What I've done today

Investment Analysis Clubs Saul’s Investing Discussions
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When I saw that some of the stocks already selling at discounts a few days ago (https://discussion.fool.com/discounts-esp-smar-34289615.aspx) where down even more – close to (or more than) double digits this morning, I sprang into action.

First, I sold ALL of my TTD, SQ, and DOCU. The former two were flat, and DOCU was actually up for the day. But more importantly, they were flat or up in the last several weeks. These three companies have positive (non-GAAP) EPS, and that’s my guess as to why they haven’t been hit in this downswing.

Then, with a considerable cash cannon, I went to work. I closed out covered calls at a gain, and bought some calls – but that’s all I’ll say, because this isn’t an options board. I also bought CRWD and TWLO and SMAR shares. A little MDB too. Was I early with the buys? Quite possibly. But I still have a 20% cash position in case the discounts become even greater.

Guys, Crowdstrike’s PS is down to roughly 38. That’s less than ZScaler’s was a month ago! Except instead of growing revenue at 61% like ZScaler, Crowdstrike is growing revenue at 94%!

Remember: if we’re right that these are special businesses, they’re still just as special today even at cheaper prices. It’s a good time to have some cash and start deploying it. I’m not giving anyone advice, but for those of us who’ve been keeping a little dry powder (or a lot), I wouldn’t get too greedy waiting for the absolute bottom.

Just one Bear’s opinion. As always, do what’s right for you. And don’t listen to the trolls. Ask yourself when they’ve proven themselves. Saul posts his portfolio every month.

Bear

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I bought MDB, Twlo, Work. Work is down below it’s IPO price and is growing revenue at 58%. I love a rainy day in September.

Andy

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Great and timely post, Bear.

I started positions in CRWD and SMAR and added to TTD (I like it’s long-term prospects), AYX and ESTC. All great companies, IMO.

If prices continue to drop then I will likely add more.

Mike

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Remember: if we’re right that these are special businesses, they’re still just as special today even at cheaper prices. It’s a good time to have some cash and start deploying it.

The ultimate in circular logic.

“If they’ll go up in the future, buy them down now because…they’ll go up in the future!”

Every strategy works until it doesn’t. Saul changed into SaaS stocks from a different strategy. When SaaS valuations finally implode, he’ll morph again into something new.

Good luck!

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To raise cash I sold out of my small position in GH, because it wasn’t down today, not being a SaaS company. Also, contrary to others, I sold out of SMAR because it seemed to be making the least progress towards moving towards profitability.

I bought considerable Zoom, because of it being profitable, and more so, and FCF positive, and more so, even while growing revenue at 96%. Also, because they signed up HSBC, “with over 3,900 offices in 67 countries. It will standardize on Zoom’s platform by deploying to 290,000 hosts and to 5,500 conference rooms.” That’s 290,000 hosts, and 5,500 conference rooms with one sale!!! And also because they hinted that more financial institutions are on the way. Finally because their Zoom phone is catching on already.

I added to Crowdstrike because of their huge growth in new customers, cutting their losses in half as a percent of revenue, and also because of their arrogant attitude, which told me that they are essentially not seeing any effective competition

We believe these transactions reflect the growing distance CrowdStrike is putting between ourselves and competitors in terms of both commercial traction and our data moat which provides us with a long-term competitive advantage. Again, this is reflected in our position in the Gartner Magic Quadrant versus all other fossilized and NexGen players… Well, we don’t see much of Palo Alto to be candid, and I think the Gartner Magic Quadrant, rather than me saying where they stack up, you can tell where the analysts think they stack up. Right? And it’s not even close to us. So I’ll the reader be the judge of that.

I also added small amounts to Alteryx, although it was already my largest, Okta, and MDB, on general principles.

But please DO NOT follow me without making your own decisions. I often make mistakes. Decide for yourself. I’m not you, and I’m not a financial advisor.

Best,

Saul

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Appreciate your work here very much.

Today, i bought my first stake in OKTA, added to my already large stake in AYX, and took starter positions in MIME and MDLA. To finance that, I reluctantly sold CLDR, CSCO, and the ETF MTUM.

