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Michal Semotan: It would be a sin not to close this position, ZIM paid off

Jason Bellier
10. 5. 2023
6 min read

In November, everything was bad, now everything is rosy again, and it is clear to all of us that cash continues to burn on Metaverse, says portfolio manager Michal Semotan, with whom I am talking about Meta Platforms, the earnings season and the latest purchases and sales.

I recently read your statement where you wrote: "I would almost say the market is asking for a correction, which may be triggered by a worse earnings season." So how do you assess the earnings season so far?

Yes, that's what I thought might be triggering the correction. So far, it hasn't happened, most of the companies I follow have delivered solid results to the market and so stocks continue to rise. Apple reports this week, that will be very important going forward. There are some hints from some investment houses for possibly worse numbers, but let's be surprised. I'm a little worried for the first time in a while whether Apple can continue to set the bar high. We also have central bank meetings. If the Fed raises interest rates by more than 0.25%, the market would take that negatively, but I don't expect that. I think 0.25% is fine. So there is no "armageddon" in stocks yet.

  • (the interview was last week, so we already know Apple's results)

Was there any company that outright surprised you (related to the results)?

I continue to be pleasantly surprised by European industrial companies, especially car companies. They were seen as clear candidates for write-downs and so far they are posting very solid results with higher margins and really high profits in absolute terms, including dividend payments. Despite the fear of declining market share in China, both Mercedes and others are posting full order books for this year and are not going down with margins, unlike Tesla for example.



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What do you make of the likes of Meta Platforms $META-0.8%, which has seen another giant jump in share price post-earnings?

I have to say that I was almost surprised at how much Meta's stock strengthened after the results. I understand the change in rhetoric, the drive for greater efficiency, the return to growth in core segments, but you can see how much stronger the market sentiment was at the time of the results and the perception or evaluation of these numbers by the investing public. Everything was bad in November, now everything is rosy again, and that cash continues to burn on Metaverse is mentioned in one sentence. Really, this is where the market gets interesting.

How do you see it now with your position in Meta, have you realized any gains or are you holding on?

We have now put our position on hold after the results. Yes, I am considering selling part of it. We are already completely in profit and quite significantly, but the saying of "greedy investors" is true: "Let the profit run..." So we're letting it run a little longer. It's a reward for a period when we suffered a lot last year with our long position on Meta. Just don't get too greedy.

You're not worried about Reality Labs losing another bunch of money?

This was expected and announced news, so it didn't surprise the market or me. It's a long run and only Mr. Zuckerberg and his closest engineers have any idea, hopefully, how it will turn out. I don't presume to judge it ahead of time.

Which is more attractive to you at the moment - focusing on the metaverse or focusing on AI?

So clearly, stocks with a focus and with a more realistic use of AI are significantly more popular with investors. It's something they can touch now, they can imagine using and simplifying a lot of activities. That's also why Microsoft's $MSFT-0.1% stock is rising to above $300 per share this year, and that growth is primarily behind their AI.

Meta stock is up nearly 110% in the last 6 months, which is a huge jump. Is this rapid growth justifiable given the fundamentals and the current market environment, or does this growth not make much sense?

Just as I thought the decline in Meta stock last year was overdone, the same seems almost overdone now on the other hand. But that's just my personal feeling, the market is always right, or realizes the price that supply and demand creates, so I guess it doesn't feel right for me to judge it in any way. I have to accept always what price the market will create and then react to it according to my opinion. But if it was just my personal feeling, I would find it excessive this year, as I wrote at the beginning of this reply.

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I also saw on your Twitter feed that you were selling shares of $ZIM-8.8%, which has been gaining popularity among investors lately. Could you justify the sale for us?

We bought ZIM stock below $18 in the second half of January, took a $6 dividend and sold above $21. I found that incredibly quick for the profit it made. It would have been a sin not to close that position. We were probably pretty lucky in the execution of this position here, but that's the way it goes sometimes. We continue to watch ZIM stock, waiting to see if a new opportunity arises, but the price would have to drop significantly for us to consider buying again. Thanks to a lower future dividend.

Conversely, you have been buying Qualcomm $QCOM+2.1% and Moneta. Could you say what you're particularly interested in these two and what you expect from them?

What I see in Moneta is an attractive dividend yield and it is also the only domestic bank that is still a "fight" to be fought over. Especially for domestic big players, it may be interesting because it is not under so much pressure not to lend to certain sensitive sectors.

Qualcomm $QCOM+2.1% is then a big player in the chip maker's playground, its products are in demand and the earnings forecast is still growing in the coming years. In addition, its market valuation is interesting on stock multiples from my perspective (e.g. ev/ebitda around 8, no debt, high FCF). In addition, I also expect interest rates to fall in the first half of 2024 going forward, thus "repricing" the valuation upwards.



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What do you expect for the rest of the year? Will we see continued growth or could we finally see a recession and possibly problems in other sectors?

It would be strange if everything is all positive by the end of the year - that doesn't seem entirely realistic given the current situation with higher inflation, higher interest rates, geopolitical risks. So my personal view is that we will still see a correction in equity markets in the coming months, but we should use this downturn to replenish our portfolios with equities to the full.

  • Did you enjoy today's interview? If so, be sure to follow us, my guest today was Michal Semotan.

Please note that this is not financial advice.

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