May 2024 Portfolio Review
May 2024 Portfolio Review
The Hedge Vision portfolio has returned 20.26% YTD
May was a pivotal month for the market with Nvidia’s earnings on deck. The results were better than what analysts expected, lending a helping hand to AI beneficiaries and the market as a whole. That came after the April CPI tallied in at 3.4%, in-line with the estimate.
During May, the Hedge Vision portfolio returned 7.07%, bringing its year-to-date return to 20.26%. That compares to the S&P 500 and Nasdaq 100’s YTD returns of 11.30% and 12.42%, respectively. CROX was the largest contributor to my May performance with a 25% gain followed by NVDA at 23%.
Total Positions: 24 compared to 26 as of Dec. 31
Top 10 Positions Concentration: 78.6% compared to 73.8% as of Dec. 31
Cash: 8% compared to 6.8% as of Dec. 31
However, the strength in the benchmark indices masked the weakness in software stocks. MDB plunged lower by 35% in May, CRM by 14%, and DDOG by 11%, to name a few.
The weakness is attributed to three factors. The first is the resiliency of the economy and job market, which is causing the Fed to delay rate cuts. That’s especially bad for unprofitable software companies who rely on borrowing money in order to survive.
The second is the realization that any potential revenue boost from AI may take longer than expected. And the third is money rotating to AI pick-and-shovel companies in favor of software.
"A number of managers spoken to by PivotalPath have rotated out of service-as-a-software (SaaS) stocks in favor of AI/semis. In part, it’s driven by the huge interest in AI processing power and a slowdown of SaaS subscriptions," said PivotalPath CEO Jon Caplis.
With that said, I wouldn’t mind adding to my CRWD position at a lower price, as my last buy was in August 2023 at $143.
May 2024 Buys
New Positions: Baidu (BIDU)
Baidu is a very simple trade and it banks on the “Google of China” catching up with the rest of its peers in the iShares China Large-Cap ETF (FXI), which is up by 15% YTD.
Increased Positions: Zscaler (ZS)
I increased my ZS stake by 13% at $172.56 on May 1. The cybersecurity company is also trailing its peers with a 20% YTD decline and recently reported a solid quarter.
All of my buys and sales in real-time along with further analysis and commentary are shared with contributing members on Substack Chat:
May 2024 Sales
Exited Positions: e.l.f. Beauty (ELF)
ELF may have been the most paper-handed traded I’ve ever made. I sold out about 30 minutes after earnings at $148.22 after buying a 1.1% portfolio position in late April for $155.75, resulting in a 4.83% loss or a 0.05% portfolio drawdown.
e.l.f.’s Q4 sales YoY growth of 71% to $321 million crushed the consensus analyst estimate for $292 million by 9.9%. Its adjusted EPS of 53 cents beat the analyst estimate for 33 cents by 60.6%.
What shook me out was the cosmetic company’s weak guidance, my unfamiliarity with management’s historically conservative estimates, and ELF’s premium valuation.
e.l.f. guided for FY 2025 sales between $1.23 and $1.25 billion, reflecting YoY growth of 21% at the midpoint. Analysts were expecting $1.28 billion. The company also guided for low adjusted net income and EPS growth of 2.7% and 1.4%, respectively.
With the company already trading at a premium valuation and ELF down by 11% after earnings, I decided to cut my loss after the stock recovered to -4% on the day, rationalizing that it was a small starter position as well. I focused way too much on guidance and completely ignored the significant Q4 earnings beat. In the 30 quarters that ELF has traded publicly, the company has only missed on EPS one time!
ELF trades at a forward P/E of 57.9x today. Analysts still expect FY 2025 sales of $1.282 billion despite e.l.f. guiding for $1.24 billion at the midpoint. That’s a big stamp of confidence for management guiding conservatively.
With that said, I wouldn’t buy back the shares I sold at current levels. Maybe that’s just me not learning the lesson of the story? We’ll see.
At the same time, cosmetics remains an industry that I am very interested in.
Reduced Positions: None
Plan for June
I’ve watched Lululemon (LULU) patiently since the beginning of the year. With the stock down by 40% YTD and its forward P/E multiple at 7-year lows, the potential upside has certainly gone up. It’s estimating the downside that’s the hard part.
My current plan is to wait until after earnings on June 5 before reassessing the company and potentially starting the DCA process.
I’m also interested in increasing my Alibaba (BABA) stake and expect a price of at least $100 per share price by the end of the year.
Hedge Vision - Institutional Insights
Thanks for reading!
📖 Join the conversation on Substack Chat
🕊️ Get real-time insights on X/Twitter: @HedgeVision
📧 Old school is cool too: HedgeVisions@gmail.com
For any1 interested in the CPI tomorrow, here are my estimates:
https://open.substack.com/pub/arkominaresearch/p/may-2024-cpi-estimate?r=1r1n6n&utm_campaign=post&utm_medium=web
Nice update, very envious of that CRWD position. The one that got away for me. I share similar thoughts on LULU too, I think Q1 earnings have dampened any immediate concerns for me.