post-pandemic value thoughts ?3

14:51 02-Sep-20

The jump in WPRT was short-lived, as predicted below.  Today's movement in CLNE on the news that NYC is switching its buses from fossil to renewable natural gas reinforces the points I've been making of late:

1. The current market is all about monetary policy and index domination.
2. Oil is the new coal, fossil gas is the new oil.

Xebec is a beneficiary of #2, but I also mean to imply that fossil gas isn't going away soon, as supported by California's extension of AES power plants.  That said, Siemens spinning off of its power business at the end of this month probably means that Fluence is unlikely to see the same as soon as I might have hoped.

It also remains to be seen how new battery technology will affect that business, but a mass-produced graphene anode in Xiaomi's latest flagship phone is proof positive of real-world progress.   This means even bigger changes are coming for transportation than for energy or mobile devices, which makes Google's initial entry into automotive operating systems with Volvo that much more important.  I still can't bring myself to purchase GOOG unless its price drops by almost half, but for those who are bothered by missing out, I offer this chart
showing that GOOG has risen much less than the other mega-caps despite all having flattish revenue, and only Amazon showing meaningfully improved earnings.  I'm personally quite willing to miss out because I am unwilling to gamble on the disconnect between the market and the economy ahead of the election.  If I were to gamble a little, it would be more focused, taking eMagin's emerging production over Vuzix's evolving plans, but Golar's financing plans make the implied risk/reward in GMLPP enough for me.

Westport has just announced a $58M contract to manufacture and supply the electronic control units for water pumps in two Tier-1 light-duty vehicle models over 7 years.  WPRT is up 17% to almost $2 in response, but my guess is that move will be short-lived. 

I note that the $8.28M/yr is significant for Westport, but hardly game changing at less than 4% of even lowered estimated revenue for this year, and half of projected post-pandemic sales.  Furthermore, despite management characterizing this supply contract as key, I think they mean key to survival rather than the hockey stick growth that I had been seeking. 

We saw TSLA also jump a double digit percentage today after splitting shares, and AAPL followed suit, to a lesser extent.  It's good to see Westport adapting, but from an investment perspective, I think this will turn out to be another example of the K-shaped recovery, where big firms benefit from the markets and smaller ones struggle just to survive.

On 8/31/20 8:12 AM, Esekla wrote:

I closed last week by noting that Sino-American relations could deteriorate entirely by the end of next year.  I'd like to open this one with a broad look at how corporate world powers may adjust, and recap some of the less important news in the process. 

Nokia is one of the most commonly cited beneficiaries, but I remain hands off.  Verizon's recent announcement should have been right in Nokia's wheel house, but it was conspicuously absent from the list of partners, reinforcing my earlier concerns.  The relationships with AT&T & T-mobile seem safe, but Verizon is the largest U.S. carrier by over 20%, and all the private deals in the (western) world are going to have a hard time making up for that loss.

The real problem for Nokia is that, with Hong Kong all but fallen, behemoths like Alphabet are giving up on China and being forced to push hard for the same service revenue in the West.  This enhances the value of Vodafone in my eyes, though that won't be realized until next year and the shape of any deals is uncertain.  Nonetheless, I note that Google has already inked a strategic partnership with Orange showing interest in edge services.  The Vantage IPO could be the perfect vehicle for expanding that push as well as for cross-investment.  In the meantime, there's still the dividend to look forward to.

This is all part of Google's work to shift its business into aspects of life that are more important than advertising.  The company began rolling out steps to integrate its voice communications businesses in late June.  The value in the edge computing referenced above is in better modeling the world for services like life insurance.   As that industry continues to be disrupted, I still see eventual success for BGC's reinsurance business, but more immediately, the programs initiated by Verily this year show why there's no way Google is going to let go of Fitbit.  Thus, FIT traders were right to disregard new competition from Amazon.

And Fitbit has little hope without a ubiquitous service provider like Google.  Xiaomi is showing, with its under-screen camera design, that further U.S. efforts to block the Chinese out of technology are too little, far too late.  This progression matters even more to manufacturers like MACom & Intel.  Now that the whole world is certain that the latter has completely lost its technology leadership, domestic investment attention will gradually shift toward services & distribution, as America blithely winds down its wealth.  While that explains the price of VUZI, I continue to like CTL & VIRT pricing better. 

The only unanswered questions are how much Washington will try to overplay its hand, and how long its historical allies will play along.  For the companies above, that brings us back to the election.  However, for the rest of the world, the die is already cast.  Xebec is preparing itself for a post-shale rich world and market, while Golar is recognizing that fossil natural gas is going to be more and more of an emerging economy business.  Investors should be moving their portfolios in similar directions.