Bear's Portfolio through Dec 2017

PaulWBryant · December 29, 2017, 4:30pm

Greetings! The closing bell has rung and with that, I end 2017 up 57% on the year. And I’m thrilled with that. But at this point it seems old news to gush about how this year was better than I had believed possible: http://discussion.fool.com/better-than-i-would-have-believed-328… …because looking back to September, I haven’t gained much ground since – in fact, I’ve lost to market for Q4! The S&P has risen from 2519 to 2674, or 6%, in the same quarter! I should be up double digits!

Why am I not? Some causes are obvious – Shopify and Wix shares were down in Q4. Same with Alarm, Twilio, Talend, and The Trade Desk. Of course we can’t expect things to go up smoothly or every month. Some things (Shopify) might have simply flown so high that they couldn’t keep pace. Others showed signs of deterioration. For Shopify, Alarm, and Wix, I like them even more now that they are cheaper, so I bought more. Twilio, I sold.

But no meltdowns or drastic story changes – no companies whose revenue has dropped off a cliff. I couldn’t say that last year. Last year Infinera’s sales expectations were slashed. Same for Rubicon. Same for many others. This year even the bad news has been more subtle. I think that is a good sign. In short, I see the reasons I have lost to the market in Q4 of this year as very different from the reasons I did so in 2016. This year I feel that for the most part, the things I liked at the end of Q3 that now sell for less, I simply like even more now.

But really, whether we look at the month, quarter, or even the year, the time frame I’m most interested in is between now and when I need the money I have invested. So it’s a long game. Nevertheless, I think it’s ok to have goals, even if only to understand why you didn’t achieve them, like I’ve just done for Q4. Therefore…

2018 goals

Beat the market (S&P 500, Nasdaq, and IWM).
Achieve a positive return, no matter what the market does.
Hold at least one company that doubles in 2018. (Sounds crazy to any non stock picker. Not so crazy to me after 2017.)

Looking forward to doing this again with you all in 2018. I truly enjoy learning about investing, and discussing companies and trends on this board. But first let’s look back at December, and all of 2017, and put a bow on the year.

My Portfolio Performance

note that I use tickers .INX, .IXIC, and IWM to benchmark. These do not include dividends, I don’t think. If anyone can suggest tickers that do, I will switch over.


**This Month**
My Portfolio             -1.84%
MyPort_EWNT              -2.83%
S&P                      +0.98%
Nasdaq                   +0.43%
Russell 2000             -0.74%
 
**YTD**
My Portfolio             +56.73%
S&P                      +19.42%
Nasdaq                   +28.24%
Russell 2000             +13.06%

Previous Month Summaries

My Current Allocations


Ticker	Curr%	Buy/S	Mo Ch	YTD Ch
SHOP	18.5%	-11%	-2.7%	135.6%
ANET	14.4%	9%	1.1%	142.7%
WIX	11.0%	19%	4.8%	28.0%
HUBS	8.0%	-35%	9.2%	88.1%
SQ	7.1%	-20%	-11.6%	154.4%
PSTG	5.4%	25%	-14.2%	40.7%
ALRM	5.3%	27%	-7.9%	35.6%
MU	5.1%	292%	-3.0%	82.4%
INST	5.0%	0%	-4.7%	69.3%
HDP	4.8%	0%	5.8%	142.0%
TLND	4.8%	0%	-6.2%	68.8%
NVEE	4.4%	NEW	-2.3%	62.1%
TDOC	4.2%	NEW	-6.1%	111.2%
TTD	1.0%	-76%	-6.9%	65.3%

New this month: Nv5 Global (NVEE) and Teladoc (TDOC)

Sold out of this month: Facebook (FB) - As per usual, I exited Facebook when several of my other stocks were down. Facebook is less volatile, so I use it as a better-than-cash place to put my money when I can’t find anything else I want to buy.

So I now have 14 positions up from 13 positions at the end of November, but as you will see, The Trade Desk is hanging on by a thread.

SHOPIFY - SHOP (18.5%) - To slightly modify what they say about themselves, Shopify is “the only platform you need to build your [small or medium sized business] empire [online].” They provide a website, a way to take payments, SEO optimization, etc, etc, etc. They’re innovating and growing…and boy are they growing. They make money when businesses sign up with them, and then they make more when those business grow and sell more stuff.