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I sold 2/3rds of my ZS in the am, as it was slightly positive, and any chance for a run up into the ER tomorrow seemed doomed (at least for today) and given MDB and others had good ERs and got punished, and ZS was STILL a higher P/S than most.

I had already built up some cash throughout last week, having sold out of AYX and trimmed a bit of my oversized ESTC position.

Cash at about 34% right now.
Probably will deploy half tomorrow, and the rest on Wed barring something weird in the macro market.

What to buy?
I already own a bunch of TTD and ESTC, which comprise 47% of my port. So won’t be taking too much advantage of their dips, just because it is already a heavy allocation, but may still buy more.

I have about an 9% ZS position, and might add, but probably waiting until Wed, in case they get a post-ER beatdown for no particular reason except that it appears to be what all the cool kids are doing these days. So probably ZS will be a Wed add, unless it has really popped post-ER.

AYX is about where I feel they should be, so I am probably going to buy some tomorrow, but I don’t see it as a screaming steal when it is basically the price they were in late July or so. Hardly a giant dip in the grand scheme of things, but I do love the company and at these levels I like the stock.

PLAN may be one of interest here. NOW as well.

I won’t be buying CRWD or ZM, due to valuation. My process is to envision the end state, even though I won’t hold the stock (most likely) that long. The end state for SaaS stocks, imo, is to picture where/when they contract their P/S down to 15 and then to 10. For simple napkin math, and ignoring stock comp fluctuations, I just look at P/S as relationship of market cap and revenue.

For ZM, for example, at $2b/year in revenue, will they be higher or lower than a 15 P/S? If growth slows to 75% next year and then into 60% range year 2, and then into 40-50% in year 3…will they be at $2b?

ZM did $400m in TTM revenue…assuming current growth stays about 85-95% for next two Q’s, they would be at about $600m runrate.
Then using 75%, 60%, 45% for next 3 years, I have them around $2.4b in rev. Will market correct for their P/S as they slow? I think so. I don’t think they have a lot of pricing power as CSCO/MSFT do a lot more than just UC, and can price aggressively as time moves on.

So I have them at about $36b mkt cap in 3 years and change. That is a 15% CAGR, and I think other stocks have more upside, so investing my dollars in other stocks due to their price, regardless of how good Zoom the company seems to be performing.

Dreamer

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Thanks for your valuable post - your last one was more than nine years ago…
Sorry for the short post but I could not resist.

foxtrottcharly

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Yeh I sold out of Enviva Partners and some more IQVIA and bought:-

Some larger top ups in Crowdstrike and Alteryx and some smaller top ups in SmartSheets, Elastic and Zoom.
Selection decisions driven by 1) the day’s down pricing opportunity and 2) the resultant P/S in relation to growth rates.

If I can re-assign any more holdings, I would be interested in topping up more ZS and TTD at these levels. After that Coupa is interesting although at a pretty high P/S and Pinterest is also out there.
Ant

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Appreciate your thoughts Saul.

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Hi Folks,

I don’t post often, but I too added to AYX. It’s not my largest position, but it’s done very well, I love the leadership and where they’re headed.

I’ve also added to ZS lately for similar reasons. I want to add a CRWD position, but I don’t know anything about them yet, and need to dig into them. I may take a small starter position to make myself pay attention, though, since they seem to be on sale as well.

–
Paul

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I sold 20% of my AYX holdings and purchased AYX options with the money, some today, some at the end of market yesterday. AYX is down 3% or so further as I write this from when I purchased those options.

After ZS went on sale, I did the same. It is down further as well. On paper, as of today, I am a blithering idiot.

I don’t mind the volatility of these stocks, and I don’t even mind the volatility of the options on them, so this works for me. It surely isn’t for everybody. As the great mungofitch reminds us, leverage is the number one way smart people go broke. He isn’t a fan of these sort of stocks either, unless I miss my guess. But here I am, looking at sharp drops and responding by adding leverage.

That’s what I’m doing right now. I won’t discuss the specific nature of the options on this board, as that would be off-topic.

Cheers,
Wot