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3 Alternative Chipmakers that Don’t Use Silicon

Silicon chips have long been a mainstay in all types of electronics, from household appliances, to vehicles, to almost anything that runs on electricity. But higher demands from modern electronics is starting to expose flaws in silicon chips when used in emerging technologies. The problems with silicon have been known for a number of years now and fall into three areas.

One is that silicon is very poor at transmitting light, which means it’s not used for now-commonplace things like LED lights and Blu-ray DVD players. More significantly, silicon doesn’t handle high temperatures well – it becomes physically brittle and inefficient performance-wise, requiring some effort to cool down, like heat sinks, fans and physical location far away from other heat sources. Lastly, silicon chips can now get so small, nearly the size of a red blood cell, that a basic property called electron mobility starts to fail, making it harder to use silicon in higher frequency situations.

I’ll be honest – I don’t know much about electron mobility, but I know enough to trust the scientists who say it’s a bad thing for applications like 5G, EVs and renewable energy – all of which are embracing new raw materials for semiconductors.

There are two emerging materials that we’re seeing increasingly embraced in those industries. One is gallium nitride (GaN), the other is silicon carbide (SiC), which weaves silicon with carbon. There are some differences between them, but they both are better than silicon at heat tolerance – so they can operate in hotter environments – have higher thermal conductivity, which means they are more energy efficient and transfer electricity better, and have better electronic mobility, which means they can be used at higher frequencies and higher voltage.

GaN chips, for instance, have a bandgap triple that of silicon, which make it ideal for high-power applications. SiC chips withstand higher voltages before breaking down than silicon, making it the basis of simpler, faster and more efficient switches and energy storage devices being deployed in solar and wind energy industries. There will always be a place for silicon chips, but it’s increasingly apparent there’s a valuable place for gallium nitride and silicon carbide too. The GaN market is expected to grow 29% annually the next five years, with SiC not far behind at about 19%, according to various forecasts.

3 Semiconductor Stocks That Don’t Use Silicon
#1: Wolfspeed (WOLF)
Wolfspeed (WOLF) focuses on SiC primarily, which its research finds is 13 times more efficient at transferring electricity than silicon. The company also does work with silicon carbide chips built on gallium nitride wafers. Wolfspeed is the company long known as Cree, mainly a U.S. maker of LED lights. Last year the lighting business was sold off to focus on the faster-growing non-silicon chip market. Stripping out the discarded businesses, Wolfspeed generated $526 million in sales in fiscal 2021, ended June. Management is investing heavily to meet a target of tripling sales to $1.5 billion for fiscal 2024, much of which is expected to come from automaker EV production demands. There’s a deal with General Motors, and management has said Ford and Volkswagen have shown interest. In coming years, Wolfspeed says it expects to be selling about $250 to $300 of product into every EV it is included in. Shares have retreated from a recent high of 140 with the market-wide sell-off in growth stocks, but they remain on the correct side of their 200-day moving average, around 110 right now.

#2: Navitas Semiconductor (NVTS)
I’ve highlighted Navitas (NVTS) in Cabot Wealth Daily before, and with good reason – it’s a pure play on GaN chips. Navitas, an Irish-domiciled company based in California, recently went public by SPAC. It focuses on selling gallium nitride chips into EVs, including inverters, the items that regulate electrical current, for battery mechanics and for traction drive systems. Before even considering other design factors, simply using GaN instead of silicon can boost an EV’s range 5% or more. Right now, Navitas sells GaN chips into consumer electronics, like phone chargers, from LG, Lenovo, Amazon and the large China conglomerate Xiaomi. Shares have been volatile, in part because newly public businesses through SPAC mergers tend to need time to find their feet after hedge fund arbitrageurs exit the stock. Still, even after slipping from a high of 20 in November to 11 recently, Navitas is actually one of the best-performing SPAC mergers to hit the market in recent months. It will probably more than double sales this year to $46 million and more than halve its loss per share to 33 cents.

