Long-Term Investing Ideas in a Volatile Market
Simon recently spoke with a $35 billion global asset manager about how they're navigating the market volatility. The key takeaways are to think long term, tune out the noise...
The 7investing advisor team recently shared their reckless predictions for 2023! Come have a listen to their New Year's prognostications...and see which of them you agree with come true.
January 5, 2023 – By Simon Erickson
Happy New Year! While 2022 was a year that most investors would like to forget, 2023 is a fresh new opportunity to move onward and upward.
We always love to use the new year to make a fresh round of reckless investing predictions. Last January, our 2022 prognostications included Peloton getting acquired, Facebook entering the health care space, and the SEC finally banning Payment for Order Flow.
We didn’t bat 1.000 last year (and we expect we never will), but it isn’t keeping us from coming back for more! This year, listen to hear why…
Publicly-traded companies mentioned in this podcast include Apple, Berkshire Hathaway, Intel, Meta Platforms, Microsoft, NVIDIA, Tesla, and Wolfspeed. 7investing’s advisors and/or its guests may have positions in the companies that are mentioned.
Krzysztof Piekarski, Simon Erickson, Luke Hallard, Dana Abramovitz, Matt Cochrane, Anirban Mahanti
Simon Erickson 00:00
Hello, everyone, and welcome to our 7investing podcast – where it’s our mission to empower you to invest in your future. You can get started with 7investing at 7investing.com/subscribe today to get full access to our seven top stock ideas every month, including our recent 2022 Year in Review. I’m joined by my entire team of lead advisors here at 7investing — except for Steve Symington, who has strep throat unfortunately today and not able to make it. It’s been an interesting year for 2022 guys. But we always like at the end of the year to have a little bit of fun as a team. We make reckless predictions for the upcoming year. Of course, we don’t always promise a 100 batting average for all of these reckless predictions. But I guess that’s why we call them reckless in the first place. Luke, let’s get started. Let’s go to you first, over in the United Kingdom on the other side of the pond. Luke, what is your reckless prediction that’s going to happen next year?
Luke Hallard 00:53
Well yes, and I had a bunch. And I’m not gonna go with safety. So I’ve done this with a couple of 7investing active recommendations, kind of wondering whether might be acquired. But I was running some screeners earlier today. And I think a company that is right to be acquired in 2023 is the social networking app Nextdoor. If you guys are familiar with Nextdoor, they’re not in great financial shape. But they’ve got like 60 million users, more than half of which are weekly active users. But these guys do not know how to turn revenue into operating profit. So they’re in a bit of a mess. But it’s a decent idea, I kind of liked the idea of having like a local social network, I’ve used the thing that I don’t know if many of our listeners have, it’s a bit of a diabolical experience, they’ve just, they’ve taken a good idea. They’ve implemented it really badly.
I think an innovator is coming along, and perhaps plucking the company taking it private, could do something much more interesting with it. And they have got that 60 million user base that can be leaned on. That’s my reckless prediction. Nextdoor gets acquired.
Simon Erickson 02:06
Okay, now Luke – it’s an unprofitable business that has no idea how to make money, but it’s got some good top line growth. Who is the acquirer for this? Seems like a perfect fit for Mark Zuckerberg and Facebook [laughs].
Luke Hallard 02:15
I mean, it’s such a weeny little, like 60 million users, that’s a blip. And I didn’t say like the enterprise value of this thing is only $100 million. They got some money in the bank, the market cap is $700 million. Like this is pocket change for most social networks. I don’t know, I think probably more likely it’s take private. And someone just does something much more interesting with that data. Like if we think about what’s happening in the ad tech space, right now, as we get into this kind of inflationary period, if one gets focused on where they’re going to make the revenue, well, if I can make money from like, the guy that lives on my street, or you know, if shops can monetize people walking past them every day. I know that’s the meta business model. But I think next door has got some interesting data that they’re just not using very well. And a smarter tech leader could possibly do something better with that.
Simon Erickson 03:10
Perfect. Sounds good. I’m gonna hand the torch over to Matt Cochrane. Matt, sorry about the dig on Facebook that I dug in there. But did you have a question for Luke on Nextdoor?
Matt Cochrane 03:18
Luke, out of the 60 million active users on Nextdoor app how many are in my neighborhood? Because I feel like vacation throw them 10 times a day.
