Disco Gator's April 2021 Update

April 2021 Portfolio Update

Monthly Disclaimer: I put together these updates as a sort of record keeping for myself. It helps me to think things through with my investments, and documents the reasoning for most of the moves I make. I do not want to come across as a know-it-all or a braggart just because things are going well. I have always kept records of my investing because I want to see how each of the decisions I make compares with the overall market. Having these records reminds me that it is an absolute certainty that things can and will go south at some point. This is now the fourth year that I have kept detailed information on a monthly basis. Every year, there have been periods of time where my portfolio has dropped from 15-30% and it will happen again. It happened twice in 2020, and it already happened once this year. Now on to this month’s update…

I plan to continue leading off with this for the next few months. We have developed a rating system for the stocks of the companies that we follow. Although we have partial portfolios completely following the recommendations given, I am personally meshing the two together for my main portfolio. The last four positions I have added to my portfolio were all rated 5?? in our system. Please do not comment or ask questions about this in this thread. Make sure you reply via email as it is off topic here. You can find more information about this on Twitter @PBMMInvestments.

Overall, April was a very quiet month. Most of the focus in the news continues to be about vaccines and the reopening of businesses. Although this news has a negative effect on the stock of our companies in the short term, I fully expect to see this reversed as these companies continue to turn in amazing results.

Since April was a bit slower than others as far as the news cycle goes, I used this time to continue researching companies as somewhat of a watchlist. With earnings season about to crank up, it is always possible that I will feel the need to exit a position. Don’t get me wrong, I don’t necessarily expect this to happen, but I like to keep my options open.

As a reminder, I post results the last weekend of the month. This would make April a five week period as it includes the last few days of March. Our April high point occurred on April 13 when we were +20.52% YTD. Our low point was April 5th at +8.78% YTD.

Here is a snapshot of how my portfolio has performed over the past month, compared to the broader indexes. As usual, I’ll include the CNN Fear and Greed Index.

W/E Date        Portfolio     S&P 500 %     DJIA %      Nasdaq %    Russ 2000    Fear and
                % change       change       change       change     % change    Greed Index
  April           +5.63%       +5.20%       +2.42%       +6.27%       +2.02%        56    
  March          -12.01%       +4.29%       +6.92%       -0.41%       +0.93%        52
 February         +5.50%       +2.61%       +3.17%       +0.93%       +5.80%        48 
 January         +12.72%       -1.11%       -2.04%       +1.42%       +5.35%        35
   YTD           +10.53%      +11.32%      +10.68%       +6.27%      +14.77%        56 

We end April up 5.63% for the month, which puts us at +10.53% YTD. The average of the four indexes I track is +11.27% so we are trailing that by a little. The Fear and Greed Index continues to float around the neutral level to a low greed area. Pretty stable for the most part. Much more so than my portfolio!

Just when I thought I was not going to make any changes to my portfolio this month, Pinterest announced earnings and the price of shares plummeted. After reviewing as much of the information as possible, I felt that this was a gross overreaction and decided that I wanted to add to my position.

After a quick review of my current positions, I decided to trim Crowdstrike. The reason I chose that was not because I was losing any faith in them, but almost exclusively due to their recent run-up and current valuation. They also happened to be the lowest ranked stock in our PBMM ratings, as I continue to mesh the two to help maximize my results. I ended up selling 12% of my Crowdstrike, using that to buy Pinterest.

This was the only move I made this month and it was just a shift in allocation and not a change of entering/exiting a position.

On to the individual results for each company that I invest in. They are listed by allocation from highest to lowest.

Company                Allocation       Initial         Purchase        April         % Change
                                       Purchase          Price         % Change      since Pur
Etsy (ETSY)                20%         01/01/21         $177.91         -1.74%         +11.74%
CrowdStrike (CRWD)         19%         01/01/21         $211.82        +17.34%          -1.56%
DocuSign (DOCU)            14%         01/01/21         $222.30        +10.39%          +0.29%
Square(SQ)                 14%         01/04/21         $219.15        +14.62%         +11.71%
Pinterest (PINS)           11%         03/08/21          $67.38         -3.91%          -1.50%
Zoom (ZM)                  10%         01/01/21         $337.32         -0.12%          -5.26%
Digital Turbine (APPS)      8%         02/02/21          $60.76         -0.30%         +24.14%
Fulgent Genetics (FLGT)     4%         03/12/21          $93.86        -19.12%         -17.94%    

On the chart above, you get a clear picture of how things are currently allocated. For the “Initial Purchase” column I default to the stock price when the year started for stocks I have owned prior to this year, instead of when I purchased it. I want to see how things go from this point forward. My holdings are grouped into four tiers. The top tier contains Etsy and Crowdstrike. Those are the two companies that I have the highest conviction in and expect them to continue turning in great results. Fulgent Genetics is in my bottom tier, mostly due to the expectation that it will be the most volatile.

Now on to the discussion of the individual holdings in my portfolio, listed in alphabetical order.

CrowdStrike (CRWD) - CrowdStrike Holdings offers cybersecurity services through its Falcon platform, which monitors client operations at their endpoint connections to the internet and works to identify and stop threats. The platform learns from attacks made on it and then warns the entire CrowdStrike cybersecurity network about likely avenues for future security issues. Due to its recent run-up, Crowdstrike briefly overtook Etsy as my #1 holding. It has by far the highest valuation of any of the companies I invest in, so I sold 12% of my position to buy more Pinterest after their earnings drop. They are still a little more than a month away from announcing Q1 results, but I expect them to be stellar.

