Showing their volatile side

Investment Analysis Clubs Saul’s Investing Discussions
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So the high growth, cloud/SaaS stocks are definitely showing their volatile side today!

My holdings are anywhere from breakeven to down 10%, with the total portfolio currently down 6%. And the news for the general market being down is that manufacturing data missed, construction spending fell, and of course, China trade issues continue to be a roller coaster, pushing the market up one day and down the next.

As these issues have very little to do directly with most all of the holdings discussed here, seems this may be another opportune time to add if you have some cash. And some of our stocks had finally begun to show some strength after the end of summer melt down, guess we’re not out of those woods yet.

If anyone knows any sector specific news causing today’s meltdown, please share, but I believe it’s just another bad day for this sector’s performance, and long term should be just another blip on the graph. Hopefully the earnings later this week (ZS, ESTC, OKTA, and CRWD) can turn things around, we will see.

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If anyone knows any sector specific news causing today’s meltdown, please share, but I believe it’s just another bad day for this sector’s performance, and long term should be just another blip on the graph.

Hi foodles,
Well my portfolio was up 15 out of the last 16 trading days, or something like that (some were small rises, some big), so I guess a down day was in order. How’s that for sector-specific?
Saul

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Roku had a bearish analyst note posted today by Morgan Stanley. They believe growth will slow next year. blah blah blah.

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That note isn’t why SaaS stocks are down across the board.

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More likely that we’re now in December, and this is the point where fund managers and individuals start taking tax losses or rotating out of XX and into YY to position for the next quarter or next year. Those EOY statements need to look good, and this is the last chance to do that by locking in gains or whatever.

My money (literally) is on the fund managers making bigger sell moves today as opposed to any actual company problems… and there will likely be roughly equivalent buys to go with them to use up that cash. If you look at last week’s volume (I didn’t), maybe the buying happened first since it was a compressed market week, since we were up pretty solidly?

Sadly, you have to ride a few waves down as well as up if you want to surf with the big dogs…

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Software as a Service stocks are getting hit because of the softness in enterprise spend.

https://www.marketwatch.com/story/cloud-software-stocks-weat…

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Cloud-based enterprise stocks led the software sector lower during a broader selloff Monday, as businesses reportedly wait for signs of more economic certainty before parting with their IT bucks…

Software stocks have been a popular target this year, but recent concerns about businesses’ willingness to spend on tech in the year ahead could be convincing investors to back off for now. Large technology providers such as Cisco Systems Inc. CSCO, -0.22% have been sounding alarms about their customers’ willingness to spend the past few months, and that could presage a slowdown in software spending ahead.

The above are some more details from the MarketWatch article. First, I would question whether the premise is true. Will companies be more cautious about their IT spend? I do not know. But what I do know is what we have been told by management of some of our IT companies during their most recent earnings calls. One example is the following from the prepared remarks taken from the AYX call:

While overall IT spending levels are expected to post only modest growth in 2020, we believe there are emerging categories that will demonstrate outsized growth. One of these categories is automation. We are increasingly hearing from customers the desire to drive more operational efficiencies. And in uncertain times, companies look to do more with less. IDC indicated there will be $2 trillion spent on digital transformation in 2019 alone. And last year, the World Economic Forum found that 29% of all work was formed by machines, and is expected to grow to 42% by the end of 2022.

  1. Of course one of the best (or the best) way to assure that customers will keep adopting and adding is to provide immediate ROI and/or cost savings. The SaaS companies that can do that shouldn’t see any slowdown even if overall IT spending decreases.

  2. Also, those SaaS companies that provide an easy implementation will fare better is there is an IT slowdown. For instance, solutions that can be quickly and painlessly onboarded (e.g. such as CRWD’s or DDOG’s) should be more insulated than solutions that require a massive enterprise-wide implementation effort (e.g. ZS).

Chris

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2) Also, those SaaS companies that provide an easy implementation will fare better is there is an IT slowdown. For instance, solutions that can be quickly and painlessly onboarded (e.g. such as CRWD’s or DDOG’s) should be more insulated than solutions that require a massive enterprise-wide implementation effort (e.g. ZS).

I wish I could rec that 20 times, Chris. Well said. I think a good audit for whether or not a company is a great “onboarder” is NER. The two you named above, and AYX, sport 130%+ on the regular.

