Portfolio Screener Update: Top-Ten Preview

Psalm Chapter 95 verses 1-2 state, "Come, let us sing for joy to the Lord; let us shout aloud to the Rock of our salvation. Let us come before him with thanksgiving and extol him with music and song."

This verse is an encouragement for me when I think about all the blessings that God has given me. Life is never perfect, but it is important for me to always acknowledge God and to be thankful regardless. It's also an acknowledgement of God's grace for my life.

I think that this is applicable to investing in that it's always easy to "feel good" when things are going well. It's not so easy to remain positive and committed when things are looking down or a holding has just dropped by 20-40%. Regardless, to be successful, it takes sustained discipline and dedication to effectively manage things in an optimal fashion.

Every week, I provide the Portfolio Screener Update. This is a paywall product that gives paying members a weekly snapshot of how the portfolio is performing. As a reminder, my mid- and long-term investment goal is to generate annualized returns from 25-30%. So the companies I am investing in are in my opinion, top aggressive growth companies within a 95th percentile or higher out of the investment universe. Additionally, the Portfolio Screener Update compares top performing aggressive growth indices, ETFs, and Mutual Funds on a weekly basis to gauge if the portfolio is trending appropriately.

Other items included updates to the portfolio's sector composition, and two-year PTs and Max APs. For those not aware, every company in the portfolio as well as other databases including IPOs, EV/automotive OEM specific coverage, and other competitors (across portfolio holdings) all have financial models built based on historical and mid-term estimates and valuation expectations. Max APs are used to set price alerts for Portfolio Moves, notably for accumulation on existing positions.

Today, I'm going to focus on the portfolio's top-ten holdings as a way to illustrate this product.

Portfolio Top-Ten

The top-ten is a complete mix of strong and weak performers for 2021. The biggest surprise has been Roku followed by Teladoc. Others including Coupang, MercadoLibre, and Vroom also are witnessing performance well below my expectations for the year.

I will speak briefly to my portfolio balance. Lucid is clearly an outlier for the moment with a 17.5% weighting. I'm not concerned about this as the portfolio's inception date is January 2020, and I expect the balance to remain somewhat fickle, highly dependent upon accumulation strategies. Below, I will provide an illustrative example of peer performance and commentary.

Lucid Group, Inc. (LCID)

My rationale for including the companies in the peer group are to consider U.S. traditional automotive OEMs, and the top de-SPACed potential performer against both Lucid and Rivian Automotive, Inc. (RIVN).

The simple theme over the past few months is that more speculative EV companies are outperforming traditional peers. There is a real debate going on with respect to this as Wallstreet in unison with traditional automotive OEMs are pumping their abilities to become EV leaders. The market clearly disagrees, although it has provided both Ford and GM substantial SP appreciation from last year, doubling and tripling respectively.

The knock on traditional peers is their need to do, well, a lot of things. First, they need to prove that they can create multiple successful EV models. Second, they need to provide highly efficient EVs that can balance the long-term pains of infrastructure development. Third, they need to delicately balance the cannibalization of ICE vehicles to EVs. Fourth, they need to strategically and realistically, manage expectations regarding their batter technology capabilities beyond internal production. Fifth, they need to reconsider their strength in the autonomous world. Sixth, they need to reconsider the direct-to-consumer business model versus traditional dealerships. Seventh, they need to reconsider their involvement within the entire lifecycle of each vehicle from new to used vehicle sales. Eight, they need to reconsider their financing services, including insurance, other products, etc.

This is why the cry from Wallstreet to spin-off their EV segments is getting louder and louder. But back to Lucid. The SP is up big, well beyond my PT of $40 for 2022. I'm not concerned as my average unit cost basis sits at just above $21. And I am modeling Lucid's 2025 PT towards $110. But when it comes to managing the position, I likely will not be adding, until it were to drop below the $40 level, irrespective if it ever gets there. Lucid is doing everything that they need to, and if they beat next year's 20,000 delivery guidance, I believe the market will continue to afford Lucid a steep premium. Adam Jonas from Morgan Stanley has modeled Lucid to have a $16 SP by 2025, assuming over 400,000 deliveries a year by 2030. For me, the thesis for Lucid, Tesla, and Rivian is to compete against top five traditional OEM standing by Revenue over the long-term.