How have they been doing? As most of you know, Shopify continues to grow like…actually, any hyperbole I could come up with would understate the growth. Here’s my review of the September quarter: http://discussion.fool.com/bear39s-shopify-sepq-review-32880587…

This is real, and it is amazing. I think in the not-too-distant future, this company will be worth many multiples of its current 10B price tag (http://discussion.fool.com/value-and-shopify-32925299.aspx). This is a top confidence position, and I’m in this company for the long haul. I increased my position when share price was down, but trimmed a little this month as it went back up. Still #1.

ARISTA NETWORKS - ANET (14.4%) - Arista sells network switches, just like Cisco, except Arista’s switches use SDN (Software Defined Networking), which I understand makes for better control, performance, and security. Oh, they’re also pretty hard to make, because Cisco is sucking wind trying to catch Arista, but to no avail.

Arista won me over after their June quarter, which was a total smash. Well guess what? The September quarter might be even MORE impressive. Growth: They maintained 51% revenue growth, which just shows how much they’re dominating, as others in the space aren’t growing much, or some at all. Profitability: You want earnings? Operating leverage? Look no further than ANET. EPS basically doubled YoY. OpEx actually came DOWN sequentially, and was only up 13% YoY vs Gross Profit which was up 51%. Net Margin soared to ~30%. Arista is crushing it all around. Oh, and ANET has $1.3B+ in cash – my guess is that when all the legal pestering from Cisco abates, they’ll buy back shares, start a dividend, or invest in something really cool.

I started a position in August and have added more shares every month since. Obviously I like this company a lot and just wish I would have started paying more attention sooner.

WIX.COM - WIX (11.0%) - Wix is a company that helps users create websites, and then hosts them. It makes most of its money by charging subscription fees for premium content. It has over 100M users, and more than 3M of them pay for premium accounts.

The September quarter was fantastic. Revenue grew 47% and Average Collections per New Annual Subscription ticked up sequentially from $156 to $158. But, as I noted (http://discussion.fool.com/overall-i-liked-the-quarter-no-slow-d…), the market kind of missed the point. The positive EPS was well within the “step in the right direction” category, but missed expectations that I think were so unreasonable as to be silly – and the company doesn’t give EPS guidance, so I’m really not sure where they came from.

I have added quite a few shares in November and December.

HUBSPOT - HUBS (8.0%) - Hubspot helps companies manage their brand online. This is much more than just buying ads. This is SEO, website, blog, social media, etc, etc. Hubspot is such a powerful and value-adding tool for marketing departments (a CMO’s dream) that I can’t see why any company of a certain size wouldn’t want to use it, and use it increasingly. Of course with a product that’s this much of a value add, there are certainly competitors. Yet it sure seems to me like Hubspot is a leader, if not THE leader, in the space, and the results it continues to achieve seem to confirm this.

As Saul noted here (http://discussion.fool.com/hubs-why-all-those-analysts-are-jumpi…), Hubspot managed to eke out positive earnings despite a conference that costs millions, so without the conference they would have had double-digit EPS. Pretty swift acceleration of operating leverage. I expect the next couple of quarters to really highlight it for those who can’t already see it like Saul can. They’re guiding for 7 cents EPS in Q4. Expect them to beat that…by a lot.

I reduced my stake in Hubspot after shares increased quite a bit in December. I still think they have room to grow, but the company hasn’t been growing as fast as some other things (Wix for example) that I feel are even more undervalued.

SQUARE - SQ (7.1%) - You might know Square if you’ve ever paid with a credit card at a local vendor – there’s a good chance they used a Square device to take the payment. Square also provides many other services available to their customers. One of the most profitable is Square Capital, which really leverages their data advantages to offer extremely profitable and low-risk loans to their customers.

In their September quarter Square failed to make me look stupid (http://discussion.fool.com/modified-buy-and-hold-pt-2-32875928.a…). They accelerated revenue growth to 45%, just as I had hoped and been foolish enough to predict. Thanks, Square!

Square was coming off some pretty absurd highs it hit in November (perhaps in part due to Bitcoin craze). I trimmed more early in December while shares were still extremely expensive. In some ways they still are, but I just can’t bring myself to trim any more. If it drops much more I’ll be more likely to add than trim. The story remains excellent!

