Acceleration Moment for Growth Stocks
Crises accelerate the adoption of innovation.
It’s been a volatile time for our America 2.0 growth stocks, but I believe we’re at that acceleration moment right now.
Cathie Wood at ARK Invest did an interview that confirms our views.
The facts are in our favor. And we think you’re going to see amazing returns over the long term if you can stay Strong Hands.
I’ll share an outlook on how some of our stocks — TuSimple Holdings Inc. (Nasdaq: TSP), Tesla Inc. (Nasdaq: TSLA), Zoom Video Communications Inc. (Nasdaq: ZM) — are changing the world.
We have a lot of very important points in this Market Talk, so please watch the whole thing here:
Amber Lancaster: Hello Bold Profits Nation. Welcome to Market Talk Monday on the Paul Mampilly YouTube channel. I am Amber Lancaster. Thank you for tuning in this week. As you can see, Paul is joining us today to discuss current market conditions, some really pertinent information we saw in a Cathie Wood interview that confirms our stance at Bold Profits.
And of course, he’ll answer some hot topic market questions. Great to see you, Paul. Thank you for being here today.
Paul Mampilly: Thanks for having me on again, Amber. It’s an historic time with what is going on with Russia and Ukraine. Our prayers and hearts go out to all the folks affected. It’s an historic time. I have been through many historic times. I remember being around when the Berlin wall fell. That was the beginning of my career. I can recall that time.
It came shortly around also the original Gulf War. There were a series of events around Russia going bankrupt. There were other wars. So I put this out in a tweet: In our business there are no vacations, no breaks. There is always something. That is where we are today.
Of course some of the images we are seeing are heartbreaking. Our hearts go out to all those affected. However, I have told folks for our channel we will leave foreign policy for all those others to focus on. We are going to focus on what we know is important for you.
That may seem selfish or wrong, but that’s how we believe we can be of the greatest service to you. That’s what’s going to be the focus, even though we are aware of what’s going on and acknowledge what’s going on. We are going to try to continue to do our work for you.
With that, I gave you some license to be the representative for our subscribers. Folks identify with you. They trust you. They believe in you. If you were a subscriber, what would you want to ask me? What would you want to hear? You have come up with a few agenda items.
I posted an article.
There was one in the Financial Times this weekend on Cathie Wood. There was another one this morning on CNBC. I felt Cathie brought up some good points that confirm our point of view. They confirm what we have been saying, what we think and what we believe is going to unfold over the next days, weeks, months and years.
You’re going to do a bit of a PowerPoint on that. Make sure to watch all this because I believe this issue of Market Talk has some pertinent information for us, our strategies and our stocks. Let’s go with what you have for me first.
Will Gas Prices Push People To Get EVs?
Amber: I am looking forward to the Cathie Wood PowerPoint, but the first question I have for you today I think is on a lot of people’s minds. Even though we are headed toward more EV adoption, people still drive gas-powered vehicles. You recently retweeted a tweet about how California is seeing $7 per gallon gas.
Now it’s time to consider buying an EV given that we are now seeing gas prices hitting way over $4 per gallon and diesel hitting $4 per gallon. Do you foresee this being a catalyst and catapulting the EV buying frenzy or more people adopting EVs going forward?
If so, regarding Tesla which is who we view as the EV leader, do you see this as a real boon coming for them? Where do you see their stock price headed in the future?
Paul: There’s a lot of different pieces of information in there to unpack. Make sure to keep me on track. I can get a little lost in the forest. Number one, let’s deal with the facts as they are. Crude oil prices last night, I am a watcher of prices through the weekend, hit a high of $130.
It’s come back down since then. Cathie makes this argument in the CNBC article which is that while in the markets we tend to cheerlead higher prices, the truth is high prices come at a price: demand destruction. There are a lot of families that cannot afford $4, $5 or $7 gas.
I have to be completely truthful and say they cannot afford a Tesla EV either. That price is far too high for them. There is definitely a period of difficulty coming for a number of people in terms of what their choice sets are. Offsetting that are, equally, changes that have manifested themselves as a result of the pandemic.
