A New Bear Market?, Tesla Earnings, CAVA, CELH, And Lots Of Other Analyses

Here’s the transcript from today’s Live Q&A Chat:

Q. Are we hedging now with what’s happening in the Middle East?

A. Not because of what’s happening in the M.E. per se, but we’ve been hedging a lot and writing about how we got outright bearish a couple of weeks ago BEFORE the market tanked in part because of the M.E. wars. Still hedged but have been unwinding some of those hedges as the markets have tanked this week.

Q. Markets crashing again. Are we heading for a bear market?

A. Not sure if it’s going to turn into an outright “bear market” but the market needs to do some churn and digesting of the big moves it has made over the last few months.

Q. Are you still increasing bearish or are you getting a bit more bullish now that everyone else seems a bit more cautious now? 4th red day in a row.

A. I can’t say I’m outright “bullish” about the broader markets but I am definitely more bullish on some of our favorite longs after they have come down so hard, including: Tesla (TSLA), Intel (INTC), Uber (UBER), Apple (AAPL), Robinhood Markets (HOOD), Rockwell Automation (ROK), Taiwan Semiconductor (TSM), Rocket Lab (RKLB), Nvidia (NVDA) and Disney (DIS).

Q. When markets get ugly, a little more reassurance or guidance wouldn’t hurt in the chat.

A. We try to make sure one of us gets into the chat room every day but this week has been crazy for me with travel and doctor appointments. Sorry we didn’t get into the chat room yesterday.

Q. Tesla (TSLA) is down almost 50% from its all-time high (ATH). Part of me says this screams buy, but the company and Elon can’t stop getting in their own way.

A. Actually, TSLA is down 65% from its all-time highs, and thank goodness we trimmed and hedged before it tanked like this and kept hedges on heading into this year. That said, I do think the stock is attractive here and we have removed our hedges and have indeed been buying more TSLA, including today at $150.

Q. What is key with Tesla’s (TSLA) earnings call (besides earnings)? What do we need to hear from Mr. Musk?

A. How much FSD uptake did they get after this month of free FSD for all Tesla owners? Also, updates on Optimus Robots and Dojo AI compute. Perhaps some commentary about the Model 2 and if/when it might come out.

Q. What would you rate Tesla (TSLA) & bitcoin here?

A. I’d rate TSLA at 9/10 right now. Bitcoin is probably an 8-/10 (7/10 short-term, but 8+/10 long-term).

Q. I have been notified that soon I will take delivery of the Cybertruck I ordered years ago. Watching reviews of the truck detailing poor visibility, lack of sensors for parking help, sharp heavy door panels that can cut or chop fingers, I have cold feet. I have had a Tesla 3 for 4 years, my partner has a Y. We are very happy with both. At 72, I am primarily worried about visibility and ultimately safety. This is not really stock-related, but I know that you follow Tesla closely and had one or two on order. Do you think that this truck is a miss for general use?

A. I think most people will love their Cybertruck with its amazing technology, its functionality, and perhaps most of all, the fact that you can drive it around the countryside and not ding it from running over small trees or other obstacles.

Q. Are you aggressive on Tesla (TSLA) here? What do you make of recent news and have you sold out of your May calls and buying more LEAPs?

A. “Aggressive” is a term that I’m not entirely comfortable with when it comes to positioning our portfolio. We have made TSLA an increasingly bigger position as it’s been down here in the $150s and will probably buy more in the low $140s if we get the chance to. Let’s keep a long-term view and as always, be cool.

Q. Same question with Intel (INTC). Since the rest of the market has come to realize your prediction on rates was spot on, is this bear territory til later this year?

A. Intel’s got a potential trillion-dollar business with their foundries over the next five to ten years. Near-term, the company needs to deliver some decent revenue upside to get this stock going again. Not sure it will depend on rates.

Q. Do you think semis look attractive or only ASML?

A. I like Taiwan Semi (TSM) and Intel (INTC) and ASML and of course, NVIDIA (NVDA), which I’ve been in personally for eight years. I am not a fan of most other chip stocks right now.

