It’s time for the half-year review of our model portfolio, a collection of 15 stocks that we selected in January as our core investments for 2021. The sell-off in growth stocks earlier this year made for grim reading at the end of Q1, but many of these stocks have rebounded – ten of the stocks in the model portfolio are now up from our start date, with nine of them beating the market (S&P 500).
Unfortunately, a couple of big losers are dragging down the overall return. While it’s probably too early to declare that “growth is back!”, our portfolio performance at the end of Q2 is much closer to the benchmark of the S&P 500 index. In this episode, we dig into some of the key stories and updates from the portfolio.
- Shopify (SHOP) are showing their developers some love by forgoing commissions on the first $1 million of revenue. every year. Investors were not impressed with the news at first, but it appears that they have come around to Tobi Lutke and his team’s vision, and the stock is back to near all-time highs. Shopify are “arming the rebels” against the Amazonian Empire and this move is just the latest in their customer-centric growth strategy.
- Our other e-commerce picks, MercadoLibre (MELI) and Sea (SE) also showed amazing growth in their respective businesses in their Q1 earnings releases, but the performance of their stock are markedly different. SE is showing a positive return of 33% in our model portfolio, while MELI is showing a loss of 9%. There’s been talk about Sea and MercadoLibre battling it out for their share in the Latin American e-commerce market, but at only around 5% market penetration, we think there’s is plenty of growth to capture, with room for both companies to prosper.
- Unfortunately, Teladoc Health’s (TDOC) share price has not recovered and it’s the worst performer in the portfolio to date! Much of this is due to lacklustre customer growth projections for the coming year, with almost zero growth expected. Bear in mind, that the pandemic most likely brought forward customer growth as it grew its paying customer count by 41%. What the market might not be fully accounting for is the forecast increase in revenues per customer, as customers with long-term health conditions form a lasting relationship with Teladoc. We are also waiting for more clarity on the integration of Livongo’s remote monitoring of chronic conditions.
- The biggest winner in the portfolio was Cloudflare (NET), a leader in edge computing. Edge computing brings online resources closer to the customer, lowering response times and improving customer experience. In the most recent quarter, Cloudflare announced a partnership with Nvidia to bring its AI tools to the edge. Nvidia’s hardware and software are powering the rise of artificial intelligence and machine learning in almost every business, from smart cities and manufacturing to autonomous robots and healthcare. And now these advanced tools are available to Cloudflare’s customers. A powerful addition to Cloudflare’s capabilities, and one that is likely to spur additional customer growth in the future.
- The removal of third-party cookies from web browsers is playing havoc with online advertising businesses. However, Google delaying their plans gave programmatic ad companies like The Trade Desk (TTD) and our model portfolio pick, Magnite (MGNI) a reprieve as they work on replacement technologies for targeted ads. Investors are still cautious about the impacts of these changes, but in the long term, the removal of third-party cookies may help supply-side platforms (SSP) like Magnite as they have direct access to first-party data.
- Interim results from a clinical trial from Intellia Therapeutics (NTLA) showed strong evidence that CRISPR-based therapies can work inside the body and gave a boost to all other companies working with CRISPR including our model portfolio pick, Editas Medicine (EDIT). Editas are working on cures for other single-gene disorders, including a hereditary eye disease (LCA10) and blood disorders, sickle cell and beta-thalassemia. Editas’ treatment for LCA10 is undergoing clinical trials with results expected by the end of the year, and following the news from Intellia, hopes are high.
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Transcript
Luke: Hi, this is Luke.
Albert: And this is Albert.
Luke: Today is Monday the 5th of July.
Albert: Welcome to the Telescope Investing podcast.
Intro
Luke: Happy Independence Day to our American listeners. Yesterday was the 4th of July.
Albert: Yes, happy Independence Day. I sometimes celebrate this in Hong Kong by having a massive face of meat and mac and cheese.
Luke: Nice. That sounds particularly unhealthy. It always amuses me that so many countries around the world have Independence Day to celebrate their escape from British rule.
Albert: Maybe Britain will have a celebration to escape from British rule as well.
Luke: When we get Johnson out of power, Independence Day! Maybe we can have a global independence day when the pandemic is finally in the rearview mirror. That’d be good.
Albert: I did find it really interesting that at some point in the past, about half the world was under British rule.
Luke: Well, I guess many countries had their day, right? I guess Ghengis Khan and the Romans. There’s various countries have had a turn.
