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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
Stocks

Lumen Tech (LUMN)

Lumen Tech (LUMN) $5.50 Cyclical,

Stock has appreciated a lot this year, 220%, but 5 year and 10 year stock returns were negative, because as a a Fiber Network Telco – it was a cyclical, commodity, capital intensive, high debt, low margin business. Sales have declined in the last 10 years by 21%.

What is different now – Corning and Microsoft has help it stave off bankruptcy, its debt load was too high for it to sustain its business, otherwise.

  • Lumen’s partnership with Corning for fiber network expansion will support business growth and increased free cash flow forecast for 2024; this may lead to debt rating upgrade and improved growth. Markets responded enthusiastically to the news, since Lumen significantly increased its capacity to key cloud data centers. AI has heavy workloads and uses high bandwidth applications since it involves massive amounts of data.
  • They have a similar customer supply deal with Microsoft.

I tend to avoid commodity cyclicals because they don’t have sustainable, recurring growth, you have to constantly watch over your shoulder, and in Telecom and Networks capital requirements are usually very high. Plus in Lumen’s case the stock has jumped for a bottom of $1, so much of the good news is in the price. If you decide to buy on a dip you may get a solid bump for a year or two, but not a long term great company. High Risk/High Reward for a year. If they continue to get more deals and AI network expansion continues yes this could be a good deal, but this industry is intensely competitive and price sensitive.

Categories
Stocks

Industrial cyclical – Caterpillar

Industrial cyclical – Caterpillar (CAT), Value stock Hold, Can buy on declines.

Has been a good value stock, returning 17% in the past year and 180% in the past 5 and 219% in the past 10, which is good for a cyclical barely growing revenues at 3% a year on average with peaks and troughs. Revenue and earnings estimates are also for low single digits for the next 3-4 years.

Positives

Increasing Service revenue stream will improve profit margins. They want to acquire more service companies and focus on this.

They did manage to increase prices this year, not an easy task unless your product is superior in this industry – good brand recognition.

Well diversified – lot of end user markets and customers from construction to O&G, and transportation.

They will also get more revenue from AI – data center buildouts.

Negatives

  • Economic Headwinds: Global challenges like Europe’s manufacturing recession and China’s weak housing market could impact CAT’s performance, plus the US’ chances of a recession have now increased above 30% following a softer jobs market.
  • Cyclical Nature: Despite diversification, its core industries are still cyclical, exposing CAT to economic downturns.
  • Valuation Risks: The current stock price reflects much of its potential, potentially limiting the upside if we do not get a rebound in cyclical growth.
Categories
Stocks

Robin Hood (HOOD)

Robin Hood (HOOD) $17.73 HOLD – Its trading at a premium to its peers, will take another look if the price drops significantly. 

Positives

Has a decent strong hold with retail trading community, a preferred broker to those who started trading during the pandemic – First Mover advantage.

Wide offerings in crypto trading and services – crypto is the largest revenue stream.

Negatives

Cyclical, commodity, not much difference between brokerages, at one time commission rates used to be a differentiator, then it was ease of online trading, which was a a small differentiator for Robin Hood when it took of during the pandemic, now every one catering to retail seems to be on par.

  • Interest rates from the customers float drive a big chunk of revenue, and a large recessionary rate cut would likely erase most of that revenue segment.

Too much exposure to crypto volumes tank when crypto is down

Valuation

The stock is trading at a premium to its peers like Interactive Broking IBKR, which doesn’t seem justified.

Categories
Stocks

Intuitive Surgical (ISRG)

Intuitive Surgical (ISRG) $449 – Good company, I would Hold for a better price.

The company’s primary product offering is the Da Vinci Surgical System, which enables complex surgery using a minimally invasive approach. 

Positives:

Recurring, and sustainable revenues – The majority of Intuitive Surgical’s revenue comes from instruments and accessories delivered to existing customers. These items are frequently replaced and provide a recurring revenue stream. Customers tend to be also “lifetime” customers of its instruments, accessories, and services, which includes maintenance, service contracts, and training provided to hospitals and surgical centers. This generates a flywheel effect. 

There is a long-term trend favoring minimally invasive surgeries, technological/AI advancements, and improved patient outcomes.

The new Da Vinci 5, their flagship product could jump start another major product upgrade/replacement cycle.

Market leadership, innovation, great cash flow and operating margins of over over 25%, because for the past 10 years there was little competition.

Negatives

Competition has picked up with Medtronic’s Hugo Surgical System and Johnson & Johnson’s Verb Surgical. Verb develops similar invasive surgical robots such as the Da Vinci robots. Verb developed the robot in collaboration with Verily, which is backed by Alphabet with its  enormous capital. Right now their surgical robots are currently still in development, but once approved, Intuitive Surgical could face significant headwinds.

Valuation – ISRG deserves a premium for market leadership, innovation, great cash generation and sustainable revenues but the big risk is the stretched valuation. We’re paying 19x sales for 16% growth, and ISRG’s past 10 year growth has been only 14%, even as a quasi monopoly in their field. The biggest gain has come since Nov 2023 when the stock was at $250, that’s an 80% run up. Getting in at this price means forward returns could be muted – it would make sense to wait for a decline.