Shesa's October 2020 Investment Blog
OCTOBER 2020 - INVESTMENT BLOG
By Shesa Nayak
U.S. Stock Market Update
A major milestone knock on the door and that’s U.S presidential election on NOV 3. The stock market is keeping an eye and obviously little nervous about the outcome! Who will be the next president, what would be his policies? Will that be supportive for the stock market? If poll results are any indications then Democrats are expected win. However, until we see the results it’s just a guessing game for now. If there will be change of power, should we revisit our portfolio? Should we wait till the election is over? As an investor, so many such uncertain questions come to mind. Meanwhile another $2.2 trillion stimulus was approved by house democrats but it failed time and again because none of the parties are willing to bend! Today Nancy Pelosi has given a 48 hours deadline to White House to reach a Corina Virus stimulus deal before election. The failure of having a stimulus, fading economic momentum, and the threat of rising coronavirus cases in U.S and Europe, creates a rather negative dynamic for the stock market. The third quarter earnings season kicked-off last week. Many banks and financial institutions reported good earnings but market hardly took it positively! The Federal reserve chairman clearly stated that the country needs more stimulus to bring the economy back from earlier turmoil but ironically that message went to deaf ear! As we get very close to the election, it’s sensible to revisit our portfolios and take necessary measure especially if there will be a change of power. It would be wise to make quick amendments to an existing portfolio depending on the market situations. But what happens before or after the election after such a long bull market? Well, I will share some of my thoughts but first let’s take a quick glance to U.S stock market indexes.
| Indexes | 1/2/20 | Close FRI (9/11/20) | Change in 2020 | % Change in 2020 | All Time High | From All Time High | % from All Time High | LOW this Year |
| DOW | 28,538.44 | 28,606.31 | 67.87 | 0.24 | 29,568.57 | -962.26 | -3.25% | 18213.65 |
| S&P 500 | 3,230.78 | 3,483.81 | 253.03 | 7.83 | 3,588.11 | -104.30 | -2.91% | 2191.26 |
| NASDAQ | 8,972.60 | 11,671.56 | 2,698.96 | 30.08 | 12,074.06 | -402.50 | -3.33% | 6631.42 |
| BTK | 5,067.45 | 5,480.97 | 413.52 | 8.16 | 6166.36 | -685.39 | -11.11% | 3985.72 |
| NBI | 3,786.54 | 4,392.83 | 606.29 | 16.01 | 4600.54 | -207.71 | -4.51% | 2947.85 |
Q3FY20 Earnings
Q3 Earnings: About 10% of the companies in the S&P 500 have reported results so far, 86% have reported a positive EPS surprise and 82% have reported a positive revenue surprise.
Q3 Earnings Growth: Earnings decline for the S&P 500 is anticipated to be -18.4%. If -18.4% is the actual decline for the quarter, it will mark the second largest year-over-year decline in earnings reported by the index since Q2 2009 (-26.9%).
Valuation: The forward 12-month P/E ratio for the S&P 500 is 22.0. This P/E ratio is above the 5-year average (17.3) and above the 10-year average (15.5)
Major Economy News
- U.S. reported highest number of new coronavirus case since late July as total climbed above 8 million
- U.S Coronavirus Cases: 8.14 million vs. 6.417 million during last blog, Death: 219,000 vs. 191,916 in my last blog. Unfortunately, 27,000 more people have lost their lives since then.
- Nancy Pelosi gives White House 48 hours deadline to reach Coronavirus stimulus deal before election
- Jobless claim: The Labor Department said initial U.S. jobless claims hit their highest level since August, reaching 898,000 for the week ending October 10.
- Unemployment: The unemployment rate declined to 7.9%. These improvements in the labor market reflect the continued resumption of economic activity that had been curtailed due to COVID-19 pandemic and efforts to contain it.
- Retail Sales: In September the retail sales increased 1.9% beating economists forecast of 0.7%. It can be noted that retail sales have been increasing each month since May 2020.
- US debt: 107% of GDP.