Albert: Indeed.
Luke: Albert, even the Liverpudlians had to go with the Beatle mania in the 1960s. They took over the world.
Albert: I believe Liverpool are trying to gain independence from England, aren’t they?
Luke: I’m pretty sure both parties would be very happy with that arrangement.
Model portfolio
Luke: Let’s get off the stupid topic and talk about our podcast for this week.
Albert: Very good idea. This week, we’re going to review the 2021 model portfolio, which is a collection of 15 stocks covering eight megatrends that we selected back in January as our main investments for 2021.
Luke: We did a Q1 review a few months ago and it was a bit gloomy. We are in the hole, but I’m really happy that we are looking in much better shape at the end of Q2, compared to our benchmark, the S&P.
Albert: Just for information, we started tracking the model portfolio from the 27th of January, which is when we released it on our podcast, and our performance numbers are based on those prices from the 27th of January.
Luke: Yeah, if you take a look at the Telescope Investing website, we’ll post some pretty pictures to show our performance relative to the market. If you wanna see the model portfolio itself, it’s also on the website. We’ve actually built a nifty little live tracking spreadsheet that’s embedded on the website at the model portfolio tab, so you can see exactly how each stock is performing.
Albert: Yeah, the graph is quite interesting, Luke. You can see at the start of the year, it massively outperformed the index, and then following the tech sell-off, it dropped down to a very worrying level when it was down to about 20%. But since then, it has skyrocketed back up and it’s almost level with the market.
Luke: Yeah, it was looking pretty ugly around the start of May, as you say, but now we’re within striking distance. As of a few days ago, the end of June, the model portfolio was plus 10.7% since that start of tracking date, let’s call it year-to-date but we mean the 27th of January, and the S&P over the same period is up 14.6%. So we’re lagging the market by 4%.
Albert: But if you look at the stocks individually, you can see that 10 of the 15 stocks are up with nine of them beating the S&P, but unfortunately, due to the equal weighting that we have for each stock, a couple of big losers are dragging the whole portfolio down below the S&P benchmark.
Luke: And what we’re gonna do today in our Q2 review is just pick out a couple of the key movers, and we’ll definitely dive into one or two stocks that have been the real laggards.
Albert: But it’s fair to note that 14.6% for a broad market index like the S&P 500 is actually a fantastic return over six months, and you would be happy if that was the return for the entire year. I guess this shows that even if you’re not interested in picking individual stocks, you could do a lot worse than investing in a broad market index like the S&P.
Luke: You’re right. You’d have done really well if you invested in the S&P. It’s had a gangbuster couple of years, but at Telescope Investing, we pick individual stocks and we do that because we hope to beat the index. And we think our approach of focusing on individual companies with great quality leadership, who are in the right place at the right time, with tailwinds supporting them is the right way to approach that.
Albert: But I would like to add that we pick individual stocks also because we enjoy the process. We like looking at the companies and choosing stocks to invest in, but we appreciate that this is not for everybody and in that case, go ahead and invest in an index fund.
Shopify
Luke: So let’s get into our end of H1 review, Albert. Let’s pick out the first of our companies we’re gonna take a look at today and I’ll pick this one up. It’s one of my favourites, Shopify. As of the end of Q2, Shopify have a market cap of $182 billion and from the start date of the portfolio, they’re up 34%. They’re one of our big winners.
Albert: I’m really happy about that, Luke, because Shopify is my largest position by far.
Luke: Yeah, me too. It’s been my biggest position for a long time now, currently 18%. Let’s take a look at, what’s been going on with the stock in the last couple of months and then see how we feel about it.
I think the really big news around Shopify just in the last few weeks came out of their developer conference. They announced a new revenue-sharing model with developers. Now, developers are really key to the Shopify ecosystem. Today there’s over 6,000 publicly available apps in the Shopify app store, and on average, one of Shopify’s merchants uses about six apps to run their business. So this app model is really key in providing great quality capabilities and services for Shopify’s merchants. Shopify have just extended a real revenue boost to all of their app developers, encouraging more and more to join the platform.
They’ve said that the first million dollars earned by any app developer is going to be totally revenue-free, and then beyond that first million, they’re going to charge their app developers just 15%. Now, this actually follows similar news from their competitors, Apple, Amazon and Google, but Shopify have taken it a massive step further forwards. To give you a comparison, Albert, Apple announced that they were cutting developer revenues down to 15% for the first million and then 30% above that. Well, Shopify is clearly a much better proposition than that.
