Kim Bolton, president and portfolio manager, Black Swan Dexteritas

FOCUS: Technology stocks 

MARKET OUTLOOK:

We’ve repeatedly said when the current U.S. Federal Reserve tightening process pauses, probably due to cooling inflationary signals, equity markets will adopt a buy-the-dips mentality. The 2023 year-to-date global stock market rally seems to be in anticipation of the Fed pausing after its May 3 policy meeting. Now both economic fundamentals and single stock first-quarter earnings reports and guidance should become the primary determinants of broad market prices.

The buy-the-dip approach worked so well in 2020 and 2021 that it became part of the investment lexicon. But as is usually the case when it comes to investing, buying the dip stopped working once everyone had seemingly bought in. So far in 2023, we’ve seen the buy-the-dip mentality return in a big way. Notably, the SPY has averaged a gain of 0.30 per cent on the day after down days, while it has averaged a small decline of 0.04 per cent on the day after up days. Going a little deeper into the day-after data for SPY, we found going back to 1993 when SPY began trading, nearly all of its gains have come from owning it on the day-after down days (as opposed to the day-after up days). Only owning after down days results in a gain of roughly 740 per cent, while owning after up days results in a gain of roughly 10 per cent.

While the market searches for the next fundamental catalyst or technical signal, your BSD portfolio management team will continue to trim those securities that are achieving respective intrinsic values and buy those stocks that exhibit longer, more lucrative investment runways. The hedging overlay will always be an important tool to protect your capital in bearish markets, and also an important tool to be “dialled down” in bullish markets. 

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TOP PICKS:

Akamai Technologies (AKAM NASD)

Akamai Technologies, Inc. provides cloud services for securing, delivering, and computing content, applications, as well as software over the Internet in the U.S. and internationally.

The company offers cloud solutions to keep infrastructure, websites, applications, application programming interfaces and users safe from various cyberattacks and online threats while enhancing performance. It also provides web and mobile performance solutions to enable dynamic websites and applications.

Its media delivery solutions include video streaming and video player services, game and software delivery, broadcast operations, authoritative domain name system, resolution, as well as data and analytics.

Its cloud computing services include computer storage, networking, database, and container management services to build, deploy, and secure applications and workloads.

In addition, the company has carrier offerings, including cybersecurity protection, parental controls, DNS infrastructure and content delivery solutions; and an array of services and support to assist customers with integrating, configuring, optimizing, and managing its offerings.

Five reasons to own Akamai Technologies, Inc.:

• Akamai is a major player in the cloud computing market, and as the market continues to grow, Akamai is well-positioned to benefit.
• As businesses become more reliant on the internet, the demand for security services is increasing. Akamai is a leader in the security space, and as the demand for security services grows, Akamai is well-positioned to benefit.
• The internet is expanding rapidly around the world, and Akamai is well-positioned to benefit from this growth. Akamai has a global network of servers, which allows it to deliver content and services to users around the world.
• Mobile devices are becoming increasingly popular and Akamai is well-positioned to benefit from this trend. Akamai has a strong track record of delivering content and services to mobile devices.
• Video streaming is a growing market, and Akamai is well-positioned to benefit from this trend. Akamai has a strong track record of delivering video content to users around the world.

Reports on May 9, 2023

IBM (IBM NYSE)

IBM is an information technology company which provides integrated solutions that leverage information technology and knowledge of business processes. This includes software, hardware and services.

The question is if IBM is going to be the next Microsoft or the next General Electric. Ginni Rometty was viewed as a Ballmer-like traditional business mind whereas Krishna, like Nadella at the time, is a relatively little-known technology specialist (he currently serves as the VP of Cloud and Cognitive Software at IBM). I should also note that James Whitehurst, CEO of Red Hat, was elected as president of IBM, effective April 6 as well. The combo of Krishna and Whitehurst at the top certainly gives IBM a bit more tech/growth-oriented mindset.

IBM completes the separation of Kyndryl managed infrastructure services business unit. This leaves IBM with high-growth business units such as hybrid cloud, AI, and Redhat. IBM sees the hybrid cloud as a trillion-dollar market.

It plans to combine AI with its cloud services to offer unique services. This is part of an offering which they call “IBM enhanced cloud.”

It has a strong dividend that has been consistently paid for 100+ years of about 5.3 per cent currently.
 

Texas Instruments (TXN NASD)

Texas Instruments designs, manufactures and sells semiconductors to electronics designers and manufacturers worldwide. It operates in two segments, Analog and Embedded Processing.

Texas Instruments has the largest customer list in the semiconductor industry, whose chips go into everything from home appliances to missiles.

The Analog segment offers power products to manage power requirements in various levels using battery management solutions, DC/DC switching regulators, AC/DC and isolated controllers and converters, power switches, linear regulators, voltage supervisors, voltage references, and lighting products.
The embedded processing segment offers connected microcontrollers, such as microcontrollers, microcontrollers with integrated wireless capabilities, and stand-alone wireless connectivity solutions that are used in electronic equipment. This includes digital signal processors for mathematical computations and applications processors for specific computing activity.

This segment offers products for use in various markets, such as industrial, automotive, personal electronics, communications equipment, enterprise systems, calculators and others.

On May 18, 2022, construction begins on the Sherman, Texas, 300-mm semiconductor wafer manufacturing facilities; production is scheduled to begin in 2025.

Texas Instruments today announced plans to build a new $11 billion semiconductor wafer fabrication plant in Utah.

Sony Group  (SONY NYSE)

• Then: $87.07
• Now: $92.18
• Return: 6%
• Total Return: 6%

ServiceNow (NOW NYSE)

• Then: $412.25
• Now: $452.84
• Return: 10%
• Total Return: 10%

Fortinet (FTNT NASD)

• Then: $270.58
• Now: $62.67 (After 5 for 1 stock split on June 23, 2022)
• Return: 16%
• Total Return: 16%

Total Return Average: 11%