Penalty Box Stocks
While I try to consistently dollar cost average into my Core 34 positions over time, I currently have six of them relegated to a type of " penalty box."
This designation doesn't necessarily imply a broken thesis but means that something has gone sideways far enough that I want to slow down my DCA'ing on them.
Here are those six and what got them there:
- $TDOC - Goodwill of $4.8B, a market cap of $4.8B -- even after the writedowns.
- $TWLO - Stock-based compensation over 20% of revenue, -7% free cash flow margin, even with this SBC boosting the figures. Management is pointing towards streamlined profits over the next year, but I'll wait to see it.
- $DOCU - Profit margin improving (almost positive), but FCF of $500M gets buoyed by SBC of $440M. Instead, I would add to my other core holding in $ADBE for now.
- $U - Too big of a position in my portfolio to be as volatile as it is -- waiting for more certainty regarding M&A before I add any more.
- $SE - I'm throwing a temper tantrum over Sea's use of its "adjusted EBITDA before HQ costs" metric. These "HQ costs" are just expenses that it backs off EBITDA. Worse yet, even after pencil-whipping these earnings to hell and back, this adjusted EBITDA was still -$500M in Q2.
- $UPST - Much like Unity, I have too much exposure to Upstart's volatility. Furthermore, management seems to have reversed course by admitting that it would like to keep some loans on its books, which is a direct contrast to my original investment thesis.
There are fundamental issues underlying each as well, but I wanted to keep things concise and point out my least favorite thing here.
Curious what you think as to why these are in the penalty box -- do you agree or disagree with them?
What do you do with "penalty box" stocks like these?
25%Liquidate my position.
20%Sell a portion.
54%Hold, stop adding.
0%Buy when it feels the worst.
24 VotesPoll ended on: 09/07/22
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Lol at $SE not being able to make triple adjusted earnings to look good
I completely ignore most companies goodwill. Net cash and share count are more important. $TDOC has a similar share price today is it did in 2018. But it’s revenue is 4x higher. Op margins better -15 to -9%. And most important think that’s changed is the 95 modifier. This changed in 2020. It allows doctors to charge regular in office billing codes for telemedicine visits. Prior to this change you could only bill telemedicine codes which paid 80% less.
I hope $UPST management will figure out what they want to do with the business aspects. Bc if the algorithm keeps out performing credit scores, they have a golden ticket
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This was actually a tough one but I would go Twilio right now because I feel like they have the least question marks. If we’re talking 10+ years I think $U is going to reward investors the most once they get some things sorted out internally
Portfolio end of August '22 (descending order)
Epsilon Net Group $EPSIL
Secunet Security Networks $YSN.DE
Clearvise $ABO.F (New)
Media and Games Invest $MDGIF
Digital Turbine $APPS
Monster Beverage $MNST
Sold: Tremor $TRMR
Bitcoin Cash $BCH.X
Yield Guild Games $YGG
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Nice collection of under-the-radar international stocks here, plus a few more familiar ones too ($U, $GOOG, etc...) I went to give you a follow but realized I already am! ;) I notice you're in Germany. How easy/difficult do you find access to all the international exchanges? How are the fees for international trading?
Top Losers Today
Top Losers Today: $U, $APP, $HCP, $VNOM, $TRQ, $STAA, $HP, $YOU, $WE, $VAL, $PTEN, $WHD, $CVT, $KOS, $WETG, $EXPI, $RIG, $CANO, $GOGL, $ME, $SES, $DAWN, $RES, $WFRD, $ZETA, $XPRO, $RDFN, $NBR, $VHI, $SMRT, $NVTA, $NEXT, $RSKD, $ARIS, $GOEV, $OII, $PUMP, $CENX
Visit highsandlows.substack.com to see more
Okay, so I own 2 more companies
I have always been interested in cool ideas, as a result, as soon as I was financially independent I promised myself that I would invest in 50 startups. My focus was primarily on Nepal, however, I haven't gotten as good opportunities.
Today I am happy to announce I am an investor in these 2 companies. This makes my total investment 6.
RAD AI is an AI Platform that understands the relationship between data, customer personas, and ROI and with an EQ. With a 92% accuracy rate, RAD AI translates marketing gibberish and soulless communication into authentic language that resonates.
A cloud-based SaaS tool helping companies automate gross-to-net payroll calculations across multiple countries.
I already have made commitment to 5 more and my biggest investment in gaming sector will be completed soon (it's a competitor of $U in one of the verticles). I hope to get more opportunities like this.
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Congrats ! Thanks for sharing. I really enjoy hearing about the startups you've recently been looking into.
The push for the metaverse continues to intensify, and with companies like $META, $U, $NVDA, $NET, and $RBLX being dubbed as "metaverse stocks," their latest earnings suggest that maybe the metaverse isn't the best thing to invest in right now, after all. In looking at the short term, it's easy to see how the metaverse isn't fully taken seriously.
It's unclear if Meta has even considered that overarching demand question, or how best to sell a futuristic product that represents a new technological dimension. Zuckerberg imagines the metaverse as the ultimate vision of the company's mission to connect people, saying about it on the recent earnings call, "most importantly, it enables deeper social experiences where you feel a realistic sense of presence with other people, no matter where they are." That statement may be true if you're comparing the metaverse to traditional social media, but as Calacanis argues above, there's no place that enables deeper social experiences than the physical world.
While Zuck has one view of how the metaverse should/will develop, there's another group of people advocating for a much different approach to co-creating the metaverse: interoperability.
