Updated: Apr 25, 2021
Last Week in a Nutshell
Would you look at that? Green across the board! Last week was a fairly quiet week given that the equity markets were closed on Friday but we finally saw some life out of the Nasdaq. We also saw the S&P 500 (index of the 500 largest U.S. companies) break through the 4,000 mark on Thursday and close the week out at an all-time high of 4,019.87.
Along with the major indexes moving up on the week, some of the 2020 high-flying stocks such as Tesla (TSLA), Roku (ROKU), Pinterest (PINS) and Square (SQ) saw strong gains as well. This was nice to see after watching these same stocks retreat 30+% from their 2021 highs to their 2021 March lows. To illustrate - TSLA stock:
Gained 1,184.45% in approx.. 10 months
From there it fell over 40% in early March 2021
Last week the stock gained almost 7%
Why is this important?
Stocks such as TSLA, ROKU, PINS and SQ could all be considered 'market leaders' falling under the most popular and fastest growing trends such as: electric vehicles, cord-cutting, social e-commerce and electronic payments. Market leaders are the stocks that lead the overall markets up during the roaring phase of a 'bull market' (what happened in 2020 and early 2021). The market leaders could also be showing tell-tale signs of this bull market potentially entering its final leg via their 2021 price retracements.
As famed trader Mark Minervini says:
"Just as the leaders lead on the upside, they also lead on the downside"
More on last week: March jobs data was released Friday morning and it blew 'expert' estimates out of the water. 916,000 jobs were added in March indicating that a strong U.S. economic recovery is underway. Between vaccinations and cities re-opening, businesses are clearly ramping up the hiring process.
With that in mind, it begs the question, why are politicians trying to push further pandemic stimulus into the economy? Unemployment benefits were already enhanced in late 2020, yet the government is now considering monthly recurring payments. In my opinion, not only does this disincentivize unemployed individuals from re-entering the workforce but it presents a salary challenge to businesses looking to hire as the economy re-opens. These businesses that were crushed due to the pandemic now need to compete with un-employment benefits in terms of what they offer for salary.
More government spending! Money grows on trees! .... Part one of President Biden’s $2 trillion infrastructure bill was released last Wednesday. Details include improvements in our country’s infrastructure, investments to create jobs in certain areas of the economy as well as the fight on climate change. The most conflicting part of the bill? How it will be funded. The corporate tax rate would increase from 21% to 28% and as you could image, some corporations aren’t a fan! You can expect a lot of back and forth on this bill over the next few weeks/months.
Back to the Markets..
Were last week's gains in the Nasdaq and market leaders (TSLA, ROKU, etc.) a sign of a new tech/growth uptrend or was it simply a short-term fake-out and further declines lie ahead for these stocks?
I am hopeful last week's trend will continue but given the lack of volume (see chart below) on the Nasdaq buying last week, I am still far from convinced that tech and growth stocks are out of the woods. Big volume on substantial gains in the tech sector this week will make me feel more confident that this bull market is still alive and well.