Luke Hallard 03:28
Not does it just next door every time you get one of those notifications, it makes you feel less and less of your neighbors. I like my neighbors. I see what’s on my next door notifications. It’s diabolical.
Matt Cochrane 03:39
I don’t like my neighbors at all. So I don’t know if I can listen. No, just kidding. But like yeah, it just like, like, I feel like there’s potential for it. But it’s like, all the notifications I get are Did you see this like person sticking through feeling the package off my driveway? Or did you like who who heard that loud bang last night or you know, just things like that constantly.
Luke Hallard 04:05
It was supposed to be the is founded by I think an Irish lady. It was supposed to create community cohesion. And I think it’s possibly more just exposed us as all for, you know, being kind of bigoted and small minded and kind of, you know, focused on the horrible stuff. Rather than being welcoming and looking forward to 2023 and all the wonders it might bring us. Hopefully, some of your predictions are a bit more happy than my own.
Simon Erickson 04:34
I do love it, Luke. Okay, Luke Hallard is predicting that Nextdoor gets acquired by a larger company in 2023. Matt, let’s bring it to you next. You know, what is your prediction for the upcoming year?
Matt Cochrane 04:45
Well, I have I have two predictions Simon, if that’s okay. The first one is, the Miami Dolphins will not win a Super Bowl, but there’s always next year. I’m pretty confident in that first prediction.
Simon Erickson 04:55
That’s reckless, Matt! A reckless prediction, right?
Matt Cochrane 04:58
I’m not nearly as confident in that prediction. My prediction is that there will be a record year for small and mid cap tech and software companies being acquired. They will not be the acquirers though are not going to be the mega mega cap tech companies the FAANG stock the Microsoft’s of the world, they’re just under too much regulatory pressure, but private equity funds and large cap tech, like that tear beneath the fang stocks, they’re gonna have a field day. I think picking up some of these beaten down names. Like if you just like little private equity, these are the 10 largest deals from private equity last year in 2022. That totals $72 billion. And that, you know, that includes Coupa Software, Zendesk, Avalara, and Zendesk. Specifically, that that deal with for $10 billion later in the year, at the beginning of the year, they were offered $16 billion to go private, they rejected it. And then just like a few months later had to accept an offer for for $10 billion. I think that will be a cautionary tale.
And a lot of the software names are going to like might take the first deal that comes your way, and fears that something like that might happen to them. You know, in private equity is just like loading up. Thoma Bravo, who like was on six of the top 10 deals from last year, they raised just three funds for a total of $32 billion. Like this other one is the headline S&P Global but like that’s how private equity is still looking at the software segment. And then like if you look at the biggest acquisitions of 2022 Alright, so you have Microsoft’s you know, announced acquisition of Activision Blizzard, which is still pending and gonna go under a lot of FTC like questioning and it’s being reviewed. But a lot of the others are those big tech companies that are beneath that faint here and I think that’s going to continue Broadcom, you know, trying to acquire VMware for $61 billion. Oracle made a a $28 billion acquisition that was like headline for barely a day AMD closed a $28 billion acquisition and Xilinx. Simon, I know you know more about that than I do. Adobe announced a $20 billion acquisition of Figma. And, and on and on, and I just think those like, those companies like are, are gonna still be on the hunt. So like, if you look who’s going to be the hunted, like, like a few, I think that are like going to be like targeted by private equity and bigger tech companies. BlackLine is a is a it’s $4 billion Nutanix is $6 billion. But even some of the bigger software names like HubSpot, that’s 13 and a half billion dollars, MongoDB $13 billion.
Splunk, almost $14 billion. I think like those could be picked up by some of those bigger tech names, again, just Google Ventures, like you have private equity, VISTA Equity Partners, Thoma Bravo, they always make moves, they’ll definitely be making acquisitions, but also those big tech names like that I was talking about like SAP, Oracle, IBM and Cisco. Like, I just think that all those companies will, will be on the hunt for some of these beaten up tech names.
Simon Erickson 08:07
Oh, man, I love that prediction. Man. Lots of cash flows from those subscription based businesses and Money Talks out there enterprise software. Anirban, I know this is your backyard. I know you’ve probably got a comment or two about this.
Anirban Mahanti 08:19
Just I would love to see Matt predict that Thoma Bravo is going, you know, listing itself, and somehow we can buy the stock and it looks, it’s going to become the software software companies. Given all the acquisitions as well.
