MARKET OUTLOOK:

There were a lot of convulsive headlines in the past month, ranging from Hurricane Ida to the Supreme Court to China to the Delta variant, but markets broadly yawned at events thrown their way. Even a massive miss from U.S. payrolls last Friday morning couldn’t derail the slow and steady grind that the equity markets have trended on for the past several months. That steady grind is also impressive given the huge wave of hawkish U.S. Fed speakers in August and the very high likelihood of a taper starting before the end of the year.

From a technical perspective, the S&P 500 has broken up and above trend resistance, but not in impressive enough fashion to matter. Commodities and small caps have definitely been in consolidation mode for the past six months, and while the Russell 2000 has had a pretty nice run off the bottom of its range over the past few weeks, there’s not much to get excited about from the longer-term chart.

Finally, major tech names have broken cleanly above the resistance levels they ground up against over the summer. Tech still has plenty of upward momentum longer-term, but the breakout impulse has likely played out for now.

Bottom line, looking at North American indices: there’s not a lot to be excited about, either from the bull or bear perspective. Large-caps are back to overbought territory so we’d wait for some downside mean reversion before putting new money to work. 

In this environment, we have positioned the BSD Global Tech Hedge Fund with the expectation of more market volatility; the fund is 90 per cent invested across a couple dozen tech vendors and tech end-users, with a 64 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:

SQUARE INC. (SQ NYSE)

Price Target: $301.20 
Square is a great fintech company and has strong growth prospects across both its Seller and Cash App businesses, something that was reinforced by its recent agreement to buy Afterpay. I see Square as one of the main disruptors of the banking system in the U.S. and potentially around the world, which means that over the long term, the company has potential to become one of the largest financial companies worldwide.

Its share price has increased a lot over the past 18 months, but for long-term investors, there is still upside as the company continues to grow and its current valuation is still interesting. Considering that Square does not generate much earnings, the best way to value it is still based on revenues.

Therefore, assuming 2025 sell-side estimates of $36 billion in revenues and an EV/revenues multiple of 5x (its 2-year historical multiple is close to 6x, but I use a lower multiple to be conservative), my price target for Square is $400 per share by end-2024, which implies an upside potential of about 47 per cent over the next three years. This means that Square continues to be a good pick within the global payments/ fintech industry right now and long-term investors should continue to add to their positions.

Buy one-third of a SQ position here at ~ $260; add at ~$240; and at ~$220 .

Twilio (TWLO NYSE)

Price Target: $380.00 
Twilio offers a cloud communications platform to its clients. The clients’ developers then use APIs (application programming interfaces) and other software tools designed for specific use cases to develop in-app communication mechanisms. These communication systems are then used by the clients to in turn support their customers at various stages of the purchase cycle.

Twilio handles the higher-level communication logic needed for almost all types of consumer engagement use cases. The company’s software layer, Super Network, has been designed to communicate effectively with all the connected devices globally. Thanks to its usage-based pricing which charges customers every time they use Twilio’s platform for an API call to power an in-app message or voice call, Twilio has been one of the biggest benefactors of the additional time that we’ve spent at home on our apps.

Twilio’s enterprise clients are benefiting with dramatically lower costs and time required to develop customer-facing messaging platforms. The company has managed to effectively align its growth in line with those of its clients. Today, Twilio’s tools enable many big businesses to develop and launch effective multi-channel customer engagement platforms. This PAAS (platform as a service) company is fast becoming the AWS of the communications world; the operating system for the digital world.

Conservatively, Twilio could grow north of 30 per cent for the next five years to reach $7+ billion in revenue from $1.8 billion in 2020. We expect Twilio's share price to hit $380+ by the end of this year, $450+ by 2022, $525+ by 2023, $600 by 2024, and $650+ by 2025. While Twilio is not overly expensive, we expect the valuation to remain lofty for the foreseeable future. Therefore we would be buying shares over time on weakness. Load up the truck between $350 and $300.

Match Group (MTCH NASD)

Price Target: $170
Online dating is among the most powerful secular trends that I can think of right now. If one really thinks about it, the pandemic brought to a halt the concept of going out on a date, as social distancing became the norm. As the worst of the pandemic seems behind us, as people increasingly get vaccinated around the world, online dating is an area very ripe for a huge upswing and Match Group is the best play on the online dating scene occurring around the world.

Exiting the second quarter, Match Group's management has seen well-vaccinated areas of the world like the U.S., Israel and U.K. begin to normalize. Match Group posted strong revenues in their second-quarter reports; following up on a solid first quarter.

Match trades for around 11 times forward earnings, which is historically at a discounted valuation. Match Group made a recent acquisition of Korean-based Hyperconnect that should help increase Match's TAM, increase video & AI capabilities, as well as increase the company's presence in Asia.

Match jumped 10 per cent this past Tuesday after the announcement the stock is moving into the S&P 500 as part of the indexes quarterly rebalancing. Match Group is a buy at current prices for both short-term and long-term reasons. Buy one-third of a MTCH position here at ~ $160; add at ~$140; and at ~$120.