Opendoor Technologies, Inc. (OPEN)

By now most everyone is familiar with Zillow Group's (ZG) debacle through its exit of the iBuying home sales market. To no surprise, Opendoor has outperformed all peers as listed above, with Zillow being the worst performer.

I've written on Opendoor a lot over the course of the year, and I think Zillow's move will benefit Opendoor tremendously. With Zillow gone, Opendoor has a commanding lead of Offerpad Solutions (OPAD). This will allow Opendoor to better balance their Revenue, GM, and Adjusted FCF performance in my opinion.

Despite the clear path, the market has not afforded Opendoor a proper valuation. In fact, despite Opendoor trading just below $19, the EV/Revenue is just below 4 times. I've modeled Opendoor to sustain a 4 times EV/Revenue multiple over the mid-term, until the company displays that it can generate a positive Adjusted FCF.

Looking out to 2022 and Opendoor's Revenue estimate, at 4 times EV/Revenue equates to a SP north of $75. Taking this further to 2025, and Opendoor's SP appreciation potential sits around $220. For those interested, I am modeling Opendoor to sell just below 100,000 homes equating to nearly $35 billion in Revenue by 2025.

My average unit cost basis sites at $17.50, and this level is where I have set my Max AP. I did purchase some more Opendoor just above $19 recently so the Max AP can be deviated from sometimes as I review trading patterns and reasoning for why the SP is depressed. The key risk for Opendoor is the ability and timing to generate a positive Adjusted FCF. Q4 2021 will provide further insight into how this may shape up, but Q1 2022 will be a better gauge.

Roku, Inc. (ROKU)

Earlier this week I did a similar comparison with respect to Roku. Today, I'm only focusing on some of the most direct peers. Netflix, Inc. (NFLX) and Trade Desk are the closest, while Discovery Communications (DISCA), Comcast Corporation (CMCSA) and At&t, Inc. (T) are media/Internet conglomerates. I could also include companies like The Walt Disney Co. (DIS), Amazon, Inc. (AMZN), and Alphabet, Inc. (GOOG) and Apple, Inc. (AAPL), but I'm keeping it more streamlined.

Roku is my biggest disappointment for 2021. There is no way I would have every suspected the the SP would be below $350, let alone $250. Similar to Opendoor, I've written extensively on Roku. I've said it before, Roku is facing a monstrous focus from the competition and Moffett Nathanson's recent cave-in is a direct result. The competition is clear, but agreement disputes with Alphabet's YouTube, and forthcoming Amazon's IMBD tv are weighing. Roku went through similar challenges with Comcast's Peacock and At&t. Comcast is also getting into the Smart TV market to directly compete with Roku, as have been Apple and Alphabet. TCL, Roku's former exclusive Smart TV provider has opened up to other competitors, so is Roku doomed?

I believe that while this is a lot at once focusing on Roku, that it is still quite healthy. There are plenty of cases where similar pivot attempts from much larger and well capitalized companies did not pan out - Netflix being a great example as it was able to defeat Blockbuster, Walmart, Inc. (WMT) and Amazon all at once. I suspect that Roku will be capable of winning as well, as Comcast will struggle to compete directly due to human capital and management issues, while Alphabet, Apple, and Amazon will continue to prioritize their ecosystems over an agnostic content approach. I actually believe that TCL's non-exclusive shift will turn out better for Roku from two perspectives - 1) TCL will not gain any better performance from other partnerships, and Roku will see increasing demand from other Smart TV manufacturers recognizing Roku's dominance as a market leader.

When it comes to valuation with Roku, it can be challenging. I think today's suppression from Wallstreet, and depressed SP are a clear illustration of this. The naysayers have influenced the market to become concerned with Roku's growth over the short-term. Another headwind includes Roku's exposure to the chip shortage, but this is not an isolated issue, and I don't see a justifiable multiple contraction from this.