#3: Onsemi (ON)
Onsemi (ON) long was a maker of commodity, “fab filler” silicon chips named ON Semiconductor. The recent name change reflects a new CEO (as of late 2020) and a fresh strategy – to focus on higher-margin, physically larger chips made of SiC it expects to sell into EV systems, renewables, military applications and general auto traffic sensing products such as blind-spot monitoring. Key to the company’s focus is the acquisition and expansion of an East Fishkill, New York, foundry to produce 300-milimeter chips. Onsemi makes its own SiC chips and also can sell any excess 300mm wafers to other, supply-constrained manufacturers. The company has long been a provider of chips to the auto industry, consistently in the top 10 suppliers, offering about 10,000 products. That means its plan to move up the value chain within the automobile has a good shot to succeed. Doing so will also make the business less susceptible to commodity-like price swings of cheap silicon ships, one of management’s goals too. 2022 should put revenue over $7 billion and generate EPS of $3.26.

Shares have eased just slightly of late to 66 from an all-time high of 71, but its chart still shows it to be one of the strongest Greentech stocks around right now.

Do you own any semiconductor stocks in your portfolio? Tell us about them in the comments below.

5 Ways to Invest in the Most Valuable Resource on the Planet

Most readers are probably aware that Harvard alumni make significant contributions to their alma mater. More specifically, alumni have made contributions to the Harvard Endowment Fund that have allowed it to grow to the tune of about $42 Billion. Now, to be fair, this fund has existed in some form or another for nearly four centuries and contributions are frequently earmarked for specific legacy purposes.

That being said, the fund, which was previously managed by famed bond investor Mohamed El-Erian, is widely regarded as some of the smartest money on Wall Street. Following the smart money has a tendency to pay off for investors; so, what is the Harvard Endowment Fund investing in these days?

For the last several years, the fund has invested a portion of that $42 Billion in California vineyard land. Not for the land itself, but for the associated water rights.

Most of us take water for granted. It’s the most abundant resource on the planet after all, and it’s normally cheap – $2 per 1,000 gallons, for the average American. But all I have to do is utter the words “Flint, Michigan” to remind you that not everyone is so fortunate, even here in the U.S.

Globally, 785 million people lack access to clean water; 2.1 billion people don’t have clean drinking water in their homes. Progress has been made, for sure; between 1990 and 2015, 2.6 billion people in developing countries gained access to clean drinking water. But the world’s surging population combined with the effects of global warming—extreme drought in some areas, extreme flooding in others—means water scarcity still affects four out of 10 people.

With clean water becoming an increasingly scarce resource, water is more valuable than it’s been in decades. And so are the companies that supply it.

That’s why water stocks have been among the market’s best performers of late. Just look at the returns of these five water stocks and ETFs over the past two years, all of which have either beaten or matched the 45% return in the S&P 500 during that time:

5 Water Stocks and ETFs to Beat the Market
Global Water Resources (GWRS): +65%

Middlesex Water Company (MSEX): +52%

First Trust Water ETF (FIW): +53%

Invesco Water Resources ETF (PHO): +52%

PowerShares Global Water Portfolio ETF (PIO): +45%

Not all water stocks and ETFs have outperformed, of course. But of the 20 or so that I looked at, only a couple were actually down in the last two years.

The two stocks on this list are water utility companies. Global Water Resources is based in Arizona and provides “Total Water Service” that manages “the entire water cycle by owning and operating the water, wastewater and recycled water utilities within the same geographic areas in order to both conserve water and maximize its total economic and social value,” per the company’s website; Middlesex Water Company owns and operates water utility and wastewater systems in New Jersey, Delaware and Pennsylvania, and has raised its dividend for 48 consecutive years. The other three are ETFs whose holdings include some of the top water stocks from around the world.

All of them are growing; the two water stocks on this list are expected to grow revenues by an average of 6% in 2021 despite disruptions to business from the ongoing COVID-19 pandemic. That may not sound like much. But up until a year or two ago, most water companies weren’t growing at all.

Like most utility stocks, both of them pay a dividend. And with a possible market correction looming, utilities are a good hedge against possible impending volatility.

The water crisis is clearly on Wall Street’s radar, and the institutions are investing in the push to solve it. As with the coronavirus, let’s hope it is solved—sooner rather than later.

Until then, you can profit by investing in the companies trying to do the solving.

Do you invest in water stocks? Why or why not?

The One Thing Keeping Silver Prices Down

Although silver has maintained relative strength versus gold and appears to be in the process of establishing a bottom, the white metal remains below its key (25- and 50-day) moving averages.

Unfortunately, this bottoming process is being accompanied by overenthusiastic retail investor sentiment, which is concerning from a contrarian perspective. Notably, bullish retail sentiment may be depressing short interest and preventing the possibility that a bull raid and accompanying short squeeze could drive the price significantly higher in the near term.

