Latest Positions Part 3: The Cloud, Content, Social, Global Middle Class

And here is a Part 3 of 3 (sorry, part 4 comes tomorrow) of the list my latest personal portfolio positions and most of the hedge fund positions with updated commentary and ratings for each position.

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 Social Revolution –

• • TWTR Twitter (6+) – Twitter is yet another stock that I bought at its almost absolute all-time lows. Originally it went from forty to eighty back down to where we bought it around $14, down over eighty percent from the highs. I actually shorted it on occasion near the highs in the hedge fund. These days seem a lot like three years ago in that all we do is wait on Twitter to finally really start monetizing their traffic. The fact is that I own TWTR, as I have said from the beginning because it became the de facto platform for celebrities and companies to communicate with the public. Your average S&P 500 company might issue a press release on Twitter, but they are not doing that on Instagram or Pinterest. But, this is yet another stock that is not clearly undervalued or a screaming buy. The onus, as always, is on Mr. Dorsey to deliver some meaningful earnings growth.
  • SNAP Snap (6+) – As I Googled “SNAP” this morning, the first result that came up was for the U.S. Governmental program Supplemental Nutritional Assistance Program (SNAP), aka Food Stamps. This got me thinking about welfare in general so I dug a little deeper into both SNAPs. The government or more specifically you the tax payer spent $83 billion dollars on food stamps last year, in the process feeding over 38 million people. Now on to SNAP the company. You do not become a company worth $91 billion dollars without receiving your fair share of corporate welfare. I think it is fair to assume that given property, sales and income tax breaks among other welfare payments from the cities, states and countries that they operate in, that Snap, the company, has probably received at least $8 billion in various forms of corporate welfare and subsidies and protections. Just to be conservative let us call it a five billion dollars. How crazy is it that 38 million people received only 16 times more in welfare payments than what just one publicly traded company got. That doesn’t seem like a very fair ratio. Even if you’re against “welfare” of all forms, wouldn’t it make more sense to start trying to dismantle the “welfare state” by starting with attacking the welfare that rich people and corporations get rather than to start with taking food welfare away from poor people just trying to eat. But I digress… Snap (the company) like Pinterest and Twitter is overvalued right now. The growth rate for SNAP is around fifty five percent which has been higher than the twenty five to forty percent growth rates at the other two companies. But, Snap’s P/E ration is ninety on next year’s earnings, so the market is already pricing in that higher growth rate making it overvalued just like the other two. The only Social Revolution stock that is not overvalued is Facebook, which we talked about yesterday and deserves its own category.
  • PINS Pinterest (7-) – Pinterest needs user growth and continued monetization growth if they are going to justify the valuation of 50x next year’s earnings for a company that is growing at 30-40% per year. After today’s selloff, I would not say that PINS is terribly overvalued but it is certainly not undervalued in my mind either. One competitive advantage that I see for Pinterest is in the type of social media company that they are and why their users use them. Here is my anecdotal story. We just bought a “new” home and have recently moved in. My wife has already come up with an extensive list of projects/rehabs/remodel ideas that she wants to do. Where does she go for inspiration on these ideas? You got it, Pinterest. Not only is she going there with the intention of getting ideas/inspiration, she is going there with the intention to buy the products and services to bring those ideas to life. That right there is an advertiser’s dream. Unlike FB, GOOG, TWTR, SNAP, and the rest, Pinterest does not have to target their ads. The customers users literally come to them and find the ads and make purchases. We’ll have to see if PINS can execute and monetize those lucrative other users that are just like my wife. I am holding and watching Pinterest for now.

The Global Middle Class Revolution –

• • JD JD.com (7+) – JD has come down hard from recent highs near $110 a share as has most Chinese stocks, especially Chinese technology stocks. Clearly Alibaba and Tencent are being cracked down on by the Communist Chinese Regime, pretending that they are going to stop some of the power that these companies have ascertained for the same said Communist Regime. BABA…Communist Regime, Tencent…Communist Regime, TikTok…Communist Regime. We can pretend that they are not one in the same but if your kids watch TikTok, they are giving their data straight to China. JD is part of that same regime. With that said, we bought JD at around $30 and it is our only Chinese exposure and I am riding it. In fact, I think it might be ready to break out and get back to its all-time highs if you had to put my feet to the fire.
  • JMIA Jumia (7-) – This is our company that is based in self admitted socialist Germany, trying to become the Amazon of Africa, and I am investing in it from rural New Mexico. When I think in those terms, it scares the hell out of me. If it works though, we are talking about hundreds of millions of people in Africa being lifted out of poverty and finding some semblance of peace, security and maybe even eventually prosperity. It is incredibly hard to build successful businesses in the wildly corrupt countries where Jumia does a lot of its business. It is basically impossible in this world’s reality for a billion dollar business to be based in Africa where it is trying to do business. We have to hope that over time, the next great internet companies for Africa will be based in Africa. That will then create true prosperity for the people there and thereby help me, writing in rural New Mexico. Prosperity is never a zero sum game which is why I hope and believe that Jumia can pull this sucker off. As it sits, the company is growing at twenty to thirty percent a year and trading at ten times next years sales. Their 66% gross margins are pretty strong, but until the company turns profitable and self sustaining, we have to endure a venture capital like risk/reward type investment. Be careful with JMIA, but as I noted recently, I nibbled some JMIA during the panic selling. That purchase is up twenty percent since then. I am sitting tight with those share but I did not add as many as I had trimmed at higher prices.

The Cloud Revolution –

• • ZM Zoom (7-) – Zoom clearly has competition coming from Virtual Reality, MSFT, CRM (recently bought Slack) and just about everyone else. ZM is up two hundred percent since we bought it last March right as the pandemic was announced. Clearly we were ahead of most people and we even trimmed some around the highs last October. Given my concerns about the ability of the economies and societies around the world returning to normal business, I continue to hold my core position.
  • DOCU DocuSign, Inc. (7-) – DocuSign is a more expensive version of Zoom. Just like Zoom, it has become the name of what it does (also like Xerox and Kleenex). DocuSign is not growing as fast as Zoom this year, but it should grow faster than ZM next year. The market is now pricing in DOCU at a fully valued valuation of 125x next year’s earnings. This is yet another stock that we have owned since the lows and it is up big for us. I am going to sit on a small core position.
  • SQ Square (6+) – Square was a beneficiary of the Covid pandemic despite the fact that everyone thought it would be hurt by it. The company is growing revenue at around fifty percent this year, slowing to twenty percent next year. There in lies the problem. It is trading at 130x next year’s earnings on a company whose growth is slowing and whose gross margins are only around thirty percent. I find this company clearly overvalued right now. The problem that I face on SQ and other overvalued companies in our portfolio is that I bought SQ at $55. It is up over 350% and I have a hard time selling my huge winners. I trim Square but I do not sell it all.

Part 4 tomorrow along with chat. We will do this week’s Live Q&A chat at 10am ET tomorrow (Thursday), in the TWC Chat Room or just email us your question to support@tradingwithcody.com.