MARKET OUTLOOK
Overall, 2021 was a good year for investing. The broad market indexes performed well, with the S&P 500 up 26 per cent year to date. However, it was a difficult year for growth investing, with the informal growth index ARK Innovation down 22 per cent year to date. Under the portfolio management of Black Swan Dexteritas, the BSD Global Tech Hedge Fund looks to register a small single digit gain, while our Separately Managed Accounts [SMA], all performed with returns either side of 20 per cent.
It has been a volatile five weeks for the Nasdaq, since BSD’s late November, 2021 appearance on the Market Call show; with weekly moves of -3.5 per cent, -2.6 per cent, +3.6 per cent, -2.9 per cent, and +3.2 per cent. To put this recent volatility into perspective, the last time the Nasdaq experienced back to back to back to back weekly moves of 2.5 per cent or more was more than ten years ago in October 2011 and before that March 2009. While it has been a long time since the last five-week streak of 2.5 per cent+ moves, the current streak is nowhere near a record. Back during the Financial Crisis and then again two other times right around the dot-com peak, the Nasdaq experienced 2.5 per cent weekly moves for a record ten straight weeks!
In this environment, we have positioned the BSD Global Tech Hedge Fund with the expectation of more market volatility; the Fund is 91 per cent invested across a couple dozen tech vendors and tech end-users, with a 70 per cent short equity indices hedge on the invested stock portfolio, that will incrementally grow (with a ‘laddered’ Nasdaq put option position) if the market deteriorates.
Taking a longer-term view, growth dramatically outperformed in 2020 and will likely outperform again at some point in the future. Even so, many smaller to medium sized high growth companies’ valuations look stretched and earnings and revenue growth in 2022 will not be enough for most of these small to mid-cap companies to overcome the contracting valuations that traditionally come with rising interest rates. So for 2022, BSD is balancing larger high growth tech investments with the protection of a short equity indice overlay to protect against significant corrections.
TOP PICKS
PT - US$195.80 Market Cap - US$43.53B Price - US$149.56
- Founded 2004
- IPO September 17, 2020 @ $13.7B valuation
- Most known for their game development platform “Unity”
- They initially targeted development for mobile gaming in 2007, before moving on to supporting console and pc
- Their competitive advantage comes from their platform’s extensive tool kit which allows creators with little to no technical knowledge to program games and simulations
- Tools for game development range from a development environment, simulation environment, crash management platform, monetization toolkit, and cloud content delivery
- Other area of business includes Industrial applications (VR, simulator, visualization)
- Recently partnered with Apple to update Unity to run on the new M1 chip
- Recent acquisitions:
- March 2020: Artomatix, AI material creation tool
- December 2020: MLAPI, multiplayer networking framework
- December 2020: RestAR, Deep learning company
- 30 Days performance: -12.19 per cent 100 Days performance: + 17.25 per cent
- Buy one-third of a position here at ~ US$149.56 add at ~ US$142.08 and ~ US$134.60
PT - US$314.69; Market Cap - US$47.87B; Price - US$210.32
- CRWD provides cloud-delivered solutions for endpoint and cloud workload protection.
- It offers 19 cloud modules on its Falcon platform through a software as a service subscription-based model that covers various security markets, such as corporate workload security, security and vulnerability management, managed security services, IT operations management, threat intelligence services, identity protection, and log management.
- CRWD recently introduced a new module – cloud workload security – which expands Crowdstrike’s TAM.
- According to Gartner it is the most visionary vendor and only second to MSFT in its ability to execute
- This discount doesn’t seem warranted if you are looking at the numbers only, which are quite extraordinary in terms of growth and improving profitability
- Recently acquired Humio, a data storage and analysis platform.
- Adding several small and medium sized businesses to their client list.