Matt Cochrane 08:33
Anirban, let me ask you then, because actually, I was thinking about this, like, if Thoma Bravo went public, and obviously like things like valuation would be at play, of course, but like, Would you want would you how interested would you be in that company?
Anirban Mahanti 08:46
I’d be interested. I mean, some of those businesses are, some of them I don’t like but some of them they got good deals, some of them they didn’t, but we’re good. You know, it’s like buying a basket of mid cap to small cap, SAS companies, right? All at one place. One thing you can be sure of that they are very good at stripping out unnecessary costs, right. That’s what private equity is really good known for is strip out unnecessary costs. They wouldn’t be those, you know, pantry parties going on at at the head offices anymore, they will definitely strip away the kitchen. So you know, I’ll be worth looking at.
Simon Erickson 09:27
Great points. Okay. So Matt Cochrane saying that there’s going to be even more deals on the horizon for a lot of those SaaS companies public and private. Thoma Bravo doing a great job with that this past year. Anirban, let’s go to you next. Great comments about enterprise software. What’s your pick for the reckless prediction next year?
Anirban Mahanti 09:43
Well, it’s supposed to be reckless, right? It doesn’t necessarily have to be true. So my reckless prediction is that Berkshire Hathaway is going to emerge as the largest stockholder for Tesla that’s My reckless prediction, as you know, I think it will fit their business model it will be another apple like move. Buy in the stock when nobody else is buying the stock at a depressed valuation buying a company with a lot of boat buying a company with a lot of potential for evolution into other things by a company with a lot of free cash flow. Seems like a perfect Berkshire Hathaway company with the minor minor hiccup of replacing Tim Cook with, with Elon Musk. But you know, Elon Musk could be a purchaser of salesman. If, if Berkshire Hathaway calls, I’m sure you’ll be able to convince Buffett and Munger that it’s worthwhile taking a bite.
Simon Erickson 10:44
That would be a huge vote of confidence for the entire market; if Warren Buffett bites on Tesla stock right now. Luke or Krzysztof? Do we have any thoughts about nirvana is reckless prediction of a Buffett buying into Tesla this next year?
Luke Hallard 10:58
Sounds like optimism rather than realism.
Anirban Mahanti 11:05
It’s a reckless prediction. It’s supposed to be reckless! [laughs]
Luke Hallard 11:12
You’re holding those bags. And you’re hoping that Warren bails you out?
Anirban Mahanti 11:17
Well, you know, Warren is for what? He’s a good stock picker. But you know, I picked apple before he did. So I just bought Tesla stock.
Simon Erickson 11:28
Warren, did you hear that you need to take your cues from anyone listening to this podcast right now, Warren Buffett?
Anirban Mahanti 11:33
Well, I’m sure he’s got a direct line into my stock trades, because he didn’t buy Apple after I bought it.
Simon Erickson 11:42
I love it. Anirban Mahanti predicting that Warren Buffett and Berkshire is going to take a stake in Tesla in 2023. Let’s move to Krzysztof Piekarski. What’s your reckless prediction for next year?
Krzysztof Piekarski 11:53
Well, before I let it rip, let me first take my daily injection from our friends over at Magic Mind. Because this will get me in tune with the time so cheers, fellas, the juice that makes me 20 times as smart as for about for a few hours. Today, I’ll be even 30 times more they’ve been Luke.
Simon Erickson 12:14
That’s right. Thank you Magic Mind, you know a good sponsor of ours. And we also like the product. Like anyone can attest in the video that you’re seeing right now.
Krzysztof Piekarski 12:21
Yeah, good stuff. All right, now that I’m feeling all smart and juiced up, I’m going even bigger than Anirban. The car is to the horse and buggy as AI is to computing. And it’s already here, there is no putting the genie back in the bottle. And people still don’t get this. They really don’t. It’s like we’re playing around with kid stuff, you know, image makers and whatever. But but but but people just don’t get it yet. So here’s what’s going to happen. Apple has a market cap of approximately $2.1 trillion today. Tesla has a market cap of about $379 billion. And NVIDIA has a market cap of about $363 billion. Tesla and NVIDIA combined have a market cap of around $742 billion which is approximately three times less than the Apple. By year’s end, Tesla and NVIDIA will be worth more than Apple.
