Are We At “Peak-Unicorn” Yet?

This article written by Gerry Frigon first appeared in ValueWalk on January 20, 2020

We’ve been asking ourselves in our investment management shop for some time if we have finally reached the peak of the “unicorn” phenomenon.  For those who may be unfamiliar with the concept, it is a term now used to describe a venture-backed private company that has reached a $1 billion valuation before it goes public.  The early pioneer in that realm was Google, who went public in 2004 at a $24 billion valuation.  Facebook went public in May 2012 with about a $104 billion valuation.  Clearly, Google and Facebook have been successful post-IPO as Google (now Alphabet) is worth almost $980 billion.  Facebook is worth about $624 billion.  These early multi-billion IPO valuations were a distinct change from the previous IPO paradigm and led the way to a new era of companies waiting to IPO until their valuations were stratospheric compared to the preceding era.

For some context, in March 1986, Microsoft went public and its first trade on public markets was at $21 per share.  It had 24.7 million shares outstanding for a total value of about $518 million.  This was a big deal for the time, but it’s amazing to think that less than 20 years later (even with inflation considered) Google went public with a $24 billion valuation.  Take a look at another 1980s iconic tech company: Apple. That company went public at $14 a share which valued the company at over $850 million.  And while that same day the stock traded up to $29 per share for a valuation of $1.77 billion, again, even inflation adjusted, it pales in comparison to the values that twenty-first century unicorns reached.  Even though it was over thirty years later that Facebook went public at $104 billion, the dollar hasn’t lost its value enough over those three decades to make the comparison even remotely close.

These comparisons are among some of the most successful companies ever launched.  And while we can come up with significant reasons to argue that there are other important differences between twentieth-century tech companies such as Apple and twenty-first century “tech” names such as Facebook, we’ll save that analysis for another article.  What’s more concerning is the number of companies in the last fifteen years that have risen to the ranks of unicorn and have not proven that their businesses can ever be profitable (for example, Uber!) or which have just completely bombed altogether and had to close up shop.  Continue Reading

Disclosures: Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Taylor Frigon Capital Management LLC (“Taylor Frigon”), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from Taylor Frigon. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. Taylor Frigon is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice. A copy of the Taylor Frigon’s current written disclosure Brochure discussing our advisory services and fees is available upon request. If you are a Taylor Frigon client, please remember to contact Taylor Frigon, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services.

Gerry Frigon, Chief Investment Officer at TaylorFrigon talks to Business Insider about investing in ‘enablers’ in high growth industries.

"A CIO overseeing $230 million explains how he's gaming the biotech industry by investing with minimal risk — and shares his 2 favorite stocks in the space."

"Age-old investing folklore says that risk and return are inextricably linked. If you want a higher return, you have to take more risk. An investor can't have one without the other. But Gerry Frigon, the founder and chief investment officer of the $230 million Taylor Frigon Capital Management, doesn't adhere to that school of thought — and he's found a way to play high growth trends with less traditional risk exposure."

Read the full article here...

Disclosures: Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Taylor Frigon Capital Management LLC (“Taylor Frigon”), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from Taylor Frigon. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. Taylor Frigon is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice. A copy of the Taylor Frigon’s current written disclosure Brochure discussing our advisory services and fees is available upon request. If you are a Taylor Frigon client, please remember to contact Taylor Frigon, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services.

Why Is Silicon Valley Ignoring Core Technology Companies?

This article written by Gerry Frigon first appeared in ValueWalk on December 18, 2019

Recently, the world witnessed the largest IPO ever.  Saudi Aramco went public and just a couple of days later it hit the $2 Trillion level in market value.  The company has been around in one form or another for decades and it is somewhat ironic that the world’s largest company, and the first to go public at such a valuation, is an oil company. Given the “unicorn-like” mentality of venture capital nowadays, one would have thought it would be a social networking application or a ride-sharing company, or a real estate leasing arbitrage company parading around as a technology company that would be the first to hit such lofty levels.  One can only imagine that this is quite disappointing to the twenty-first century Silicon Valley venture mavens who are convinced windmills and sun-worshipping is the key to our energy future, but I digress. The real scandal in the news of this massive IPO has nothing to do with energy.  Instead, it is the lack of energy that has persisted in the financing of core technology startups thus far in this century and has resulted in a persistent lack of IPOs in general... Continue Reading

Disclosures: Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Taylor Frigon Capital Management LLC (“Taylor Frigon”), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from Taylor Frigon. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. Taylor Frigon is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice. A copy of the Taylor Frigon’s current written disclosure Brochure discussing our advisory services and fees is available upon request. If you are a Taylor Frigon client, please remember to contact Taylor Frigon, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services.