Interoperability is a prerequisite to building interconnected experiences that provide new opportunities for economic, social, and cultural change. These immersive experiences will enhance events, entertainment, social spaces, and working environments. As individuals and collectives across the globe begin to build, experiment with, and participate in increasingly engaging experiences, it will become progressively more important to remove barriers to creating these experiences. We must ensure a composable, scalable ecosystem of interconnected and interoperating products, services, and knowledge to augment and transcend physical events, environments, and experiences.
I think what I love most about interoperability is that it internalizes "it takes a village." This is in no way a slight to Meta because I really do want to see what it builds, but I think ultimately an interoperable metaverse will win the hearts and minds of people because they won't be stuck with assets they can only use in one place. When I think about the metaverse—or anything, for that matter—my mind immediately goes to what is the true value of being a part of a metaverse. As we all know, most things are a distraction if they're not helping us accomplish the personal goals that we've set for ourselves.
My concern over the metaverse—whether it's interoperable or not—is if it's making humanity marginally better or marginally not. Maybe one of the reasons why none of these ideas have gotten off of the ground in a major way yet is because they still aren't solving a problem; social media has largely solved the connectivity issue already. I think the best bet to get a metaverse off the ground is to start in a particular niche, solve a problem that only that tech can help you solve, and then scale up and work with other niches to build out an interoperable metaverse. It's not as sexy as saying you're building "the metaverse of all metaverses" but starting small can lead to major things, just think about how you were created.
“Enter by the narrow gate. For the gate is wide and the way is easy that leads to destruction, and those who enter by it are many. For the gate is narrow and the way is hard that leads to life, and those who find it are few." Matthew 7:13-14 ESV
With this in mind, my eyes will be set on the projects that take the narrow gate, not the wide one. It'll be interesting to see which metaverse projects become the most sticky, and what niche they begin in.
Where will your eyes be looking?
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I created a Metaverse basket back in January. It consists of $NVDA, $U, $MTTR, $GLOB, and $ADSK. The basket is -26.9% (through 7/31). My benchmarks are easily beating it (-8.1% for $SPY and -11.5% for $QQQ). Globant and Autodesk are the best of the bunch as both are beating QQQ and barely trailing SPY. Moral of the story could be invest in the Metaverse but through stable, solid companies who are only wading into the pool via the stairs instead of launching in off the diving board.
All that being said, I'm still bullish on all five companies and have no intention of selling. No thesis has broken yet. I created the basket with a purposeful mixture of really risky (Matterport) up to not very risky (Autodesk and Globant).
I have the passion and drive to lead an exceptional team to building a $100 billion company, and we will do that here with or without this deal. But we’re definitely excited that this merger can accelerate both of our paths to that goal - $APP CEO Adam Foroughi
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🤝 Deal or No Deal? 🤝
In July, Unity $U announced a deal to buy ironSource $IS. On Tuesday, AppLovin $APP made a bid to acquire Unity for $58.85/share, 18% above the stock’s price at the time. Under the terms of the deal, Unity would have to abandon its deal with $IS.
What should Unity $U do, acquire, or get acquired?!
Here is where $U's valuation currently stands against other software stocks.
Leader of the pack?
AppLovin $APP generates $3.42B in revenue which is almost three times Unity’s $U $1.2B and almost five times ironSource’s $IS $623m.
You can look at the detail here.
Or falling behind?
AppLovin $APP has the slowest revenue growth rate at 3.6% compared to Unity $U at 36.3% and ironSource $IS at 58.4%. $APP isn’t exactly operating from a position of strength based on how it stacks up.
Cash is king
Growth aside, AppLovin $APP has generated the greatest cash flow over the past 12 months.
You can view these companies' FCF details here.
If you want to see the complete analysis of these deals, you can read it in our newsletter 👇.
I am happy with my portfolio
When starting my dividend growth investing, I had certain things in the plan.
- I get decent cashflow/income from my portfolio
- Have a beta return/ market returns
- Grow dividends
- Give me peaceful sleep
So, I tried to design my portfolio based on that. Now the portfolio is looking solid.
Here are a few things I like about my portfolio:
- Is what I expected it to be with a beta of 1.1, dividend CAGR of 11.71%, and CAGR of 8%.
- Performs solid when the market is down. Although I might not get the upside as much as other portfolios, the performance during a downturn is solid (it needs to be tested more).
- Cash flow is enough. With a $1,497.12 average dividend at a 5.23% yield, it's more than enough for me to survive. Other passive income that I generate from my games, consulting, and advising can go to portfolio or angel investing.
Let's see how it has performed in past:
It is at ATH right now at $358k
Over 1-year portfolio beats SP500 by 10%ish
YTD portfolio beats SP500 by 7%-8%
It has to be tested more though.
A few things that I don't like about my portfolio are:
- $JEPI and $QYLD - 30$ of the portfolio. While they provide more than 70% of dividends, I want to be invested more in companies that will grow my dividends too. The dividends generated are more than enough for me, so I shouldn't be more greedy in short term and start focusing more on the long term.
- $VOO, $HD, and $WM small position. I want to be increasing the position. Ideally, I want 20%+ of my portfolio to be $VOO, yes, I am happy with beta returns.
- $U big position, while I will not actively trim $U, I will not be adding more to it. I will trim it if my angel investing requires me to.
- $RITM or $RITM is still a big chunk at around 5%, I will be trimming it by the end of the year to half.
Edit 1: $CME is a dividend and trading play, it's based on my partner's idea. It won't be for long in my portfolio.
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