Starting 2024 on the right note - markets are finally seeing a slight cool-off after the strong year we had in 2023. This is a healthy correction in my view, and I am welcoming it - looking at several areas where I will be looking to add more exposure!

A few days ago, I shared with you my portfolio review and construction process. In case you missed it - you can read it HERE.

Following that, in this note, let’s talk about:

1. The top-down market set-up as we think about 2024 portfolio positioning

2. My Top 7 investment hunting grounds - specific areas where I am seeing investing opportunities

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What an year 2023 was!! Most equity and crypto markets were up strongly and hopefully, most of your portfolios too!

It’s that time of the year again when we put our thinking caps on a…

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I wrote a full deep-dive note on Docusign back in March (full note HERE) when the new management took over. It’s been a few months since and the new management has been showing some early posit…

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In the last two notes of the series, we covered:

1. Generative AI

2. AI driven drug discovery

3. eVTOLs / Flying cars

Read the previous two notes here if you missed them - Part 1 and Part 2.

In this Part 3, let’s talk about two more technologies which I believe are promising if we look ahead 5-10 years. Namely, Quantum Computing and Cybersecurity.

Let’s dive right in.

Quantum Computing

• One of the more nascent technologies that has me really excited is Quantum Computing.

• We are at a stage when Quantum computing is not just a lab-based experimental idea but it is gaining traction at commercial level. See below.

  

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Last week in Part 1 of the Series, we discussed Generative AI and its specific applications such as those in discovering new medicines and of course, potential stocks…

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I own three types of holdings in my portfolio:

1. The Stable compounder names

2. Stocks that represent an asymmetric risk/reward profile

3. Select ETFs

Today, let’s talk more about the second category of stocks - Stocks that represent an asymmetric risk/reward profile. These stocks usually fall in the following buckets:

• Mostly, these tend to be relatively younger companies, often operating in emerging industries that could have a long runway for growth.

• Sometimes, they also represent “special situations” companies e.g. companies going through restructuring or deep value names.

• Alternatively, they could be large cap names where there is a material earnings driver that the market is failing to appreciate at present time, that could lead to a large delta in earnings versus expectations and/or a stock multiple re-rating.

Identifying Emerging industries that could be at the cusp of mass adoption is a great hunting ground for new ideas. Think electric vehicles ten years back or e-commerce when Amazon had just started selling books over the internet!

That said, note that by nature, “emerging” industries entail a lot of uncertainty within them by virtue of being at nascent stages of technology development. Therefore, companies here have the potential to be multi-baggers but at the same time, they can also go to zero due to a myriad of reasons. This is all to say that position sizing in these kinds of names is key - for risk management of the overall portfolio.

In this note Series, I will cover a few of the promising emerging technologies and industries and possible ways to play them through listed stocks. Let’s go!

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Not being a “Pet person” (yes, I am the minority) - I have been surprised at how MANY people have pets around me (well, almost everyone I know) and how MUCH they spend on them each year! And this observation got even more pronounced while I was in South America and US. Then I started looking up some data: 60-70% of the households in the US and Canada own pets while that number goes to nearly 80% in countries like Argentina!!!

What followed was numerous interviews with pet owners and small businesses channel checks to start getting into the weeds of how to play this as an investment theme.

Now the Pet economy growth trend isn’t new - but I never really got around to researching it as deeply before. In my checks, one name kept coming up over and over apart from Amazon - Chewy . And then, just last week, as I was running through my “beaten down” names watchlist, Chewy came up making all time lows.

And that led to this deep-dive note as I was running the numbers on Chewy. I wanted to assess two things:

1. With sustained growth in the US Pet care industry over the last decade, is there still room for the industry to grow comfortably over the next 5-7 years?

2. If answer to the first question is yes, is Chewy the best way to play this growth trend? We review this in a stock deep-dive here covering business overview & growth drivers, risks and valuation scenarios.

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I have been reviewing a number of new names for the portfolio these last few weeks - especially ones where stocks have seen material correction or those that represent some structural trends which market may be under-estimating amidst short-term noise.

