In his Daily Market Notes report to investors, while commenting on the small cap stocks, Louis Navellier wrote:
Q2 2021 hedge fund letters, conferences and more
The Fate of The Small Cap Stocks
I am getting a lot of questions about Jeremy Grantham predicting that small cap stocks, international stocks, and bonds are poised to lose money over the next several years relative to inflation. First of all Jeremy Grantham is a value manager and most value managers have been manically depressed, since value has not performed well since 2009. Second, I agree with Jeremy Grantham on bonds, but not stocks. Specifically, although value-related investment strategies have performed better this year, those value stocks that do not have strong sales and earnings will remain vulnerable in the current inflationary environment. One thing I am certain of is that it is very hard for me to help depressed investors, like Jeremy Grantham, and I worry about them personally, since they do not seem to fully appreciate the impact of positive sales and earnings.
Speaking of earnings, many FANNG stocks, like Apple, Google, and Microsoft, on Tuesday all posted strong second-quarter results, which is good for overall investor confidence, since these stocks account for a major proportion of both the NASDAQ 100 and S&P 500 indices. Another flagship stock, Tesla, reported that in the second quarter its regulatory tax credits declined 31.7% to $354 million, but the company posted record GAAP income of $1.14 billion. This was a significant milestone for Tesla since in past quarters virtually all of its earnings were attributable to regulatory tax credits. This also means that Tesla is finally making money making electric vehicles (EVs) after reporting an impressive 98% surge in sales compared to the same quarter a year ago. Elon Musk announced that the Tesla semitruck would be delayed and that it still faces production risks from semiconductor component shortages. Apple also warned of semiconductor chip shortages.
Tesla Is Not Being Affected By The High-Grade Batteries Shortage
In my opinion, what is most impressive is that Tesla is not being held back by the shortage of the high-grade lithium nickel cobalt batteries that the Panasonic Gigafactory in Reno, Nevada produces for Tesla. In China, Tesla has switched to cheaper lithium iron-phosphate batteries with a shorter range, which has allowed Tesla to sell cheaper versions of its vehicles in both China and Europe. Furthermore, although the Model S Plaid deliveries have been temporally postponed for software upgrades after the new Plaid vehicle caught on fire in Philadelphia, GM’s mass recall of all the new Chevy Bolts due to fire risk is masking any problems with Tesla’s new Plaid battery. I should add that LG Chem is citing a manufacturing defect for the GM Bolt battery problems.
I have LG Chem batteries in my Audi e-tron and thought I would point out that Audi, Porsche, and other EVs in the VW Group family pack a lot of extra weight, since they have more battery cooling, so they can accommodate faster charging, like the new Tesla Plaid battery. Just so you know how fast the Electrify America chargers can charge my Audi e-tron, it is over 6.1 miles per minute versus 0.4 miles per minute on my home charger. Fast charging is definitely the way to go and currently, VW Group had the fastest charging vehicles, until the Model S Plaid was introduced. Longer-term, when EVs switch to solid-state batteries in the upcoming years, the charging will be even faster, plus the fire risk will be largely eliminated and there will be better range in cold climates. So in my opinion, whoever wins the solid-state battery war, like Toyota via Panasonic or VW Group via QuantumScape, will be the ultimate EV winner.
In the meantime, the most impressive new EV is the Mercedes EQS, which is super aerodynamic, utilizes a lot of smart regeneration tricks, and has a beautiful interior. Mercedes also “teased” that its new EQXX would have a 620-mile range due to more energy-dense batteries and aerodynamics. Audi is also expected to announce new e-tron SUV models next year with more energy-dense batteries as well as more efficient electric motors. There is no doubt that Tesla is facing formidable competition via Mercedes and VW Group, but right now it has a competitive edge with its cheaper, lithium iron-phosphate batteries that allows Tesla to price its Chinese-made Model 3 & Y models very competitively, so even though VW Group is selling more EVs in Europe this year, Tesla is putting up a good fight and beating VW Group in China and the U.S. In the end, the consumer is going to have a lot of great EV choices in the upcoming years and I expect the eventual leaders to be NIO (China), VW Group (Europe), Tesla (U.S.), with Mercedes capturing some impressive market share as well.
A Mixed Bag Of Economic News
The economic news of the week was mixed. The Commerce Department announced that sales of new home sales declined 6.6% in June to an annual pace of 676,000, which is a post-pandemic month low. May’s new home sales were revised lower to an annual pace of 724,000. Homebuilders have been constrained by higher material prices (e.g., copper, lumber, PVC pipe, etc.) as well as an acute shortage of construction workers. New home sales have now declined for three consecutive months and are now down 19.4% in the past 12 months.
The Commerce Department on Tuesday reported that durable goods orders rose 0.8% in June as orders for commercial planes and vehicles rose. Economists were expecting a 2% rise in June, but May’s durable goods orders were revised up to a 3.2% increase, up from 2.3% initially estimated. Durable goods orders have now risen for 13 of the past 14 months and are expected to remain strong since order backlogs persist due to supply chain bottlenecks.
The Conference Board on Tuesday announced that its consumer confidence index rose to 129.1 in July. This was a big surprise since economists expected consumer confidence to decline to 123.9 in June after the University of Michigan’s preliminary consumer sentiment index declined. The present situations component rose to 160.3 in July, while the expectations component was almost unchanged at 108.4 in July. Overall, July’s surprising consumer confidence bodes well for continued strong consumer spending.
