Shesa's MARCH 2022 Investment Blog
MARCH 2022 - INVESTMENT BLOG
By Shesa Nayak
Welcome to my blog!
U.S. Stock Market Commentary
The U.S and global stock markets are rattled due to war between Russia and Ukraine. NASDAQ was down as much as 22.5% from its all-time high falling into a bear market territory. DOW and S&P 500 also fell to the correction territory. As a matter of fact, S&P was down 11.8% in the first 48 trading days of 2022, the 4th worst starts to a year in history. The market turmoil got a pause after Federal Reserve raised a quarter point interest rate last week. Volatility may be the name of the game this year as investors grapple with uncertainties related to inflation, Fed action, Geopolitical situation (war between Russia and Ukraine), mid-term election, supply chain constraints, and Omicron. The war has further deteriorated the economies, consumer confidence, supply chain and inflationary situation around the world. It’s anticipated that Europe and Latin America may be hit the hardest, particularly due to higher oil and gas prices. Every 1% drop in the EU (European Union) GDP is expected to decline 0.3% export growth for China. Russia and Ukraine are major global exporters of crude oil, natural gas, wheat, corn and metals used as inputs to semiconductor production specially nickel. In addition, Russia supplies nearly half of the world’s palladium and roughly 10% of the market's supply of nickel, as well as large quantities of aluminum and copper — key ingredients in EV batteries. So, this impact may cause a global slowdown and U.S will be no exception despite its energy independence. But I believe U.S may be less impacted comparing to other larger nations.
On March 16, the Federal Reserve hiked 0.25% interest rate for the first time since 2018. Fed also indicated an aggressive path ahead, with rate rises coming at each of the remaining six meetings in 2022. Will they really raise rates 6 more times? I will share my thoughts later in the blog. As I have indicated in my previous blogs, Wall Street do not like uncertainties, so after the rate hike investors now feel more comfortable. But the current market turmoil may have deterred investors’ confidence impacting consumer sentiment to 11 years low. There are lot of talks that the economy may get into stagflation – stagnant economy and higher inflation. So, what is ahead for Mr. Market? Will the geopolitical issues, inflation and FED going to devastate the Stock Market? I will share my views, but before that let’s take a quick look at the stock market indexes.
| Indexes | 1/31/2021 (Close) | Close FRI 03/18/22 | Change in 2022 | % Change in 2022 | All Time High | From All Time High | % from All Time High |
| DOW | 36,338.30 | 34,754.93 | -1,583.37 | -4.36 | 36,952.65 | -2,197.72 | -5.95% |
| S&P 500 | 4,766.18 | 4,463.09 | -303.09 | -6.36 | 4,818.62 | -355.53 | -7.38% |
| NASDAQ | 15,644.97 | 13,893.84 | -1,751.13 | -11.19 | 16,212.23 | -2,318.39 | -14.30% |
| BTK | 5,518.45 | 5,085.50 | -432.95 | -7.85 | 6,376.77 | -1,291.27 | -20.25% |
| NBI | 4,728.94 | 4,173.39 | -555.55 | -11.75 | 5,517.77 | -1,344.38 | -24.36% |
S&P 500 Earnings
Earnings Growth: For Q1 2022, the estimated earnings growth rate for the S&P 500 is 4.8%. If 4.8% is the actual growth rate for the quarter, it will mark the lowest earnings growth rate reported by the index since Q4 2020 which was 3.8%.
Valuation: The forward 12-month P/E ratio for the S&P 500 is 19.1 (last blog it was: 19.7) which is above the 5-year average of 18.6 and above the 10-year average of 16.8.
Source: Factset.com
Economy News
Interest Rate: On Wednesday, 3/16/22, Fed raised 0.25% interest rate and indicated to take the rate to 1.90% from current 0.25-0.5% by the end of 2022. Now interest rate stands at 0.5%.
GDP: Economic grew at 7% in Q4 2021. For the whole year 2021 GDP grew at 4.9%, the strongest pace since 1984. The next GDP data for Q1 2022 is expected on March 30.
U.S Coronavirus Cases: 79.27 million, Death: 95,8621
COVID Vaccination: 217 million or 65.8% of the U.S population are fully vaccinated
Retail Sales: US February retail sales was up 0.3% but below the estimated 0.4%.
