The Moby Flagship Technology PortfolioSep 14, 2022
Welcome back to this month's update of the Moby Tech Portfolio!
If you're new to this portfolio strategy, its goal is to outperform the market by investing in tech companies that are reasonably priced, while also taking on less risk! We do this by looking for companies with above-average earnings and revenue growth, but at normal valuations.
Similar to last month, if you missed the news"right now investors only care about companies that are growing responsibly and whose valuations are reasonable. Gone are the days when growth at all costs was an actual business strategy.
Nowadays, while growth is important, you need to grow "right". So that's why we have been looking for stocks that are growing but only at a reasonable price.
Tech stocks might have gotten crushed over the last year but if you're looking in the right places, there are still plenty of amazing opportunities and that's why our portfolio has continued to outperform (more on this below).
For a more in-depth explanation of how this strategy works, just read this post! By following the tried and true discipline of buying good companies at reasonable prices, we can maintain our confidence in our portfolio and ride out any storm.
So with that intro, today we're going to cover:
The portfolio's performance.
The stocks that performed well and the stocks that didn't.
This month's trading updates.
In another crazy month for the market, our Flagship Tech Portfolio returned 2%!
While that may not sound thrilling, it actually is when we look at the S&P 500 & the Nasdaq over that same time period.
That's because each index returned -1.71%% & -5.33%, respectively -- giving us an absolute return of 3.71% over the market.
While the market saw strong returns in July, things really reversed course in mid-August when it first became apparent that the Fed was going to continue raising interest rates for the foreseeable future.
In July, the Fed made comments that inflation was cooling down and therefore the pace at which rates increased could start slowing down by year-end.
But when Jerome Powell spoke at his annual press conference in Jackson Hole, it became very clear that the pace of slowing down rate increases would continue indefinitely until the Fed got back to its goal of 2% annual inflation.
Therefore, that's why the markets have reacted poorly over the last month and why our strategy has continued to outperform. And given today's inflation report, we're expecting this to continue on through the next several weeks.
So with that context, here's the performance of each stock in the portfolio!
For the third month in a row, our old friend EPAM has continued to outperform. And similar to the last two months, off a sizable beat of Q1 & Q2 earnings, EPAM has continued to sustain its positive momentum. The stock is currently down ~40% from its all-time high, mostly because of its exposure to the Russia-Ukraine conflict; however, the company has made a commitment to reduce that exposure over time. With this reduction in exposure and strong revenue growth, EPAM has yet again had another month of strong performance.
A victim of its own success, EPAM's share price is now too expensive for it to be included in our growth at a reasonable price portfolio. Therefore, for the next month, it's been excluded until we have more financials or its stock price drops.
SMCI was the second-best performer in the portfolio this month as the stock increased 23% from our last rebalance. So what happened? A large reason for the outperformance was due to expectations for their next earnings release. In this release, it's expected that SMCI will grow its EPS (earnings per share) from last year by over 279%! Meanwhile, revenue is also expected to increase by over 50%. At a small market cap, SMCI has a ton of upside and retains a strong piece of our portfolio this month.
The two real losers this month were Nvidia (NVDA) and Ultra Clean Holdings (UCTT). Nvidia, unfortunately, has been hit with several supply chain issues over the last few months. They also have been the recipient of some US Government probing that banned their ability to sell their microchips to China. The combination of these two events has been deadly and that's why the stock is down over 50% this year. In the case of UCTT, they also develop parts for the semiconductor industry and have been hit with similar issues that plague Nvidia, AMD, and other large semiconductor manufacturers.
The biggest changes this month have come via NRG, EBAY, REGN, & GOOG.
While we won't dive into all of these, we'd like to highlight Google as the stock is down 26% over the last year but has been growing its earnings base -- basically since going public.
As one of the most valuable companies in the world, the combination of its cloud computing platform and data should propel Google for years to come.
Outside of this quantitative-based portfolio, we have bought and held Google for years now and will continue to do so!
If there are any questions about any of the stocks in this portfolio, just message us!