Shesa's JUNE 2024 Investment Blog (updated)

By Shesa Nayak

U.S. Stock Market Update 

The theory that sell in May and go away has failed so far. Wall Street had a strong May with all three major averages notching their sixth positive month out of seven. Nasdaq  went up 6.9%, its best month since November 2023. Since my last blog all the major U.S stock indexes have hit their new all-time high. Nvidia released another spectacular quarter, keeping the Nasdaq and overall stock market afloat. It became the second most valuable U.S public company surpassing Apple. The company and its stock has been on fire. 

The Q2 earnings seasons is almost over expect a handful of S&P 500 companies left. Overall it was a good quarter resulting in 5.9% earnings growth surpassing analyst estimates. The economic number has started smothering. However, the U.S. economy added 272,000 jobs in May, versus expectations for just 180,000. However, the unemployment rate went up to 4%, the highest unemployment rate since January 2022. We also saw the CPI numbers went up last month but PPI numbers fell. We also saw low ADP job numbers but higher nonfarm payroll. Last Friday, the labor department said U.S. created 272,000 jobs in May versus expectations of just 180,000 jobs. This is making the Federal Reserve to keep waiting and making hawkish statements. Most of the Fed officials seem to look for old data rather than making good future projections! However, please note that European Central Bank cut its interest rate last week. So, I do not think FED may delay too long!

We saw the election in India and it was a big setback for Modi government as it could not get the majority. However, Modi 3.0 will be a coalition government, so any major reforms and other major economic development may get impacted. The Indian stock market was booming before the election but it has cooled down a little bit. We will see how it goes..

Well, in my view there are not any major catalysts after the earnings, so market may not do much but keep trading based on economic data or Fed’s comments. Having said that, I still feel that there should not be any major pullback for the stock market. But certainly, I will remain very cautious for next September. We are in the election year, and the first debate kick-off on June 27. So, we may start seeing some volatility in the stock market. There are lot of events expected this week. I will discuss further but before that let’s take a look at stock market major indexes. 

Indexes	Open 1/2/24	Close FRI 6/9/24	Change in 2024	% Change in 2024	All Time High	From All Time High	% from All Time High
DOW	37,689.50	38,799.00	1,109.50	2.94	39,889.05	-1,090.05	-2.73%
S&P 500	4,769.83	5,346.99	577.16	12.10	5,264.85	82.14	1.56%
NASDAQ	15011.35	17,133.12	2,121.77	14.13	16,538.86	594.26	3.59%

Economy News

• Interest Rate: 5.5%. 
• GDP: Q1: 1.3%; Q4: 3.4%, Q3: 3.3%, Q2: 2.1%, Q1: 2%. Annual GDP growth: 3%.
• Inflation:   3.4, previos 3.5%. 
• Unemployment: 4%, previos 3.8%
• Retail Sales: 0% (April)
• PCE: 2.75% vs. 2.81% expected YOY
• Consumer Confidence: 69.1 down from 77.2 
• U.S Crude Oil: $75.53 a barrel. 
• U.S Treasury Yield: 2 yr: 4.88, 5 yr: 4.66, 10 yr: 4.43%, 30 yr: 4.55%. 
• US Mortgage Rate: The 30-year fixed Jumbo: 7%.

Q1 2024 Earnings

Earnings: For Q1 2024, 99% of S&P 500 companies reporting actual results, 79% of those have reported a positive EPS surprise and 61% have reported a positive revenue surprise.

Earnings Growth: The year-over-year earnings growth rate for the S&P 500 is 5.9%. If 5.9% is the actual growth rate for the quarter, it will mark as the highest year-over-year earnings growth since Q1, 2022.

Valuation: The forward 12-month P/E ratio for the S&P 500 is 20.7. This P/E ratio is above the 5-year average (19.2) and above the 10-year average (17.8).

Source: FactSet.com

Some critical events this week

• Apple developers conference kick-off this week starting Monday. It’s expected to reveal a new iPhone/AI Phone and its progress on AI front
• Nvidia (NVDA) split 10 for 1 stock on Monday. If you have shares you should see 10 shares for every share you own
• Tesla (TSLA) will have its annual Tesla shareholders meeting on Thursday. It’s really important for the Tesla shareholder. The $50B pay package for Musk is what was voted in 2018, and it’s not a one time payment, rather a performance based. So, I think if we are a Tesla shareholder then it’s logical give a thought and vote for sure.
• FOMC: Federal Reserve is set to meet on 6/11 and 6/12. We may not see any rate cut this time. However, it would be important to listen about future rate cuts. I still expect hawkish statements
• Consumer Price Index (CPI/Inflation) numbers will be released on Wednesday, 6/12. This is really important for FED policy decision
• Producer Price Index (PPI) will be released on Thursday, 6/13.
• There will be two key earnings this week that I will be closely watching. I anticipate both these companies to report a geed quarter:
• Broadcom (AVGO) on Wednesday, 6/12 after the close of market 
• Adobe (ADBE) on Thursday, 6/13 after the close of market 
• One of the stock that I discussed in many of my Investment Meet Geron (GERN) got its FDA approval last week and the shares gained 18% as most of the good news were factored-in. 

