Shesa's APRIL 2021 Investment Blog
APRIL 2021 - INVESTMENT BLOG
By Shesa Nayak
U.S. Stock Market Update
First quarter Earnings season(Q1FY21) is in full swing. A few days ago, the financial sector came out with strong earnings. All the big tech giant Apple, Amazon, Microsoft, Google, and Facebook are scheduled to release their earnings this week making it the busiest week of this earnings season. So far, 25% of the S&P 500 companies have reported their earnings with a growth rate of 33.8%, making it the best quarter since the third quarter of 2010. The $1.5T COVID release package approved by the Biden administration is expected to provide a huge boost to the economy. Economy is bouncing back handsomely despite the fear of inflation. DOW and S&P 500 have made new all-time high, and Nasdaq is in a striking distance to make its new all-time high. Unemployment rates have been coming down which is a good sign of recovery. We can expect pent-up consumer demand resulting in higher corporate revenue and profits. Once the earnings season is over, we may see some volatility in the stock market and focus could turn to $2.3T infrastructure plan proposed by Biden administration. The green energy summit called by President Joe Biden last week was attended by world leaders from 40 countries. Biden plans to cut U.S. greenhouse gas emissions by 50% by 2030. The other world leaders re-iterated their commitment to reduce the carbon emission and use of green energy. This is one of the biggest trends that we may see in the years to come. I will elaborate on this trend as there could be immense opportunity for the long-term investors but before I do that let’s look at the stock market indexes.
| Indexes | 1/2/21 | Close FRI 3/21/21 | Change in 2021 | % Change in 2021 | All Time High | % from All Time High |
| DOW | 30,606.48 | 34,043.49 | 3,437.01 | 11.23 | 34,256.75 | -0.62% |
| S&P 500 | 3,756.07 | 4,180.17 | 424.10 | 11.29 | 4,194.17 | -0.33% |
| NASDAQ | 12,888.28 | 14,016.81 | 1,128.53 | 8.76 | 14,175.12 | -1.12% |
| BTK | 5,739.02 | 5,606.15 | -132.87 | -2.32 | 6376.77 | -12.08% |
| NBI | 4,759.14 | 4,864.06 | 104.92 | 2.20 | 5466.79 | -11.03% |
S&P 500 Earnings
Earnings: For Q1 2021, 25% of the S&P 500 companies have reported actual results with earnings growth rate of 33.8%. If 33.8% remains the actual growth rate for the quarter, it will mark the highest year-over-year earnings growth rate reported by the index since Q3 2010 which was 34%.
Valuation: The forward 12-month P/E ratio for the S&P 500 is 22.3 which is above the 5-year average (17.9) and above the 10-year average of 16.0.
Economy News
- GDP: Q4 GDP growth was 4.3% quarter over quarter and annual growth of -2.4%. The economy is reflecting both the continued economic recovery from the sharp declines after the impact of the COVID-19 pandemic
- FED forecasts GDP is expected to increase 6.5% in 2021 but some Fed members have forecasted GDP growth above 8% for 2021
- U.S Coronavirus Cases: The number of cases has gone up to 32.1 million vs. 20.2 million, Death: 571K vs. 541K sincemy last blog.
- COVID Vaccination: 137.3 million people or 42% of the U.S population have been vaccinated at least with 1st dose and 91.2 million or 28% of the people have been fully vaccinated
- Retail Sales: March retail sales had big jump 9.8% vs. -2.7% in March. Good sign!!
- The unemployment rate declined to 6% FEB 2021 down from 6.2% in March
- US Total GDP/Economy: $21.43 trillion
- Interest Rate: 0.25%
- Inflation rate: 2.6% vs. 1.7% in March
- Consumer Confidence: 86.5 vs. 84.9 in the previous month
- The Labor Department said last week that first-time claims for unemployment insurance totaled 547,000, which was below the estimate of 603,000.
Joe Biden plans to increase Capital Gain Tax
There were reports that President Biden is planning to increase capital gains tax of 39.6% to fund education and childcare as part of an effort to overhaul the U.S. economy. This is expected for people earnings more than $1 million. The tax plan is expected to be revealed this week. However, it’s still unknow how much the lower and middle class will pay! Let’s not forget that there will be state Taxes!! I will write in my next blog once there is more clarity.
