Happy Q3 Earnings Season!
Roughly half the portfolio reported earnings already. It’s been a mixed bag for us, except at the top, which is why we’re so overweight our top 3 positions.
We’re going to close our position in Greenlane for a loss. We don’t think macro conditions are favorable for microcap companies, and our cash and focus can be better used elsewhere.
Let’s talk about our top 4 stocks. We’ll discuss the rest of the portfolio in a future note.
Apple: Apple is rescuing the stock market today after yesterday’s earnings beat. The stock is up over 8% (as of this writing), despite missing estimates for iPhone sales and services.
We’re not worried. Apple can’t keep up with demand for the new iPhone 14 Pros, and the quarter only reflected a few days since the phone was released. The company raised prices on Apple TV+ and Apple Music, said it would be more deliberate with hiring, and is still firing on all cylinders. The strong dollar subtracted billions from its profits, yet Apple still broke revenue records.
On yesterday’s earnings call, management boasted that 2/3 of Apple Watch buyers were new users. That’s astounding, given the watch was released seven years ago. This is a company that knows how to grow.
Philip Morris and Altria: For stodgy, unpopular tobacco companies, there’s been a lot of recent drama surrounding these two stocks. Philip Morris is attempting to purchase Swedish Match, the #1 seller of chewing tobacco in the US. This is a direct shot across the bow for Altria, its former partner. The two companies agreed to end their partnership with iQOS, giving PM more access to the non-smokable US market. Philip Morris now wants to enter the US market to compete outright with Altria!
Altria, not to be outdone, is now partnering with Japan Tobacco to develop a competitor to iQOS and enter the international market. Is your head spinning yet?
The strong dollar has significantly hurt Philip Morris, as its revenue is 100% international. Those other currencies must be converted to dollars, since the company is U.S.-based. That’s why the stock is trading in the low-$90 range, down from its high of $112 before the Russian-Ukraine conflict. Despite that, the stock is only down 2.5% YTD.
Altria is in good shape, since its business is mainly in the U.S. It still is feeling the effects of a strong dollar due to its 10% in ABInBev (maker of Budweiser and Stella Artois). Altria is only down 1.75% on the year.
Despite a decline in their main cigarette business, both companies are deftly navigating choppy waters and we maintain confidence in their ability to return value to shareholders. At current levels, PM has a 5.75% dividend yield, while MO has a staggering 8.25% yield. That means, after dividends, both stocks are in the green for the year.
META: Ouch. This week, the stock suffered a decline of 25% in a single day for the second time this year. It’s the most hated stock in the market right now, as investors have revolted against Zuck & Co. and its spending on the metaverse.
The question we’re asking ourselves: is this a clear sign from the market that it’s time to get out OR is this a generational buying opportunity for a company with 2 billion daily active users?
We believe it’s the latter. The stock is so unloved that no one wants to buy it, despite how cheap it is. It’s trading like a value stock instead of a tech stock. We’re not quite ready to add to our position yet, but we expect to be buyers soon.
We’re in a lousy market right now: it’s too soon to buy and too late to sell. That’s why we’ve been holding tight, waiting for the right moment to be aggressive in adding shares to our portfolio. Though you haven’t seen many trades from us, we’re carefully monitoring the market and our positions every day.
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