I remain committed to my premium valuation for Roku. I believe that Roku is one of the few growth companies worth 15-20 times EV/Revenue and 100-200 times OCF/share over the mid-term. The key contention point that Wallstreet is now bringing up is Roku's addressable market. Facebook, Inc. (FB) grew Revenue/MAU from $10 to $205 over a little more than 10 years. Roku's ARPU stood at $6.50 in 2015 and now stands at $40 based on the LTM as of Q3 2021. I am modeling Roku to grow this towards $85 by 2025 equating to Revenue approaching $9.5 billion. Roku currently has an OCF margin at 12% as well, which I believe has the potential to inflect towards 20%. We don't have much information from a pure streaming perspective, but we do know that Netflix is still generating negative OCF in a normalized content production environment. Roku's business model is much stronger, and this is a big reason why the competition is taking note. The simple reality is that if Roku's Revenue exceeds $9 billion and OCF exceeds15%, Roku's SP will likely exceed $1,000. I continue to adjust the Max AP as the SP has dropped, with the next accumulation move looking for $225.

Coinbase Global (COIN)

In comparing Coinbase to peers, I've decided to consider other Fintech companies with exposure to Cryptocurrencies like Robinhood Markets, Inc. (HOOD), Bakkt Holdings, Inc. (BKKT), and SoFi Technologies (SOFI). I've also included other more mature companies like Square, Inc. (SQ) and PayPal Holdings (PYPL), as well as Visa Inc. (V) and Mastercard Incorporated (MA), and JP Morgan Chase (JPM) as a conventional bank/credit card company. The clear winners, Fintech companies, with Robinhood being the exception. as the worst performer, followed by PayPal, Visa, and Square.

Coinbase is a great example of a holding that has been in the red ever since the first IPO day back in April. I've successfully used my Max APs to continue building the position to an average cost basis at $277. Now that the market is recognizing Coinbases's strengths and potential, the SP has appreciated. This is most clearly evident as earlier average Revenue estimates for 2022 have come up significantly from around $5.5 billion to $7 billion. Cryptocurrencies, while still remaining volatile and stabilized much more over the course of 2021. With the proliferation of Cryptocurrencies, NFTs, Defi Tokens, etc., the utility of Cryptocurrency becomes stronger, with exchange and contract blockchains becoming an increasing reality.

This is why when I look at Coinbase, I see a company with potential to head towards $20 billion in Net Revenue by 2025. The real cheddar here is Coinbase's OCF/FCF margin, which per the LTM as of Q3 2021, stands at 48%/50%. If Coinbase is highly successful, I believe that these margins are likely to remain elevated at or higher than 40%. I'm thinking of companies like Visa and Mastercard from 10-plus years back as equivalent opportunities. I also see valuation multiples for these companies - 20 times EV/Revenue and 50-75 times OCF being realistic for Coinbased over time. My PT for 2025 sits around $1,400 as a result.

My Max AP has increased somewhat to $250. This is based on the fact that volatility with Cryptocurrency is not easily predictable, and I am looking to continue to decrease my average cost basis if possible. My key stance with Coinbase is that many companies getting into the Crypto world will not win like Coinbase - I see an unlimited partnership and therefore, monetization opportunity for Coinbase over time.

Coupang, Inc. (CPNG)

Coupang continues to weigh on the top-ten. I don't believe that today's valuation is reasonable, especially when looking at peer performance. Other than Alibaba, Inc. (BABA), Coupang has underperformed substantially. I see a much stronger correlation to (JD), but regardless, I view no Chinese company as investable. This due to the simple fact that fraud is a business as usual practice, no matter what company, and I don't take any financial information from them seriously. On the U.S. side, Coupang's closest peer is Amazon.

The biggest challenge today for Coupang is valuation. The market is not affording the company a modest premium regardless of Coupang's robust growth. This is likely due to a reoccurring theme from late last fall, pandemic-influenced performance. This point is highly insulting as many other companies that have benefitted from the pandemic are not witnessing the same pressure/suppression tactics. That being said, I am modeling Coupang to eventually see multiple expansion towards 4 times EV/Revenue.