- GDP Growth: Q3 GDP growth is expected to be over 30% quarter over quarter. Last quarter it was -31.4%. GDP Annual growth: -9%
- US Total GDP/Economy: $20.54 trillion
- Interest Rate: 0.25%
- Inflation rate: 1.4% (moth over month 0.2%)
- Apple launched 5G iPhone: Apple released iPhone 12 pro, iPhone 12 Max and iPhone Mini
Impact of Election on the Stock Market and performances
As said before, U.S presidential election will be held on 3 November, we are left with only 15 days! If polls are any indication than Biden is leading more than 10 points nationally. However, past experiences have shown that polls can’t really be believed. But it gives us an early indication about the probability of winning. As we get closer and closer to the election date, stock market is expected to be volatile on the news and pool results because of fear and uncertainty etc. Stock Market may get nervous if none of the candidate win with good margin, expect large number of postal votes which may not arrive on time. In the case of general elections, congressional results could impact market performance. However, historically the market performs better when democrats are in power. Since 1947, the S&P 500 has posted a total annual return of 10.8% under Democratic presidents, versus 5.6% under Republican presidents. Even if we consider this great recession due to the pandemic, still Democratic presidents have done much better than Republican presidents as far as market returns are concerned. The major stock market rally under the current Trump administration was primarily due to corporate tax cuts. The stock market boom was primarily due to Federal Reserve’s unlimited QE and government stimulus. Near-term volatility in the stock market is always possible, particularly heading into such a hotly contested. However, market do not see to be behaving badly. As I keep saying, as long as Fed is standing with unlimited QE the market may not go down significantly despite volatility. But some pull backs are always possible. Whether there is change in power or not, stock market performs even better if there is divided Congress e.g. House: Democrats, Senate: Republicans, as there is less chance of drastic policy changes. The market tends to like that gridlock atmosphere. Even though, the earnings season is underway and the tech giants will keep reporting their earning in next couple of week still election uncertainty remains as hangover on Wall Street.
I keep hearing that Democrats will raise taxes for individuals and corporate. Yes, that’s the possibility but annual households making less than $400,000 a year will not see increase in tax. Also, household may get more tax break on property and local taxes. I will discuss more on this in my next blog, if Democrats win the election.
So, what to do in a volatile market? Invest? Hold? Trade? I have written it in so many of my previous blogs. So, I will not elaborate again. But in nutshell, it’s better to have investment and trading strategy in place to get better return on investment.
Sectors that could do well of a Democrat win
Renewable energy or Green Energy: The clean energy, comes from natural sources or processes that are constantly replenished, such as Solar, Wind etc. Based on Senate Democrats' Special Committee on the Climate Crisis, calls on Congress to spend at least 2% of annual U.S GDP. Biden's climate plan calls for spending $2 trillion on clean energy investments over four years. That’s astronomical! Hence, I expect that this sector (Solar, Wind) to boom. My Stock of interest: ENPH, SEDG, NIO, TSLA, JKS, QCLN – ETF are some of the stocks that I like in this sector.
HealthCare: Particularly insurance companies because of emphasis on Obama Care are expected to better. UNH, Centene, TDOC, LVGO, IHF, Cigna. As far as biotech are concerned, they primarily depend upon their drug pipelines, success of trials and approvals of drugs. Hence, it does not depend on any specific government. However, some policies may influence the drug approval process and new drug pricing. Stock of interest: TDOC, LVGO, IHF.
Infrastructure related stock: Roads, Constructions etc. At this time, I do not hold any stock in this sector but may look for some opportunities.
Cannabis: As democrats vice presidential candidate Kamala Harris has said they will decriminalize marijuana possession offenses. Also, they could change the SAFE Banking Act, which would allow cannabis businesses to work freely with banks. This will enable the cannabis companies to get financing from banks which is not possible at this time. I also expect that down the line they will legalize marijuana for medical use but I do not expect recreational use. I also expect that the government will empower states to have their own rules/regulations for recreational use of marijuana.
Stocks of my interest: APHA, CGC are two stocks that I like. CGC is in my blog portfolio.
U.S & China association: Those companies who export to China or import from China viz. Semiconductors, phone, agriculture, Aircraft, soybeans, motor vehicles and other components could see their export grow. Imports from China could be economical, so companies importing will get benefited.
