A Brutal Week in the Market

Bogle founded The Vanguard Group

There’s no way to sugar coat this, but my portfolio is down big over the last two weeks.

-$21,000

There are three reasons.

Rotation Out of Growth Stocks

Investors moved out of the stay-at-home stocks such as Amazon (AMZN) and into reopening stocks such as Royal Caribbean Cruise Lines (RCL) which reported a 30% increase in bookings.

Okay, let’s have a bit of perspective. The cruise line industry is grounded. Carnival Cruise Line (CCL) announced that it will not sail before June 2021.

Is there money to be made in the sector? Considering that RCL, for example, was down 36.9% last year it is a fair assumption that the stock has nowhere to go but up. Even so, the cruise line industry underperformed the broader market even before the pandemic.

Amazon has a 32.64% upside over the next twelve months while Royal Caribbean Cruise Lines has a 20.42% downside.

It should be noted as well that cruise line stocks have moved higher because the GameStop (GME) crowd are betting on the sector. Outside of a headline there are no technical reasons to speculate on these companies. GameStop, by the way, has an 85.42% downside over the next twelve months.

Rising Yield

Treasury yield rose to its highest level (1.614%) since February 2020. Bond prices move opposite yield which caused the bond market to retreat. Higher yields make stocks seem expensive particularly the soaring tech stocks which gave back about 5% last week. Because my portfolio is heavily weighted towards the tech sector those positions were hardest hit.

Gamblers Are Causing Volatility

Charlie Munger, vice chairman of Berkshire Hathaway and Warren Buffett’s close partner said last week:

“It’s really stupid to have a culture which encourages as much gambling in stocks by people who have the mind-set of racetrack betters … It’s a dirty way of making money.”

Munger was referring to the social media inspired Robinhood investors who have been bidding up the price of meme stocks like GameStop and AMC Entertainment (AMC).

Robinhood spokeswoman Jacqueline Ortiz Ramsay wrote in response to Munger:

“To suggest that new investors have a ‘mind-set of racetrack [betters]’ is disappointing and elitist. It should be celebrated that we are seeing market investors begin to diversify, and that education and awareness about the values of investing are diffusing further into previously untapped generations.”

Except that the volatility seen in GameStop is speculation not investing. Shares are bid up one day and sold the next. It could almost be compared to a Ponzi scheme. If a trader is on the wrong side of the curve they could lose a lot of money.

Congress and the SEC are investigating, but my opinion has always been that speculative trading — including short selling and options — should be illegal. This type of activity wreaks havoc on long-term buy and hold investors like me.

Trade Alerts

Last week presented an opportunity to buy stocks on sale. I added seven new positions.

Nvidia (NVDA): I sold this stock last month because it was underperforming. The company crushed its earnings and revenue estimates last week, but the stock went down. I bought the shares back on falling prices. They closed Friday up $16.28 (+3.06%).

Novavax (NVAX): I owned this stock last year when it was competing with Moderna (MRNA) to develop a Covid vaccine. Both stocks fell after preliminary test results were mixed. Shares had been up about $8,000, but I sold NVAX at a loss while MRNA was reduced to a modest $400 gain.

Etsy (ETSY): This stock was on my watchlist last summer when shares were priced around $70. I wanted to buy, but there were other opportunities. The stock closed Friday around $220. Big mistake to let this one slip by. Etsy is an online platform for selling arts and crafts. Amazon features an arts and crafts marketplace, but Etsy was already established.

Disney (DIS): I wanted to buy this stock at $150, but dropped the ball. At $200 it was not a buy, but shares dropped within the buy zone last week so I added a position. I sold Disney last summer after it had gone horizontal over the short term due to a period of consolidation.

Skyworks (SWKS): I owned this stock last year in anticipation of the 5G rollout. Shares have doubled since I sold. SWKS provides semiconductors for mobile communications systems. There’s lots of money to be made in 5G.

Maxlinear (MXL): The company, like SWKS, is engaged in the 5G semiconductor business. I never heard of this company until Friday when all of the technical indicators began flashing green. 100% Strong Buy according to Bar Chart.

TechTarget (TTGT): Investor’s Business Daily ranks this stock #1 on its list of Hot Growth stocks. The company engages in Information Technology.