Another issue with Coupang is the company's low OCF margin, and lack of visibility on how inflection may play out. Coupang during 2021 has witnessed an increasing amount of Cash Burn, rather than sustainable OCF margin from 2020's 3% level. This is not highly concerning as Coupang has $3.5 billion in Net Cash, with ample ability to raise more capital to compete. A key catalyst for the company's near-term growth will not only be converting consumers to digital shopping, but also with respect to Net Revenue per Active Customer. The latter has been performing strongly during 2021, and is a key focal point for mid-term growth prospects.

I've continued to accumulate on Coupang and my existing average cost basis sits just below $35. At 4 time EV/Revenue and based on a 2022 Revenue estimate of $27 billion, my PT for Coupang next year is $60. I have adjusted my OCF margin expectation to only 2%, and I am assuming 2021 to see a negative result, although seasonality will be important to recognize. For me, Coupang needs to head towards $50 billion in Net Revenue by 2025 to justify a SP of $100 or higher. My most recent accumulation levels have been around $26.50, and my current Max AP is set for $24.

Shopify, Inc. (SHOP)

I've simplified Shopify's peer group to include Amazon, eBay, Inc. (EBAY), Walmart, and Target Corp. (TGT). For some, it may come as a surprise, that on a GMV level, Shopify is the second largest e-commerce company behind Amazon. This is due to their extensive product/service offering for small, medium, and large businesses.

Shopify is another pandemic-influenced performer that has been questioned as to how they can continue driving growth at elevated levels. Earlier in the year, analysts were looking for Shopify to generate around $4.2 billion in Revenue, today estimates have increased towards $6 billion with next year tracking from $5.5 billion to $8 billion. This is substantial because it translates to 2025 Revenue increasing as well from $14 billion or to towards $18 billion. As such, Shopify has witnessed an increasing SP. I've adjusted my financial model and while I'm not going to be accumulating any time soon, I do see sustainable SP growth on the horizon.

From a valuation perspective, Shopify is very difficult to accurately gauge. The current SP affords 50 times EV/Revenue and 440 times OCF/share multiples. I believe that Shopify will likely trade 20-25 times EV/Revenue and 100-150 times OCF/share by 2025, especially if the company indeed can see sustained robust growth towards $20 billion in Revenue and OCF margin inflection towards 20%.

My Max AP is set at $1,400 as my average cost basis sits at $819. I'm willing to let my average cost basis increase towards $1,000 based on the mid-term opportunity.

The Trade Desk, Inc. (TTD)

Trade Desk is largely focused on advertising and therefore, peers include Roku, Alphabet, Facebook, and Snap, Inc. (SNAP). Trade Desk inflected strongly after the Q3 earnings report. I must admit it rubs me the wrong way, especially when compared against Roku, who grew Revenue faster, and at a larger scale.

Trade Desk does have the edge over Roku with respect to OCF margin standing at just below 35%. During 2020, Trade Desk witnessed a massive Cash Flow inflection with the OCF margin finishing near 50%. For me, valuation continues to be a challenge. LTM EV/Revenue is currently at 45 times, while OCF/share is at 135 times.

Compared to Roku, Trade Desk is modeled to head towards $3 billion in Revenue by 2025, one-third of where Roku is currently modeled. Even with a 25 times EV/Revenue and 75 times OCF/share, in 2025, Trade Desk's SP would equate to just below $140. As such, I don't see much upside potential over the mid-term.

Trade Desk is a company that over a five-year period if it is valued close to estimates, is poised to still generate an annualized 24% return - this is the reason I'm not selling it today. However, if by 2025,the next mid-term model will lead towards performance dropping lower towards 20% or below, I would likely consider reducing the position and/or liquidating depending upon other opportunities. Non-surprisingly, my Max AP is set at $75, which may not come to fruition any time soon.

Teladoc Health, Inc. (TDOC)

Teladoc's peer group isn't that big today as many of its direct competitors remain privately operated. It's been a very rough year for investors, especially those purchasing Teladoc in January of February this year. The February peak hit $308, and the SP now sits at $117. I've owned Teladoc since last year, so I've gone through all the highs and now, lows.

