Portfolio changes effective today

Investment Analysis Clubs Saul’s Investing Discussions
1

Dear all,

I was inspired by Saul’s post regarding his frustrations with the current market to finally take some significant portfolio steps. I had been “hunkering down”/“licking my wounds” for what seemed like months, with little portfolio action.

My portfolio hit its current level Dec 24 2018 (a terrible pre-christmas selloff, I was a value investor back then), March 17 2020 (covid crisis), and May 24 2022. In almost a year while there have been rallies and selloffs, its stayed at about those levels.

The run-up during the covid years was a life changing event, and the bust starting late 2021 and ending May 2022 was life changing as well. Not-so-easy come and unfortunately quite easy-go.

Pretty much every move I made since late 2021 backfired spectacularly causing me to lose some confidence in my choices and approach. By early 2023, I was making few trades but largely sticking to my strategy (fast growers that were generating substantial cash).

When I saw an investor of Saul’s track record questioning himself, I realized that I am in pretty good company, and it was time to get off my duff and do something.

I updated all my research tables based upon all the latest numbers. I track about 30 stocks closely, mostly current picks on this board and prior picks that I thought had legs. Of the 30 stocks, I put about 15 in the “broken” category that I wouldn’t touch (examples, UPST, PATH, ROKU, ZM, PTON). I keep track of them because there are reasons to like each, but mostly they aren’t growing much or at mortal peril for one reason or another.

The balance of companies, I consider investable (some if their condition improves, other straight investable).

I seek to have a portfolio of about 10 stocks and I currently have 11. I divide my portfolio into full positions and half positions. Beside each I will write my recent justification for change.

Full positions:
Bill
CRWD
STNE - this is a South American stock which has compelling valuation, cash gen and growth, but has unique risks (currency, unstable economies, etc)
ZS - recently increased as I see no reason for it to fall like it has
MELI - another South American stock with very compelling valuation
MNDY - added today as I note their progress toward cash generation

Half:
SNOW - reduced today to half position, I worry about their valuation. Consumption based model. Any slight miss in expectations will send it down 25% (after watching NET and ENPH get clobbered, it seemed prudent to reduce).
DDOG - reduced today to half position. AMZN’s numbers weren’t great. DDOG is consumption based. I think it will come back pretty well (like it did after covid), but not yet.
TTD - it doesn’t grow fast enough for me to make it a full position
NET - recently added as I thought that selloff was overdone and its valuation is higher on a relative basis, but this is a quality company
ENPH - I’ve been in and out of it for years, and likewise I felt that selloff was overdone

Valuations and growth rates - full positions:
Bill - P/S mid-guidance 8.24; average recent growth > 50%
CRWD - P/S mid-guidance 9.44; average recent growth > 45%
STNE - P/S TTM 2; average recent growth > 40% (note seasonal)
ZS - P/S mid-guidance 8.22; average recent growth > 45%
MELI - P/S TTM 6; average recent growth > 40% (note seasonal)
MNDY - P/S mid-guidance 8.2; average recent growth > 50%

Valuations and growth rates - half positions:
SNOW - P/S mid-guidance 17.8; recent growth > 55%
DDOG - P/S mid-guidance 10.28; recent growth > 35%
TTD - P/S TTM 19.9; recent growth > 45% (note seasonal)
NET - P/S at mid-guidance 11.6; average recent growth > 30%
ENPH - IP/S TTM 8.6; average recent growth > 30%

Note recent numbers are average growth: y/o/y, q/o/q annualized, 6-mo y/o/y, and guidance; then de-rated by hand based upon expected performance

Some other companies I am watching but not invested in, for the reasons listed here:

MongoDB - I love the product but they just don’t generate cash for no obvious reason
SentinelOne - I love the product but they have not proven to me that they can generate meaningful cash
ZoomInfo - They generate tones of cash, but growth has been less than what I like to see

I hope through this post, some of you see some utility in the approach and also very open to your views and feedback.

Thanks,
Rob

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2

I had an idea yesterday after rereading Peter Lynch’s book. He mentioned that when the economy starts to recover, the fastest-growing companies will be cyclical and growth stocks. Currently, I am looking for companies with low EV and low value, of course, I also own high-valuation companies such as NET and SNOW.

I have been wondering which companies will experience the biggest gains (not necessarily the fastest-growing) if the economy recovers. This is because their income may be at a low point, but as soon as the demand recovers, the YoY growth will be astonishing.

*I have been keeping an eye on UPST because I believe the company’s business model has not any substantial changes, and as soon as the demand recovers, its growth could surpass all the companies I am tracking.

Chang

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3

Hi Chang,

Thanks for your reply and your idea. For sure, trash seems to recover the most in the upswing (but better time it right, because if you are wrong, its the trash that keeps tanking). I don’t do that kind of investing.

I want to believe in UPST and certainly if it recovers, I’ll consider it. This said, I went to their web site and it said you can get an unsecured loan as low as 6.something percent (I assume it’s a 5 year loan like before). That seems like a really low rate for an unsecured loan in an environment when a 15-year fixed rate mortgage (secured lending) is around 6.something percent.

Now maybe that 6.something is a teaser. But at 0% interest rates, I got a 6% unsecured UpLoan. Interest rates are 4 percentage points higher today! So I don’t completely get it to be honest.

Call me a bit skeptical on this.

Thanks,

Rob

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