A quicklook into the May Job Numbers

The economic number has started smothering. But last Friday the U.S. economy added 272,000 jobs in May, versus expectations for just 180,000 surprising the Wall Street. Please note that only 165,000 jobs were added in April. The job market snd inflation is making the FED to be more hawkish. However, the job growth numbers over the past few months have developed a pattern of initially being reported very high and then being revised lower in the next few months. The April job growth number was revised down by 10,000 jobs. I do feel that such downward revisions may happen for the May jobs numbers. However, the unemployment rate went up to 4%, the highest unemployment rate since January 2022. The unemployment rate is now convincingly above its 12-month moving average. Every time the unemployment rate has gone above its 12-month moving average over the past several decades, major labor market weakness followed. It showed a gain of 272,000 jobs in May. But the household survey actually showed a loss of 408,000 jobs in May. That’s because the number of people saying they had full-time jobs dropped by 625,000 in May, while the number of people holding part-time jobs rose by 286,000.  

Let’s not forget - Stock Market do not go straight up

Though I wrote it before, this is another reminder and not to expect stock market to go up straight. We have to our due diligence and get prepared for what may come in future. There is 8-10% pullbacks during the bull market. So, despite the fact that indexes and stocks go up, one must be prepared for any such pullbacks. It’s immensely important to have some cash and take rational decision when and which stock to buy during such pullback . Also, it’s important considering hedging of the portfolio. Furthermore, in my view, it’s always a good idea to trim and take some profit when a stock goes up significantly and buy something which is in our shopping list or wait for the stock to pullback. Investing for long term is a good strategy but in this era of high frequency algo-trading it’s sensible to have some trading strategy built into it. Otherwise it may be difficult beat the market. Keeping the emotions under control during the market volatility is of paramount importance. Let’s not forget, greed and fear are two aspects that controls investors sentiments.

S&P 500 Earnings projections for 2024

Q1 2024: +5.9% with 99% companies  reported earnings so far.

Q2 2024: +9.7% (projected) 

Q3 2024: +8.3%

Q4 2024: +17.3%

FY 2024: earnings +11% (projected)

Revenue growth for 2024 expected: 3.5%.

 Stock Market TOP sectors for 2024

Sector	YTD Performance in %age
Communication Services (TOP)	22.50
Information Technology	21.41
Financials	9.85
Utilities	9.66
Consumer Staples	8.62
Health Care	7.11
Real Estate (worst)	-5.61

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. 

Enovix Corporation (ENVX):

Enovix Corporation designs, develops, and manufactures lithium-ion batteries. It serves wearables and IoT, smartphone, laptops and tablets, industrial and medical, and electric vehicles industries. The company was founded in 2007 and is headquartered in Fremont, California.

Why do I like ENVX?

As we know everything from mobile phone, computing devices, IoT devices, to the vehicle we drive, needs a better battery that can sustain power for long time and can be as compact as possible. Enovix is building a higher performing battery without compromising safety keeps it flexible on the cutting-edge of battery technology innovation.

Enovix has designed a high-energy, high-capacity, compact battery to power the technologies of the future. As we know, all the AI powered systems need higher electricity to meet high computing power requirements. All the future phones, laptops, electronics devices will be needing lots of power. What it means is that, it needs very sophisticated batteries. Smartphone battery requirements are incredibly rigorous as lots of apps keeps running concurrently. The company is set to provide customers with a leading-edge battery that will enable demanding AI applications without compromising battery life. There are not any company that I am aware is having such technology. Hence, it gives competitive advantage for Enovix silicon batteries for the next generation of smartphones and other devices that need sophisticated batteries. This is really huge for a small company which is yet to deliver a full-fledged product. The most important thing is, during the last quarter earnings the company announced a development agreement with one of the top five smartphone manufacturers in the world by unit volume. It did not name the customer.

Meanwhile, Enovix has begun manufacturing its EX-1M battery cells based on smartphone customer specifications and is on track to deliver first samples in this quarter. The company plan to start high volume production will take place at the company’s Fab2 facility in Penang, Malaysia. The company also said that two leading smartphone vendors are positioning to be first to market with Enovix batteries in 2025. Frankly, ENVX is a much under appreciated play on artificial intelligence on mobile devices. In order to run generative AI applications, smartphones will need higher capacity batteries and that’s where ENVX is expected to rule in future. Enovix is uniquely positioned to support accelerating edge device power needs. 

