Zen mind. Beginner mind.
This month my portfolio ended at,
Supermicro (SMCI) - 19.3%
Nvidia (NVDA) - 17.5%
AppLovin (APP) - 15.1%
Elf Cosmetics (ELF) - 14.6%
Hims & Hers Health (HIMS) - 14.3%
Transmedics (TMDX) - 12.9%
Nextracker (NXT) - 6.4%
The biggest changes this month were to trim Elf, AppLovin, and Transmedics. Most of that money went to start a position in Nextracker, a company in the solar industry. Earlier in the month I started a position in Aspen Aerogels but closed it some days later after learning about a shares outstanding issue that bothered me.
A recurring theme this month was the importance of industry tailwinds or secular trends. Looking back on SaaS and cloud, this industry had tailwinds from roughly 2010 to 2021. The big winners I had on the first round of companies were Shopify, MongoDB, and ServiceNow. There was a second wave of appealing IPOs in 2019 where I had good results with Cloudflare, Crowdstrike, Datadog, and Zoom.
On that first round of SaaS companies, the percentage gains were biggest and I had picked almost all winners. However, in the 2019 class of IPOs I had many losers as well at some point like Slack, PagerDuty, Confluent, Amplitude, GitLab, and SentinelOne among others. As SaaS and Cloud more saturated the market, the best opportunities became harder to come by.
Now in 2024, there are very few SaaS that I would even consider investing in. Crowdstrike looks good to me because of their profitability and 30%+ revenue growth but also seems priced about what it’s worth. In some ways predictable revenue can be a double edged sword. When revenue is predictable and growth rates of revenue are expanding it can make for a good investment, but if the trend is predictability lowered growth rates it doesn’t seem as appealing.
The lesson I have learned from this is how important secular trends are. Another example that is top of mind was when “fast casual” restaurants were a popular trend, and I did well with Chipotle, Panera, and Buffalo Wild Wings. It now seems obvious in retrospect that fast casual should be a type of restaurant, but back then it was a novel idea.
When I am looking at my current grouping of companies, I like that I can identify a secular trend in each,
Supermicro - AI
Nvidia - AI
AppLovin - Free to play games + AI
Elf - low cost, high quality consumer
Hims - low cost, high quality consumer
Transmedics - rising liver and heart disease (this is the hardest one to define)
Nextracker - solar
I believe low cost and high quality consumer goods is a trend like fast casual restaurants were some 15 years ago. In this group I’d include ELF, CELH, and HIMS. Each is providing a high quality product to consumers with convenience at a low cost.
AI is the most obvious trend that people know about right now. Two out of my top three holdings benefit largely because of AI, and the third AppLovin is benefitting by using AI. Even though I consider AI to be the most obvious and biggest trend of all the trends, I still don’t want to be 100% concentrated in AI companies. That’s another lesson and big take away from investing in SaaS, is that it’s best if you can have some diversification of industry within a portfolio. I was blinded by thinking that my SaaS companies were all serving different industries, users, and enterprises so therefore I was diversified. Now I am seeing a little more clearly in retrospect that I benefitted from trends in SaaS and Cloud. Now that those tailwinds no longer exist for SaaS/Cloud, it doesn’t make sense to have a big allocation in SaaS.
My newest company Nextracker is in solar which I only recently discovered this month is experiencing massive tailwinds. I was surprised to read that in 10 years solar may make up over 50% of the energy produced in the USA, and some even consider that estimate to be conservative. An overwhelming majority of new energy projects in the US are solar. This doesn’t even begin to speak to the huge amount of greenfield opportunity in countries along the equator with very strong sun and not great infrastructure to begin with. The most interesting paradox of all is that the sun is free and will be around as long as any of us is alive. Literally it’s free energy, and it’s “green” and “clean”.