A number of people no longer have to commute to work, they use Zoom — a portfolio company. As gas prices lift, new pressure comes on to employers and ask if it’s really fair to ask you to pay $5 a gallon without offsetting that in some way by giving you an extra allowance for this increase in price.
The reason for saying that is there is now an alternative. There are many jobs you can do remotely. We have proven this. We have proven most people are more productive when they work remotely. This is an accelerant to change. It offers an alternative.
The second one that comes to mind is another portfolio company. We own TuSimple, which is one of the leading autonomy companies. Autonomy means where there is no one actually driving the truck. TuSimple works in the freight and trucking area.
It is instead run by a computer. There are now actual plans being made for highway sections to be like railways. In other words, trucks go on the road and deposit themselves at a depot. From there, you have shorter haul trucks that come and distribute to more local points.
This is no longer a fantasy. This is no longer science fiction. This is now in trials in many cities. I posted an article on Twitter saying there is now a land boom going on to find land around big cities to place these depots. In other words, we have gone beyond technology.
People are now buying up land to prepare for a massive boom in freight-based autonomy that is going to benefit TuSimple. There are also a couple other companies that would benefit. We are now at the point like when Uber first launched. There was the world of transportation before Uber and after.
I can tell you the taxi business was never the same after that. They never got their volumes back. They never got anything back. That’s about to happen once again. We have this split. There is a way of looking at the problems the war is generating. You can look backward and see high inflation, high costs.
There are now other choices you can choose. These choices are innovation. These choices allow you an out. These choices are also what our companies make, produce and offer to people. This is one of the other points that Cathie talks about.
Innovation is a genuine answer. These are not ideas like they were in the year 2000. These are genuine companies that have hundreds of millions of dollars in sales, are capable of scaling up that solution so if you choose it they can deliver on it.
As we go to implement TuSimple’s solution, you can put more and more trucks on the road. It will be more efficient in terms of gas usage. A computer drives at a steady speed. It’s safer. The gas usage is a lot less. So many advantages come to mind.
The last one I will talk about is Tesla. I would say the main accelerant is actually going to be a different part of their business that no one is thinking about. Cathie has talked about this. We are going to fast forward ourselves rapidly into the robotaxi business because that business plummets the cost of per-mile transportation.
If you can start to implement self-driving cars where, rather than sitting in a driveway, they are implemented and a lot of people have access to them, you would have the same impact of autonomy on personal transportation. Now, this would be a different way of seeing an out out of high fuel prices.
Even as high fuel prices come, you have an out that could drive the cost to the person who needs the transportation down. Obviously we are not there yet. Nonetheless, full-self driving at Tesla is now at the 75% to 80% mark. I have not yet received my new car. I have gotten a date from Tesla.
They have promised me they will deliver on March 16. My car is going to come with full self drive. My plan is to drive down to Florida. Hopefully, Amber, who is an auto enthusiast, can put it through a test and see what it feels like. I am going to trust my new car to Amber.
Hopefully we can get some cameras on. Amber will show you where we are. Certainly if you go on YouTube, I have seen a Tesla make a left turn across a double road. And make that left turn safely and correctly. If it can do that, to me it’s one of the biggest tests. And this happened in California where roads are busy.
Robotaxis, I believe, you are going to see as a result of high gas prices. There will be pressure on our regulators, who tend to be conservative, to move regulations along in terms of innovation. They have been sitting on innovation in terms of self driving and in terms of Tesla being able to open their plants.
Their Berlin plant has been ready to be open for six months now. Of course within a week of the Ukraine Russia crisis, giga Berlin is now open. That kind of regulatory pressure is one more thing that’s going to push innovation through.
That has the benefit of creating more customers and clients for our companies and pushing and accelerating everything forward. The point we have made and Cathie makes, is that crises accelerate the adoption of innovation. There is no immediate impact to this, it will come as prices stay at this level and the hardships are greater.
It forces everybody to say, we can’t instantly produce another 10 million barrels, but we do have this solution available. How can we scale this up? It works, it’s safe, it’s ready. Oftentimes the obstacles and barriers to that are government laws and regulations.
