Our Watchlist - Trading Winners and Losers

Thursday December 16th, 2020


Biggest Gainers

Tilray (TLRY)

The Canadian Cannabis company reported a merger with Aphria (APHA), another Canadian producer and supplier of primarily medical marijuana. While this may help Tilray in the longer term, it’s been a troubled stock with a run up to around $150 in 2018 and lows under $5 as recently as this September. The stock has suffered from dilution, and the company has a poor balance sheet. Both stocks have benefited from the run up of cannabis stocks, and Tilray was up on the news while Aphria was mostly flat on the day.

Trade
If we owned the stock, we would take our profits. The stock has and will be volatile, and while this does periodically present some good options plays, we would not be long this stock. If investors are looking to get into this space, especially on the momentum of the future Democratic Presidential administration and a steady stream of states legalizing or decriminalizing marijuana, we think there are better weed stocks out there. One of our favorites is GrowGeneration (GRWG). It’s a grower supplier, and can be thought of as the picks and shovel of the industry, with a great balance sheet and impressive revenue growth - up more than 11.50% today!

Jumia (JMIA)

The African e-commerce and payment platform has had a great month, up over 160% on the month, and has begun exceeding its previous 2020 highs. We are long term bullish on Jumia and while there have been some mixed results in recent in quarterly earnings, it looks like the company is headed in the right direction and gross profit was up 22% and the operating loss has been nearly cut in half from the previous year. According to The Council on Foreign Relations internet access is growing much more rapidly in Africa than anywhere else in the world. PWC projects that six of the world’s 10 fastest-growing economies are in Africa; for the period 2014-2050. We think given time, and proper execution it’s not infeasible to think JMIA could grow into what MercadoLibre (MELI) is in South America or Sea Limited (SE) is in Southeast Asia. With a market cap just over 3 billion, given enough time, and some luck, we see a lot of potential long term upside.

Trade
We are bullish on JMIA and long the stock. It’s just broke past its previous 2020 $38 high and if it can close above 40 may begin continue moving up in the short term. It is important to note, it’s been an incredibly volatile stock, and we’ve continued to add to the position on pullbacks. Starting just a small position here may be prudent, and adding more if it dips to the mid/low 30s. Barring any broader market pullbacks this seems to be forming a base at around 30-32 over the past few weeks

Gravity (GRVY)

Gravity is a Korean gaming company, was up over 7% today and reached all-time highs. This is a stock that often flies under the radar, but we think is one investors may want to keep an eye out for. The company reported 76% growth last quarter, and had had consistently high triple digit revenue growth in previous years.
Ragnarok is the company’s wildly successful massive multiplayer game and while the company is Korean based, the game is popular throughout several regions of Asia. Despite its massive run up, it still has a market cap of just over 1.3 billion - which based on its revenue growth and expense ratios is considerably cheaper than its peers. As the company grows and garners analyst coverage and more investor attention we think this stock may have a lot more upside. While some investors may be wary of investing in a company with focus primarily on a single game franchise, the type of massive multiplayer game has proven to be sticky for years, or even decades. This is especially true when paired with a growing audience base as GRVY has seen, since new product versions, upgrades and subscriptions offer continued revenue for years to come.

Trade
The stock has been consolidating in the 170-185 range the past few weeks, and is beginning to break out. Starting a small position may be prudent, but volatility is high with a small cap stock like this so there may be a better time to enter the stock. However, with new releases and potential to gain more mainstream notice from Wall Street with the recent growth, this may continue breaking out and get away for overly cautious investors.

