Happy Sunday.
A massive shoutout to the +291 of you who joined us over the weekend after Business Insider shared an article about one of my favorite ETFs, QQQI.
As a refresher, Iām building a $2M Dividend Growth Portfolio from scratch (read more here). My goal is to live off of the income generated inside of this portfolio in my late-30s. With the rise in popularity of covered call ETFs, as explained in this article I wrote on Benzinga, Iāve begun to take both SPYI and QQQI seriously in my portfolio.
Also, if you have any questions about Rate of Return, my portfolio, or anything in between ā DO NOT DM ME on Substack. Instead, please reply to this email or send me one directly (austinhankwitz@gmail.com) ā Substack DMs are messy and tend to fall through the cracks.
ā Invitation ā
Before we begin ā I want to formally invite each and every one of you to attend (either in-person or online) my podcast co-host Robert Croakās upcoming event The Money Mindset Wealth Building Summit.
If youāre someone who wants to dive just a little bit deeper into the things we talk about on this newsletter, this event is for you.
On Saturday, April 27 Iāll be one of four speakers breaking down topics likeā¦
How to Invest Your First $100K
AI Today and Where Itās Headed
How to Get Started in Commercial Real Estate
Where Does Cryptocurrency Fit Inside of Your Portfolio?
How to Make Your First Venture Investment
Again, this event is taking place both in-person and online. With that being said, spending $3,000+ (travel, lodging, etc.) to attend an in-person event of this size might not be the right choice for a lot of you, which is why I encourage you to attend virtually.
I canāt speak toward the breadth of the information the other speakers intend to share ā but I plan to layout the blue print, much like I do every week for you all here, on all things personal finance and investing.
If attending this event (either in-person or online) is something youāre interested in learning more about, hereās Robertās Eventbrite landing page with additional details.
Itās my understanding virtual attendees will be able to join the event throughout the day as their schedule permits, and will also have the opportunity to watch the eventās recording anytime theyād like.
Portfolio Updates:
My Dividend Growth Stock Portfolio shown above is going through it, much like the rest of the stock market at the moment. As you all remember, I shared this post on Thursday detailing the Debate for a Bearish Q2.
Despite heightening volatility, I will continue to deploy net new capital into the markets. I did some math this morning, and as of April 21st Iāve deployed $86,269 into the markets since the start of the year.
Solo 401k ā $5,000
Roth IRA ā $7,000
Cryptocurrency ā $26,724
Individual (shown above) ā $7,229
Tesla (for covered calls) ā $18,390
Nvidia (from covered calls) ā $1,926
Private Investment ā $20,000
Iāve already deployed the $10,496 budgeted for the month of April (both into my Individual account shown above and my cryptocurrency account shown below). Next month should yield a similar amount of liquidity ā allowing me to continue my strategy of investing into quality companies at fair prices.
As always, the Google Sheet (Portfolio Tracker) is fully updated with my positions, price targets, ratings, and research. Be sure to check it out periodically!
Week in Review ā Too Long, Didnāt Read:
Netflixās crackdown on password sharing worked, TSMās 2nm wafer isnāt expected until 2026, American Express continues to attract the right type of cardholders, Markets continue to monitor war in the Middle East, TikTok is getting closer to being banned, the yield curve has never been inverted for this long, rate cut plans have changed in a big way, the Conference Board believes the economyās outlook is fragile, and retail sales outpace expectations.
Key Earnings Announcements:
Netflixās crackdown on password sharing worked, TSMās 2nm wafer isnāt expected until 2026, and American Express continues to attract the right type of cardholders.
Netflix (NFLX)
Key Metrics
Revenue: $9.4 billion, an increase of +15% YoY
Operating Income: $2.6 billion, an increase of +28% YoY
Profits: $2.3 billion, an increase of +79% YoY
Earnings Release Callout
āAs we noted in our last letter, our two priorities in ads are to scale our member base and to build out our capabilities for advertisers. We made progress on both fronts in Q1. Our ads membership grew 65% quarter on quarter (after rising nearly 70% sequentially in each of Q3ā23 and Q4ā23) with over 40% of all signups in our ads markets coming from our ads plan.ā
My Takeaway
As you all might have seen already from the headlines, Netflixās subscriber growth during the quarter came in exceptionally strong at +9.3M ā one of the best Q1s in company history outside of Covid. This growth was catalyzed by their paid sharing momentum ā remember, Netflix has been cracking down on password sharing for about a year now.
Looking toward Q2, Wall Street is expecting softer net new subscriber adds as seasonality changes. However, management reiterated that the goal for revenue growth beyond 2024 remains in the āhealthyā double-digit range ā which seems consistent with Wall Streetās expectations for the company.
