MARKET OUTLOOK:
After hitting a record in the first week of September, global equity indices retreated more than 5 per cent and then regained some ground in early October. The reasons for the September slump – a fast increase in global interest rates as inflation fears festered, uncertainty around the U.S. debt ceiling issue, plus hawkish global central bank rhetoric and actions – were also the reasons for the October rally. 

Come October, the markets now had more stable interest rates, the U.S. Federal Reserve indicated they would be slow and steady with their taper and late 2022 rate hike; and at least we won’t have headlines about the U.S. debt ceiling for a few more weeks. 

Stock markets turned their attention away from macro issues to micro issues in mid-October with the arrival of the Q3 earnings season. The first inning of the earnings season belonged to the banks which provided strong metrics on spending and lending in the economy. 

As other factors continue to bite businesses and consumers alike, it will be crucial to see how supply chain disruptions, inflation, higher energy costs and labour shortages affect other sectors of the global economy. This quarter’s earnings reports and company specific guidance will provide the ammunition for the remainder of 2021’s stock market direction. 

In this environment, we have positioned the BSD Global Tech Hedge Fund with the expectation of more market volatility: the Fund is 95 per cent invested across a couple dozen tech vendors and tech end-users, with a 42 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. 

TOP PICKS:

Monday.com (MNDY NASD)
Monday.com is an Israeli company specializing in the development of software applications and work management tools. The company provides a cloud-based visual work operating system that consists of modular building blocks used to create work management tools for marketing, project management, software development, CRM, business development, consulting, and other fields. 

In a nutshell, approximately 70 per cent of Monday.com’s operations overlap with Asana, and that is its work management platform. The other 30 per cent focuses on software development tools and comes up against Altassian and Workday. In essence, Monday.com offers a unifying workspace for customers to build the tools they need to track projects. 

According to our estimates, the current price looks quite attractive in the forward EV / sales multiple. MNDY’s forward EV / sales is 10.4, which is lower than the current Workday multiple (13.95), while the WDAY’s gross margin is significantly lower than that of peers. If MNDY grows in line with historical WDAY or TEAM performance, the forward EV / sales is between 8.29 and 8.89, well below current market averages. Buy one-third of a MNDY position here at ~ $371; add at ~$334; and at ~$301. 

Taiwan Semiconductor (TSM NYSE)
TSMC makes key components for everything from cellphones and F-35 fighter jets, to NASA’s Perseverance Rover mission to Mars. Last year, it was responsible for 24 per cent of the world’s semiconductor output. 

Their position is solidified by their continued capital investment. They announced $100B in 2021-2023 capital expenditures. TSMC maintains its leadership in the foundry market with advanced process technologies and huge economies of scale that competitors can't come close to match. 

TSMC reported last Thursday, October 14, with a beat on top and bottom lines, and margin guidance better than expected, unchanged schedule for 3nm with 2nm to be introduced in 2025, and a Japan fab (with a focus mainly on 22/28nm capacity) and to start production in late 2024. 

Apple secured 80 per cent of TSMC’s 2021 5nm production. These developments are important to their clients, who are in direct competition with the largest chip manufacturer/seller, Intel (Intel is currently struggling with their 7nm nodes). Raised annual revenue growth forecast to 20 per cent YoY. They expect the chip shortage to extend into 2022. Current dividend yield of about 1.5 per cent. Buy one-third of a TSM position here at ~ $116; add at ~$105; and at ~$95.

Global-e Online (GLBE NASD)
Global-e Online is a great play on e-commerce for all those investors that think they have missed out on the best growth days of Amazon and Shopify. GLBE is an excellent play on D2C cross-border e-commerce, which is in the midst of a strong secular uptrend. 

Currently, the company doesn’t really have any natural competitors to what it does, which is essentially enhancing the basic e-commerce store that a merchant already has, whether it would be located on a Facebook, Salesforce Commerce, BigCommerce or Shopify platform. 

GLBE helps these merchants solve critical structural barriers to engaging in cross-border e-commerce; some of these barriers include but are not limited to things like foreign currency exchange, product returns, local payment methods, fraud management and local market know-how. GLBE has an excellent balance sheet. GLBE uses a volume-based sales model; therefore, it is important to monitor the growth of Gross Merchant Volume or GMV. 

In Q2, GMV grew to $326 million, representing 95 per cent YoY growth. GLBE trades at 50 times sales, and if the market should turn against high priced, young speculative stocks, GLBE would likely be in for some serious downside. Buy one-third of a GLBE position here at ~ $60; add at ~$50; and at ~$40.

PAST PICKS: October 22, 2020

Mercadolibre (MELI NASD) 

• Then: $1,294.32
• Now: $1,600.00
• Return: 24%
• Total Return: 24%

StoneCo (STNE NASD) 

• Then: $57.88
• Now: $37.98
• Return: -34%
• Total Return: -34%

Bandwidth (BAND NASD) 

• Then: $161.09
• Now: $89.07
• Return: -45%
• Total Return: -45%

Total Return Average: -18%