Fountainheadinvesting

Fountainhead Investing

Menu
Menu

Category: Stocks

Categories
Enterprise Software Stocks

Taking Profits In Palantir (PLTR)

Palantir (PLTR) (Enterprise Software) $32.50 to $33 Sell or take profit. 

Overpriced and the 8% jump on S&P inclusion is over done and unjustified: sell or take profit.

Enterprise software is a tough market as we’ve seen with the likes of Snowflake, and Palantir is completely overpriced at 25 x sales at 22% growth – that cannot sustain.

The enterprise software sector is seeing macro uncertainty. Palantir is an excellent company and perhaps one of the few that is showing AI monetization. Its commercial segment is growing very fast and has an impressive pipeline, however PLTR trades at incredible valuations that are difficult to support even using aggressive assumptions.

I had recommended and bought the stock in the $16-$17 range and don’t see good returns at these levels for the next three years. Even given a generous P/S ratio of 14 for 2028 sales of $6Bn, we get a market cap of $78Bn, just $10Bn more than the current $68Bn – implying a total gain of just 14% in 4 years. Not worth the risk.

Categories
Aerospace Stocks

Boeing Is Still Volatile

Boeing (BA) (Aerospace)$175 – Hold for now, signs of improvement suggest buying on declines but do expect some near-term volatility in the stock prices.

Despite challenges, Boeing is showing signs of improvement in order inflow and production rates for the Boeing 737 MAX, shaping up for a promising balance of the year.

The problems on the Starliner – space exploration was very expensive, painful and a huge burden, which is still continuing. Boeing’s space adventure might be close to over regarding transportation of payloads and crews into space.

Kelly Ortberg, like any CEO, has to prove himself worthy of the CEO position of The Boeing Company. It would be unrealistic to expect that with Ortberg now in the CEO role, things will change overnight.

However, I do believe without focusing on the financials and granted that the FAA and Boeing remain focused on safety and quality, the airplane orders and deliveries will tell a story about how Boeing is progressing on its core principles. The orders tell a story about confidence in Boeing, while deliveries tell a story about the ability of Boeing to increase production at the quality standard that is required and desired.

Categories
AI Stocks

Alphabet Antitrust Ruling

Alphabet (GOOG) (AI) $164

Yes, I did recommend Buying around $140-160. I own some and last bought in the mid $150s. 

The anti-trust judgement has hurt but lets look at some possible outcomes. The judge is still deciding about remedies and this in my opinion a Behavioral Remedy is a likely one. 

  1. He would ban the The Internet Services Agreement (ISA) between Google and Apple, wherein Google pays Apple a share of its search ads revenue in exchange for Apple preloading Google as the exclusive, out-of-the-box default GSE on its mobile and desktop browser. 
  2. There will likely also be restrictions on auction pricing, since this was clearly abusive.
  3. The proposal that Google not prefer its own services in search results will also likely be adopted.

This cost Apple roughly $20Bn in 2022. But as Eddie Cue from Apple stated” “No price that Microsoft could ever offer Apple to make the switch, because of Bing’s inferior quality and the associated business risk of making a change. I don’t believe there’s a price in the world that Microsoft could offer us. They offered to give us Bing for free. They could give us the whole company.”

Pretty strong words! We would end choosing Google Search anyway….

This cost Apple roughly $20Bn in 2022, but Google saves this money on Traffic Acquisition Costs. In the near term, I think Google comes out ahead, although the top line could see some decline as some folks choose another Search Engine. Loosing the search monopoly but still being a more profitable market leader.

If the judge suggest breaking up the company – then yes, its not so straightforward, and it will likely tank on the day of the news, and we’ll have analyze it from a different angle – simply because Search is the cornerstone of their entire business. But then there are the inevitable appeals.

I’m holding for now.

Categories
Retail Stocks

Dollar General Drop May Not Be Enough

Dollar General (DG) (Retail) $87 – Down 30% on weaker than expected numbers, avoid till we see some improvement.

Dollar General’s growth has been tepid at 4%, which is not surprising given its customer base that is highly exposed to inflation – their core customers are financially constrained. But what is even more worrying is that comparables or same store sales growth (best measure for retail/restaurant chains) was a even lower 0.5%. Perhaps the brains trust should not have been expanding stores in a difficult environment. That has hit profitability – down 20% as well.

  • Rising competition from Walmart, Aldi, and ultra-low-cost brands like Temu further challenges DG’s business model, especially in non-food categories.
  • Sentiment indicators suggest that sentiment for the poorest third of Americans is at levels we saw during the bottom of the Great Financial Crisis – not a good place to be.
  • Is the 30% drop enough? Guidance doesn’t seem to suggest so – The company sees net sales growth between 4.7%-5.3%,  down from previous expectations of 6.0%-6.7% growth. Same-store sales are expected to grow by no more than 1.6% – adjusted 1.1% lower. . 
  • The other problem with DG is that even on a historical 10 year the stock has returned only 38%, so you have to be really careful about buying it at the right price. I would wait to see some improvement.
Categories
Aerospace Stocks

Joby Aviation (JOBY)

Joby Aviation (JOBY) Aerospace

This is good news for JOBY.

https://seekingalpha.com/news/4145245-joby-aviation-pops-after-report-of-a-deal-with-virgin-atlantic?mailingid=36570770&messageid=2900&serial=36570770.7928&source=email_2900&utm_campaign=rta-stock-news&utm_content=link-1&utm_medium=email&utm_source=seeking_alpha&utm_term=36570770.7928

Categories
Alternative Energy Stocks

Canandian Solar (CSIQ)

Canandian Solar (CSIQ) 13.50 Hold – solar will see some benefits from lower interest rates as a sector, but it may be better to look at stonger US based companies, though.