Another near-term concern is in the physical bullion market, where a growing number of Reddit-inspired small investors are snapping up bullion coins in the hopes of galvanizing a massive short-covering event.

The basis of the movement is a Reddit community called Wall Street Silver, and its members call themselves “silver stackers,” or “apes”—an insider reference to the movie Planet of the Apes.

Who are the Silver Stackers?
Many within this community believe that by purchasing as many bars and coins as they can, they can collectively run up silver prices by 100% or even 1,000%, “to the point where they can call the shots against the so-called bullion banks, the large financial institutions which lead trade in precious metals,” in the words of a recent Reuters article.

How much of an impact these Reddit community members are having on physical bullion supply is certainly questionable. But I don’t like seeing this much bullish retail trader sentiment for silver in a time in which the U.S. dollar (in which silver is priced) has been strengthening.

Ideally, traders should become more bearish as prices fall, not the other way around.

While there are times when even the retail crowd can end up correctly buying near a market low, in most cases, when the crowd starts buying physical silver hand-over-fist like the silver stackers have, they’re usually premature in their optimism. For this reason, I am avoiding making any buy recommendations in the silver ETFs right now in my Sector Xpress Gold & Metals Advisor newsletter until we see definite technical evidence that the market has been fully cleared of selling pressure and is ripe for another extended rally.

At any rate, we’ll know the bottom is in for the latest internal correction when the silver price surges above its key moving averages, as mentioned earlier.

Fundamentally, however, nothing has changed to alter silver’s positive longer-term outlook. Indeed, a growing number of industry experts believe silver could go as high as $50 in the year ahead if the White House’s renewable energy plan is fully implemented. This would have the effect of increasing silver demand for use in electric vehicles (EV), solar panels and other alt-energy applications in which the metal is widely utilized.

Additional anticipated uses for silver in the foreseeable future include the continued 5G wireless network rollout. For these reasons, I expect that silver’s recent woes will prove to be but a temporary setback in the face of a bull market that should be able to regain traction at some point in the coming months.

Be on the Lookout for a Silver Rebound
My observation is that purely emotion-driven price declines are reversed fairly quickly. So, if I’m correct that June’s silver market slam was primarily a news-driven event courtesy of the silver stackers (and not fundamental in nature), then we should see silver hitting bottom in the near future. Assuming this happens, we could soon have another trading opportunity in silver.

If and when that happens, I will recommend the best silver stocks and ETFs to buy to play the rebound in my Sector Xpress Gold & Metals Advisor newsletter, where I already have a portfolio full of other precious metals investing plays.

Do you own any silver stocks or ETFs in your portfolio? Tell us about them in the comments below!

3 ETFs to Hedge Against Rising Inflation

If you’re worried about excessive federal spending and a loose money supply you may be considering investment decisions to offset inflationary pressures. We’re already seeing higher food and commodity costs, and interest rates are steadily creeping higher. It’s imperative to know which assets tend to outperform in an inflationary environment, for doing so can drastically improve your investment returns and protect you from inflation’s ravages.

Fueling the trend toward inflation has been the U.S. Federal Reserve allowing the M2 money supply to increase at an historic rate since the pandemic started. Since last March, M2 has soared by nearly 30% to over $4.2 trillion. This amounts to annualized growth of around 15%, which far exceeds the 6.5% annualized rate of past decades.

Economist Scott Grannis points out that the U.S. public has been hoarding most of the M2 money increase in the form of bank savings and deposit accounts (likely due to pandemic-related worries). He estimates that M2 is currently over $2 trillion above its long-term growth trend, which amounts to an extra 12% increase in the amount of money the public would normally hold. Says Grannis:

“If the public decides to reduce its cash holdings relative to income, this ‘extra’ M2 could fuel a 12% increase in inflation over the next few years.”

Inflation’s bite is also being felt in many areas, but perhaps none more significant right now than the housing market. The huge demand for housing, coupled with diminished inventories, has priced out many prospective homebuyers. But lumber prices, which soared 400% between March 2020 and March 2021, are another example of how inflation is impacting an important segment of the economy.

Commenting on this development, real estate expert Robert Campbell observed:

“The National Association of Home Builders (NAHB) said that soaring lumber prices had added $24,400 to the cost of a new home—which may help to explain this: After New Home Sales hit a 14-year high in August 2020, the number of new homes sold has fallen by 26.7% through February 2021.”

