Two years ago I was so bullish on Tesla that I basically wanted to become “the Tesla Fund.” Tesla was trading around $50 a share. It closed at $563 on March 8.
That was two years ago. I thought the setup was perfect for Tesla TSLA, -5.84%
and the pending electric-vehicle onslaught. Fast forward to today and Tesla is up more than 10-fold since we bought it, even after dropping more than 30% from its $900 high. The EV revolution is here and most of the stocks of the companies in that revolution have risen to bubblicious levels.
I am scouring the globe and even the universe to find the next revolutionary industries to get in front of, and I keep coming back to what I call The Space Revolution and The Virtual Reality Revolution.
So here’s what I’ve come up with as the best risk/reward for my hedge fund and perhaps for individual investors as well. I’m calling it “Spacebook,” which means being overweighted in space stocks and Facebook FB, -3.39%.
Let’s start with Facebook. Holy cow, Facebook’s valuation is cheap. The shares trade for 22 times the consensus earnings estimate for the next 12 months among analysts polled by FactSet. This is for a company whose sales are expected to increase 25% in 2021 and 20% in 2022, following 22% in 2020. (You can see the consensus sales estimates for Facebook and other big tech stocks here.)
That valuation is only slightly ahead of a forward price-to-earnings estimate of 21.7 for the S&P 500 Index SPX, -0.54%.
For the index, sale per share are expected to increase 9% in 2021 and 7% in 2022, after a 3.5% decline in 2020.
Facebook’s consistently high double-digit revenue growth is a lot for a company that did $86 billion in revenue last year. What’s most exciting about the growth numbers is that they don’t include any of the upside that Facebook is about to achieve in the burgeoning virtual reality market provided by the Oculus platform. As I wrote in January, the VR market is coming, and it’s coming soon. Facebook is going to be one of the biggest winners in that market, if not the biggest.
As I type this about Facebook, I can’t help but think back to two years ago (and 1,000% ago) as I wrote to you about Tesla. I’m getting the same exact feelings about valuations and revolutions.
To be clear, it’s not this current generation of Facebook’s Oculus virtual reality headset that is going to go mainstream, but it’s the next, lighter, even more advanced one and the versions thereafter. Facebook has a critical mass of developers as well as apps and games being created for its platform already. The first version of Oculus was like a late-version iPod.
Now, how many times do I need to talk about the Space Revolution? The technology has gotten advanced and cheap enough that the whole thing is literally taking off. This is a private company’s dream come true. We are starting to see private space companies come public just as I was saying they would be two years ago.
Over the next 20 to 30 years, there are so many applications that can come to fruition. Space factories, space tourism, space hotels, asteroid mining, supersonic transportation, new colonies — the list goes on. If your time horizon is the next two to three years, I don’t know what to tell you. It might not happen in that period.
But if you are like me and thinking about the next 10,000 days, then we have to get in front of this revolution. I started two years ago when I bought Elon Musk’s SpaceX in the private market for my hedge fund and followed up a year and a half ago when we got into Virgin Galactic Holdings SPCE, -2.78%.
A lot of public technology companies are bubbled up right now, space players included. We are probably paying two to three times what these companies are really worth right now as they come public.
However, we are making venture-capital-like investments in these with the potential to see 50 to 100 times our investment over the next 10 to 20 years. I’m OK paying up a little for that kind of opportunity. If we compare this sector to the bubbled-up electric-vehicle revolution that is already here, I like the risk/reward of the coming Space Revolution much more. The EV market has already had its huge run.
So how do we continue to invest in the Space Revolution? SpaceX is clearly the best company right now. If you’re wealthy enough, with a little work, you can find a way to make a private investment in the company. I’ve done that in my hedge fund.
But if you don’t have hundreds of thousands (if not millions) to throw at SpaceX, I think Rocket Lab VACQ, -4.00%
is the best way to invest in the space revolution right now. You can read more about Rocket Lab and Vector Acquisition Corp., the special purpose acquisition company, or SPAC, that is expected to take it public, here.
I have begun to take a position in both the hedge fund and my personal account. It has come down some (like most space stocks and high growth tech over the last week) since my initial report and I have continued to add to the position. Virgin Galactic remains another favorite public space company to invest in. We first got into that name in November 2019 at around $8 per share.
Virgin Galactic, just like the other space companies, is probably a little overvalued at the moment. Especially with no revenue and not being able to get its test flights successfully into orbit. But again, we are looking up to 30 years down the road and this is currently my third-favorite way to invest in the space revolution.
