Trade Alert: Raising Cash As Some Revolutionary Stocks Come Back Into Favor
First off, let’s do this week’s chat on Thursday 7/20, at 1:00pm EDT in the TradingWithCody.com Chat Room or just email us at support@tradingwithcody.com.
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Now let’s get into it.
Wow. It’s been an amazing few trading days. Many of our favorite longs that we were buying heavily much lower have really taken off recently. Even though we have been cautious about the market overall, we have still been quite bullish on our Revolutionary picks like TSLA, RKLB, UBER, etc (see links to write-ups below). Many of these stocks were down big and/or hated by the markets at one point or another in the last 3-8 months. As the stock prices have rallied nicely off those lows, these positions have quickly grown in the hedge fund to be major positions for us and the fund has gotten much longer accordingly. Although we do not want to blow out of any of our Revolutionary names just because they have gone up, we also have to remain disciplined and take advantage of big run-ups to raise cash when we get the chance. So today we sold anywhere from 5-10% of almost all of our longs as this market has gotten outright frothy, especially for small caps. The only longs we did not trim are those that we recently started buying and are still building up positions in the hedge fund, including BLDE and GOOG.
One of the things that is worth remembering as we buy and sell positions in the hedge fund is that our strategy will not necessarily be the same as what you want to do in your personal account. If you are a person in your twenties and are just now starting to invest, you probably don’t need to trim your Revolutionary longs as much since your investment horizon is necessarily much longer than a person in their 60s or 70s, and perhaps even longer than 10,000 Days (~27 years) like the hedge fund. But we also don’t want to be greedy either. In short, there are no easy answers when buying and selling stocks, or trying to time the markets or individual names, and that is why we “hedge” by buying and selling in tranches.
Additionally, it is always helpful to go back and re-read our analysis on why we were buying or selling these stocks to begin with to give you an idea of how much you should trim right now, if at all. Here’s a look back at some of the recent Trade Alerts we sent out in the last few months as we were loading up our names at lower levels.
Tesla at $122 on December 22, 2022, along with AMZN at $83, SHOP at $34, UBER at $24, INTC at $25, QCOM at $110, NVDA at $153, META at $117, and U at $27: “I doubt we’re going catch the exact bottom on any of these purchases today, but I am putting a little money to work on the long side for the first time in while, not just selling puts and covering shorts today. I’m selling lots of puts that I have on as hedges in the hedge fund and am doing some nibbling on the long side there in AMZN, SHOP, UBER, INTC and a few calls on QCOM, NVDA, META, and U. Mostly buying calls dated out 4-8 weeks, slightly out of the money.
And yes, bought some TSLA calls in the hedge fund and am even buying a little TSLA common around $122 here.”
TSLA at $160 and RIVN at $12 on April 27, 2023: “We bought some TSLA and RIVN this week and also put on some FSR and LCID puts back on the sheets. Fisker rallied this week on news that European authorities will allow it to begin deliveries of its Ocean SUVs. Lucid is also up perhaps in sympathy with Fisker. Meanwhile, Tesla was down another ~4% yesterday following a downgrade in a continuation of the selloff following Tesla‘s series of price cuts this year. As we mentioned in the Latest Positions report, Tesla has now cut prices 6 times this year.
We know that TSLA is the absolute best product on the market right now and it also has the best margins of any car company on the planet. Remember that almost every other car company is actually losing money on every EV that they sell. Tesla, on the other hand, still has a roughly 18% gross margins on its EVs and can afford to reduce that slightly in order to increase demand. We think Tesla is obviously playing the long game here and it is potentially going to eliminate tens of would-be competitors like FSR and LCID and at the same time fight back against the growing market share of BYD in China and higher interest rates here in the US.”
Cody back in real-time. Looking back at articles like this one from May 4, 2023 where we were still pretty bearish on the markets because of the banking crisis and the Fed’s mishandling of the same is helpful because we still ended the article by noting that we were buying Rocket Lab below $4 (in addition to the other space stocks) and UPWK at $8: “We have been slowly adding to our basket of beat-up space stocks like BKSY, RDW, and RKLB (when its below $4).