Unemployment rate: 3.8% in February 2022
US Total GDP/Economy: $20.936 trillion (last blog: 22.937 trillion)
Inflation rate: 7.9% in February highest since 1982, Q1 projected: 8.5%.
Producer Price Index (PPI): 10% YoY, up 0.8% in February.
Consumer Confidence: 59.7% hits 11 year low
Business Confidence: 58.6% vs. 57.6% last blog
U.S Crude Oil: $105.10 a barrel, went to as high as $130.50, 13. Years high
Nonfarm payrolls: 678,000 comparing to market forecast of 400,000
Economy Positives and Negatives
There are two sides of a coin, so also two types of investors Bull and Bear. When we talk to bulls they will speak about positives and when we talk to bears they will talk all negatives about the stock market and economy.
Positives
Lowest Unemployment in 40 years
Economy still growing though at a slower pace, last quarter GDP was strong at 7%
Consumer spending still strong
Corporations are still generating lot of revenues and profits
U.S market is still the king with strong dollar
Stock Market, particularly Nasdaq went too low too fast brining good opportunities for investors – particularly for long term investors.
Negatives
Geopolitical issues – Russia and Ukraine war may bring global slow down
Higher Inflation at 40 years high
Fed raising interest rate. The 30 Years Mortgage Rate rises to 4.16% highest since May 2019.
Higher Fuel and Commodity prices
Consumer sentiments at 11 years low
Valuations are still comparatively higher
Will Geopolitical Issues, Inflation and FED going to devastate the Stock Market?
We are seeing repetitive bombing by Russia over Ukraine and there is no respite. Possibly, Russia thought to achieve their goal in a matter of days but that did not materialize. Ukraine is hit hard, but the brave people are still fighting for their mother land. The war has rattled the stock market. First it was COVID in 2020, then COVID + Fed + Inflation + Supply chain constraints and now the worst war between Russia and Ukraine is becoming a major worry for the stock market. The war has further complicated supply chain and materials shortages, skyrocketing oil and gas prices are all crushing the stock market. For example, Nasdaq went into bear market territory before recovering last week. So, is this the end of bull market and beginning of bear market? Nobody can ever predict how it will play in coming days/weeks or months. But let me share some of my thoughts.
FED & Geopolitical Issues: On March 16, the Federal Reserve hiked 0.25% interest rate for the first time since 2018. Fed also indicated an aggressive path ahead, with rate rises coming at each of the remaining six meetings in 2022. Whether FED will really raise 6 more times? Frankly, I do not think it may happen. The war between Russia and Ukraine is taking its tool. As I said in my opening remarks the war has caused astronomical oil and gas prices. Europe and Latin America may be hit the hardest. Every 1% drop in the GDP growth of Europe the export growth of China is expected to decline 0.3%. China’s trade with U.S and European Union (EU) is around $1.5 trillion comparing to just about $150 billion with Russia. So, any sanction on China can hugely not only impact China but also to EU and U.S as well. Though, U.S may have oil independence, but it can’t escape from global slowdown. Russia and Ukraine are major global exporters crude oil, natural gas, wheat, corn and metals used for inputs to semiconductor production especially nickel. Russia also supplies nearly half of the world’s palladium and roughly 10% of the market's supply of nickel, aluminum and copper — key ingredients in EV batteries. So, these are going to cause global slowdown. Europe is already in a recessionary environment. If Fed keep raising rates, it may hit a serious blow to the economy and most likely we may see recession or stagflation. So, I hope Fed will remain cautious on their approach. The stock market turmoil and current geopolitical issues have dashed consumer sentiment in U.S falling to its lowest reading since November of 2011. The inflation expectations rose sharply due to a surge in fuel prices exuberated by the Russian invasion of Ukraine. So, I still think that Fed may raise rate 3-4 times and may follow a wait and watch approach.
