, supplies and services that semiconductor manufacturers rely on. I've lowered my price target as investors have reduced their overall outlook on the semiconductor industry. Personally I think this is short sighted, but valuations do matter. Lam is expected to grow 25% in the current year, but analysts are expecting slowing growth next year. I disagree with that outlook and see Lam Research as best of breed in this segment. While I'm tempering my enthusiasm by lowering my 12 month price target, my new number is still 29% above current prices. I'm planning to buy the rest of the shares the portfolio needs today.
MRVL raised 12-month price target from $59 to $65
Marvell is getting continued support from analysts who expect the company to deliver 51% growth this year and over 32% next year. Marvell is expected to deliver earning on August 26th and the general consensus is they will deliver a beat on revenues and earnings. I'm remaining cautious because of supply chain disruptions but increased my price target 10% given managements optimistic outlook. I may have to change my outlook after the company reports.
MSFT raised 12-month price target from $364 to $389
Microsoft is a core holding that I don't expect to ever sell. Once a legacy technology company that was traded as a value stock, Microsoft has become a mega growth company with highly reliable returns. YTD Microsoft stock has grown 36.5% and 42.5% over the last 12 months. The 5 year return has brilliantly outperformed giving long term holders a 424.6% return. Strategically, Microsoft keeps making all the right moves.
NVDA raised 12-month price target to $259
Nvidia may be the most important semiconductor company in the world with products in all the most important segments and an R&D division that is decades ahead of the competition. Nvidia's growth in the data center and gaming are impressive. On August 18th the company delivered Q2 2021 earnings and once again beat all estimates. Record revenue of $6.51 billion, up 68% from a year earlier. Record Gaming revenue of $3.06 billion, up 85% from a year earlier. Record Data Center revenue of $2.37 billion, up 35% from a year earlier. The untold story is the roll Nvidia's technology played in identifying compounds that could be used to develop a vaccine for COVID-19. Analyzing massive amounts of data with Nvidia's fastest super computing technology reduced years of research to weeks. I think analysts spend too much time looking at the companies gaming and crypto currency products, while the real growth opportunities are in the datacenter, automotive and parallel computing at the edge for real time 5G networks.
OIH Possible buy
The Oil Services ETF may be one of my worst calls with a 25% decline in just few weeks. It appears I didn't wait long enough before making my initial purchase. Halliburton, the second largest holding at 13.25%, was upgraded by Goldman Sachs to a buy on July 20, with analysts noting its turnaround plans. They said the firm has a “clearer path to improved returns and dividends,” and like its “favorable” business mix toward international customers. The ETFs largest holding Schlumberger delivered a beat on the top and bottom lines in the second quarter and offered excellent guidance. “Absent any further setback in the recovery, we continue to see our international revenue growing in the second half of 2021 by double-digits when compared to the second half of last year. This translates into full-year 2021 international revenue growth, setting the stage for a strong baseline as we move into 2022 and beyond,” said Schlumberger CEO Olivier Le Peuch. This two companies make up 32.5% of the ETF so any improvement in this companies performance will help the OIH ETF, as will higher oil prices driven by increased demand.
Oracle is up +32.24% YTD and 62% over the past 12 months. Revenue projections for the year and next year are roughly 4% higher. I didn't expect ORCL to perform as well as it has, I acquired it as a safe bet because when I bought it at $61.68/share the stock was undervalued. The stock is now trading at $89.65, 45% above our cost basis and growth appears to be slowing. I plan to sell Oracle and take the win. As the fed reduces asset purchases, growth stocks will get repriced and technology companies will be some of the first to take a hit. The combination of slower growth and a macro hit are instructing me to exit this position.
TWLO raised 12-month price target from $445 to $476
Twillio is a business I love because the model scales so well. The company is paid fractions of a dollar for every transaction its technology executes. The more software engineers build Twillio code into their applications the faster revenues grow. Twillio is expected to grow revenues 51.5% this year and 31% next year. The. stock trades $50 below the lowest analyst estimate and 37% below my target price of $476.
UBER raised 12-month price target to $66
Uber has a number of risks, in particular the reclassification of its drivers from independent contractors to full time employees. The cash burn continues to be very high but so is the revenue growth. There are parts of the business that I like better than the ride-hailing portion, but investors need to know those other growth areas will take several years to deliver meaningful revenues.
AMRN raised 12-month price target from $8.00 to $10.00
Amarin has a number of challenges, not the least of which is the company has just one product VASCEPA. The latest data shows that prescriptions are down week/week and year/year. I can put the patent challenges aside for now and look to where revenues should grow, which I think is in a return to doctors. COVID has kept many people from visiting their doctors, even seriously ill patients and those concerned about cardiovascular disease. For patients currently on a statin, VASCEPA can reduce the risk of a major cardiac event by about 30%. That's a massive improvement in life expectancy for a very reasonable cost. I'm surprised the federal government doesn't subsidize VASCEPA in order to lower overall healthcare costs and just r