PURE STORAGE - PSTG (5.4%) - Pure Storage, formed in 2009, provides flash storage arrays. Storage arrays are nothing new, but flash is different. How different? Bert Hochfeld says it’s the biggest change in storage since spinning discs replaced tape. (https://seekingalpha.com/article/4007341-pure-storage-nimble…)

They reported their October quarter on 11/28 after the market closed (the day before the big 11/29 drops). Just your average beat and raise. Revenue growth accelerated to 41%, and EPS loss dropped to 1 cent per share. For a company valued so lightly (PS is 4.3 – even lower than HDP’s), they sure have a habit of doing exactly what they say they will (well, slightly better). I cannot recommend their slide deck enough: https://investor.purestorage.com/news-and-events/events-and-… They’ve been perfectly predicting exactly what they will do, down to operating expense and operating margin percentage loss (next quarter it will be a gain – their first positive earnings) – see slides 9 and 10. People write Pure off as a hardware company, but:

They have a large SaaS element – 20% of revenue this quarter
They’re NOT a commodity. Gross Margin is 65%+

I added 25% more Pure shares in December, especially since the shares pulled back quite a bit. I trust management to do just what they say they will do, and I expect great stock results as that continues over the next few quarters.

ALARM.COM - ALRM (5.3%) - As stenlis, who brought Alarm to Saul’s board, puts it: Alarm.com Holdings, Inc. provides cloud-based software platform solutions for the smart homes and businesses in the United States and internationally. The company provides interactive security solutions to control and monitor their security systems, as well as connected security devices, including door locks, garage doors, and video cameras. I wrote them up here: http://discussion.fool.com/my-thoughts-on-alarmcom-32813166.aspx…

This little company is so solid and undervalued as they just start to flex their operating leverage muscles. Don’t let tax fluctuations fool you, they made incredible progress this quarter. Operating Income was up 267% (not a typo). Revenue was up 33% but SaaS revenue is growing a lot faster. I love this under the radar grower and think they’ll surprise a lot of people in 2018.

I have continued to increase my stake in Alarm, adding 27% more shares in December. I think this company is being hugely misunderstood and underestimated.

MICRON - MU (5.1%) - Micron (MU) makes chips for four different business units:

Compute and Networking (CNBU) - read: DRAM
Storage (SBU) - read: SSDs
Mobile (MBU) - read: NAND
Embedded (EBU) - read: Auto

Everything is growing fantastically. Revenue was up 71% for the quarter. The problem? Everyone thinks the party will end sooner than later and they’ll start losing money again. It’s not an unfounded fear. Their fixed costs are high, so if demand drops precipitously they could be in trouble. But there are reasons to be positive. They’re diversifying into these 4 business units really well, and most are not showing any shakiness of demand at present. They’re also making bottom line profit hand over fist right now, allowing them to pay down debt and really solidify their footing. How much are they making? Last quarter, net income was:

Micron: 2,678M
Nvidia: 838M
Facebook: 4,707M

Random examples, I admit. But look where they fall when it comes to profit! And since Micron is a 54B dollar company, while the other two are 123B and 525B respectively, there’s a WIDE margin of safety built in. Think about it, with a PE of 6.4 they could double and still have a PE in the low teens. Still

I bought a tiny position in November and added 292% more shares in December, bringing it from a tiny try-out position to a more regular sized holding.

INSTRUCTURE - INST (5.0%) - I brought Instructure to the board in September. http://discussion.fool.com/why-i-bought-instructure-inst-3283437… It’s is a cloud-based learning management platform for academic institutions and companies across the world. Their platform enables virtual learning, and they’ve gotten so good at it in the education context (since they started in 2008) that they’re now (actually since early 2015) offering it in a business context as well. Their classroom product is called Canvas, and their business solution is called Bridge. They are constantly signing school districts and businesses to expand their reach to hundreds of thousands of new users.

They reported a great September quarter yesterday, which I wrote about here: http://discussion.fool.com/bear39s-instructure-sepq-review-32880… Seems they’re just winning everything. I hope to see some margin acceleration soon, but we’ll just have to see.

I neither added nor sold any Instructure shares in Decemeber.

HORTONWORKS - HDP (4.8%) - Hortonworks helps companies manage big data with Hadoop. Customers subscribe to the HDP software platform, and Hortonworks stores, processes, and analyzes their data.

