Latest Positions: Get Off Of My Cloud and Semi-Charmed Life

Here is a Part 2 of 5 of the list my latest personal portfolio positions and most of the hedge fund positions with updated commentary and ratings for each position, including another Trade Alert.

I’m selling DIS. It’s been our only stock that hasn’t made us money this year, which is quite an amazing thing to type, because we have almost 30 stocks in the portfolio. 97% hit rate, ain’t bad. That said, I still think Disney+ is going to be a major money maker for DIS, but I’m uncomfortable with all the theme parks and cruise line revenues that come with what really should be Disney’s only business of content creation and intellectual property control. I’m increasingly worried that the markets have a vacuum lower coming at some point this year and I’d rather have some more cash than DIS stock at this moment. I of course reserve the right to revisit DIS in coming weeks and months.

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 –

• (Cloud Revolution)
  • ZM Zoom (6+) – In the prior Latest Positions back in July, I wrote, “Let’s play the relative valuation game with ZM, which is currently being valued in the stock market at nearly $80 billion. Zoom’s market cap is about half of ORCL’s market cap — and Oracle has $40 billion in revenue and Oracle will earn 10-15x more than Zoom next year.” Well, at one point a few weeks ago, ZM’s valuation actually passed ORCL’s valuation and that was just about the time I sent out a Trade Alert to all of you about trimming some ZM: “I’d invested in ZM because it was part of my COVID work from home concept basket that I bought in early March when the lockdown became apparent. And that turned out to be the right analysis, in retrospect. But I never thought that ZM would go up 500% in the next six months after I bought it.

    Speaking of ZM, I’m trimming a part of ZM here, locking in part of the nice gains on this stock that is trading at 5 times the price we paid for it back in March.” With the stock back down close to $400 and the valuation at $115 billion, we’re probably a bit in no-man’s land here with this name — too high to buy, too low to trim more. So I sit tight with a smallish ZM position for now.

  • DOCU Docusign (7) – Here is why we own DOCU and probably will for many years to come: People will use digital signatures ever more in coming years, with or without the pandemic. The fact that Docusign has truly become standardized as a noun and a verb. The 80% gross margins here are probably going even higher in coming years. I’m holding the remaining shares steady.
  • SQ Square (6+) – Square is worth $100 billion now. Which is great, but is also very expensive. Square’s margins are much smaller than, say, the aforementioned Docusign. Both DOCU and SQ trade at about the same price, are going to each earn about $1 per share next year meaning they have both about the same P/E. but because of the gross margin difference, SQ has to trade at 8x next year’s revenue estimates to meet that P/E while DOCU has to trade at 22x next year’s revenue estimates to meet that P/E. I’m having a hard time not trimming a little more SQ here and I think I will go ahead and do so. Consider this a Trim Trade Alert for SQ, especially if you haven’t trimmed any since we bought it at $55, before it went up 5-fold.
• (Semiconductor Revolution)
  • NVDA Nvidia (7) – Nvidia’s chips are the leading chips for all the sectors they play in, which are all Revolutionary growth industries, from AI to driverless cars to video games. The fact that Nvidia bought ARM, whose platform just about every chip vendor not named Intel has to license, and they bought it cheap — is perhaps my favorite reason to continue to own Nvidia. Here’s what I wrote about Nvidia’s fundamentals when we bought it just about four years ago: “Nvidia has about $5 billion in cash offset a little bit by about $1.5 billion in debt. The company’s market cap is $17 billion and analysts expect another year of low single digit growth for the topline as it will take a few quarters still to get the VR and auto-car businesses up to scale and even a year or two more after that to go mainstream. The stock is trading at about 20x next year’s earnings on a P/E basis which goes down to about 18 when you include the $3.5 billion net cash (about $6 per share). We also get a 1.5% dividend yield to boot. For now, I am putting my toe in the water and buying a 1/3-sized tranche position of $NVDA common stock to get started. I would look to add another tranche if the stock drops below $30 and/or in the next few days or weeks if the markets tank and give us the chance to nibble on this name in a broader market downdraft.” Well, the stock did drop slightly below $30 back then and since then has headed almost straight up to its current $530 quote. The fundamentals are also quite different: “Nvidia has about $12 billion in cash offset a little bit by about $2.5 billion in debt. The company’s market cap is $330 billion and analysts expect another year of low double digit growth for the topline as so many of Nvidia’s products have gone mainstream. The stock is trading at about 45x next year’s earnings on a P/E basis which barely goes down to about 42 when you include the $10 billion net cash (about $20 per share). We also get a 0.12% dividend yield to boot.” Look back at the difference in the valuations between 2016 and 2020 for Nvidia. The company has certainly done a great job, has grown and has earned a bunch of money since 2016 and we were dead right to get ahead of those trends before the market realized how valuable they were. But now? The markets see what we saw four years ago and the stock is no longer cheap on any metric I use. I think the dominance from Nvidia is here to say for years, so I’ll continue to hold my shares and I’d buy more if the stock gets slammed sometime in a broad market downturn just like I did in March earlier this year during the mini-market-crash.
  • TSM Taiwan Semiconductor (7) – TSM is the exclusive chip maker for customers like:
    • Apple
    • Broadcom
    • Nvidia
    • Qualcomm
    • AMD
    • HiSilicon (Huawei)
    • Sony
    • Tesla

    I think we’ll hold TSM pretty much forever unless China takes the country over or something.

  • AMD AMD (6+) – I’m old enough to remember the days when AMD owns its owns fabs and was trying to keep up with Intel while maintaining billions in debt. The company almost went bankrupt. Nowadays, the company has $1.5 billion in cash and just half a billion in debt and is kicking off about a billion in cash flow per year now. Also nowadays, as noted above, AMD outsources the manufacturing of its debt to TSM and TSM is at least five years ahead of Intel in chip manufacturing technology. So that means that AMD is also basically five years ahead of Intel in CPU technology. The lead might not really be five years yet, but the lead is at least a few years already and increasing annually. Even by outsourcing their chip manufacturing to TSM, AMD still is able to obtain 50% gross margins. That said, the stock is not cheap at 48x next year’s earnings estimates and almost 10x revenues. I’m holding my AMD steady, but I don’t consider it a hold-forever yet.