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A welcome to all those who have joined the mailing list and all the readers, to this 33rd post of investing, not rocket science! Investing Doesn't Have to Be Rocket Science: this is our Non-Expert Guide to Portfolio Management. In the last three months, this free blog has added 700+ readers to our mailing list.
A quick recap of this blog series (investing, not rocket science) so far:
In the 1st post: I defined a basic portfolio framework. The objective of this million dollar portfolio is beat inflation and an equity index. The investment style presented here is active portfolio management, without the use of leverage and a time horizon greater than 5 years. The benchmark index is the MSCI ACWI Investible Market Index. Typically, there are two posts a week, which includes details of the portfolio and actionable evaluations (Mondays and Fridays).
From posts 2 onwards: I have evaluated 71 stocks and 4 potential bond additions. The portfolio is long 15 stocks, 1 Bond and short 1 stock.
Posts 21 to 27 were focused on the Q1 2023 earnings announcements, particularly of stocks in the portfolio and in the watch-list. You can read all about it in the previous posts here: https://www.claritech.app/blog
You can click on the charts, graphs or illustrations to expand or zoom in. There is no remuneration received to evaluate specific companies or to add to the portfolio or the watch-list.
Economic data last week (29th May to 2nd June 2023)
North America Economic Data:
JOLTs Job openings in April at 10.13 Million from 9.74 Million in March 2023
ISM Manufacturing PMI in May’23 at 46.9 from 45.7 in April
Nonfarm payrolls in May at +339K from +294K in April
US unemployment rate in May rises to 3.7% from 3.4% in April
U.K and Europe Economic Data:
German CPI in May projected to fall -0.1% MoM from a 0.4% increase in April’23
German Manufacturing PMI at 43.2 in May from 44.5 in April’23
UK Manufacturing PMI at 47.1 in May from 47.8 in April’23
EuroZone CPI in May projected to be flat (0.0%) MoM in May from a 0.6% increase in April
Asia Economic Data:
China Manufacturing PMI at 48.8 in May 2023 from 49.2 in April
Economic Data This Week:
Services PMI from the US, UK and Euro Area
German Factory Orders
Trade Data from US, China and Germany
Financial Markets:
With the uncertainties of the Debt Ceiling debate easing after the bill passed in both houses of congress, US stock indices registered a strong close for the week. The S&P 500 and the Nasdaq 100 were up nearly 2% for the week. The hang Seng index close the week up 3%, most of the gains were on Friday. The MSCI world and the MSCI emerging market indices were up 1.5% for the week.
Early Wednesday, the CME FedWatch tool showed a 70% chance of a 25 bps hike in the June FOMC, that changed after voting member Jefferson spoke about skipping a rate hike in the coming meeting to allow the committee to see more data before making decisions about the extent of additional policy firming. The FedWatch tool plunged to a 25% probability of a June hike by the end of the week.
The Jolts job opening report pointed to continued strength in the labor market. Treasuries ended the week with gains. The 2-yr note yield fell six basis points to 4.49% and the 10-yr note yield fell 11 basis points to 3.69%.
Portfolio Allocation:
On the buy side (long) of the portfolio:
1. Asset Class Allocation: Equities 33%, Fixed Income 23%, Real Estate 3.5% and Cash 40.5%
2. Regional Allocation: Asia 8.5%, Europe 39%, North America 52.5%
On the sell side (short) of the portfolio:
3. Asset Class Allocation: Equities (100%)
4. Regional Allocation: North America 100%
See illustrations below for Portfolio Holdings and Allocation.
Portfolio review:
1. Since inception of this series (14th Feb 2023), the long portfolio is up +3.85% (annualized 12.7%), while the benchmark is up +2.27%.
2. The biggest gainers on the portfolio are Alphabet (+40%), Tesla (+37%), BMW (+16%) and Glencore (+10%), while Deutsche Bank (-14%), Vodafone (-12%) and Citi (-7%) weigh the most on the long portfolio.
3. The short portfolio is down -18.2%, Nvidia is the only short position and the stock is up 40% from the average sell price.
4. Overall, the portfolio is down -14% since inception, under-performing the benchmark.
5. Risk measures: The portfolio has a Sharpe Ratio of -1.69, Sortino of -1.79 and a Standard Deviation of 1.80%.
In summary, while the long positions continue to outperform the benchmark, the portfolio has under-performed due to the strategy in equities.
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This series is for information purposes only without regard to any particular investment objective, financial situation, suitability or means. It is not be construed as a recommendation, or any other type of encouragement to act, invest or divest in a particular manner (whether explicit or implicit). We recommend that you are familiar with the terms of use.
NVIDIA
On 24th May, Nvidia announced its Q1 2023 results, it posted revenue of US$ 7.19 billion and EPS of US$ 1.09, blowing past analyst expectations. It beat revenue expectations for the quarter by US$ 670 Million. The stock opened up +25% the next day. Its been two weeks since and now that the dust has settled, I am going to evaluate the earnings and consider exiting the short position on the stock.
Financials by Fiscal Quarters:
1. The company has beaten analyst expectations this quarter, however it is still lower than the US$ 8.2 billion 4 quarters ago or the US$ 7.6 billion 5 quarters ago.
2. Operating Income and Net Income to the Company: there is improvement over the last 4 quarters but not past the best it has seen (which was in 2021).
The next chart is the trailing twelve months data of Revenues and Operating Income. I can see that revenue growth has started to dip lower and operating income has fallen. The gap between the two has increased over the last four years, showing expenses has risen at a greater pace than revenues.
The chart below is the Market Cap multiple to the Last Twelve Months revenue. Nvidia is currently trading at the highest multiple in the last 10 years at 37 times annual revenue. Lets compare that to other Mega Tech stocks such as Alphabet, Apple, Microsoft, Meta, Amazon or chipmaker Intel? Nvidia has a higher multiple than the sum of all the other multiples. (Wow! Unless there is something that I am missing here, I am literally considering doubling the short position. Sometimes though the markets can remain irrational for an extended period of time, so no, I am not going to double anything).
And finally, the chart below shows free cash flow (in green, on the left) which has fallen to the levels seen in 2021. On the right (in the blue) is the MarketCap to forward revenue. It says in 2028, this is expected to be 10 (from 38 currently). There are a few ways that can happen: In 5 years, the revenue of the company rises 4 times, while the stock price remains the same (highly unlikely on both counts). In five years, the stock price falls 70% while revenue remains constant. Third, in five years, the revenues rise and stock price falls (for the sake of those who remain invested in this stock, lets hope this is not the case). There are other combinations for a Marketcap to Forward Revenue of 10 to be achieved. As for me, I am willing to hold on to the short for another quarter before I make a decision on exiting it.
That’s all in today’s post.. Thank you for your time! See you in the next post!
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