Stock Market Turmoil: The stock market is expected to remain volatile this year as the market grapple with many uncertainties, like inflation, Fed action, Geopolitical situation, mid-term election, Omicron etc. Since January 4 market is on a downturn and extremely volatile. Nasdaq was down 22.5% from its all-time high falling into bear market territory before recovering in last few days. The question is how long will the market go down? Fed chairman Jerome Powell predicted 2.8% GDP growth for 2022 which not bad. If the Geopolitical turmoil continues, inflation keep ticking upward and supply chain problem invigorate then I will not be surprised to see ZERO or negative GDP growth. When there are two consecutive quarter of negative GDP growth we term it as recession. I sincerely hope and wish that we do not fall into that trap.
So, anything is possible, and nobody can predict with certainty. The Wall Street pundits may give too many experts advises but the truth of the matter is that nobody knows the future. They advise whatever benefits to them or their firm. Having said that, we can study the existing situation and extrapolate some possible scenarios from our knowledge and experience of the stock market. Overall, the S&P 500 is still having high valuation but coincidentally there are numerous stocks which are down 40-50-60% from their highs. Other than energy sector and commodities all other sectors are in negative territory this year. But this has also brought some great buying opportunities. But one must remember that just keep buying and making dollar cost average may not work always. We must be diligent enough to determine which stock to do dollar cost average and how much. Otherwise, only average would remain without dollarJ. As a principle, I trim/take some profits out of the table on a nice market bounce.
Is it just a bump in the Bull Market or trending Bear Market? It’s difficult to say whether the recent selling in stock market is the start of a bear market. Or maybe it's just a bump on the road during a healthy bull market surrounded by many macro factors. We keep hearing news and look for experts who can tell us exactly what to expect and when to expect. We all would like to know with certainty what the market will do so that we can determine whether to get out or stay in the market. The question is right, but the truth is stock market is an uncertain beast and it does unpredictable things all the time. It’s just not possible to predict every twist and turn. We all can make some guess work with our knowledge and experiences, that’s unfortunate but true! Hence, the only choice is to adapt or acclimatize to the current situation and plan for the future based on our own investment knowledge and framework. Because today’s suggestion may not work tomorrow because of uncertain environment that we are in. Secondly, there is a saying “one size does not fit all”. As such, analyzing our financial situation, risk taking capability, comfort level, investment style one can decide what works for him/her. That way, at least we have to credit ourselves or blame our own decision making. Having said that, we should listen to as many sources as possible because that enable us to think various possibilities and make the right decision! One thing, that may possibly work is to keep a cool head (controlling the emotions) and think for long term rather than worrying about day-to-day volatility. When the market keeps going up or falling down consistently it's easy to forget this discipline. At times, it's easy to deploy too much capital into the speculative and fastest-rising investments or getting greedy and not taking profits. When there is no traffic on a freeway it’s easy to drive 80-90 miles even despite a speed limit of 65, but when we are stuck in traffic it takes hours to cover even one mile. That’s how the stock market work in a bull and bear market. So, it may be worth keeping such risks in mind, diversify our portfolio per our investment framework and try to mitigate some risks. As far as possible we should avoid “all-in” or “all-out” strategy. In other words, it could be extremely risky to sell all the stocks or to load every penny available. It’s better to have some cash to deploywhen needed or at least a strategy to re-deploy the cash by recycling existing portfolio. Timing the market is immensely tough or near impossible. Because selling is just one part of the decision making we must also know when exactly to get back in. We may think the market has a false bounce, but the market may keep moving up, up and away. Sometimes, we may think it’s great buying opportunity, but market may still keep falling further and further. Many folks missed the greatest bull market by holding cash because they were scared that market may fall again but see where the market has gone in last few years..