I’m researching four or five other space companies that have recently come public. I’ve also made Facebook one of my largest positions again for the first time in a while.
As always when making an investment, I suggest that you give yourself room to add to the position if it falls. Over the next six months to two years, I think we’ll have the opportunity to buy most small-cap tech stocks at lower prices. On the flipside, I can’t guarantee that those positions will drop, which is why I have begun to build my positions in the space and virtual reality revolutions, and why I will continue to add to them if given the chance at lower prices.
That’s why I am basically becoming “the Spacebook Fund.”
Cody Willard is a columnist for MarketWatch and editor of the Revolution Investing newsletter. Willard or his investment firm may own, or plan to own, securities mentioned in this column.
2020 began with fear of the “Robocar Winter” — a slide into the “trough of disillusionment” for the self-driving car industry that began in 2019. In spite of the world’s most chaotic year in recent memory, we saw that winter already turn into Spring. Here are the top stories of the year.
Real revolutions can get even more hype than false ones, so it’s not surprising that when the early promises that everybody would deploy by 2020 didn’t come to fruition that there was disappointment and pullback. Indeed, big car OEMs were quite happy to slow down, to not see their own industry turned upside-down at the speed that Silicon Valley startups like to operate. Most of those tech companies didn’t get the memo, and the year concluded with both real products and more insane valuations. Let’s go over the most important stories of the year, from #13 all the way to #1 — which (spoiler alert) once again involves Waymo, as does #2.
This review is also available in video form for those who prefer it:
#13 Startups die, OEMs pull back
The year began with two well-funded startup facing failure, including Starsky Trucking (which just shut down) and Drive.AI (which sold its team to Apple AAPL .) At the same time, many Auto OEMs continued their pullback from ambitious self-driving plans to work on more driver-assist “pilot” style offerings to compete with Tesla. The pullback of the auto OEMs was bad news for all the startups founded with the idea of selling to those car companies, who need a bit of innovation assistance.
GM/Cruise has mostly been doing tests and demonstrations in modified Chevy Bolts but they showed they also want to make a fully custom vehicle, and showed off the Cruise Origin, a fairly boxy Robezium meant to be used as a shared vehicle. Cruise says this is not simply a concept car — OEMs have shown off lots of concept robotaxis — but one in active development.
#11 NTSB Slams Uber and Tesla, Uber driver gets charges
At the start of the year, the National Transportation Safety Board had hearings on both the Uber Fatality and a Tesla Autopilot fatality. They came down hard on both companies, but also on NHTSA for not regulating enough. While pointing out many flaws at Uber, in the end the primary cause of the fatality was the negligent safety driver, who was eventually charged with negligent homicide by Arizona authorites.
It is noteworthy that the NTSB seemed pretty pleased with how Uber had turned itself around and devoted itself to safety. They like companies who do what they say, and were quite bothered by an unnamed company whose CEO (whose name probably rhymes with dusk) hung up the phone on them.
We’ll see the biggest milestones later in this list, but several other companies crossed important lines in putting cars out on the road without a human being behind the wheel able to quickly take the controls. While any good team has reached a level where they can have the car run for long periods without needing an intervention, reducing the ability to intervene is a strong sign of confidence in the system — the strongest sign that the public can be shown. It means the engineers tested things extensively and made a presentation which impressed the lawyers and the board enough to allow the project to put itself on the line.
AutoX took the driver out entirely in Shenzen, though on simpler streets. Nuro’s vehicle never had the ability to carry a driver, so they have always needed to work this way, and they did more of it. Yandex has, for some time, done tests with a human in the passenger seat. This person in the passenger seat still has a kill switch and can physically grab the wheel, so this is a much less bold step, but it’s still a step.
Cruise made a big deal of this as well, but also kept a person in the passenger seat and only showed off driving on deserted streets on the outskirts of San Francisco at night — so a small step, but at least a step.
Zoox also has no wheel in their vehicle, and it turns out their drive in San Francisco was a closed-street photo-shoot with staff pedestrians, not a real demo. However, their new vehicle can’t really have a safety driver so they soon will need to move to the real deal.
This was a big year of news for Zoox, but not all of it was good. Early in the year, with the winter in full force and the stock market in Covid turmoil, they needed to raise more money, and could not do it. Instead, they sold themselves to Amazon for just over a billion dollars — which is only a touch more than they raised in previous rounds, so not exactly a success. On the other hand, they now have an ultra-rich parent company who says that they plan to continue the Zoox vision. Many wondered if Amazon bought it just to get the team or to devote their tech to Amazon’s massive logistics business. For now, they are keen to do the robotaxi business as well.