One of the names that has been mired in controversy has been Disney - the stock is down ~30% since Feb 2023 and is currently making a 5 year low.

All for good reason - Disney is in the middle of a complicated business restructuring. Bob Iger has been brought back as CEO late last year to fix a number of structural and cultural issues at the company. And it isn’t an easy task! There are a ton of moving parts and the Disney 3-5 years out will likely look very different from the Disney of today.

In this note, I’ll cover:

• What’s driving Disney’s transformation?

• A view on how the “evolved” Disney might look like a few years out

• Valuation scenarios

• My conclusion - Are Disney’s challenges already well priced in? Is it time to start adding?

Let’s go!

Disney -

Market cap – US$ 150B

A quick overview - Disney’s business revolves around its content and IP. They monetise the IP via multiple channels including theme parks, merchandise, movies, cable and streaming content.

In terms of revenue and profit mix, Media and Entertainment segment (cable+streaming+production Studios) are the biggest contributors, though from a profit perspective Disney’s theme parks and experiences segment is highest margin especially post Covid.

DISNEY’S TRANSFORMATION:

To put it in one sentence - The biggest challenges for Disney today are around Profitability and Debt.

Let’s analyse this in greater detail by looking at specific business segments.

MEDIA & ENTERTAINMENT SEGMENT:

• This division includes the cable network broadcasting, streaming (Disney+, Hulu, ESPN+) and production Studios (Walt Disney Pictures, Pixar, Marvel, 20th Century and so on).

• The clear issue facing - not just Disney - but the media industry overall has been the shift from cable (the “cord-cutting” movement) to Streaming. Essentially the structural shift in customer preference in how content is consumed.

• From a business perspective, this has led to several challenges, namely:

  • Pure subscription-based direct-to-consumer Streaming isn’t as profitable as cable network distribution which has been the cash cow for media giants like Disney for the longest time.

    

  • Streaming also requires a lot more content (= rising content investment cost).

  • To make things worse, this model lacks operating leverage - Without the streaming business, Disney had the option of making content and then distributing it across various third party channels - multiple cable network operators and even licensing their library out to other Streaming companies like Netflix, Prime, etc. But Streaming wars led to more “exclusive” content movement - which basically implied that operating leverage on the produced content was diminished to a large extent.

• As a result of this shift, the media and entertainment distribution at Disney has seen margins nearly halving versus the pre-streaming times. The cable network business (cash-cow / high margin) is also seeing decelerating revenues.

  

• What could Disney do to evolve its model?

  • Ads - Well, as with almost all Streaming players including Netflix, Amazon Prime and others, Disney is moving heavily into an advertising model. Ads need to become a sizeable revenue line for direct-to-consumer Streaming business to make sense from profitability perspective.

  • Bundling Streaming+Cable - In order to salvage the dying cable business (to an extent) AND to expand subscriber base for streaming business, we will see more bundled subscriptions for Cable+Streaming going forward. The latest Disney-Charter deal sets stage for this trend.

  • Potentially re-licensing content library out to other streaming giants to gain some of that operating leverage back in the production business. Of course, while keeping part of the library exclusive to own channels like Disney+.

  • Rationalising content cost - The company is getting more disciplined in its content spend, as indicated in most recent earnings calls.

  • Focus on ESPN - This is one of the crown jewels for Disney as live sports still remains a high demand segment were customers will pay up. The company is currently looking at ways to improve monetisation here through (a) possible partnerships with players like Apple, Amazon to license broadcasting rights or even sell part of its stake and (b) entering into newer growth avenues like sports betting. If (a) materialises, it would be a major positive for Disney.

• Margins should improve but won’t go back to their peaks - While all this can help salvage the really dire situation the company is facing today - I have serious doubts that Disney’s media business will ever see the fat 25-30% operating margins it did in the pre-Streaming world. The cash cow is dying - that’s a fact. Therefore, I believe that the SUSTAINABLE operating margins in this segment will improve from here on as above drivers play out but will most definitely never be comparable to earlier highs.

