Latest Positions: Energy, China, Cloud, Shorts

Here is a Part 3 of 3 of the list my latest personal portfolio positions and most of the hedge fund positions with updated commentary and ratings for each position. We will do this week’s Live Q&A chat at 1pm ET Saturday (yes, Saturday, because tomorrow my wife and I are running Amaris up to Denver for an eye check up) in the TWC Chat Room or just email us your question to support@tradingwithcody.com.

The ratings for each stock go from 1 to 10, 1 being “Get out of this position now!” and 10 being “Sell the farm, I’ve found a perfect investment.” The positions that are bolded are those that I consider to be “core” holdings and am unlikely to ever sell out of them entirely.

Longs –

The Energy/Materials Revolution –

• • SEDG Solar Edge (6+) – Solar Edge popped 15% after its most recent blow out earnings report as the company has navigated the difficult chip supply chain environment to deliver strong numbers. Demand remains strong and the company’s products perform very well against their competitors. Solar Edge guided to quarterly revenues of $520 million and $540 million, while the Street had been expecting a forecast of $504.5 million. We’re looking at company that’s grown from about hundred million dollars in sales when we first bought it to $2.5 billion in sales expected for next year. The stock has gone up 2000% over that time frame too. I have a few small solar short positions to try to hedge this solar exposure because I do think there’s a lot of bubblicious aspects to the current solar stock valuations.
  • MP MP Materials (7-) – Very simple premise in why we are in this stock: The US needs domestic production of rare earths and MP is the purest play on that. Unlike lithium and most other mined commodities, the rare earth stuff that MP focuses on is, well, rare. Other commodities face existing supply potential that can ramp up as needed when prices rise, keeping profit margins in the typical commodity sector low. Over time, MP’s profit margins should be pretty darn strong for a commodity producer. If the company can deliver the 35-40% topline growth they’re projecting for next year with decent margins, the earnings could be $1 per share, making this growth stock pretty cheap at 33x forward earnings.

The Global Middle Class Revolution –

• • JD JD.com (8) – JD’s got a lot of ways to win and its seemingly done a good job of staying under the radar of the Communists who run China and who have been cracking down on Chinese tech companies. Annual active customer accounts at JD increased by 27.4% to 531.9 million in the twelve months ended June 30, 2021 from 417.4 million in the twelve months ended June 30, 2020. Half a billion active customers! As noted at the time, after this recent Chinese stock crash that sent JD from $110 to $60ish, I stepped in a couple weeks ago and made JD a relatively large position and am holding most of it steady.
  • TCEHY Ten Cent (8) – Founded in 1998, Ten Cent and its subsidiaries globally market various Internet-related services and products, including in entertainment, artificial intelligence, and other technology. Like games. I’m still digging into this company and learnings its nuances and all the various businesses its engaged in and this is still a relatively small position for me as I was able to sneak in and buy it during a panicky Chinese stock market crash that has now abated, at least for now.

The Cloud Revolution –

• • DOCU DocuSign, Inc. (7-) – Oh, I hate doing the fundamental analysis on Docusign. It’s a great company that has positioned itself as a de facto standard for online signatures and other cloud businesses that are perfect for our accelerated move to cloud/remote work. That said, at 25x next year’s revenue estimates and at 100x next year’s highest earnings estimate out there, this stock is just not cheap. I hold onto it here, as we bought it at the bottom of Covid Market Crash back in March 2020, mainly because they are so well positioned to maintain their de facto brand name status and the company continues to grow its offerings.