Property Tax and local Taxes deductions may be good for homeowners, particularly those who pays more than $10,000 property and other local taxes, Home Equity loan etc. Any state who has higher property and local taxes could benefit.
Sectors that may have negative impact: Financials, Energy. More scrutiny on financial sectors banks and FIs. Also, traditional energy companies may get hit because of higher emphasis on renewable energy.
Bottom Line: Irrespective of which party wins the election, stock market will remain volatile and ultimately go up as long as Federal Reserve is supportive. So, I am not too apprehensive at this time.
Future Investment Paradigm for Growth Investing
If you are a growth investor looking for better return on investment then it’s important to foresee or visualize the innovations that may be coming in future. Because that brings best return if you are an early adopter. Take for example of COVID vaccines manufactures or cloud companies. Nobody knew of such a pandemic coming but those who could take some risk and got early to these stocks could have made huge amount of money. Because of COVID lot of cloud and work from home companies made a killing, so also the investors. When .com boom happened, all the early adopters made solid gains. Nobody can predict the future with certainty but we can foresee some of the changes that could happen in next several years. As such, I see the following areas which can provide better return on investment for investors who can invest early, gradually and have the patience to hold for long term.
5G Revolution: Most of us have been hearing about 5G phones. Now that Apple has released iPhone 12 which supports 5G connection the scenario is expected to change. We could see more demands for 5G related manufacturers that enable 5G-related product and services, like semiconductors and equipment vendors, stand to benefit from the new network. This month I will be adding a company which I think will be a good investment in this space.
Electric vehicles (EV): By 2030, one in 5 cars are expected to be powered by electricity. Currently it’s about 2% in U.S expected to go up 7% and Sales would be about 20%. This is an area when some of the EV manufacturers like Tesla, NIO will be hugely benefited.
Renewable energy: At this time only 7-8% of the energy demand is met by renewable energy like Solar, Wind etc. However, by 2030, 22% of electricity generation are expected to be materialized through renewal energy. That’s a huge increase. Please note that, if democrats come to power than it could further go up because of their enormous emphasis on green energy.
Big pharma/biotech: Cell therapy and gene therapy could transform pharma and biotech in the coming decade. Moreover, I will refer it as precision or personalized medicine. Precision medicine will be based on each patient’s unique genetic makeup, that will overcome the limitations of traditional medicine. This will allow doctors to formulate medicines for each patient based on their unique genetic makeup. This will immensely help in early detection, prevention and cure for many fatal diseases with unmet need like cancer.
Cannabis: The current cannabis sales in U.S is approximately $10-12 billion. This is expected to grow more than $80 billion by 2030. If Democrats come to power than they will be more liberal to this sector and I could see further growth. In addition, there are many other countries who could potentially legalize marijuana, particularly for medical use, drinks, oil, gummy, chocolate, lotions etc.
Bottom Line: Investing in the right stock at the right time may bring enormous returns failing to do that could see mediocre return on their portfolio.
A quick look to my Stock opinion in the Investment Group
NIO: The Chinese car manufacturer that I included in January this year at $4.27 has rocketed to $28.48, up 567%. That’s incredible! I emphasized this in my blog and WhatsApp group numerous times. It still has huge long term future potentials.
Bed Bath and Beyond (BBBY): This retailer has gone up incredible 106% since the inclusion in my last month (September) blog. It’s difficult to imagine such performances for non-biotech stock. Frankly, I did not expect such return so fast! I have trimmed little bit.
INO: Inovio is biotech company actively involved in producing DNA vaccine but not entirely related to COVID-19.The company has many other drugs in the pipelines for cancer drugs. In fact, one of its cancer drug is already in phase-3 trial. This stock is not part of my blog portfolio but I like it.
Agenus (AGEN): This is another small biotech company with a huge pipeline of drugs – more than 15 drugs. I have been accumulating this stock. This stock is not part of my blog portfolio but I like it. We will see where this company will be in a next couple of years.
NWBO: I said this as a lottery stock. This company has competed brain cancer vaccine phase 3 trails and completed data locks a few weeks ago. The results could be published on any day. If company’s brain cancer vaccine succeeds then it can be a 10 bagger but if it fails it may come down below 10 cents. This stock is not part of my blog portfolio but I like it.