Biggest Losers

Beam Therapeutics (BEAM)

Beam Therapeutics is up 200% since its February 2020 IPO and has almost doubled since the start of November - so it’s hard to call this stock a loser. The pullback here is mostly a result of some healthy profit taking.
Beam is a very promising biotech company developing precision genetic editing medicines, utilizing the very hot CRSPR technology. The company was founded by David Liu, a pioneer in the field, who previously founded Editas(EDIT) - another leader of the CRISPR biotech space. Beam stands out in this field by its use of base editing which can target single edits in DNA with great precision with chemical reactions. Other companies in the field like CRSP, EDIT, NTLA use genetic editing which make double-stranded cuts in the DNA, and while that technology is farther ahead, has technical issues that still need to be overcome – primarily unintended cuts in the DNA which may have unintended consequences like cancer. But due to the greater efficiency in base editing technology, it generally has more precision and less issues with unwanted DNA changes to overcome. Though these issues are not completely unheard of with base editing either and more work is needed especially since this is a newer technology.
While there are many diseases that BEAM could use this technology to potentially address, the most immediate one is sickle cell anemia which is caused by a point mutation, exactly what base editing could one day treat more efficiently than the more involved gene editing approach. In fact, BEAM is currently pursuing two different base editing approaches to treat red blood cell disorders.

Trade
While biotech companies have run up a lot over the last couple of months, and early stage companies like Beam will be especially volatile in the near term, we do like having at least a small portfolio allocation to a few of these early phase promising companies in this space. Pullbacks like today may present a good opportunity for investors with a long term horizon to begin scaling in to a position or add to an existing one. Investors who want exposure to this exciting field, but want to reduce volatility and single stock risk could consider ARKG. AKRG is ARK Invest’s Genomic revolution ETF which includes BEAM as well as other CRISPR publicly traded companies.

OpenDoor (IPOB,OPEN)

IPOB is Chamath Palihapitiya’s second SPAC which will very likely be merging with OpenDoor. What is a SPAC? His first was Virgin Galactic(SPCE). A shareholder vote scheduled is for Dec. 17 to officially approve the deal. It will then likely begin trading under OPEN as Opendoor Technologies starting on Monday, Dec. 21. Today’s loss was probably mostly attributed to profit taking after a large run up, especially ahead of the merger, historically a volatile time for a SPACs
Opendoor is a leader in the iBuyer home space, which is a business model where a company buys homes directly from sellers, usually online, makes any needed repairs and upgrades and resells them. In a growingly digital economy, with more and more millennial homeowners, with proper execution, it’s not hard to see considerable opportunity for years to come in this space. And with Chamath’s leadership and the company recently announcing the hiring of several seasoned veterans in key leadership roles, we don’t anticipate execution being a major risk.

Trade
We do like Open-door, and the market agrees - this SPAC is up 150%. With the merger happening over the next few days, it’s usually a very volatile time for SPACs . So if investors don’t have a position we don’t think it’s the best time to enter, though that’s based on each investor’s own risk tolerance. We do think growth investors should at least look into this name, and consider entering it on additional future dips. We were in the IPOB SPAC from before the merger announcement, though have trimmed some of our initial position we intended to stay in the name. For a safer alternative, investors may want to look into Chamath’s other pre-merger announcements SPACs: IPOD, IPOE, IPOF. What is a SPAC?



This site references only our opinion and is for information purposes only. It is not intended to be investment advice. Seek a duly licensed professional for investment advice. We have long positions in all of the six stocks mentioned.

Is Rocket Companies Berkshire Hathaway's Secret Position?

Berkshire Hathaway’s Secret Position

Warren Buffett’s Berkshire Hathaway (BRK.B) released their third quarter 13F regulatory in November. It included a the footnote which read “Confidential information has been omitted from the public Form 13F report and filed separately with the US Securities and Exchange Commission”

This has lead to speculation on what this mystery business that Berkshire is accumulating a position in could be.

This is not the first time Berkshire has had such omissions in their filings, and was seen as recently as 2015 when Berkshire was building a position in Phillips 66.

Berkshire Hathaway and Rocket Companies

What we know

Warren Buffet loves the insurance, banking and lending industry. Up until recently, Berkshire Hathaway has been the largest shareholder of Wells Fargo. Over the past year they’ve been scaling back out of their position as the pandemic took a hard hit on the banking industry - and previous troubles at Wells Fargo, caused an even larger pullback for the bank than many of its peers. One noteworthy aspect of Wells Fargo business is they are the second-largest US home mortgage lender. The largest mortgage lender since 2018, has been Quicken Loans (RKT). Given that Berkshire owns the majority of the national’s largest residential real estate brokerages, HomeServices of America, it would make sense to have a strategic partnership or investment with a large mortgage lender like Rocket.

