Bear's Portfolio through 03/2023

PaulWBryant · April 2, 2023, 1:48pm

Important context for my portfolio reviews: I run a concentrated portfolio and WARNING the swings can be huge. From the 2021 high to the 2022 low, my portfolio fell more than 60%. For every $100 I had at the top I had just $40 left! Staggering. So, before trying this style, even with a small portion of your total net worth, please understand the downside – it’s much steeper than if you own an index, or a bunch of megacaps. Also, don’t follow or copy me, Saul, or anyone. We may sell a position or buy a new one at any time, so it’s impossible to follow anyway. Also, to succeed with a concentrated portfolio, you must rely on your own decisions.

March was looking pretty gloomy when I did a mid-month update: Bear's Mid-March Update. At the time I was down for the month and up only 4.3% ytd. The last few days of the month have really turned things around! Here are all the changes I made, by company.

First, I sold Docusign, as I mentioned mid-month. Billings growth is looking pretty non-existent (or at best, uninspiring and unpredictable).

MY COMPANIES

BILL - BILL is up to 81.14 from 73.82 when I did my mid-month review. I’ve trimmed, but the only shares I sold were on lots where I had a gain (in other words, shares I bought recently when it was in the 70’s or below). I don’t really think this one deserves a 20%+ position, but I’m willing to wait on it to go back up before I trim. I do think it’s been beaten down too far, and it’s not like I have anywhere else I want to put cash.

Zscaler - ZS is up from 109.86 mid-month to 116.83 now. I’ve trimmed, but the only shares I sold were on lots where I had a gain. I think Zscaler is solid, and will keep growing profitably, even if it’s only at a 30% clip or so, so it looks undervalued to me.

Datadog - DDOG is up from 66.24 mid-month to 72.66 now. I’ve trimmed, but the only shares I sold were on lots where I had a gain. Like Zscaler (and BILL), I think DDOG will keep growing profitably, even if it’s only at a 30% clip or so, so it looks undervalued to me.

Samsara - IOT is up from 19.51 to 19.72, so just about flat. It was actually way down between my mid-month update and now, so I have added. Still a new position, but it appears to be a solid SaaS company approaching profitability, and since it’s still smaller than the DDOGs and ZScalers of the world, I’m hoping they can keep growing a little faster as profits start to come.

Cloudflare - Cloudflare is up 55.25 to 61.66 since mid-month. Even though it’s up, I added to get it to 5%. That’s about the least I want unless it gets crazy overvalued.

Global-e - GLBE is up from 26.66 mid-month to 32.23 now. That’s the most of any of these, percentage wise, I believe. I slashed the position to take some gains, as I’m not entirely comfortable with a large position here. They’re a little outside my wheelhouse, and they have a few unknown unknowns I suspect, dealing with big fashion brands and international issues etc. And remember, it has affected their execution, and we’ve seen them miss and/or reduce guidance at times.

Enphase - This is a new position since my mid-month update. Obviously not a SaaS company, but I’m not finding many faults with their execution, and demand seems driven by a secular megatrend. Growth and profits have been impressive, and it’s enough for me to want to hold at least a small position, and follow this company.

Snowflake - SNOW is up from 137.73 to 154.29 since mid-month. I have slashed the position. I feel it’s way overvalued, even though it will probably go higher. If it gets to $180 or so I’ll sell the rest, and sleep like a baby. No FOMO here for me.

You may think it’s crazy that my cash position is back over 40%. I don’t love it, but for context, it did get below 30% at one point this month, and to me that illustrates the flexibility cash offers me to add and trim my positions aggressively. I might decide I’m comfortable with larger positions in some of the companies I own, and distribute cash that way…we’ll see. For now, I’m in no rush. I’m happy with these companies, and I’m just tempering my expectations. My eyes are always peeled for something new, but I don’t want to force it with inferior businesses. Because as always, the goal remains the same: pick the best companies.

Bear

“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

Previous Month Summaries

Dec 2016 (contains links to all 2016 monthly posts): Bear's Portfolio at the end of 2016 - Saul’s Investing Discussions - Motley Fool Community

Dec 2017 (contains links to all 2017 monthly posts): Bear's Portfolio through Dec 2017 - Saul’s Investing Discussions - Motley Fool Community

Dec 2018 (contains links to all 2018 monthly posts): Bear's Portfolio through Dec 2018 - Saul’s Investing Discussions - Motley Fool Community

Dec 2019 (contains links to all 2019 monthly posts): Bear's Portfolio through Dec 2019 - Saul’s Investing Discussions - Motley Fool Community

Dec 2020 (contains links to all 2020 monthly posts): Bear's Portfolio through Dec 2020 - Saul’s Investing Discussions - Motley Fool Community

Dec 2021 (contains links to all 2021 monthly posts): Bear's Portfolio through 12/2021 - Saul’s Investing Discussions - Motley Fool Community

Dec 2022 (contains links to all 2022 monthly posts): Bear's Portfolio through 12/2022

Jan 2023: Bear's Portfolio through 01/2023

Feb 2023: Bear's Portfolio through 02/2023

mid-March 2023: Bear's Mid-March Update

PaulWBryant · April 3, 2023, 2:00pm

I meant to comment on the fact that I’m still losing to the Nasdaq. Some Nasdaq companies like META (facebook) and Nvidia that are up 75% and 90% respectively!
What’s amazing is that these companies seem to be struggling more (or at least enduring more of a swoon in growth rates) than our SaaS companies. It’s possible they just got cheaper than they should have and have bounced back – I don’t follow them, so I don’t know.