Fed Updates
Fed chairman Jerome Powell said, in an interview that it’s very unlikely Fed would raise rates this year. The Fed also forecasted GDP growth of 6.5% in 2021, which would be the fastest growth rate since 1984. It would also continue to support near zero short-term interest rates and $120 billion a month in bond purchases. As I said above, some Fed members are forecasting more than 8% GDP growth.
Current Economy Scenario
Positives
COVID Stimulus in 2021: $1.9T (Last year $6.5T). TOTAL Stimulus after COIVD: $8.4T.
Infrastructure Bill: Proposed $2.3T
Presidential Honeymoon: Joe Biden will complete 100 days at office on April 30 and may address the nation
Expected GDP growth in 2021: 6.5 - 8% projected by FED. This will be highest since 1984
Earnings Growth: For Q1FY21 the S&P 500 earnings growth so far is 33.8%, highest since 2010
Unemployment Rate: Down to 6%, Inflation: 2.6% up from 1.7%
Strong Consumer Spending: Economy expected to bounce back in Q1 and rest of the year due to business re-opening, higher employment, pent-up customer demand/spending
Easy year over year comparison revenue/profit for many corporations
Still about $5 trillion still sitting on the sideline
FED to Keep Interest Rates Low for a foreseeable future and Quantitative Easing
Negatives
Still high Unemployment Rate at 6%
Better Economy does not necessarily mean better Stock Market Return
Inflation is picking up
Market could get volatile particularly around AUG, SEP
What’s happening in the Stock Market?
The year 2021 started with Tech stocks higher and NASDAQ went past 14,000. We saw rotation from Tech into recovery stocks (Airlines, cruises, hotels, travel, entertainments, oil, and Natural Gas etc.). DOW and S&P 500 went up, but NASDAQ started sliding down. At present all indexes are having upward momentum. DOW and S&P 500 has hit new all-time high. The growth sectors like Renewables, Biotech, Cannabis was hit the hardest. The volumes have gone down, and many new investorsseems to be out of the stock market. Meanwhile, the big Tech stocks like Apple, Amazon, Facebook, Google, NVDIA have also bounced back, and NASDAQ has also gone past 14,000 points. I will not be surprised to Nasdaq making new all-time high this week provided tech companies come with solid earnings. However, it’s better to be little careful and have some cash on the sidelines given the possibility of some sort of pullback. I expect some volatility after Q1 earnings and visualize possible pullbacks/corrections during July-Sept timeframe. Having said that, I still think this year should also be a good year for investors. But why do I think so?
· I believe economy is getting better and stronger
· Another major reason is “if the first quarter low for S&P 500 is above the December low than 94% of the time the S&P 500 has given positive return on an average of 18.4%. This data is based starting 1950 to 2021, 70 years. Only on two occasions the index was down less than 1%.
Why Renewable sector was hit the hardest?
The renewable energy stocks were on tear a couple of months ago, but most of those have corrected significantly in last few week. Some stocks have gone down more than 50-60%. Recently, we have seen little bit of rebound after the climate change summit. But what are the reasons behind this correction despite their promising future prospects?
- Rising interest rates. Future projects would be more expensive resulting in less profitability
- Profit-taking by some investors: Many stocks in this sector had run too high too fast. In some cases, there were bubbles. There are valuation concerns in general after such huge run. So, it made sense to take some chips out of the table.
- Fear that Biden's $2.3T climate change plan may hit resistance from Republicans after passing a $1.9T stimulus package not too long ago. This is going to increase U.S. budget deficit.
- Earnings disappointed many in the last quarter: Some notable companies like FSLR, JKS, BLDP, FCEL did not report great earnings as expected by Wall Street. The hydrogen leader PLUG said to restate the earnings. This has cooled down the market's expectations for future earnings as well.
In my view, these are short term phenomena. Having said that, this correction has provided a great buying opportunity for the long-term investors in this sector.
Joe Biden’s Infrastructure Plan: $2.3 Trillion
Here is how Biden administration plan to distribute the fund, if approved.
