Marketplace Roundtable – Part 4 – Growth, Tech And Crypto

~ By Tim Murphy, Marketplace Success Manager

Thank you to all readers of our first three parts of the Mid Year Marketplace Roundtable Series. So far we’ve covered Macro, Value Stocks, and Commodities. Today we continue with growth, tech, and crypto coverage with analysis and top ideas from 10 of our contributors.

Once again, the questions we asked were:

1. What are your major takeaways of your area of coverage so far this year? What are you looking for and expecting for the rest of 2022?

2. What’s one favorite idea for the rest of 2022, and what’s the story?

Enjoy reading! We’d love to hear your thoughts and own ideas in the comment section below. Links to the author profile page and their Marketplace service are included. All services have either a two-week free trial or a limited one-month money-back guarantee.

*Note for non-Premium readers: If the author provides a link to an article, we have included a dollar symbol ‘($)’ to indicate it is behind the paywall. Articles from this account, SA Marketplace, are not paywalled.

BOOX Research of Conviction Dossier: If you’re hearing about the looming recession at the office water cooler or talking inflation at the kids baseball game, the market is way ahead of you. That train has left the station. Looking forward, we ultimately see stocks trading higher through the rest of 2022. The risks are tilted to the upside.

As long as the economy remains relatively resilient, even with the next couple of Fed rates, there’s room for stocks to sustain a rally in the “soft landing” scenario. Most importantly, we expect a confirmation that inflation is beginning to trend lower over the next few months. It gets interesting into Q4 where the FED may no longer need to be so aggressive with the tightening.

A stronger than expected Q2 earnings season combined with positive surprises in macro data can be very bullish for stocks. The silver lining to the deep selloff in recent months, particularly in tech and high growth names, is that we now have some great opportunities at a reset valuation.

IDEA: We’ll stir the pot a bit by calling the ARK Innovation ETF (ARKK) as our best idea for the second half of 2022. This exchange traded fund has become controversial since it went from being one of the best ETFs in the market in 2020 to a disastrous reversal over the past year, down nearly two thirds from the current level. In our view, ARKK now represents the perfect contrarian play as it captures many of the tailwinds that would be involved in a market rally higher.

What we like about ARKK is that the fund has a very unique exposure to a group of mostly unprofitable with negative free cash flow yet high-growth names. If we’re correct on our call for firming market sentiment and improving economic indicators, the type of stocks within ARKK representing high-beta laggards should outperform to the upside. There’s also a dynamic of a short squeeze potential in many of the underlying fund holdings that can add more positive momentum to the fund.

Disclosure: Long ARKK

Long Term Tips of The EV Supply Chain: As the broader market continues to fall, growth stocks fall even harder. For a sector focused on growth, this effect has certainly been felt. Yet, even as share prices fall, the investment fundamentals of companies leading innovation and deployment of cleaner energy systems continue to reach new highs. Between the price of lithium reaching an all-time high and demand for clean energy continuing to grow at a breakneck pace, the outlook for long-term investors is rather positive. If today’s fears of a recession prove to be well placed, I do think there are more losses to be had in the year to come. But, with continuously-strengthening fundamentals, I see a number of incredibly attractive growth companies trading at significant discounts.

IDEA: Nano One (OTCPK:NNOMF) has had quite the month, announcing a couple of major partnerships and a significant acquisition. Since I last covered them, the company also announced a partnership with Rio Tinto to evaluate its battery metals products, including iron, for use in its recently-acquired Quebec cathode facility. The company’s ability to manufacture LFP (lithium ferrophosphate) without the pre-production of iron-phosphate looks to be a tremendous opportunity.

Mass-market EVs are starting to embrace the technology, with half of all Tesla (TSLA) sold now utilizing LFP over the more expensive NCA cathode. Like many growth companies, Nano One has been beaten up over the past few months. But now the company’s price remains extraordinarily depressed, especially after the strength of recent announcements, creating a buying opportunity. Commercialization is likely still a few years out but, with a multi-year capital runway, it remains insulated from macroeconomic headwinds and offers tremendous upside potential. See my article here ($).

Disclosure: Long NNOMF

Mike Fay of BlockChain Reaction: So far, we’ve seen the implosion of a popular DeFi name (LUNC-USD), a solvency crisis for many of the centralized names (CEL-USD) (VGX-USD), and a 60% YTD drawdown in Bitcoin (BTC-USD). Leverage is doing its thing in the crypto market and poor decisions are being punished. From here, I think the second half of 2022 will be much more productive in the blockchain space. I think some lessons have hopefully been learned and I think we’re going to see this crypto market cycle find a bottom through a phase of consolidation through the end of the year.

