Risk and Reward

It is times like this where managing money, you have to make decisions based on all relevant information at your finger tips. Zebra had a blowout report, Anaplan's report was okay. Here is a chart on how the two have acted YTD.

(Source: Koyfin)

Zebra has been my economic, re-open, warehouse automation and boring printer business name. Given the current information I have on Anaplan and Zebra, I think the risk is buying Zebra here (given the timeframe), and the reward is buying Anaplan here over the next 3 years. Anaplan is now cheaper on a current FWD EV/Sales basis than it was pre-COVID. I do not like specifically using EV/Sales as many of you know, but given how I think they can still compound top-line at 28-30% the next 5 years, and become profitable in the next 3, I think it makes the business look attractive especially given their industry in connected planning.

I believe Anaplan is still a economic re-open investment as well, as I have noted in previous reports. Why? Because businesses that invest in their software and IT are coming out of a re-opening economy as well, spending on businesses and software will only pick up in my mind and connected planning and real-time analysis is gaining more traction. The business is a leader in connected business planning, and just posted revenue growth of 29% and forecasted 24% for this fiscal year. I do think this was a sandbag, and I want to buy shares here for my long-term investment account (which has obviously taken a nice hit recently). I see no reason they should not deliver 28-30% top-line growth while improving operating margins.

In order to buy Anaplan, I have shaved 15 shares of Zebra in my Fiducia Fund as seen in the photo below and will be buying the corresponding amount of Anaplan with that cash in two days when my cash settles (T+2), remember this is not a margin account.

The company has $321m in Cash & Cash equivalents and no debt, so what is not to like? With an Altman Z-Score of 8.46, I really like the position they are in. Investors must stop focusing on short-term price volatility and focus on multi year compounding potential.

Underpromise and overdeliver has been the stance on many of these cloud names, so when you look at analyst estimates and "current" valuations, you have to model things out yourself with your knowledge base on the name. Projects at enterprises will increase, the need for connected real-time planning will be essential to growth, and IT spending is growing on a YoY basis. Think about it, as businesses stopped spending in 2020 Anaplan still threw up 30% growth, imagine when COVID is gone. I think they will get back on track and I am excited and long. I am not in the business of selling long-term secular businesses, if the last few weeks shows us anything, it is that the market can be irrational in the short-term and we have to focus on the long-term.

Tech is selling off, yes, but I want to remind you all that these names were overextended (hindsight is 2020), and I do think we are still setting up for a solid year in our key names. 2020 was an anomaly in terms of returns, investing is not easy. You have to have the ability to gut volatility, and make decisions while everyone runs for the hills. I have been buying some blood, notably:

  • Advanced Micro

  • SharpSpring

  • Lam Research

  • Cloudflare

All additions have been in my taxable portfolio. I love the businesses we own, and I feel I am getting them at good prices at these levels. Below is the QQQ and the IGV, two of my closely watched "indexes":

We can see the QQQ is hovering around the 150 day moving average, this is one critical pivot point I am watching, a breach of Friday lows could mean we could potentially see lower towards the 200dma, but this just gives us more opportunities. Trade accordingly, recently the options ideas have not played out, but zooming out, I feel they will be fine given the timeframe on Apple, Boeing, and Cloudflare calls. We can always roll them out as well.

Below is the IGV, the expanded Tech-Software ETF.

You can see we broke through the 150dma, and are. headed toward the 200dma which stands at $319.31. I am watching this closely as well. Below you can see QQQ is almost at the lower end of the RSI (Relative Strength Index).

I believe out of our current names, BlackLine and Anaplan look the most attractive at current levels. These rotations out of tech-software have happened numerous times. $IGV looks to be getting tired:

Since 2017 you can see when the RSI hits the lower end we start to see a rebound, this could potentially play out in a very interesting way the next 5-7 days... keeping a close eye.

These are just a few data points I am looking at, I remain bullish.

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