· $621 billion into transportation infrastructure such as bridges, roads, public transit, ports, airports, and electric vehicle development
· $400 billion to care for elderly and disabled Americans
· $300 billion into improving drinking-water infrastructure, expanding broadband access and upgrading electric grids
· $300 billion into building and retrofitting affordable housing, along with constructing and upgrading schools
· $580 billion in American manufacturing, research and development and job training efforts
Why do I visualize great long-term opportunity in Clean Energy?
This is a sector which thin has tremendous future potential for the long-term investors. I presented it during my last investment meet on Saturday, 4/17/21.
President Biden invited 40 World Leaders to Summit on Climate on April 22 and 23 to tackle the climate crisis the world is facing. If you recall, Biden acted his first day in office to return the United States to the Paris Agreement. All these world leaders have agreed to stronger climate action. This summit is a key milestone before the United Nations Climate Change Conference (COP26) this November in Glasgow.
China has said to force regional grid firms to buy at least 40% of power from non-fossil fuel sources by 2030 in order to meet the country's climate targets. Chinese President Xi Jinping pledged his country’s commitment to a “green development” at the global climate summit with US President Joe Biden and other world leaders. Xi reaffirmed China would achieve carbon neutrality by 2060, and to peak carbon emissions by 2030. Europe plans to go Carbon neutral by 2050.
All these countries - China, Japan, EU, India, Brazil, and many others are trying to reduce carbon emission significantly by 2030. European nations and China are leading the way. The European Commission has set a target to install 6GW of renewable hydrogen electrolysers and produce one million tons of renewable hydrogen by 2024.
Biden Administration’s Proposal for Clean Energy
- 10-year extension and phase down of an expanded direct-pay investment tax credit
- Production tax credit for clean energy generation and storage
- Mobilize private investment to modernize our power sector
- It will support state, local and tribal governments choosing to accelerate modernization through complementary policies
- Use federal government’s incredible purchasing power to drive clean energy deployment across the market by purchasing 24/7 clean power for federal buildings
- Clean Electricity Standard (EECES) aimed at cutting electricity bills and electricity pollution, increasing competition in the market
Other initiatives
- John Kerry (Special Envoy for Climate) told last week that 6 Banks have committed to invest $4.16T (Trillion) for climate related initiatives in next few years
- In addition, private companies are rushing to investing in green energy
- New clean energy Funds are being created and institutions are jumping to invest in this lucrative segment
- Billionaires like Bill Gates, Jeff Bezos, Elon Musk, Warren Buffet have already invested in this emerging market and plan to invest more going forward.
My final thoughts
Clean energy is anticipated to be the next big change the world may experience for next several years. This will benefit all the companies taking part in this lucrative, carbon free fuel of tomorrow. When companies do well, so also the investors who invest early with a long-term perspective should be rewarded. Currently, the sector is going through a bumpy ride, but it could possibly be a short-term pain for long term gain. Though, nothing can be predicted, I am quite optimistic on its future.
Why Biotech Stocks went down?
If we closely look to the stock market indexes then biotech sector has been going down since 2nd weeks of February despite the fact that all other stock market indexes have been going up. But why so? Here are some thoughts that I would like to share.
After seeing massive gains in 2020 amid the Covid-19 vaccine heyday and hitting a high point in early February, biotech stocks have collectively pulled back around -12% from their all-time high.
Investors are uneasy after the Federal Trade Commission formed a working group to scrutinize pharmaceutical mergers more deeply. Meanwhile, the Food and Drug Administration has delayed several drug approvals, and senator Bernie Sanders introduced sweeping drug-pricing legislation. All of this comes amid a backdrop of rising interest rates has created many uncertainties and market does not like it. But whenever such things happen, it provides good buying opportunities for patient long-term investors.
How to know that a Stock is Being Manipulated?
Many times, we see the stock does not go up much even if the whole stock goes up. However, when the market goes down these stocks go further down. That’s one of the most frustrating situation for an investor to be on a stock. Amarin (AMRN) is a great example of this. Gilead (GILD) is another stock which has hardly gone anywhere in last 5 years. Anyway, it does not matter whether it’s Amarin, Gilead or any stock for that matter. Sometime the stocks are manipulated by the institutions, short-sellers, market makers etc. But how do we identify whether a stock is being manipulated. Here are some signs that we can know if a stock is manipulated.