In the case of Teladoc, we've seen the valuation multiple peak at near 30 times EV/Revenue and 200 times OCF/share during 2020. Today, the EV/Revenue multiple has contracted back towards 10 times. This is an important level as it has been pretty consistent since 2017, 2020 excluded. The key difference here is that Teladoc has acquired Livongo Health, and the company is on a much higher Revenue growth trajectory than pre-pandemic performance.

One of the reasons of why Teladoc interested me was its Cash Flow inflection that occurred in 2019. The Livongo deal has temporarily masked the potential for Teladoc's Cash Flow growth, and I am expecting to track towards a 15% OCF margin over the coming years. Over the mid-term, I am looking for further inflection towards 20%. Teladoc provided its investor presentation update this past week. This led to the strong sell-off from the mid-$130s to Friday's close.

From a valuation perspective over the mid-term, I believe that Teladoc will trade with an EV/Revenue multiple in the 12-16 range, and OCF/share will be in the 65-80 times range. From the investor presentation, Teladoc affirmed their 2024 Revenue towards $4 billion. I am modeling Teladoc to grow Revenue to $5 billion by 2025.

My current average cost basis sits at around $156, and my Max AP to accumulate is at $115, so nearly there. I will consider whether I make an earlier move, which could include placing a limit order for Monday's open. I've set my mid-term PT approaching $410. Teladoc's Cash Flow inflection, combined with sustained Revenue growth per expectations is going to be the catalyst to re-expand multiple valuation levels.

MercadoLibre, Inc. (MELI)

MercadoLibre has witnessed volatility of late, with the recent culprit being a secondary offering. MercadoLibre has always had less than 50 million Shares Outstanding, even dating back to the 2000s. The one million share offering increase isn't really anything to fret about. Nonetheless, it's an excuse for the short-term downtrend as the Q3 report was a catalyst that had pushed the SP back north of $1,600. Most of MercadoLibre's closer peers have been performing better, the exception being Stone Ltd. (STNE).

MercadoLibre remains a force for e-commerce and Fintech in Latin America, notably the company's growth within Mexico that exponentially increased. Latin America remains a key growth market for e-commerce and Fintech and MercadoLibre has continued to beat out the competition over the decades. Sea's Shopee has shown an increase in usage of its e-commerce site, so competition is evolving versus the traditional threats of Amazon and eBay.

The one area that investors should recognize is that MercadoLibre's Cash Flow tends to ebb and flow as the company invests and ramps up its investments to further Net Revenue growth. 2021 is shaping up to be one of those years, and it may end up being the lowest OCF margin years over the past 12 years.

Regardless, MercadoLibre's Net Revenue growth is nothing short of spectacular as it is poised to reach $7 billion for 2021, from $135 million as of 2008. By 2025, I am modeling MercadoLibre to generate nearly $19 billion in Net Revenue. I do believe that MercadoLibre will be capable of generating a 30% OCF margin over the mid-term as well.

MercadoLibre's EV/Revenue multiple has a long history of trading around the 10 times, which is where it stands today at 11. At the same time, OCF/share has consistently been around the 50 times multiple with this year's LTM being an exception due to the recent OCF margin contraction. The recent sell-off has peaked my interest, my Max AP stands at $1,300.

Vroom, Inc. (VRM)

Vroom and its direct peers including Carvana, Inc. (CVNA) and Shift Technologies (SFT) have had a rough go of it since posting Q3 earnings results. Key competitors including traditional players like AutoNation, Inc. (AN) and CarMax, Inc. (KMX) have had much better performance. All have witnessed strong business metrics driving Revenue growth, but supply chain issues have plagued leading e-commerce innovators.

For Vroom, the company has been hit from its exposure to third-party logistics partner providers and labor issues. Vroom has taken a vertically integrated model with respect to the purchase and inventory of used vehicles, and to a degree with reconditioning, but has focused on an asset-light approach with respect to reconditioning, logistics, customer financing and experience. Wallstreet has influenced the market to question this asset-light approach.

Carvana on the other hand has taken a much more aggressive approach towards investing in the entire process, and is the clear e-commerce leader based on Revenue. Fundamentally, Vroom is in a much stronger position versus Carvana, a result of the asset-light approach. But the company has begun taking steps towards investing more into reconditioning centers and logistics, and with the recent acquisition of auto lender UACC, the company is taking a stronger step into customer financing.