My final thoughts: It’s painful to remain invested in such a volatile market with so much of uncertainties surrounding. Particularly the macro factors which are in no one’s control. However, I am invested and keeping a long term horizon in mind. I do not know what happens tomorrow or next week or next month, but one thing is proven that stock market has always gone up in the long run. Many people keep asking me what do you think about the market next week? Phew, that’s a great question but does anybody know the answer?? Identifying the right opportunity and deploying the resources for long-term prospect is key. That does not mean, that’s bullet proof but at least we can anticipate better ROI when market bounces back. Having said that, we have not seen such war (Russia/Ukraine) or inflation in many decades, so it’s difficult to visualize which direction market may take. Will it escalate further and turnout to be catastrophic? or there will be cease-fire -or- it may linger for months. Will the inflation get better? Yes, eventually it will, possibly later part of this year but we do not know for sure. Hence, caution is warranted till we see some clear directions. I still do not think FED going to increase interest rate 7-8 times this year despite their remarks, I have stated that before. If fed becomes very aggressive then recession may be inevitable, so I do not think Fed will do so. Let me conclude with good news. In my last blog, I wrote that during interest rate hike cycles DOW gained 55%, S&P 500 gained 62.9% and the NASDAQ gained 102.7%, when combined all the rate hike cycle. Having said that, let’s not forget that we had not seen such a large scale war or inflation in decades. In my view, it’s neither too rosy nor too bearish after the correction. I believe the stock market may continue see upward momentum this week as fund managers rebalance their portfolio for the quarter end. Whatever it is I remain invested and taking the opportunity to raise some cash with market bounce. I may be wrong but that’s my framework at this time.
What happens when S&P 500 is down for first 48 days of a year?
Here is an interesting metrics for my blog readers. The S&P 500 was down 11.8% in the first 48 trading days of 2022, the 4th worst starts to a year in history. The worst 5 starts were 2009, 2020, 1935, 1933, and 1982. All these years had a tremendous comeback to end the year in strong positive note. If we analyze then we can see the returns were fantastic except 2008 when we saw the greatest financial crisis of the century. Barring that, every other year has returned positive 8% to as high as 64.2%.
Year | Price Return through first 48 Trading Days | Price Return - Day 49 Year End |
2009 | -16.90% | 48.50% |
2020 | -15.10% | 37% |
1935 | -14.10% | 64.60% |
2022 | -11.80% | ?? TBD |
1933 | -11.60% | 62.90% |
1982 | -10.80% | 28.30% |
2001 | -10.60% | 8% |
1960 | -10.10% | 8% |
2008 | -10.10% | -32.6% |
2003 | -8.60% | 38.30% |
1948 | -8.60% | 8.60% |
1942 | -8.20% | 22.40% |
1968 | -6.60% | 15.20% |
1978 | -6.50% | 8.10% |
1984 | -6.40% | 7.70% |
Source: Charlie Bilello
It does not necessarily mean that history will repeat but if it does then we should see at least 25-30% return for S&P 500 this year. Let’s keep our finger crossed. We will know after the close of market on December 31, 2022..
Revenue & Profit (2021, 2022, 2023) - updated 3/19/22.
Quarter | Earnings % | Revenue % |
Q1 | 48.3 | 9.5 |
Q2 | 88.5 | 21.8 |
Q3 | 39.3 | 13.9 |
Q4 | 26.9 | 15.6 |
FY21 | 49.2 | 15.4 |
Q122 (projected) | 5.2 | N.A |
Q222 (projected) | 5.4 | N.A |
Q322 (projected) | 9.2 | N.A |
Q422 (projected) | 11.6 | N.A |
FY22 (projected) | 8.6 | 9 |
FY23 (projected) | 9.9 | 8 |
N.A: Not Available
Sectorial Stock Market Performances (TOP 5 sectors for 2021)
Sector | YTD Performance in %age |
Energy | 32.42 (TOP) |
Financials | -0.46 |
Utilities | -1.69 |
Health Care | -3.07 |
Industrials | -3.07 |
Note: Technoloy (IT) sector is almost at the end of the list with -10.89%. Barring energy all other sectors are in Red for the year.
Please click below link to view complete sectorial performances:
Source: Fidelity.com
Now let me discuss this month’s inclusion to my Blog Portfolio.
ChargePoint Holdings (CHPT)
ChargePoint Holdings provides electric vehicle (EV) charging networks and charging solutions in the U.S and Europe. It offers hardware, software, and services for commercial, fleet, and residential customers. The company was founded in 2007 and is headquartered in Silicon Valley, California.