There are reports from previous years that link Warren Buffett and Dan Gilbert, the co-founder of Quicken Loans, today a subsidiary of Rocket Companies (RKT). A Fortune article from 2016 mentions “an exclusive mortgage-purchasing agreement between Quicken and a subsidiary of Buffett’s conglomerate Berkshire Hathaway (BRK-A)”. In an interview with CNBC, Buffett has said “”I’m an enormous admirer of Dan and what he has accomplished in Quicken Loans”. There have also been talks in previous years of the two partnering up to buy Yahoo. While we don’t have much details on their exact business dealings, there is evidence that there has been at least some level of talks and mutual admiration for years between the two men and their companies.

On November 11th 2020, Jay Farner, the CEO of Rocket Companies in an interview with CNBC’s Jim Cramer mentioned of an upcoming partnership with a “major large financial institution” that would be announced next year. Berkshire Hathaway would certainty fit the bill.

Rocket Companies

Rocket Companies (RKT) was founded in 1985 by Dan Gilbert, Lindsay Gross, Gary Gilbert originally named Rock Financial, later renamed to Quicken Loans. In 1999, Intuit, the makers of Quicken, QuickBooks and Turbotax, bought Rock Financial. A few years later Dan Gilbert and a group of private investors bought back the Quicken Loans subsidiary back from Intuit - but is why Intuit still retains products that share the “Quicken” name.
In 2016 Quicken Loans launched Rocket Mortgage which was the first fully online mortgage lender.
In the summer of 2020, the company was taken public, though the public float include just only a fraction of the overall shares. As of this writing, the market cap is 41.396B



This site references only our opinion and is for information purposes only. It is not intended to be investment advice. Seek a duly licensed professional for investment advice. Disclosure: we are long RKT and BRK.B stock and RKT March $20 calls.

Dropbox (DBX) Acquisition Rumors

Acquisition Target

Dropbox (DBX) was up over 13 percent on Friday, with almost 8% of that coming in after hours. After Slack’s (WORK) buy out by Salesforce (CRM) , there has been increased chatter among investors and analysts on what the next tech M&A target could be. On the morning of Friday December 11th, theinformation.com wrote an article making a case that DropBox, Box & MongoDB could be acquisition targets. However, this article does not have any inside information and is merely one author’s opinion on which companies may in the future be target of M&A deals. While prior to official Slack deal, the WSJ published an article reporting of talks between Slack and Salesforce which propelled Slack’s stock higher, there is no public news on any specific talks between Dropbox, Microsoft or any other companies.

Dropbox is a 9.3 billion market cap company. With a price to sales ratio of 5.6. Dropbox revenue for the twelve trailing months ending September 30, 2020 was $1.856B, a 16.63% increase year-over-year. While the revenue has been growing consistently, it has not grown at especially remarkable rates. Still, it does not have currently have a premium evaluation and on a pullback may present on opportunity for investors to get into down the road.

Bottom Line

The reasonable market cap makes a potential future acquisition feasible, especially in the growing workplace productivity space. However, there is no reason to believe that such a deal is imminent. Buying the stock after such a large run up, on no actual news or changes in it’s core business is dangerous and we are most likely going to see a correction in the price in the coming days. We think it’s best to stay out of this name for now.



This site references only our opinion and is for information purposes only. It is not intended to be investment advice. Seek a duly licensed professional for investment advice.

Why USO is a Bad Oil Recovery Play

USO - United States Oil Fund

With the influx of vaccine news the most beaten down “epicenter” stocks have begun steadily climbing back. Many investors are looking to find what recovery related investments they can jump into. While many travel related stocks have already reclaimed a large percentage of their past year’s decline, even with dilution in many cases, there are areas of the market that still have a long road to complete recovery investors may want to consider. Two such areas that have still the most to regain to get back to their pre-pandemic levels, are the oil sector and real estate sectors.

Investors seeking to play the oil recovery may be tempted to invest in United States Oil Fund (USO), the commodity ETF which tracks oil prices through oil future contracts. Trading currently in the low 30s, with pre-pandemic highs in the 120s, it may seem on the surface like a compelling trade.