Bear

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I have been following this board since March, 2019, and I have been buying and adding positions based on what I’ve learned from the many informative posts. A percentage of my total portfolio is devoted to stocks discussed on this forum.

I had spent last week evaluating my overall portfolio and decided to trim or sell out completely several long time investments that have been underperforming the S&P 500 index (KO, JNJ, EMR,PFE, UL to name a few). I planned to use some of the money raised to add to my Saul’s board positions.

I had added to or started several positions in October and early November (ROKU, DDOG, ZS, TTD, AYX, MDB, OKTA, PAYC). All of these had seen strong growth, so they looked a bit expensive compared to when I had bought them earlier this year (a form of anchoring bias that is important to ignore, especially with high growth companies).

On Monday, I saw the prices tumble and read the news that Morgan Stanley analyst Benjamin Swinburne cut Roku to “underweight” from “equal-weight” and trimmed his price target by $10 to $110, warning of “overall exuberance over all things streaming.” .

https://finance.yahoo.com/news/roku-tumbles-15-morgan-stanle…

I didn’t read anything that significantly changed the outlook for ROKU or other companies I had planned to buy, so I sold or trimmed the old positions (which were just down a little) and added to ROKU, DDOG, ZS, TTD, AYX, and OKTA (which were down quite a bit). I considered that a chance to get a good deal on those companies.

I like Roku’s growth and think it will benefit from the continuing switch to streaming no matter which companies (Netflix, Disney, Apple, Comcast, etc.) end up winning the “streaming wars.”

So I ignored Morgan Stanley, reviewed some of the Saul’s Board discussions and added to the positions listed above.

Today, I noticed a headline above the various “Roku plunges on Morgan Stanley Downgrade” type articles: Roku’s Biggest Bull Sees It as the YouTube of TV and Film . This analyst also sees Roku as a company that will benefit from the switch to streaming, comparing the company to YouTube’s dominance in “user-generated videos.”

Roku Inc.’s price target was raised to a Street-high view of $200 from $150 at Needham, which called the company “a key beneficiary” of the shift toward streaming video.

“In 2020, Roku’s key upside valuation driver will be accelerating subscription SVOD revenues, which lowers investment risk,” analyst Laura Martin wrote to clients, referring to streaming video on demand. She noted the growing competition in the streaming-video space; in addition to Netflix, Walt Disney and Apple, there are soon-to-be-released services from Comcast and AT&T.
Just as YouTube is “the winning aggregator of user-generated videos,” she wrote, “Roku will be the winning aggregator of TV and films.”

https://finance.yahoo.com/news/roku-biggest-bull-sees-youtub…

So today, ROKU is back up (perhaps on the news of this analyst’s upgrade, perhaps on other news as well).

Anyway, despite the approximately 16% drop on Monday, and the 6.55% increase today, I expect ROKU to continue growing and increasing revenue and its value. So it’s better to ignore the short-term noise/news and focus on more substantial information.

Over the past few days, I found the posts from this board more helpful than most of the online financial news. Chris’ and Bear’s recent responses to this thread are good examples of that.

All the best,

Raymond

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So the high growth, cloud/SaaS stocks are definitely showing their volatile side today!

Growth stocks are volatile. That means up some days and down some days. Investing is not an escalator to financial heaven. :wink:

My holdings are anywhere from breakeven to down 10%, with the total portfolio currently down 6%.

Yesterday my port was down less than the market and today it was up in a down market day by


7.6%
5.7%
2.3%
1.6%
1.2%
0.7%
0.3%

Five of the seven are SaaS type stocks, one the Chinese Starbucks, and the other solar energy.

If anyone knows any sector specific news causing today’s meltdown, please share, but I believe it’s just another bad day for this sector’s performance, and long term should be just another blip on the graph.

People want a reason for everything but what one needs are stocks one trusts based on one’s research methods. They are going to jiggle up and down because growth stocks are volatile, The drivers are always the same, an analyst report, some political happening, earnings reports, triple witching day, sun spots, etc. When the dip is pronounced someone starts a “Sky Is Falling” thread. For me yesterday’s dip was a one day event – a non-event.

Get used to it, this is what Mr. Market does for a living! :wink:

Denny Schlesinger

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You can expect that every year at the beginning of December, many mutual fund managers make their end of year “adjustments” needed to pay out capital gains.

Razz

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