To The Moon

It is said that "Sell in May and go away", but the market has steadily hit new highs in May, which usually makes investors cautious. I think there are two main reasons for this:

1. The cooling CPI;

2. A large number of companies have announced better-than-expected earnings during the earnings season. Therefore, I am not considering reducing my position temporarily, but I also need to be wary of a possible pullback in the second half of May. From a macro perspective, the biggest risk may be that the debt ceiling issue may not be resolved satisfactorily.

I opened three new positions in May because they were not too beta-heavy and were completely based on "low correlation with the market".

No1. $Kenvue Inc.(KVUE)$

Kenvue is a company spun off from Johnson & Johnson's consumer health business for its IPO. Of course, Johnson & Johnson still holds 91% of its shares and just raised $3.8 billion at an offering price of $22 per share on May 4th, making it this year's largest IPO in the US stock market with a market value exceeding $45 billion.

In the US new stock market, newly listed companies often have low float ratios like KVUE's around 8%, so there is often some liquidity premium before listing which can cause prices to rise after listing by up to 25%. Especially for popular companies like this one where longs outnumber shorts, it is easier to create one-sided trends.

Reason for choosing KVUE is simple:

1) Its products have certain inflation-resistant properties - although they are not essential goods like food and beverages, daily necessities are still necessary for life and perform slightly differently from other consumer industries during inflationary cycles.

2) Interest rates have peaked now and strong dollar will retreat soon; multinational corporations will benefit from exchange rate gains next.

3) The company has high industry status and will become a target for many institutional investors' diversified holdings. After liquidity standards are met, it will also be included in the index, attracting more passive funds.

From a valuation perspective, the current P/E ratio of around 25 times is not high. Although such companies may not necessarily have growth potential, they are expected to continue to receive capital inflows from cyclical perspectives.

Another risk that I consider as a potential benefit is $Johnson & Johnson(JNJ)$ 's "talc" lawsuit. This controversy has been going on for a long time and has already been reflected in Johnson & Johnson's stock price; ultimately it will definitely be resolved and legal compensation by mother company would cover it.

Therefore, there is currently no reason not to be optimistic about KVUE.

[Trading Strategy] Hold stocks directly since there are no derivatives available yet.

No.2 $Charles Schwab(SCHW)$

You can call it a brokerage firm or wealth management company; you can say it's financial management but also acts like a bank. Charles Schwab was hit hard during the $SVB Financial Group(SIVBQ)$ incident in March and even once thought to go bankrupt due to debt quality issues raised by investors.

But things aren't that simple. Although customer fund outflows have occurred for two consecutive months, they have slowed down recently. At the same time, Charles Schwab itself can launch high-yield "banking wealth management" products to attract fund inflows - in other words its business differs greatly from regional small banks because it doesn't need cash reserves for depositors' withdrawals. The same asset value decline happened before but hedging measures were taken afterwards too.

The reasons behind choosing Charles Schwab are:

1) The banking crisis has passed and market panic selling ended earlier this year; performance will recover with subsequent capital inflows;

2) Interest rate hikes face challenges now so tighter credit cycles make more asset managers profitable;

3) Endogenous growth business can offset previous impacts because it is not a bank and its business type is more flexible.

In terms of valuation, after the big drop and Q1 earnings report, PE was only 12 times, which is at a historically low level. It's expected to recover once the market stabilizes.

[Trading Strategy] Since it's greatly affected by the overall market but has different trends from companies related to banking crises, I choose conservative Sell PUTs around $48-50 while preparing for receiving goods and building positions.

No.3 $Sony(SONY)$

The Japanese stock market quietly hit new highs with Sony being one of the top electronic and entertainment companies that institutional investors prioritize considering.

The reasons behind choosing it are:

1) Japanese assets are currently popular globally since Buffett entered; there's also celebrity effect. However, due to weak yen caused by loose monetary policy now in Japan, Japanese stock assets are easier to attract investment;

2) Although guidance for FY2023 was lower than expected, confidence in Sony remains high among investors. Moreover they previously revealed that Sony will be an exclusive ToF VCSEL supplier for iPhone15 so performance won't be too bad either.

$Microsoft(MSFT)$ Microsoft's acquisition of $Activision Blizzard(ATVI)$ may not necessarily succeed, but even if it does, the impact on Call of Duty's operation on PlayStation will not be significant.

In terms of valuation, a P/E ratio of 17 still has room for growth.

[Operational Strategy] Directly purchase Japanese stocks to generate Japanese yen liabilities (with low interest rates), or buy OTC stocks in the US market with higher financing rates.

Of course, implementing some Covered CALL strategies is also good because Japanese stocks are not prone to sharp fluctuations.