Stock of the Week ** I have a position in that security
Mohawk Group Holdings (NASDAQ: MWK) “Mohawk is the CPG Company of tomorrow” Mohawk was founded on the notion that if a consumer package goods (CPG) company was founded in this era, it would incorporate the technologies of today (i.e. AI and machine learning). The company sells simple products such as kitchen appliances, air conditioners, health & beauty products, cookware, etc. but in the smartest and most efficient manner possible. The story here is the in-house technology that Mohawk leverages to market and sell those consumer products in the incredibly relevant global e-commerce market. AIMEE (AI Mohawk E-commerce Engine) What separates Mohawk from its competitors, is the company's proprietary data analytics platform, AIMEE. AIMEE is an AI powered technology/data analytics tool that consumes massive amounts of data across the internet and a variety of e-commerce sites. The tool then breaks down that data and provides Mohawk with insights on what consumers are buying, how they are buying them and of the products that are being bought, what are the most profitable. Back in October when I emailed company management asking some questions they went as far as to say, “we don’t know any other competitor that is using anything like AIMEE.” Using the data from AIMEE, management also carries out a, "make-or-buy" analysis. Instead of manufacturing or creating their own line of products, the company turned to an acquisition strategy in 2020, buying up smaller product companies (acquired 6 brands in 2020). Mohawk then incorporates/expands the acquiring company's offerings via Mohawk’s e-commerce focused strategy. The company also plans to offer AIMEE has a subscription service to other companies in the future. Does the technology actually work? Revenue Growth? ☑️
2021 full year revenue growth estimates are $360.28 million which would be 94% year-over-year growth
Gross Margin Expansion? ☑️
Higher gross margins = higher earnings = more attractive
Inventory Turnover Improving?☑️
The higher the inventory turnover ratio, the better. An increasing inventory turnover ratio indicates a company is selling goods quickly, and that there is a demand for their products
According to Statista, global retail e-commerce sales totaled $4.28 trillion in 2020. This number is expected to grow to almost $6.4 trillion in 2024. Ipso facto, the e-commerce market is absolutely gigantic.
In 2020, the company sold $15.49 million worth of “Personal Protective Equipment” (PPE) vs selling zero PPE in 2019. This product line introduction was due to Covid-19 and there is no guarantee that they will be able to continue to sell these types of products going forward. If one were to exclude PPE from MWK’s 2020 financials, then revenue growth would have been only 50% on the year.
Another temporary concern is that the stock ran up over 600% from early December 2020 to mid-February 2021. It has since retreated in price but is still up over 370% in 4 months.
In summary, given the size of the E-commerce market as well as Mohawk’s unique proprietary technology and business strategy, I believe that the future is very bright for Mohawk. The market has high expectations for Mohawk given its 2021 revenue estimates and if the company were to find success generating subscription revenue from AIMEE then this would only improve overall margins.
However, given that it returned 625.8% in a little over 2 months, I’d like to see it ‘consolidate’ further and ‘digest’ some of those gains. However, this a definitely a company/stock worth keeping an eye on.
Crypto Story of the Week
This week we're going with a 'Crypto Story of the Week' rather than a 'Cryptocurrency of the Week.' Over the past two weeks I have touched on the Chiliz (CHZ) token and the Nexus Mutual (NXM) token. Both tokens are very fascinating and have legitimate use cases, but neither are even close to as relevant as the two largest cryptocurrencies: Bitcoin (BTC) and Ethereum (ETH). BTC is up 100% on the year while ETH is up an even greater 178%. Ethereum’s price was given a boost last week when leading global payments company, Visa (V), announced that they will be begin supporting cryptocurrency settlement. Last Monday, the company stated that transactions can now be paid for and settled via the USD Coin (USDC). USDC is a type of stablecoin that is pegged to the U.S. dollar and is powered by the Ethereum blockchain. This is an important step for cryptocurrency adoption as individuals can now use the USDC to say, buy a sandwich or a beer, without having to convert the stablecoin to the U.S. dollar or another fiat currency before spending. Along with the announcement, Visa’s Crypto department head emphasized the growing need to support cryptocurrencies as a form of payment: “We see increasing demand from consumers across the world to be able to access, hold and use digital currencies and we’re seeing demand from our clients to be able to build products that provide that access for consumers.”
The information contained in this newsletter and website should NOT be seen as investment advice or recommendations. The materials are not a substitute for obtaining professional advice from a qualified person, firm or corporation. Tom Logue is not paid by any company to recommend any stocks or cryptocurrencies to readers and all research done is independent. Tom Logue does not guarantee that any of the companies listed in this newsletter or on the website will out-perform the stock market nor does Tom Logue guarantee the accuracy or completeness of the information contained herein. The information provided in the newsletter and the website should not be relied upon as the sole factor in determining whether to buy, sell or hold a stock. Past performance is not a guarantee of future performance. All investments involve risk, including the loss of all of the original capital invested. One should perform their own due diligence and understand the associated risks before making investments.