Once people can see it’s safe, it’s available, it’s convenient, it’s cheap, adoption will come. Sort of like Uber. There was the world before Uber and the world after. Anyone who did not have an app where you could call a car could simply not compete. I believe that’s what’s going to unfold.
What Is The Price Target For Tesla?
Amber: Thank you, Paul. I think you answered everything I needed to know. What is your current price target on Tesla? Would you like to share?
Paul: We don’t issue specific price targets. I believe when we put Tesla in the Profits Unlimited portfolio we were quite modest in terms of what we were looking for. I believe we have surpassed our original price target which was 300% or 400%.
When I look at Tesla I see three different platforms. The platform that gets the most attention is something that is somewhat understood, which is their EV platform. The robotaxi platform that I was talking about is almost completely not priced in. I would think that has hundreds of billions of market capitalization that is not in Tesla at present.
Then there is a third business, which is their solar roof and Powerwall business. I have mentioned before that I own two Powerwalls. Electricity prices are also going up as a result of natural gas prices going up. Truthfully, I have almost no impact because I get 80-90% of my power from the sun.
It’s stored in my Powerwall and I use it during the day. This is once again a solution that needs to be cheaper for it to be mainstream. There is certainly no way the vast majority of people can afford a Powerwall. I understand that. However, on an industrial scale, for business users, it’s definitely affordable.
Those sales will start to pick up a great deal for Tesla. That is also very unpriced in Tesla stock. That, too, represents hundreds of billions of dollars. Tesla today is an $800 billion, $850 billion market cap. The market will start to look ahead and start to price in robotaxis as they understand there is now regulatory pressure to push this innovation into the mainstream, versus wanting to hold it back.
Second, people will also see if we are going to subsidize anything, because we certainly subsidize carbon, oil and gas, we should look to subsidize solar panels where people can get a significant amount of their power, especially in all these places where they have massive amounts of sunlight.
Batteries will start with the industrial side, but that will cause their per-unit prices to decline. As more and more business comes, you get scale. That cuts the price down. Now the residential market can slowly start to adopt it. That’s, for sure, a few years out.
Nonetheless, on the industrial business scale, for sure they will invest more in batteries. As you know, we’re all in. Tesla is in the portfolio. We have Stem in the portfolio. These are all solutions that benefit the companies sitting in Profits Unlimited.
How Will America 2.0 Do With The Market Volatility?
Amber: I’m going to change gears a little. My second question pertains to a series of retweets you posted from Dylan LeClair. LeClair posted an historical dividend and buy back chart that showed as a percentage of operating what it’s done historically.
I am going to post these tweets on the screen so people can read along. Then I’ll have my question.
To summarize LeClair, in the 2010s, corporations used easy credit conditions to engorge in a historic debt binge while buybacks and dividends as a percent of earnings surpassed 100% on multiple occasions.
Companies took advantage of historically cheap money and used these types of financial engineering tactics to boost their company stock prices rather than invest in business operations or research and development, which is really the backbone of America 2.0 and the future for companies investing in research and development.
Going forward this means there will be volatility and lots of it. Paul, based on this thread, I’d like to know what you are betting the Fed will do where monetary policy is concerned, especially with many America 1.0 companies being so debt laden.
Also, if we are to expect a lot of market volatility going forward with our particular stocks and how will America 2.0 stocks fair?
Paul: Again, a lot to unpack. Keep me on track. I am going to say the reason that is cited for our stocks crashing — they peak in February 2021 and hover in correction range for six months until September/October, then they begin a violent crash. From my judgment, they seem to have bottomed out.
I can’t guarantee it, I can’t certify it. Not every single stock, but for the most part they bottomed out. We have some confirmation of that because we read in the CNBC article that ARK Innovation is seeing $1 billion in inflows. That’s a great sign that people are seeing these are bargain prices and they are coming to buy.
From the perspective of the Fed, if you go back to why our stocks went through that crash, it comes about as a result of the Fed saying they no longer believe inflation is transitory. They think there is some permanent element and it’s going to make them want to lift interest rates.
Market participants, investors, speculators, took that announcement and ran with it. They decided every announcement around price increases on oil or anything like that meant the Fed was going to increase more, longer and faster.