ChargePoint (CHPT) is one of the top EV charging companies in U.S. But the company is growing at a spectacular rate. The World is transitioning from fossil fuel to green energy like solar power, wind power, hydrogen. The coming year would see rapid change in this segment. Electric vehicles (EVs) are one of the major components to this transition process. Currently, less than 1% of the 250 million vehicles in USA are EVs. The cost of oil and brent/crude had gone to as high as $130 a barrel and now we see $6 gas per gallon in the Gas stations. Visualizing all these situations, we may see an accelerated shift towards EVs. When more EVs are there on the road consumers need more charging stations at home, offices, malls, on road trips, in public charging areas, or at fleet staging areas and so on.. More the EV adoption happens, more infrastructures are needed and the major one is electric charging stations.
Why do I like ChargePoint (CHPT)?
ChargePoint Holdings is the leading charging network in North America, and it’s growing very rapidly in Europe. At the end of January 2022, CHPT had 174,000 ports activated out of which 51,000 are in Europe. As the number of ports increases, the company’s subscription service revenue will grow even faster. ChargePoint is in the early innings in Europe and reported only 12% revenue in its fourth quarter, but that was astronomical 135% revenue growth for the company from Europe region. As we know, the governments around the world are working very closely to battle the climate change. One major area is to increase the usage of electric vehicles and reducing use of fossil fuel. The infrastructure billwas signed by President Biden last year has a provision of $5 billion for boosting charging infrastructure. By the way, Charge Point (CHPT) is yet to report any funding from government so far. What it means is that government funding money is not even accounted by the company as yet! ChargePoint does not only have large install base, but the financials are even more compelling. Let’s take a look to Company’s Earnings.
ChargePoint Financials
The company had a huge quarter and great year-2021 but the future seems even brighter. Let’s look at its result:
- For further quarter revenue came in at $80.7 million, 90% increase year over year but it lost $60.5 million, or 23 cents a share, compared with a loss of $91 million, or $5.31 a share, in the year-ago quarter.
- For the full year, revenue was $242.3 million, an increase of 65% from $146.5 million in the previous year beating top end of the forecast.
- Projection for 2023: Expects annual revenue of $450 - $500 million for fiscal year 2023 way ahead of analysts forecast of $379 million.
- The gross margin for the full year came in at 24% compared to 23% in the previous year
- The company had a net loss of $132.6 million comparing to $117.6 million in the previous year.
Let’s take a quick look to the fundamentals. For the early growth company, we may not have too many fundamentals to analyze because they are not profitable. Some investors may think that when a company making loss why to invest? Well, there is a lifecycle for every organization. In the early phase, the corporation focuses on growth - growing customer base, market share and revenue rather than profitability. Once they reach certain growth then the focus shift towards continue growing revenue + Profits. The great companies like Amazon and Netflix took more than decade to make any profit. So, as a growth investor one should not be too concerned as long as company is firing on other growth cylinders.
Market Capitalization | $5.6B | Total Cash | $315.24m |
Trailing P/E | N/A | Total Debt | $25.37m |
Forward P/E | N/A | Book Value per share | $10.14 |
Price/Sales | 20.67 | 52 weeks high | 36.86 |
Revenue | $242.3 million | 52 weeks low | 11.21 |
Quarterly Revenue Growth (YOY) | 90.30% | 52 weeks change | -23.39% |
Gross Profit | $53.53 million | Held by Institutions | 48.5% |
Net Profit | $ -299 million | Float | 209.33m |
Quarterly Earnings Growth (YOY) | N/A | Dividend | N/A |
EPS | $ -1.49 |
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My View and Strategy
Climate change is a phenomenon which has already started and further invigorated by Russia and Ukraine war. In this whole process, EVs and other renewable energy like solar, wind and Hydrogen will have enormous significance. Any electric transportation need charging whether it’s at home, at the mall, on the road, offices or wherever need a charging station. It’s like the gas station but the only difference is that we can conveniently charge EVs at home. The company is growing indigenously and internationally exponentially, and the future is even brighter. I have been accumulating this stock and some leaps at various price levels. Currently the shares are trading at $18.44 with a market capitalization of$5.58 billion. The stock had a huge run in December 2020 and went as high as $49 after President Biden got elected. However, most of the renewable stocks got decimated in last few months and now we are seeing some recoveries. The shares are trading at 50% discount from its 52-weeks high of $36.86. As such, this may be a good time to keep accumulating for long term. For all growth stocks, I follow a combined approach of trading and investing. Because they get volatile, and we must take advantage of those situations. It gets even harder in such a highly volatile and uncertain market. Hence, I always buy a in a phased manner when it comes down, take some profit when there is a good run, and hold remaining shares for long term. That’s my investing framework.
