Will stock market correct in August?
With all-time highs & concentration in just a few names, it seems likely
I wrote up a few handwritten pages of notes about the current state of the market and things to discuss for this month’s newsletter. However, I wrote that while I was in a Japanese restaurant that served grilled snacks, ramen and Suntory highballs. To no one’s surprise, the notes are illegible and so those “deep insights” are lost. Whoops.
Basically, the market is at all-time highs however that’s concentrated in too few companies. August is not the best month seasonally so I’m expecting a healthy pullback near-term. Basically the same as this and this and this.
I’ll start off this month’s update with a few new companies I’m watching as candidates for long-term investment. I’ve reformatted and moved the List to the end.
In this update:
Okta – “Identity for the internet”
Depending on who you work for, you may be very familiar with Okta $OKTA. They provide single-sign on services for many organizations and I keep encountering them during my day job as a ‘must-have’ integration.
I am a bit “late” to this trade since many smart traders were already talking about it during the pandemic. I’m looking at it now though because it’s solving a difficult problem (corporate identity / security) in a growing space (remote/hybrid work) and it’s extremely sticky (i.e. in selling to businesses, if your product doesn’t work with Okta you can’t sell).
This makes me think that they will have a growing defensible advantage in this market of corporate digital identification. And passwords are 100% forgettable.
Costco – “Wining in retail”
I recently listened to an interesting interview on The Pomp Podcast about the history, growth & stock performance of Costco $COST. The episode gave a level of detail about how they operate that I wasn’t familiar with.
I liked the company’s fanatical approach to customer value that unlocks their scale, their extremely high employee retention levels and I learned that they got a business license to operate in China like 20 years ago but only just recently started opening stores here.
I visited the Shanghai Costco this past weekend and it was both amazing and absolutely packed. They really know what they are doing. The stock price might take a hit from inflation concerns (can they pass price increases onto their consumers?) but if you can hold them for a while, their business seems extremely strong, defensible & sticky.
Coinbase – “On-ramp to crypto”
This one I’m less sure about after a few years due to forthcoming technology changes, pricing pressure and hyper-competition. But for the next couple of years, it could be a solid performer.
When Coinbase $COIN did their public direct listing back in May of this year, I felt that crypto was too hot and I didn’t have a solid feel for what a fair stock price should be. It hit a high of $430 very briefly but then traded down to settle into a tight range between $225 & $250 that it has held since May 19.
It has traded sideways in that channel since then, mirroring Bitcoin’s price action. If you’re looking for crypto exposure in your accounts, then this is faster than waiting for the Bitcoin ETF’s to materialize.
I’m considering them again now because they have a premium brand in a growing space and once a user has an account, they do a great job of educating & growing their users. I’m also expecting that Bitcoin will have a strong few years from here so Coinbase should trade similarly.
Apple’s earnings & outlook
Apple smashed earnings this past month, pushing the company past the 2.5 trillion mark. They had previously increased iphone production by 20%. After earnings, they traded slightly down since the chip shortage may slow Q3 growth & tech pulled back. I think it’s no problem, I’m still long on Apple.
Gaming is everywhere like Netflix & Zoom
Netflix made some hires & announced that they would be getting into video games, which it looks like they’ll focus first on providing mobile games to subscribers at no additional cost. Sure, if I see it, I’ll try a Stranger Things mobile game if it’s free but it has to be a compelling game. I’m not sure how far they’ll go down this route.
I hope that they continue to go all-in on animated features like how they crushed it with “The Mitchells vs. The Machines” which was streamed by 53 million households in its first 28 days. Watch Gene Munster of Loup Ventures recap their recent earnings.
And not to be left out, Peloton & Zoom are also jumping in to the gaming space to make their products more engaging.
Square loves crypto & it’s spreading, wider adoption, institutions & inflation hedges
I can’t stop talking about crypto lately as I’ve converted from the ‘hmm interesting’ camp to the ‘wow, this is going to rewrite the internet‘ camp. There is far too much content out there, including tons of headline FUD (fear, uncertainty, doubt), so I’ve collected a few resources that helped me expand my thinking on the possibilities of crypto.
Guess who else is talking non-stop about crypto, but especially Bitcoin? Jack Dorsey, CEO of Square $SQ & Twitter $TWTR, who recently announced that they’ll be creating an open-source Bitcoin wallet. This is in addition to already allowing users to purchase Bitcoin in the Cash app. Then Jack tweeted about “That other cash register company getting into Bitcoin”.
ombination of Cash App payments & Twitter subscription / tips could go a long way to expand adoption of crypto for consumers. Then on the retail investment side, Grayscale is also rushing to make a Bitcoin ETF beyond all of the growing institutional investor interest. This bull market for crypto is different.
Oh and if you’re interested specifically in the Bitcoin as inflation hedge, I list a few interesting podcast episodes focused just on this topic.
mRNA is still a huge deal, buy on pullbacks
Well, Moderna $MRNA & BioNTech $BNTX are absolutely crushing it lately. I really hope that you picked some up Moderna when I added it to the list, it’s up an eye-popping 158% since April 13 (S&P up 7%). And it’s being added to the S&P500, yay.
Bloomberg: Moderna’s Next Act Is Using mRNA vs. Flu, Zika, HIV, and Cancer
Fool: Why BioNTech Rose as Much as 5% Today
Don’t miss out on this technological revolution. But right now may not be the best time to get in since it’s had such a huge run up. I would dollar-cost average or wait until there’s a market correction then start buying.
Winners, still winning
Just a few headlines for stocks that I like.
$SE – Morgan Stanley raises price target to $320 on Sea Limited as South East Asia ‘Superapp’. It’s worth looking at their hiring jobs on Linkedin just to get a feel for all the activity & areas of growth.
$AGC – Writing about SE above reminded me that Grab will go public via SPAC merger with AGC. They are also likely to be a big winner and they are hiring a head of product for digital bank partnership in Singapore. Sound familiar?
$AMD – After earnings, AMD broke through $100 and was continuing higher. Listen to an interview with CEO Lisa Su about the quarter and future potential of their business.
$LMND – Lemonade has had its fair share of ups & downs recently. They report earnings after the market closes on August 4th so keep a close eye on their numbers. I still like them long-term but I will be more confident once we start to see their cross-sell & upsell to additional insurance products become a more meaningful part of their revenue.
$AFRM & $SQ – The buy-now-pay-later trend is rapidly growing. Affirm partnered with Shopify and Square acquired an Australian BNPL company for $28 billion, looking to eat further into the profitability of bank & credit companies.
The List update for August 3rd close
I’ve reformatted the list for a monthly update format to include more recent price action. The names in bold are stocks I’m looking to get more of when there are pullbacks.
See historical performance
That’s all for this month. If you got some value out of it, I’d really appreciate you sharing this newsletter with friends.
-B
I believe in Win & Help Win.
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