Investment Climate January 2020

The year 2019 ended with strong price increases for major markets in the United States and capped off a very good year overall with large company stocks outperforming their smaller counterparts when comparing indices based on company size.  

Interestingly, while small and mid-cap stocks clearly underperformed large company stocks in the general market this past year, for our growth portfolios, the best performing stocks came from the ranks of mid-cap, small-cap and even micro-cap companies.  Israeli-based Novocure, Ltd., a developer of cancer treatments which use electric “fields tuned to specific frequencies” to disrupt solid tumor cell division, grew 151% and is now over $8B in market value.  Phoenix-based Carvana, Inc., an online used car retailer, was up over 181% and the lone large-cap company in the mix Canada-based Shopify, Inc., a software platform that allows online businesses of all sizes to run their entire business online, was up 187%.  Micro-cap biotech company Compugen, Ltd., also Israeli-based, was up over 174% and optical component manufacturer Inphi Corporation, based in Sunnyvale, CA., was up over 130% to round out the best performers.

This result was that our Core Growth Strategy outperformed the general market averages again in 2019.  

These top performers are a good indication that our portfolios were favorably impacted by a very broad mix of companies representing a diverse set of industries, so there was no one “sector” that could be identified as the reason for positive influence on the portfolio.  Company-specific dynamics were the driver for each of the best performers.

The same is true of those that were the biggest detractors in the portfolio.  QuickLogic Corporation (-41%), provider of analog and mixed-signal semiconductors for communications and data center markets, Green Dot Corporation (-71%), a consumer-oriented financial technology company, and Vuzix Corporation (-58%), a maker of augmented reality smart glasses, each are clearly representative of differing groups.  In all those cases, while the near-term performance has been disappointing, we believe there remains significant potential in the future.

Looking forward, most of our exposure in the portfolio is in the information technology and healthcare-related sectors.  What is most important to understand, however, is that in those areas, the portfolio is represented by significant diversity amongst industries, many of which have sensitivities that vary greatly from each other.  Thus, it can be misleading to look at the overall portfolio weighting of over 50% in “information technology” (IT) and assume that it is heavily concentrated.  For example, in that broad “information technology” group we find such differing industries represented as cybersecurity software maker CyberArk, Ltd. and analog semiconductor foundry (also known as a “fab” or “fabrication plant”) Tower Semiconductor, Ltd.; subscription software platform company Zuora, Inc. and Airgain, Inc., a designer of embedded antenna technologies for the wireless industries. 

In healthcare (with roughly 25% representation), veterinary products manufacturer IDEXX Laboratories, Inc. differs greatly from Apyx Medical Corporation, maker of electrosurgical devices used in cosmetic procedures, or Vapotherm, Inc., a maker of devices used to non-invasively treat patients who are suffering from respiratory distress.

These are some examples of companies that fit well into our narratives that are built around three schemas: demographics, technology and business processes.  Descriptions of the companies mentioned above give an idea of some of the narratives relating to healthcare and technology.  Others, such as the rise of the subscription economy, relate to business processes and how business is conducted; or to the significant impact that biotechnology is having on the treatment of disease. We also invest in companies that are not necessarily inventing these new treatments, but instead companies which support the proliferation of such technologies.  A great example is Cryoport, Inc., which provides cryogenic transportation of drugs both in the development phase and also during commercialization.

Each of these narratives, as well as many others, are represented in some form in our portfolio.  With economic tailwinds at this point, we expect the companies in our portfolio to either continue on the positive track they’ve been on, or to achieve breakthroughs in their efforts at attaining the expectations we have for them.  It is entirely possible that some of the smallest companies in our portfolio will be where the largest returns come from in the next year or two as some long-awaited business prospects come to fruition in specific companies.  This could well result in a circumstance where the returns in our portfolio significantly diverge from those of the broader market which is so heavily dominated by the “mega-cap” stock such as Google, Amazon, Apple and Facebook.  Stay tuned.

Disclosures: Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Taylor Frigon Capital Management LLC (“Taylor Frigon”), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from Taylor Frigon. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. Taylor Frigon is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice. A copy of the Taylor Frigon’s current written disclosure Brochure discussing our advisory services and fees is available upon request. If you are a Taylor Frigon client, please remember to contact Taylor Frigon, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services.