In view of this, let’s take a look at three ETFs that should appreciate as commodity prices increase.

Hedging ETF #1
The first (and arguably best) way to take advantage of higher commodity prices is to own shares of a commodity-focused ETF. The Invesco DB Commodity Index Tracking Fund (DBC) is one way of having exposure to commodities without having to own the physical assets involved. The fund is designed to track changes in a diversified commodity index (heavily weighted toward energy prices) and is designed for investors who want a cost-effective and convenient way to invest in commodity futures.

Hedging ETF #2
Another way to hedge against an increase in inflation is by owning silver. The white metal provides excellent diversification of an equity portfolio since it is weakly correlated to stocks, and is only moderately correlated to other commodities. One of the most actively traded silver-tracking ETFs is the iShares Silver Trust (SLV). It has been consolidating for several months, but if the inflation rate accelerates this year, I expect SLV to outperform other inflation-sensitive assets.

Hedging ETF #3
A worthwhile consideration for bond investors is the iShares TIPS Bond ETF (TIP). This fund holds Treasury inflation-protected securities (TIPS), which are indexed to inflation and is designed to outperform an aggregate bond index when inflation is increasing.

One point to remember is that it’s important not to commit too much of your portfolio to the hedge, which is designed to partially offset adverse performance of your underlying investment. A portfolio that’s over-hedged runs the risk of counteracting the underlying investments when they’re performing as intended.

What strategies are you considering if inflation arrives as feared?

QuantumScape Stock Looks Like a Better Version of This Former High Riser

The recent rise of QuantumScape (QS) calls to mind another company that offered similarly revolutionary technology nearly three decades ago. Both promise (or promised) to bring to market new energy storage solutions to help power the electric vehicle industry.

The Emergence of Alternative Automotive Power Sources
Way back in 1993, a company named Ballard Power came public, trading under the symbol BLDP. Ballard’s business, as some readers know, was (and still is) fuel cells, which generate electricity from hydrogen through chemical reactions and can be used to power vehicles. BLDP’s lowest price that month, adjusted for subsequent splits, was slightly over a dollar a share. Seven years later, during the 2000 market top, the stock hit 150!

Here’s a chart published just before that peak (a shade reminiscent of the recent peak in GameStop (GME)).

But as we all know, 2000 was a major market top, and BLDP investors were hit especially hard; the stock was trading below a dollar by 2012. Since then, it’s been working its way higher, and it’s done especially well in recent years, as investors have jumped into all kinds of new energy stocks. Trading at 15 today, however, BLDP is still well off that old 2000 high, and the simple reason is that the dreams that investors had back in the 1990s—dreams that fueled the massive advance—simply haven’t materialized. Reality did not conform to expectations.

Yes, Ballard Power has a real business today, which brought in $29.6 million in the latest quarter. But Ballard still doesn’t have earnings. And the simple reason is that management chose to follow the “wrong” path.

Back in the ‘90s, when BLDP was strong, the road to success appeared obvious. Fuel cells would one day power most of the world’s vehicles, generating abundant electricity from non-polluting and renewable energy sources.

What “Everyone Knew” was Wrong
The logic behind this conclusion was simple. The only other remotely possible energy source was batteries, and batteries, as everyone knew back then, were simply too heavy. It was a fact—and easy to believe for anyone who had carried a standard 12-volt automotive battery around.

But the common wisdom was wrong, as became clear in 2008 when Tesla began producing its battery-powered Roadster.

Ballard’s website today will tell you that Ballard products and technology have powered vehicles (mainly buses and trucks) that have driven more than 75 million kilometers (mainly in China). That sounds like a big number. But those miles haven’t brought big revenues to Ballard. And today, those 75 million kilometers (47 million miles) are dwarfed by the miles that Tesla vehicles have driven (estimated at 23 billion a year ago).

But this column isn’t about Tesla (TSLA). TSLA was a great stock to own in 2020 when it grew sevenfold, but now it’s in a well-deserved cooling-off period. The darn stock is just too popular.

The Hope of QuantumScape Stock
What I want to spotlight today is QuantumScape (QS), a company that is working on some breakthrough electric vehicle battery technology.