Albert: What were Apple’s commissions before?
Luke: 30% flat rate across the board, so Apple extended that 15% discount for the first million. And if we take a look at Amazon, Amazon have now revised their model to 20% across the board. You can see with this model how Shopify are much more competitive and much more supportive to their developers. And this is going to encourage more and more developers onto the platform, build those capabilities even faster, and just make the Shopify ecosystem so much more valuable for their real customers, the merchants.
Albert: I remember reading this news and I noticed that when they announced this, their share price dropped a few percent. It seems that investors were not happy about this, at least initially. I think the share price has recovered since then, but I think a lot of investors were thinking too short term and thinking about how this would impact revenues just for the next six months or next year. But I think Shopify’s move is a great move long term. It will attract customer loyalty and when these businesses do reach a million dollars in revenue, who do you think they will stay with? Shopify.
Luke: Yeah, exactly. The market is very short-sighted and that’s our advantage as a true long-term investor. We can take advantage of these inefficiencies in short-term pricing for our long-term benefit.
I’m reminded of that Star Wars metaphor that came out a few months ago that compared Shopify to Amazon and said that Shopify were the rebels and Amazon were the evil empire. Well, the rebels definitely seemed to be winning this battle.
Albert: Well, especially with the emperor now leaving. Jeff Bezos is no longer CEO. He’s on a mission to space. He’s leaving Earth behind and leaving Amazon in the capable hands of Andy Jassy, the former head of AWS.
Luke: Darth Jassy is now running the show while the emperor spins off into space. Excellent.
Albert: Yeah, as I mentioned earlier, Shopify is my biggest position by far and has been for a while, and its allocation within the portfolio has only gotten larger. It’s currently around 15%, a little bit lower than yours, Luke, but I actually started thinking about trimming a position when it reaches 20% of the portfolio value, but I think I might leave this alone. I’ve heard many people say that they think Shopify will eventually be a $1 trillion company and that’s a 5x from here.
Luke: I’m inclined to think the same thing. I’ve trimmed and trimmed Shopify to my chagrin as it just grows and grows. Maybe I’ve just taken enough value out of this company now and I need to suck up the volatility if it does become 30 or 40% of my portfolio. Maybe that is a good problem to have.
Sea and MercadoLibre
Albert: Well, let’s move on to our other e-commerce picks, which are Sea and MercadoLibre, and I think I’ll talk about these as a pair. Back in the Q1 review, we talked about the competition brewing between these two in Latin America, and Sea year-to-date is up 33% while MercadoLibre is lagging by being down 9.4%. And that’s quite surprising considering that they both have substantial revenue growth in the last year or so.
Looking at their market cap at the moment, Sea has a market cap of $144 billion, whereas MercadoLibre is $77 billion, around half of Sea’s market cap. And interestingly, two years ago those roles were switched when Sea was only $19 billion and MercadoLibre was $32 billion. They’ve both grown a lot since then but Sea has grown much more quickly. I think it’s because they’ve been executing very well in several markets around the world, its home market in Southeast Asia and now competing against MercadoLibre in Latin America.
Luke: That inversion is really interesting. I hadn’t spotted that they’d flipped dominance so quickly. As an investor, what’s your thoughts on the competition in South America now where they’re both going head-to-head in certain markets?
Albert: Yeah, we see a lot of news about that where people are seeing that Sea’s shopping app, Shopee, is leading the app charts in South America. Well, you have to realize that Sea is growing fast in that region but it’s starting from a much smaller base, and really its sales volume is tiny compared to that of MercadoLibre’s.
I don’t know if you know, but in 2020 MercadoLibre accounted for about 28% of all retail e-commerce sales in the region. Amazon is also there and they have about 4%. And while Sea doesn’t break out its revenues per region, I have to guess its market share in Latin America is even less than Amazon’s.
Luke: It’s definitely a much less developed part of the world, which means lots more opportunity for all players.
Albert: You’re right, Luke. I think I saw some numbers recently that said e-commerce penetration in South America is around 5% and compare that to 20% in China and around 30% in the US. E-commerce is growing the fastest in South America than anywhere else in the world, and some estimates have said that e-commerce sales in 2020 grew by 101% in Argentina and 50% in Brazil. And the worldwide average was around 26%.
