February 2020

TheCROW’SNEST

February 2020

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TheCROW’SNEST

Ahoy Crow’s Nesters,

I just flew home from a week in Romania. And boy, are my wings tired...

Aside from the Dracula tales from Transylvania, I can honestly say that I didn’t know much about the country.

But after a deep dive into its rich cultural history — the mysterious mountaintops, battered fortresses, and ancient castles — I can say with authority that it is one of the most interesting places I’ve ever visited. While Romania isn’t the first place on the tourist list for most people, (it wasn’t on my radar) if my experience is any indication, it certainly deserves to be.

My video team and I landed in Bucharest and met our driver Adrian. I could immediately tell by his encyclopedic knowledge of Romanian history that we had found the right guy to shepherd us along the Carpathian mountains from Bucharest to Brasov, Transylvania all the way to Iaşi. Adrian spent the last 10 years escorting everyone from international tourists like ourselves to working as a personal driver for the super-wealthy Gypsy royalty (those stories alone were worth the price of the trip).

Adrian glanced at our agenda and quickly (and strongly) suggested some major changes. Our first stop would now be a massive salt mine in the small town of Slănic. I took Adrian’s word for it and I’m happy I did. First, we boarded a small van that descended through a dark tunnel that seemed to stretch on forever. After 15 minutes we arrived in the shaft of the mine, and it felt far more like a Bond villain’s lair than a salt mine.

It was chilly, quiet, and incredibly large. Our voices echoed for several seconds after speaking. The ceilings were almost a thousand feet high (just look at the other visitors in this picture for scale):

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“Salina Slanic” was started in 1938 and mined from 1943 to 1970. Now it is used as a museum, complete with salt sculptures of famous Romanians and Dacians. It is well known as a place of healing, with many believing that the salts have restorative powers. In fact, you can buy a monthly pass in order to sleep in one of the many beds that line one part of the mine.

The entire experience was indeed restorative after a long flight, and was an unexpected but beautiful start to the trip.

We returned to the van and headed into the Carpathian Mountains, where we stopped in Sinaia — the home of Peleș Castle. It was constructed for King Carol I — Romania’s first king. It is massive (34,000 square feet with more than 170 rooms) and resplendent, as you can see in this photo I snapped:

It was also ahead of its time; it was the first castle in the world powered by locally produced electricity.

Over its lifetime, Peleș Castle has been visited by everyone from Richard Nixon to Muammar al-Gaddafi to Yasser Arafat.

From there we traveled to Brasov, Transylvania, where the Dracula myth comes from. We visited Bran Castle, which is said to be the inspiration for Bram Stoker’s Dracula.

Here is my view from the bottom of the hill:

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You can see why that would be the case. While it had a classic, regal feel to it — Bran’s Castle was certainly a bit creepy. It even had a medieval torture room that I’ll spare you. The story goes that Vlad Țepeș (aka Vlad the Impaler, aka Vlad III Dracula) spent a few restless nights here while fighting off the Ottoman Empire.

To dissuade the Turks from attacking Transylvania, Vlad thought up a master plan: he scared the absolute hell out of them by impaling thousands of invaders in the mountains leading into Wallachia. It is referred to as the “Forest of Flesh”:

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The sultan’s army entered into the area of the impalements, which was seventeen stades long and seven stades wide. There were large stakes there on which, as it was said, about twenty thousand men, women, and children had been spitted, quite a sight for the Turks and the sultan himself.

The sultan was seized with amazement and said that it was not possible to deprive of his country a man who had done such great deeds, who had such a diabolical understanding of how to govern his realm and its people.

And he said that a man who had done such things was worth much. The rest of the Turks were dumbfounded when they saw the multitude of men on the stakes.

— Laonikos Chalkokondyles: The Histories

I’d argue that this was a far worse punishment than simply having your blood sucked, living forever, and having the ability to change into a bat.

I will tell you, despite Dracula being a fictional character, the more I learned while in Romania, the more the myth made sense...

During the van ride to the castle, I rode shotgun with Adrian in order to get a firmer grasp on the myths we’d learned about Transylvania as Americans. Instead of dispelling the rumors and legends, Adrian opened me up to a deep understanding of why Dracula is synonymous with Romania.

It started when he told me about strigoi.

In Romanian folklore, strigoi were essentially ghosts that haunted local villages. These poor souls were typically the outcasts of the community: loners, the elderly, the mentally ill. The belief was that once these lonely, misunderstood people died, they would return to destroy the village in various ways — like poisoning the water, striking the livestock with diseases, and murdering children.

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Strigoi in Romanian, means “one risen from the grave”.

