Shesa's AUG/SEPT 2023 Investment Blog

AUG/SEPT 2023 - INVESTMENT BLOG

By Shesa Nayak

U.S. Stock Market Commentary 

The stock market had a great run in the first half particularly some selected technology stocks were on fire. However, Fitch downgraded U.S rating from AAA to AA+ and since then all indexes started sliding, Nasdaq is down 4.6% in August. The Q2 earnings are almost over. Nvidia (NVDA) had a blowout earnings and company emphasized the longevity of the AI Boom. This is the company who has been a trend setter and market savior. But Wall Street is far more smarter than us. The spectacular earnings quickly turned into a deep selloff. It’s highly likely that AI will continue to transform the global economy over the next several years. As far as other tech companies are concerned, some of them reported good earnings notably Amazon, Google, Tesla, Meta. Apple and Microsoft also had reasonably good earnings but the forecast was nothing exciting.

U.S economy remain strong. There is still lowest unemployment, core inflation continue to trend lower as money supply is shrinking, home prices and rents are stabilizing, consumer spending has slowed in last few months, retail price-hiking has slowed, wage inflation is not fueling, supply chains have improved significantly. The Atlanta Fed is projecting a huge 5.9% GDP growth for Q3 2023, though I am not very confident. But China economy is in a mess with higher unemployment, Business and Consumers are not spending causing into lower growth and a deflationary environment. China has decided not to publish their job numbers any more, at least for now. On the other hand, U.S has been struggling to control inflation for last 18 months. 

The Federal Reserve's Jackson Hole Economic Symposium took place last week. Fed chair J Powell said in his speech that “doing too little may bring back inflation and bring too much may harm the economy. So Fed will assess the progress in the upcoming meetings they will determine and proceed carefully as we decide whether to tighten further or, instead, to hold the policy rate constant and await further data. The stock market bounced back later on that day. In my view, probably we may see one more rate hike before the end of this year.

Market goes up and goes down. Some pullbacks are imminent and that’s good for a healthy stock market and overall bull market. Now that the market has pulled-back it may be worth considering accumulating some stocks which we could have missed. Having said that, one must be extremely watchful in the month of September. Because historically September has been the worst month for stock market. But this year the market has pulled back from August 1st, hence we will see if September would be little better. So, where is the market trending and what lies ahead? I will share my thoughts but before that let’s take a quick look to the stock market index. 

Indexes	Close FRI 12/30/22	Close THU 4/6/23	Change in 2022	% Change in 2022	All Time High	From All Time High	% from All Time High
DOW	33,147.25	34,346.90	1,199.65	3.62	36,952.65	-2,605.75	-7.05%
S&P 500	3,839.50	4,405.71	566.21	14.75	4,818.62	-412.91	-8.57%
NASDAQ	10466.48	13590.64	3,124.16	29.85	16,212.23	-2,621.59	-16.17%
BTK	5,281.10	5,247.22	-33.88	-0.64	6,376.77	-1,129.55	-17.71%
NBI	4,213.13	4,091.34	-121.79	-2.89	5,517.77	-1,426.43	-25.85%

   

Q1/Q2 Earnings

Earnings: For Q2, about 91% of companies reported, S&P 500 Q2 GAAP earnings are up 15% over the prior year, the highest growth rate since Q4 2021. This is much better than most had expected.

Valuation: The forward 12-month P/E ratio for the S&P 500 is 19.88, down from 20.55 last quarter and down from 22.07 one year ago.

Economy News

• Interest Rate: 5.25 - 5.5%. 
• GDP: Q2: 2.4%, Q1: 2%, Q3: 5.9% projected by Atlanta Fed. FY23:1.5% and FY24: 0.5%
• Inflation:   3.2% in July
• Job growth in July 187K vs. 185K estimated. Unemployment Rate: 3.5%. 
• Consumer Confidence: 71.2 in August vs. 71.6 in July.
• Business Confidence: 46.4 in July
• U.S Crude Oil: $80.05 a barrel. 
• U.S Dollar Index: 104.19.
• U.S Treasuries: 1 yr: 5.44, 3 yr: 4.75, 5 yr: 4.48, 10 yr: 4.26%.
• The 10-Year Treasury yield has moved up to 4.26%, its highest since December 2007
• Retail Sales: After adjusting for inflation have fallen for 9 straight months
• US Mortgage Rate: 30-years rate has moved up to 7.09%, its highest level since 2002

Interest Rate

The federal reserve has been raising rates sine March 2022. The current funds rate is 5.25 - 5.5%. The next Fed meeting is on September 19-20. I think the Fed will “pause” again at its upcoming September meeting, with the market already pricing more than 80% chance that the Fed will not raise rate in September. But Fed hawkish talk is not gong away anytime soon visualizing the higher employment and economic growth.