While that all sounds fantastic, we have to realize that e-commerce is not as developed in South America as it is in other parts of the world. And even though the pandemic boosted e-commerce in Latin America last year by around 37% and the market is now estimated to be about $85 billion. Compare that to Asia Pacific, which is $2.4 trillion, North America at 750 billion, and Western Europe at 500 billion, you can see that South America has a lot of growth left.
Luke: So are you happy with both your Sea and MercadoLibre stock holdings yourself?
Albert: Yeah, I looked into their Q1 earnings for this year and both of them look fantastic. They both have achieved quite impressive revenue growth for their respective regions, and I’m really not sure why Sea has outperformed MercadoLibre to the extent that it has. I think I need to look into that [in] a bit more detail, but I’m quite happy from what I’ve seen so far from both companies. From what I’ve read, I’m not really that concerned about Sea stealing market share from MercadoLibre in Latin America because I think there’s plenty of room for both of them to grow and I’m optimistic for both of them.
Luke: I definitely feel like MercadoLibre will have the home player advantage, but as you say, there’s room for multiple winners. Latin America is a huge market with lots of countries. There are certainly some countries where Sea will never topple mercadoLibre’s dominance.
Albert: I find it hard to say never, but as I said before, MercadoLibre accounts for 28% of e-commerce in the region and it operates in 18 countries, and I believe Sea only covers Brazil, Mexico, and more recently, Chile and Columbia.
Luke: Well, in my portfolio, I’ve recently bought Sea after months and months of messing around, trying to transfer my pension to a SIPP, but I picked up a 5% stake just a few days ago.
Albert: Well, better late than never, Luke. I think Sea has a lot of growth ahead of it and it’s good to get a piece of that. In my own portfolio, my allocation for MercadoLibre is about three times that of Sea, but this is mostly because I’ve held MercadoLibre much longer, having first invested in 2012 and it’s grown into its allocation. Whereas I only started investing in Sea about a year ago.
I’m considering adding to my Sea position mainly for its e-commerce and digital payments businesses in its home market in Southeast Asia, not because it’s expanding in South America, but that is a bonus.
Teladoc Health
Luke: Well, let’s get off e-commerce and get into a different megatrend. Sadly, I’m gonna pick up the biggest loser in the model portfolio year to date, Teladoc Health, currently minus 39% since our start date. That’s pretty ugly.
Albert: Yeah. I saw at one point in May, it was down a massive 51%. It’s made somewhat of a recovery since then and it’s only down 39% as of the end of June.
Luke: Yeah, their market cap today is $25 billion and that is a chunk smaller than it used to be. This is particularly annoying for me as this was the stock I bought for all my nieces and nephews for their Christmas presents this year. I’m hoping they don’t think uncle Luke is a bit of a loser in the stock market.
Albert: I think they’re too young to appreciate stocks in that way. They may think you’re a loser in other ways.
Luke: Charming but perhaps true. Well, anyway, if they were reading Tealdoc’s revenue picture, they’ll properly understand the reason for the stock taking a bit of a hit. Teladoc has been delivering brilliantly. They delivered 151% revenue growth year-over-year at the end of Q1, but the reason the stocks taken a hammering, as my nieces and nephews will see if they have a read of the quarterly reports, is their forward guidance is pretty low. They’re expecting between 52 and 53 million paid members in the year ahead, but they’re only at 51 million paid members today. There’s no growth there at all. That’s not healthy and that’s the reason the stock has taken such a hammering.
Albert: But they are expecting increased revenue. I think they expect revenue per user to increase substantially.
Luke: They are, and that’s a key sign of how their users are spending more and more on the platform. And definitely makes me confident about not trimming this position. Just riding out this short-term bump. The other piece of news that rocked the stock recently was also the entry of Amazon Care into the market. It launched as a pilot program in 2019 for Amazon employees around the Seattle area, but now they’re rolling out nationally. And they had an announcement in March that they’re expanding their virtual care to all employees and other companies from summer this year, with in-person services offered in Washington state and the local areas. That is a worry for Teladoc. Amazon’s the behemoth but I think it’s early days for the telehealth market as a whole.
But for me, Amazon entering this market is actually a positive story. It validates the market. This isn’t like Amazon getting into pharmaceuticals and displacing other pharmacy logistics companies like GoodRx. That market is saturated. Telehealth is still early days and there’s room for everybody to benefit. When a monster like Amazon comes in, that proves it’s a real market. And I think Teledoc are gonna benefit from this long term.
