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Weekly rollup | Jan 23-29 2023

Stocks Mentioned: Netflix (NFLX), SVB Financial Group (SIVB), Wayfair (W), Danaos (DAC), Western Forest Products (WEF.TO), Canfor Pulp (CFP.TO), West Fraser Timber (WFG)

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January 23 2023

Chart courtesy of Grant Williams

From Netflix Q4 shareholder letter

If you're a technology enthusiast, you'll look at this and think Netflix is now a bargain. After all, revenue is up 57% since 2019 (100% since 2018) while the share price is the same as it was in May 2018. If you're a cynical value investor employing the cigar butt approach, the 1Y performance is the number you look at in order to convince yourself that you were right all along about the stock being overvalued.

Right now, a lot of investors looking at tech are in the cigar butt camp. The growth oriented funds have bankrupted themselves or are still licking their wounds (see: Softbank, Tiger Global, Cathie Wood). Nobody wants to believe in the Exponential Age, even though Moore's law and Metcalfe's law are undisputed empirical truths.

The cigar butt approach works for pension funds and grandmothers. It works for average investors too, on rare occasions like 2002-03 or 2013-16. But you have to ask yourself whether it's the right approach now, when investors have completely given up on growth and innovation because of inflation/recession fears. If you can buy growth at an attractive valuation, like Netflix at a 34.4x PE or Micron at 10.7x PE, your entry price won't matter in 10 years.

Not that I'd suggest taking a 10-year view (I'm a trader). Nor am I saying drawdowns don't matter. My point is just that investors are so pessimistic that they are missing the bigger picture. Whether it's bitcoin or Amazon or Netflix, adoption accelerates exponentially. When looking at returns, focus on the longer timeframe so you don't fall into the linear valuation traps that the financial media is fixating on. After all, if you held Netflix since its IPO, those 50-60% drawdowns did not matter as long as you never sold. Softbank's Masayoshi Son lost 90% of his net worth in the dot com bust, but exponential growth in his portfolio holdings made him whole again. While the media vilify the VCs and tech investors who did terribly in 2022, remember that we've been here before, and it was the VCs who had the last laugh.

Investment implication: I'm happy with the SIVB purchase on Friday and we already own EV plays, Solana and Bitcoin. Getting in "late" does not matter if we start to see exponential growth, so I'll look for better entry points to add more tech longs. Note that I bought a bunch of tech stocks in November (but did not recommend) so my personal account is more weighted towards tech than this trading service.

More evidence of the deflation I keep talking about

Looks like RBI wants to starve Vested Finance and INDmoneyApp, two popular options among Indians investing chiefly in US tech stocks. If you're holding Indian rupee denominated assets, prepare your exit plan before things get worse. You don't want to wait until the country goes the way of Sri Lanka.

Wayfair (W) shorts getting creamed

Silver futures (-4.2% today) getting close to a buying point. However, with the FOMC meeting scheduled for next week, I'd rather wait out this week before deciding on adding more risk. I've recommended 20 open trades already, so I'm not in a hurry to add more positions. I update my Track Record on this google sheet

Danaos (DAC) has finally started to move, after being dead money for 5 months. Not keen to buy yet, but will be watching.

January 24 2023

Absolute carnage at the open today.

January 25 2023

Buy Western Forest Products (WEF.TO)

A picture is worth a thousand words. Share price is cheap.

The stock has bottomed, consolidated, and started ticking higher. Today, news came out that the U.S. Department of Commerce plans to raise tariffs for Canada's two largest lumber companies while lowering duties on most other Canadian producers. This is bad news for WFG and CFP but good news for smaller producers like WEF.TO

Full text:

The Globe and Mail reports in its Wednesday edition that the U.S. Department of Commerce plans to raise tariffs for Canada's two largest lumber companies, while lowering duties on most other Canadian producers. The Globe's Brent Jang writes that based on the Commerce Department's preliminary assessment, the combined countervailing and anti-dumping duties will rise for West Fraser Timber and Canfor. West Fraser faces having to pay a new duty rate of 9.38 per cent, likely taking effect by August or September, compared with its current tariff of 8.25 per cent. Canfor will see its tariff climb to 7.29 per cent for Canadian softwood sold in the United States, compared with the current 5.87 per cent. Saint John-based J.D. Irving Ltd., which recently ranked as Canada's fifth-largest lumber producer, has been assessed a higher rate of 7.77 per cent, compared with the current 7.17 per cent. However, most other producers in Canada will see their duty rates decline to 8.24 per cent from the current 8.59 per cent. Resolute Forest has a current tariff of 14.86 per cent, but it will be included in the group of Canadian producers with the revised rate of 8.24 per cent. The 2006 Canada-U.S. softwood agreement expired in 2015.

January 26 2023

Tesla kept its long-term delivery target of 50% CAGR (compound annual growth rate) despite deliveries missing the mark in recent quarters. "For 2023, we expect to remain ahead of the long-term 50% CAGR with around 1.8M cars for the year," the company said in its quarterly update.

This is bullish for our EV infrastructure positions and should improve overall sentiment towards EV. The number of deals being inked with EV charging providers is another indicator that other automakers are paying attention. Bullish catalysts shaping up for a prolonged rebound in EV stocks.

Biotech looks poised to get out of this channel to the upside. Still too soon to tell, and it has lagged other sectors, but that could change.

January 27 2023

Ironically, Canfor Pulp (CFP.TO) and West Fraser Timber (WFG), the companies most affected by the tariff hike, also went up more than WEF.TO yesterday. Still, if the lumber rally is just getting started, I'm fine with waiting for an entry point to add exposure.

India's Bank Nifty (index of banking stocks) looks downright ugly and is now in a classic Dow theory downtrend.

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