Top Picks by Kim Bolton: May 18, 2022

Kim Bolton, president and portfolio manager of Black Swan Dexteritas

FOCUS: Technology stocks

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MARKET VIEW:

Five months to 2022, market participants agree that the world’s stock markets are in a bear market, with the broad market index falling on both sides by 20 percent (i.e., the S&P 500 has fallen by 15 percent, while the Nasdaq 100 has fallen 25 percent) and the technical patterns of the index describe lower highs and lower lows. Bear markets may have unexpected rallies, such as the 16 percent Nasdaq rally in the second half of March. From a portfolio management perspective, bear markets require vigilant active management to both defend a long stock portfolio and profits from high market volatility.

Your Black Swan Dexteritas [BSD] The portfolio management team successfully defended the BSD Global Tech Hedge Fund and our separately managed accounts by offsetting the long stock portfolio with our short equity index positions (aka the ‘hedge’). Unrealized losses in stock portfolios are compensated by hedge gains, and when stock markets enter oversold conditions, we lower the hedge and allow the stock portfolio to appreciate during rallies. of the bear market. By mid-May, the BSD Hedge Fund had dropped just five percent year-to-date and the separately managed accounts had single digit year-to-date gains-our active management strategy and tactics was developed for both bear markets with high volatility, and bull markets.

In the future, your BSD portfolio management team is unsure whether the economy will enter a recession and a ‘secular bear’ market, or whether we are currently experiencing the unwind of 2021 market froth and a continuation of the ‘secular bull’ market. However, we are confident that our portfolio management tools can generate returns in excess of eight percent for BSD Fund, and meet the performance expectations of our customized separately managed account clients.

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TOP SELECTIONS:

Sony Group (SONY NYSE)

• Japanese conglomerate that operates in various business units (electronics, semiconductors, music, film/tv etc.)
• Sony is the global image sensor market leader with approximately 44 percent market share. Their solutions are used in camera modules for flagship mobile phones from manufacturers such as Samsung and Apple.
• Sony is the market leader in the gaming consoles market with approximately 64 percent market share. To put this in perspective, since launching their new consoles in November 2020, Microsoft has shipped approximately 2.8 million units compared to the 4.2 million shipped by Sony.
• Sony is expanding into connected vehicles and smart mobility spaces, where they have developed an innovative driver monitoring system. They offer 2 solutions: Car infotainment, a motion recognition solution used to control the infotainment system. In-Cabin Monitoring monitors vehicle occupancy, monitors driver movements and body language and provides feedback. This has implications for autonomous vehicles (level three automation) to determine driver awareness and if/when the automated driving system should intervene.
• Sony is buying Bungie, the US video game developer behind the popular Destiny and Halo franchise, for $ 3.6 billion to boost its solid game -making studios.
• Sony aims to sell approximately 18 million PlayStations units in the current financial year, behind the initial target of 22.6 million units.
• The lower target for the current year comes from supply-chain complications due to the COVID-19 pandemic, including lockdowns in China, the city of Shanghai, a major center for tech production, is more all have been under lockdown since the beginning of April.

ServiceNow (NOW NYSE)

• The Now platform is powered by workflow automation, artificial intelligence, machine learning, performance analytics, electronic service catalogs and portals, configuration management systems, data benchmarking, encryption, and collaboration and development tools.
• NOW was founded in 2003, and since its 2012 IPO the company has strategically acquired 16 companies to be the go-to company for “incident, problem, and change” events in IT operations
• Their product has a 99 percent contract renewal rate.
• They serve more than 1,100 clients spending $ 1 million and have grown their client base spending more than $ 5 million by 40 percent.
• Their platform is being used to support the NHS in Scotland to administer vaccines to 5.5 million people.
• They have had a huge impact on the banking sector, with one major bank in the UK reporting a 70 per cent improvement in payment processing due to the platform.
• ServiceNow’s Q122 results surpassed the high end of the company’s guidance range on all guided metrics in addition to beating consensus expectations on key top -line metrics, including subscription revenue. Subscription revenues of $ 1,631mn led the consensus of $ 1,613mn by ~ $ 18mn. The non -GAAP operating margin was more in line with consensus expectations at ~ 25.4 percent, a 200 bps decrease from Q121, indicating a slowdown in savings associated with COVID (continuing personal travel and personal events) and continuing an aggressive headcount ramp (+28 per cent y/y) in S&M and R&D to capitalize on TAM’s huge opportunity and achieve the $ 15bn+revenue target.

Fortinet (FTNT NASD)

• Fortinet provides comprehensive, integrated, and automated cybersecurity solutions in the Americas, Europe, the Middle East, Africa, and Asia Pacific.
• It offers FortiGate hardware and software licenses that provide a variety of security and networking functions, including firewall, intrusion prevention, anti-malware, virtual private network, application control, web filtering, anti-spam, and network area speeding.
• The company remains committed to addressing the convergence of networking and security, going to market with a platform strategy, and differences in technological leadership. FTNT continues to engage in key platform markets and has grown to account for approximately 38 percent of the firewall shipment market share.
• Fortinet is well positioned to benefit from significant macro tailwinds, including continued healthy demand for network security, a strong environmental demand for security that the current geopolitical landscape increases, and one of the best cycles of spending firewall that we have seen over the years.
• For Q122, total revenue growth of 34 percent y/y was part of product revenue growth of 54 percent y/y, more than the consensus estimate for product revenue growth of 21 percent y/y.
• After guiding FY22 billing of more than $ 5.5 billion during its most recent revenue call, management updated its mid-term model with a target billing of $ 10 billion in 2025.

PREVIOUS SELECTIONS: May 6, 2021

Palo Alto Networks (PANW NASD)

• Then: $ 337.44
• Now: $ 474.31
• Returned: 41%
• Total Return: 41%

VMWare (VMW NYSE)

• Then: $ 162.33
• Now: $ 99.99
• Returned: -38%
• Total Return: -21%

Salesforce (NYSE CRM)

• Then: $ 218.05
• Now: $ 163.37
• Return: -25%
• Total Return: -25%

Total Average Return: -2%

#Top #Picks #Kim #Bolton #Source Link #Top Picks by Kim Bolton: May 18, 2022