Regular readers of my alerts will have noticed two things. During a bull phase in the stock market I only write about stocks to recommend buying their shares, hence my dictum that if a stock is mentioned it is recommended. Secondly, I write again and again about the same stocks so that the number of recommendations for the same share can easily run into double figures.
There is a reason why I do this. It relates to how I invest myself. I am an aggressive investor. I liken how I invest to driving a car with the accelerator pedal pressed to the floor. When I buy I buy with five times leverage. As and when the shares go up and create unused equity on my account I invest that too so that my leverage remains around five times.
This is a mirror of what happens with leveraged ETFs like QQQ3. In effect, when they go up, they create spare equity which is reinvested to maintain the three times relationship between total investment and a notional equity figure. (This was explained in an earlier alert).
If you do this on a daily basis, which I do, it is extremely aggressive in producing gains in a bull phase but is also punishing on the downside which is why early in a market correction I have to sell. This makes me interested in effective sell signals as well as buy signals but just now we are in a bull phase and don’t need to bother about them.
Buying more of the same share in a rising market is a form of pyramiding which is a good description of what I do. I can start with say just $5,000 invested but if things go well that can turn into $50,000 or even $§100,000 invested in just the one share. It is a very exciting but also testing way of investing and will not appeal to everybody. The good news is that you need only risk a relatively modest sum to achieve incredible returns and you can do it the old school way and just buy shares, unleveraged, to add to your super sexy growth share portfolio.
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Potential Giga Corporations Suitable for Pyramiding
Subscribers will be aware of my belief that the technology revolution is going exponential and that as we head into the space age the cost of taking technology forward will be so immense that it will require the emergence of correspondingly gigantic businesses to make it happen.
It may have parallels with the age of the dinosaurs which presumably started small but in the competition for resources became mindblowingly huge. Another parallel could be with biopharma companies where the cost of developing new drugs and taking them through the trial process is over $2bn and climbing which led directly to Big Pharma.
One reason why corporate r&d budgets are climbing so fast may be because taking technology forward is becoming exponentially more expensive. I noted in a recent alert that Apple’s r&d spend had climbed from $780m in 2007 to over $30bn in 2023. Modern corporations are becoming innovation machines.
Tesla Spends Nearly $3,000 on R&D Per Car; Triple Rivals
Tesla has always been about innovation. For example, their much-talked-about partnership with Panasonic, which allows them to manufacture new batteries. Tesla would later announce a historic partnership with the acquisition of SolarCity, a manufacturer of solar panels and roof tiles. During an investor call in 2016, after the merger, CEO Elon Musk was eager to bring SolarCity’s technology and Panasonic’s cell technology together to make the world’s most efficient –and cheapest– solar cell in the world. And at the time, it was Tesla/Panasonic’s then-new 2170 battery cell. In 2020, Tesla innovated again by introducing the “brilliant” 4680 battery cell, once again cheaper and more energy-efficient than before.
How has Tesla been able to innovate so much in such a short amount of time? Tesla’s unique culture of innovation starts with its commitment to research and development. Tesla continues to invest more and more money into its research and development branch. In 2020, Tesla’s R&D expenses were $1.491bn, an 11.02pc increase in spending from the previous year. Over the last decade, Tesla’s research and development investment has skyrocketed.
So it’s clear that, through spending, Tesla is in stark contrast to many of their competitors. In 2016, Manufacturing.Net wrote an article titled ‘How Tesla Out-Innovates Traditional Carmakers’.
“Many traditional carmakers are huge companies with $100+ billion in sales and loads of cash to spend. And yet, a relatively small company from Palo Alto has them beat in what most people consider the future of the automotive industry: electric cars… [Tesla] has established itself as arguably the most successful manufacturer of electric cars over the past few years.”
In 2006, Tesla’s master plan was simple: ‘Build sports car. Use that money to build an affordable car. Use that money to build an even more affordable car’. Tesla’s founder promised the company would “plow all free cash flow back into R&D to drive down the costs” and bring products to market as fast as possible. And fifteen years later, that’s still held true. Tesla’s research is continually driving down the price of its products, like the previously-mentioned 4680 battery cell. And as they cut costs with new innovations, they can continue putting more of that money into research.
How does this compare to Tesla’s competitors? In 2020, the impact of the pandemic caused automakers to cut short-term R&D spending. According to this Automotive R&D Survey, the automakers surveyed reported an average reduction of 13pc in their 2020 development budget, and 8pc reduction in their 2021 development budget. Similar results were given for reduced advanced research budgets from automakers in 2020 and 2021. This puts them in stark contrast to Tesla’s ever-expanding research and development budget.
Tesla Model 3’s streamlined development is projected to already put it years ahead of its competitors. In the article, Nikkei Business Publications, suggests that the technology in the Tesla Model 3 is at least six years ahead of traditional carmakers like Toyota and Volkswagen. Tesla’s self-driving technology, plus not having to rely on supply networks like other manufacturers, gives the company much greater potential. As Tesla keeps looking towards the future with its large investments, other automakers are struggling to catch up.
