KeyStone’s Stock Talk Podcast Episode 108 – Summary
This week we will begin by briefly revisiting our discussion on FaceBook (FB:NASDAQ) from last week, we will touch on electric car manufacturer Tesla overtaking Toyota as the world’s most valuable car manufacturer by market cap, and Warren Buffett’s first significant purchase since COVID-19. In our Your Stock, Our Take segment we take a look at three interesting companies. The first, MediPharm Labs (LABS:TSX-V), once a singular standout in terms of profitability in the Canadian Cannabis sector, has lost 70% of its value in 2020 – is it an opportunity or value trap? In our second segment, Aaron will be running a comparison on NVIDIA Corporation (NVDA:NASDAQ), and Advanced Micro Devices Inc. (AMD:NASDAQ). NVIDIA is a leading designer of graphics processing units (GPUs) which are used in high-end PCs for gaming, data centers as well as AI and machine learning applications. For its part, Advanced Micro Devices produces microprocessors for the computer and consumer electronics industries with the majority of the sales are in CPUs and GPUs.
Further to our comments on FaceBook last week, including the advertiser boycott – the lead article on Yahoo Finance this past weekend was “How to delete your Facebook, Instagram, and WhatsApp accounts: Tech Support”…first off, you could say, who that hell reads Yahoo Finance anymore – and you are not wrong, but there are similar articles popping up all over the web.
I am personally not sure how many people with “cut the FaceBook cord”. If you delete your accounts, all those photos, videos, life events and your precious comments are gone…true you can back the pictures up, but where are you going to repost them all…myspace? People are addicted to social media. Will they be able to go days, weeks or months without the constant social affirmations? Not so sure.
Advertisers have a great deal of power here to withhold their dollars for change – and change will likely occur. But FB has a great audience that most of these advertisers have been successfully marketing to. They will want to again. It is my opinion, they will reach some sort of rosy agreement and resume advertising on FB’s platforms with vigour.
Electric Car Manufacturer Tesla Inc on Wednesday became the highest-valued automaker as its shares surged to record highs and the electric carmaker’s market capitalization overtook that of former front runner Toyota Motors Corp.
Tesla Inc on Wednesday became the highest-valued automaker as its shares surged to record highs and the electric carmaker’s market capitalization overtook that of former front runner Toyota Motors Corp.
By Wednesday, the company’s market cap rose to $209.47 billion – roughly $6 billion more than Toyota is currently valued by investors.
Tesla is now worth more than triple the combined value of U.S. automakers General Motors Co and Ford Motor Co.
The shares’ meteoric rise, up more than 163% since the start of 2020, highlight growing confidence among investors about the future of electric vehicles and Tesla’s shift from a niche carmaker into a global leader in cleaner cars.
After several years of losses, Tesla has delivered three straight profitable quarters since the third quarter of 2019 and surprised investors with solid first-quarter deliveries despite the virus outbreak. Valuations are still sky-high!
Quick Comparison
Toyota, one of the world’s most profitable automakers, sold 10.46 million vehicles during its 2019 financial year, ending on March 31, 2020. It reported net revenues of roughly $281.20 billion, during that time.
Tesla, in comparison, ended 2019 with $24.6 billion in revenues, having delivered 367,200 vehicles last year. Chief Executive Elon Musk in the past said Tesla would deliver at least 500,000 vehicles in 2020, a forecast the company has not changed despite the coronavirus pandemic.
Revenues are roughly 10 times higher at Toyota and it sells roughly 20 times more cars based on Tesla’s estimates.
Tesla is expected to report second-quarter delivery numbers this week.
My thoughts. In terms of valuations, Tesla appears to be factoring in a very optimistic view of the future.
In March, with Tesla’s shares trading at $755, the company’s founder and CEO Elon Musk tweeted, ““Tesla stock price is too high imo,” Musk wrote in a tweet, using shorthand for “in my opinion.”
Today, Tesla’s shares trade at US$1,300, 72% higher than when Musk stated he thought the share price was too high just 4-months ago.
Very interesting times.
Warren Buffett finally opens his wallet during the pandemic, with nearly $10 billion purchase.
Over the weekend, Berkshire Hathaway Inc. said it is going to acquire Dominion Energy’s natural gas transmission and storage business, valued at $9.7 billion including assumed debt.
Buffett, the chairman of Berkshire Hathaway, said the firm acquired a “great portfolio” of natural gas assets that also includes a 25% stake in Cove Point, an LNG export, import and storage facility in Maryland. “We are very proud to be adding such a great portfolio of natural gas assets to our already strong energy business.”
Analysts at JPMorgan said the acquired assets had earnings before interest, tax, depreciation and amortization of around $1 billion, calling the price “not the highest we have seen gas pipes transact at.”
Berkshire Hathaway had $137 billion in cash at the end of the first quarter. Buffett has been criticized for missing the stock market rally from the March lows.
Berkshire’s B-class of shares has dropped 21% this year, compared with the 3% drop for the S&P 500 SPX, 1.38%.