The strigoi can be a living man, born under certain conditions:

• Be the seventh child of the same sex in a family

• Lead a life of sin

• Die without being married

• Die by execution for perjury

• Die by suicide

• Die from a witch’s curse

Here’s where the fun Dracula stuff comes in…

Since strigoi were known to suck the milk from mothers and cows, Romanian farmers began smearing their livestock with garlic to keep the wraiths away. Even now, on the eve of Saint Andrew (the patron saint of Romania), rural people eat garlic and smear it on the corners of their windows and doors to protect themselves.

So, that checks the garlic superstition off the list. Let’s move on to the old “stake in the heart” routine...

Three days after the burial of a presumed strigoi, the body was exhumed by the villagers. Some lucky fellow would then have to open the casket and ram a stake right into the dead man’s heart. Unlike vampires, this was not to kill the strigoi, but to pin him to the coffin so he couldn’t escape and wreak havoc on the villagers.

French geographer Élisée Reclus detailed it like this: “It is prudent to nail the coffin heavily, or, better yet, a stake through the chest of the corpse.”

Another approach was to unearth and behead, then re-inter the corpse and head face-down.

All comforting stuff to know when you are touring the hills of Transylvania. I also took in some less creepy attractions while I was there.

Our crew had the privilege of visiting the Biserica Neagră — or “Black Church” — in Brasov. It is the largest Lutheran Church in Eastern Europe. Once known as the Church of Saint Mary, invading forces started a massive fire during a raid in 1689, charring its appearance and leading to its current, more foreboding name.

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We were also able to tour the Palace of the Parliament — the second largest government building in the world, outside of the Pentagon. It was commissioned by deposed Dictator Nicolae Ceaușescu in a bold display of Communist power and prestige.

Some quick facts:

• It’s the heaviest building in the world, constructed of 1.5 billion pounds of steel and bronze, 35 million cubic feet of marble, 7.7 million cubic feet of glass and crystal, and 32 million cubic feet of wood

• It has 1,100 rooms and 2,800 chandeliers (the largest one weighs 11,000 pounds)

• The construction process involved 400 architects

• It is visible from the moon

Michael Jackson was so impressed that he even played an intimate show in this very room.

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I could go on and on about our other adventures but I understand that this isn’t a travel newsletter (just for pure interest, I’ll be sure to bring you some of the video and drone footage we captured during the trip in the weeks to come).

This will all tie in with our new recommendation...

Let’s get to it...

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Charting the Course

I’ve written about video game investing before. You can read my write up of Take-Two interactive here.

According to Bloomberg, video game sales already top $150 billion. That is expected to expand big time over the next few years.

While I spent plenty of time on Mario Bros. and The Legend of Zelda, Castlevania was one of the first games that sold me on video games. While I could imagine eating magic mushrooms, traveling through drain pipes, and wielding a sword in the forest, I never thought that as an eight-year-old I’d be fighting vampires!

In Castlevania, you take control of Simon Belmont – a vampire hunter traversing through old castles – like “Dracula’s Castle” that I mentioned in great detail above. This game introduced me to Transylvania. You used whips, daggers and holy water to defeat Count Dracula himself.

It was a great game and inspired countless (sorry) other games over the years.

Castlevania was made by Konami. Though it is the 20th largest game manufacturer in the world, responsible for all-time greats like Frogger and Contra – it is not publicly traded. But I’ve found another historic video game company that is taking gaming to the next level.

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While I spent my youth playing games either in solitude or with my brother and a couple of friends, today video games are a global phenomenon.

Millions of people around the world join together to play games...

Just have a look at this:

Looks like a rock n’ roll concert... and it feels like it too.

These spectacles are selling out Madison Square Garden, the Wells Fargo Center and others in droves. The Staples Center sold out in just one hour for one of these shows.

One analyst on CNBC said going to one of these events was “One of the best sporting events he’d ever been to.”

Another analyst on ETF Edge called it a “global phenomenon.”

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Forbes reports this sector is expected to “grow substantially” in the coming months.

The industry is eSports.

Esports is the sport of gamers playing video games competitively for entertainment.

Now, I don’t know about you, but the idea of people paying good money to sit around and watch others play video games sounds ludicrous.

But you’re about to see how eSports is changing lives, changing schools, and, quite frankly, changing my views on how important eSports will be to the future.

Already hundreds of millions of people are spending time watching eSports... much like we watch football or baseball.

And it’s growing 5x as fast as these sports.

While the NFL grows at a 3.79% compound annualized growth rate...

The MLB at 4.76%... NBA at 2.58%... and NHL at 4.79%...