Simon Erickson 13:38
Someone on the team has got a comment about that. When Tesla and NVIDIA are worth more than Apple in one year. That’s a that’s a that’s a quite a reckless prediction. That’s a statement to make anyone want to chime in on this. It’s a lot of confidence. But on the other hand, maybe Tesla and Nvidia are significantly undervalued considering the opportunities for AI, like we just mentioned, they’re on your mind. Go ahead.
Anirban Mahanti 13:58
I wouldn’t complain about that. Because you know, I own the Tesla stock. So if it goes up, I would rather what Tesla alone do or become half the market cap of Apple, which it was not too long ago. So I’m on your side Krzysztof.
Krzysztof Piekarski 14:14
And I think you know, just to just to be completely transparent. I think one way one reason this is going to be true is that we’ll see a little bit more of a decline in Apple’s market cap to kind of it won’t just simply be Tesla and Nvidia shooting up though that’s going to be the majority of it. It’s also going to be Apple dropping a little bit in recessionary times. And then at year’s end, it’s going to be quite the quite the switch.
Simon Erickson 14:41
Reminder also the Krzysztof had Magic Mind 10 seconds before making that prediction. If it comes true, there’s going to be a surge in demand for this product. I’m pretty sure of that. Let’s let’s let’s keep talking about health care. One of our health care leader advisors, Dana Abramovitz. Dana, what you got on the docket for 2023?
Dana Abramovitz 14:57
No, it’s funny. I think it was one when I was talking about Facebook or Meta moving into healthcare, I was kind of right. But most, you know, also wrong. It was Amazon that seemed to help me that move into healthcare. You know, it doesn’t, it doesn’t surprise me at all, if a lot of these large companies are moving into healthcare, so that’s my reckless prediction. There are, like 10s of 1000s of health care apps that are available. A lot of them focused on mental health, you know, just kind of relaxation and wellness and that kind of thing. And so my prediction for 2023 is that there’s going to be a lot of consolidation, that a lot of these small companies that are focused on mental health and wellness are going to be acquired by some of the larger companies who are coming to mind might be Teladoc, you know, which is kind of maybe transitioning away from just telehealth, but they also have their mental health, but including some more of the wellness type of applications American well, your or Sharecare, the similar companies, or maybe Amazon just surprises like they’ll continue to surprise, surprise us and move into health care by acquiring some of these, you know, mental health companies as well.
Simon Erickson 16:23
I love it. Dana, I’ll open up for anyone else to ask questions. But my first one, you know, I’ve got to ask something about this, because I love your coverage of health care. It’s just it seems like there’s always been that hesitation like that wall between healthcare and data privacy and patient records. And then like big tech, you know, Google wants to get into it, everything else like that. But we did. Like you mentioned, Amazon just made a big acquisition of One Medical for primary care. And Amazon knows a lot about us as people I mean, is this kind of the first domino to fall that you’re going to see a lot more of is it going to be a company like Amazon, that knows a lot about you and sells a lot of things to you, or you think that someone else is going to acquire these companies instead?
Dana Abramovitz 17:00
Yeah, it can be Amazon, but then I can see other companies trying to compete. You know, like I said, last year, I think it was last year, you know, Meta, you know, just because they have equally amounts of information, you know, people are putting information about their health, you know, what they’re doing, what they’re eating, where they’re exercising those types of things. You know, so you know, and we’re just offering this information to them, you know, we’re giving it out to them for free. And so, you know, it won’t surprise me that they, you know, start utilizing that in some way, especially since there are these apps available already that, you know, so many people aren’t interacting with you, if you make that acquisition, now, you just kind of fold that into existing products, and you know, your existing company focus. So it can be Amazon, it can be Facebook, you know, or it can be a company that’s already focused on, on healthcare.
Simon Erickson 17:55
So well, we might be looking at for consolidation in health care apps, especially those related to mental health great points from Dana Abramovitz, who’s my favorite advisor to follow for health care, guidance, even the reckless prediction ones.
And I guess that leaves me as last but not least, I’m gonna go with the reckless prediction in the semiconductor space, which I know have the attention of several of my fellow advisors who follow this industry. But my reckless prediction is that Intel is going to acquire Wolfspeed in 2023.
This is kind of a perfect fit in my in my estimation. Wolfspeed is a very small, much smaller company than Intel right now. But they’re really working on this miracle material called Silicon Carbide, and it’s got some really neat applications. And they’re scaling up their capacity to fill the needs for electric vehicles, right. They’ve got a $1 billion facility that they’re building out in upstate New York, they’ve got another $1.3 billion dollar facility in North Carolina. They’ve got all the IP, and they need capital. And they’re doing things where they’re raising convertible debt. They’re partnering with other companies to try to raise as much money as they possibly can, because they’ve got the demand. And they’ve already got the relationships with these customers for electric vehicles.
