Moby Year End Review: Looking Back at 2021Dec 27, 2021
Welcome to the week between Christmas and New Year’s!
We will not be doing a proper “This Week Ahead" – as the market traditionally takes a bit of a breather during this time until we get right back to it next week when 2022 drops.
So, instead – let’s take a broad look back at 2021 and get a better understanding of the forces that shaped our market this year. We’ll talk about macro trends, and then examine how they played out across the various stock picks the team at Moby made this year. We’ve got some gems AND some real duds here folks. Let's get into it:
As always below is our Youtube video version where we spill even more juicy details!
Macro Trends From 2021:
The Shift From Growth to Value Stocks:
With inflationary pressures and macro headwinds, this probably was inevitable. Basically, after the growth stock feeding frenzy that dominated the recovery in 2020–market sentiment started shifting to value stocks as worries about inflation grew this entire year.
This shift isn’t slowing down at all, with growth darlings like Tesla taking a 10% haircut after old man Elon sold off 11 billion dollars of stock.
Inflation makes money later way less valuable than money now – so expect these headwinds to hold until the Fed can effectively cool off the market across what will basically be a good chunk of 2022.
This is a theme we've been calling out since early last year and will likely hold for the foreseeable future.
The Supply Chain Crisis and Rising Inflation:
I hope you liked hearing all about 2020 during 2021 – because with how massive a hit those initial shutdowns were, we’re probably never going to stop talking about the effects March 2020 had on the world.
This year, the major news was: The Supply Chain Crisis:
Ships lined up for miles off the coast of California, Oil and natural gas prices spiked & car companies barely kept up with demand -- allowing EV plays with simpler supply chains to net huge gains.
While our supply chain issues are definitely here for the long haul – we ARE finally seeing some progress and some pressure abating. It's impossible to say when we’ll have peak supply troubles – but recovery looks imminent!
Crypto's Rapid Rise Seemed to Track Interest Rate Movement:
This is more speculative than a trend per say but crypto has typically been viewed as a risk-on asset. AKA in a risk taking environment (growth over value), investors want to invest in crypto.
So in a rising interest rate environment, growth should take a back seat for value and become inversely correlated. However since Mid-May of last year, we kinda of saw the opposite as crypto closely tracked interest rate movements. AKA as interest rates went up the price of bitcoin went up and vice versa.
While its hard to say if this trend will continue its really interesting to see this happen - which actually shows that bitcoin is not a risk on asset but truly is a hedge for inflation. AKA as inflation goes up, so do interest rates. And when interest rates go up bitcoin prices have followed.
With interest rates set to substantially increase over the next few years, this could set up some huge tailwinds for the asset class.
Our Best Picks From 2021:
In a year dominated by SPACs of all kinds (and all kinds of varying success) Blackstone has shown that there’s still a lot of great money in the private equity space.
Why go public when you can quietly and leanly grow your way to a couple billion in market cap?
There have been a few dips along the way, but BX didn’t hit our price target so much as it demolished it. It’s sitting comfortably mid-dip 130% above our price target right in the sweet spot of when we thought they would achieve this moment.
This came off of a lot of really strong acquisitions as well as a lot of great real-estate investments. Simple props to the Blackstone team. We’re excited to watch as they navigate the choppy waters of inflation peaking in 2022 – but expect them to average upward across the next year as well.
Roblox has brilliantly set itself up for long-term success. They're poised to grow rapidly in this new metaverse-first environment that's rapidly coming more into focus.
While Roblox has hit our price targets across 2021 – things are definitely becoming choppy. The stock has been wavering under DAU numbers, and there are growing concerns about Roblox’s practices with monetizing their community.
But those are largely solvable problems. Maybe don’t be as aggressive with this stock moving forward – but watch for how they encourage user-growth and pivot to better-serving their creator community.
Alcoa is an aluminum producer here in the US – and was one of the companies that directly benefited from steel and aluminum tariffs that got imposed back in 2019.