You already saw that eSports is running at a 22.3% clip... more than 5x the rate of growth as the four major professional sports. eSports topped about $1 billion in revenue in 2019. Within 2-3 years, that number is expected to double.

Let’s get into the game...

Capcom (OTC: CCOEY)

Capcom Company Limited is a Japanese gaming company that has creating some of the bestselling games of all time: Mega Man, Street Fighter and Resident Evil are my personal favorites, and have sold millions of copies over the years.

They also created some games licensed by Disney and based on their animated series or movies like Darkwing Duck, and Talespin. In its early years, Capcom focused on manufacturing video arcade machines. Capcom then broke into home console gaming through a partnership with Nintendo, but it remained one of the last game designers to stay focused on 2D games.

Capcom has also released movies based on its Street Fighter and Resident Evil franchises, which it views as a sales channel for its video games.

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Now they are betting big on eSports. Recently, they launched an entire arm of their business dedicated strictly to eSports and media licensing of their games.

It’s called Capcom Media Ventures.

Capcom Media Ventures now manages all of their global eSports initiatives outside of Japan, including the popular Capcom Pro Tour and the Street Fighter League. It also oversees the company’s entertainment licensing efforts.

While net revenue for Capcom has fallen by 13.6% year-on-year, operating income surged upwards by 37.1%, a record third-quarter level.

The strength of the company’s profitability has been attributed to strong high-margin digital sales, along with “solid” revenue from its flagship Monster Hunter World: Icebourne title. Capcom also saw an increase in revenue (+13.8%) and operating income (+36.6%) from its arcade operations.

We’re buying to prepare ourselves for the next wave of eSports.

Stats:

Previous Close: 14.85

52 Week Range: 9.59 – 15.66

Dividend: 1.24%

PE ratio: 24.11

You can read more at their website.

Let’s double down on this market with another play...

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Tencent (OTC: TCEHY)

There are plenty of companies that you could invest in that simply make video games – Capcom, Take-Two Interactive and Electronic Arts – but there is one interesting company that is more of a picks and shovels play.

Tencent is a multimedia conglomerate that also serves as the world’s largest video game company by revenue. The company’s multimedia business is buoyed by their cloud infrastructure and their holdings in other gaming companies like Activision Blizzard and Ubisoft.

30% of the overall revenues in Q3 was from the gaming industry.

They also own the massive WeChat social network – China’s biggest social media platform. That allows them to vertically integrate games, advertising, media and cloud computing. It’s been referred to as “Facebook meets WhatsApp meets Venmo, Candy Crush and Amazon.”

WeChat has over a billion users.

According to research firm Chan and Chong, Tencent’s cloud business could reach 50 percent that of Alibaba’s massive AliCloud platform by the 2021.

“The rising popularity of mini programs should enable WeChat to gain more ad budgets from those service providers such as OTA (online travel agencies), e-commerce and education advertisers, once these service providers are migrating part or entire of their businesses into WeChat through mini programs,” they said.

Mini-programs are applications within WeChat that allow consumers to access services ranging from banking booking doctor’s appointments to ride-hailing.

In the 2018 Berkshire Hathaway annual shareholders meeting, Charlie Munger identified WeChat as one of the few potential competitors to Visa, Mastercard and American Express.

They are a huge player in all of these connected businesses and remain under the radar here in the U.S.

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Stats:

Market Cap: $483.53 billion

52 Week range: $40.04 – 53.75

Average Volume: 3,995,221

Dividend: 0.50%

I believe that Tencent Holdings has huge potential. Let’s pick up some shares betting on the future of gaming.

You can learn more at their website.

Ballard Power Systems (NASDAQ: BLDP; TSX: BLDP)

It’s been a wild ride for fuel cell stocks this year...as most of you know.

We’re up 96% on Ballard Power Systems (NASDAQ: BLDP; TSX: BLDP), which just hit record highs last week.

FuelCell Energy (NASDAQ:FCEL), Bloom Energy (NYSE:BE) and Plug Power (NASDAQ:PLUG) are also up triple-digits.

While I’m pleasantly surprised at how quick we got here, I’m not really shocked. Almost every day, more news about fuel cell technology hits the wires and does the job of educating people about it – almost all of whom had never even heard of the technology before. The buzz is building...

As the famous philosopher GI Joe once said: “Knowing is half the battle.”

For example, Research Markets just released a 300-page report on the future of the technology. If you wanted to read the entire report, be prepared for sticker-shock: it costs $5,650 for the PDF.

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So, I’ll just give you the footnotes to save you some serious time and money...