SRNE: This is another company in the space of oncology and COVID-19 treatments, testing equipment, antibody and vaccine. This small biotech company has many drugs in pipeline and has the long term potential. Currently, the stock is trading at $9.30. I feel it’s a great long term investment for investors having risk appetite. This stock is not part of my blog portfolio but I like it.
Major Stock Market Performances in 2020
Indexes | 52 weeks (% change) | YTD % (last blog) | YTD % Change (current) |
DOW | 6.86% | -3.06% | 0.24% |
S&P 500 | 16.66% | 3.41% | 7.83% |
NASDAQ | 44.28% | 20.96% | 30.08% |
China Shanghai Index | 13.55% | 6.89% | 9.38% |
India BSE Sensex | 1.74% | -5.79% | -3.08% |
Japan Nikki | 4.08% | -1.06% | -1.04% |
Hongkong Hang Seng | -8.73% | -13.08% | -13.49% |
Source: Wall Street Journal
Sectorial Performances 1 Year % Change (U.S Stocks)
Sectors | Last Blog | 1 Yr. % Change |
IT (Best sector YTD) | 40.76% | 47.29% |
Consumer Discretionary | 24.12% | 31.71% |
Health Care | 16.13% | 18.82% |
Communication and Services | 16.23% | 17.42% |
Materials | - | 15.94% |
Consumer Staples | 6.27% | 9.97% |
Industrials | -0.33% | 5.87% |
Real Estate | -8.34% | 1.25% |
Utilities | -5.72% | -5.72% |
Financials | -11.56% | -10.90% |
Energy | -45.51% | -46.70% |
Source: Fidelity.com
Let's take a quick look to this month's inclusion to my Blog Portfolio.
Micron Technology, Inc. (MU)
The 5G revolution has started and we will see continuation of this for next few years. We keep talking about 4G phone 5G phone. The 5G or fifth generation technology standard for broadband cellular networks. It has started since 2019 but U.S is running behind South Korea and China to build and deploy the technology. It’s expected to be one of the biggest trends for the next five years. This week Apple released its iPhone 12 that will be supporting 5G broadband so we may see few further increase in popularity and perception. Trillions of dollars will be spent on 5G smartphones, 5G cell phone towers, and more importantly fiber-optic network that makes the backbone of the 5G network,. In addition, the hyperscale data centers to manage data traffic and other infrastructures viz. hardware, software, security etc. to support the network. In U.S Verizon will have true support of high speed network as they already built the infrastructure. AT&T, T-Mobile will also have 5G support but it would be much slower because they are still in the process of developing the infrastructures and that may take another 1-2 years. You may be wondering why I am writing all these things? Well, I am writing these because Micron Technology is tightly coupled in the whole process.
What does Micron do and Demand for its product?
MU manufactures and sells memory and storage solutions worldwide. The company operates through four segments: Networking Business Unit, Mobile Business Unit, Storage Business Unit, and Embedded Business Unit. It offers memory and storage technologies, including DRAM, NAND, NOR Flash, and 3D XPoint memory.
The demand for Micron’s memory has been surging. The company estimates that DRAM market will grow 15% a year for at least the next couple of years and NAND market will grow 30% year over year for next few years. As we know, when the computing power increases, we are capable of running more complex software not only locally but also on the cloud. With the current change in trend for 5G technology there will be enormous demand for Micron’s product. Let’s just take a moment and think, the usage of memory for our desktop, laptop, Phone, Servers, gaming devices, audio calling, video calling, video conferencing, streaming games, watching movies on Netflix, Amazon Prime, surfing social media, running application on cloud, autonomous driving, more usage of AI, Machine learning, analytics tools and so on and on.. All these need memory, Hard Disk, SSD/Flash memory etc. Let’s think how many millions or billions of calls, text, photo sharing, video watching, conferencing is happening. With the emergence of 5G technology all these will get multiplied and all these will happen at amazing speed. These needs more sophisticated technology. For example, current download speed for Verizon using 4G is 53.4 Mbps per second that would increase to 494.7 Mbps per second, almost 10 times using 5G technology. But ATT and T-Mobile are still not have there as yet! Moreover, during these pandemic it has proved that how badly the world needs 5G wireless technology. People staying at home had to find ways of entertaining themselves, working from home, trading stocks, streaming video games, surfing social media, watching Netflix, online shopping etc. All these have gone up multi-fold and hence we could see many companies are booming and correspondingly their share prices are on fire!