Anyway, I believe we should take short term results for what they’re worth. To me, this is a good reminder that SNOW and even DDOG and even BILL never got classically “cheap.” They aren’t priced for nearly as much growth as they used to be, but they’re still priced as solid, growing, profitable companies. But it would be a mistake to think that NVDA or META is “doing better” than these SaaS companies. They’ve rebounded more off the lows, but going forward I would expect our companies to have much better revenue and earnings growth, and therefore over the longer term, better stock returns.

Anyone else have thoughts?

Bear

BeachMan2115 · April 3, 2023, 2:59pm

Bear - I have a different perspective on this.

Comparing SNOW, DDOG and BILL to META, NVDA is like comparing apples to tomatoes. Yes that’s the new phrase

META and NVDA are in the mature phase of their business lifecycle and are measured by markets using margin related metrics like earnings, operating income, EPS, PE etc.

SNOW, DDOG and BILL are not yet profitable. So they are measured by topline metrics like sales, revenue growth, RPO, ARR, billings etc…the promise of future earnings based on capturing as much revenue growth now.

That said, investors ultimately care about portfolio returns. Smarter investors go where they can find these returns as per their risk tolerance.

NVDA, META, NFLX etc bottomed last year and therefore have done well YTD because they are pivoting to higher growth in 2023, cutting costs (expanding margins) and revamping their products/services.

We can shun these stocks because we love “SaaS” or we can put our money to work even if for the short term and take gains when possible.

I always say that this is what makes a market…investors with different POVs on the same topic. Buyers need sellers on the other end of the transaction. So differences of opinion are needed, welcome and make us all better investors.

Cheers!

PaulWBryant · April 3, 2023, 3:51pm

Beachman,

I don’t understand where you think the difference is in the way we’re seeing this. I agree with most everything you said, especially that these are apples and tomatoes. I wasn’t comparing the companies, I was just saying that META and NVDA are up 75% and 90% ytd…so I don’t expect their outperformance to continue. Do you own either of these? What do you expect for them?

Bear

SaulR80683 · April 3, 2023, 5:04pm

That’s wild, Beachman! How in the world can you blithely state that a company like Datadog is not profitable. Did you simply not look to see? Here is what their results looked like last quarter:

Adj op income was $326 million;
Adj op margin was 19%.
Adj EPS was 98 cents
Op cash flow was $418 million,
Free cash flow of $353.5 million.
Free cash flow margin was 21%

Now any way you want to look at it that $353.5 million of FCF is real money in the bank… that they can use to pay dividends with for instance, if they want to. And it was from just one quarter. And you say they are “not profitable” !!!

And Snowflake not profitable? Here were their results for the last fiscal year:

Op Margin was 5%
Op Cash Flow was $545 million
Adj FCF was $520 million
Adj FCF margin for the year was 25%.

And you missed even on BILL:

Adj Op Income was a record at $30.8 million, at nine times last years $ 3.4 million, and more than tripling sequentially from $9.1 million.

Adj Net Income was a record at $49.4 million, up from a small loss of $0.2 million last year and roughly tripling sequentially from $16.9 million.

Adj Net Income Margin was 19%.

Adj EPS was 42 cents, a record, up from breakeven yoy, and tripling sequentially from 14 cents

And, oh yes, $48 million in Free Cash Flow, for an 18.5% FCF Margin.

Come on, Beachman, you have to at least look before you make a black and white false assertion like “SNOW, DDOG and BILL are not yet profitable,” to make sure that it’s true. THIS IS A WARNING THAT MORE LIKE THAT RISKS YOU GETTING BANNED FROM THE BOARD.

SAUL

BeachMan2115 · April 3, 2023, 6:14pm

Paul - On the future outperformance question, I might agree with you on META. But I think NVDA could see some outstanding growth in the next 3-5 years as it transitions from a semiconductor company to a full stack (hardware + software) company that sells based on subscriptions similar to how AAPL is earning revenue for every car that has Apple Play built in. NVDA is going in that direction for their auto and software robotics segments.

Saul - I will refrain from posting on this board because somehow it seems to bother you.

I am referring to profitability by GAAP standards. I prefer to use GAAP standards because they can be uniformly applied across all US companies.

Please take a look at the financial statements provided by these three companies. None of them are profitable, neither during their most recent quarter nor across the entire year. Adjusted numbers can sometime be fungible depending on the messaging the company wants to convey. Even ARR can be tweaked to look better…that’s why I prefer RPO as a forward revenue metric because it is based on signed contracts.

Datadog

Snowflake

SaulR80683 · April 3, 2023, 7:08pm

Maybe that’s for the best, Beachman. I see that you had another warning in February. In the six months or so we’ve been running the board on the new system, with a closed group of posters, One guy got dropped after an extraordinarily inappropriate post, and you have gotten two warnings. No one else has even gotten one warning.

As far as your assertion about what the market wants, the amounts of money (non-GAAP) that these companies are salting away as profits, are there in the bank. They can be used for paying dividends, or for a stock buyback, or for buying another company, or for anything else that the company wants to spend them on (even if you don’t like them because they are non-GAAP), and they are sitting there in the bank under cash and equivalents. What else can a stockholder really want?

Saul