The September Effect - We have to be watchful

The September effect refers to the historically weak stock market returns observed during the month of September. As I said, September has not been an investor friendly month with some exceptions. On an average S&P 500 has lost -1.1% in the month of September since 1928, almost 100 years. It may not sound like much but some growth stocks are beaten down during this time because this is the weakest month and no major catalysts in the near term. After this market again bounces back starting later part of October. Why does market go down in September? There is no specific reason but the weakness in September can be attributed to seasonal behavioral as investors make portfolio changes to take some profit at the end of summer. Though, many analysts, economists and market professionals discount the existence of the September effect but practically speaking September has terrible record for the stock market. 

Now let’s take a quick look for Nasdaq and S&P 500 since 2019.

Year	NASDAQ	S&P 500
2019	0.46	1.72
2020	-5.16	-3.92
2021	-5.31	-4.76
2022	-10.50	-9.34
2023	N/A	N/A

But will the stock market go down this September as market is already down (Nasdaq -4.6%). This was a valid question raised during my investment meet today. I don’t know the answer. Mostly, the history repeats itself but this year it may be an exception visualizing the August pullback. At this time, I do not think this September will be as bad as last year. But it’s better to have some cash available to deploy if there is further pullback. I am mostly positive then we should end the year in a upbeat momentum.

Is Nasdaq Pullback worrisome?

Nasdaq pulled-back about -4.6% in August. Any pullback or correction does not feel good. Because investors see their gain disappearing! However, as I have said many time, some pullback after big runs are healthy for the stock market in the long run. Because investors sitting on the sidelines see an opportunity to invest and thus new money comes to the market. It’s pretty routine for the Nasdaq 100 to dip after a three-month rally. We could find about 28 such price moves since 1990. So it happens almost little over once a year. Whenever such signals have come Nasdaq 100 has mostly bounced back. Hence, if we are investing for more than 3 months then we should not be too much concerned. However, obviously emotions catch up as we see the stocks falling. The tech stocks were still positive after three months in about 64% of cases and positive after a year 89% of the time. But it does not mean that every stock in Nasdaq 100 would become positive. 

Another good indicator that I came across during my research - “Coppock Curve” - it’s a tool that does technical analysis to identify long-term buying opportunities in the market by indicating a major market bottoms or turning points after significant declines. For the first time this curve turned positive since 2022 and moreover it has first bullish crossover since early 2010. If we recall, 2010 was the time when market was recovering from 2008 financial crisis!! Over the past 70 years, whenever this same bullish signal flashed, stocks were in the early innings of a massive, multi-year surge higher. If history repeats then we should see the bull market going for many months/years. But one must keep in mind that it’s NEVER a straight line up. There will be pullbacks usually in their range of 3-8%. So, one should not get emotional rather look it as a buying opportunity for future. Buy good stocks at a cheaper price mostly works. But what it needs is controlling the emotion and “be patient”. When market bounces back the patience is expected to turn into profits. Nobody can win on every stock or every position in the portfolio every time. There will be some successes and some failures. So, it reminds me “it's not whether you are right or wrong that's important but how much money you make when you're right and how much you lose when you're wrong”. That’s key!

Earnings projections for 2023

Q1 2023: -2.1%  

Q2 2023: -5.2%.

Q3 2023: 0.1%

Q4 2023: 7.6%

FY 2023: 0.8%

Based on the above table, it shows that we will continue to see earnings recession to end this quarter and touch positive from next quarter i.e Q3.

A recap of Market positives

These are the factors I had summarized in my previous blogs which shows bullish trend.

• January sets the trend for the year, we saw 9th best January in stock market history
• Mid-term election year has an average return of astounding 46.9%.
• Stock Market return after bear market - ROI of 16% after 1 year and 35.5% after 2 years. 
• Lots of money in the sideline: $5.7 trillion retail money is sitting on the sideline. When market start rising the Fear of Missing Out (FOMO) would potentially bring the biggest bull market.
• Breakaway Momentum Indicator: which triggered some of the longest bull market in the past
• The “7 years cycle”.
• 2022: We saw a massive sell-off Nasdaq losing about 36% (Reason: Pick of inflation and FED’s aggressive hike). Let’s subtract 7 years i.e. 2015
• 2015: First time -ve market return after the great financial crisis, Chines Market topped and still have not recovered. Again, let’s subtract 7 years i.e. 2008.
• 2008: The great Financial crisis, causing a major recession for few months. another bull run for about 7 years. Let’s subtract another 7 years i.e. 2001
• 2001: .com bust and market crashed after 9/11 then we saw bull market for 7 years, and then. Let’s subtract 7 years i.e. 1994.
• 1994, the Bond Market had a major down-turn, which also affected the Stock Markets. Let’s subtract another 7 years i.e. 1987.
• 1987: On October 19, the market crashed on Black Monday. Let’s subtract another 7 years i.e. 1980.
• 1980: U.S experienced a recession from January to July due to inflation and higher interest rates