Current lithium-ion batteries, for all the progress made over the past 20 years, are still heavy, expensive to produce, don’t last all that long and take considerable time to recharge. QuantumScape believes they will soon be rendered obsolete by solid-state batteries, which have dramatically greater energy density than today’s lithium-ion batteries.

QuantumScape’s solid-state batteries promise not only greater energy density (more power per pound), which means greater range, but also superior reliability and a longer life than their lithium-ion cousins. In addition, they’re also capable of charging to 80% in as little as 15 minutes, half the time needed by the fastest Tesla Supercharger.

QuantumScape at this point has seen no revenues; the company has nothing to sell yet. But it does have a serious investor. In 2020, Volkswagen invested $300 million in QuantumScape, securing 20% equity ownership of the company. Furthermore, on the board of directors are John Doerr and JB Straubel, two men with great track records of launching winners.

As for QuantumScape stock, it is definitely not unknown today.

QS had a great run in late 2020 when the retail investing crowd (fueled by Robinhood and Reddit) piled into electric vehicle stocks. QS stock ran from 11 to 132 in just two months!

But whenever I see a chart with a parabolic advance like that, I know that there’s a big decline somewhere ahead, and with QS we’ve had it. Since bottoming at 40 in early February, the stock twice more tested 40 (the third time was after announcing an offering of 10 million shares), and is now finding a bottom near 30. The longer this bottom lasts, the greater the odds that the next big move will be up.

Now, I don’t think there’s any urgency about investing in QS. Bottoms take time, and if the broad market weakens, it’s possible that QuantumScape stock will fall below 30. But if it does hold up here, and if the stock strengthens, the odds are very good that this stock will be the automotive energy success story that Ballard Power wasn’t.

Do you believe solid-state batteries are the power storage solution of the future?

Invest in these Commodities to Protect Against Inflation Concerns

The federal government has pumped trillions of dollars into the economy via massive relief bills and may be poised to invest trillions more in infrastructure. This massive cash and liquidity injection, coupled with ongoing low interest rates from the Federal Reserve is raising concerns among many investors that we’ll begin to see inflation rear its ugly head.

If you’re one of those investors that is concerned about the impact of inflation on your portfolio, there are a number of measures you can take to protect yourself.

Perhaps the best inflation signal, and hedge, is via a commodity ETF or stock. Commodities are starting to move after a 10-year bear market.

Goldman Sachs points out that while the energy-heavy S&P GSCI Commodity Index has surged from its April 2020 low, its total return has been minus-60% over the past decade against a 263% total return for the S&P 500 index.

No question, natural resources like energy, metals, and agriculture are back in vogue, and perhaps everyone should get on board.

5 Commodity ETFs and 1 Stock to Consider
Institutional investors and university endowments like Harvard’s and Yale’s have long had some investment in commodities to diversify their holdings and hedge risks. Individual investors may now want to do the same and increase their commodity exposure to 5%-10% or more of their portfolios.

For example, platinum prices have neared their highest level in six years, driven by concerns about inflation and a sharp rally in financial markets that has powered assets, from stocks to oil and bitcoin, higher.

Most actively traded platinum futures have risen about 17% so far in 2021 to $1,259 a troy ounce, outperforming most other precious metals. Since last March, platinum prices have more than doubled. ETFs backed by platinum owned 3.9 million troy ounces of the metal at the end of January, up from 3.4 million a year earlier, according to the World Platinum Investment Council.

A direct play on platinum is the Aberdeen Standard Physical Platinum ETF (PPLT).

Next, take a commodity like copper, so critical to the electrification of the grid because it conducts electricity. With electric vehicles taking off, it is worth noting that electric cars need four times as much copper as internal-combustion engines. In addition, onshore wind farms are four times as copper intensive per megawatt as traditional power plants.

A great copper play may be Freeport-McMoRan (FCX), which derives about 80% of its revenue from copper mines located all over the world. Keep in mind that developing a new copper mine can take as long as a decade, not to mention substantial capital.

Of course, the traditional way to hedge inflation is by investing in gold, though a new-age investor now might prefer a cryptocurrency, which they often refer to as “digital gold.” Popular gold ETFs include the SPDR Gold Shares (GLD), with $70 billion in gold bullion assets, and the iShares Gold Trust (IAU). Also, silver prices are in a sharp uptrend and you can capture this trend with the iShares Silver Trust (SLV).

