Where to for big tech, chip makers, AI & Life sciences? | Michael Frazis

I’m your host, Murdoch Gatti, and in today’s ROCast, we are sitting down once again with Michael Frazis, the Managing Director and Portfolio Manager of Frazis Capital Partners.

Michael and I discuss a variety of fascinating topics, from his fund’s 80% performance (as of time of recording) this year to his thoughts on navigating the tech and biotech sectors. We dive into key stocks like Nvidia, DroneShield, and TransMedics, examining the strategies that helped deliver 7x returns in Clarity Pharmaceuticals and 4x in Mercado Libre.

1. Macro-Economic Views:

Market Dichotomy: Frazis highlighted that while many companies are under performing in the current market, a few sectors, particularly technology and high-growth sectors, are doing well. He emphasized the need to be invested in these standout performers​ and it is a stock pickers market.

Political Impact on Markets: Frazis discussed how nationalist policies in countries like Hungary and Poland have resulted in strong economic growth, while expressing concern about U.S. policies under Kamala Harris, particularly around unrealized capital gains and the potential impact on wealth​.

Interest Rate Cuts and Market Timing: Frazis warned that rate cuts, often seen as a positive, can be a red flag because they typically occur when the economy is weak. He highlighted the importance of being cautious and not assuming rate cuts will automatically benefit small-cap stocks​.

2. Stocks Discussed:

Nvidia (NVDA): Nvidia's stock rose about 9x from its lows but experienced a correction due to the broader semiconductor sector cooling off. Frazis emphasized that Nvidia is still benefiting from immense demand in AI and semiconductors, with quarterly growth of 15% and 120% year-on-year​.

DroneShield (DRO): Frazis bought into DroneShield at 80 cents and later sold near the highs after a large spike. He sold due to his risk management strategy which focused on taking profits at 2.5x-4x and re-entering when the price drops. The stock then dropped to around $1 before he re-entered at $1.15 in the placement.

TransMedics (TMDX): TransMedics, a company that transports organs for transplant, saw its stock rise from $60 to $167. After a brief dip to $36, it rebounded due to successful execution of its strategy to buy aircraft, allowing them to manage organ transport logistics. Frazis noted that margins had improved to the mid-60% range, and they were capturing more of the market​.

Clarity Pharmaceuticals (CU6): Clarity Pharmaceuticals saw its stock rise 7x. This company is focused on radiotherapies, particularly for treating cancers, and has shown excellent early trial results​.

Mercado Libre (MELI): Mercado Libre’s share price jumped from $1,600 to $2,061 in just a couple of weeks. The company grew its top-line by 42%, with a 10% net income margin​.

Nu Holdings (NU): NewBank's revenue grew by 65%, with gross profit increasing by 88% and income by 134%. The stock had tripled in value, and Frazis mentioned selling part of his position while targeting a 4x return​.

3. Fund Performance and Risk Management:

Portfolio Performance: Frazis mentioned that his fund was up around 80% for the year. He attributed this strong performance to avoiding investments in under performing stocks and managing risks by selling stocks with negative momentum​.

Profit-Taking and Re-Entry: His approach to risk management included taking profits at 2.5x-4x returns and avoiding the potential 60-90% draw-downs that are common in volatile growth stocks. This strategy helped boost overall portfolio performance​.

4. AI’s Role in Investment:

Frazis highlighted how AI tools like ChatGPT are revolutionizing investment management, improving productivity, and helping analyze data efficiently. He noted that these tools have significantly enhanced his team’s decision-making process​.

I really enjoyed this conversation, and I encourage you to stick around for the disclaimer at the end of the ROCast.

With that being said, I hope you enjoy this conversation as much as I did, so sit back, relax and enjoy.

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