Financials

Though for such small early stage growth company, we can’t expect too much revenue and profit in the beginning but let’s take quick look. The company reported Q1 revenue of $5.3 million, beating the estimated $4.1 million. It lost 0.31 cents a share which was in line with the analyst estimate. Its revenue will start picking up as soon as company start delivering the batteries which is expected next year.

My View

The stocks currently trading at $10.48. The stock has an all-time high of $23.90. So, it’s trading 56% below its 52-weeks high. This company seems to have massive growth opportunity as AI momentum continues and almost every electronic devices will need high battery power. So, it looks not only cheap but also extremely promising. The market capitalization of ENVX is just $1.78B.  I also expect more and more phone companies and other manufacturers who need high powered batteries for their devices would be eagerly looking for making deals with Enovix. Hence, I see a huge opportunity for the company in future. The company expects to start ramping up its revenue in 2025 and beyond. So, it’s better to accumulate when it’s still cheap. But as I say, never get in love with any stock. It’s sensible to take some chips out of the table when there is an opportunity and to mitigate some risks and add when it is beaten. One must keep at least 6-12 months time horizon or more for this stock. So, there can be short term trade but I am looking for a core position in this company as a long term investment. 

Risks

All equities carries risks. The small cap growth companies are more riskier due to their volatility. Now the market is still struggling to find when the Federal Reserve will cut rate. Those investors who are not comfortable with high volatility should avoid this stock. However, visualizing the current scenario, I do not expect a significant pullback though nothing can be ruled out. 

My final thought: As I said, all the future AI devices, phones, laptops, electronics devices will be needing lots of power for consumption, storage and durability. We will see AI phones soon that may need higher processing capabilities and need battery that last longer, uses a very compact storage and more reliable. In my view, all these conditions are satisfied by ENVX. Despite its humongous opportunity, nothing can be guaranteed for any stock. So, one must do the due diligence and invest with caution! I am a growth investor and willing to take some calculated risk. Hence, I am invested as I feel this is a great long-term winner. Having said that, if I see any red flags then I don’t hesitate to pull the trigger. But at this time, I am really excited about its future potential. 

Shesa’s Blog Portfolio (As of JUNE 9, 2024 - updated on 6/23/24)

Equity	Suggested Price	Current Price	Suggested Date	% Change	My View  (see disclaimer)
STOCK (All prices are in USD)
AAPL	12.9	207.49	1/25/13	1508%	HOLD
META	47	494.78	11/13/13	953%	Buy below $480
MA	77.18	454.85	12/12/13	489%	HOLD
AMZN	15.58	189.08	4/12/14	1114%	HOLD
SHOP	13.48	65.03	11/25/18	382%	HOLD
SPG	54.59	146.16	5/25/20	168%	HOLD
ENPH	45.3	106.67	6/28/20	135%	Accumulate
PLUG	27.98	2.41	4/25/21	-91%	HOLD
SAVA	51.49	20.02	10/10/21	-61%	HOLD
NVDA	23.9	126.57	2/13/22	430%	Accumulate Long Term
TSLA	290.25	183.01	5/1/22	-37%	HOLD
ABNB	115.21	149.57	10/31/22	30%	HOLD
AXSM	77.13	76.39	1/1/23	-1%	HOLD
RDFN	8.87	6.03	4/6/23	-32%	BUY/Accumulate
SOXL	15.66	58.2	4/6/23	272%	Buy on dip
GOOG	123.25	175.95	5/21/23	43%	HOLD
LAZR	5.57	1.41	8/27/23	-75%	HOLD
PLTR	20.49	23.84	11/19/23	16%	Accumulate
MSFT	376.04	449.78	1/1/24	20%	Accumulate
FLNC	20.54	19.49	2/1/24	-5%	Accumulate
PANW	284.13	320.33	3/31/24	13%	Accumulate
SMCI	857.44	905.26	4/28/24	6%	Accumulate
ENVX	10.48	12	6/9/24	15%	NEW ADDITION
	ETF
IHF	27.82	52.12	8/16/15	87%	HOLD
MUTUAL FUND
PRMTX	59.45	144.23	12/20/14	143%	HOLD
FSRPX	9.05	19.80	1/15/16	119%	HOLD
FSMEX	43.66	63.41	9/24/17	45%	HOLD

Equity Sold since my Last Blog

• Revive Pharmaceuticals (RVPH)
• UiPATH (PATH)

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.

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