Finally, a simple, shotgun investment vehicle could be the Invesco DB Commodity Index Tracking Fund (DBC), which allocates about 55% of its portfolio to energy, with the other 45% divided between metals and agriculture.

As you can see, there are a number of ways to gain exposure to the world of commodities, via either a commodity ETF or stock. I suggest you add some of the above ideas to your portfolio.

Do you invest in commodities, and if so, what’s your preferred investment vehicle?

My Two Favorite Energy Stocks Today

Given the state of today’s housing market it may seem strange to look just a little over a decade in the rear-view mirror and revisit the subprime mortgage crisis, widespread housing price crash and the Great Recession. If you were an investor at the time you likely remember the wild volatility and significant daily losses that were unlike anything we’d seen in years and which wouldn’t be replicated until the pandemic sell-off just last year.

And while the broader equity markets rebounded at a reasonable pace (the Dow and S&P 500 reached pre-crisis levels in 5-6 years, Nasdaq in a little over 3), a few sectors languished and traded sideways for years. When these events arise they may seem unique, but students of the market know that the sectors and companies may change but the song remains the same. An ignored and neglected sector inevitably becomes a potentially profitable turnaround target.

Back in 2011, that turnaround situation was housing, which had been declining for six years and saw many stocks completely fall apart—Lennar (LEN), a major homebuilder, fell as much as 95% from its highs (the ultimate bottom was in 2008) and even in 2011 was still sitting 82% off that all-time high. But it (and the sector as a whole) began to change character and business showed signs of picking up, which allowed homebuilders to enjoy a solid run during the next year or so.

Today, we’re seeing a similar situation play out with traditional energy stocks – whether it’s explorers (down 89% from mid 2014 through October of last year) or service firms (down more than 90%), the entire group went through the wringer for many years due to debt worries, falling prices, imploding demand and the like.

But similar to homebuilder stocks years ago, that caused a change in the sector’s thinking—whereas oil companies were all about new basins and production growth a few years ago, today most have slashed expenses, are growing output at a manageable pace and, now that prices are rising, should spin off mountains of free cash flow. Throw in positive momentum on the chart (the sector has been outperforming the market for more than four months, the longest stretch of time in years) and we think there’s opportunity here, especially after the next pullback in the group.

If you want to keep it simple, there’s nothing wrong with just owning a broad ETF—we prefer the SPDR Oil & Gas Fund (XOP), which focuses on explorers and isn’t too concentrated (top holdings are 3% to 5% of the fund) in mega-cap stocks. Like most names in the group, the fund has come alive since November and is under extreme accumulation.

My Two Favorite Energy Stocks Today
As for individual stocks, two of our favorite names are Diamondback Energy (FANG) and Pioneer Natural Resources (PXD)—two good-sized explorers that have two things in common that are attracting big investors.

The first is that both were on the offensive even during the prolonged industry bust and last year’s pandemic. Diamondback just completed a buyout of Guidon (from a private equity firm) and will soon finish its purchase of QEP Resources, which together will net them 80,000 acres in the Midland basin. Pioneer, meanwhile, just completed its takeover of Parsley Energy, which many said had some of the best acreage in the Permian Basin when it was a standalone outfit.

The second factor is even more important—after years of downtimes, these (and others) explorers have shifted their focus. Instead of taking on tons of debt and expanding production at all costs, these operators have cut costs, boosted efficiencies and, now that prices and demand are back up, are beginning to throw off tons of cash. In 2021, Diamondback is aiming to keep production relatively flat, but believes it will produce $4 per share of free cash flow (after CapEx) even at $40 oil. At $60 oil, that figure should be north of $7.50 per share!

Pioneer is on a similar track—its breakeven oil price is in the high $20s, it cranked out $689 million of free cash flow last year and sees $2 billion of free cash flow this year (more than $9 per share) at $55 oil. (Current oil prices are in the mid-$60s, though usually these firms collect a bit less than the market price.)

Both FANG and PXD have had huge runs since the November cyclical stock blastoff (FANG has been down just three of the past 17 weeks!) that look like the initial leg up of a new bull phase. (Interestingly, the initial housing stock advance lasted 18 weeks before chopping around for a while.)

We wouldn’t chase energy stocks up here, but the next pullback into support will probably offer some tempting opportunities if the overall market is still holding up.

What’s your favorite energy play for the sector turnaround?

