Kim Bolton, president and portfolio manager of Black Swan Dexteritas
FOCUS: Technology stocks
MARKET VIEW:
Global stock markets hit the first half of 2022! It is now entering new lows due to Federal Reserve Chairman Jerome Powell’s decision to raise interest rates more aggressively and now it leaves stocks with fraudulent year-to-date losses from 18 percent for the Dow Jones to 23 percent for the S&P 500 and 31 percent for the tech-heavy Nasdaq.
Fortunately, your Black Swan Dexteritas [BSD] The portfolio management team has 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 stock portfolio losses are compensated by hedge gains. When stock markets entered oversold conditions, we lowered the hedge and let the stock portfolio appreciate during bear market rallies. Beginning in the third week of June, the BSD Hedge Fund has dropped just 8 percent year-to-date and the separately managed accounts have a digit year-to-date gain-our active management strategy and Tactics are developed for both bull and bear markets with high volatility.
The stock market forecast for the next six months has glimmers of hope. While global economies are showing signs of weakness and the geopolitical picture is bleak, stocks are highly likely to perform a stunning battle. Historically, since World War II, whenever we have an increase in the calendar year of 20 percent or more (as in 2021), the market has dropped double digits in the first half of next year and in the second half of the year. that is the markets will return to at least break-even by the end of the year.
Your team at BSD believes that the impact of stock market inflation and interest rate increases this year has been greatly priced by investors. In the winter/spring of 2023, the world’s developed economies could experience a relief rally if investors begin to convince themselves that the Fed may need to dial back its aggressiveness to avoid a deep recession. Remember, stock markets tend to look 6-12 months ahead (in terms of valuation), which means it acts as an indicator of going forward. Thus, today’s markets reflect the economic environment for the spring of 2023, which should be significantly more optimistic than today. The markets will require substantial participation from its largest sector – the technology sector – when this rebound begins to spread.
We remain confident that our portfolio management tools will generate annual returns in excess of 8 percent for the BSD Fund and meet the performance expectations of our customized separately managed account clients.
- Sign up for the Market Call Top Picks newsletter at bnnbloomberg.ca/subscribe
- Listen to the Market Call podcast at iHeartor anywhere you get your podcasts
TOP SELECTIONS:
Apple (AAPL NASD)
- Apple has a long runway to PT because of its vast economic moat, high company profitability, its high innovativeness and expected rate of return.
- WWDC 2022: Keynote takeaways:
- Apple Pay was introduced in four options.
- M2 enabled MacBook Air and 13 “MacBook Pros launched.
- New M2 chip.
- OS updates announced.
- CarPlay enhancements are interesting.
- Apple’s highest margin comes from their services segment (67 percent in the most recent quarter)
- Services include Apple Pay, app purchases, news and music
- Apple faces the biggest challenge compared to other peers in the new regulatory pushback against big tech. Apple will soon face regulations forcing it to allow other payment options in its App Store that has become the core business for its services segment.
Meta Platforms (META NASD)
- In the new reality of the world where generations remain completely obsessed with social media, Meta remains the undisputed king of social media. The company reaches 3.64 billion monthly active users on its platforms and generates 2.87 billion daily active human families. That is a level of consumer penetration that has never been done before. With an estimated world population of close to 8 billion people, of which three billion people have no access to the internet and nearly one billion have no access to clean water, achieving 45 percent penetration is a huge achievement.
- The massive shareholder value deterioration that has occurred in Meta since the beginning of the year has been both tragic and historic at the same time. The social media giant has more than $ 430 billion removed from its market cap and is currently trading at a 51 percent discount on February prices. Right now, Meta Platform stock is less than $ 170/share, the company is trading at x7 EV/EBITDA and a 2023 forward PEG of less than 1x.
- In the Q1’22 earnings report and its forward commentary, Meta management used the opportunity to lay out a better (than feared) short -term guide to revenue growth, and how to position new product innovations (which driving investments in FY2022) for Meta. the long-term while balancing a lower OPEX guideline to align the earnings trajectory with margin dynamics due to the volatile landscape with continued shareholder return.
