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Some exciting names for a market which is feeling more positive

March 23, 2022

Alphabet. GOOGL. Buy $2764 Times recommended: 27 First recommended: $985.19 Last recommended: $2583.96. Highest $2978

Amazon. AMZN. Buy @ $3282. Times recommended: 33. First recommended: $934. Last recommended: $2,947.31. Highest recommended: $3,527

Apple. AAPL. Buy @ $171.50. Times recommended: 32. First recommended: $39.46. Last recommended: $155.09. Highest recommended: $165

Ashtead Technology Holdings. AT. Buy @ 266p. Times recommended:1. First recommended: 194p

Cloudflare. NET. Buy @ $116. Times recommended:18. First recommended: $23.28. Last recommended: $144. Highest recommended; $194

Crowdstrike. CRWD. Buy @ $218.50. Times recommended: 20. First recommended: $92. Last recommended; $191. Highest recommended: $286. Lowest recommended: $51

Datadog. DDOG Buy @ $146. Times recommended:14. First recommended: $55.50. Last recommended: $180

Epam Systems. EPAM. Buy @ $297. Times recommended: 18. First recommended: $163. Last recommended: $673

Globant GLOB. Buy @ $274. Times recommended: 11. First recommended: $155 Last recommended: $323. Highest recommended: $331

MongoDB. MDB Buy @ $405.5. Times recommended: 22 First recommended: $74. Last recommended: $545

Palo Alto Networks. PANW. Buy @ $600. Times recommended:15. First recommended: $205. Last recommended: $576

ServiceNow. NOW Buy @ $568.5. Times recommended: 15 First recommended: $243 Last recommended: $697

Tesla. TSLA. Buy $990. Times recommended: 21 First recommended: $75.96 Last recommended: $1,114

The chart of the Nasdaq 100 shown above is deceptive. It looks as though we have just had a minor reaction but it doesn’t feel like that; many exciting shares have taken a fearful bashing as momentum traders fled from markets. This includes shares in companies that continue to grow as strongly as ever. Datadog peaked at a whisker shy of $200 in November 2021. By January it was $118 and in March it fell even lower to $113.50.

It seems though that like shares in other exciting companies it doesn’t want to stay down with quick rebounds to around $150. My conclusion from this price action is that the shares are consolidating and will at some point move higher. We have seen this pattern before with Datadog with bouts of selling in late 2019, early 2020 and again for almost a year between June 2020 and May 2021.

Latest quarterly results showed a company firing on all cylinders.

“We are very pleased with our performance in Q4 where we showed high growth at scale as well as strong business efficiencies. Looking back at 2021, not only do we continue to see a very strong demand environment, we also kept innovating at a rapid pace. And our team executed extremely well to help our customers manage complexity in the cloud area.

Investors are torn between spectacular growth, Datadog is forecast to increase sales eight fold between 2019 and 2024, and a high valuation. A market value around $44bn is almost 29 times expected 2022 sales.

It is a temperament thing . An optimist buys the excitement. A pessimist sells the valuation. I am an optimist and that has been the way to go since these shares were floated.

All the other shares are variations on the same theme. There is no absolute value for companies. Beauty is always partly in the eye of the beholder so there will always be sellers. In a bear phase there are more sellers than buyers which is what has been happening for the last several months.

The businesses remain as amazing as ever. We can see this partly from the growth. None of these businesses pays dividends but they do plough colossal amounts of money into growing. This means spending heavily on research and development, on sales and marketing, on acquisitions and if there is money left over on share buybacks to reduce the outstanding share count and make each remaining shares more valuable.

I have just been looking at Alphabet’s 2021 results with regard to the above. They spent $31.6bn on research and development, $22.9bn on sales. and marketing and bought back 10m shares, which at prices around $3,000 a share is an investment of $30bn in boosting returns to shareholders. In total you could say the company invested $84.5bn in growth which is a chunky amount for a company valued at $1.85 trillion.

It gets better because Alphabet/ Google is not any old company spending that money. They sit at the heart of the technology revolution so they have a phenomenal perspective on the most rewarding places to spend their dollars, places like the application of artificial intelligence to search which generate spectacular returns, ditto for You Tube, for Cloud computing services, for Android software, autonomous cars and on and on.

Alphabet is a wonderful, wonderful business. If it was private and British imagine how proud we would feel, like kings of the world. For the Americans Alphabet is just one of a string of world-beating businesses. If it was Russian the mind totally boggles. All they have is tanks which already feel as 21st century as a Model T Ford. Their only chance of winning a war is to take on a vastly weaker foe and even then it seems they may not win like some playground bully who is all hot air and bluster.

Another way to think of these companies is as talent pools. Cloudflare has 2,440 employees. This compares with 1,788 in 2021, 1,270 in 2019 and 1,069 in 2018 so a phenomenal rate of growth. If you go back to a company like Microsoft in the 1970s and 1980s it would have been growing like this and now has 182,268 employees.

This is how these businesses grow. The talent produces the products which drive customer numbers, sales and profits. The company focuses on attracting the talent.

Growth in customer numbers has been astonishing. In 2016 Cloudflare had 35,002 customers of which 95 generated $100,000 plus of revenue. By 1H 2019 customer numbers had grown to 74,873 of which 408 were over $100,000 a year. The latest figures for Q4 2021 are 140,096 paying customers of whom 1,416 were large customers. The company added 588 large customers during the year of which 156 were added in Q4 2021. There is no sign of any slowdown in growth which points up the quote below which I took from the prospectus.

We aim to build a massive business — slowly and consistently.” Many people will be wondering how they define slowly and consistently and wondering what they might mean by fast. On fundamentals Cloudflare looks amazing and now the chart is starting to look good as well.

Epam I discussed in an earlier issue. I should have recommended the shares since they are up sharply since I said they were worth watching. It is the old story. Shares are always a buy or a sell; worth watching is just a fudge and a cop out. The problem I noted is that a quarter of their work force is in Ukraine. This will resolve itself; they will work around it; it is no reflection on the quality of the business which is as good as ever.

Tesla is another share that looks to me as though it could be on the turn. Investors worry that there could be a dramatic deterioration of relations between China and the West because of Russia and Ukraine. This seems unlikely. China would be insane to throw away its economic relationship with the West for a pipsqueak fossil fuel producer like Russia. There is no way they are going to do that which means Tesla’s important Chinese business should not be at risk. Meanwhile Tesla has just opened a new factory in Berlin which is another step on an exciting journey.

Musk sometimes describes Tesla’s main business not as making cars but as making factories, which also require endless innovation. If Tesla is the Apple of the motor industry we then have to compare the price of a Tesla car with an Apple phone and also think about the associated services that can be sold with cars like software upgrades, power, insurance and the like. This is the rationale for imagining that Tesla could become a very, very large business one day. It is already valued at over $ 1 trillion.

When a union boss was found enjoying a Havana after a long lunch in a five star hotel and while his members were enduring the misery of a strike he answered his critics by saying “Only the best is good enough for the workers”. Full markets for chutzpah if not for empathy. I guess he had not read George Orwell’s Animal Farm.

His quote encapsulates my attitude to share selection. Only the best companies will do and these are the ones more likely to feature as recommendations in the early stages of a bull market. In the later stages more speculative selections may come to the fore. The above list is a classy group and what is happening is that great fundamentals are starting to be matched by an improving chart picture.

There is still plenty of negativity around but my best guess is that stock markets are on the turn. Imagine how we will all feel if the little guy in the Russia/ Ukraine match up lands a knock out punch. Maybe miracles can still happen.

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