Shane Obata, portfolio manager at Middlefield Capital
FOCUS: Global stocks
MARKET OUTLOOK:
The COVID vaccine rollout is progressing well, with more than 250 million doses administered globally, more than double the amount from a month ago. While monetary policy remains highly accommodative, we have begun to see an increase in interest rates on longer-dated government bonds, which we believe is evidence of the economic recovery gaining traction. Meanwhile, central bankers remain steadfast in their view that they will do what is necessary to ensure higher rates do not negatively influence their objectives of lower unemployment and growth in economic activity.
The U.S. is making progress on its fiscal rescue package of US$1.5 to US$2 trillion, which is expected to be signed by President Biden in the coming weeks. The Biden Administration is also aiming to pass a much larger “recovery” stimulus bill later this year, which should see a significant commitment to sustainable infrastructure projects.
In light of this backdrop, we’ve seen some rotation gaining traction in equity markets over the past several weeks. Some companies are now trading at prices above pre-pandemic levels even though we believe it may take years before the fundamentals for these companies have fully recovered. As a result, investors need to be very discerning in allocating capital to entities more leveraged to the reopening of the economy. At the same time, the increase in 10-year government bonds has caused a selloff in the utilities sector, resulting in some of our favourite renewable power companies now trading at very attractive levels. Although higher interest rates are a short-term headwind, we remain steadfast in our view that the global transition to clean power is in its early stages and these companies will experience significant levels of growth over the long-term.
TOP PICKS:
Orsted (ORSTED DC) - Purchased at 919.86 DKK on March 4th, 2021
Orsted is the global leader in offshore wind. The company has ~4.4 GW of installed capacity, with plans to increase to >30 GW by 2023. The stock has shown weakness recently due to concerns about competition after BP and Total won 60 per cent of a recent U.K. offshore seabed auction. Rising competition may reduce profitability but advancing technology will likely help to offset the impact. Orsted remains well positioned to win a significant share of new auctions and is expanding into growth areas such as Taiwan and Japan. The company is considered one of the most sustainable companies in the world, already enjoys scale benefits, has a track record of execution and a highly visible pipeline. We view the company as one of the most attractive pure plays in the clean power industry, especially after the recent selloff.
Advanced Micro Devices (AMD NASD) - Purchased at $78.99 USD on October 27, 2020
Advanced Micro Devices is a leading semiconductor company operating in three large and growing markets: data centre, personal computers and gaming. After the Xilinx deal closes the company will have a TAM of >$100 billion USD. Thanks to its industry-leading innovation and performance, AMD will continue to take share from Intel (INTC) in the CPU market. Intel’s recent move to outsource more production to TSMC is a step in the right direction; however, it does not solve the main problem, which is that Intel has fallen behind in terms of technology. We believe Advanced Micro Devices will extend its lead as it releases new products at an aggressive cadence. That should help it to continue gaining share, especially in servers, which carry higher margins. This stock is expensive; however, we believe it deserves a premium valuation because of how well management has executed.
Visa (V NYSE) - Purchased at $215.20 USD on March 3rd, 2021
Visa is one of the world leaders in payments and will benefit from the secular shift away from cash and towards card-based transactions. Visa noted in its 2020 Annual Report that US$18 trillion in consumer spending is still done in cash and check. The company has upside potential through growing acceptance in emerging markets where digital payments are still nascent. Visa is a major beneficiary of e-commerce growth, a key driver of higher card adoption. The company continues to rollout features like Tap to Pay, which improves seamless transacting. Visa has been lagging recently, partially due to investors favoring PayPal and Square and their exposures through digital wallets to bitcoin. While we acknowledge there is a lot of innovation happening in the payments space, Visa’s business model remains well protected as evidenced by most disruptors still relying on its network. Visa is trading at attractive levels, especially considering the recovery potential in cross-border payments as the global economy reopens.
PAST PICKS: March 20, 2020
Alphabet (GOOGL NASD)
- Then: $1,068.21
- Now: $2,047.48
- Return: 92%
- Total Return:92 %
Sony (SNE NYSE)
- Then: $53.06
- Now: $102.16
- Return: 93%
- Total Return: 94%
ORSTED (ORSTED DC)
- Then: DKK 606.40
- Now: DKK 949.60
- Return: 57%
- Total Return: 58%
Total Return Average: 81%
| DISCLOSURE | PERSONAL | FAMILY | PORTFOLIO/FUND |
|---|---|---|---|
| GOOGL NASD | N | N | Y |
| SNE NYSE | N | N | Y |
| ORSTED DC | N | N | Y |
Company Twitter Handle: @MiddlefieldGrp
Personal Twitter Handle: @sobata416
Company Website: www.middlefield.com
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