Why do I like Micron?
It’s always better to invest in a company who is enabling trends that are growing exponentially and especially now that the 5G wireless technology has arrived. Whenever there is a new wireless technology, new devices have always needed more memory and more sophisticated processing power. Micron is selling about 166% more DRAM into high-end 5G smartphones than a 4G phone. Also, the flash memory used are almost doubled. For example, Apple iPhone now starts with 128GB instead of 64 GB memory and expected to be much faster comparing to earlier phone. Because 5G wireless networks has very low latency, 5G-enabled devices should have the fastest RAM possible to handle the near real-time connections. We will see the largest smartphone refresh cycle across the globe - more than a billion smartphones and a million 5G base stations will be produced over the next few years. About 250 million 5G-enabled smartphones will be sold this year. Micron’s products are required to keep up with the data flowing through fiber-opticand data centers are a huge growth area for Micron irrespective of which smartphone phone is sold or in which country it’s sold. The month of October and November are going to be a huge month for the 5G cellular rollout because of new iPhone 12. Right now, only about 20% of the U.S. population lives in areas covered by 5G. So, the demands will continue to grow for next few years. Add to that, the pandemic has created more demand because of more usage of all other devices. It’s hard to imagine these days without having a phone or laptop/computer or many other electronic devices for that matter.
It’s when the largest smartphone refresh cycle in the history of the world has just started. More than one third of the iPhones are expected to be upgraded to 5G phone. Upgrading the device is one aspect but after that all applications, services, support begins. The communications sector, in particular, has exploded. Wired networks, wireless networks, and data centers are all scrambling to keep up with the increased data traffic and all these helps Micron to accelerate its revenue and profit growth. The technology is one aspect of it. But as an investor, I am more interested about the money that they are making or will be making. Because the stock price will be determined based on this primary criteria “Finance..”. So, let’s look at its fundamentals.
Fundamentals:
Market Capitalization: 57.71 Billion
Revenue: $21.44 billion.
P/E: Trailing: 21.92
Forward P/E: 14.39
Price to Sales: 2.74
Price to Book: 1.48.
Quarterly Revenue Growth: 24.4%, => This is solid
Quarterly Earnings Growth: 76.10%. => Excellent
Total Cash: $8.14 Billion
Total Debt: $7.18 Billon
Net Income: $2.69 Billion, EPS: $2.37
Book Value: 35.10
Institutional Holding: 82.31%
52 Week High: $61.19, 52 Week Low: $31.13
Dividend Yield: None
My View: Fundamentally the company is looking very solid. If we see revenue growth of 25% and profit growth of 76%, looking to other fundamentals, the stock seems lucrative. Moreover, let’s not forget the growth lies ahead due to 5G revolution and this trend is going to continue several years. I have taken some position in Micron stock a few weeks ago but I keep accumulating with any pull back. Let’s not forget that the retail sales were up in September but electronic sales were down. The main reason is holiday season is coming and as we know during this time (Q4) the electronic products are sold the most. In other words, we are approaching to the best time for MU. Now the stock is trading at $51.61. It had a 52-Weeks high of $61.19, which is 16% discount to its 52 weeks high. Hence, I believe this is a good pick for trading as well as long term investment.
Risk: We know that no stock is immune to stock market decline. However, now that new phones are coming with 5G adoption the demand will be humongous for its product. But just reminding the blog readers that the semiconductor businesses are cyclical in nature. Hence, after the Q4 earnings season we may see some slack. So, it may be sensible to take some profit when that happens to mitigate the risk. I will term Micron as medium risk investment.
