Trimming Some Shares of Microsoft (MSFT), Salesforce (CRM). Providing Update on Ford (F).

1 Nov 2021 3:40 PM EDT

Today is not a heavy news-driven market, which is why you didn't hear from us this morning. We have no portfolio company that reported this morning or due to report after hours. Market made another all-time high intra-day today in a non-volatile session. The indices are hanging in there before the most-awaited news event of this week which is the Federal Reserve's FOMC meeting on Wednesday afternoon, when the Fed is expected to announce tapering of bond purchase. In light of the risk event ahead and the fact that we're sitting at all-time high, we made minor sales in Microsoft (MSFT) and Salesforce (CRM). Ford (F) also advanced to a new 2021 high and at a price level that it has not seen since ... 2002 (two thousand and two), however we're not selling anything here, rather would like to reveal a catalyst that is playing out.

Tapering: Is it a risk for the market going into a seasonally strong period of the year?

FOMC meeting is this Wednesday, when the Fed is expected to announce tapering. We emphasize on the word expected, because we think this has been priced in by the market, since this event has been telegraphed by the Fed very well. What's likely very important for Wednesday is the Fed's view on inflation, and what their thoughts are for rates in 2022.  

Given the market coming to this event sitting at all-time high, we think it's important to be cautious, because there will always be reasons to sell. We advice not to make any purchases here, but only sales.

On the contrary, after this risk event, we're heading into the strongest performing season of the year (November - December), coming out of the worst performing season of the year (September - October). This is data gathered since ... post World War Two. However, as investors, this only gives some piece of mind, and should not determine positioning. We need not to be complacent and realize gains when appropriate. We also lay out here some risks going into year's end that investors should think about: i) Fed tapering, interest rates, ii) fate of the infrastructure bill, iii) debt ceiling.   

Trimming shares of Microsoft (MSFT), Salesforce (CRM); Looking at buying more of Google (GOOGL)

Shares of MSFT and CRM have been on a tear, up 17% and 10% respectively for the month of October. Our positions are also sitting on ~10% gains. With shares sitting at all-time high, we believe it's only prudent to make some selling here. Our investment thesis remains unchanged, and would like to add on the other side.

We want to use the capital from these sales to add to our position in GOOGL. Shares reported another blow-out quarter last week, guided to the upside (see analysis here). With the shares down 3% on Tuesday, giving back almost half of what it gained after that blow-out report, this is one prime opportunity to buy. Likely we will wait until after the Fed's potential taper announcement on Wednesday to buy on the further downside. Remember, we're long-term investors in this name, and given shares of GOOGL have gained ~65% YTD, our principle in this stock is only buy on the downside, and would rather miss out on rallies that to hold bags at the top.

Ford (F) continues to make new highs

 We're seeing shares of Ford rising >3.5% today, trading above 17.5$/share, a level that it has not seen since ... 2002. This move is driven by strong earnings reported last week and the comments from management that the semiconductor shortage is easing. Effectively, we're now sitting on a 32% gain for this position in our portfolio. However, since we've right-sized this position a couple weeks ago, we're not selling anything here. With that said, if the stock moves near our 2021 price-target of 18$, we would have to do some selling. 

We've also identified another catalyst that will likely drive the stock higher. Rivian, a start-up electric vehicle maker, has filed to IPO on the Nasdaq exchange as soon as next week for a total market cap of about $60 billion. Ford has a ~10% ownership in Rivian from an approximate $1 million in the early days. Ford would gain quite a bit of money if the Rivian IPO goes well (10% stake in a 60 billion company is 6 billion).

The valuation of Rivian also makes the valuation of Ford (F) very attractive. If the 60 billion valuation for Rivian is confirmed, it would have the same market cap as Ford. Rivian makes electric pick-up truck. They currently have only 1 factory which capable of producing 150,000 vehicles per year. They claimed they already have 150,000 pre-orders. Their earnings are not yet public (still private company), but likely they are not profitable yet. Think about how ridiculous that would be: a start-up has the same market capitalization as its angel investor.