Lastly, we have been building up a small position in UPWK after it has been absolutely crushed this year. The company reported a pretty good quarter last night and the stock crashed initially but bounced back quickly. For those that don’t know, UPWK is the leading online freelancing platform and is used by many large corporations to hire high-skilled talent for web, mobile & software development, content creation, technical writing/editing, sales & marketing, accounting, engineering, etc. The stock has been beaten up lately on fears that corporate cost cuts will disproportionately reduce total spending on freelancers. Additionally, there is the fear that many of the services formerly hired on UPWK like content creation, writing, etc. will be eliminated by ChatGPT and other generative AI platforms. However, we like UPWK because it is a revolutionary platform play, has already achieved a critical mass of users, and is one of the few cloud/software companies out there that is trading at a reasonable valuation and still has some growth potential. We are nibbling on some shares around $8 and will add more if it drops from here.”
Uber at $31 on February 1, 2023: “At roughly 7.6x our year-three (FY 2026) earnings estimates, UBER presents a compelling value with a secular growth story, coupled with near-term upside potential as UBER continues its march toward market dominance in its ride-hailing and delivery businesses. Our position is further supported by UBER’s position as a platform company; a platform which in our view has already reached critical mass with its substantial user and driver bases. With a view to the long-term, UBER presents attractive upside potential with its overwhelming focus on becoming the market leader in autonomous vehicle (“AV”) mobility and its advanced utilization of AI in its existing technology.”
Wolfspeed at $46 on April 27, 2023: “First off, let me mention that we are picking up a little bit of Wolfspeed pre-market with the stock getting hit this morning. WOLF actually beat topline and bottom line estimates for the quarter but the market is punishing the stock because management lowered their FY24 revenue guidance down to $1.0-$1.1bb from $1.6bb. The reason for the reduction in full-year revenue is because of the delayed ramp of 200mm wafer production from their new Mohawk Valley fab. While the company was actually able to ship the first material from this new fab, they are having supply-chain issues which will keep their production low this year. Essentially, the revenue the market was expecting to see in FY24 won’t materialize until FY25. However, this is long-term bet for us and the company made clear that the demand for SiC chips is on the rise. Both automotive and non-automotive design-ins are through the roof with the cumulative total design-ins now at around $18bb with $1.7bb new design-ins in Q3 alone. WOLF is making a revolutionary new type of semiconductor that is more efficient and powerful than traditional silicon chips. Even with the 1-year delay in the ramp of the new fab, we still have WOLF at roughly an 11 P/P 3 years out and 2.7 P/P 5 years out. While the company will need to raise another $1bb in cash this year to continue the ramp of the new fab, we are confident that they can secure additional financing. Remember this is still a somewhat speculative investment and we don’t want to rush into this even with the stock down big.”
Rockwell at $220 on July 21, 2022: “And I’ve just started building a full-sized position in Rockwell Automation ROK, a company that focuses on Smart Manufacturing. I’ve got a spreadsheet full of names but this is the only that I’ve warmed up to so far as both its valuation seems compelling at 9x my 2025 profit estimates, with double digit topline growth and very strong marketplace positioning in several subsectors. The stock has been moving up in a straight line for the last week or so as I’ve just been finishing up my homework on the name and I’d welcome the chance to scale into a larger sized position if it will come back down towards its recent 52-week lows. I’d also mention that I’ve decided to sell the other half of my Roku. I guess you could say I’m dropping the U in ROKU as I swap ROKU stock for ROK stock. See, The Streaming Revolution in 2022 isn’t new or burgeoning in the way it was back a decade ago or fifteen years ago when I was hard at work learning how we would eventually invest in it. I’d rather look for the next, still-unrecognized trillion dollar market place. ROK‘s better positioned for more potential upside while being a less crowded investment than ROKU. INTC’s better positioned with more potential upside while being a less crowded investment than NFLX is. I’ll write more about Rockwell in coming weeks.”
That does it for now folks. And don’t forget, let’s do this week’s chat on Thursday 7/20, at 1:00pm EDT in the TradingWithCody.com Chat Room or just email us at support@tradingwithcody.com.