My Final thoughts
As I said, 5G revolution is the next mega trend that has begun this month after Apple announced iPhone 12. Now the momentum will keep building as more and more people plan upgrading to 5G phones. Approximately, 350 million of 950 million iPhones across the globe are due for an upgrade. The super cycle has just begun! It’s just not the smart phones rather all the components inside it, the network, the servers, storage, security, applications, new games, movies, medical sciences, cloud services and so on.. everything will adopt to the 5G technology. Micron is a key player in this field that would garner huge benefits. Hence, I am invested and will keep accumulating as I get opportunity.
Other Stocks of my interest: NVDA, PVH, EXPE, CVM, INO, SRNE.
Shesa’s Blog Portfolio (As of October 18, 2020)
Equity | Suggested Price | Current Price | Suggested Date | % Change | My View | Earnings Date |
STOCK (All prices are in USD) | | |||||
12.9 | 119.2 | 1/25/13 | 824% | Wait for Earnings, 10/29 | 29-Oct | |
47 | 265.93 | 11/13/13 | 466% | Buy on Dip | 29-Oct | |
77.18 | 339.4 | 12/12/13 | 340% | HOLD | 28-Oct | |
311.73 | 3272.71 | 4/12/14 | 950% | Buy on Dip | 29-Oct | |
67.28 | 307.31 | 2/21/16 | 357% | Buy on Dip | N.A. | |
36.53 | 33.66 | 5/28/18 | -8% | HOLD | N.A. | |
134.81 | 1067.21 | 11/25/18 | 692% | Buy on Dip | 29-Oct | |
297.57 | 530.79 | 1/6/19 | 78% | HOLD | N.A. | |
17.66 | 5.15 | 2/17/19 | -71% | Wait for Earnings | N.A. | |
20.16 | 17.76 | 12/10/19 | -12% | BUY if Dems win Election | N.A. | |
87.53 | 101 | 9/1/19 | 15% | HOLD | N.A. | |
8.74 | 11.92 | 1/1/20 | 36% | Accumulate | N.A. | |
4.27 | 28.48 | 1/29/20 | 567% | Accumulate | N.A. | |
12 | 14.08 | 3/22/20 | 17% | Accumulate | N.A. | |
76.91 | 183.58 | 4/19/20 | 139% | Accumulate | N.A. | |
54.59 | 64.82 | 5/25/20 | 19% | BUY | 2-Nov | |
45.3 | 110.84 | 6/28/20 | 145% | BUY if Dems win Election | 27-Oct | |
19.58 | 30.19 | 8/2/20 | 54% | BUY / Accumulate | | |
12.03 | 24.83 | 9/13/20 | 106% | Incrediable Run! Trim | | |
51.61 | 51.61 | 10/18/20 | 0% | NEW ADDITION | | |
ETF | | |||||
139.1 | 214.05 | 8/16/15 | 54% | HOLD | | |
MUTUAL FUND | | |||||
11.46 | 25.24 | 3/1/13 | 120% | HOLD | | |
59.45 | 180.86 | 12/20/14 | 204% | HOLD | | |
9.05 | 22.12 | 1/15/16 | 144% | HOLD | | |
37.32 | 89.23 | 3/20/16 | 139% | HOLD | | |
43.66 | 72.54 | 9/24/17 | 66% | HOLD | | |
Note: Dividends are not adjusted on the price. | | |||||
Dems: Democrats. | N.A: Not Available | | | | ||
Positions CLOSED since last Blog
None.
That’s all for today. Wish you great investing! Stay tuned for my next blog. Thanks for your time. If you want to get alert on my investment action, then please subscribe to shesagroup_invest@googlegroups.com or you can also join my WhatsApp group, if interested.
Disclaimer: This blog is meant to provide my opinion only. The information provided is to the best of my knowledge but may not be accurate. I do NOT provide any professional recommendation to buy/sell any stock, ETF, mutual fund, or any other security(s). As an investor, it’s your hard-earned money and you decide what is best for you. The above are merely my own opinions. Please contact a professional money manager to buy/sell any security. I do not charge any fees or commission by writing the blog except anything from Google AdSense. I have position(s) on whatever security I write on my blog and avoid recommending any security that I do not own or follow. Anybody buying or selling the equities mentioned here would do it on their own risk.
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