Albert: Possibly, another reason why the stock has gone down is because many investors see Teladoc as a pandemic stock, and as the pandemic is coming to an end, hopefully, some investors may see the demand for Teladoc’s services to go down. Do you not see this, Luke?
Luke: I don’t. I think they’re getting into other kinds of therapies that are going to be quite sticky, not these one-and-done conditions, but really long-term conditions that are going to make customers, customers for life. Things like mental health, dermatology, and other chronic conditions like diabetes. Teladoc is building a virtual relationship that could last for years and years with their customers.
Albert: I know you have quite a high conviction in this stock, Luke, but I’ll be honest, my conviction isn’t as high. I’ve been buying Teladoc on the way down the first half of this year, adding to my position at lower prices, and the stock hasn’t really recovered to the price it was at the start of the year and my Teladoc position is down around 19%, which is a lot better than the 39% that we’re showing in the model portfolio.
While this isn’t great, I’m comfortable holding onto my position, but I’m not comfortable adding more at this present time because I invested primarily due to the Livongo acquisition and I wanted to see how the combination of telehealth and remote monitoring would play out for their customers. And I’ll think I’ll wait until I read about that in the next couple of earnings calls to decide what to do with my Teladoc investment.
Luke: I totally agree. I’m happy with my position. I’m not adding to it. Let’s just see how it rolls. We are long-term investors and things that happen over the course of one or two quarters are generally immaterial.
Cloudflare
Albert: Well, going from the biggest loser in our portfolio to the biggest winner, and that’s Cloudflare, which is up 42% from our start date. This is quite a nice surprise because at the end of Q1, it was actually down 5.8% following the tech sell-off, but in Q2, it’s made a massive recovery and is now up 42%. We tried to find out why and I think it’s because Cloudflare has been executing on its business plan so well in comparison to many of its competitors. I remember back in March, we did an episode called Cloudflare vs Fastly because we saw them both as CDN businesses (content delivery networks) and in hindsight, it wasn’t much of a fair fight really. As of the end of June, Cloudflare has a market cap of around $33 billion, while Fastly is a much lower 6.5 billion, but when we did the comparison, they were a lot closer in size.
Luke: Have you seen the latest rumours around Fastly that they might be preparing themselves to be acquired?
Albert: I have, Luke, and this was doing the rounds on Twitter, and it’s because they recently hired a CFO, Ron Kisling, and some people have looked into the background of this guy and apparently, in a lot of companies where he has been CFO before, they were acquired while he was there or shortly afterwards.
Luke: I don’t like the companies in my portfolio being acquired. It stems off that potential future growth that you’re investing in when you get into something quite early. But in Fastly’s case, actually, I might be pretty happy with that. I’ll take a bit of a kick on the stock price to get out of this position.
Albert: Well, let’s look at why Cloudflare has done so well over the last year. We saw that Cloudflare’s revenue top $431 million last year, which is an increase of 50% from the previous year, but bear in mind that this is still very small compared to the big cloud computing companies, such as AWS, which had revenues of $45 billion last year.
And we described Cloudflare as a content delivery network earlier in the episode, but I don’t think this fully describes its scope. I think a better description for Cloudflare is that it’s a provider of edge computing resources. And they have a platform called Cloudflare Workers, which is a serverless computing platform that allows complex applications to run at the edge network, reducing the need to go back to the main server, which could be thousands of miles away.
Luke: And they just added a really important capability to their edge networking. Tell us a bit about the Nvidia partnership.
Albert: Yeah, you’re referring to the announcement that Cloudflare made back in April that they’re having a partnership to bring Nvidia’s technology to the edge. I think most people will have heard of Nvidia from their graphics cards, but Nvidia is a global leader in the chips that power AI applications and their products always seem to be in constant short supply because they’re quickly scooped up by gamers, crypto miners, and machine learning companies.
And Nvidia also have a number of frameworks for building specific types of AI applications, such as Nvidia Metropolis for the development of software for smart cities, smart retail, and smart manufacturing, Nvidia Isaac for autonomous robots, and Nvidia Clara for drug discovery, genome analysis, and smart hospitals. And all these frameworks are now available on the Cloudflare Workers platform, and interestingly, they are not available on Fastly’s edge computing platform.