The Content Revolution –

• • NFLX Netflix (7-) – Here a decade or so into its full blown streaming content revolution, Netflix continues to change the way we consume video content. It’s increasingly difficult for me to bother watching anything but live sports on old fashioned broadcast channels. Netflix can cut back spending on new content at any time, even just slowing the growth of that spend down a bit, and the earnings/cash flow would blow Wall Street’s minds. I’m holding a pretty decent-sized position in Netflix steady for now
  • SPOT Spotify (7-) – A few weeks ago in a chat, I’d mentioned that I’d look to buy more Spotify at $220 and that if it got below $200, I’d be really excited. Well, SPOT dropped to $220 after that and then for a few days earlier this month, it was bopping around and for a split second even went below that $200 level I was looking for. I nibbled some more SPOT for the hedge fund on that decline as I’d said I would and am holding it steady for now. Spotify’s gross margins, which currently are below 30% should be able to grow as the company continues to add exclusive content, especially podcasts, to their business revenues.
  • ROKU Roku (6+) – Roku is a great company that’s expecting to grow the topline another 60% this year and 40% next year, hitting about $4 billion in sales next year. Trading at 12x that forward sales estimate with 50% gross margins, the stock is trading at about 200x next year’s profit estimates. It ain’t cheap, but the growth and the margin expansion look very good here and I’m sticking with ROKU.

Shorts –

• QQQ Nasdaq 100 ETF (7) – I’ve got some index shorts and puts as hedges to our long exposure.
• SOXX Semiconductor ETF (7) – I am back to the SOXX and not SMHH as I’ve traded around this short hedge for my semiconductor longs.
• VTWO Small Cap ETF (7+) – I’ve traded IWM for VTWO as I’ve traded around this short hedge for my small cap longs. I continue to think small caps look like they are probably ripe for underperforming the broader markets for the next few weeks, months or quarters.
• Tiny short hedges, rated about a (7) – in FSR, EGHT, CHTR, PLUG, and others. There is beginning to be a rampant amount of fraud with second tier SPACs and other penny stocks. I’m looking for more individual names to short.  As always, I might cover these at any time and I’m not expecting to make much money on these shorts.  They’re just hedges for the hedge fund and I’m not sure any of these are no-brainer shorts.  Please don’t just go around blindly shorting these for your personal portfolio.

Remember: I wouldn’t rush into a full position all at once in any of these stocks or any other position you’ll ever buy. Patience and allowing the market and time to work to your advantage by buying in tranches is key. Maybe 1/3 or 1/5 of whatever you  might consider to be a “full position” in any particular stock. And I wouldn’t ever have more than 5-15% of your portfolio in any one stock position at any given time. The younger you are and/or the higher the trajectory of your career income, the more concentrated and risk-taking you can be with weighting in your portfolio. But spread your purchases and your risk out over time and over a several positions no matter your age or risk-averse level.

Scaling into a position using an approach of buying 1/3 or 1/5 tranches over time is how I build my personal portfolio positions, but there’s no scientific way to go about investing and trading. Sometimes you have to pay up for the latest tranche but I try to be patient and wait for a temporary sell-off to add to the existing position.

** NOTE FOR NEW SUBSCRIBERS:

If you’re new to TradingWithCody or if you’ve been a subscriber for a while but haven’t acted on much of my strategies yet and/or if you haven’t been in the markets, but you’re sick of getting 0% on your CDs, Treasuries, savings, checking, etc while the markets have been continually hitting all-time highs this year, what should you do now?

Before you ever make any trade, step back and catch your breath before moving any money anywhere. Rank your positions and your whole portfolio and make sure you’re not about to make any emotional moves with your money.

If you haven’t yet read “Everything You Need to Know About Investing” then spend a couple hours doing so, please. It’s a quick read but chock-full of important ideas, concepts and strategies that amateurs and pros alike should understand.

Then, take a look at my own personal portfolio’s Latest Positions and slowly start to scale into some of the ones you like best and/or the ones I have rated highest right now. I’d look to start scaling into a few of the many stocks in the Latest Positions that are at all-time highs along with a couple that we’ve recently featured in our Trade Alerts that I’ve personally been scaling into.

Here’s a picture from an overnight camping trip Lyncoln, my bigger daughter, and I had this past weekend.

Disclosure: At the time of publication, the firm in which Mr. Willard is a partner and/or Mr. Willard had positions in some of the positions mentioned above although positions can change at any time and without notice.