However, digging a little deeper it’s unlikely USO will regain it’s previous highs. Prior to the April/May crude oil plunge which even got into negative priced oil future contracts, USO traded exclusively short dated, monthly WTI crude contracts. However, in light of that collapse USO made adjustments to their strategy, they would no longer hold and sell monthly contracts, they would also hold longer dates contracts which would be as long as a year out.

The fund has then made even more changes, where the contracts held are no longer exclusively crude oil. USO is now including light, sweet crude oil, other types of crude oil, diesel-heating oil, gasoline, natural gas, and other petroleum-based fuels.

USO vs Brent Crude Oil Correlation

Prior to the change, you can see that USO followed the price of crude oil closely. However, since there has been a large divergence between the two. And while the price of crude has been increasing recently, the relative price of USO lags far behind. Even if crude can eventually rebound, we would not expect USO to rebound higher than to the mid 40s and that is a best case scenario which may take years.

While we are not bullish on oil long term, and think clean and renewable energy is a superior long term investments, we do think there are several oil companies which may make a good mid-term investment as the epidemic comes to an end, and travel eventually rebounds – but USO is far from the best one.

Have an idea for a good oil rebound trade? Tweet us your ideas!


This site references only our opinion and is for information purposes only. It is not intended to be investment advice. Seek a duly licensed professional for investment advice.

Our Watchlist - Trading Winners

Monday December 12th, 2020


Biggest Gainers

Fastly (FSLY)

This cloud computing company’s stock dropped almost in half a couple of months ago, when initial earnings numbers were released before the scheduled earnings report and were not as strong as investors had hoped. This was in part due to their large reliance on the revenue from their largest customer, widely believed to be TikTok. Additionally, investors were not pleased when they learned insiders sold shares before announcing that news. However, recent positive news on TikTok along with general strength of the market and cloud stocks in general has largely rebounded Fastly - though it’s still 30% short of it’s recent highs.

Trade
Even before the previous earnings news and drop, the stock has had a very volatile year even as it’s up 365% over the last trailing year. For a trade, we wouldn’t enter the stock up here, though if you monitor your trades closely and it breaks out and closes past 100, it may continue to run to its previous highs in the high 120s, but any NASDAQ pullback could hit FSLY especially hard in the near term. For investors with a longer horizon, we do like Fastly’s long term prospects, but make sure you can stomach a lot of volatility. The valuation is not cheap, but the market cap is small enough where continued growth could help push this stock higher over the coming years. But we do think they’ll be better opportunities to enter this name. We hold a long term Fastly position, and a trading position. The latter of which we started to trim over the past few days.

Ontrak (OTRK)

You can think of it as the mental health little brother of Livongo(LVGO). Ontrak has had a sharp decline over the last month, in part due to lowered guidance at last earnings and partially due to the weakness of telemedicine stocks (TDOC, AMWL) on the vaccine news - despite the pandemic actually being a headwind for OTRK, unlike some of the other telemedicine companies. Ontrak continues to deliver stellar growth with 130% revenue growth over the last three quarters of 2020. And with a market cap under one billion, we think this has a lot of room to run in the coming years.

Trade
Up almost 8%, closing at $56.88 it could be the beginning of a nice breakout after a period of consolidation, and we expect it to in time return to it’s previous levels $60-$83 and eventually higher. We are bullish on OTRK, are long the stock and 50/55 December call debit spreads.

Jumia (JMIA)

The African e-commerce and payment platform has had a great month, up almost 120% on the month. While there have been some mixed results in recent in earnings, it looks like the company is headed in the right direction and gross profit was up 22% and the operating loss has been nearly cut in half from the previous year. According to the Council on Foreign Relations, internet access will grow much more rapidly in Afrifca than anywhere else in the world and we think given time, and proper execution it’s not infeasible to think JMIA could grow into what MercadoLibre (MELI) is in South America or Sea Limited (SE) is in Southeast Asia. With a market cap under 3 billion, given enough time, and some luck, we see a lot of potential long term upside.