Luke: And just to put this in plain English, having these AI capabilities enabled by Nvidia’s hardware and software. Having all that close to the edge means it’s almost as good as having it locally in your car, on your computer. By integrating Nvidia’s technology with their edge networking, Cloudflare are basically making the whole internet much smarter and much faster.
Albert: You’re right, Luke, but I also think this is a good sign for Nvidia because I really believe that Nvidia could be one of the most important companies for the next 20 years as AI and machine learning become increasingly important. And yet, I don’t have any shares in Nvidia and I want to get them, but once again, the stock has always looked expensive. I’m always waiting for that good entry point and while I’m waiting, the stock keeps rising.
You would think I’d have learned my lesson from missing out on Apple. And in hindsight, the tech sell-off earlier this year was the perfect time to get in, and the stock is up 77% from the bottom back in March. But instead of buying Nvidia, I bought other stocks instead.
Luke: Hindsight is 2020. I think you can’t be too regretful about getting your money back in play in really any of these high-growth companies.
Albert: Yeah, but I think I’ll put Nvidia at the top of my buy list for future investment. But going back to Cloudflare, like it’s good to see that one of your stocks is increasing in price, it’s not so good to see that its valuation may be over-extended. Cloudflare now trades around 67 times sales up from 53 times just two months ago. That’s pretty high and expectations on Cloudflare must be sky-high and I expect some volatility going forward.
Luke: Yeah, me too, but I think it’s part of the game. As long-term investors, we just ignore the quarter-to-quarter movements. At the current growth rates that Cloudflare’s sustaining, their earnings are going to be catching up with that valuation very quickly.
Albert: And you mentioned Fastly before. Did you see that they brought down half the internet earlier this month?
Luke: To their benefit, it turned out. They went down and their stock price went up. I guess as everybody realized important they were and baked into the fabric of how all these businesses work.
Albert: Well, it’s funny because all that information was already public knowledge, but because of this outage, it gave them more coverage in mainstream newspapers, and then people started paying more attention.
Magnite
Luke: Well, let’s move the conversation forwards and take a look at Magnite. Unfortunately, I’ve got the honour of calling out another one of our losers. Magnite are down 8% from our start date and they currently have a market cap of $4.3 billion.
I guess the big recent news around Magnite is the fact that Google’s plan to demise third-party cookies has been put on hold, maybe for a couple of years. It’s interesting how this piece of news will affect companies like Magnite and their key partner, The Trade Desk. Google are out there busy trying to demise third-party cookies, but actually, as a supply-side provider, Magnite have first-party data. They know who their customers are. They know what they’re interested in. And they can leverage that data when they partner with demand-side platforms like The Trade Desk to sell an advert spot.
You know, the use of first-party data is nothing new, but it’s always been a challenge for sellers because the whole supply-side market has been fragmented across different platforms and taxonomies. So although this Google delay gave a boost to all of the players in digital advertising, I think the demise of third-party cookies is actually going to be long-term healthy for Magnite. I was quite optimistic about how that would drive a lot of the power into the hands of the supply-side platforms, and I think that’s still going to be a benefit in the far future.
Albert: And I think Magnite’s strength in connected TV is a big advantage. We have seen Roku rise in value as more and more people move off linear TV and onto connected TV, and I think this will benefit Magnite as well. And I’m bullish for programmatic advertising in general, and I’ve added The Trade Desk to my portfolio recently. I think these plans by Google to demise third-party cookies, they’re kind of overblown and these companies will find a way to replace that technology with something of their own.
Luke: Yeah, you’re right. The Trade Desk are actually actively driving a new industry standard and it sounds like Google’s delay is possibly to align with that initiative.
Albert: Yeah, it’s called Unified ID 2.0, right?
Luke: Yeah, that’s right. Just before we move off of Magnite, I’ll just pick up on a really, really recent last few days announcement that they’re acquiring a company called SpringServe. I’ve got to be honest, I haven’t done too much research on this one, I only spotted it yesterday, but SpringServe are one of the leading ad serving platforms for connected TV and their technology manages multiple aspects of video advertising, such as inventory rooting and customized ad experiences. So, although I don’t know too much about it, it does sound like a smart acquisition. That’s gonna going to make Magnite’s capability a bit more rounded and more capable for their customers.
Editas Medicine
Albert: And finally, I’d like to say some things about Editas Medicine. Editas was one of the biggest losers at the end of Q1, down around 31% from our start date, but it has made quite an amazing recovery and is now only down 6.4% at the end of Q2. And most of this recovery happened last week when the stock rose by 31%.