- It’s worth owning at the moment but it is not a buy, hold & forget stock; it should be monitored closely
- 30 Days performance: -6.35 per cent; 100 Days performance: -18.34 per cent
- Buy one-third of a position here at ~ US$210.32 add at ~ US$199.80 and ~ US$189.29
PT - US$115.72; Market Cap - US$244.09B Price - US$89.25
- Oracle Corp. engages in the provision of products and services that address all aspects of corporate information technology environments. It operates through the following business segments: Cloud and License, Hardware, and Services. The Cloud and License segment markets, sells, and delivers applications, platform, and infrastructure technologies. The Hardware segment provides hardware products and hardware-related software products including Oracle Engineered Systems, servers, storage, industry-specific hardware, operating systems, virtualization, management and other hardware related software, and related hardware support. The Services segment offers consulting, advanced support, and education services.
- While the company has been in the news for Tik Tok, we think Oracle presents a robust long-term play.
- In addition to OCI becoming accepted by the industry, the company’s Cloud@Customer has shown promise to help accelerate overall growth.
- Cloud@Customer is also likely to help tide over Oracle’s legacy business growth pangs by offering the on-premise customers a chance to update their on-premise databases to Oracle’s Autonomous Database.
- The visible sales momentum across businesses gives us confidence that the company can deliver stellar returns over the next few quarters
- After not making a meaningful acquisition for several years, Oracle announced lastly its intention to acquire Cerner Corporation, a leading healthcare IT provider, for $28.3bn, or $95/share, in an all cash offer. As per the company, Oracle expects: 1) the acquisition to close in CY ’22, 2) the transaction to be immediately accretive to non-GAAP EPS in the fiscal year in which it closes and 3) for Cerner to contribute to top-line and EPS growth in the years following the deal. Over the last 12 months, Cerner has generated $5.1bn in revenues with non-GAAP operating margins of 21 per cent. Oracle generated $41bn in revenue and has averaged a non-GAAP operating margin of 47 per cent over the same time period.
- 30 Days performance: -3.97 per cent; 100 Days performance: + 3.57 per cent
- Buy one-third of a position here at ~ US$89.25 add at ~ US$84.79 and ~ US$80.33
DISCLOSURE PERSONAL FAMILY PORTFOLIO/FUND U Y Y Y CRWD Y Y Y ORCL Y Y Y
- Buy one-third of a position here at ~ US$89.25 add at ~ US$84.79 and ~ US$80.33
PAST PICKS
Telefonaktiebolaget LM Ericsson (ERIC:UW)
- Then: US$11.73
- Now: US$10.92
- Return: -7 per cent
- Total Return: -5 per cent
PT - US$14.76; Market Cap - US$332.79B; Price - US$10.96
- 5G growth accelerating and seen as Ericsson's fastest growing cellular technology ever: In the consumer space, the company highlighted the rollout of 5G enabled phones by Apple as key in driving consumer uptake of the technology and thus rollouts by telcos. Ericsson highlighted that it believes 5G will be the backbone for digitalisation in enterprise use cases so as to help telcos drive more revenue growth.
- Ericsson believes its pending acquisition of Cradlepoint is important as it strategically builds a position in the Wireless WAN area given Cradlepoint is a market-leader in the space. Ericsson believes wireless WAN will no longer be a backup solution in a 5G world, but rather a key building block for enterprise ambitions.
- Revenues driven by 5G rollout in N America: North America is strong on the back of 5G rollouts. The company continues to win footprint in Europe, contributing to good growth even with the market declining, resonating with our view of share gain potential. While Africa and LATAM were weaker, overall organic growth ex-FX was strong at 13 per cent yoy for the Networks segment.
- They have 4 main business segments: Networking, Digital services, managed services, and emerging business and other. Networking remains Ericsson’s primary business unit.