Trade
We are bullish on JMIA and long the stock. However, it’s been incredibly volatile, and we continue to add to the position on pullbacks. Starting just a small position here may be prudent, and adding more if it dips below 30 - though barring any broader market pullbacks this seems to be forming a base at around 30 over the past few weeks

This site references only our opinion and is for information purposes only. It is not intended to be investment advice. Seek a duly licensed professional for investment advice.

Airbnb Going Public

Initial Valuation

Updated 6:40pm EST

Airbnb is set to go public on NASDAQ Thursday, December 10th, 2020, with the ticker ABNB.
As of Tuesday, the share price has been raised and is now in the $67-$68 per share range, up from the previous $56 to $60 range, which was already up from the initial $44 to $50 price originally. With the new range, Airbnb would receive a fully diluted market value of $47 billion and is now planning on selling 52.9 million shares.

Prior to the pandemic, the company was valued at more than $40 billion, however at the 2020 low, the valuation fell to less than $20 million. But now Wall Street seems to be pricing the company at an even higher valuation than its previous pre-pandemic highs. For the first three quarter of 2020, with travel restrictions, Airbnb’s revenue dropped to 3.4 billion, but for 2022 the projections is a large rebound in revenue with sales increasing to $6 billion.

Worth getting in on IPO?

While initially there may have been an attractive discount due to the pandemic on the Airbnb IPO price for long term investors, the price now reflects an optimistic, forward looking valuation. Still, the planned offering market cap places them in line with the current market cap of Marriott, currently with a 43 billion market cap. And for investors with a long term time horizon, a continued strong execution could offers a lot more growth than investing in a legacy hotel operator. Airbnb is a staple of the “sharing economy” and often compared to Uber in its business model - however, unlike Uber which has struggled with a model that is unprofitable, Airbnb has shown it’s been able to have profitable quarters. After deep cuts and layoffs in 2020, Airbnb did post a profit in Q3 2020 - something Uber has never been able to do.

To fully understand the sharing economy, the vision and history of Airbnb we recommend the readers read “The Upstarts” by Brad Stone. Not only is it informative, it’s very entertaining and one of the best reads on Silicon Valley.

If investors can get their hands on ABNB under $75, this may be an opportunity worth considering for investors with a long time horizon, who won’t be put off by near term volatility.


This site references only our opinion and is for information purposes only. It is not intended to be investment advice. Seek a duly licensed professional for investment advice.

Future of Crypto?

The Flare Network is Coming, and Could Change the Face of Crypto

In recent months as Bitcoin (BTC) has risen in price to beat its all time high, XRP has also come out of a years-long down trend and has gone up over 150%. XRP is a digital asset created by Ripple Labs and is meant to be used on the XRP Ledger, a decentralized blockchain with transaction speeds of mere seconds as opposed to BTC and Ethereum (ETH) in which could take minutes or hours.

Flare Networks, a startup that is being backed by Ripple Labs, introduces a new way of scaling smart contract platforms that is fully integrated with XRP, using its native token, Spark (FLR). They have announced that they will be distributing FLR to eligible XRP holders.

There is currently a total supply of 100 billion FLR tokens, though 45 billion will be distributed to XRP holders at a minimum of 1:1 FLR to XRP. Because of all of the XRP held by Ripple employees who are ineligible to participate in the airdrop, the remaining amount of tokens will be distributed based on how much XRP is in your wallet compared to everyone else when the snapshot is taken, which will be at 00:00 UTC on December 12th.

There is a large list of eligible wallets and ledgers in which you can hold your XRP in, to claim the FLR airdrop. On Saturday, Coinbase had finally announced that they will allow the airdrop on their platform as well. However, they will not be allowing customers to add or remove XRP within a short period before and after the airdrop. You can find the comprehensive list here. You can also use an XRP wallet such as XUMM, or use a Ledger Nano if you prefer storing your digital currency in physical form. You will need to make sure that your XRP Ledger account is prepared to receive the airdrop. You can find a tutorial here.

