Shesa's FEBRUARY 2024 Investment Blog
By Shesa Nayak
U.S. Stock Market Update
The U.S Stock Market kicked-off the year on a pessimistic note. But the market slowly started picking up from Monday, January 8. Moreover, the rally got further momentum after CPI, PPI report and good earnings from semiconductor giant Taiwan Semiconductor. The chip sector got ignited with the hope that chip sector would have great earnings due to the adoption of Artificial Intelligence (AI) and renewed interest in chip demand. All stock indexes except Nasdaq has hit all-time high. Nasdaq is on a striking distance to hit all-time high if earnings from tech giants are on track. For the first time DOW went past 38000. The gap between large-cap tech stocks and small- and mid-cap stocks have grown unprecedentedly wide. By and large, Big Tech stocks are technically overextended and fundamentally overvalued, while small- and mid-cap stocks are technically and fundamentally oversold.
We are in the middle of Q4 earnings. Most of the big tech companies have reported their earnings Microsoft, Google, Apple, Amazon, Meta, Netflix etc. Meta declared dividend for the first time in the company history and provided upbeat guidance soaring its stock price. One thing is common with all these earnings, all of them beat top and bottom line. Also, next quarter guidance was optimistic except Apple. With these results I am getting very optimistic they Nasdaq may hit all-time high sooner than later.
Looking back, on January 31, the Stocks fell to their session lows as Jerome Powell dashed hopes of traders in the FOMC meeting. About 40% of the Wall Street analysts were hoping FED to cut interest rates in March. As I had mentioned earlier, it was grossly over optimism by Wall Street for rate cut in March. The stock index particularly Nasdaq took a big hit. In my view, it may bring good buying opportunity for long term investors.
The current data indicates that the U.S. economy is in the midst of a major positive turnaround, and The U.S. stock market is possibly in the early innings of a new bull market that may continue for the next several years but evidently not on a straight line. Small Cap Rally: The large-cap S&P 500 is currently at all-time highs. Meanwhile, the small-cap Russell 2000 is still in a bear market. This has never happened before. In the three instances closest to the current situation where the S&P 500 rose to all-time highs the Russell 2000 remained >10% off all-time highs, stocks always rallied over the following year and small-caps always outperformed. In two of those instances, small-caps rallied more than 35% over the next year. But how about bull market? I will provide some more facts but before that let’s take a look to the indexes.
Indexes | Open 1/2/24 | Close THU 2/1/24 | Change in 2024 | % Change in 2024 | All Time High | From All Time High | % from All Time High |
DOW | 37,689.50 | 38,519.84 | 830.34 | 2.20 | 36,952.65 | 1,567.19 | 4.24% |
S&P 500 | 4,769.83 | 4,906.19 | 136.36 | 2.86 | 4,818.62 | 87.57 | 1.82% |
NASDAQ | 15011.35 | 15361.64 | 350.29 | 2.33 | 16,212.23 | -850.59 | -5.25% |
BTK | 5,418.80 | 5,162.05 | -256.75 | -4.74 | 6,376.77 | -1,214.72 | -19.05% |
NBI | 4,370.58 | 4,441.03 | 70.45 | 1.61 | 5,517.77 | -1,076.74 | -19.51% |
Economy News
Interest Rate: 5.5%.
GDP: Q4: 3.3% vs. 2% expected.Q3: 4.9%, Q2: 2.1%, Q1: 2%. For 2023: 2.5%.
Inflation: 3.4% in November better than forecast 3.2%.
Retail sales in December were up 0.6% vs. 0.4% in November.
CPI report as inflation went up to 3.4% in December from 3.1% in November. However, after hitting a low, stocks recovered and rallied for the rest of the day.
Producer price index (PPI - wholesale prices), fell 0.1% in December and up 1% from a year ago. This was a good news.
Consumer Confidence: Consumer Confidence index jumped from 108 in December to 114.8 in January.
Are we in a Bull Market?