This relatively minor news was one of the few bright spots for car OEMs. Honda’s Legend will feature a “traffic jam pilot” that lets you take your eyes off the road during the traffic jam. You need to take control again when the jam clears. While other car companies have promised this but held back, this is a car OEM putting out a very limited-domain real robocar, and taking the liability for it.
#7 LIDAR and sensor developments and public valuations
A sure sign of the return of enthusiasm has been the explosion in the LIDAR space, including some recent SPAC based public offerings by companies like Velodyne and Luminar with valuations of $4.5B and $8B respectively for their sensors. More are expected to come soon from Ouster and perhaps others.
We saw new forms of LIDAR and entirely different depth sensors, including imaging radar (with rumours that Tesla may use ARBE’s imaging radar chip) and a new multiview camera depth system from “Light” a company that began making consumer cameras but changed direction with a Softbank investment.
The top story in the mainstream news of 2020 had much less effect on robocars than might be expected. Most teams that were testing with two safety drivers shut down testing for a while, but many companies adapted easily to work-from-home. Covid may have accelerated Waymo’s push (seen below) to do more operations with no safety driver on board. Many companies did Covid gimmicks but everybody wondered what the virus meant for the long term future of shared-ride transporation. Uber and Lyft LYFT saw business plummet and rebound to half, and transit ridership is still way down and may take years to recover. On the other hand, several cities took the chance to experiment with closing some streets to cars to promote outdoor dining and walking.
The delivery business exploded (saving companies like Uber) but brought new attention to robot delivery firms like Nuro and Starship, which switched from campus deliveries to neighborhood ones. While contactless delivery is quite doable with a human driver, people feel better when it’s just a robot.
Covid also caused a great boom in video meetings and virtual conferences, and may create a long term decline in how much travel and commuting people do even after it’s over.
#5 Zoox reveals its secret vehicle
Zoox has been guarding its custom vehicle design since not long after its founding. Their mission was to go beyond all the other teams who put prime focus on the self-driving stack to also design the vehicle and build a robotaxi service. They finally let the world see the vehicle, which takes a similar “Robezium” form with face-to-face seats and sliding doors, but some special Zoox touches, like sensors with no blind spots, 4-wheel steering, symmetrical design with big batteries under the seats and good crash test results.
After all of Uber ATG’s troubles, Uber decided to get rid of it (and its Uber Elevate e-VTOL project.) It “sold” it to Aurora, in a deal which merged the two companies and invested an extra $800M in Aurora, pushing its valuation towards an incredible $10B. It was widely felt that Uber’s self-driving software stack was nowhere near the top of the pack in quality, and while Aurora has a better pedigree, it has made few demonstrations of the quality of its stack as well. The research part of Uber ATG was let go. Aurora (like Waymo and many startups) has moved a lot of focus to trucking.
#3 Tesla releases beta of city-street Autopilot (”FSD”)
The most attention of the year may have gone to Tesla releasing a very limited beta of what they misleading call their “full self drive” product. This is a driver-assist product which can handle city streets, and that’s pretty impressive considering it has to be done with the limited camera/radar/ultrasound sensor suite of a Tesla, and also works from limited maps which are mostly navigation maps augmented with extra data on certain trouble spots.
Tesla definitely leads the pack when it comes to driver assist, but it still requires a significant breakthrough to turn this into an actual real true working full self-driving system. Youtube is loaded with videos of Tesla’s completing decent length single trips without mistakes — and plenty of videos of scary mistakes — but it’s still a very huge distance from being able to do several lifetimes of driving without mistakes. If Tesla succeeds with this huge bet, it will be a major accomplishment, but it is still a bet. On the other hand…
Waymo published a deeply-detailed report on all safety incidents from over 6 million miles of driving in their pilot zone in suburban Phoenix. The result — over 8 human lifetimes without ever being at fault in an accident. That’s a superhuman level of performance, and the detail in their report throws down a gauntlet in front of all other teams who want to convince us they have done something impressive.
We should expect to see Waymo to now expand to other cities — suggestions are that San Francisco and Silicon Valley are next.