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DISNEY PARKS AND EXPERIENCES:

• This segment includes Disney’s theme parks, cruises and merchandise.

• The segment has seen a massive resurgence from post-Covid reopening.

• Revenue growth has improved but more importantly, the company has seen a huge margin surge - driven by price hikes and demand increase. And it’s not just in the US but across international markets. See below chart.

• Disney is doubling down on this trend - with the recent announcement of doubling its investment into parks and experiences from US$ 30B to US$ 60B in the next ten years.

• The big question now is - whether this rise in margins is sustainable or will we see some cooling off? I expect the latter in my valuation assumptions.

  

OVERALL CORPORATE DEBT:

• Disney currently has $52B in debt on its balance sheet (versus a $150B market cap). The Fox acquisition in 2019 was one of the major contributors to this and high debt is one of the areas of investor concerns.

  

• To worsen the situation, Disney has some other major investments coming up -

  • Hulu - Disney owns 2/3rd of Hulu currently and has the right to buy it fully. The negotiations are scheduled for later Sep 2023. It is likely that Disney will end up buying the remaining Hulu stake. The possible additional investment being talked of in media is >US$10B.

  • Parks investment - The company also has announced raising its investment target in its Parks and Experiences segment by 2X to US$ 60B over the next 10 years.

• What could Disney do to lighten up the debt burden?

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The last few days have been packed with earnings, including those for some of my portfolio’s top holdings. Lots to digest as we think about positioning and trade plans ahead. Plus, overall markets seem to be at a critical juncture after a nice rally in 2023 so far - is it time to ride the momentum or start taking profits?

In this detailed note, we’ll cover quite a bit. So grab yourself a coffee or drink and let’s get started. We’ll cover:

1. Market view

2. Earnings Wrap and outlook for key companies

3. Trade plans ahead for top portfolio holdings and watchlist

OVERALL MARKET:

Globally, except China, markets have had a tremendous run in 2023 through July. Major indices across the US (large and small cap) as well as other major markets in Asia and Europe have all shown solid returns this year.

As we look ahead for portfolio positioning, here are a few factors worth considering:

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Big techs in particular have been a major contributor to positive returns in the market so far this year.

I own some select big tech names in my core portfolio, including which is one of my largest positions.

But with names like having doubled year to date (+170% since its lows in Nov), it makes sense to review these holdings to see if one should think about booking gains yet. In addition, there are some fundamental shifts happening in tech that are making other select names fairly attractive.

So in this note, I will share my analysis on:

1. Portfolio holdings’ detailed earnings review

2. Refresh of investment case scenarios / financial model and valuation targets

3. Share my portfolio’s plan of action / trade plans for select tech stocks in the coming days. Specifically on:

• Whether it make sense to start trimming ?

• Are there specific names where risk/reward is looking particularly attractive to add?

• Which names are on my watchlist and what will trigger me to start buying?

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One similar company has been Docusign - which has created its name in the e-signature space (“Can you Docusign this?”). It’s also a tech company that’s generating positive free cash flow :)

stock has been on my watchlist for some years now but one where valuation always was a problem. But after being a massive Covid lockdown beneficiary - the stock has cooled off ~80% since its peak at the end of 2021. The company now also has a new CEO and senior management team and is in the midst of a restructuring. All this led me to re-assess the name, investment thesis and valuation scenarios.

Below is my investment analysis, where we’ll cover:

• Business Overview

• Docusign’s Earnings Drivers

• Business Risks

• Scenarios and Valuation + My price targets

• Conclusion

So, what is Docusign? Docusign is an e-signature and contract management cloud service provider. Essentially, enabling companies and people to securely send and sign documents online. is one of the leading players globally, claiming to have 70% market share in the e-signature segment and 1.3M customers. Key competitors include Adobe, Hellosign (now owned by dropbox).

Docusign also provides integration with other applications including that with major players like Salesforce.

