July 2023 Portfolio Review
Total Return: +36.5% YTD (+17.0% vs S&P)
2023 Results:
2023 Monthly Allocations:
Key:
darker green: started during month
lighter green: added during month
yellow: trimmed during month
blue: bought and sold during month
red: position exits
positions >10% in bold
Past recaps:
December 2018 (the one that got things started)
December 2019 (contains links to all 2019 monthly reports)
December 2020 (contains links to all 2020 monthly reports)
December 2021 (contains links to all 2021 monthly reports)
December 2022 (contains links to all 2022 monthly reports)
Stock Comments:
Our first trickle of July earnings reports will be followed by a steadier stream in August. I’m happy (relieved?) to say earnings season appears to be off to a decent start.
AEHR 0.00%↑ – I greatly appreciated Aehr Test Systems kicking off July with the right kind of fireworks. I liked the quarter, and the market apparently did as well. While $22.3M in Q4 revenue and $65M on the year weren’t headline beats, the top line performance was bolstered by net income records of $6.1M GAAP (27.4% margin) and $6.9M non-GAAP (30.4%). Those margins are impressive for a company of any size, and a strong testament to AEHR’s operational efficiency.
Regardless of those numbers, the market’s focus was going to be the initial FY24 guide. The tea leaves suggested significant acceleration, and on this front Aehr delivered. Management expects “at least” $100M in revenue and $28M in GAAP net income for FY24. That would translate to “at least” 54% revenue growth and 28% net margin. I’d call that significant acceleration off this year’s 28% and 22%, respectively. It is also exactly what shareholders were hoping for after all the new customer announcements.
Aehr added four new silicon carbide customers this year with each “already ramping or [planning] to ramp our products into high-volume production using our multi wafer test and burn-in systems.” As written previously, Aehr takes a conservative accounting stance of not recognizing revenue until test burns have met customer standards. While the upcoming timing might be lumpy, it is nice to hear confirmation these “high-volume production” customers are on the way. Customer concentration has always been an issue with Aehr with CEO Gayn Erickson confirming this year’s 10K will list its two biggest customers at 79% and 10% of revenue. When asked directly though, he anticipated "3 or 4" 10%+ customers next year meaning future concentration shouldn't be as big a concern as long as everything ramps according to plan.
In addition to silicon carbide, management expressed enthusiasm for its gallium nitride and silicon photonics offerings. Erickson stated, “Multiple companies such as Intel, nVidia, AMD, TSMC, and Global Foundries have made announcements regarding their product roadmaps for co-packaged photonics integrated circuits with microprocessors, graphics processors, chip sets for computing as well as artificial intelligence applications.” He feels Aehr is strongly positioned to win business as these roadmaps develop. At such a small revenue rate, even a bit of traction in either area could provide another significant tailwind for Aehr’s overall business. Fine by me.
Despite being a tiny company, Aehr appears to be lining itself up to do some big things. Its management team made a calculated bet the microchip market would move in this direction. The numbers suggest that bet is starting to pay off. I’m happy to keep it as a sizable position in our portfolio.
BILL 0.00%↑ – I saw no news or blog updates for boring old Bill during July. That’s hopefully because management is busy tightening up a strong quarterly release for August 17.
CRWD 0.00%↑ – CrowdStrike did a fair amount of movin’ and shakin’ this month. Its blog was unusually active including:
initiating a collaboration agreement with leading security service edge (SSE) provider Skyhigh Security;
launching the Adversary Universe Podcast hosted bi-weekly by SVP of Intelligence Adam Meyers and Field CTO of the Americas Cristian Rodriguez to discuss the latest in cybersecurity adversaries and their tactics;
a detailed post highlighting a recent security flaw in competitor Microsoft’s Azure Active Directory.
On the news front, CRWD ended the month being named Amazon’s AWS 2023 ISV Partner of the Year in the US. The award recognizes CrowdStrike’s 20+ integrations with Amazon’s web offerings and notes it is now “one of AWS’s fastest growing and largest technology, go-to-market, and innovation partners.” If nothing else, CRWD certainly doesn’t seem to be resting on its laurels.
DDOG 0.00%↑ – Datadog’s main July update was being named a category Leader in the Gartner Magic Quadrant for application monitoring and observability. This is the third consecutive year DDOG has garnered this honor. For those interested, the full report can be downloaded here (email required).
Datadog’s stock has surged recently on general AI hype and a couple analyst upgrades. We’ll get a peek at the potential business opportunities during its annual Dash customer conference August 2-3. The real updates, however, will occur when the company reports August 8.