As a result of having pulled of the safety record at #2, the top story is the release of the world’s first real robotaxi service, open to the public within its service area. Like Uber, anybody can download the Waymo app and take a ride in the Chandler, AZ area. For a time, it was assured to be in a Waymo with no safety driver aboard, though they later starting bringing safety drivers back behind plastic barriers to expand the service area.
Yes, driving in Chandler is easier than most of the world, so Waymo isn’t finished. But they’ve hit the real milestone with this service, and while there is hard work to do, there’s no major breakthroughs needed on the way to bringing robocars to a lot of the world, and eventually to most of it.
Next year, I think we’ll see Waymo expand, and others get more milestones. You’ll see Tesla expand their FSD offering to more customers, and possibly even sell it as a monthly subscription, though at a fairly high price like $200/month. We’ll see more happen in trucking, which is the first thing that will get really commercialized, and we’ll also see more news come out of China. The winter is over, and spring is roaring ahead.
The index of blue-chip stocks fell 200.94 points, or 0.7%, to 30015.51, marking its largest one-day point and percentage decline in December. The S&P 500 slid 7.66 points, or 0.2%, to 3687.26 to extend its losing streak to a third session.
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The tech-heavy Nasdaq Composite, in contrast, rose 65.40 points, or 0.5%, to 12807.92, a new all-time high.
Much of the stock market has lost steam this week as some nations began taking steps to curtail travel in an effort to contain the emergence of a fast-spreading variant of coronavirus from England. The U.K. imposed stringent restrictions on social and business activity, prompting concern that more countries may be required to adopt measures that would hamper the global economic recovery.
“It would be a brave man to suggest this will just remain a U.K.-specific issue,” said
head of research for global markets in the European region at MUFG Bank. “Are we going back into another phase of more pronounced global lockdowns again?”
would likely work against the new variant and is being tested. If a new mutation would make the current vaccine ineffective, BioNTech can develop another tailored to the new variant in six weeks, he said.
“The big unknown is to what degree could the new strain make the efficacy of the vaccine lower,” said
head of equity strategy at Saxo Bank. “If it just turns out to be more infections, and it doesn’t have an effect on the vaccine, then the market will be less concerned.”
Late Monday, a fresh $900 billion fiscal stimulus package was passed by Congress, ending weeks of anticipation from investors about whether lawmakers could end their stalemate. The bill, which includes direct checks to households and relief for small businesses, is expected to be signed by
Even so, the bill’s passage wasn’t enough to propel the broader stock market higher.
“We’ve had the positive news on the vaccines and the fiscal deal, so there’s probably not a catalyst to drive stocks meaningfully higher in the next few weeks,” said
global market strategist at Invesco.
When Is the Market on Holiday?
Select stock-market closures through year’s end
Thurs. Dec. 24: U.S. stock market closes at 1 p.m. ET
Fri. Dec. 25: Markets closed
Mon. Dec. 28: London stock market closed
Fri. Jan. 1: Markets closed
Still, Mr. Levitt noted that he maintains a positive outlook on equities.
“In my opinion, betting against stocks over the next year and beyond is betting against medicine, science and policy makers,” he said. “And I’m not willing to make those bets.”
tumbled $9.52, or 1.5%, to $640.34, extending its losses for the week to nearly 8%. The electric-car maker made its S&P 500 debut Monday.
Moves in stocks could be big and markets may be especially choppy in coming days because fewer people are trading as the holiday period starts, said
global head of macro at Fidelity International.
The final stretch of trading in December is historically positive for the stock market. But this week’s losses may be a sign that investors are starting to take profits after a blockbuster year, especially as they consider the possibility of tax changes after President-elect
chief market strategist at TD Ameritrade. The S&P 500 is up 14% in 2020, and the Nasdaq Composite has catapulted 43% higher.
Additionally, Mr. Kinahan noted, Tuesday’s worse-than-expected consumer confidence report may also be weighing on markets.
The Conference Board, a private research group, said its index of consumer confidence dropped to 88.6 in the first two weeks of December, from a revised 92.9 in November. Economists surveyed by The Wall Street Journal had expected a level of 97.5.
Still, there were small signs of optimism. Data from the Commerce Department showed Tuesday that U.S. gross domestic product—the value of all goods and services produced across the economy—increased at an annualized rate of 33.4% in the third quarter, slightly stronger than the previous estimate issued last month.
Overseas, European shares rebounded after Monday’s losses. The pan-continental Stoxx Europe 600 gained 1.2%.
Major stock indexes in Asia closed lower. China’s Shanghai Composite fell 1.9%, and South Korea’s Kospi declined 1.6%.