At some point in time, using various market prediction systems, saying we were going to get seven straight rate increases. At some point in time, people were expecting an inter-meeting rate increase, which would be extraordinary. It would be something that would be of a crisis like 2008 or worse.
Then they were saying we might get 50 basis points in March. Chairman Powell has come on and said none of that is happening, we are going to do 25 basis points in March. He also said there are a lot of things going on. We have a war going on, which has significant impact on a lot of things.
Obviously the most visible impact is on the prices of commodities like oil, wheat. But the other impacts are that these prices are also going to destroy demand. There’s going to be a massive substation effect that is going to happen. With oil at $130, people are going to try to choose to minimize their use of oil if they can.
People who use wheat a great deal are going to look for substitutes that are cheaper, that allow some kind of a profit margin. From the overall perspective of the macro economy, oil prices act as if interest rates have been jumped by 50 basis points. If the Federal Reserve had lifted interest rates by half a percent, what would it do?
It would subdue consumption. If you are paying $4 or $5 every time you have to fill gas, you are probably stopping and spending on something else. It has the effect of essentially lifting interest rates ahead of it.
Then, when you come to our stocks, they have discounted — priced in — as if seven interest rates were guaranteed, that an intermeeting hike was guaranteed. These stocks like Zoom have gone from their peak down 70%. It is ironic in a way. I was reading the news and President Zelenskyy was on with more than 200 people, including congressman, senators, other members of our government.
What were they using? Zoom. The world’s communication runs through this company. If Zoom went down, I suppose there might be another technology people might trust, but I disbelieve there is that kind of scale and connectivity where, in a war zone, the president of Ukraine could get on securely and talk to our country.
What did they use? Zoom. Zoom, which at one point traded for 30 times sales, trades now at five or six times sales. After going through an extraordinary period in the pandemic where they saw 300% growth in sales, they are now in double-digits. However, what will this current crisis do?
Will it act as a stimulant toward more people accelerating how much work they do using virtual platforms like Zoom? I believe that’s going to be the case. We’ve seen the impact of perceived interest rate hikes on our stocks completely discounted in my opinion.
Now we are seeing where the economy is seeing the potential of high oil prices and high commodity prices. Whether it be interest rates hikes if the Fed should decide to go forward, is not discounted in anywhere near the magnitude in America 1.0 stocks.
I believe it really makes the Fed be boxed in. They may want to raise interest rates to address inflation, but it’s being addressed by high commodity prices which are going to diminish consumption. I believe perhaps they will go through with their 25 basis point increase in March.
I believe the commentary that comes out of it is going to be very much that we are on hold, we’re going to watch and see how things unfold, we are watching commodity prices. We can see things weakening. For example, the Michigan consumer sentiment survey is a waterfall decline.
In other words, people’s psychology in terms of wanting to spend is in decline. Seeing the horrific pictures we are seeing on television does not make you want to spend. It makes your heart heavy. It will have an impact on housing. We have had a housing boom.
We have had interest rates go up to nearly 4% for a 30-year mortgage. That will have an impact. In other words, the economy is going to start to slow as a result of the perceived interest rate hikes. Now you’ve got high commodity prices.
That’s going to put pressure on the Federal Reserve to back away from its strong previous guidance for what it was planning for and soften it. That represents support for our stocks. In my judgement, the reason they have gone down is a number of hedge funds have gone with the narrative there will be massive interest rate hikes.
Even though it is untrue, they think interest rate hikes mean growth stocks will go down and they will have shorted them. They will need to come and cover, which will bid them up. In a growth scarce world where growth is hard to find, our companies start to become more and more premium priced.
That will bring regular buyers into our stocks and start to bid them higher. Eventually they will trade once again at premium prices relative to other stocks. There’s no other set of companies in the market that have those qualities. Our companies, relative to Dylan’s tweet, they don’t buy back stock.
They are growing too fast. That’s something more mature companies do because they don’t have alternatives. They don’t borrow from the bond market because bond markets don’t like to lend to growth companies because they don’t have long track records they can lend into.