How does Docusign make money? Most of ‘s revenues are subscription based, paid by the party that initiates the contract. e.g. a bank sending a KYC document online to their client for an e-signature - in this case, the bank pays Docusign for the service.

Note almost all of the contracts are pre-paid monthly or annually but the revenue recognition is deferred. Therefore, for modelling and valuation purposes - it makes sense to use “billings” as sales.

KEY EARNINGS DRIVERS:

Docusign hired ex-Google exec, Allan Thygesen as the new CEO in September 2022. (His incentive structure is linked to stock price performance per this SEC filing). Subsequently the company also hired a new COO and Marketing/Sales lead in Jan 2023. With a new management team in place, Docusign is in the midst of a restructuring. The full restructuring plan is yet to be shared but from last earnings release and recent conferences, we have some snippets of the potential direction the company is taking.

1. Cost Control and Margins:

• Docusign is already a profitable and positive Free Cash flow generating company. 82% gross margins and the company has demonstrated sizeable FCF leverage with scale.

• The main investment thesis relies on the cost efficiency / margin potential post restructuring.

• Since the new CEO took over, the company has announced ~20% headcount reduction. Additionally, they are optimising their product sales channels too.

• Yet, at the recent earnings release, the co. left the margin target unchanged. Understandably, the macro outlook is challenging but a 20% headcount cut is quite material which should lead to a greater improvement in margins. I believe the co. is keeping a conservation stance, leaving room for potential upside surprise when it comes to margin outlook.

  

  2. Sales Growth:

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In this note, we’ll discuss the Big Tech opportunity in greater detail - including the specific stocks that I have been adding to, my price targets and names on my watchlist.

Let’s dive in.

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Each January, I do a full review of my portfolio and a detailed consideration of how I want to set up for the year ahead. It’s more of a reflection and planning exercise.

In investing, I received one advice early in my career - every now and then, ask yourself - if you were to create a portfolio today from scratch (at today’s market prices), how would it look like? Essentially, forget about how much gain or loss you made on old positions, but think of the kind of portfolio you’d create if you were given fresh funds and blank sheet of paper NOW.

So each year I do just this.

Today, let me take you through my process of yearly review and rebalancing. We’ll cover the following steps:

1. Performance review

2. Goal setting for next year

3. Investment Opportunities for 2023

4. Rebalancing and Allocation strategies - Asset-class , Regional/Factors/Sectors (including an insight into my own allocation currently)

5. Stock selection

Let’s begin.

1. PERFORMANCE REVIEW: How did we do last year?

   • Here, I assess several metrics such as absolute performance of the portfolio, relative performance versus broader indices as well as the performance of the trades made.

   • Overall performance / So how DID I do last year? Clearly, 2022 was a tough year on an absolute performance basis after the phenomenal returns we saw in 2020/21. But relative return versus most indices was better. Below is a performance summary since launching The Edge in April 2022.

     

   • Specific buy trades returns so far: Here is a summary of specific stock returns since adding them to the portfolio since the newsletter launch. I also send these out as trade alerts which can be accessed HERE (available to paid subscribers). Note - All of these names I added to I currently still own in my portfolio.

     

   • If one wants to delve deeper into the performance analysis - I also like do is something called an Attribution analysis - it’s a way to analyse what contributed to the excess return of the portfolio relative to a benchmark. It’s tough to manually do this analysis but some brokerages give you this information. e.g. Interactive Brokers.

2. GOAL SETTING - 2023:

   • Next, it’s time to set specific, measurable and realistic portfolio targets for this year. It’s important to know what the end goal is before starting to chart out a path i.e. constructing the portfolio in this case!

   • For example, one might aim to increase one’s networth by a certain % or to earn a certain % return on the investment. Others may just want a steady income stream at retirement. It really depends on the stage of investing journey one’s on to and it is extremely personal.

   • For me, the quantitative targets involve an absolute and relative portfolio return target on a 1 year and 5 year rolling basis. And also a specific stream of income from dividends and interest.

   • In addition, it also makes sense to set some qualitative investing goals. Example, learning goals - a new sector or emerging industry one wishes to understand, a new market to expand the investment universe into?

