Trade Alert: WOLF, Covering Some Shorts, Nibbling Some Longs
“If you have a butt-kicking coming, take it and move on.” -Grandaddy Stearns (My grandfather-in-law/Bryce’s great grandfather, God rest his soul).
My job is not to make sure that every single investment/trade we ever do is profitable. My job is to maximize our upside through finding truly Revolutionary companies while trying minimize risk along the way, including selling losers when I lose faith in management.
We are moving on from Wolfspeed (WOLF) today after another disastrous quarter. As we’ve been saying, we wanted to give them one more quarter to execute on the ramp of the new fab and they have failed to do so.
We mentioned on July 5th that “Wolf had sold off hard to below $40 and now has rallied big off those lows. The company needs to execute and get their factories up and running and sell more product to get this stock higher. I’m anxious to see and hear their next earnings report in August.”
On June 13th we said “We have trimmed about 20% of our Wolfspeed position over the last couple of days. Again, we have been a little concerned about management’s ability to ramp production of SiC chips from the company’s new plant. The stock has made a huge, almost 50% move off of the lows and so we sold a little bit just to keep it from becoming an outsized position.”
Even though Wolfspeed started shipping materials in Q2, it only generated $1mm in revenue for the quarter from the new fab. The failure to get this fab running at greater capacity even after pushing the ramp out last year is disappointing and we do not have faith that they will get it pulled off in time to meet their customers’ demand. We are worried that at some point, all of these automakers and other customers who are designing products around SiC chips will move to one of WOLF’s competitors (like ON Semiconductor (ON) or NXP Semiconductor (NXP)) who are actually cranking out chips. Obviously, selling WOLF for a big loss sucks but as my grandfather-in-law would say, “We need to take this butt-kicking and move on.” We have a lot of extremely exciting Revolutionary companies in the portfolio that are far more deserving of our capital than WOLF.
A few other trades to tell you about. We covered the last of our Tesla (TSLA) short call hedges. TSLA is down from $290 to $222 in a straight line on worries around the price cuts and just general market weakness. Contrary to popular opinion, we actually get more bullish on TSLA when they cut prices because they are starving out all of their competition who are still selling EVs at negative gross margins. That said, we do have some near-term worries about the demand situation in China as we think there is probably some real pain ahead for the Chinese economy. Accordingly, we added to our Chinese EV shorts (Li Auto (LI), Nio (NIO), Xpeng (XPEV), and iShares Self-Driving EV ETF (IDRV)) to hedge the TSLA position.
We bought some more HOOD, BITO, and BLDE and covered some index short positions in SPY, QQQ, and SMH today. Also covered some COIN and GM. Finally, we picked up some calls on a few of our old favorite names that have been absolutely demolished since peaking in July. Those include Shopify (SHOP Sept. ’23 calls with $50, $56, and $57 strikes), Spotify (SPOT Sept. ’23 calls $125 and $140 strikes), and Unity (U Sept. ’23 calls $36 strikes). Keep in mind that these names are not necessarily cheap yet and could fall further, but we wanted to add some long exposure following the 30%+ declines we have seen in a lot of the high flyers lately.
Onward, upward. I’m actually getting very excited about the upside potential that is building in our portfolio as we navigate this current stock market pullback.