Q. I usually buy tranches of around $300-500 due to small portfolio size. Your recommendation of buying ASML yesterday at the current price of $907 means it would be double my typical tranche size. Do you still recommend buying ASML for smaller portfolios?

A. Hmm, good question. If you can’t buy a fractional share of ASML because your broker doesn’t offer that like, say, Robinhood does, maybe just hold off on this one for now so you don’t end up messing up the balance in your portfolio.

Q. Why do you like Robinhood Markets (HOOD) at $17? And is it vulnerable if bitcoin goes much lower?

A. We loved HOOD below $10 and we trimmed some around $20 as we noted both ways. And yes, I do think HOOD trades at least a little bit as a proxy on bitcoin/crypto and it would likely fall to $15 or lower if bitcoin drops to $55,000 or lower.

Q. Do some of the Chinese internet names get attractive here? Specifically Baidu (BIDU), Alibaba (BABA), JD.com (JD). Each has an AI angle, they are dominant in their country and have important “future-proof” businesses.

A. We like Tencent (TCEHY) as our favorite Chinese name. I’d probably rate the Chinese tech stocks in this order: 1) Tencent 2) JD 3) BIDU 4) BABA.

Q. The Invesco Solar ETF (TAN) is at multi-year lows presently. With the prospect of lower rates in the back half of the year, might this be a good time to accumulate some solar exposure?

A. I do think there’s a huge future for The Solar Revolution, as I’ve been saying for many years. But whenever we sit down and do the work on the solar stocks, we end up not liking most of them, including those that make up much of the TAN ETF. We stick with Tesla as our favorite way to play solar instead of the TAN or the smaller solar stocks.

Q. Does Rivian (RIVN) intrigue you guys in this $8-$9 range for a trade? Or do you think they are headed toward bankruptcy?

A. I do think RIVN is “intriguing” here (the definition of intriguing is “something that is very interesting or fascinating, or that can arouse interest or curiosity”). That said, the problem with Rivian remains that they need more money to scale their business to profitability and I’m not sure the market is going to give them the amount of money they need. Great product, but they are still selling that great product at a gross margin loss. Sticking with Tesla (TSLA) instead.

Q. I’d love to know the Lululemon (LULU) analysis that led to a buy a week ago and a sell a week later.

A. It went a bit like this: Bryce and I had done a bunch of work on Nike (NKE) and Lululemon (LULU) but thought they were too expensive so we put them in a “keep an eye on them” file. When LULU got crushed after its earnings report and started hitting 52-week lows we were like, “Hey, let’s sneak in and buy a little here.” Meanwhile, as you all know, we had gotten bearish a couple of weeks ago just about the time the markets were topping out and we felt that we needed to reduce the number of long positions and to raise more cash. So we went through the portfolio again and forced ourselves to get the number of long names down to below 20, forcing us to make some hard decisions to sell some names we still liked but couldn’t justify owning too many names. STMicroelectronics (STM), Crowdstrike (CRWD), Adobe (ADBE), LULU, and others didn’t make the cut to keep, despite us liking them. I did ask for forgiveness from you dear readers when we turned around and sold LULU a week after buying it because that is not our style normally. Discipline trumps conviction and this whole LULU buy/sell is a good reminder for all of us to be flexible.

Q. Yeah I was upset about the Lululemon purchase/sale, but it didn’t strike me as characteristic of your methods. Your explanation of winnowing down the portfolio makes sense, thank you.

A. Rock on.

Q. Not necessarily revolutionary, but thoughts on Under Armour (UA)?

A. I’d rather own Lululemon (LULU) or Nike (NKE).

Q. Sold Adobe (ADBE) and off it goes.

A. Not sure I understand what you’re saying here. We sold ADBE Monday and it’s still at about the same level. Every other name we sold on Monday is down along with the broader markets.

Q. Not necessarily revolutionary, but thoughts on Pfizer (PFE)? Take the 6% dividend and wait for the turnaround. Buying at multi-year lows.