These 5 Wall Street Bets Stocks Actually Have Staying Power

Whether you’re an avid trader, a novice investor, or just read the news, you no doubt learned about the Reddit trading craze in which a group of individual investors, many trading on Robinhood, identified heavily shorted companies and began buying up shares. Stocks like GameStop (GME), AMC Entertainment (AMC) and BlackBerry (BB) rapidly reached all-time highs and just as rapidly gave back most of those gains.

GME and AMC still top the list of “trending stocks” on Reddit’s Wall Street Bets page and have recouped some of those losses, but are still trading roughly 50% below those January highs. Most retail investors that bought in during the frenzy ended up losing money; only investors that bought in advance of the rally, or after the shares corrected likely profited off the trades. But there are other “trending” stocks on the thread that are not only still performing well now, but have been for quite some time.

The following five stocks all made the top 20 on the Wall Street Bets trending page. All of them are either trading within a reasonable range of their all-time highs, or trading well above their 200-day moving averages. And all of them have posted market-beating returns in the past 12 months.

Here are five Reddit stocks that look well positioned for the long haul:

5 Reddit Stocks with a Shelf Life
Digital Turbine (APPS)
Millennials love apps, so why not invest in a stock with the same ticker symbol?! In reality, Reddit users’ fascination with APPS goes much deeper than that, and with good reason: the company provides apps for mobile phones and is, in fact, the only company imbedded in the Android operating system to allow for app downloading. With 6,000 apps being added per day to the Android platform, that’s an enormous – and growing – customer base, with big-name clients such as Netflix and Amazon.

With earnings expected to more than triple this year, and sales expected to more than double, there’s a whole lot to like about Digital Turbine. The valuation is high, and the stock has become super volatile of late, but you can’t argue with the performance over the last year.

Dycom Industries (DY)
Dycom supplies skilled workers for the telecommunications service provider industry. The sales growth is modest (1.4% expected this year), but the earnings growth is enticing (16.8% estimated). And obviously the returns have been quite impressive over the past year, with the stock stair-stepping higher for some time. Still, it’s unclear why Reddit users are so infatuated with this small-cap stock.

First Majestic Silver Corp (AG)
Silver stocks and ETFs have attracted the Reddit crowd’s wandering eye of late, none more so than this Mexican-based silver miner. Most of the stock’s gains in the last year came during the mad rush in late January, as AG peaked at 22 before crashing to 16 in the first week of February. It’s been up and down since, but is still holding nicely above its 200-day moving average. I’d wait for this one to stabilize before attempting to buy.

Palantir Technologies (PLTR)
Big data is big business these days, and Palantir is a software company that specializes in big data analytics. It’s growing like a weed: sales are expected to expand 35% this year, and earnings per share are expected to rise a whopping 700% (from 2 cents to 16 cents). PLTR came public in late September and is up over 100% since, despite a big pullback in February and mostly sideways trading in March. Having built a base for most of the last month, a breakout to the upside could be forthcoming if growth stocks continue to get their act together.

But as a recent IPO in a high-growth, tech-based industry, it’s easy to see why Palantir appeals to the Reddit crowd.

MSC Industrial Direct (MSM)
MSC is one of the largest industrial equipment distributors in the U.S., providing metalworking and other tools. With the Biden administration making improving America’s infrastructure one of its primary objectives, it’s no coincidence most of MSM’s gains have come since the November election. Right around 52-week highs, and with only modest volatility (1.06 beta), MSM looks buyable right here.

Did you trade in any of the Reddit “meme stocks” and what was your experience?

Why the GameStop Fiasco was Actually a Good Thing

When GameStop (GME) stock went to the moon, I wasn’t surprised, in fact, I was amused to see that the market had evolved one more mechanism for creating a bubble.

As is typical of many bubbles, the buyers who pushed up GME stock were young and extremely risk-tolerant. They were not focused on building healthy retirement accounts. They were trading for quick big profits. And they were not particularly experienced; in fact, many have probably never experienced a down market. This I’ve seen before.

But what was new about the GameStop Affair was that many of these buyers had found a community through their trading activities, as social media increasingly has filled the gap that restrictions on real-world socializing have created. They can’t go to a bar. They can’t go to sporting events. And they can’t even bet on the many sporting events that have been cancelled in the last 10 months. So they’re betting on stocks, and reveling in the community that stock trading has enabled.