• The automotive fuel cell market is estimated to be 13.6 thousand units in 2020 and projected to grow at a CAGR of 69.7% during the forecast period (2020–2028), to reach 932.6 thousand units by 2028.

• Due to the changing global climate and increasing global warming, governments are taking initiatives to create clean energy sources. Governments are increasingly investing in alternative sources of energy such as fuel cells. As fuel cells emit no greenhouse gases (GHG) and pollutants, they can impact the environment positively. Thus, governments are taking initiatives, making investments, and promoting the use of fuel cells.

• The >250 KW is projected to be the fastest-growing segment of the automotive fuel cell market, by power output, in terms of volume, during the forecast period

• The truck segment is the second-fastest-growing segment of the automotive fuel cell market.

• Typical fuel cell heavy-duty buses and trucks need a fuel cell with more than 250 kW power output. Fuel cell buses are considered to be the most suitable mode of transportation for the introduction of fuel cell technology in automotive applications. For transportation within a limited area, less investment is needed in building the required hydrogen infrastructure.

• Several governments across the globe are taking initiatives for developing public and private fuel cell vehicle transport. Various investments have been made in the development and production of fuel cell buses. The adoption of fuel cell technology in the truck segment is still in the development stage. However, owing to the advantages of high efficiency and low cost of transportation for long-distance, the fuel cell truck market is projected to grow at a significant growth rate.

• Currently, there are few fuel cell truck models available in the automotive market. However, the rapid development of fuel cell technology will boost the fuel cell truck market. Fuel cell vehicles are more efficient and cost-effective for long-range transportation. Hence, using fuel cell trucks for goods carriage will result in better emission control and cost-effectiveness.

• FCEVs are more cost-effective than other electric vehicles for long-range transportation. Nikola is expected to launch its fuel cell truck model by 2021. The company announced that the truck would have the highest driving range and a fuel stack with the largest power output as compared to models available in the current market. Anheuser-Busch, a brewery company in the US, ordered 800 fuel cell trucks from Nikola in 2018, and the order will start delivering as soon as the product is available in the market.

• Europe is projected to have the highest growth rate in the automotive fuel cell market

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• The EU2020 focuses on increasing the demand for fuel cells by improving the infrastructure and decreasing the cost of fuel cells. Even though European companies lag behind their Asian counterparts in fuel cell technology development and patents, Europe is slowly shifting its focus on renewable sources of energy. Germany represents around 75% of all European demonstration activities due to the presence of a number of small and large companies such as Siemens Westinghouse, Proton Power Systems PLC, Heliocentris, and SFC Energy.

• As governments are shifting their fleet of buses from ICE vehicles to zero-emission vehicles, it would create massive opportunities for growth of the fuel cell bus segment in the region. Besides buses, countries like Norway and Switzerland will be key markets for fuel cell trucks.

Ballard Power Systems (NASDAQ: BLDP; TSX: BLDP) is heavily covered in the report as an industry leader. They have a piece in every area of the market mentioned in the above bullet-points.

Now – unlike our current profits – the transition won’t happen overnight. But the exciting part for long-term investors is the hype is building slowly right alongside the research and development. The takeaway is that we’re going to enjoy this stock for a long time to come. 

Here are some more articles that will help you understand the potential of fuel cell vehicles.

Hyundai’s Nexo Is Helping U.S. Expand Hydrogen Fuel-Cell R&D

Hyundai says it will deliver five Nexo fuel-cell vehicles to the U.S. Department of Energy and help build a refueling station in Washington, D.C., for them.

Read on…

More info on the collaboration from the Energy Department here. 

Renewable Hydrogen Battles For The Soul Of Hyundai

The see-saw, up-and-down race to replace fossil hydrogen fuel with renewable hydrogen just got a little more interesting…

Read on...

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Hydrogen Fuel Cell Vs. Electric Cars: What You Need To Know But Couldn’t Ask

While I explain much of this in our report, many crew members have written to me saying that they are still somewhat confused about the main differences in something like Tesla’s electric vehicles (EVs) versus fuel cell vehicles (FCEVs). This EuroNews article goes a step further in making the distinctions between the more popular electric vehicles and the little known hydrogen fuel varieties...

It’s a great primer for any readers that still have questions.

Read on...

Pirate Cooking

The food I ate in Romania was amazing. Since the country is rich in agricultural tradition, the ingredients were all local, fresh and delicious. While the country is mostly known for Austra-Hungarian meat dishes, the vegetables were really top notch.

But the one thing that every Romanian begged me to order was Sarmale – pork stuffed cabbage with sauerkraut and fresh tomatoes.

I had them from carts in downtown Bucharest and from fine restaurants in Brasov and they were equally wonderful.