The key for me as always, is valuation. Carvana is trading 5 times EV/Revenue, while Vroom is trading 0.70 times. Over the coming years, I continue to expect both Carvana and Vroom to continue to take market share from dealerships and other traditional players. There is plenty of room for two market leaders over time. For me, Vroom represents a massive investment opportunity.

I am modeling Vroom to generate close to $13 billion in Revenue by 2025. It remains to be seen, similar to Opendoor, whether Vroom can achieve an Adjusted FCF margin by 2025. But focusing on EV/Revenue, I am modeling a multiple at just over 2 times, that equates to a SP approaching $225 over the mid-term. By comparison, Carvana is forecast to generate around $31.5 billion by this time.

There are some new business model competitive threats such as subscription as a service models versus automobile ownership, and/or Rivian's desire to provide new and used vehicle sales lifecycle services. However, the fragmented aspect of the used vehicle market remains a lucrative market for both Carvana and Vroom to continue growing into. My Max AP has been adjusted to $16.50, so Monday could see some action.

Portfolio Peer Performance

Since I am a long-term investor, I'm not focused on a high trading level. However, this doesn't mean that I don't revisit the current holdings as to their sustainable contribution to the portfolio's goals. And I have had success with trading SPAC warrants over the short-term. Also, my Max APs are very important as they set the threshold for me to accumulate on existing positions. I view this as one of the most pertinent aspects of successful investing.

The portfolio's YTD performance stands at just below 16%. This doesn't sound like much with respect to broader indices like the S&P 500 and NASDAQ that have witnessed 25% performance for the year. But it is substantial when we take a look at peers. For example, here's a short-list of some of last year's top aggressive growth performers:

  • ARKK: (9%)

  • IBUY: (6%)

  • ALTS: 7%

  • MFLLX: 13%

  • ZVNIX: 6%

First, I want to mention that many of these peers performed from 75% to 150% last year. I'm especially excited to see the portfolio now outperforming MFLLX, Morgan Stanley's top growth fund, that was up 50% earlier in the year. Cathie Wood has struggled very much so in 2021, and she is getting a lot of negative focus. While I still believe that she is fine, and one year never makes a trend, I have noticed that her turnover for some holdings has increased and that her trading activity has tended to make moves more aggressively, or prematurely depending upon how you look at it.

The result for the portfolio has been solid as it has outperformed nearly all top performing aggressive growth peers from 2020, the main exception being BPTIX from Barrons Funds, up 31% for the year. Why some may ask, because 47% of the funds weighting is allocated to Tesla.

I monitor 25,000-plus indices, ETFs, Mutual Funds, etc. and at the end of the year, compare how varying fund manager styles shape up. Aggressive growth may not win every year, but over time, 5, 10, 20 year periods it better. It's important to keep an eye on things holistically.

The Bottom Line

There's a lot of free information out there, notably through chat boards, social media, etc., and I read up on them quite frequently. The problem is there's too many perspectives and discussions on information that simply doesn't cut to the chase. Speculation is the wrong way to win, just as is getting caught up on the wrong metrics. Investing is simple as it's an equation based on Revenue growth, Cash Flow performance, and valuation.

Hopefully this has given freeimum subscribers and site members a good perspective on the level of information and discussion that is available through the Portfolio Screener Update. Other paywall services include the IPO Dog List and EV Pretenders List. I've got other services in the works including the Competitors List, and ultimately, a tool that will organize investment analysis for the 7,000 or so public companies listed on the NASDAQ and NYSE. This tool will be flexible to organize any peer group, industry, sector, etc. per investor interests.

I will always try to provide as much value as I can on the freemium service via blogs, chat, and weekly updates. But the bulk of work is entrenched in building and maintaining financial models, analyzing key news and information as well as quarterly updates, and creating tools for investors to have access on all of these elements - this is the core value behind the paywall. I encourage subscribers and site members to engage, whether on blogs, email or chat, or through a free trial.

19 views0 comments