3. INVESTMENT OPPORTUNITIES FOR 2023 - Studying the market

   • Next, I like to have a broad view on the overall markets and where the opportunities lie. This is a precursor to planning the overall allocation and then the stock selection.

   • What kind of environment are we operating in e.g. monetary tightening, too much monetary uncertainty? Are there specific areas of the market that look too oversold (e.g. as we saw global biotechs last year)? Does it make sense to put in some hedges?

   • I love to believe that “There is a always bull market somewhere!” We just need to look.

   • For 2023, at this point, these are the OPPORTUNITIES I SEE and MY 7 INVESTMENT HUNTING GROUNDS:

     1. Fixed income / Short dated US treasuries - 1 and 2 year US treasuries are yielding 4.7% and 4.1% respectively at this point. Which looks attractive as an alternative to holding cash / parking excess funds or even for an income stream.

     2. Luxury - It’s quite likely we are heading into a recession in the US and most parts of Europe. Luxury should remain relatively resilient. Some of the names also benefit from China re-opening. Selectively, I see some reasonably valued global names in this segment. Recently added to one per this trade alert sent on Jan 14.

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Congrats to all fellow Argentina / Messi fans out there for making it through to the World Cup final :)

So I am back after the much needed break!! 

And while I was away - one of the major developments (other than ChatGPT, of course) - that took place was China (finally and hopefully permanently this time) softening its zero-Covid stance. A result of nation-wide protests and the economic toll, the country seems to be finally opening up. For real this time. 

Most investors have been very underweight China throughout 2022. That may change in 2023. Note China names always have an inherent geopolitical and policy risk involved - that’s why I tend to size the positions accordingly to manage these risks.

If you are looking for inspiration on how to play China’s re-opening, here I have compiled for you a list of some of the stocks and ETFs that I find interesting. Including some names in my own portfolio, where I also include my price targets. 

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In the last few days, in Parts 1 and 2 of this report, I shared with you a detailed overview of India’s Internet landscape - including the structural changes that are driving the growth, who the key players are and how I am looking at the overall investment opportunity in this space.

If you missed the first 2 parts of this series, you can read them here:

1. Part 1 - First-hand observations from my visit to India

2. Part 2 - India’s Internet industry: Complete overview (Available for paid subscribers)

I believe that India’s internet industry is still at a relatively early stage of growth. At the same time, with an ~800M user base, it is also one of the fastest growing Internet sectors among most major economies.

There are investment opportunities in this space now which are available to global investors (i.e. even if one cannot directly invest in India’s stock market) but are still not fully understood or appreciated by broader market.

In this Part 3 of the report, we will talk about one such stock. I have tracked this stock for over 4 years now. I also added this name to my portfolio recently and believe it has potential to be a multi-bagger.

Let’s get started.

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Firstly, Happy thanksgiving to all those who are celebrating today!

Last week, I shared with you my observations from the ground while in India - of the digital boom I witnessed first-hand in the country. From 12 minute grocery delivery to getting prescription glasses made at-home and a whole parallel economy running on Whatsapp.

In case you missed all of this - you can read Part 1 of this note HERE.

Now, in Part 2 of this note - we’ll cover the industry landscape of India’s Internet sector in greater detail from an investors’ perspective.

• And really - what is driving the inflection point for digitisation in the country?

• How does India’s digital wave compare with other major global markets?

• Who are the key players across different verticals?

• Plus, the stocks I own and have on my watchlist.

So let’s begin.

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As some of you know, I have been in India the last several weeks. I am visiting after 3 years - and it has been an absolutely mind-blowing trip!! Pre-Covid, I used to come here 1-2 times each …

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We are still in choppy waters when it comes to the markets. The biggest company specific news last week was around Elon Musk (re)agreeing to buy Twitter… now whether he gets the funding…

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I have used most major website building platforms over the years - some for personal projects and others for ventures that I have been involved with. Shopify, Wix, Squarespace, Wo…

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