15% of the distribution will occur at once at a not yet specified date after the snapshot, and the rest of the amount will be distributed over the next 2-3 years. Having such a long time for the token to be distributed could mean good things for it’s price long term, although the coin is expected to be worth less than a cent upon distribution.

Make sure not to miss the FLR airdrop. FLR is expected to solve a lot of problems in the crypto space surrounding trust, with the fastest transactions in the crypto space.



This site references only our opinion and is for information purposes only. It is not intended to be investment advice. Seek a duly licensed professional for investment advice.

What is a SPAC?

Overview

A special purpose acquisition company (SPAC) is a “blank check” company which enters the public market, much like any other traded stock. However a SPAC company itself is created only to raise capital and acquire an existing private company, which upon approval from shareholders goes through a reverse merger, to take that newly acquired public through the existing SPAC listing. In a way, it’s a way for investors to participate in private equity and get in early on an IPO. For the private company being acquired, this is an alternative from a traditional IPO and offers some benefits like a quicker and cheaper way to go public.

SPACs are formed by a particular sponsor. The sponsor typically has expertise in a particular area of the market and create a charter at filing for the type of business they are looking to acquire.

A SPAC generally has two years to complete a deal (by a “reverse merger”) otherwise it faces liquidation and the shares are refunded at $10 dollar plus interest.

Units, Shares and Warrants

Units

At the time of the IPO, a SPAC will starts with units, which are usually $10 per unit. If the ticker of the SPAC is “ABC,” it will start off trading as “ABCU”, with the “U” at the end standing for Unit.
Units consistent of one share of stock and a fraction of a warrant to purchase the stock. Which are usually exercisable at $11.50.

Several weeks after the IPO, Warrants can be split into units and common shares. After the split, “ABCU” may continue to trade as a Unit (depending on the SPAC), and the shares “ABC” and the warrants “ABC.WS” can be traded separately. Those who held the units, can have their units replaced with shares and warrants.

Shares

Shares rarely go below $10 a share pre-merger. This is because if a deal is not found, the original value ($10 dollars plus interest) will be returned to shareholders. Additionally, if a shareholder does not want to keep the shares before the merger with the target company occurs, they can generally call their broker and get the shares refunded at $10 dollars plus interest. Because of the $10 floor, investors often feel there is less risk with pre-merger SPAC investments. It’s important to note, that after the merger there is no floor with the stock price, and the stock trades just like any other stock.

Some brokerages don’t support units and warrants, and SPACs aren’t available until shares are split from units on those platforms.

Warrants

A warrant is like a call option but have their own ticker and are traded like a stock. Unlike a call option which corresponds to a 100 shares, a warrant corresponds to only a single share. They provide the owner the right (but not the obligation) to purchase one share of the underlying company at a predetermined price per warrant – typically at $11.50. Most SPAC warrants have five years after a merger to be exercised. If there is no merger or the stock doesn’t reach $11.50, the SPAC warrants expire worthless.

Choosing a SPAC

While the above holds true for most SPACs, individual SPACs are all different and offer different terms. For example, unlike most SPACs, PSTH started trading at 20, not 10. SPACs also have different terms about how warrants are structured. It’s also important to check if the sponsor is putting in their own capital and have “skin in the game”. Some sponsors may be limiting their own risk and passing it on to shareholders, which should keep shrewd investors from getting involved. Arguably the most important factor is the sponsor. Investors should carefully review the sponsor’s background, previous business successes and failures and check if the sponsor has been involved in previous SPACs and how they’ve faired. Investing in SPACs is not only a financial investment but a large investment of confidence in the SPAC sponsor.


This site references only our opinion and is for information purposes only. It is not intended to be investment advice. Seek a duly licensed professional for investment advice.

Asana Overview and Q3 Earnings

Overview

Asana recently went public through a direct listing on September 30, 2020 and is expecting to announce their third quarter earnings Wednesday, December 9th - their first earnings since going public.

Asana was founded by Dustin Moskovitz, who prior to Asana was one of the co-founders of Facebook having been Mark Zuckerberg’s roommate at Harvard. Prior to going public Asana posted a 57% increase in second quarter revenue, with a gross margin of 87%. However, their net loss is also growing, but that is understandable with company at this stage of it’s lifecycle usually focusing on growth. As of start of 2020, the net retention rate for customers spending at least $50,000 annually was 140%, and for customers overall was just north of 120%.

