Finally Foolin February 2023 Portfolio Review

[FinallyFoolin]

February started out with a bang then a struggle of bears & bulls. I think the market wants to run but there is a lot of uncertainty.

It was a pretty good month.

• 6.8% in Feb
  +18% YTD

Transactions
Sold out of BILL after their report and plowed all of that position into TSLA effectively doubling my TSLA and making it my 2nd biggest position. Wish I had Jason’s foresight to do it A MONTH AGO!! haha. Congrats Jason.

Sold MOST of my DDOG after their report. Put it into a combination of TSLA, ZS, S. It was already my lowest conviction after the previous report where I lowered the allocation quite a bit. The slowdown was really a LOT faster than I thought it would be. In a sign as to how my investing has changed, a year ago, it would have been a no-brainer to sell a stock guiding growth into the 20s. I had to think on it quite a bit. I liked the bottom line numbers but again, they were worse than a year ago there too. Their ‘overly’ conservative guide for this past Q ended up being right about the same as previous ones so that gives me less confidence they’ll get back to 40s over the next year or so. Once the economy improves, they’ll accelerate, but by how much?

I am down to 5 companies, so on the lookout for another 1-3 as I prefer 6-8. I have several I’m watching closely, MDB, ENPH, TTD, MELI, AXON mostly. I’ve owned all these in the past, just need to get up to speed and do some DD. Open to other ideas as well.

[MAS4R]

@FinallyFoolin

Open to other ideas as well

Thanks for the update.

“Open to other ideas as well”

Since you said it… my small indefinite holdings port entered 2023 with, by allocation: DDOG, ZS, and AYX then S and NET.

After finally noticing in the first days of the year how much worse B2B spending is fairing vs consumer spending, I sold NET for TTD and S for FOUR. I then did a ton of homework and decided that this port will no longer be 100% in one sub-sector. Eventually, I also sold TTD though it remains my go-to substitution when in doubt.

Main ideas:
1/ diversified high growth
2/ what companies I think can beat expectations by a lot? instead of highest topline per se since I think there are lots of dislocations right now and divergences between what companies can realistically do and what embedded expectations seem to be.

For example, after running ZS vs SWAV vs ENPH last night, I sold ZS this morning.
[I do have 50% SaaS in my 401k as LTBH with high for ETFs SNOW, ZS, S, etc %]

Currently my top 4 are AYX, INSP, KNSL, and FOUR and these = 60%.

At the bottom: starters in TMDX and AEHR and a very small TWLO.

The mid-tier is TBD between CELH, which is about 9% and SWAV and ENPH which I have not yet started.

For example, AYX only guided for under 20% in 2023 but I think they will have easier time getting over 30% than better liked companies will have beating their own. This is based on prior guidance vs results throughout 2022, on AYX Q1 2023 guidance, and on their assumption that the economy will get worse, not better in Q2 2023. It surely helps that market expectations have been very low vs say DDOG or NET. No social media buzz that I am aware of.

With all the changes I am about where you are YTD, 22.5% as of last Friday. If the port ends up as I think it will, the weighted port numbers will be: Growth: 65% based on prior Q, P/S 11, market cap 7B. If I do get ENPH the market cap will go up somewhat.

Cheers

[XMFRob]

@FinallyFoolin

I am down to 5 companies, so on the lookout for another 1-3

Not a “Saul” company, but I suggest taking a peek at SMCI. Fast growth these days, modest margins… hard for me to understand how/why they might have a competitive advantage…

… but I cannot argue with solid profitable growth… and what appears to be ridiculous undervaluation (PE ~10 with high growth). Debt being paid down quickly.

I bought around 75 in January, now a bit over 100, expecting… “more”.

Disclosure: My position is 100% short term $75 call options, so my returns have been further accentuated.

Rob
He is no fool who gives what he cannot keep to gain what he cannot lose.

[stocknovice]

MAS4R -

Would you be willing to share your thoughts on AEHR and why you took a position? It’s on my list as well.

[MAS4R]

Thanks for cornering me, it is a good thing to do because it forces me to focus my thoughts

It is a very tiny starter which at most will become 5% of the indefinite port that I have which in turn is only 8% of net worth as my 401k allows ETFs only. So my opinion should be taken with a mountain of salt.

The idea is that the chips used for critical functions on electric cars like adaptive cruise control have to be tested more thoroughly than traditional general purpose car chips like in stereos. The thesis is that AEHR offers a particularly cost and time effective solution for doing that.

There is a short interview with the CEO Gayn Erickson on youtube, which allows for getting a feel for the product, the testing process, the claimed competitive advantages, and the CEO himself. Search for " Sequire Spotlight Presents Aehr Test Systems (AEHR): Building Semiconductor Test Systems."

Positives:
Pick-and-shovel play into electric cars, high-growth while being Gaap profitable, exceptionally lean (91 employees vs say 5,000 for ZS), no debt, under 1B market cap, experienced, “founder-like” CEO. Also, see below on algorithms. The estimates of growth that I am seeing (free services) are for 55-60% growth next fiscal year.