- The stock does not trade based on Market Index: The stock market index may go up but the stock will hardly move meaningfully. Most of the time the stock does not go up but comes down more than the index when market is down.
- Negativity on message boards, social media, and other media: The stock will have bad message like “it’s a junk, this stock is a garbage..” etc. etc.
- Price targets by random users that are far below the current price: For example, you may see post like it’s a $10 stock when the stock may be trading at $30, though it may be a good company with sound fundaments.
- The company does not get any premium: Such stock always provides a lackluster performance and trade near its cash value. No investor is willing to buy as it’s being manipulated, hence it does not go up even on good news
- Bad news shed more market cap than anticipated: Because new investor may not be willing to buy. Why put money on a stock which hardly goes up!! The short sellers take advantage of such situations.
- High short volume, low short interest: The short volumes may be very high but when we go and check in let’s say Yahoo or any other site the short %ge would not be show big numbers because short sellers cleverly close/cover their position before the end of the day. If we see a large amount of volume before the end of the day, or right at the opening then some of that volume could be attributed to shorts covering their position
- Retail Investors get confused: Many retail investors like us don’t understand why the hack the stock is not going up when the whole stock market is up, or it does not go up even with good news, but it gets shattered with a small bad news!
What to do under such situation? Well, the stock market is a place like the sea where big fish eats the small fish. Institutional investors, money managers, hedge funds have billions of dollars in their control and hence they are in full control of such stock to manipulate the way they wish to do. As an individual investor, it’s difficult to fight. If we can’t control emotions then it’s better to sale such stock and get out -or- if the stock is good then take the opportunity to accumulate for long-term depending on the patience and risk appetite.
Sectorial Performances
Please click below link to view sectorial performances
https://eresearch.fidelity.com/eresearch/markets_sectors/sectors/si_performance.jhtml?tab=siperformance
Source: Fidelity.com
Now let me discuss this month’s inclusion to my blog portfolio.
Plug Power Inc (PLUG)
New York based Plug Power Inc. provides hydrogen fuel cell turnkey solutions for the electric mobility and stationary power markets in North America and Europe. It focuses on proton exchange membrane (PEM) fuel cell and fuel processing technologies, fuel cell/battery hybrid technologies, and related hydrogen storage and dispensing infrastructure. In other words, Plug Power is one of the biggest players in the hydrogen fuel cell industry and makes hydrogen fuel cell systems that replace conventional batteries in cars and other devices.
As I said before, climate change is becoming a revolution as numerous countries join to improve the climate and be part of this lucrative industry. Some report says that climate change would be a $50 trillion industry by 2050. The green energy sector (solar, wind and hydrogen) will play a pivotal role in this change. Plug Power is one of the leaders in this space of hydrogen fuel cell. In last one year, the stock went from $4 to $75 about 1800% in one year. However, the whole sector went too high too fast and then came the news about 10-year yield which scared the investors of rising inflation. The stock got hammered. Secondly, on March 18, the company said that it has determined to restate certain prior period financial statements to be included in the 2020 Form 10-K. NASDAQ has given 60 calendar days, or until May 17, 2021 to get it filed. There was flood of lawsuits by numerous law firms even though the company stated that there will be no change in the revenue and profit. But investors never like such news and uncertainty. The stock was smashed further down and came to as low as $23. Obviously, it was a terrible news for the investors and rejoiced by the short sellers. But it also created a great opportunity to buy/accumulate the stock which seems to have tremendous long-term potential despite short-term troubles. The company is looking to capture meaningful share in the anticipated $10T Hydrogen Economy by 2050 according to Bloomberg. Plug Power created the first commercially viable market for hydrogen fuel cell technology. The company made two significant acquisitions in 2020 to support their green hydrogen plan. It acquired “GinerELX” and “United Hydrogen”. GinerELX has the best PEM stack technology in the world for fuel cell. United Hydrogen is the first company ever to build a green hydrogen plant in the US. Through the acquisition Plug power has strong ability to build plants using Plug Power electrolyzers for green hydrogen production. The company plan to make continued investment during 2021 to deliver on substantial growth opportunity in the global green hydrogen economy
Partnership/Joint Venture
The company is working with the South Korean giant “SK Group” to manufacture and sell products across the entire green hydrogen value chain. It’s also partnering with Groupe Renault to build new markets for hydrogen ecosystem solutions, such as fuel cell powered light commercial vehicles. This JV has an ambition to have over 30% of the European light commercial vehicle market in 2030.
