Today, I want to tell you about one of our favorites here at Cabot Wealth Network: Shopify stock. But first, let’s talk about the nature of why SHOP is so attractive.
How Stock Investing is Like a Beauty Contest
Whenever someone asks me my opinion about a stock, there’s one thing I do first.
I don’t look at the income statement.
I don’t look at the balance sheet.
I look at the chart.
If I see this…
….I look no further. I say, “The short-term prospects are not good. Better wait—or look elsewhere.”
But if I see this…
…I say, “It looks good,” and then I look at the income statement and the balance sheet, as well as other fundamental factors.
Thus, stock investing—at least to me—is like a beauty contest. If the stock doesn’t pass that first screen—if it doesn’t look good—it gets no further in my analysis.
But if it can pass the beauty test, then I look at the other factors—the story and the numbers.
Why Shopify Stock is Like Amazon 20 Years Ago
For example, last week in this space, I mentioned a couple of strong stocks, one of which was Shopify (SHOP).
This is the chart I showed.
Then, turning to fundamentals, I quoted what Mike Cintolo wrote when he first recommended the stock:
“The basic story with Shopify has always been powerful and easy to understand: The company has one of (if not the) best e-commerce platforms to help companies of all sizes (from entrepreneurs to huge brands like Nestle and Frito Lay) make the most of their online operations, develop attractive online stores, boost marketing on social media and apps and more; give them the tools to appeal to more customers (mobile sites, card readers, short-term loans); and provide a fully integrated back office suite (shipping, inventory, reporting and analytics). Prices start at just $29 per month (up to $2,000 or more for large brands), and Shopify thinks it’s playing in a $64 billion market. Some short selling outfits have taken repeated shots at the company (low-quality merchants, etc.), but business continues to crank ahead. Shopify makes money via subscriptions (monthly recurring revenue was $37.9 million in September, up 41% from a year ago, bolstered by more higher-end subscriptions), from special services (Shopify Capital issued $76.4 million in merchant advances in Q3, up 73%) and by taking a cut of every transaction that its platform facilitates (gross merchandise volume rose 55% in Q3, while payments using its payment app accounted for 41% of all volume). The end result: Revenues continue to grow rapidly and earnings are expected to kick into gear in 2019.”
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These winners should go much higher even in this volatile market—don't miss out!
Summing it up, I wrote, “The short version is this: As brick-and-mortar stores fall victim to online shopping, Amazon is not the only winner; Shopify is the winner that enables many of the companies that are smaller than Amazon.”
Since then Shopify stock has continued to rise.
Here’s the chart now:
Meanwhile, Amazon (AMZN) looks like this:
That’s not bad, but it’s not good either. It’s what the pros call a market performer, doing just as well (or bad) as the market.
And there’s one big reason for that.
You see, everybody knows about Amazon, so everyone who might invest in it is already invested. (Cabot first recommended Amazon stock 20 years ago, when it was growing fast.)
Amazon is not going to go up because new investors discover it. But Shopify can!
Worse, Amazon risks not meeting the expectations of all those investors who own it, and if that happens, the sellers could easily overwhelm the potential buyers.
And when they find out about Shopify stock, they might buy that instead!
So, when you’re evaluating stocks, start first with the beauty test; does the chart look good?
Second, go through the usual fundamentals. Is business growing now and does it have good growth prospects for the future?
Third, consider the buying and selling potential of the mass of investors. If everyone already owns a stock, it may have more short-term potential on the downside.
But if a stock is just getting discovered, it may have more short-term potential on the upside.
Like Shopify stock.
If you like that chart above, and you like the company’s fundamental prospects, you could just run out and buy SHOP stock now. But if you’re really smart you’ll become a regular reader of Mike Cintolo’s Cabot Top Ten Trader advisory, where he highlights 10 momentum stocks like that every week!
To find out what stocks he’s recommending now, click here.
Timothy Lutts heads one of America’s most respected independent investment advisory services. Each week, Tim personally picks the single best stock in his exclusive Cabot Stock of the Week advisory. Build your wealth and reduce your risk with the top stock each week for current market conditionsLearn More