This quarter was exceptional. Maybe the best of any company I own. Revenues accelerated from 42% to 45% YoY. More importantly, Subscription Revenue was up 64% – a HUGE acceleration. Gross Profit was up 72% YoY! Then, they actually reduced OpEx YoY. Yes, you read that right. Arista reduced theirs sequentially, which is impressive when you also grow revenue like they do. But HDP did them one better. In short, the “expand” part of their land & expand model is gangbusters right now.

I neither added nor sold any Hortonworks shares in Decemeber.

TALEND - TLND (4.8%) - Talend has carved out a niche within big data integrations by specializing in Hadoop, an expertise that will not be easily disrupted. Saul has called them a “category crusher,” a leader with no viable competition in its niche. I tend to agree, though others will not ignore this space forever. Hopefully Talend will continue to build up years of subscription revenues while they occupy the catbird seat.

I would describe Talend’s quarter as a solid continuation of good progress all around. Revenue grew 40%. Operating leverage improved – oper loss narrowed quite a bit, they added 44 enterprise customers (vs 31 last Q), and enterprise customer count was up a massive 59% YoY. Nothing to complain about here.

I neither added nor sold any Talend shares in Decemeber.

NV5 GLOBAL - NVEE (4.4%) - NV5 is an engineering and consulting services company in the infrastructure industry. They grow by many small acquisitions, but they increase profitability all the while. The founder/CEO owns 10% of the company and altogether insiders own 35%. Their ~50% growth in 2017 is certainly an impressive pace, but I believe this company will continue to grow quickly and profitably. That’s enough for me, but I also believe they might be at an inflection point with scaling (operating leverage).

In the September 2017 quarter, Operating Income was 9M. That’s up from 2.5M in Q1 and 6.9M in Q2. Excited to see where it goes from here! Also, gross profit has increased more than revenue in 2017.

Lots more info here: http://discussion.fool.com/new-position-nv5-global-nvee-32916511…

This was a new position in December.

TELADOC - TDOC (4.2%) - Teladoc is a rapidly growing (though partly by acquisition) telehealth company. What’s a telehealth company? Well, you can actually meet with a doctor via a Skype-like visit online, rather than going into the doctor’s office. Sounds like the future, huh? I’ve been tracking them for a year or so – the company I work for actually got Teladoc coverage a couple years ago. I wrote them up in June: http://discussion.fool.com/teladoc-32753167.aspx

There’s been a lot of news, including the Best Doctors merger, which was large. Saul has questioned the path to profitability, and there are other question marks like competition, so I’m keeping my position small for now.

This was a new (again) position in December.

THE TRADE DESK - TTD (1.0%) - The Trade Desk plays in the somewhat crowded world of advertising tech, but it seems the way they’ve positioned themselves to work with ad agencies (instead of companies placing ads) has really made them a preferred tool for the buy side. They also don’t buy inventory but just facilitate, so that streamlines their process and enables them to serve their customers without conflict. Their growth is phenomenal: revenue grew by 78% for the year in 2016. And they’re profitable with a PE around 33.

Revenue grew 50% YoY last quarter, although OpEx grew 59%. At first I wasn’t thrilled with that, but then I realized, they are still growing into a very large opportunity. I thought the 25-30% haircut the shares got was a market overreaction. But I’ve since become more bearish myself. I just don’t understand what sets The Trade Desk apart, and what keeps Google and Facebook from squashing them like a bug. With so many investors wary of adtech, their slightly light guidance shook the stock more than 25%. Even a slight miss, or more guidance that displeases the market, could be devastating.

I added shares in November, but after rethinking it I’ve almost sold out. The Trade Desk is one I’m simply not sure how to predict, so I’ll stick to the things I can.

My best to all in 2018,

Bear

“I guarantee nothing but hard work.” - Bear Bryant, Alabama Football Coach, 1958 - 1982

“If you must tell me your opinions, tell me what you believe in. I have plenty of doubts of my own.” attributed to Goethe (but not sourced)

“Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn’t … pays it.” - Attributed to Albert Einstein

“exponential compounded growth does not fit the analytical backward looking skill sets of most Wall street analysts” - mauser96

“I presume the thing is to ride the momentum for the short squeeze and exit fast with enough money for a few months supply of whisky before everyone realises it’s a value trap.” - Strelna

anthonyms · December 29, 2017, 8:10pm

Bravo Bear - thanks for seeing it through, good job on the incisive but simply structured detail and well done on the final result!
Happy new year.
Ant