Many of these companies have only come about in the last seven or 10 years. They weren’t around in 2008 and have had no opportunity to do these things that all these America 1.0 companies have done for a decade-plus now. The folks who have been buying these stocks think dividend increases are a guarantee, without understanding they’re coming from debt,
They think stock buybacks are a guarantee without understanding it comes with debt. It’s been a terrible time for our stocks. However, I believe we are in the right. I believe we are going to win. When I look at the facts, I am incredibly bullish, optimistic, positive — BOP.
The facts are all in our favor. The market is going a different way. Nonetheless, the facts are in our favor. I can tell you from having been in this business for 30 years, that’s exactly the position you want to be. It’s a rubber band and it’s going to snap.
When it does, the results are going to be so much in your favor that no one is going to believe it. In hindsight everyone is going to see it was a no brainer. All you had to do was look at the facts and what is going on. I know I went through a lot of different things, but hopefully I got to answer the question you were posing to me.
Let’s Look Into Cathie Wood’s Interview
Amber: You covered everything, Paul. I like your stance you just ended with on being bullish at this time. I think it’s a great segue into Cathie Wood’s recent CNBC interview where she honed in on what we believe in and confirmed our belief in America 2.0 stock investing.
I will have these bullet points on the screen.
She says it’s been a terrible bear market for innovation. However, if you look from the bottom of the coronavirus to the peak of the ARK Innovation ETF (ARKK), in February 2021, we are up, she says, 358%.
ARK Invest has seen significant inflows since January 2022. The inflow have reached nearly $1 billion during that period. ARK Invest investor base she says is averaging down. This is something we don’t speak about a lot. She is saying this means investors are buying more units when the price drops.
She states, “We are amazed if you average down over time how quickly a strategy can come back above that average. If you’re right, significantly above that average over the next five years.” Most importantly, she says innovation is set to be the answer for many of the world’s problems.
How do you feel about that, Paul?
Paul: I 100% agree. I myself have been buying various ARK ETFs — ARKK, ARKG, ARKQ and PRNT — to get exposure. I want to go on this ride. As everyone knows, by contract, I’m not allowed to own the stocks. I would prefer to own the stocks because the upside is going to be far greater than any ETF.
This is from experience I can tell you that. I want to point to a tweet where I said for every backward-looking America 1.0 solution, there is a forward-looking America 2.0 solution. One of the things I wanted to bring up was food. I have been reading a lot about wheat and the price of wheat.
Vertical farming is an innovation that is ready for a crisis to come and say please adopt me. Prices are lower. Productivity is higher. Yields are higher than using fertilizers or any other old way of making crops. What about protein? Beyond Meat is synthesizing protein.
For every crisis, for every problem that’s out there, you can map an innovation strategy that is ready, is scalable and we can utilize. They don’t have enough scale today, but we are America. We are the land of innovation. We are the land of ingenuity. We know how to get things done.
I believe that is going to be our answer. As that happens, these are our stocks. They are going to lift sales, revenues, profits. People are going to come and want to own our stocks. I am very BOP. The facts, the evidence and everything is going our way. The stocks will follow.
We will make big, big money. That’s why I want to be in on the ARK ETFs because they are the closest thing I have to being able to be in the stocks in our portfolios. We’re going to win. We’re going to win big. I am very BOP.
Amber: Well said. We are BOP with you. Thank you so much for spending time with us today and sharing your thoughts. It’s been a privilege and a pleasure.
Paul: Thank you, Amber. Stay BOP. Strong hands.
Amber: Thanks again to Paul for joining us on this edition of Market Talk Monday. If you’d like to take your investing to the next level, check out Paul’s True Momentum stock research service. Since its founding in February 2017, Paul’s True Momentum model portfolio has annualized returns of 31%.
It has gained a total return of 302%. Just like Cathie Wood’s ARKK fund, its return has seen a decline in recent months, but when momentum pours back in to Paul’s America 2.0 stocks, the rebounds in gains have the potential to be spectacular. Make sure you are in and don’t miss out.
To learn more about Paul’s True Momentum trading service, please click the strong hands. That concludes this week’s Market Talk. Thank you for watching. Remember, you can follow Paul and me on Twitter: @MampillyGuru and @ALancasterGuru.
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