In a nutshell, every 7 years, the market repeats itself. So, will it repeat again in 2029? I do not know but if this history repeats then yes it should see another major downturn in 2029. But after these years (see above) the stock market has turned bullish for next 6 years. Hence, if history is any evidence then we should see a stock market run till 2028, meaning next 6 years before another major market crisis hits in the 7th year 2029 i.e. 2022 + 7 = 2029. Having said all the aforesaid facts, it does NOT mean market will go straight up for 6 years. That will never happen. There may be some pullbacks, corrections or a small bear market but those should bring the opportunities for investors to build the portfolio. Generally bull markets last significantly longer than bear markets. According to the Associated Press, the average bull market since 1932 is about 5 years when the S&P 500 has gained an average of about 178% during that period. In contrast, the average bear market since 1929 is slightly less than 20 months. 

Sectorial Stock Market TOP sectors for 2023 - Year to Date

Sector	YTD Performance in %age
Communication Services (TOP)	38.57
Information Technology	37.92
Consumer Discretionary	29.11
Industrial	8.18
Materials	3.77
Utilities	-10.27

Please click below link to view complete sectorial performances:

https://www.barchart.com/stocks/sectors/rankings?timeFrame=Ytd

Source: barchart.com

Now let me discuss this month’s stock picks for my Blog Portfolio.

Luminar Technologies, Inc (LAZR)

Luminar Technologies provides sensor technologies and software. It sells laser imaging, detection, and ranging sensors or lidars, as well as related perception and autonomy software solutions primarily for original equipment manufacturers in the automobile, commercial vehicle, robo-taxi etc. 

A quick glance to Luminar

It’s the undisputed leader in LiDAR technology for autonomous vehicles. This laser-based sensing technology allows self-driving cars to precisely see and understand their surroundings, enabling genuine autonomy. Tesla uses cameras for its driving and full self driving (FSD). It has its own advantages and limitations - cameras seek to imitate human vision as closely as possible which can detect and recognize objects within the vehicle’s surroundings. On the other hand, lidar sensors use laser pulses that bounce off nearby objects and reflect back to the sensor. This creates a detailed data cloud that shows the surrounding environment, including precise sizes and shapes of objects as well as their proximity to the vehicle. As autonomous lidar systems evolve, their perception becomes more comprehensive and precise, allowing for more dependable object identification and recognition. In addition, lidar systems work in any lighting condition; this gives them an advantage over cameras, which need light to be able to perceive their surroundings. Lidar systems also offer a further detection range than camera sensors, making them more useful at high speeds. Having said, all these both camera and lidar has their own advantages and limitations. But LiDAR is assumed to be superior to radar and cameras but its high costs have hampered adoption. This is where Luminar is trying to develop economically. 

The company brought the high volume facility online at the end Q1, ahead of guidance, and is making rapid progress towards meeting all automaker requirements to achieve start of production readiness for the new factory by the end of this year. In their last quarter, the facility continued to be optimized and thorough process validation was underway. What it means is that Luminar is very close to delivering the products to many auto-makers.

Financials

Q2 Revenue: $16.2 million, up 63% compared to Q2’22, in-line with expectations.

EPS: Net loss was $141.8 million, or $(0.37).

Luminar expects to have 100% revenue growth this year and expects to have positive gross margin by Q4 2023.

On other positive fundamental aspect, the company has $365 million in Cash, 60% of the shares are owned by institutions and has $2.7 billion of market cap. 

• Hardware Dominance: Luminar's lidar systems are at the forefront of sensor technology, offering unparalleled accuracy and range. Their in-house designed silicon chips set them apart, ensuring top-tier performance.
• Software Supremacy: Beyond hardware, Luminar has made significant strides in software, providing integrated solutions that enhance the functionality of their lidar systems. This dual expertise ensures a holistic approach to autonomous and assisted driving.
• Order Booking: The company expects to have at least $1 Billion order booking by end of this year.
• Partnership: Luminar has many big partnership and commitments from a large number of big companies to purchase its Lidar including VOLVO, Mercedes Benz, Polestar, Audi, Toyota Research Institute, Daimler Truck, Airbus, Chinese auto maker SAIC and more importantly technology partnership with NVIDIA and Intel’s Mobileye.

