Mad Hedge Technology Letter
June 15, 2020
Fiat Lux
Featured Trade:
(DON’T TAKE YOUR EYES OFF BIG TECH SHARES),
(GOOGL), (AAPL), (MSFT), (NFLX), (FB), (AMZN), (IBM), (CSCO)
There is literally no possible scenario in a post-second-wave lockdown where the 7 tech stocks of Facebook, Google, Apple, Microsoft, Netflix, Facebook, and Amazon don’t shoot the lights out unless the world ceases to exist.
25,891 – that is the number of new coronavirus cases registered in the U.S. on June 13th, 2020 which is about in line with the recent near-term peaks of total daily U.S. coronavirus cases.
Why is this important?
Traders are calculating whether a “second wave” will possibly rear its ugly head to crush the frothy momentum in tech stocks.
That is where we are at now in the tech market.
Tech stocks could possibly ride another magnificent ride up in share appreciation if the reopening of the economy can kick into second gear.
Skeptics are sounding the alarms that this is not even the “second wave” and we still in the latter half of the first wave.
Consensus has it that this could be just a head fake.
The jitters are real with recent dive in tech shares.
The five biggest tech companies burned more than $269 billion in value last Thursday - the worst day for U.S. stocks since March and the 25th worst day in stock market history.
Nasdaq stocks ended the day largely 5% in the red with Microsoft shedding $80 billion in market cap in just one day.
Larger drops were led by IBM who lost 9% and Cisco who lost 8%.
It was a dreadful day at the office, to say the least.
We are teetering on a knife's edge and the tension is running high in the White House with Treasury Secretary Steven Mnuchin already announcing that the U.S. can’t afford another lockdown.
It’s not up to him in the end, it’s about how consumers will assess the confronted health risks.
Tech will undoubtedly be dragged down with the rest on the next lockdown sparing few survivors.
The housing market might actually go down as well as the initial push to the suburbs will dissipate and fresh forbearances will explode higher.
Consumers might not even have the cash to pay for their monthly Apple phone service or internet bill if the worst-case scenario manifests itself.
The health scare has already dented new software purchases by small and medium businesses (SMBs) and tech companies in industries such as travel, retail, and hospitality; online ad spending by the likes of automakers and online travel agencies; and smartphone, automotive and industrial chip purchases.
Small business has held off on reducing their tech software spending too much on the expectation that macro conditions will perform a V-shaped recovery.
Numerous tech firms have cited “demand stabilization,” but it’s not guaranteed to last if we revert to another lockdown.
If a lockdown happens again, it will be another referendum on Fed’s enormous liquidity impulses versus the drop in real earnings or flat out losses to tech business models.
Even with the media’s onslaught of vicious fearmongering campaigns, I do believe this is the time for long-term investors to scale into the best of tech such as Amazon, Apple, Google, Microsoft, Facebook, Netflix.
If you thought these 7 companies had anti-trust issues before, then look away.
We could gradually head into an economy where up to 40% of the public markets comprise of only 7 tech stocks which is at a mind-boggling 25% now.
Never waste a good crisis – tech is following through like no other sector!
Bonds don’t make money anymore and hiding out now means putting your life savings into these 7 premium tech stocks.
In the short-term, this is a good opportunity for a tactical bullish tech trade.
“Microsoft isn't evil, they just make really crappy operating systems.” – Said Finnish-American software engineer Linus Benedict Torvalds who is the creator Linux, Android, and Chrome OS
Mad Hedge Technology Letter
June 12, 2020
Fiat Lux
Featured Trade:
(TESLA’S EXPANDING LEAD IN EVS),
(TSLA)
As Tesla (TSLA) pushes above and beyond $1,000, let’s remind readers why this tech stock is so brilliant and why it outperforms even amid a backdrop of haters that taint the stock on a daily basis.
No doubt that Tesla has benefited from the “re-open trade” with risk-on sentiment mesmerizing equity markets amid positive data points that reignited Tesla with vehicle sales in China.
Then there is the rampant speculation taking place buoyed by the Fed pouring trillions into the capital markets.
The outcome is tech stocks leading the way with many reaching all-time highs.
Specifically, for Tesla, a sanguine optimism is coalescing around the popularity of Teslas in China.
Tesla seems to have triumphed over the pandemic with a momentous “snapback” in demand for Model 3s in China.
Tesla delivered 11,000 Model 3 vehicles to Chinese customers in May, which is 7,000 more Teslas sold in China than April.
The telltale signs are there hinting this is the beginning of a voracious ramp-up in Tesla sales not only in China but throughout the Asian regions, including Southeast Asia.
The bumper sales seen in Tesla’s China numbers coincide with the building of their monster battery factory in Shanghai, coined Giga 3.
The news in China dovetails nicely with Tesla’s commitment to deliver more than half a million vehicles this year, which has raised some eyebrows on Wall Street.
One persisting issue remains – margins.
Musk has slashed prices on Models S, X, and 3, decreasing the marginal profit on these models ahead of the Model Y cannibalizing them.
Tesla’s bestselling car Model Y avoided a price cut.
Some of the premium add-ons have been upped in price to compensate price cuts such as Full Self Driving (FSD) increasing by $1,000 to penalize customers who desire more personalization.
An unfortunate headwind caused by the pandemic is that Tesla ended Q1 with bloated inventory because the supply chain was crippled by a delivery bottleneck and factory stoppages.
When Tesla drops prices, it harms legacy car companies far more because it raises the competition bar in EVs creating an environment where it will be awfully hard for legacy car companies to ever outdo Tesla with an inferior product.