My portfolio as of the end of February 2021 is displayed in the graphs below.  Stocks are listed in order of market value beginning with Tesla (TSLA). Note that I took heavy losses in Tesla (-15.13%) and Invesco WilderHill Clean Energy ETF (PBW) (-15.35%).

However, I had previously cashed out of Tesla after it had gained 127%. The new position has been hit by stock rotation, rising yields and the company’s investment in Bitcoin.

PBW was already up 160% before Biden took office. It should continue to outperform as the new administration is favorable to the sector.

Roku (ROKU) (-7.63%) and Chipotle (CMG) (-6.52%) are down after last week’s quarterly reports. CMG missed on earnings while Roku actually posted a surprise profit.

The two Nasdaq ETFs are down because they are heavily weighted in the tech sector which sold-off last week.

Earnings Alert

Just added Novavax releases their quarterly earnings report on Monday, March 1st. We should learn from the conference call if their Covid vaccine is effective in late-stage trials. Studies are behind in the United States, but positive results from the U.K. and Mexico could prompt the FDA to issue Emergency Use Authorization. Also, the company is further along in developing a vaccine for mutated strains of Covid. The stock is up 116% since January. Big mistake to sell last summer.

Investing involves substantial risk. Past performance should not be considered indicative of future performance. No reader should make any investment decision without first consulting his or her own personal financial advisor and conducting his or her own research. SOAR does not offer licensed financial advice and is not liable for investment losses that may be incurred by the reader. This article is informational only and not a solicitation or offer to buy or sell any securities. Reader is wholly responsible for their personal investment decisions. The author has no position in RCL, CCL, GME or AMC.

Copyright © SOAR

Stock Rotation and Tracking Disney

 

Big money continues to rotate out of high growth tech stocks into areas of the economy that were hardest hit during the pandemic such as travel and leisure.

Beaten down stocks like airlines, cruise lines, hotels and amusement parks are receiving huge inflows of cash. Investors are looking to profit from the anticipated reopening of the economy. Stocks that are in focus include Southwest Airlines (LUV), Royal Caribbean Cruise Lines (RCL), Marriott (MAR), Wynn Resorts (WYNN) and Disney (DIS).

These cyclical rotations typically erase six months of gains from my tech-oriented portfolio. I just have to remain calm and focused because in the long-term my tech stocks will outperform other sectors of the market.

Downturns such as this are hard to stomach, but it presents an opportunity to buy quality stocks on sale. Amazon (AMZN) shares are down over $100, but does anyone believe that the company is going out of business as the economy reopens?

Nothing has changed in terms of market fundamentals. Amazon performed well before and during the pandemic, and will continue to grow in the post-Covid economy.

Investors are short-sighted. They are looking to make a quick buck. They play the market like it’s a slot machine. This creates volatility as they dump their winners to chase after the next big thing.

I’m a long-term buy and hold investor so I have to be patient in order to ride out the ups and downs of the market. The rotation will continue, but the growth story is not over. Investors would be wise to maintain a position in the stocks that kept the economy alive during the lockdown. They are not going anywhere even as the service sector of the economy reopens.

Let’s Talk Disney

I bought Disney in 2019 when it broke out of a two-year horizontal pattern where it traded around $100. The stock met resistance at $150 so I closed my position. Then the pandemic hit and the stock fell to $79. They closed their parks and couldn’t screen their movies because theaters had shut down.

What I didn’t anticipate was the unexpected growth of their streaming service (Disney+) which launched in November of 2019. It shattered all of the technical forecasts and has kept the company afloat.

Disney+ (branded as Star) has just opened in Europe so we can expect subscriptions to soar adding to bottom line growth.

After the Covid crash last March, Disney stock roared back and tested $130. That caught my attention so I made a mental note to buy the stock back if it broke above $150. I really didn’t expect it to do that before the end of the year, but in December it topped $175. Shares closed today at $197.09 up 2.78% for the session.

Investor’s Business Daily issued a buy alert between $183.50 and $192.68 which means the stock, as of today, is out of the buy zone. Still, I was feeling a sense of FOMO and thought of buying the stock this morning. The conservative price estimate is $175 so I think I’ll wait for a pullback if it comes. If not, then I made a big mistake not buying when I had the opportunity.

Click chart for clearer image

Earnings Alert

I mentioned last time that one of my core holdings, Square (SQ), would release its quarterly earnings after Tuesday’s closing bell.