Why do I like PLUG?
If reports to be believed, Hydrogen power is expected to be a humongous $10 trillion industry by 2050. This company is one of the largest and highly experienced players in this field. Along with solar and wind, Hydrogen power has tremendous growth potential. PLUG is in the process of building green hydrogen for cars, large truck, train, and air lines. Recently the company increased its target of green hydrogen generation to 500 tons per day by 2025 and 1,000 tons per day before 2028.
PLUG is building a 45 Tons per day green hydrogen plant in New York. This is the largest green hydrogen plant in Western New York. It’s expected to start the production by late 2022. It’s also building a 10 Tons per day green hydrogen plant in Pennsylvania with Brookfield Renewables using hydropower. In addition, PLUG is using wind power to generate green hydrogen at a 30 tons per day plant with APEX Clean Energy. It will have more than 120 tons of green energy projects under construction as they build the first pure green hydrogen network across United States.
Plug Power is the only which company which has the technology to manufacture Electrolyzers
build Refueling Stations, transport liquid Hydrogen, compress Hydrogen into gaseous form for refueling & manufacture Fuel Cell engines which has about 30% to 45% more power than the competitors.
The company has more than 22 years of R&D experience that gives it the competitive edge in building “Green Hydrogen” ecosystems across the globe.
Financials
PLUG had a record year with $337 million in gross billings last year, up 42.5% comparing to last year. However, the results were negatively impacted by certain costs of $456 million for non-cash charges related to the accelerated vesting of a customer’s remaining warrants. As such, the company reported revenue of negative $316 million for fourth quarter and negative $100 million for the full year.
It has strong balance sheet with over $5 billion in cash by end of last year that will help the company to execute its global growth strategy. Please note that the data shown on Yahoo does not seem to be correct. I have derived this information from Company’s Q4 report. The company also said to be on track to deliver on recently raised 2021 and 2024 financial targets.
My View and Strategy
As I have said in my previous blogs and during my investment meets, I am a growth investor and like to venture into the emerging industries which have potentials. The renewable energy is going to the future. It’s just a matter of time when. The Biden administration and many world leaders agree on this agenda. I see PLUG to be a major force in Hydrogen fuel. I have already taken a reasonable position at various price levels. I keep buying on the dip and keep accumulating. The stock has pulled back and currently trading at $27.98, which is 63% below its 52-weeks high. However, it can also be noted that the stock went up from $3.79 to $75 (about 1800%) in just one year. As I have always said, I do not buy everything at once, rather I prefer to buy in a phased manner and trim some position when the stock goes up. That way, one can keep making some profit having to wait for a longer-term reward. We can only research from the existing available data at the time of buying a stock, so there could be many unknowns which is always a risk. If things change, it needs to be re-evaluated based on the market situation. It’s imperative to the due diligence before buying any equity because nothing is bullet proof. That’s part of my long-term strategy.
Risks: Every stock has its risk and particularly PLUG is a volatile stock, so risk is HIGH. This stock could be for the investors who are willing to take calculated risk and withstand the volatility. Though the company has said there would not be any change in revenue and profit, but we do not know if something is wrong until 10-K is filed. Hopefully, the company will file required 10-K before the stipulated timeline of May 17. I am aware of this risk. But unless something is significantly wrong, I am willing to take a calculated risk for long term. Investing should be such that portfolio is not devastated in case the investment fails. Nobody is always right, and all investment carry risks.Every investor must do their due diligence before taking a decision.
