Welcome to April.
As you can see below in the fourth batch of columns from the left โ April is historically a very strong month in the market.
The Nasdaq 100 has officially entered a bull market โ up over +20% since its December lows. In fact, the Nasdaq 100 just had its best-performing week since 2010.
With Q1 ending, itโs also finalized that the S&P 500 has now posted two consecutive quarters of gains โ a pattern not seen in any bear market over the past 50 years.
โMany skeptics (anecdotally, the majority of our clients) are likely sniffing at these gains, as mere noise until the bear market re-asserts itself.
Butโฆwe believe 1Q23 gains now solidifies that bears are now trapped.โ โ Tom Lee, Head of Research at Fundstrat
Portfolio Updates:
I want to remind all of you to utilize the Research Library tab inside of the Portfolio Tracker. This tab shares detailed analysis, Wall Streetโs price target, as well as Seeking Alphaโs Quant Rating for every position I own.ย
For example, the average 12-month upside to my portfolio according to Wall Streetโs price targets is +11.4% โ pretty neat!
The two highest upside potential positions remain as Google and Amazon, at +23% and +33%, respectively.ย
My portfolio (excluding Quantbase) has earned $84.56 in dividend payments โ all of which are being reinvested back into the portfolio.ย
As shared the other week, Iโve begun to expand upon my Bitcoin and Ethereum positions โ now hovering around $8K in value between the two of them.
Iโll continue to move a portion of my planned monthly invested capital into these two cryptocurrencies until they make up around $30K in total โ bringing my total crypto portfolio to a sum of $150K or so.ย
As shared in the post below, I plan to open a position in (ONON) this coming week.
This position will make up 1.5% to 2.5% of my total portfolioโs weighting and will reside in the โFun Ideasโ section of my investments.
I also shared the intention of opening a position in Verizon (VZ) soon โ this will likely hover much closer to the 3.5% weighting mark.ย
If youโre interested in becoming a paid monthly subscriber and unlocking detailed analysis and commentary of every position in my growing portfolio (as well as the full length of these Week in Review posts) โ click here!
Iโve updated the 45 holdings inside of the Portfolio Tracker as well as their Wall Street price targets and Seeking Alpha Quant Ratings.ย
Dividend Growth: $7,610 (+3% YTD)
REITs: $2,345 (-4% YTD)
Special: $1,749 (+1% YTD)
Long Technology: $7,096 (+14% YTD)
Fun Ideas: $4,819 (+9% YTD)
Quantbase: $17,466 (-4% YTD)
Balance: $41,085 โ approx. 2% of the way to our $2M goal!ย
Quick Note: Technology is carrying the team so far this year, with this section of my portfolio up +24% YTD, mainly catalyzed by Salesforce (+42%) and Tesla (+54%).
Really happy I decided to not just go all-in on dividend growth stocks, but also allow 50% of the portfolio to be invested into other companies.
Week in Review โ Too Long, Didnโt Read:
Restoration Hardware is laser-focused on cash flow, Iโm thrilled with Lululemonโs earnings, Micron is showing some red flags, Alibaba is breaking into six (SIX!) new companies, over half a trillion is added into Money Market Funds, interesting statistics on the stock market bottoms during recessions, Appleโs โBuy Now, Pay Laterโ offering is launched, real estate on the East Coast appears to be much more resilient, and Consumer Sentiment fell for the first time in four months.
Key Earnings Announcements:
Restoration Hardwareโs plan to triple their free cash flow, Lululemon is firing on all cylinders, and Micron Technology leaves little to be excited about.
Restoration Hardware (RH):
Key Metrics
Revenue: $772.5 million, compared to $902.7 million last year
Operating Income: $112.2 million, compared to $217.8 million last year
Profits: $106.9 million, compared to $147.0 million last year
Earnings Release Callout
โFiscal 2022 was another outstanding year for the RH brand. While revenues of $3.59 billion were below the pandemic peak of 2021, we finished the year with an adjusted operating margin of 22% and adjusted EBITDA margin of 25.9%, the most profitable business model in our industry.โ
My Takeaway
Iโve always respected the management team at RH โ their CEO was one of the first in late-2021 to call out the looming downside risk in the markets as well as the recession risk weโre teetering with today.ย
Hereโs the deal โ RH sells luxury, high-end furniture. According to this report, luxury home sales are down -45% when compared to 2022 โ the 2nd lowest level on record. The company is going to continue to suffer over the coming quarters until interest rates begin to tick lower โ causing mortgage rates to subside.