A. We bought some PFE calls a couple of months ago when the stock broke $30 on the downside. It’s probably a good investment here for the long-term and the dividend is probably not going anywhere any time soon so that’s nice to get paid to own it.

Q. Do you have any thoughts on United Microelectronics (UMC)?

A. UMC trades at a steep discount to rival TSMC because the company is focused on much older process nodes and legacy technologies. Despite producing relatively lower-tech semiconductors, UMC has been able to improve its gross margins from 22.1% to 45.1% over the last three years. UMC accomplished this by raising average selling price (ASPs) by over 21%. Meanwhile, the company also cut operating costs, falling from 13.2% to 9.6% of revenue in the most recent fiscal year. This resulted in the company’s operating margin rising from 11.5% in 2020 to 32.4% in 2022.

We give the company good marks for management’s operational excellence and a nice improvement in profitability over the last three years. However, we are not very excited about this stock because the current chip glut has had a significant impact on revenue and profitability, with gross margins dropping back down to about 35% in the most recent quarter. Fab utilization rates went down from 100% last year to only 70% in the most recent quarter. Like with GlobalFoundries, we do not model much secular growth for UMC given its lack of advanced process nodes.

Throw in the fact that the company’s fabs are mostly in Taiwan and China, and there are plenty of reasons not to own this foundry. But with the stock trading at about 10x 2023 earnings estimates and 23% of the market cap in net cash, the stock is already trading at a significant discount to its peers in the foundry category and may not be a bad buy here. That said, UMC is Taiwan-based with significant assets located in China and subject to geopolitical risks accordingly. Further, the company’s lack of advanced process technology will probably limit its growth for the foreseeable future. And UMC will likely continue to face increased competition from IDMs and other foundries which are investing heavily in expansion.

Q. I took a small position in CAVA Group (CAVA) and was hoping you guys could take a look at it. Even though they are food service and not necessarily revolutionary, they are investing in tech and AI and I hear their food is great. Maybe they can perform like Chipotle Mexican Grill (CMG) in the next 10 years.

A. Growing topline at 20% per year, the stock is trading at 7x next year’s sales and 200x next year’s earnings estimates, so it’s not cheap. I’ve only had their food one time and I thought it was just okay — not as good or easy to eat as Chipotle (CMG). It’s obviously not a stock for me, as you noted but it’s probably a good company and if you can get it cheaper or hold on long enough from here, the stock could certainly work.

Q. A few years ago you put us on to a good trade with Dynavax (DVAX) during the pandemic. Would you take another look at this stock? It has a market cap of $1.5 billion, cash on hand of $742 million, is growing their Hepislav Vaccine business 25% to 30% to a projected $272 million in 2024. The company has guided to be cash flow positive in 2024. The stock at time of writing is $11.44. I think that this is extremely undervalued and would appreciate your view.

A. We’ll take a fresh look. It’s been off my radar for the last couple years. If we like what we find, we’ll let you all know.

Q. Any thoughts on Celsius Holdings (CELH)? No sugar, high caffeine—sells very well here in Manhattan.

A. My wife and Bryce drink that stuff sometimes (Bryce more often). I tried it and it’s fine, but I can’t really handle that much caffeine after coffee in the morning. The stock is controversial but isn’t terribly expensive on a forward P/E basis as the company grows its topline 40% per year and is trading at 48x next year’s earnings. It’s not exactly cheap either tho.

Q. Any thoughts on Best Buy (BBY)? Will we have an AI laptop cycle?

A. Yes, we’ll probably have an AI laptop cycle, but I’d rather own Intel (INTC) or Amazon (AMZN) than Best Buy.

Q. What is your price target to buy and trim bitcoin?

A. I’d buy more bitcoin near $55,000 and I’d sell more bitcoin near $80,000.

Q. Could you add your latest newsletters to your CodyGPT? I like to use the GPT to ask about the most recent trades and sells.

A. Great idea! Thank you, we will start doing that at least once every couple of weeks or so such that Cody GPT has access to our latest analysis and commentary.

I leave you all with a few random pictures from my last-minute trip to NYC last week.