My final thoughts
The race for renewable energy will continue over the next decade. While this will remain a growth sector, there will be winners and losers as always. The competition is expected to be fierce, and some companies will fail and some of them would emerge as the leader. There is HUGE potential, and the trend is in the making. Hydrogen energy would be a major part of this trend and PLUG is a leader in this space. So, I visualize the correction in this stock as a great buying opportunity for long-term investment. I know and understand the risks with PLUG. I am not looking for days, weeks or months rather years down the line. And I do not want to miss this opportunity. I may be wrong. If so, I will revisit my strategy but at this time I visualize it as a great opportunity to buy.
Other Stocks of my interest: DQ, FSLR, RUN, CVM, INCY, APHA, BMRN, NCLH.
DQ: “Daqo New Energy” is another good stock that I like in the space of renewable energy.
Shesa’s Blog Portfolio (Updated MAY 9, 2021)
Equity | Suggested Price | Current Price | Suggested Date | % Change | My View | Earnings Date |
STOCK (All prices are in USD) | | |||||
12.9 | 134.32 | 1/25/13 | 941% | BUY on Dip | 28-Apr | |
47 | 301.13 | 11/13/13 | 541% | BUY on Dip | 28-Apr | |
77.18 | 387.06 | 12/12/13 | 402% | HOLD | 29-Apr | |
311.73 | 3340.88 | 4/12/14 | 972% | BUY on Dip | 29-Apr | |
67.28 | 267.85 | 2/21/16 | 298% | Accumulate | N.A. | |
36.53 | 36.91 | 5/28/18 | 1% | HOLD | N.A. | |
134.81 | 1099.03 | 11/25/18 | 715% | HOLD | 28-Apr | |
297.57 | 505.55 | 1/6/19 | 70% | HOLD (Trimmed) | Over | |
17.66 | 5.13 | 2/17/19 | -71% | SOLD on 5/6 @4.51 | 29-Apr | |
20.16 | 27.41 | 12/10/19 | 36% | Accumulate | N.A. | |
87.53 | 158.25 | 9/1/19 | 81% | HOLD | 6-May | |
8.74 | 10.45 | 1/1/20 | 20% | SOLD on 4/20 @9.82 | 10-May | |
4.27 | 41.08 | 1/29/20 | 862% | HOLD | 29-Apr | |
12 | 27.27 | 3/22/20 | 127% | HOLD | N.A. | |
76.91 | 131.42 | 4/19/20 | 71% | Accumulate | N.A. | |
54.59 | 116.92 | 5/25/20 | 114% | HOLD | 10-May | |
45.3 | 166.97 | 6/28/20 | 269% | BUY - long term | 27-Apr | |
19.58 | 42.41 | 8/2/20 | 117% | Accumulate | N.A. | |
12.03 | 26.52 | 9/13/20 | 120% | HOLD | N.A. | |
51.61 | 86.03 | 10/18/20 | 67% | HOLD | N.A. | |
62.71 | 39.23 | 11/21/20 | -37% | HOLD (Trimmed) | Over | |
14.39 | 9.56 | 2/14/21 | -34% | Accumulate | 11-May | |
52.96 | 42.38 | 3/21/21 | -20% | Accumulate | N.A. | |
27.98 | 27.98 | 4/25/21 | 0% | NEW ADDITION | N.A. | |
ETF | | |||||
139.1 | 264.45 | 8/16/15 | 90% | HOLD | | |
70.23 | 68.23 | 1/3/21 | -3% | Accumulate | | |
MUTUAL FUND | | |||||
11.46 | 22.11 | 3/1/13 | 93% | HOLD | | |
59.45 | 192.52 | 12/20/14 | 224% | HOLD | | |
9.05 | 24.73 | 1/15/16 | 173% | HOLD | | |
37.32 | 97.08 | 3/20/16 | 160% | HOLD | | |
43.66 | 78.08 | 9/24/17 | 79% | HOLD | | |
Note: Dividends are not adjusted on the price. | | |||||
Dems: Democrats. | | N.A: Not Available | | | |
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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.
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 on what I do. 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 put on my blog portfolio and avoid including any security that I do not own or follow. Anybody buying or selling the equities mentioned here is their own risk.
Note: Click on Blog archives to read all my Blogs and updates.
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