This was not what I would call a bargain acquisition – Dominion shares were trading near all-time highs.
Your Stock Our Take
Could you give your thoughts on Nvidia and AMD? Could you compare the two and which one you like better? – Rob by email.
NVIDIA Corporation (NVDA)
Price: $393.93
Nvidia is a leading designer of graphics processing units (GPUs) which are used in high-end PCs for gaming, data centers as well as AI and machine learning applications.
Advanced Micro Devices Inc. (AMD)
Price: $52.75
Produces microprocessors for the computer and consumer electronics industries with the majority of the sales are in CPUs and GPUs.
What is the difference?
From an operating perspective, both companies design and manufacture GPUs. The difference is that Nvidia is specifically focused on that market while AMD also produces CPUs.
Generally speaking, Nvidia GPUs are higher end and are also widely used in AI and machine learning, as well as gaming. AMD’s GPUs can be used in those applications as well but are primarily for gaming. If you are looking for GPU’s that are going to be used in autonomous driving and robotics then more than likely Nvidia will continue to be a leader in that space.
Financial Performance
Nvidia
- Revenue of $3.08 billion, up 39% from a year earlier and down 1% compared to the most recent quarter.
- Earnings per share of $1.80, which was up 105% year over year and down 4% from the most recent quarter.
- NVDA is in a very strong financial position with a net cash position of $8,876,000,000, or $14.50 per share. The company reports a cash balance of $15,494,000,000 and debt of $7,478,000,000.
- 3-year average revenue growth of 16% annually.
- Trailing 12-month EPS of $6.71; price-to-earnings of ~60 times.
AMD
- Revenue of $1.8 billion, up 40% year over year and down 16% compared to the most recent quarter.
- Earnings per share $0.18 which was up from $0.06 in the same quarter last year and down from $0.14 in the most recent quarter.
- AMD is in a very strong financial position with a net cash position of $686,000,000, or $0.59 per share. The company reports a cash balance of $1,330,000,000 and debt of $699,000,000.
- 3-year average revenue growth of 16% annually.
- Trailing 12-month EPS of $0.66; price-to-earnings of ~80 times.
Conclusion
From an operating perspective, the main difference between the company’s is that Nvidia operates in more of a niche market and produces higher end GPUs. AMD’s GPUs and CPUs are found more widely in general PCs. It appears as well that Nvidia has more market share in the data center space which is attractive due to the trends of cloud computing, autonomous driving and AI.
Based on valuation, we wouldn’t be quick to recommend either company. Financial performance was strong recently and generally strong as well over the last several years. However, there has been some financial volatility in both companies. Given the high valuations, we would want to see consistent revenue growth above 20% per year.
Both are solid companies, but my preference would likely be Nvidia due to its leadership in the higher end GPU market and the strong trends in AI, machine learning and cloud computing.
Your Stock Our Take
Charlie via email – Been watching MediPharm for a year – does the recent drop make it a bargain?
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MediPharm Labs Corp. (LABS:TSX-V)
Current Price: $1.22
Market Cap: $ 164.36 Million
What does the company do?
Founded in 2015, MediPharm Labs specializes in the production of purified, pharmaceutical-quality cannabis oil and concentrates and advanced derivative products
Key Points:
While the company has often stated its long-term focus on the pharma market, MediPharm appears to now be emphasizing its move from an extraction business for recreational use to the pharma side.
The company’s Q1 2020 numbers were ugly.
Management stated that, due to a reduction in the average selling price of bulk extracts and reduced volumes sold because of a continued muted demand in the Canadian bulk wholesale market, first quarter revenue was 49% below the same quarter a year ago.
Q1 Net loss was $22 million partially attributable to the $12.8 million write down of inventory.
Adjusted EBITDA loss was ($5.7 million) in Q1 2020 compared to a gain of $4.3 million in Q1 2019.
Subsequent to quarter end, the Company successfully completed a $37.8 million private placement, with half of such gross proceeds remaining in escrow as of today.
Our Take:
Investors who participated in that financing just prior to management issuing its Q1 profit warning have a right not to be happy. The company closed its share offering on June 8th just three days prior to management’s Q1 profit warning. Shares have dropped almost 30% since the warning.
For much of 2019, MediPharm appeared to be a beacon of profitability in a Canadian Cannabis segment that was wrought with losses.
It appears much of its growth in extraction over the past year was powered by either optimistic demand from the end customer and/or a supply side that was far overbuilt and stuffing inventory to start operations. It could be argued that, near-term, management has executed poorly, as quazi competitor Valens GroWorks Corp., actually reported a profitable Q1 2020. Albeit, Valen’s quarter ended one month earlier.
Medipharm haa a cash rich balance sheet, but it appears it will need it as the company will likely face further Canadian market inefficiencies – weakening sales while it tries to ramp up international sales agreements – we monitor it, but are in no hurry to buy given the move to significant negative cash flow.