Revenues have grown every year at single digits and it has ben profitable 2.96 to 7.61, profitable every year. The stock is down over 40% in the past 12 months and  negative in the last 5-10 years. 

Positives

Interest burden will come down with lower rates, after Powell signalled a lower interest rate regime from the next meeting.

They have a decent enough presence in the US markets and should there be more emphasis on renewable energy this will benefit.

Negatives

Solar panel producers face a glut from Chinese suppliers and this year was no different, plus Canadian was selling to the Chinese market, which was slow. It is a Chinese company even though the name is Canadian –  I suspect valuations will tend to be lower. 

80% of CSIQ’s solar manufacturing capacities are based in China and ~15% in Southeast Asia, with CSIQ already facing additional import duties beginning June 2024, attributed to the ongoing EU and US trade ban surrounding Chinese-made polysilicon products.

Lot of debt like most solar panel producers.

Customers struggle with financing of solar panels at their homes because of  high interest rates, particularly in the U.S. Solar loans are now around 9% after being around 4% for many years.

Categories
Biotech Stocks

Crisper Therapeutics (CRSP)

Crisper Therapeutics (CRSP) (Biotech) $48 High Risk/High Reward, 

Buy if you have the appetite for gene therapies or biotech companies.

  • Among the gene therapy/biotech companies, Crisper started with the most promise even reaching $199 at its peak. In a risky segment, Crisper has a better chance than most of its peers.
  • Positives
  • Cautious optimism following FDA approval for gene therapy targeting sickle cell disease.
  • Financial health of CRISPR is strong, with over 5 years of cash runway, but stock performance has lagged behind S&P 500 returns – stagnant, but in this industry its usually negative.
  • CRISPR’s partnership with Vertex Pharmaceuticals mitigates some operational risks associated with gene therapy.
  • Extensive pipeline including regenerative medicines (e.g., diabetes), in vivo approaches, immuno-oncology, and autoimmune targets 
  • Negatives
  • Given the uncertainties, CRISPR Therapeutics stock may not get a decent valuation till commercial success is evident.
  • Establishing niches in chronic and complex indications such as lupus appears to be a challenging task. 
  • Q2 2024 earnings revealed slow commercialization of Casgevy, with revenues significantly below expectations.
Categories
Enterprise Software Stocks

Intuit (INTU)

Intuit (INTU) $620 (Enterprise Software)

Buy on declines and hold, its expensive now but pays off in the longer term.

Intuit has never been cheap, always commanded a premium, so if you don’t get a decent return in the first year, the 5 and 10 year returns have been excellent at 142% and 706%, that’s around 19% and 23% per year.

I owned it for several years before cashing out and didn’t get a chance to buy back

Good growth, solid product line 80+% share of small and medium business accounting with QuickBooks. TurboTax is another market leader with 50% market share in their category.

Credit Karma and Mailchimp round out syngertistic product lines.

They will continue to grow revenues around 12% and earnings around 14% for the next 5 years.

Categories
Shipping Stocks

Zim Integrated Is A Cyclical Dependent On Freight Rates

ZIM Integrated (ZIM) $23 (Shipping) 

Highly Cyclical dependent on freight rates. 

The short-term pop may continue for a while, I’m not investing in it because it’s too cyclical and difficult to predict freight rates, which are again tied to the global economy. 

This year is very good based on increased freight rates and the return of the dividend. Dividends return after higher freight rates, higher shipping volume, and lower fuel costs. 

Management said it now expects $2.6 billion to $3 billion in adjusted earnings before interest, taxes, depreciation and amortization for 2024, up from a previous range of $1.15 billion to $1.55 billion. 

During the second quarter, ZIM (ZIM) swung to a profit of $373 million, or $3.08 a share, from a loss of $213 million, or a loss of $1.79 a share, a year earlier. 

ZIM’s (ZIM) board declared a cash dividend of approximately $112 million, or $0.93 a share, payable on Sept. 5. 

In terms of downside risks, as aforementioned, ZIM’s underlying business is highly cyclical and responds sensitively to shipping rates. To wit, the rates were mostly in the range of $2,000 to $4,000 a year ago per 40-foot container. These rates have climbed substantially since then and peaked in the $8,000 to $10,000 range recently. 

There haven’t been enough improvements in 2-3 year forecasts which are still negative for sales and earnings, so definitely not a long term investment.  

Categories
Stocks

Cisco Has Potential And Is Taking Steps In The Right Direction 

Cisco (CSCO) $48.50  

I’m holding for now, let’s see progress on the new “Platformization” initiatives. 

The stock was flat for the last 5 years, but did return about 7% per year for the last 10 – no surprise. The past year its down 9%. 

As the older lumbering incumbent in networking, it was relegated to a commodity cyclical, more product sales instead of the bigger projects that Arista stole from under their nose with Microsoft and Meta, building out their platforms as a partner not as switch and routers or other networking gear seller. 

It will continue to grow in the low to mid-single digits for revenues and sales and the valuation too reflects that, so it’s not that underpriced to buy, and the job cuts mean they do want to increase the bottom line – but that’s not a growth story, then. 

This is a step in the right direction, basically getting to where Arista is now. 

“Management was clearly trying to message that the demand environment is returning to normal; Cisco will continue to shift investments towards AI, Cloud and Security that is resulting in a re-allocation of resources; the company is collapsing its product structure under Jeetu Patel as ‘platformization’ across categories is happening; and AI and datacenter modernizations are occurring,” said Piper Sandler analysts James Fish and Quinton Gabrielli, in an investor note. 

But, too little, too late? 

It’s going to be a show me story – there is enough growth in AI and datacenter, but everyone has or had their sights on it for a while now.