Unicorn Portfolio Launch

Building our 20 stock $10K portfolio

In the coming weeks we will build our Unicorn Portfolio from scratch. Using our tailored grading process, we will identify stocks with asymmetrical risk/reward opportunities. We are looking for great companies with high growth or future potential,  hoping to find a unicorn along the way.

Most of the investments will be in small to mid-cap companies. We will also include some speculative stocks in this portfolio. It is essential that investors understand the risks associated with this kind of strategy. Typically, these stocks should only make out 5-20% of your total portfolio, depending on your age, time horizon and risk tolerance. Dollar-cost averaging (DCA) will be used to layer into our position. The Unicorn Portfolio will focus on three sectors of investment: General Technology, Biotech and Semiconductors. 

General Technology

The current macro environment certainly does not look good for growth stocks, with the end of quantitative easing, increasing interest rates and a 40-year record high inflation. Don't forget the geopolitical uncertainty with the war in Ukraine. We suggest that each investor consider these questions: How much of this has been priced in? What will the economy look like in 5 years? Unfortunately, nobody knows.  FU Investments however will never short true innovation. We believe that the rotation into value stocks has been overdone and that value stocks might be the actual bubble. Looking at The Coca-Cola Company (KO) and Google (GOOG) for example. They are both well established companies and the leaders in their industries.

Consider the current valuation and growth of these two companies:

                       KO        GOOG

PE                   27.01    22.26

PEG                 1.15      0.24

Price/FCF     23.56    15.26  

GOOG's revenue is expected to grow at 15% annually for the next three years and KO at 6%, yet GOOG trades at a lower valuation. This sounds quite irrational, but remember the quote from famous economist John Maynard Keynes: 

The markets can remain irrational longer than you can remain solvent.

This essentially means we do not know where the bottom is and when technology growth stocks will come back in favour. 

Biotech

If you believe tech has had a bad couple of months, have a look at the biotech sector, it has been absolutely destroyed. Biotech is inherently speculative with many companies still in the trial phases or even preclinical phase. Some companies have no revenue and are highly dependent on future FDA approvals. This creates a tremendous amount of risk, but the potential reward is also massive. The SPDR S&P Biotech ETF (XBI) is trading below pre-covid levels and there are companies trading below book value, meaning their market valuation is below their asset value. We believe in the future of Genomics, Proteomics, AI drug discovery and Synthetic Biology. These should be big themes in the next two decades. 

Semiconductors

Semiconductors have held up better than some of the other sectors due to the strong demand. Lately there has been some downward pressure due to geopolitical issues in Ukraine, China and Taiwan. One thing is for certain, this sector is going nowhere and will continue to grow due to an increasingly digital and connected world. The uncertainty lies in how this sector will evolve and who will become the leaders.

Portfolio Update

Two additions were made on 22 April 2022

• $250 of Palantir at a price of $12.33 
• $250 of Beam Therapeutics at a price of $41.78 
• Both are 50% allocations of their full positions

Disclosure

This is not financial advice and only the opinions of the author. The $10K is not real money and only a demonstration of a typical portfolio. The author is currently long PLTR and BEAM.