The S&P 500 has gone up more than 35% off its bear market low from October 2022. Historically speaking that’s a very bullish sign. Historically speaking, whenever the stock market rallies more than 35% off a bear market low, almost all the time it has kicked-off start of a multi-year bull market. Let’s take a look at the history:
May 2020: The market surged almost 40% over the next year.
May 2009: The stocks rallied for the next 10 years.
November 2003: The stocks rallied for the next four years.
April 1989: The stocks rallied throughout the 1990s.
The stock market has pretty much always rallied in the year after it officially rallies more than 35% off a bear market low. There are 15 such occasion in the stock market history 12 times market rallied with an average return of about 16%. We will see what happens this time..
Earnings projections for 2023-2024
Q1 2023: -2.1%
Q2 2023: -5.2%
Q3 2023: 4.3% vs. -0.3%
Q4 2023: earnings +2.4% (projected)
Q1 2024: earnings +6.8% (projected)
Q2 2024: earnings +10.8% (projected)
FY 2024: earnings +11.8% (projected)
Revenue growth for 2024 expected: 4-5%.
Based on the above table, we can anticipate that earnings and revenue growth will continue to rise.
Fluence Energy (FLNC)
This month I am including this clean energy growth stock. Fluence Energy is an AI-powered lithium-ion battery-storage company. It offers energy storage products and solution, services, and artificial intelligence enabled software-as-a-service products for renewables and storage applications in the Americas, the Asia Pacific, Europe, the Middle East, and Africa. The company sells energy storage products with integrated hardware, software, and digital intelligence. Fluence is a joint venture of Siemens and AES Corporation and is headquartered in Arlington, Virginia, USA.
Most of the green or renewable energy companies have been devastated in last couple of years. So, it looks little crazy for me to include such a stock. However, there are reasons why I believe this is great stock for long term patient and risk taking growth investors. Fluence focuses mostly on the behind-the-meter markets and does not do many onsite installments and mostly focused on utility-scale projects. The Energy storage wherein batteries that store extra solar power on sunny days and extra wind power on windy days. Those stored power are deployed that in hot, cold, cloudy, windy weather when regular power system may be at risk or does not work.
Why do I like FLNC?
For 2023, the company originally expected to report 2023 revenue of $1.4 billion to $1.7 billion, Fluence reported $2.2 billion representing an 85% year-over-year increase. The company had projected gross profit of $60 million to $100 million but reported $147 million of gross profit.The contracted backlog was $2.9 billion with $13 billion in the pipeline. At the same time last year, the company's contracted backlog and pipeline were $2.2 billion and $8.5 billion, respectively. For 2024, the company provided revenue guidance of $2.7 billion to $3.3 billion and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) guidance of $50 - $80 million. In the last quarter, FLNC delivered a strong quarterly earnings report, and the numbers were fantastic.
Fluence was named to the Forbes annual list of America's most successful mid-cap companies. The top 100 Forbes ranking is based on earnings growth, sales growth, return on equity, and total stock return for the last five years. The company now has installed over 20 GWh of globally contracted energy storage systems. Once interest rates actually go down in 2024, and most likely they will, this stock should soar.
It’s a very young growth company so future P/E looks high but it’s growing significantly even in such a challenging environment. With that said, if we see the Price to Sales then the stock looks very cheap (1.11) visualizing its growth. A few company fundamentals that I would like to highlight:
|
Market Capitalization |
3.538B |
Total Cash |
$345.9M |
|
Trailing P/E |
N/A |
Total Debt |
$53.47M |
|
Forward P/E |
153.85 |
Book Value per share |
3.38 |
|
Price/Sales |
1.04 |
52 weeks high |
31.32 |
|
Revenue |
2.22B |
52 weeks low |
14.7 |
|
Quarterly Revenue Growth (YOY) |
52.30% |
52 weeks change |
-8.39% |
|
Gross Profit |
N/A |
Held by Institutions |
77.03% |
|
Net Profit |
-$69.2M |
Held by insiders |
33.58% |
|
Quarterly Earnings Growth (YOY) |
N/A |
Float |
92.52M |
|
EPS |
-0.02 |
Dividend |
N/A |
My View and Strategy
I have been accumulating this stock slowly since last few months and had taken some profits too after the company came with spectacular Q3 earnings. Now the stock has come down and currently trading at $20.54. It had a 52-week high of $31.32, so it’s discounted about 35% from its high. The company has been cutting lots of deals in various countries. So, I believe that strong revenue growth will continue. Sometime this stock shots up, so gradual accumulation and trimming a portion during the upswing may be the right strategy. The fourth quarter earnings will be coming on February 7. I am anticipating another good result from the company but nothing can be predicted with certainty. Now that the share prices have come down it may be good time to add this stock. If result is good then we can expect a big uptick in share price.