Risks
EV charging is a commoditized industry that is subject to price risk, usually lowest price that wins rather than branding value. ChargePoint thinks it can offer the best value with scale and offerings that fill different customer needs. However, there may be more competition in future and its margin may suffer despite the growth in EV charging. But that’s part of any business and nobody is left with monopoly. Competition is always good for consumers. As far as stock is concerned, the stock may further go down if the stock market goes down. Nothing can be predicted in such a highly volatile market, that too growth stocks are first to be hammered when market goes down and run faster when market goes up. So, as an investor we have to do our due diligence. With that said, risks are inevitable in stock market, so CHPT is no exception.
My final thoughts
In my view, CHPT is a great long term investment as the world transition to green energy. Despite the challenging business environment, the company has come with exceptional revenue growth and projecting even better future. In addition, many companies including CHPT will be the beneficiaries of the infrastructure bill. Furthermore, last week the government has allocated additional $3.2 billion for clean energy projects and manufacturing. Also let’s not forget, climate change bill is NOT dead, if it gets through the Congress then that will put the clean energy stocks on fire!! But my investment is not based on the future bill, it’s based on current facts. Evidently, I see a bright future ahead for this company and hence invested. I always revisit my investment and if something goes wrong then I will get out. However, at this time I see a bright future for ChargePoint and a few more green energy companies, so this is my primary area of focus!
Shesa’s Blog Portfolio (As of MARCH 19, 2022)
Equity | Suggested Price | Current Price | Suggested Date | % Change | My View |
STOCK (All prices are in USD) | |||||
12.9 | 163.98 | 1/25/13 | 1171% | HOLD | |
47 | 216.49 | 11/13/13 | 361% | HOLD | |
77.18 | 350.17 | 12/12/13 | 354% | HOLD | |
311.73 | 3225.01 | 4/12/14 | 935% | Buy on Dip | |
134.81 | 691.66 | 11/25/18 | 413% | HOLD | |
297.57 | 380.6 | 1/6/19 | 28% | HOLD | |
4.27 | 14.45 | 1/29/20 | 238% | SOLD last lot on 3/14 @14.45 | |
12 | 19.44 | 3/22/20 | 62% | HOLD | |
54.59 | 130.85 | 5/25/20 | 140% | HOLD | |
45.3 | 184.64 | 6/28/20 | 308% | Accumulate | |
14.39 | 2.62 | 2/14/21 | -82% | HOLD | |
27.98 | 26.05 | 4/25/21 | -7% | Accumulate | |
5.39 | 2.96 | 7/18/21 | -45% | HOLD | |
8.11 | 8 | 8/27/21 | -1% | Accumulate | |
51.49 | 38.67 | 10/10/21 | -25% | Accumulate | |
55.21 | 25.67 | 11/21/21 | -54% | HOLD - Earnings and projections were disappointing. | |
118.24 | 72.29 | 1/2/22 | -39% | HOLD - Patient right issue but great pipelines | |
239.49 | 264.53 | 2/13/22 | 10% | Accumulate | |
18.44 | 18.44 | 3/20/22 | 0% | NEW ADDITION | |
ETF | |||||
139.1 | 285.13 | 8/16/15 | 105% | HOLD | |
70.23 | 62.09 | 1/3/21 | -12% | HOLD - some funds diverted to other renewable stocks | |
MUTUAL FUND | |||||
59.45 | 154.04 | 12/20/14 | 159% | HOLD | |
9.05 | 20.73 | 1/15/16 | 129% | HOLD | |
43.66 | 72.61 | 9/24/17 | 66% | HOLD | |
Positions CLOSED this year - 2022
Equity | Buy Price | Sold Price | Date Sold | Gain/Loss |
TGTX | 19.58 | 10.9 | 8/2/20 | -44% |
JKS | 62.71 | 42.27 | 11/21/20 | -33% |
NIO | 4.27 | 14.45 | 3/14/22 | 238% |
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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