IDEA: I think Solana (SOL-USD) has become very interesting after a 90% selloff from the all-time high last year. That blockchain has been hurt by quite a bit of negative PR lately. From network stoppages to community pushback on Solend (SLND-USD) governance decisions, it’s been a bad couple months for Solana optics. Despite that, the network has better DeFi TVL diversification than Avalanche (AVAX-USD), Tron (TRON-USD), and Binance (BNB-USD). Solana also passed Ethereum (ETH-USD) for total NFT transactions in May. Additionally, Solana’s top NFT marketplace just secured $130 million in Series B funding. While the price action in the SOL token has been horrible, fundamentally Solana is seeing network adoption growth regardless. I think Solana is a crypto asset to get exposure to.

Disclosure: Long SOL

Andres Cardenal of The Data Driven Investor: We have suffered one of the worst drawdowns in history for tech and growth stocks. This is arguably due to macro factors, but also to extreme fluctuations in market sentiment toward this sector. The good news is that the selling has been indiscriminate, and many high quality growth stocks with excellent fundamentals are now trading at historically low valuation levels. It could take a while for market conditions to stabilize, although I do expect some improvements due to increased macro visibility in the second half of 2022. Much more important than that, the long-term opportunity for investors with a multi-year time horizon is historically attractive. The time to do research and to consider building positions in top quality growth stocks is right now, when valuations are at all-time lows in many cases.

IDEA: MercadoLibre (MELI) is the top player in e-commerce and fintech across Latin America. The company has delivered outstanding financial performance over the long term. Revenue has grown from $1.4 billion in 2017 to $10.4 billion expected this year, and analysts are projecting $34.2 billion five years from now. The company is profitable at the net income level and cash flow generation is expected to expand materially in the years ahead. The numbers last quarter exceeded expectations, with revenue growing 67%.

MELI stock is historically cheap right now. The long-term EV to Revenue ratio is around 11-13 times revenue, and now the stock is priced at 4 times trailing revenues and 3 times forward revenues. MercadoLibre’s stock price could double or even triple from current levels, and the valuation would still be in line with historical standards for the company.

Disclosure: Long MELI

App Economy Insights of App Economy Portfolio: Between the highest inflation in four decades and rising interest rates, tech multiples are down 40% to 85%. We may be facing a recession and a liquidity crisis. As a result, companies with strong balance sheet and cash flow margins are better positioned to weather the storm. The big question is about the depth and duration of a potential recession. Nobody knows the answer.

I invest with a multi-year time horizon (5+ years). This allows me to rise up and play the game on my own terms. Unless you are well into your sixties, you’re a net buyer of stocks for the foreseeable future. So lower prices due to temporary macro conditions should be celebrated. I invest a fixed amount every month, so I’ve been a happy buyer lately. My approach remains the same in all environments: Buy great businesses diligently. Hold on to them tenaciously. I’ve been recently focused on companies that can fund their growth path forward, even if they face several quarters of worsening fundamentals.

IDEA: One of my favorite ideas for the rest of 2022 is DLocal (DLO). The stock is up more than 30% since it entered the App Economy Portfolio last month. DLocal’s mission is to enable global merchants to connect seamlessly with billions of emerging market users. You may have heard of DLocal as the “Stripe for emerging markets.”

Virtually all global businesses of the App Economy have to deal with payments to and from emerging countries. And DLocal is the leader in this complex and evolving regulatory environment. The company charges a fee on all transactions, therefore wins with its customers. DLO has best-in-class dollar-based retention (190% in Q1 FY22, and expected to remain above 150% in the next 12 months) combined with explosive customer growth. The company has a proven business model with outstanding margins.

My position is still tiny, and I would welcome a continued sell-off in the coming quarters to slowly build up my exposure to this category leader.

Disclosure: Long DLO

Joseph L. Shaefer of The Investor’s Edge®: Fresh out of the Army, I joined the financial business in 1972. For the next agonizing two years plus it was nothing but devastating declines, day after day. I learned the hard way, and early on, that a good defense was the key to financial survival. Having seen many other bear cycles, I concluded this one was likely to be more than just a Buy the Dip pullback. I pivoted from growth to value and income. I’m just now beginning to seek outliers of value with a growth component. I believe we’re still in for a long summer.

But I think we will be near the end of this bear cycle by September/October. Why am I so sanguine? I see poor leadership as having exacerbated our problems. Meaning the mid-term elections are likely to produce a sea change in Congress. Optimism among investors will rise as the polls begin to show,…