Risks
All equities carries risks and especially growth stock are even riskier. Having said that, growth stocks have also much better opportunity of price appreciation. There are also some probability of mild recession. If that happens it may impact the growth stocks. However, visualizing the current corporate earnings probably there may not be any recession. We will see how it goes..
My final thought: Despite the challenging environment for green energy companies FLNC has been firing on all cylinder. Once the interest rate comes down, it’s poised to gain further momentum with its revenue, profit and stock price. Based on its current growth it’s a fantastic stock to own.
Shesa’s Blog Portfolio (As of FEB 1, 2024)
Equity | Suggested Price | Current Price | Suggested Date | % Change | My View (see disclaimer) |
STOCK (All prices are in USD) | |||||
12.9 | 186.86 | 1/25/13 | 1349% | HOLD - trim | |
47 | 394.78 | 11/13/13 | 740% | Buy on Dip | |
77.18 | 460.92 | 12/12/13 | 497% | HOLD | |
15.58 | 159.28 | 4/12/14 | 922% | Buy on Dip | |
13.48 | 76.72 | 11/25/18 | 469% | HOLD | |
54.59 | 139.4 | 5/25/20 | 155% | HOLD | |
45.3 | 105.44 | 6/28/20 | 133% | HOLD - wait for earnings | |
27.98 | 4.7 | 4/25/21 | -83% | BUY/ Accumulate | |
51.49 | 23.84 | 10/10/21 | -54% | BUY/ Accumulate | |
239.49 | 630.27 | 2/13/22 | 163% | Accumulate - Long Term | |
290.25 | 188.86 | 5/1/22 | -35% | Accumulate - Long Term | |
115.21 | 146.49 | 10/31/22 | 27% | HOLD | |
77.13 | 93.45 | 1/1/23 | 21% | BUY/Accumulate | |
8.30 | 3.08 | 2/20/23 | -63% | SOLD all stock | |
8.87 | 8.65 | 4/6/23 | -2% | BUY/Accumulate | |
15.66 | 32.45 | 4/6/23 | 107% | BUY | |
123.25 | 142.71 | 5/21/23 | 16% | HOLD | |
7.3 | 3.81 | 5/21/23 | -48% | HOLD | |
5.57 | 2.92 | 8/27/23 | -48% | BUY/Accumulate | |
15.39 | 23.11 | 10/15/23 | 50% | BUY/Accumulate | |
20.49 | 16.33 | 11/19/23 | -20% | BUY/Accumulate | |
376.04 | 403.78 | 1/1/24 | 7% | Accumulate | |
50.25 | 43.36 | 1/1/24 | -14% | Buy on Dip | |
20.54 | 20.54 | 2/1/24 | 0% | NEW ADDITION | |
ETF | |||||
139.1 | 260.87 | 8/16/15 | 88% | HOLD | |
MUTUAL FUND | |||||
59.45 | 127.4 | 12/20/14 | 114% | HOLD | |
9.05 | 19.32 | 1/15/16 | 113% | HOLD | |
43.66 | 64.54 | 9/24/17 | 48% | HOLD | |
Equity Sold since Last Blog
None
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. Anyone buying or selling the equities mentioned here must do at their own risk.
Note: Click on Blog archives to read all my Blogs and updates.
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