For example, GM burns through $7,000 per Chevy Bolt sold at a time when the industry is forced to go all-electric as the pandemic effectively pulls forward EV demand to today.
Tesla’s headstart on the traditional car circuit is giving them ample time to turn the screws on them hoping a few of them drop like flies before they can ever get close to becoming competitive.
Eventually, gas guzzlers will be banned by governments and EVs will be universal.
Tesla is in a golden position to produce the optimal EV while tirelessly working to make them cost-effective for buyers in a lower income bracket.
I believe that Tesla will mix and match premium and basic models to cater to every price point so that every buyer will gravitate towards Tesla.
Musk keeps pushing the envelope with new divisions as well.
He continues his vision uninterrupted by proclaiming that the company's Nevada factory would likely produce the new semi-truck's battery and powertrain, with the remaining work done in other locations around the country.
“It's time to go all out and bring the Tesla Semi to volume production," Musk said.
The semi-truck is planned to price at around $150,000 for the 300-mile model and around $180,000 for the longer 500-mile model.
This division could grow into a $3-5 billion revenue driver in the next few years.
This is yet another example of Musk staying one step ahead of the traditional carmakers.
To understand more about the Tesla semi-truck, click here.
Another project Musk is working on is the Blade Runner influenced cyber-truck.
The cyber-truck is a consumer truck that Musk is working on that he tested out with TV comedian Jay Leno.
To watch that clip, click here.
The future has never looked brighter for Musk and Tesla as the demand of the future has repurposed itself to today and only Musk can deliver on such high expectations.
Do not day trade this stock because the volatility will blow investors up. This is a buy and hold long term story.
“Land on Mars, a round-trip ticket - half a million dollars. It can be done.” – Said Founder and CEO of Tesla Elon Musk
Mad Hedge Technology Letter
June 10, 2020
Fiat Lux
Featured Trade:
(THE TAILWIND BEHIND BEYOND MEAT),
(BYND)
Over 20,000 meat processing plant workers have contracted Covid-19 resulting in numerous deaths. I will explain why this has been a massive contributor to Beyond Meat’s (BYND) recent overperformance.
The Plant-Based Foods Association reported sales increasing over 90% in the middle of March 2020 from the year prior as animal-based meat shortages pervaded meat supply lines across the U.S.
Beyond Meat is one of the few publicly traded food tech companies out there and have been the recipient of several tailwinds all powering the company’s revenue at one time.
The pandemic has underscored the trend of consumers eating plant-based alternative options as a viable alternative.
It has been one of those trends that have gone viral as consumers simply avoid meat because of a surge in prices caused by a sudden shortage.
The 90% growth of plant-based meat sales in mid-March was followed up by 27% growth in April.
The post-March follow-through leads me to believe that more than a few consumers were satisfied with the products and became repeat purchasers.
Since health has been a do-or-die proposition starting in March, there has been a continued evolvement in consumer purchasing toward natural and organic products that enhance health and immunity.
Not only are plant-based meats getting rewarded, but other categories of health foods have seen explosive growth.
Retail sales of plant-based meat products were higher by nearly 150% during peak panic buying in March and stayed above 50% through late April.
Refrigerated plant-based meat was the hottest-selling product registering a blistering increase in sales of 241% year-over-year during the peak panic buying period.
Plant-based foods have gone from the periphery of the food scene to the vanguard of sustainability and nutrition.
The coronavirus has also shined a light on how well companies treat their workers or the maltreatment of workers.
Meatpacking workers were holed up in tight areas causing a rapid outbreak of the virus which was thoroughly reported in the media and left a bad taste in consumers' mouth.
By the beginning of June, a survey revealed that 52% of respondents believe the food industry should focus more on meat-free foods to help reduce shortages.
The same survey of 1000 people also found that half of respondents don’t agree with the meat industry’s level of care about the health of its workers, and 65% don’t think it cares about the treatment of livestock.
The optics not only looked bad for the workers, but also for the product as the bottleneck in processing also led to the largest pig culling effort the U.S. has ever seen as hundreds of thousands of animals were backed up on farms.
This happened all while 40 million workers lost their jobs and bread lines formed as long as the eye could see in many of the big U.S. cities.
The animal-based meat industry has most likely had its worst-ever first half year to any financial year on record.
Fortunately, Beyond Meat has avoided the fate of the meat industry and is running with the momentum by announcing a partnership with food distributor Sinodis to further deliver products in China.
Sinodis, a subsidiary of French group Savencia, is a distributor of imported food products to more than 4500 wholesalers, restaurant chains, and hotels in China.
The deal fortifies Beyond Meat’s presence in China while supplementing new income streams.
Back in April, Beyond Meat also announced a bevy of new China openings with Starbucks (SBUX) and followed that up with deals with Kentucky Fried Chicken (KFC) and Pizza Hut.
The efforts to widen its customer reach has not gone unnoticed with the stock tripling from virus lows this year.
Ultimately, the adoption of U.S. mainstream customers in the wealthier suburbs will be critical to long-term success.
The company plans to broaden its product line into other forms of substitute meat, like poultry, to grow its top-line revenue.
The stock has more room to run and investors should wait for a dip to put new money to work.
Price action is volatile, meaning investors should buy and hold shares and not try to game the stock short-term.
“Some say Google is God. Others say Google is Satan. But if they think Google is too powerful, remember that with search engines, unlike other companies, all it takes is a single click to go to another search engine.” – Said Google Co-Founder Sergey Brin
Mad Hedge Technology Letter
June 8, 2020
Fiat Lux
Featured Trade:
(ZOOM’S LESSON FOR TECH STOCKS),
(ZM)