A delightful surprise was the companyās EBIT margin guidance increase ā from 22% to 25% for 2024. Wall Street suspects this is catalyzed by a lower content cost amortization on account of the strike that took place last year. The companyās technology costs as a proportion of revenues have also been coming in lower than historical trends suggest ā despite announcing live events, video games, and more.
Despite increased competition, Netflix remains the dominant streaming platform and maintains the largest market share of US TV viewership. Their password sharing and advertising initiatives, in my opinion, will continue to drive strong revenue growth ā and if costs are handled correctly should catalyze compounded earnings growth into 2025 and 2026. Iām bullish.
Taiwan Semiconductor (TSM)
Key Metrics
Revenue: $18.9 billion, an increase of +17% YoY
Operating Income: $7.9 billion, an increase of +8% YoY
Profits: $7.2 billion, an increase of +9% YoY
Earnings Release Callout
āOur business in the first quarter was impacted by smartphone seasonality, partially offset by continued HPC-related demand. Moving into second quarter 2024, we expect our business to be supported by strong demand for our industry-leading 3nm and 5nm technologies, partially offset by continued smartphone seasonality.ā
My Takeaway
By platform, the companyās HPC and Smartphone business segments represented 46% and 38% of quarterly revenue ā while IoT, Automotive, DCE, and Others represented 6%, 6%, 2% and 2%.
Management guided to $20B in revenue for the next quarter, while Wall Street was only expecting $19B ā a good thing. This guidance assumes a mid-20% growth rate throughout 2024. With that being said, management didnāt point to the recovery being āmild and gradualā with automotive de-stocking as an incremental headwind to 2024 growth expectations.
AI infrastructure remains strong, but the recovery in the smartphone and PC end-markets continue to be sluggish. Investors were disappointed to hear their 2nm-related revenue would only be āmeaningfulā during the 1st half of 2026 and not sooner. With this off the table until 2026, this leaves AMD as the most likely company to distribute 2nm before TSM.
However, TSM confirmed on the conference call that the backlog for 2nm products in the first two years of production is already higher than when both 3nm and 5nm hit the market. As it relates to their Arizona factory, Wall Street is expecting a very measured ramp up despite the $12B funding package from the US Department of Commerce.
Iāve added a graph I found online to help you visualize why 2 nanometer wafer production and distribution is so important for TSM ā pricing is power.
Iām bullish on TSM.
American Express (AXP)
Key Metrics
Revenue: $15.8 billion, an increase of +11% YoY
Profits: $2.4 billion, an increase of +34% YoY
Earnings Release Callout
We have started 2024 off strong, with our first-quarter results reflecting the positive trends we have seen in our business the last several years. Revenue increased 11 percent from a year earlier to $15.8 billion and EPS increased 39 percent to $3.33. Our continued investments in our value propositions, marketing, brand and technology capabilities have helped drive high levels of engagement with our premium customers.ā
My Takeaway
American Express had an awesome Q1 ā with $367B in Billed Business and 142.2M total cards in-force. Their 30-day delinquency rate came in at only 1.3%, lower than Wall Streetās expectations, while their net charge-off rate came in at 2.29%. Their provision expense, however, was $44M lower than Wall Street expected.
While the company did mention continued softness in small-to-medium enterprises (up only +1% YoY), Wall Street remains encouraged by the strength of their Consumer business (up +8% YoY).
Amex also experienced a $196M benefit from model enhancements, of which the company claimed theyāll be spending on marketing initiatives to attract more cardholders. Full-year marketing spend is expected to be above 2023 levels.
Above is a graph created by BofA Global Research that displays new cards acquired per quarter against fee per new card acquired ā clearly trending in the right direction. I will note, the top right of the graph should say $100, not $10.
All eyes on their upcoming Investor Day that takes place on April 30th. Theyāre expected to share key growth initiatives and other opportunities across both the Amex Consumer and Business segments.
Investor Events / Global Affairs:
Markets continue to monitor war in the Middle East, TikTok is getting closer to being banned, and the yield curve has never been inverted for this long.
Market Reactions to Iran and Israel
Amid more madness in the Middle East ā futures declined and oil prices increased after an Israeli missile strike on Iran in response to Iran's attack over last weekend. The conflict raised concerns about global oil supplies and energy costs ā with crude prices surpassing $90 per barrel before settling lower.
Despite tensions, analysts interpreted the limited strikes as efforts to contain the crisis, tempering market reactions. Gasoline prices in the U.S. rose but are not expected to spike significantly due to seasonal factors and a potential decrease in fuel demand post-spring breaks.
The S&P 500 is down -5.9% from its peak on March 28 ā the first pullback of the year. This is the 28th correction of 5% or more off of a high since the March 2009 low. They all seemed like the end of the world at the time.
TikTok Ban Looks Likely