ENPH 0.00%↑ – Enphase began July with its usual slew of releases:
the first microinverters produced at its South Carolina facility under its partnership with global manufacturer Flex;
the launch of its batteries in Spain and Portugal;
the release of its design and proposal software system to installers in Brazil;
expansion of its global relationship with renewable energy company BayWa r.e. to distribute Enphase’s microinverters in Poland;
and finally, a partnership with LGCY Power, “one of the fastest growing residential installers in the United States.”
However, those updates paled in comparison to ENPH’s July 27 report. Unfortunately, that was a dud. Enphase followed its lackluster Q1 with an even more disappointing Q2. The $711M in revenue fell well short of the top-end $750M guide. Adding insult to injury was a terrible Q3 guide of $550M-$600M. Even at the top end, that would mean growth declines of 5.5% YoY and 15.6% QoQ. Yuck.
Even minor bright spots in expenses and margins were overshadowed by the shrinking revenue pie. The US market has slammed the brakes with the CEO stating headwinds will last at least another 4-5 months. As I wrote previously, he was adamant each of the last two quarters any top line pressure would lessen during the second half. That is clearly no longer the case.
Overall, I didn’t find much to like in this report, and it will look even tougher in Q3 due to headwinds management now admits will stick around awhile. The question for shareholders is whether they feel like sticking around as well to wait it out. I chose not to.
IOT 0.00%↑ – Samsara’s July was highlighted by two workplace awards. First was being named a Best Workplace for Innovators by Fast Company. Issued by Fast in conjunction with Accenture, this award “honors organizations and businesses that demonstrate an inspiring commitment to encourage and develop innovation at all levels.”
Next was IOT being recognized as a 2023 Best Workplace for Women in the UK. This recognition was given by Great Place To Work, the “global authority on workplace culture.” According to the release, 94% of women say Samara is a great place to work and 97% agree Samara employees are treated fairly regardless of gender. As an investor, it's always nice to see holdings recognized for their culture. As a father with a daughter of my own, I’m even more appreciative of Samsara’s efforts in this area.
TMDX 0.00%↑ – TransMedics put a couple dates on the calendar this month. First is its Q2 earnings release August 3. Next, management is presenting at Canaccord Genuity’s 43rd Annual Growth Conference August 9. Hopefully, the second event simply recaps all the great info shareholders will hear in the first.
TTD 0.00%↑ – July continued The Trade Desk’s torrid 2023 with the stock now up 104% YTD. The company itself issued no updates but was buoyed by a couple external announcements, a large analyst upgrade, and solid quarters from ad-related companies Google, Meta, and Roku.
Roku’s report was TTD’s second Roku-related July bump. The first came through a Roku/Shopify partnership allowing viewers to buy products from a digital ad by simply clicking their remote. While Roku places most of its ads using first-party data, the entire ad-tech sector benefitted due to market anticipation other streaming platforms will soon offer similar features. This would obviously increase the value of targeted ads and is yet another example of The Trade Desk seemingly skating where the puck is going.
Next was the Nasdaq announcing The Trade Desk would join the Nasdaq-100, Nasdaq-100 Equal Weighted Index, and the Nasdaq-100 Ex-Tech Sector Index effective July 17. It replaces Activision Blizzard, which is in the process of being acquired by Microsoft. While TTD is far from hidden, joining these indexes will only increase exposure to analysts and investors. I’m guessing they will like what they see as long as The Trade Desk keeps executing. Our next execution update comes with August 9 earnings.
ZS 0.00%↑ – Zscaler didn’t release any news but did make an interesting adjustment. If anyone has ever checked out ZS’s blog, posts have traditionally been bland, boring, and quite sporadic. The new look offering has been completely rebranded with a flood of posts in recent weeks. The most relevant from a business standpoint would seem to be recaps from its Zenith Live customer conferences in Las Vegas and Berlin. For those who like company tidbits, I’d suggest hitting the main link. This is definitely not your father’s Zscaler blog.
My current watch list…
…in rough order includes monday.com (MNDY), Super Micro Computer (SMCI), Snowflake (SNOW), MongoDB (MDB), and Enphase (ENPH). I’m also in various stages of due diligence with Axon (AXON) and Celsius Holdings (CELH).
And there you have it.
July was another solid month. I dare say both the market and economy are gaining increasing comfort the worst is behind us. Enphase’s earnings disappointment leaves me with significantly more cash than I’d like, but I have resolved to own only the companies I want to own at the allocations levels I am comfortable holding. I plan to scan August’s earnings updates very carefully for ideas on where to put more of that reserve back into play. Good luck to everyone with upcoming reports.
Thanks for reading, and I hope everyone has a great August.
Always enjoy your write ups. Thanks Stock Novice!