The results are in.

Earnings per share (EPS) — 32 cents versus 24 cents forecast
Revenue — $3.16 billion versus $3.17 billion forecast
Gross Payment Volume — $32 billion versus $32.1 billion forecast

Those numbers are pretty much inline, but close enough is not good enough for the Street. Although, that is not always the case. Why, I don’t know, but sometimes a stock will go up even when it misses on the forecast. On that point, investors did not like that the company would not offer a forecast for the rest of the year.

But there was an even bigger concern — Square’s investment in Bitcoin.

As payment processors, both Square and PayPal (PYPL) have staked an interest in Bitcoin which allows their customers to pay with digital currency. Bitcoin, however, is a volatile instrument which concerns investors.

Elon Musk announced that his company, Tesla (TSLA), has also invested in Bitcoin. In fact, the company has earned more from Bitcoin than selling cars.

The price movement in these stocks is closely linked to the volatility in Bitcoin which makes investors uneasy.

Shares of Square were down 4.33% in the regular session, and have fallen an additional 5.67% in after-hours trading.

On the positive side, shares are up 212% over the past year. One analyst raised the price target to $380 which suggests a 49% increase over today’s closing price of $256.59.

I added to my position last week. Square operates in the fintech sector of the market.

Click chart for clearer image

Investing involves substantial risk. Past performance should not be considered indicative of future performance. No reader should make any investment decision without first consulting his or her own personal financial advisor and conducting his or her own research. SOAR does not offer licensed financial advice and is not liable for investment losses that may be incurred by the reader. This article is informational only and not a solicitation or offer to buy or sell any securities. Reader is wholly responsible for their personal investment decisions. The author owns shares of Amazon, Square, PayPal and Tesla.

Copyright © SOAR

What Goes Down Must Go Up

I mentioned last time that one of my core positions is Five9 (FIVN). The company is a cloud-based call center. The stock followed the broader market closing down $23.69 (-12.44%) in today’s regular session. I took heavy losses on news of rising bond yields.

Bonds sold off putting downward pressure on stocks. Bond prices move opposite the yield. Stocks are affected because rising interest rates make safer income investments more attractive. Investors are a fickle bunch. They are always chasing yield which causes volatility and wreaks havoc for buy and hold investors like me.

However, it is an opportunity to buy stocks on sale, or as Buffett said, “Buy on fear”.

The good news is that Five9 released a positive earnings report after the closing bell. Revenue was up 39% year-over-year to $127.9 million beating the Street’s expectation of $115.3 million.

Earnings per share (EPS) came in at 34 cents versus the 23 cents forecast by analysts.

Five9 Lifts Guidance

For the current quarter, the company expects revenue of $122-123 million, and EPS from 12-14 cents That compares to consensus for $116 million and 12 cents per share.

For the full year, the company sees revenue in a range of $518.5-521.5 million, and EPS of 75-79 cents. That compares to consensus of $451.5 million and 84 cents per share.

Investors cheered the news. In after-hours trading, the stock is up over 9%.

Five9 belongs to the highly ranked cloud computing sector. My shares are up 23.7%. I added to my position last week.

Click graph for clearer image

Psychology of Investors

So the stock took a beating in the regular session, but is up after-hours. I think that too many investors are afraid of their own shadow. I mean, the market will go up or down depending on who won the Super Bowl.

Five9 is the same company this evening that it was during the day yet the stock sold off during the regular session.

It oftentimes appears that fundamentals don’t matter — that the market is driven by emotion both euphoria and fear. Investors make decisions based on headlines and rumors.

And something that I simply don’t understand is that a good report does not always move a stock higher. Investors might actually think the report is too good. Like, how can they top themselves next quarter?

Earnings Alert

Another of my core positions, Square (SQ), reports tomorrow after the closing bell. Square competes with PayPal in the payment processing sector. My shares are up 52.34%. I added to my position last week.

Investing involves substantial risk. Past performance should not be considered indicative of future performance. No reader should make any investment decision without first consulting his or her own personal financial advisor and conducting his or her own research. SOAR does not offer licensed financial advice and is not liable for investment losses that may be incurred by the reader. This article is informational only and not a solicitation or offer to buy or sell any securities. Reader is wholly responsible for their personal investment decisions. 

Copyright © SOAR