The reason for this was maybe due to one story. It was the story about another CRISPR stock, Intellia Therapeutics, that they released interim data for a phase one trial for one of their CRISPR treatments that showed that in vivo treatments can work. In vivo just means it happens inside a body as opposed to ex vivo which is done outside the body.
And John Leonard, the president and CEO of Intellia Therapeutics, said on Thursday that the technology used for the breakthrough gene-editing results for their clinical trial can be very, very successful for other diseases. When investors heard that, a lot of the other CRISPR stocks shot up in value. I can’t blame him for being bullish being the CEO of a CRISPR company, and the results are encouraging, but you should realize that it’s still very early for CRISPR therapies. And personally, I think I’m going to be a little bit more cautious with my investments in this space.
Luke: Intellia’s news is positive for all players in the CRISPR space. CRISPR the company and also Editas, they’ve both taken a big bump on the back of signs that CRISPR CAS9 is going to be a revolutionary treatment in so many critical diseases that we’ve really not been able to tackle in the past.
Albert: I won’t be as optimistic as that, Luke. I think I’ll say signs are good but it will probably be several years before any treatments become widely available, and things like long term side effects by definition will take a long time to study and find. But just looking at Editas, they are working on a number of treatments for the single-gene disorders, for which CRISPR CAS9 is useful.
They have a drug called EDIT-101, which is to cure a form of hereditary blindness called Leber congenital amaurosis type 10 or LCA 10. That’s currently undergoing clinical trials and we’re expecting results to be released by the end of the year, and they also have a drug called EDIT-301 for the treatment of sickle cell disease and beta-thalassemia blood diseases. And they submitted an investigational new drug application to the FDA in December, and hopefully, they can start clinical trials of this drug soon.
So I think hopes are high that Editas will announce similarly successful results from their clinical trials as the ones shown by Intellia but I think I’ll probably wait for Editas to release the results of their clinical trials first before investing any more. Even though they both use CRISPR CAS9 technology, they are very different diseases.
Luke: Yeah, I think that’s a good strategy. I like Editas but having a basket approach and owning a couple of companies in this space is probably smart if you want to spread your risk around in such a lowest high area like genetic medicine.
And the rest
Luke: So Albert, we’ve done a bit of a deep dive into six or seven of the model portfolio stocks where there were some key news to pick up. Let’s just do a quick whizz through the performance of the rest. And in general, we’ve been pessimistic in this episode and we’ve picked up a lot of the losers. Let’s just touch on some of the numbers around the winners. Square are up 20% since our start date. Intuitive Surgical are up 21%. They’re just quietly growing away.
Albert: I sometimes feel I don’t give Intuitive Surgical enough attention. I rarely pay any attention to it and it’s just slowly rising in my portfolio.
Luke: It’s been doing that in my portfolio since 2007, I think.
Albert: Well done, Luke. That’s getting in early. Another stock in our digital transformation megatrend, CrowdStrike, that’s up 25% since the start date. And I guess news of hacks and ransomware attacks, this keeps cybersecurity in everybody’s minds, especially those in charge of IT spending. Twilio, that’s up 17% from the start date. DocuSign, which we covered last week, that’s up 24% and I’m not surprised that’s recovered from the tech sell-off given the long-term trends in digital agreements. And the other tech stock we have, Fiverr, that’s up 16%, not doing too badly.
Luke: The last two in the model portfolio, sadly Guardant Health joins Editas in the red, down 16%. It does look like health stocks are struggling generally. Hopefully, this is a sector that’s going to come back over time. But let’s finish on a small high, Walt Disney, up 7.8%. The House of Mouse, they have brilliant timing with Disney+ and they’ve already grown to over a hundred million subscribers in 60 countries versus 208 million subscribers for Netflix. They’re gaining fast. And let’s not forget, Netflix don’t have theme parks in so many countries and cruise lines just about to reopen.
Albert: Yeah, we’re still waiting for their theme parks to fully open. I believe they’re half-capacity at the moment and they’re fully booked.
Luke: A good round out there of the 15 stocks in the Telescope Investing model portfolio. We’re not quite up enough to beat the S&P, but I’m pretty optimistic that we’ll be ahead by year-end.
Hypergrowth stocks
Albert: And long-term listeners may know that we also have a hypergrowth portfolio for stocks that have the potential to be 10x or 100x. And we have two stocks in this portfolio, CuriosityStream and Nanox Imaging. How are they doing, Luke?
