26.5.2020 Pasi Havia

Focus’s portfolio companies announced their results and the stocks hit an all-time high

Corona accelerates digitalisation and takes the Focus fund to a record result in April
Ecommerce to thrive even after corona

HCP Focus has a strong earnings season –  read the portfolio manager’s comments by each company

The earnings season that started mid-April ended last week for HCP Focus portfolio companies. All companies have now reported their results. HCP Focus has remained resistant to the corona crisis. Selected megatrends the portfolio focuses on supported the record scores, such as digitalisation. When looking at the short term period, there are no signs of these trends turning around. Rather the opposite. Currently prevailing trends are escalating further.

Many companies have gained benefit from the accelerated digital leap. Working, buying, and services are moving online even more. All in all, eight stocks out of twelve are either in their all times highest value or near it: Intuitive SurgicalFacebookAmazon.comMercadoLibreShopifyEtsyPayPal, and Nvidia.

Some challenges also await, at least in the short-term. Trump has begun to reheat the trade war with China. The latest turnarounds are a way of driving Chinese companies away from the USA stock market and prevent pension funds from investing in them. Because of this, the only Chinese companies in HCP Focus have been facing falls. Alibaba assumes they can reply to the legislative proposal and believes the situation doesn’t affect them. Baidu on the other hand is thinking of pulling their share out of Nasdaq.

16.4. Intuitive Surgical
29.4. Facebook
30.4. Amazon.com
5.5. LendingTree
MercadoLibre
Match Group
6.5. Shopify
Etsy
PayPal
18.5. Baidu
21.5. Nvidia
22.5. Alibaba

How did each portfolio company do?

Intuitive Surgical –  a company known for their Da Vinci surgery robots begun the fiscal period in the portfolio. Due to challenges from corona robotizes surgeries came down 95% in China in mid-February. Steep fall was followed by a strong recovery. Intuitive Surgical had reached 70% of the value before corona by the end of March. If Europe and the US follow the pattern the situation could settle as normal in the third quarter. The company’s growth prospects are looking well. The aging population is an indisputable megatrend. The stock has risen 50% from the pitfall of March and is close to reaching a new top.

Facebook – A positive stunner. Social media usage has increased when people are spending time on quarantine. Definitely one of the winners of the current moment – which is not a surprise. This can also be seen in the stock price which is higher than ever before.

Amazon.com – The company is doing well. Especially consumers in e-commerce order items home instead of visiting physical shops. AWS cloud service business grew 33%. Amazon is the most long-term investment in the portfolio and will remain as a pillar to lean on. The stock price reached its new top last week.

LendingTree – One of the portfolio disappointments this year. Since the world economy is plummeting consumer trust is facing a crack. Consumers are worried about their own jobs and lack the courage to spend money as before, especially in terms of more expensive purchases that would acquire taking a loan. The outcome was good but the corona creates a shadow of uncertainty for the upcoming year. The stock has plummeted 17% from the beginning of this year.

MercadoLibre – The Amazon in Latin America is one of the corona winners, similarly as other e-commerce platforms. Local small business owners have moved their sales efforts to MercadoLibre’s platform and consumers are buying more and more online. The stock price has reached its historical high.

Match Group – Tinder is perhaps the most well-known out of the many dating services owned by Match Group.  The company performed well in stock but it is overshadowed by corona. People are indeed using more dating apps while saying at home but are not ready to pay for them. In the end of March users of Tinder conducted 3 billion swipes in one day, which is a new record. In countries where restrictions are slackened it can be seen that the amount of paying customers has started rising. The stock is 8% below its last peak of January.

Shopify – Stock rocket of the year. The company has doubled its value from the beginning of the year and enjoys the largest weight in the portfolio. Shopify is expected to grow at least 30% during this year. They are managed to deliver an excellent response to the corona situation by improving their products. Last week Shopify announced a collaboration with another HCP Focus portfolio company – Facebook – about Facebook Shops. Merchants can create branded stores to Facebook and Instagram with it. The collaboration benefits both. Win-win!

Etsy – The second largest weight in the portfolio. E-commerce of handcraft and vintage products is blooming. The gross sales of Etsy-sellers doubled in April. Customers searched especially corona-related accessories, such as masks and protective glasses, which indicates that this high peak in sales can be only momentary. The growing trend of shopping online however favours the company. The stock price has increased by 75% from the beginning of the year.

PayPal – Increasing e-commerce requires a trustworthy payment service. Commerce resettling to online has helped PayPal. Other investors have sensed this accordingly and the stock is higher than ever.

Baidu – Heartache of the portfolio. The stock price at the same level as eight and a half years ago. This year it has dropped by 18%. China is ahead in recovering from the corona crisis and the situation is looking promising. The daily amount of users in the Baidu App grew 28% in March towards 222 million and search requests grew by 45%. Baidu might get effected from Trump’s actions and it’s withdrawal from Nasdaq makes me wonder. Baidu is the most likely candidate to give room for new portfolio investment.

Nvidia – Prominent growth in data center business. Amazon, Google, and Microsoft are Nvidia’s largest customers in artificial intelligence. Growth applies also to games. There seem to be no limits for Nvidia’s growth and it’s a forerunner in utilising the digital leap. It’s hard to say anything bad about the company. This can also be seen in the stock price which is in its highest value. One of the diamonds in the portfolio.

Alibaba – Like the other Chinese stocks in the portfolio Alibaba has also faced pressure. Expectations were however crushed and the post-corona world looks more promising to Alibaba than many other Chinese companies. Alibaba benefitted from Covid-19 in terms of increasing grocery shopping, cloud service, and remote work service usage. Retail sales in the food and supermarket business grew by 88%. In April and May the number of transactions has returned to the level before the crisis. The company expects their revenue to grow 27,5% in this fiscal year.

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Digital companies are flying high, which makes many wonder. Can the skyrocketing continue or are we going towards the next faceplant? Central banks have made it clear that they will give their all to prevent a market crash. They say you can’t fight a central bank. I agree. If I’m wrong there are much bigger troubles in the society than the stock market.

Best regards,
Pasi Havia

HCP Focus portfolio manager

Corona accelerates digitalisation and takes the Focus fund to a record result in April
Ecommerce to thrive even after corona

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