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Tesla comes out swinging

January 30, 2023

Tesla has recovered sharply in recent days, especially after the latest quarterly results where the group explained that cutting prices was all part of their master plan for world conquest. The results did seem like business as usual.

Q4-2022 was another record-breaking quarter and 2022 was another record- breaking year. In the last quarter, we achieved the highest-ever quarterly revenue, operating income and net income in our history. In 2022, total revenue grew 51pc YoY to $81.5B and net income (GAAP) more than doubled YoY to $12.6B.

Q4 and FY update, 25 January 2023

Nobody can quarrel with the growth and in Kensington there are Teslas everywhere. They are literally becoming ubiquitous as they glide silently past. I can’t help thinking, first Kensington, then the world. Also helping to fire up the shares is the prospect of an investor day on 1 March 2023.

Our investors will be able to see our most advanced production line as well as discuss long term expansion plans, generation 3 platform, capital allocation and other subjects with our leadership team.

Q4 and FY update, 25 January 2023

Like Apple if we look at Coppock instead of patterns we see that Tesla is in the buy zone and no doubt not too far from a Coppock buy signal. How could I doubt you, Elon. You’re the man. What is coming in 2023, more production plants, giant electric trucks, space age pick-ups, plenty to keep the pot bubbling. The future has got to be electric. It’s great not having to pull into garages to buy petrol at £100 plus to fill the tank, no oil, no break pads.

The only problem for me is bl**dy BMW. My two year service where every box ticked OK still cost me over £400 and I got a lecture about keeping my tyres pumped up. The car tells you if the levels are dangerously low but keeping them perfect is my job apparently. Surely you ought to be able to drive an electric car into the service area, 15 minutes to do the checks and be out of there for £50. Another challenge for Elon and his team. Apple phones don’t need servicing every two years; why should the cars.

Apparently many people do the servicing themselves because there is so little to do and my car has only done 7,000 miles because before I bought it somebody from BMW was using it. Teslas cost $450 at a garage, $50 if you do it yourself including rotating the tyres which BMW didn’t even do.

ARKK, which is an actively managed ETF, really went for it in the last bull market and took a hammering in 2022. Now my charts are suggesting that shares which were toxic in 2022, including Tesla, could do much better in 2023.

Spotting cancer early

One of the stocks on the list which is not in the QV portfolio is Exact Sciences, which it turns out is an exciting business. The company is all about early detection of cancer.

This is driving strong growth. Since 2018 sales have grown from $454m to $2,083m for 2022 and the company is clearly 3G (great growth, great story, great chart). What is also significant is that they are ARKK’s second largest holding. ARKK is not a value investor, at least not in the cheap and cheerful sense. They look for value in exciting growth prospects which are not yet fully valued in the stock market. This means that if Exact Sciences is their second largest holding their in-depth research and meetings with management must have convinced them that it deserves such a commitment. It also makes the case for holding ARKK shares to get exposure to these exciting companies.

Strategy

I am beginning to question the need for over-rigid adherence to the 10/10 approach. You could argue that either a rising Coppock line works or it doesn’t. If it does then a rising Coppock for whichever share we are looking at should be enough. This is important because it allows us to commit earlier to individual shares without having to wait for the relevant indices and sector ETFs to turn higher.

The next step might be to mark on the charts for individual shares where their Coppock turned higher and also where the Coppocks for indices and ETFs turned higher. This might prove to be extra work for very little if any gain in performance.

Let us consider Netflix which has every chance of becoming a 10+ for at least the third time as it starts to develop a new business of streaming related ad revenue.

On this chart I have marked the Coppock buy zones and share buy signals in purple. I have also marked in green the dates when Coppock turned up from negative on the Nasdaq 100 and in light blue the moment when Coppock gave a buy signal for FNGS, an ETF of which Netflix is 10pc.

The green index buy signals worked well for Netflix but we need to look at more instances to see if this approach could prove useful. I don’t mind extra complexity as long as it fits within an overall straightforward common sense approach.

We know that Netflix is an exciting, well managed business. We use the charts to help us spot moments to initiate, add to holdings and give us a clue as to when it might be wise to sell and avoid the shares. We are not trying to be too clever, just make lots of money by using clear signals to help improve our decision making.

What usually happens to me is that I make loads of rotten decisions but choose the shares well enough that I still make money. I am keen to improve my performance so that even in this later stage in life I can become ridiculously rich (I have sort of been there and it’s fun; I love spending money on reassuringly expensive stuff) and that is why I am spending so much time with these indicators.

Netflix generates $2.5m per employee

Netflix is an extraordinary business. In 2022, 12,800 employees generated turnover of $31.6bn; that is around $2.5m per employee. The operating margin is around 20pc so each employee generates around $500,000 of operating profit. You begin to realise why getting a job with Netflix is like winning the lottery. Starting salaries are in six figures. Their recruits are top talent and if you don’t deliver its time for a generous severance package.

Their job is to commission great content and use it to keep and add to a subscriber base which is already over 230m. Not only is it a fantastic business but like Tesla cars they have a huge first mover advantage over the competition all of whom are losing money. Also they are in a virtuous circle. The more subscribers they have the more the money pours in which they can use to commission more great content which attracts more subscribers. It is hard to see where this process ends and increasingly, as the business scales, Netflix can choose its profit margin, 25pc looks very doable.

Who knows, one day they might even buy a rival and do a bit of badge engineering.

One paragraph sums up the fundamental case for buying Netflix shares.

2022 was a tough year, with a bumpy start but a brighter finish. We believe we have a clear path to reaccelerate our revenue growth: continuing to improve all aspects of Netflix, launching paid sharing and building our ads offering. As always, our north stars remain pleasing our members and building even greater profitability over time.

Q4 2022, 19 January 2023

FNGS (10 tech mega caps) looks interesting

The chart looks fine with a 3/3 buy signal and below are listed the 10 shares held by this ETF which is actually an ETN. It is also described as tracking the NYSE FANG+ index but when I looked that up its 10 constituents were Meta, Apple, Amazon, Netflix, Microsoft, Google, Tesla, Nvidia, Snowflake and Advanced Micro Devices so a little different to the list below. And if they were 10pc in March 2022 what might they be now. Lots of mysteries though the general idea is clear enough. It turns out that an ETN is an exchange traded note with a redemption date. I think the way it works is that the return on an ETN is calculated as though it held 10pc of each of the shares below so the matching is perfect; that is why they tell us the one year return on each share.

There are leveraged versions of FNGS. FNGU is FNGS times three but presumably without the daily rebalancing since the fund always notionally holds 10pc of each of the 10 shares it ‘holds’.

The shares are volatile. You used not to be able to buy these shares on IG even in a share account but it seems that now you can. I am very tempted. This is a punchy share with a punchy portfolio.

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