Reviewing my companies more in depth
Supermicro - 19.3%
Supermicro and Charles Liang presented at Computex in Taiwan, and Jensen made a special appearance during presentation. It seems both Charles and Jensen are intent on making “green computing” a real thing. Something intangible Supermicro has about it is the relationships they have built with the chip industry leaders of Nvidia, Intel and AMD. They’ve quietly been building on 30 year relationships to be at the forefront of the AI moment. The Computex speech was worth a watch,
I also made one post about Supermicro expanding it factories. Something I like about the way this company is trading is that when they announce an expansion of CapEx to build out the company usually rallies. This is quite a bit different then Meta for example when they say they are buying hardware, the company tanks. The market is recognizing the value of the company expanding. I’ll be interested to hear if they will take even more leverage on to expand faster at the next earnings.
Nvidia - 17.5%
I also did a deep dive on Nvidia’s Computex speech. Jensen’s keynotes are becoming like movies showing what the future will look like, the presentation level is simply incredible. Otherwise I’ve been pretty quiet on the research front for Nvidia. It’s probably a sign I need to look into more here, although I feel the most comfortable about holding Nvidia of any company right now. Here’s the Computex speech I am referring to,
AppLovin - 15.1%
I got a little bit concerned about the changes Apple made to data privacy and wrote a post about it. After diving deep on the changes, I am not nearly as worried as I was at first glance. The changes by Apple are incremental and even though the ad framework they are moving to has a new name, it sounds like more of the same. It was enough to raise some questions about how impacted AppLovin’s business could be by these changes. I just don’t see Apple kneecapping the industry again like they did in 2022, but it is a possibility.
AppLovin has been able to navigate all the changes well to this point, and they say they are highly adaptable and have contingency plans. What I’d really like to see to gain more confidence is to hear next earnings that the changes do not impact them much, or they gain from them. The changes probably won’t impact this upcoming quarter, but if they don’t mention the Apple changes and their impact, it would be a red or yellow flag for me.
Elf (ELF) - 14.6%
I had a post about Elf’s social media campaigns taking the world by storm. It seems they built their media empire with the US in mind, but that international began consuming all their content. The Elf brand has gone viral internationally already, but in many of those locations they have no access to the brand. Effectively there is pent up demand for the brand globally. This has shown up when they launched in Italy and Netherlands, and gained traction incredibly fast.
Hims & Hers Health (HIMS) - 14.3%
I’m still very bullish on HIMS. I believe their brand is growing significantly with name recognition and they provide a number of products that add value to their customer’s lives. The stock seems to have a lot of volatility over when they can get GLP medications to the market.
The FDA allows HIMS to produce a compounded drug which is basically a generic, under the condition that the original suppliers of the drug cannot meet demand. However, if the original supply can later meet demand it could be an issue. I want to find out if the FDA can just arbitrarily tells HIMS they have to stop production if the other suppliers can meet demand.
Transmedics (TMDX) - 12.9%
I haven’t kept up much with updates on Transmedics since last earnings, and it’s worth checking in soon to see if there’s any news. I trimmed my position a little bit because it rallied recently and I wanted to add to Nextracker. I’m optimistic this earnings is going to be another blowout quarter. Let’s see what they can do.
Nextracker - 6.4%
I was surprised to find a company within solar that would be worth in investing in. I’ve been researching this company a lot and posting in this thread. There’s still a lot to learn about solar and Nextracker specifically. Solar is definitely on my radar now as industry experiencing a tailwind, or exactly what I am looking for of having an extra catalyst. Nextracker may be a rare breed of growth and value together as the stock appears cheap to me. Still my confidence is low to moderate in them as the ramp up for learning is big, and I’d like to see at least one earnings before re-evaluating.
There were some number of new companies I researched this month,
Aspen Aerogels - ASPN
It was my third pass at looking into Aspen Aerogels and I finally started a position this month. The product is incredibly promising with nanotechnology as a coating that goes over batteries. However, once I bought shares and looked into more I discovered that the number of shares outstanding has increased 28x times since they IPO’d in 2014. I wrote about the shares outstanding in the thread on Aspen.