Neutral: valuations

Negatives:
All over the place actual growth numbers that have to exceed the estimates by more than a bit for the risk to be worthwhile IMO, exposed to supply/materials hiccups, does something I have never followed before, presumably long but unclear to me runaway.

Biggest issue I have right now:
–Company fiscal year is June-May, is which makes it hard for me to grasp the analyst expectations vs company projections vs past performance relative to projections component right now sitting in March.

Due to my inexperience coupled with the 2022 carnage, I also introduced a “check with the algos” final component to my decisions, so I like the Navallier buying pressure grade (free with registration) on AEHR. In fact his fundamental grade is also an A. SaaS with A grades are practically non-existent at the moment so I pay attention when I see a company that interests me to also be graded well by algorithms.

Generally, I am more comfortable with companies I have followed at least occasionally through ups and downs (AYX, TWLO), that I had looked into before (INSP, SWAV, KNSL all in 2019-20), or that I can wrap my mind around more easily (FOUR, partly due to following SQ since 2019). But I feel that I need to venture into new things which is also why I have CELH (and thought the report was fine, with gaap loss caused nearly exclusively by paying off pre-Pepsi distributors).

I would look forward to any comments you may have if you decide to take a deeper look.

[HannesRS]

@MAS4R I haven’t researched the company very deeply, but they are on my radar for a while now. The biggest risk I‘m seeing is their customer concentration. The major part of their revenue is coming from only two customers (if I remember correctly onsemi is basically their main source of revenue). But it‘s an interesting company, no doubt. Just in case you didn‘t know that already.

Hannes

[stocknovice]

Yes, @HannesRS , that’s how I understand it as well on customer concentration. Part of the pop last Q was they landed two new contracts which have a chance to rival Onsemi in size if the initial testing is successful and the customers honor their entire commitment.

Growth could accelerate if that occurs.

[MAS4R]

Great timing, given what happened today. Here is the AEHR take:

Aehr Comments on Recent Tesla Statements on Silicon Carbide and Reiterates...

Without clarity, I looked at the -24% to -14% or whatever price movement and did nothing though I will probably finish it as a starter sooner rather than later and then decide whether to take it any further.

[MAS4R]

@FinallyFoolin , @stocknovice

Today an analyst at the C3AI call asked:

C3.ai (AI) Q3 2023 Earnings Call Transcript | The Motley Fool

"Sanjit Singh – Morgan Stanley – Analyst

No, that’s super helpful. I really appreciate the thoughts. And I guess, Thomas, a follow-up on just your more optimistic view versus, let’s say, a year ago, where is that coming from, like, I mean, is there a way you can sort of talk to it from like a vertical perspective. A lot of the companies that are struggling now are selling to other tech companies, which kind of explains a lot of their weakness.

But what are you seeing in your customer base?"

This is part of a broader conversion in which AI claimed that they were among the first to warn of massive belt tightening in summer 2022 and that now they see a much better business climate though they don’t know if it will be sustained.

My question for you–as you know the industry closely–is what you think of the implications of the bolded claim? Because they are rather big, it implies that a lot of the growth by SaaS companies in 2021-2 was a sort of an internal spiral, I don’t want to call it a bubble, but something different from SaaS companies modernizing traditional ones, EDIT: something more dependent on infra rather than intra-sector spend than I might have liked to imagine or that might be optimal (AI themselves are in utilities, oil and gas, government).

In other words, is there any way to know, if very very roughly, what portion of SaaS revenues has been coming from other high-tech innovative businesses vs traditional sectors, government, etc.?

EDIT: basically if a significant portion of say DDOG consumption came from alike businesses and then said businesses came under pressure it becomes a snowball and there will not necessarily be a quick recovery as jobs in infotech are cut and unlikely to return in a hurry, FCF and gaap profitability goals are established, SBC becomes counted more stringently, etc. But if this approximate % is small, then it is a much lesser development.

Thanks for any thoughts.

[stocknovice]

Good question, @MAS4R.

Please realize this is simply my opinion, but I’d guess much of that spend is intertwined within tech. But I’d still rather have a mostly B2B business than one that relies on selling widgets to consumers.

All these firms benefitted when the system was flush with cash. Now all of them are finding it tough as customers (including themselves) pinch pennies. I can’t think of any sector that isn’t seeing similarly.

The good news is the cycle should start all over again once the economy loosens again. Will we attain 2021 levels again? Not any time soon. Will we attain levels more friendly than today? Almost certainly. Will my companies benefit when that happens? I sure do hope so.

[gmcnatt]

@stocknovice

All these firms benefitted when the system was flush with cash. Now all of them are finding it tough as customers (including themselves) pinch pennies. I can’t think of any sector that isn’t seeing similarly.

This was a quote from the Snowflake CC:

“And it’s also a factor that a lot of the new customers that we’re signing up aren’t necessarily these venture-backed start-ups that have unlimited capital. They tend to be more of these mature companies that have always been disciplined on their spending .”