However, RH isnโt waiting for interest rates to come down to optimize their business. They were smart and raised $2.5B from debt offering while interest rates were low, allowing them ample liquidity to lay the groundwork to realize the demand that will eventually come back their way.
2023 is going to be a โbuilding yearโ for the company as they laid out their plan to construct and open 30 new galleries โ including their first international location โ over the coming years.ย
These new galleries could easily represent $1B+ in incremental revenue once demand picks back up โ tripling their annual free cash flow by 2026 to $600M.ย
With that being said, I believe there are better places to deploy capital over the coming several quarters โ places whoโve spent the last few years โbuildingโ and are now beginning to reap the free cash flow rewards. No position.
ย Lululemon (LULU):
Key Metrics
Revenue: $2.7 billion, an increase of +30% YoY
Operating Income: $314.4 million, compared to $590.6 million last year
Profits: $119.8 million, compared to $434.5 million last year
Earnings Release Callout
โThe Company's Power of Three x2 growth plan calls for a doubling of the business from 2021 net revenue of $6.25 billion to $12.5 billion by 2026. The key pillars of the plan are product innovation, guest experience, and market expansion and the growth strategy includes a plan to double men's, double direct to consumer, and quadruple international net revenue relative to 2021.โ
My Takeaway
All is going according to plan! Lululemon has been a consistent and growing position in my portfolio since the beginning โ and for good reason.
As stated above, the company is executing upon their Power of Three x2 growth plan โ resulting in $12.5B in annual revenue throughout 2026.ย
Assuming historical profit margins, the company will land around $16 in EPS during 2026 โ or about $500-560 / share (assuming their historical 31-36X multiple). That represents +45% upside at the midpoint to be realized over the next few years.
Getting into the nitty gritty here โ we learned a few things during this earnings report.
1) Margin recovery is imminent โ after missing their gross margin guidance in Q3 and lowering Q4 margin outlook a few months ago, investors were eager to see the companyโs ability to bounce back. Management called out significant full-price sell-through to kick off the year, boosting margins to start 2023.
2) International expansion is gaining momentum โ in Q4 the international business grew +39%, with China remaining a key growth lever with a +30% bump in expansion despite COVID disruptions.
3) Traffic metrics remain strong โ in-store traffic was up +30%, while online traffic grew +45%.
4) Mirror continues to struggle โ given Mirror hardwareโs disappointing performance, theyโve lowered the monthly fee and adding an app-based option so customers donโt have to buy the Mirror to participate.ย
All-in-all, great quarter. Iโm a happy shareholder!
Micron Technology (MU):
Key Metrics
Revenue: $3.7 billion, compared to $4.1 billion last year
Operating Loss: -$2.3 billion, compared to -$209.0 million
Net Loss: -$2.3 billion, compared to -$195.0 million
Earnings Release Callout
โMicron delivered fiscal second quarter revenue within our guidance range in a challenging market environment. Customer inventories are getting better, and we expect gradual improvements to the industryโs supply-demand balance.
We remain confident in long-term demand and are investing prudently to preserve our technology and product portfolio competitiveness.โ
My Takeaway
I donโt know about you, but I could just feel the despair when I read the above statement in their earnings report. Not much to look forward to or be excited about.ย
The company wrote-off $1.4B worth of inventory during the quarter.
After reading the transcript, itโs very apparent the depths of this microchip โdown marketโ is much deeper than MUโs management team originally anticipated โ with a slower recovery pace in the second-half of 2023 than hoped for.
Management also guided toward -$500M more in non-cash charge offs during Q1 2023.ย
Management revised down their unit volume forecasts for smartphones and PCs in 2023 โ as the company now sees smartphone volume slightly down YoY, compared to slightly up before. If you remember back to Microsoft & Dellโs Q4 earnings report โ PC sales are expected to decrease in 2023, which might compound the negative guidance MU is expecting.
On the bright side, the company mentioned ChatGPT and other AI initiatives as near-term catalysts for their data center business segment. Although, itโs hard to quantify just how much this specific catalyst will incrementally benefit the companyโs revenue and bottom line.ย
Iโm not very excited about this company in the near-term. No position.
Investor Events / Global Affairs:
Alibaba expects to have five (FIVE!) IPOs, Money Market Funds are seeing record inflows, recession market bottom considerations, and Apple Pay Later is launched.
Alibaba (BABA) Splitting Into Six Companies