- Ericsson has agreed to buy Vonage Holdings Corp. for US$6.2 billion all-cash in its biggest-ever deal
- 30 Days performance: 6.41 per cent, 100 Days performance: -0.18 per cent
- Buy one-third of a position here at ~ US$10.96 add at ~ US$10.41 and ~ US$9.86
Alibaba (BABA:UN)
- Then: US$256.18
- Now: US$112.26
- Return: -56 per cent
- Total Return: -56 per cent
PT - US$193.80; Market Cap - US$312.76B; Price - US$115.09
- Operates in 4 segments: (1) Core Commerce, (2) Cloud Computing, (3) Digital Media and Entertainment, and (4) Innovation Initiatives.
- Cross-selling capability remains key competitive advantage
- Ongoing business transformation. Alibaba has been transforming its business from an online distribution platform to a technology enabler for online merchants via effective use of AI and big data. Driven by ongoing development of various value-added solutions, Alibaba’s revenue mix has been improving with revenue contribution from emerging businesses, such as consumer services and cloud computing, has been rising.
- The e-commerce giant and its Chinese tech rivals have been the target of a wide-ranging regulatory crackdown on issues ranging from monopolistic behaviour to consumer rights. Alibaba was fined a record $2.75 billion in April over monopoly violations.
- Alibaba will invest 100 billion yuan ($15.5 billion) by 2025 in support of ""common prosperity"", it said, becoming the latest corporate giant to pledge support for the initiative driven by President Xi Jinping.
- 30 Days performance: -12.55 per cent; 100 Days performance: -24.03 per cent
- Buy one-third of a position here at ~ US$115.09 add at ~ US$109.34 and ~ US$103.58
- Then: US$221.02
- Now: US$342.56
- Return: 55 per cent
- Total Return: 56 per cent
PT - US$383.69; Market Cap - US$2,578.73B; Price - US$343.64
- Microsoft continues to demonstrate the uniqueness of its enterprise IT reach and positioning with its Azure and Server and Tools footprints. We see the benefits from Microsoft’s bring your own license program (Azure Hybrid Benefits) as being a solid driver of Enterprise Agreement renewals and Azure adoption with partners noting continued strong net expansion trends with our view that this momentum will continue to build throughout FY20 and beyond.
- Productivity and Business Processes segment offers Office, Exchange, SharePoint, Microsoft Teams, Office 365 Security and Compliance, and Skype for Business, as well as related Client Access Licenses (CAL); Skype, Outlook.com, OneDrive, and LinkedIn; and Dynamics 365, a set of cloud-based and on-premises business solutions for organizations and enterprise divisions.
- Intelligent Cloud segment licenses SQL, Windows Servers, Visual Studio, System Center, and related CALs; GitHub that provides a collaboration platform and code hosting service for developers; and Azure, a cloud platform.
- Commercial cloud, which is a superset of Azure, including commercial Office 365, LinkedIn and Dynamics accelerated by 200 bps sequentially to 31 per cent yoy cc growth reaching nearly US$80bn run rate
- Microsoft guided F1Q22 to a revenue range of $43.3bn - $44.2bn (+17 per cent to +19 per cent yoy reported, expected ~200bps FX tailwind), which compares to consensus prior to the print of $42.5bn (+14 per cent yoy). On a segment basis, the company guided to the following:
- Productivity and Business Processes: $14.5bn - $14.75bn (+18 per cent to +20 per cent y/y reported, expected ~200bps FX tailwind)
- Intelligent Cloud: $16.4bn - $16.65bn (+26 per cent to +28 per cent y/y reported, expected ~200bps FX tailwind)
- More Personal Computing: $12.4bn - $12.8bn (+5 per cent to +8 per cent y/y reported, expected ~200bps FX tailwind
- 30 Days performance: 2.08 per cent; 100 Days performance: 16.77 per cent
- Buy one-third of a position here at ~ $343.64 add at ~ $326.46 and ~ $309.28
DISCLOSURE PERSONAL FAMILY PORTFOLIO/FUND ERIC Y Y Y BABA N N N MSFT Y Y Y
Total Return Average: -1.6 per cent
Website: www.blackswandexteritas.com
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