After initially trading down for the first months after first being listed, the company has begun breaking out in the past couple of weeks and if it can hold the $26 level , it may present a good entry point.

What is Asana?

Asana is primarily a popular work planning software. Think of a large project – a release of a new piece of software or the creation and execution of a marketing campaign. For the project to succeed and be delivered on time, individual tasks, milestones, assignees, due dates need to be assigned, delegated and tracked. Asana can help organizations manage their work by breaking them out into individual components which can then be assigned, commented on, and individual status progressed throughout the full lifecycle of the project. Such software can make teams more efficient by reducing the time and management effort needed for frequent check ins on progress, status updates, blockers by managing this information in a single centralized place.

Competitors and Market

There are a number of competitors in this space including Jira, Wokzone, Trello, Wrike, SmartSheet, Monday.com, Microsoft Project & Microsoft To Do.

While this is a crowded space, the workplace productivity software space is here to stay and rapidly growing as organizations of all sizes are incentivized to invest in software which can make their team more efficient especially as employees are increasingly more spread around the world.

Since adopting the use of such software is usually heavily embedded in organization’s operations workflows, there is a lot of stickiness once the software is implemented. And as employees move from company to company they often bring their favorite tools with them, which helps fuel customer growth naturally.

Even with competition, this is not a winner take all type of software category with the entire category growing. Revenue can continue to grow without having to only rely on capturing market share. And with a free tier available and premium pricing on a per user basis, adoption of Asana can start at a team level and not require a large, expensive, organizational level software implementation which may require executive sponsorship. This further can help Asana expand more nimbly and exist in companies without completely replacing other competing solutions. We’ve seen first-hand, different departments within the same company using competing products - marketing and project management may use Asana, while technical teams may use Jira. There’s even tools to integrate between Asana and other platforms like Jira, Salesforce, Teams and Slack.

Asana does stand out with its clean interface and ease of use , and an increasing number of features which gave more flexibility to users to customize the product to meet different organizations’ workflows and needs. Many engineering, product management and more technical teams have been using Atlassian’s (TEAM) Jira for planning and workflow management for years, and while we can see this as an area where Asana can capture some market share - we think a big opportunity is for departments outside of engineering, like project management, marketing that may have less industry uniformity in productivity software.

Looking Forward

Last week, Piper Sandler upgraded Asana based on the positive tailwinds in workplace software. The analyst upgraded Asana to overweight and set a price target of $33.

From the company’s SEC filings, revenue has grown over 50% for the last 8 Quarters, but revenue growth has been slowing from 88% in Q2 2019 to 57% in Q1 2020. As long as Asana can continue their revenue growth, with a 4.1B market cap, and currently at roughly 14x next year sales we think the company has plenty of room to run and grow in the future. It’s not unthinkable to think that Asana can one day grow into even a fraction of Atlassian’s size which is currently valued at just over 54 billion.

While pure earnings plays, especially shortly after IPOs are risky, we think Asana can be a good option for long term investors looking to get in early on a SaaS company with great growth potentials, before it’s received a lot of the attention and premium valuations many of its other SaaS peers have received.

This site references only our opinion and is for information purposes only. It is not intended to be investment advice. Seek a duly licensed professional for investment advice. Disclosure: We are long Asana stock and May 2020 call options.

Our Watchlist - Trading Winners and Losers

Thursday December 3rd, 2020


Biggest Gainers

Crowdstrike (CRWD)

Cyber security has been booming in 2020 and endpoint security company Crowdstrike has been consistently beating quarterly earnings analyst expectations out of the water . Both Crowdstrike and Okta reported great strong yesterday, beating analyst expectations and are up on the news of their results. We entered a call spread on Crowdstirke prior to earnings, based on the results of cyber security peer Palo Alto’s earnings two weeks ago which brought them to all time highs.