Alcoa has taken advantage of this new market position and developed some really strong macro tailwinds despite supply chain issues. They’ve rallied well and – you guessed it – zipped right on past our price target by about 15%.
With inflation set to peak next year, but demand for aluminum continuing to rise, Alcoa will be an interesting stock to watch in 2022. For now we're continuing to hold on!
Dick's Sporting Goods ($DKS):
Talk about taking advantage of your moment. Historic stock crashes? Supply chains completely broken? People losing a LOT of disposable income very quickly? All of this added up to make retail look like a TERRIBLE place to be in 2021.
And yet companies like Dick’s did a BRILLIANT job pivoting to DTC and an online-first distribution model, supply chains be damned.
Dick’s CRUSHED our price target and went on a brilliant run on the back half of 2021. There should be business books written about how Dicks, Best Buy and companies like Lululemon managed to survive 2020 and 2021. They thrived in an industry that was GUTTED by Amazon and then DECIMATED by COVID 19. What an absolute masterclass.
However, we can brag all we want on how good this pick was – but the party may be ending for Dick’s moving forward. We’ve been obsessed with the following graph:
Which shows how badly retail spending growth has outpaced income growth. It looks like all this retail growth has been fueled by stimuluses and people saving money by not going out or spending on other services.
As COVID becomes more and more endemic – this trend is going to NEED to come down. Once retail spending returns to normal, our analysts predict there will could be an absolute bloodbath in the retail space. For now it doesn't look like this will happen in Q1 but keep your eyes glued to numbers coming out of companies like Dicks, Nike & others, to see once this trend will reverse.
You don't want to be stuck with all of your chips on the table before the potential crash comes.
Desktop Meta ($DM):
The biggest issue with being a long-term investor is that you simply cannot time the market. Desktop Metal is a genuinely exciting stock with a really bright 5-year horizon. However, we also saw some short term tailwinds that made us confident about this pick back in April.
DM is attempting to set itself up as THE dominant company in additive manufacturing to help usher in a massive new industry worldwide.
In order to do that, DM had to make a large number of expensive acquisitions to consolidate their position. Acquisitions have a way of diluting the value of the parent company’s stock in the short-term, and this really hit DM hard in the last two quarters.
Desktop Metal has a long way to go before they even get back to our original valuation, let alone our price target. If we had just waited a month or two before making this call, we would probably come out looking like geniuses in the long run.
However we believe strongly in the company and their leadership moving forward – but this is definitely a hold or wait pick until DM has a few positive quarters under their belt and the synergies of this acquisition bake out.
Canopy Growth Corp ($CGC):
Marijuana in general is looking shaky all over the place–but Canopy’s slow collapse this year was really surprising.
When we initially made our pick back in March–the cannabis industry as a whole had stabilized after a huge 50% selloff.
Our take was based on how Canopy was poised to take advantage of their strong position in Canada to make huge inroads in the US.
Well, turns out their position in Canada weakened and US sales fell by 30% in the last 3 months.
Turns out Marijuana is still a really new industry and it’s difficult to forecast. Legal Cannabis as a whole is on the rise – but a lot of the regulatory pressure necessary to make that legality happen is smoking out a lot of players. Sorry.
We’re still bullish on the cannabis industry over the next 5 years – but we need to be way more considerate before we make another call in this space.
Also add in something regarding this taking more time to play out as the macros have changed.
Wrapping this up:
So what did we see in 2021? Really, kind of the same trends from 2020, just with the noise turned way down.
COVID 19 reverberated throughout 2021 with supply chain and inflation worries. Consumers kept spending WAY more on goods than services, and new variants kept people inside despite our massive vaccine push.
All in all – 2021 was another holding pattern year after the wild gains of 2020. The market isn’t cooling off so much as taking a breather after the gut-punch and recovery of 2020.
We’re obviously using the shift from growth to value stocks to be far more calculating in our picks moving forward. But you can read more about that here in our 2022 outlook.
It's been a wild year -- but it's about to get even more high-stakes.