Tesla News, 1 March 2023
Below is an image for the trend in Tesla’s r&d spending over the last 13 years and bear in mind that over much of that period the group had cash flow problems including nearly going bankrupt so imagine what is going to happen now as the group begins to throw off growing quantities of cash. It strongly suggests that whatever has been achieved by Tesla to date we may well find that we ain’t seen nothing yet.
The share price chart (see below) is reflecting this increasingly positive outlook for the business and the shares. We are a whisker away from a double whammy buy signal on the golden cross plus Coppock and we already have it with my recent focus on turning points in the blue shorter term moving average line.
This is not yet a super strong chart, with the share price punching out of consolidation and hitting new all-time peaks but that will surely come in time. The value of this business has risen by over 250 times in 13 years; that speaks to the incredible energy and innovation in the company and that is not going away, if anything the pace of innovation is quickening all the time.
I think Tesla has an excellent chance of becoming a giga corporation, which I understand as a company with a value approaching $10 trillion. They are certainly playing for those stakes. Musk is a guy with a private company, Space X, which he hopes is going to create the first settlements on Mars. He thinks big and so do his growing band of super talented associates.
This means that Tesla is an excellent choice for pyramiding. The higher the shares rise the better the chart is going to look and the story is incredible as is the man leading this business. He may be strange, he may be autistic but there is no question that Elon Musk is special and when he says he is going to do something we need to listen, even if he is sometimes a little optimistic on the timescale.
XLY Bets Big on Amazon and Tesla
I have found an ETF which has made a huge bet on Tesla and on Amazon, whose shares also look encouraging on the chart. The ETF is SPDR Consumer Discretionary ETF (XLY) and it has some 40pc of its portfolio in two shares, Amazon and Tesla.
The chart looks good with a double whammy buy signal and a strong long term performance. This ETF blends technology and innovation with exposure to the secular upwards trend in consumer spending both globally and in the USA.
This is a good looking list of holdings, including four shares which have featured in alerts this year. One of the less familiar to me of the companies in this list is TJX Companies Inc.. They are a successful business.
TJX is the King of Discount Shopping
The TJX Companies, Inc. is the leading off-price retailer of apparel and home fashions in the U.S. and worldwide. Our mission is to deliver great value to our customers every day. We believe that we operate one of the most flexible business models in the world and that we have one of the widest demographic reaches in retail. Over our more than four decades as a Company, we have generally delivered steady sales and earnings growth through many retail and economic environments across different geographies.
We are one of the few large U.S. brick-and-mortar retailers of apparel and home fashions to have expanded successfully internationally. We operate stores in nine countries across three continents, and we continue to believe we have significant store growth opportunities, both in the U.S. and internationally, in the long term. Over the course of our history, our strong financial returns and cash generation have allowed us to simultaneously invest in the growth of the business and return cash to shareholders .
Website
The chart looks terrific and is presently pushing to new all-time peaks.
The business which includes the well known TJ Max discount shopping business is in great shape.
Our first quarter results are a testament to the strength and resiliency of our flexible off-price business model. I am very pleased with the excellent execution of our teams across the company whose collective efforts brought our shoppers great values and a compelling treasure hunt shopping experience everyday. Our buyers took advantage of amazing deals in the marketplace and the organization flowed product to the right stores at the right time and did a great job of merchandising the product, delivering on customer satisfaction and marketing. We are happy with our good start to the second quarter and are in a great position to take advantage of the phenomenal buying environment and ship fresh selections to our stores and online. Going forward, we are excited about the opportunities we see to gain market share in the U.S. and internationally and continue to improve the profitability of TJX.
Ernie Herrman, TJX Companies, Q1 2024, 17 May 2023
TJX functions like a giant outlet business.
Next and I can’t emphasize this enough, we are extremely confident that there will be more than enough inventory available in the marketplace to support our growth plans. Over the last year, our more than 1,200 global buyers have sourced merchandise from a universe of approximately 21,000 vendors, including many new ones. Overall availability of quality branded merchandise has never been an issue for us throughout our history as vendors and brands continue to produce goods from multiple channels, including in-store, online and direct-to-consumer. In fact, many vendors want to work with TJX due to our size, scale and buying power. As a growing global retailer with nearly 5,000 stores, we offer vendors a very attractive way to grow their business and clear their excess inventory quickly and discretely.
Ernie Herrman, TJX Companies, Q1 2024, 17 May 2023
Strategy – Buy Rising Shares in Strong Businesses
Tesla is a speculators’ favourite which makes for great volatility in the shares but it is an exciting investment because of its growing dominance of the global EV ecosystem and the power of its innovation relative to competitors. It is the new kid on the block and the old guard are reeling in the face of this new arrival. They simple don’t have the mindset of constant innovation, which makes Tesla such a force.
TJX Companies is a class act, able to prosper in good times and bad and doing well currently as inflation drives prices higher while soaring costs across the consumer goods industry mean there is an abundance of attractively priced inventory around.
I like XLY as an ETF. It has an aggressive but also high quality portfolio, almost invisible costs and a terrific chart.
Share Recommendations
Tesla TSLA. Buy @ $255
TJX Companies. TJX. Buy @ $83
SPDR Consumer Discretionary ETF. XLY. Buy @ $167
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