Trade
We are very bullish on Crowdstrike and are long the stock. With the frequent rotations in and out of growth & tech stocks right now, there may likely be an opportunity to pick it up closer to $150. However, we wouldn’t expect this to come back too far below that - barring any larger scale NASDAQ sell offs we seem to recently have time to time.

Elastic (ESTC)

Elastic is a cloud/SaaS company which reported great earnings, up 43% from last year and is up on the news. Elastic isn’t a company or stock which has been as frequently discussed or owned by retail investors, which we think is a mistake. According to MarketBeat, intuitional and insider ownership makes up a whopping 95% of overall shares. The company has several products, Elasticsearch and Kibana are two major ones used for logging, analytics and visualization of that metadata. While this may seem niche, in the growing cloud space these are very popular across companies of all sizes and can be used with Amazon’ AWS, Google Cloud Services and Microsoft Azure.

Trade
We are long ESTC, and are looking to add to our position. With less retail ownership, there has generally been less volatility then some of the other cloud stocks, so we wouldn’t expect a large pullback and could see this continuing to move up.

Alternative Trade - Splunk
Elastic’s competitor, Splunk (SPLK), ironically reported a decline in revenue year over year on the same day and is down almost 25%. Splunk’s fundamentals remain sound with it’s software remaining an industry leader, but unlike Elastic, Splunk has had trouble building revenue - a common theme with open source software companies. We do like Splunk long term, and if it can maintain it’s $160 price we think it could be a good entry for the stock, or a 160/150 put credit spread.
Update: After hours ARKK Invest released their daily transactions and bought Splunk on the large dip for several of their ETFs - so this may help give investors additional confidence.

Lemonade (LMND)

Lemonade is a mobile insurance company which IPOed in the summer has been on a wild ride since it’s IPO. After a popular stock picking service wrote an article on Lemonade, a strong start to the day pushed the stock to even higher level, having it reach it’s 90 day highs, though slightly short of it’s all-time highs.

Trade
We are long Lemonade, and like it long term - however this newer stock has been very volatile and the recent run up may be a risky entry point. We would wait for a pullback closer to 65 would be a better place to enter.

Biggest Losers

Nano-X (NNOX)

It’s hard to call NNOX a loser, which has almost doubled the past month, but they did close down after a very volatile and generally positive day. The company went public in the summer and is awaiting FDA clearance to launch it’s cheaper, digital, and much smaller radiology device that bulls say can be a serious disrupter to current large, expensive X-ray and imaging devices. You can read more here.
Today the company had its long awaited live streamed demo of the Nano-X Arc at the Radiology Society of North America. The presentation seemed to be received with generally favorable reactions, but after such a large run up this seems to be a classic case of profit taking.

Trade
We think this stock can ultimately go much higher, especially when the two rounds of FDA approval go through. However without approval, the stock will likely continue to have volatility but should now have a higher base than before. Especially after today’s sound demo, we like the risk/reward profile here and will continue to add. With any pullbacks, we may continue adding longer dated ITM call debit spreads - for example May 30/45 call debit spreads for no more than 700, which would yield 800 if the NNOX finished above 45 by May.

Futu Holdings (FUTU)

Futu is often dubbed the Chinese Robinhood, a digital brokerage, has been taking a breather for a few days after over a 50% run up. The Tencent backed company has had strong revenue growth in 2020 and reported great earnings report two weeks ago which propelled it to all time highs.

Trade
With the large TAM (total addressable market) in China and the rise of retail investors, we like FUTU as a medium to long term investment. The stock seems to be consolidating and it may be a good time to begin building a position, especially on dips.

Root (ROOT)

Root, a new comer to the public markets, continued it’s sell off a second day after reporting it’s first quarterly results since they IPOed. Investors have not been impressed with the company to date and the earnings didn’t help as the stock is down nearly 50% since it was listed just over a month ago.

Trade
The chart isn’t pretty. We’d wait until the stock bottoms and makes a sustained move upwards before entering for a short term or long term position. With the current market cap there could still be ways for it go. For now, it’s probably best to just stay away.


This site references only our opinion and is for information purposes only. It is not intended to be investment advice. Seek a duly licensed professional for investment advice. We have long positions in all of the six stocks mentioned.