- While debates over product transitions and industry platform headwinds will continue in future quarters and years, we remain focused on Meta’s large audience with a family of apps that the company can continue to tailor to the emerging consumption habits in short-form video, messaging. , commerce, augmented reality and social connections.
- While the shift of advertising revenues against broader privacy changes remains volatile and difficult to predict, we see investments in the Meta platform/infrastructure (which began in the Summer of FY2020) as continuing building freedom from the dynamic set of results from future mobile OS platform changes.
- Meta reported Q1 total revenue of $ 27.91bn (vs. Street $ 28.28bn), or +7 per cent YoY, including Family of Apps revenues of $ 27.21bn (+6 per cent YoY) and Reality Labs revenues of $ 695 mm (+30 percent YoY).
- Within the Family of Apps, Meta reported total advertising revenue of $ 27.0bn (+6 per cent YoY), including by region as follows: US & Canada $ 12.0bn (+1 per cent YoY); Europe $ 6.36bn (+0 per cent YoY), Asia $ 5.66bn (+20 per cent YoY) and Other parts of the World $ 2.95bn (+21 per cent YoY).
- Q1’s total DAU was 1,960mm (vs. Street 1,952mm), with 196mm in the US and Canada; 307mm in Europe; 827mm in Asia and 629mm in the Rest of the World.
- Q1 GAAP operating income was $ 8.52bn (vs. Street $ 8.55bn) for 31 per cent of GAAP’s aggregate operating income margin.
- By segment, Q1 GAAP operating income was as follows: Family of Apps $ 11.48bn (41 percent margin) and Reality Labs $ (2.96) bn.
- GAAP EPS for Q1 was $ 2.72, compared to Street’s $ 2.56.
Accenture (ACN NYSE)
- Accenture is an IT consulting and outsourcing powerhouse to client companies in almost every sector imaginable. With the ongoing move to the cloud, management is focused on cloud integration with partnerships with Microsoft, Oracle, Amazon, Alibaba, Google and many others.
- The company’s client base includes more than 75 percent of the Fortune Global 500, and 97 of the top 100 clients have partnered with it for more than 10 years. The technical side of Accenture’s business is clearly important; however, the real strength is built on their client relationships and being the go-to solutions provider.
- One reason for Accenture’s solid performance even during the recession could be the vast economic moat that Accenture has, preventing customers from leaving Accenture even in difficult times. The transfer costs that arise are based on a trust bond formed as well as study costs.
- ACN currently yields 1.3 percent.
- Accenture will report earnings tomorrow (June 23) where analysts estimate revenue of $ 16.05B and EPS of $ 2.85 will be disclosed. We expect the guidance from Accenture to be stronger than expected. The company expects revenue growth at the upper end of the +22 percent to +26 percent range of the ongoing currency guide. Although recession scenarios are front and center among investors, we believe the ACN model will be stable in a moderate recession scenario. Most of ACN’s activities are noted to be related to mission-critical digital transformation service offerings such as cloud and security services, which in many instances are likely to be considered largely non-discretionary by businesses. While ACN management commented during the earnings call in FQ2 that quarterly bookings could be lumpy, we expect a healthy book-to-bill of ~ 1.1X in FQ3.
PREVIOUS SELECTIONS: August 4, 2021
ServiceNow (NOW NYSE)
- Then: $ 593.47
- Today: $ 450.68
- Return: -24%
- Total Return: -24%
Upstart Holdings (UPST NASD)
- Then: $ 127.98
- Now: $ 38.20
- Return: -70%
- Total Return: -70%
Fiverr International (FVRR NYSE)
- Then: $ 230.58
- Now: $ 33.60
- Returned: -85%
- Total Return: -85%
Total Average Return: -60%
| NOW NYSE | Y | Y | Y |
| UPST NASD | N | N | N |
| FVRR NYSE | N | N | N |