Kim Bolton, president and portfolio manager of Black Swan Dexteritas

FOCUS: Technology stocks

MARKET OUTLOOK:

Global equity markets moved steadily higher in April, as investors were encouraged by rising consumer spending, rising earnings, and contained inflation, which all pointed to an accelerating global economy. More recently, growth technology stocks finally started to participate with the cyclical names. Market participants’ focus will remain short-sighted on the earnings season for the next couple of weeks, but come the middle of May and into June the focus will revert to macro-economic and political events.

We believe economic and corporate fundamentals will continue to improve beyond the coming quarter and year, but the rate of change will slow. The upcoming transition from recovery to expansion implies that we remain in the favourable part of the business and market cycles. However, equity returns are likely to moderate, and pullbacks are likely to become more frequent, consistent with mid cycle conditions. As a consequence, the stock markets will become more of a traders market, rather than a trending market.

We’re all hoping for a quick return to normalcy, but if the last year has taught us anything, things often only seem to get more unpredictable by the day. We have therefore positioned the BSD Global Tech Hedge Fund with the expectation of more market volatility; the Fund is 95% invested across a couple dozen tech vendors and tech end-users, with a 55 per cent short equity indices hedge on the invested portfolio that will incrementally grow if the market deteriorates.

The BSD credo – Prosperously navigating unexpected events with great skill and agility – defines our ability to outperform in these uncertain markets.

TOP PICKS:

VMWare Inc. (VMW NYSE) ($180.79  PT)

VMWare is a technology company which has expanded its offerings to provide cloud solutions, networking solutions, and virtualization. Dell technologies has an 81 per cent stake in VMWare which it will be spinning off in Q4 this year. VMWare has experienced an average growth in revenue of about 12 per cent since 2018. VMWare will rally driven by the inclusion of the company into several indices, the arrival of the new CEO, and beat-and-raise quarters driven by reopening of the datacentres. Multiple expansion will also be driven by the increasing mix of subscription and SaaS revenue.

Buy one-third of a VMW position here at ~ $160; add at ~$145; and at ~$130 .

Salesforce.com (CRM NYSE) ($276.18 PT)

Salesforce is the market leader in the CRM solutions space, with about a 20 per cent market share by revenue (more than No. 2 to No. 5 solution combined). Amazon and Microsoft’s reduction in the cost of cloud compute cycles have aided in the longevity of cloud technology, which has helped Salesforce maintain strong growth even as a ‘middle-aged’ company (IPO in 2004). We believe in the strong growth of the cloud SaaS space and Salesforce’s leadership in this space. Salesforce has grown strongly with revenue growth rates above 20 per cent for the past 10 years. They are aiming for $50B in revenue in the next few years, which sets the 20 per cent growth rate as a benchmark to achieve this year (2020 revenue of $21.3B).

Buy one-third of a Salesforce.com position here at ~ $220; add at ~$210 and ~$200.

Palo Alto Networks (PANW NYSE) ($447.65 PT)

Palo Alto Networks is a leading network security provider whose legacy on-premise business continues to perform relatively well as the network security market changes. Last quarter, their revenue was up 25 per cent year over year. Palo Alto Networks is aggressively developing/acquiring next-gen security solutions and successfully introducing them to the market, such as their AI powered threat detection solution “Cortex” which is used by 66 per cent of Fortune 100 companies. Their successful defense of the cyber attack on the SolarWinds Orion platform in December 2020 served as a catalyst for growth. The recent acquisition of Bridgecrew has also boosted their competitive posture.

Buy half of a Palo Alto Networks position here at ~$340; and, if lucky, the other half at $320.

PAST PICKS: May 6, 2020

Facebook (FB NASD)

• Then: $208.47
• Now: $315.45
• Return: 51%
• Total Return: 51%

ServiceNow Inc. (NOW NYSE)

• Then: $365.39
• Now: $480.15
• Return: 31%
• Total Return: 31%

Pluralsight Inc. (PS NASD) *Acquired by Vista Equity on April 7, 2021

• Then: $17.33
• 04/05/2021: $22.45
• Return: 30%
• Total Return: 30%

Total Return Average: 37%

UPDATES:

A)     Stock name   Qorvo Inc.  [QRVO   NASDAQ]

B)      Buy Price   USD $139.44    [July 20, 2020]

C)      Sell/Reduce price   USD $197.83    [April 26, 2021 ]

D)     One sentence explaining why you sold or reduced it from your holdings:  Qorvo achieved our price target; we took profit on this 4.5 per cent position.

BSD website: www.blackswandexteritas.com