Here’s how to make them yourselves…

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From Spruce Eats:

Ingredients

• One head of cabbage

• 6 tablespoons olive oil

• 1 medium onion (finely chopped)

• 2 garlic cloves (minced)

• 2 1/2 tablespoons raw rice

• 1/4 cup hot water

• 1 1/2 pounds lean ground pork

• 1 slice crustless white bread

• 2 tablespoons fresh dill (chopped)

• 1 teaspoon thyme

• 2 teaspoons salt

• 1 teaspoon black pepper

• Optional: 1 teaspoon crushed red pepper

• 2 tablespoons water

For the Cooking Liquid:

• 1 cup sauerkraut juice (reserved from drained sauerkraut)

• 3 cups water

• 1 tablespoon vegetable oil

• 10 black peppercorns

• 4 bay leaves

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For the Dutch Oven:

• 3 cups sauerkraut (drained, rinsed, and squeezed dry; reserve 1 cup juice for cooking liquid)

• 6 strips bacon

• 6 fresh dill sprigs

• 2 pounds tomatoes (fresh or canned, sliced)

Instructions

• Remove core from cabbage. Place whole head in a large pot filled with boiling, salted water. Cover and cook 3 minutes, or until softened enough to pull off individual leaves. You will need about 20 leaves.

• When leaves are cool enough to handle, use a paring knife to cut away the thick center stem from each leaf, without cutting all the way through. Chop any remaining cabbage and set aside to be used in the Dutch oven.

Make the Filling

• In a large skillet, sauté chopped onion, garlic, and rice in 1 tablespoon of the olive oil, stirring frequently, until onion is translucent. Add 1/4 cup hot water, bring to a boil, reduce heat, and simmer 10 minutes. Remove from heat, cover, and let stand 5 minutes or until the rice has absorbed all the water. Let cool.

• Place pork in a large bowl. Quickly dip bread in water, squeeze to remove excess water, and add to the meat along with cooled onion-garlic-rice mixture, combining thoroughly. Add dill, thyme, salt, black pepper, optional red pepper, and 2 tablespoons water. Mix completely but lightly so as not to toughen the meat.

• Prepare the cooking liquid in a medium bowl by mixing sauerkraut juice with 3 cups water, oil, peppercorns, and bay leaves, and set aside.

Assemble the Rolls

• Place about 1/2 cup of meat mixture on each cabbage leaf. Flip the right side of the leaf to the middle, then flip the left side to the middle. You will have something that looks like an envelope.

• Roll away from you to encase the meat and create a neat little roll.

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Prepare the Dutch Oven

• Using 2 tablespoons of the remaining olive oil, coat a large, lidded Dutch oven or casserole dish. Mix reserved chopped cabbage with sauerkraut and place some in the bottom of the prepared Dutch oven.

• Place 3 strips bacon across sauerkraut and cover with a layer of stuffed cabbages. Add another layer of sauerkraut, bacon strips, and stuffed cabbage. Then top with remaining sauerkraut. Spread dill sprigs on top and sprinkle with the remaining 3 tablespoons olive oil. Pour sauerkraut juice-water mixture over all.

Cook and Serve the Cabbage Rolls

• Heat oven to 375 F. Place Dutch oven over high heat on the stovetop and bring to a boil. Lower heat to medium-low, cover and simmer about 20 minutes.

• Transfer to oven and cook 1 1/2 hours. Then add sliced tomatoes, cover and cook another 45 minutes. Remove lid and continue cooking another 15 minutes.

• When ready to serve, remove bay leaves, and accompany sarmale with boiled potatoes, pasta or mamaliga (polenta).

There you have it: a little taste of Romania. I hope you give both the country and the dish a try.

That’s all for this month.

Godspeed,

Jimmy MengelInvestment Director, The Crow’s Nest

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The Crow’s Nest © Outsider Club 2019, 111 Market Place, Suite 720, Baltimore, MD 21202. All rights reserved. No statement or expression of opinion, or any other matter herein, directly or indirectly, is an offer or the solicitation of an offer to buy or sell the securities or financial instruments mentioned. While we believe the sources of information to be reliable, we in no way represent or guarantee the accuracy of the statements made herein. The Crow’s Nest and Outsider Club do not provide individual investment counseling, act as an investment advisor, or individually advocate the purchase or sale of any security or investment. Neither the publisher nor the editors are registered investment advisors. Subscribers should not view this publication as offering personalized legal or investment counseling. Investments recommended in this publication should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company in question. Unauthorized reproduction of this newsletter or its contents by Xerography, facsimile, or any other means is illegal and punishable by law.

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