The leadership team has done an astonishing and egregious job at eroding shareholder value, and has no commitment not to expand the share count even further. Currently the company is not profitable yet, and they still need to build out more factory capacity which is going to cost even more. While the product is amazingly promising and selling well, I do not see anyway this management team can be trusted.
Powell Industries - (POWL)
They are an electrical energy components manufacturer and build substations, electrical houses, circuit breakers, and communication systems. You wouldn’t expect a company of this type to be growing revenue at 49% yoy but they are. The P/E is 20, and part of the catalyst for the growth is more work with data centers. However, they are still self admittedly are having trouble getting business “inside the data centers”. While they are gaining traction and building relationships, there are still a few competitors who are the more go to solutions within data centers. They sound like they are dedicated to growing and innovating, so let’s see if the growth can continue.
RxSight - (RXST)
I lost my notes that I had on this company but ultimately felt that a 2.3B valuation for a company with 30M in revenue, without profitability, was not worth investing in. Revenue is growing at 69%, and they have some products which treat different eye conditions. They have very strong relationships with doctor it seems. Overall it sounds promising, but the market has priced in a ton of high expectations here in a market I don’t understand.
Camtek - (CAMT)
They are a company which makes inspection equipment for semi conductors. Last quarter was guided for 94M revenue and came in at 97M which is up 34% yoy. However, previous quarters weren’t growing that great. My thought was maybe some new catalyst was driving the business and I think being in the semi conductor industry is helping a lot. However, they are an Israeli company which sells primarily to Asia. From what I can best gather they are a middle man to Taiwan on certain parts and testing equipment. Currently the company only produces machines in Israel right now which could be a liability with the conflict there.
Nu Holdings - NU
This one has been very well covered by the board so I don’t have a lot to add. I reviewed their last earnings it seems very promising. I can see why the board is bullish on this company and I think it will do well.
I’m having trouble wanting to invest in emerging economies especially Latin America. Maybe it’s my own bias from the news stories I am checking but it sounds like violence across Latin America is exploding, and I don’t know if that will impact macro or what impact it could have on geo-politics down there. From looking into it before most of the bigger tier Brazilian companies list on US exchanges because the capital markets are underdeveloped in Latin America. This is different than most other regions of the world where they may list on their own country’s exchange first and then look to do an ADR to get more exposure.
To do my due diligence properly on this company I would want to know a whole lot more about Brazil since that’s their main market. I know next to nothing about Brazilian banking and how their politics work. Maybe I’ll put in the effort sometime to understand it but I doubt it.
ADMA Biologics - ADMA
The financials of this business are appealing and it’s reached profitability in the recent quarter. They make three FDA approved products which depend on getting plasma donations from people. The drugs themselves treat infectious diseases in people with immune disorders. It sounds like they are the only company in this niche business and it’s a growing market.
I almost started a position in this company however I discovered their R&D budget is very low. They basically bought the rights to distribute some existing drugs that nobody could make anymore due to lack of plasma donations. Unlike blood donations, people get paid to make plasma donations. They are operating centers for collecting it and this seems firing on all cylinders. Overall, I just do know if there is enough innovation going on here to take a further look.
Alarum Technologies - ALAR
There’s a thread on ALAR over here, which has some good puts and takes on the product and financials. I did not see it mentioned but this company is only 50 people. It’s also based out of Israel and they’ve hired ex-military to leadership positions recently.
They are position number three in a dubious market of scraping data off of websites behind captchas with AI bots and then selling that data to other companies. The company is benefitting a ton from their AI innovations from what I gather with management commentary. I’m not really interested to invest in a 50 person company, where they are number three, and in a market that creates a lot of negative controversy.
Wrapping up I’m pleased where my portfolio stands right now and I believe each company I am investing in has a trend or tailwind to benefit from. I am increasingly looking for industry trends lately and will be on the look out for more companies in AI, solar and consumer. Earnings season isn’t ramping up for another month, so I expect to be fairly passive on changing my portfolio around too much unless I find some new opportunities.