For such early stage growth company there is not much fundamental to discuss. Hence, I will move to the strategy.

My View and Strategy

I have been accumulating this stock since more than a year. I have also written about LAZR in my WhatsApp group and talked during many of my investment meets. However, I think it’s time to add to my blog portfolio. The stock is currently trading at $5.57. It has a 52-weeks high of $10.55. In other words, it’s trading at 47% discount to its 52-weeks high. This is a stock to be hold for long term and hence need some patience to accumulate. Once the company starts delivering Lidars, I anticipate its revenue stream to grow significantly and correspondingly its share price. This is volatile growth stock, so just buying for long-term may not be the right strategy as it may have huge ups and downs. So, having some core position as investment and do some trading (buy on dip and trim on the run) makes much better sense for such stock. I adopt this strategy for all growth stocks. It’s always better to take some chips out of the table when stock goes up. Because it gives the opportunity not only to book some profit and feel better but also provide opportunity to buy the same stock at lower price or diversify into other stock with good future prospects.

Risks

Buying any equity has its risks. But growth stock in the the early stage has much higher risk. Having said that, it also has higher rewards depending on company’s performance. The stock market has already gone up, also September is coming which is not a very favorable months for the stock market. So, it’s possible that there may further pullback. But in my view I do not see a major downside from the current price. That’s the reason I thought it’s right time to add the stock to the blog portfolio. 

My final thought: Luminar is an emerging market leader in the field of Lidar technology. This technology is getting popular for the auto makers and they are adopting the technology for driving safety. Luminar is expected to start production by the end of this year. Many cars namely, Volvo and Polestar are expected to hit the market with Lidar technology very soon. Hence, I think it’s the right time to add the stock. I already have a reasonably good amount invested in this stock. But any pullback gives me further opportunities to add because I do see great future potential in the long term. I am not emotionally attached to any stock and willing to dispose, if I see red flags. It does not matter which stock. But at this time, I see it as a winner in the long run and hence I am invested. 

Shesa’s Blog Portfolio (As of AUG 27, 2023)

Equity	Suggested Price	Current Price	Suggested Date	% Change	My View  (see disclaimer)
STOCK (All prices are in USD)
AAPL	12.9	178.61	1/25/13	1285%	HOLD
META	47	285.5	11/13/13	507%	HOLD
MA	77.18	402.89	12/12/13	422%	HOLD
AMZN	15.58	133.26	4/12/14	755%	BUY/ Accumulate
SHOP	13.48	55.54	11/25/18	312%	HOLD
SPG	54.59	110.73	5/25/20	103%	HOLD
ENPH	45.3	124.09	6/28/20	174%	HOLD - Trimmed
PLUG	27.98	8.13	4/25/21	-71%	BUY/ Accumulate
SAVA	51.49	18.26	10/10/21	-65%	HOLD
NVDA	239.49	460.18	2/13/22	92%	BUY/Accumulate
TSLA	290.25	238.59	5/1/22	-18%	BUY/Accumulate
DIS	106.1	88.55	7/31/22	-17%	SOLD
FSR	8.95	5.81	9/18/22	-35%	HOLD
ABNB	115.21	125.79	10/31/22	9%	HOLD
AXSM	77.13	76.66	1/1/23	-1%	BUY/Accumulate
STEM	8.30	5.02	2/20/23	-40%	HOLD
RDFN	8.87	8.88	4/6/23	0%	BUY/Accumulate
SOXL	15.66	20.66	4/6/23	32%	BUY/Accumulate
GOOG	123.25	130.69	5/21/23	6%	BUY/Accumulate
RVPH	7.3	4.96	5/21/23	-32%	BUY/Accumulate
AI	33.39	29.15	6/25/23	-13%	HOLD - Earnings on 9/5
LAZR	5.57	5.57	8/27/23	0%	NEW ADDITION
ETF
IHF	139.1	250.43	8/16/15	80%	HOLD
MUTUAL FUND
PRMTX	59.45	114	12/20/14	92%	HOLD
FSRPX	9.05	18.09	1/15/16	100%	HOLD
FSMEX	43.66	60.32	9/24/17	38%	HOLD

Equity Sold since my Last Blog

• Disney (DIS) 

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 must do at their own risk.

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