Meanwhile, you’ve got Intel who’s got $22 billion of cash and short term investments on its balance sheet, it’s pouring out $4 billion of cash flow per quarter. It’s got a cost reduction program of $10 billion, and it’s paying out $6 billion in its dividend right now. And what is Intel want more than anything? It wants those new markets that it can expand into, especially with Intel Foundry, where it wants to make chips for other companies out there may be willing some big tech companies here in America may be getting some government funding from the CHIPS act from the Biden administration, and what better market to focus on for custom semiconductor chips than electric vehicles right now? So I think it’s pretty cool.
There’s some other breadcrumbs that I’ve seen that Intel’s made an acquisition of Tower Semiconductor, who, together with STMicroelectronics is working on showing the cost for a fab in Italy, by the way that’s already going into silicon carbide and electric vehicles. Intel can raise that a lot more lucrative rates than then Wolfspeed can do it by itself. Of course, there’s a lot of irons in the fire for Intel right now, so to speak. But my goodness Wolfspeed, silicon carbide electric vehicles, that’s my reckless prediction for 2023. Anybody have a question for me about semiconductors, Intel?
Luke Hallard 20:30
It’s kind of telling I suppose, like, nearly half of us, or half of us on this call, actually, we’re all about acquisitions. I think. I think there’s strong consensus about this is what’s going to happen in the market as we go into 2023. You know, it’s tight out there. It’s very hard to run a business and there’s a lot of bargains available. I think, Matt kind of screwed us by doing the macro. Everyone’s gonna require everybody.
Krzysztof Piekarski 20:55
Very true. I’ll say Simon, that that Intel seemed it’s such a if that comes to pass, it’ll be such a story because they were at the top, then they missed the entire decade of the mobile phone. And but their but their intellectual capital is still in place. So if you want to bet on the underdog, come back to well, sorry, not an underdog but a comeback story. Man. I just hearing you say that just made me want to fall off my chair. And it really makes sense.
Simon Erickson 21:30
Yeah, absolutely. The debt ratings, the credit rating agencies have very, very positive outlooks for Intel. It’s harder when you’re a small company like Wolfspeed is but they need the capital, right? And, and Intel can do that. Well, so he’s got about a $10 billion market cap and about $1.5 billion of long term debt right now. That’s not exactly a drop in the bucket. But it’s certainly something that a company like Intel could take on.
Krzysztof Piekarski 21:56
I’ll say. I’ll say one more thing, Simon, that just because the timing is right, this morning, I get this newspaper, little local community newspaper about what’s going on in the neighborhood. The front story is semiconductor industry heats up in Central Texas, with all the points all the new facilities that so I mean, I don’t know maybe, maybe Intel will open up shop in my backyard, who knows in our backyard?
Simon Erickson 22:23
Yeah, yeah. You saw Samsung right right out there in Austin not too long ago, building new fabs. And by the way, instead of newspapers that might be reported on Nextdoor is the next digital way of figuring out what’s going on in your backyard.
So hey, a real quick recap for everybody who’s listening. These were our reckless predictions from 7investing for 2023. First, we had Luke Hallard saying that Nextdoor was going to be acquired kind of set the scene for a whole bunch of discussions about acquisitions, Matt said that there’s going to be even more private equity deals like we saw in 2020 to 2023 even more of those next year. Anirban says that Buffett’s gonna buy a stake in Tesla, putting his commitment behind Elon Musk in this company, Krzysztof said that AI is to computing what the car was to the horse buggy, and that NVIDIA and Tesla together would have a larger cap market cap than Apple next year. And Dana said that healthcare app applications were going to be consolidating. There’s several of them out there like Teladoc that can be right for the taking for tech companies. And then last but not least, I said that Wolfspeed would be acquired by Intel.
We appreciate you tuning in. And a reminder that 7investing every single month is making a real stock recommendations, not just reckless predictions, but our seven favorite ideas in the stock market each and every month. You can learn more at 7investing.com/subscribe.
My name is Simon Erickson. We appreciate you tuning in for this podcast. We are here to empower you to invest in your future. We are 7investing, and we hope you have a great 2023.
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