Digital Turbine (APPS) - Digital Turbine simplifies content discovery and delivers it directly to the device. Its on-device media platform powers frictionless app and content discovery, user acquisition and engagement, operational efficiency and monetization opportunities. Digital Turbine finalized their acquisition of AdColony, and while doing so pre-announce their Q1 results. They state that Q1 revenue results are expected to be $95 million, representing a 142% increase Y/Y. This was on an analyst expected target of $83 million, +110%. We won’t know the rest of the details until their full announcement, but this is a very encouraging sign. They continue to maintain a 5?? ranking in our ratings system and I believe they have a lot of room to continue their price growth.

DocuSign (DOCU) - DocuSign is the market leader in providing electronic signature technology and automation of the agreement process through its cloud platform. DocuSign’s solution addresses the core of every business transaction - the agreement - and makes the process much more efficient, resulting in lower processing cost and time. April was a pretty quiet month for DocuSign. The stock recovered from March’s beating and is now positive YTD. It is currently my #3 position, and in my second tier of conviction behind Crowdstrike and Etsy. It ended April still ranked a 5?? in our system and we fully expect it to continue its strong performance and history of earnings beats.

Etsy (ETSY) - Etsy operates a global marketplace where people can make, sell, and buy unique goods online. The company also offers various services to support its sellers. On April 23, Etsy stock reached a score of 96 in our ranking system. This is the highest score any stock has achieved in the five months we have been tracking it. This brought their streak of being rated a 5?? to 20 straight weeks now. Of course, the very next business day, KeyBanc downgraded them and the stock dropped. They continue to have a very attractive valuation and I expect to see a bump once they release earnings next week. My expectations for revenue is that they come in at the high end of guidance at +135%. I look forward to reading their results.

Fulgent Genetics (FLGT) - Fulgent Genetics is a technology company that provides comprehensive diagnostic genetic testing using its proprietary platform, which integrates data comparison and suppression algorithms, adaptive learning software, advanced genetic diagnostics tools, and integrated laboratory processes. April was not kind to Fulgent Genetics, as the stock plummeted 19% since the last time we reported. There wasn’t any news regarding Fulgent, so I’m not at all worried about the drop.

They announce earnings this coming week, so we should get a much clearer picture of what this year has in store for them. One thing I do know, is that cash is already starting to pile up, and it is expected that they could have close to $1 billion worth by the end of the year. For a company who’s Market Cap is a little over $2 billion, this just screams undervalued to me. One other note is that the Short Interest in this stock is still very high at 34% indicating an awful lot of pessimism around this stock.

Pinterest (PINS) - Pinterest is an image-sharing social media site that allows users to collect links and create virtual pin boards for personal photos, ideas, decorations, places to visit, recipes and other items. Advertisers use Promoted Pins to reach users across the full purchasing funnel. Announced earnings on April 27 and the stock plummeted due to people panicking about their Monthly Active Users (MAU) numbers slowing down. To me, their results told a completely different story.

Revenue came in at +78% where analysts were expecting +75%. The biggest difference will be in Q2 where analysts were only expecting +95% and Pinterest raised guidance to +105%!! That’s a very significant raise. Average Revenue per User (ARPU) for US users was +50% Y/Y and International Users was +91% Y/Y. Yes, their number of US MAUs is expected to be down slightly sequentially, International users is a number nearly four times as large. With Pinterest accelerating monetization of international users, I can see revenue results continuing to improve, and we are already seeing this in the guidance raise for Q2.

With the stock price down 22% over the past three weeks, I felt like it was the perfect time to add to my position. I trimmed 12% off my Crowdstrike holdings and added it to Pinterest, increasing my position by 31%. I just feel like the valuation is way too low and there are too many positives to justify the large selloff.

Square (SQ) - Square is a commerce enablement platform focused on providing card acceptance, business analytics, and other ancillary products to help small merchants grow their businesses, as well as well as utilizing the Cash App ecosystem to broaden their reach to people that are under banked, and wanting to trade including crypto currencies etc. Square is a second tier company in my portfolio almost exclusively because of the success and future of Cash App. I have high hopes for earnings this coming week and look forward to digging into Square’s results. I’m very curious to see their numbers.

Zoom (ZM) - Zoom Video Communications provides telecommunications services that allow people to connect via video, voice, and chat as well as sharing content. The dedicated cloud-based platform aims to offer a superior user experience compared to traditional teleconferencing options, and its device-agnostic features offer high-quality communications regardless of how users connect to the platform. As the country continues to open up, WFH stocks like Zoom continent to get punished. They’re now down significantly from their all-time high, but the business keeps improving. We are still a month away from their Q1 earnings announcement, and I expect them to turn in big results. This will be the quarter where they start matching up to where they started to take off in 2020.

Q1 last year wasn’t entirely effected by Covid, but that’s where it all began for Zoom. I look forward to seeing how well they matchup to where they were a year ago. Revenue estimates have them in the +176% range, and I’m expecting another significant beat. They exceeded expectations by $72 million last quarter and a similar beat will have them approaching $1 billion in quarterly sales! Billion!! Free Cash Flow has been extremely impressive the past year and this should continue to be a very strong indicator for their success.

Although the last two weeks we headed in the wrong direction, I am very happy to finish another month with positive results. This makes it 3 of 4 months positive, with a more than a 10% increase in our portfolio balance.

I probably feel better about my portfolio right now than I have at any point in 2021. This next week should be pretty exciting as we have more than 1/3 of the companies in our ratings system announcing earnings in a few days span. I look forward to sharing this information at the end of May.