Luke: Yeah, they’re not doing great, are they? Let’s face it. Nanox imaging is looking pretty ugly, down 22% since our start date, which was the end of March. Nanox are trying to revolutionize x-ray technology, make it cheaper, smaller, and easier to deploy globally. They had big success back in April with their single-source emitter getting FDA approval, but really the big news is multi-source because that’s the platform they’re actually going to sell. And they very recently submitted their multi-source application to the FDA for approval. We’re probably not going to see the results this year, but long term, this could be a big winner. It’s definitely got hypergrowth potential, that’s for sure.
Albert: And our other stock in the hypergrowth portfolio, CuriosityStream, an up and coming player in streaming, is doing a little bit better. It’s more or less breaking even. And I’ll be watching the next few earnings calls quite closely to give us a clearer view of whether it is successfully breaking into the possibly overcrowded streaming wars. I think Discovery+ is a very strong competitor, and I got a boost recently from the merger of Warner Media and Discovery. And I saw that they named the combined entity Warner Bros Discovery – very imaginative, guys. Well done.
Luke: You know, there was one hypergrowth potential that we didn’t pick. We took a look at a company called Trupanion just a few weeks ago and they’re up 45% since our deep dive. I feel like a bit of a dope for missing that one.
Albert: Yeah, I agree, Luke. When I saw that I wanted to take myself out outside and slap myself.
Luke: We’ve picked two out of three of the hypergrowth stocks we’ve looked at. I think there’s probably time to take a look at another one. It’s been a good couple of weeks since we’ve looked at this sector. We haven’t got anything on our radar so if our listeners have a suggestion for a hypergrowth stock we should take a look at next week, then drop us a line on Twitter or send us an email.
Albert: Yeah, you can send us an email at feedback@telescopeinvesting.com.
Key takeaways
Luke: So let’s wrap it up into some takeaways. Today’s been a bit of a long review. Overall, I’m pretty happy with our model portfolio picks. This is a portfolio that was designed to outperform the market this year and deliver significant growth over the 5+ year timeframe.
Albert: And it’s really nice to see that we’re ahead year-to-date. Lagging the market but there’s still six months to go and who knows? We’re hoping that we’ll be beating the market by year-end.
Luke: You know, my personal portfolio is almost beating the market. I’m certainly ahead of the model portfolio. I think the way I played cash over the last 12 months or so worked out pretty well. And certainly, those Shopify gains being my biggest weighting has helped propel me quite recently.
Albert: And I’ll say I’m not doing as well as the model portfolio but I’m doing okay. I’m probably up around 7 or 8%.
Luke: The other thing we haven’t really talked about, what we’d like to do going forwards. As well as looking at the model portfolios in their year of incorporation, we’re going to start tracking the model portfolio as a theme year to year. So kind of virtually imagining that we’re rolling the stocks at the end of one year into the next. Well, if you do that, actually, we started our first model portfolio just a year ago in July 2020 with [the] launch of the Telescope Investing website, and that portfolio returned 41% in six months. So with this additional increment over the first six months of this year, we’ve now got our first CAGR figure, annual growth of just over 56%. That’s pretty excellent.
Albert: Well, to be fair, Luke, one year is not a very long time to measure performance.
Luke: Totally but you got to start somewhere and it’s nice to start ahead.
Albert: Yes, definitely.
Luke: Well, before we wrap it up, we’d like to give a quick shout out to some of the new subscribers to the Telescope Investing website: Leslie, Robin, David, Min, and Raj. Guys, thanks for signing up. We don’t publish articles that often, but when we do, you’ll be the first to hear about them as a subscriber. And anyone else can subscribe at the website, telescopeinvesting.com.
Wrap
Albert: Well, that’s all for this week. Thanks for listening.
Luke: If there’s a future topic you’d like us to cover, you can message us on Twitter. I’m @LukeTelescope.
Albert: And I’m @AlbertTelescope, or you can email us at feedback@telescopeinvesting.com.
Luke: If you enjoyed today’s episode, you can find more content at our website, telescopeinvesting.com, where you can subscribe, leave us a comment, or review.
Albert: And if this is your first time tuning in, perhaps consider subscribing to the website so that you are the first to hear about new articles and episodes as they drop.
Luke: Thanks, Albert.
Albert: Thanks, Luke.