To top it off, the aspect of targeting the fat-cats who run hedge funds added an aspect of vigilante justice to the mix—and further inflamed the spirits of the participants, who at that point had adopted some of the characteristics of a mob.

But then trading was shut down temporarily in the hottest stocks (for rational reasons), the young traders cried foul, and the result of that (this was really unexpected!) was that Senator Ted Cruz and Representative Alexandria Ocasio-Cortez agreed that the government should get involved to fix the problem.

I disagree. I don’t see a problem at all.

The Great Thing About Investing
The great thing about investing is that anyone can do it. All you need is some money. In that way, it’s sort of like driving a boat in most U.S. states. There’s no licensing requirement at all. If you can buy a boat or convince somebody to lend or rent you a boat, you can be captain.

But as professional boaters know, some of those captains-for-a-day can do really stupid things.

The solution to that problem is fairly simple; it starts with education.

And education is the solution to the conditions that created the GameStop Affair, too, and all the other bubbles this crowd will create.

Now, I’m not so clueless that I think these beginners, some of whom have lost a good chunk of money very quickly, will realize that their own actions are the major reason for their losses, and that becoming better educated about investing is part of the remedy. It’s easier to blame others.

But for those that do see the value of education, I have three books to recommend, all focused to some extent on the phenomenon of crowd psychology that was so evident last week and that throughout history has always played a major part in the creation of market tops and bottoms.

• First is The Art of Contrary Thinking, by Humphrey Neill, published in 1954, in which we find the classic line, “When everybody thinks alike, everyone is likely to be wrong.”
• Second, from 1896, is Gustave Le Bon’s The Crowd, A Study of the Popular Mind, which includes this: “The masses have never thirsted after truth …Whoever can supply them with illusions is easily their master; whoever attempts to destroy their illusions is always their victim.”
• And third, going way back to 1841, is Charles MacKay’s Extraordinary Popular Delusions and the Madness of Crowds, where we find the quote, “Men, it has been well said, think in herds; it will be seen that they go mad in herds, while they only recover their senses slowly, and one by one.”

Yes, these books are old, but the main lesson in every one rings as true today as it did when published.
Crowds of People Tend to Behave Irrationally.

Our modern society has made tremendous technological advances, but crowds of people still do very stupid things.

But What About GameStop?

The bubble is deflating. The stock will probably see periods of revival, but the prospects for the year ahead are dim.

Personally, I’m staying away. The Madness of Crowds is not for me.

In the meantime, the good news is that we are still in a bull market and there are hundreds of other healthy stocks that are quite worthy of your investment dollars.

The good news is that if our representatives in Washington do enact some legislation that protects individual investors—which is likely given the current Democratic leadership in Washington—it will encourage more new investors to invest in the stock market.

The good news is that after a long period of low levels of individual stock ownership, a new pro-individual investor movement might lead a lot of people to become more educated and intelligent about their investing practices. (I give credit to Robinhood for making investing—or at least trading—attractive to young people, but they did a terrible job educating them.)

What did you learn from the GameStop fiasco?

3 Materials Stocks (and One ETF) to Buy Now

The materials sector includes firms which mine, develop and process raw materials used in a wide swath of industries (including fertilizers, plastics, paper, metals and concrete). As such, having exposure to these companies is an indirect play on the commodities bull market.

Materials stocks are in great shape, as are natural resources in general. They should receive a boost from continued U.S. economic stimulus measures (and subsequent weakening of the U.S. dollar). Moreover, a China-led global economic recovery looks to be an even bigger boon for the sector, given China’s voracious demand for industrial commodities.

As essential industries, the companies that mine and manufacture basic materials are far less likely to be impacted by economic headwinds or Covid-related shutdowns. Having some portfolio exposure to stocks in this sector could therefore be considered as a safety hedge against volatility in the more economically sensitive areas of the broad market.

3 Materials Stocks (and One ETF) to Buy
One of the easiest ways to establish a position in this sector is by owning a sector-relevant ETF. My favorite one is the Materials Select Sector SPDR Fund (XLB), which seeks to provide investment results that correspond to the price and yield performance of the S&P Materials Select Sector Index. Having a position in XLB provides investors with exposure to a diverse spectrum of basic industries, including commodity and specialty chemicals, packaging and containers, construction materials and specialty mining.

Huntsman Corp. (HUN) manufactures chemicals, including polyurethanes, adhesives and performance products for consumers and industrial customers (including GE, Chevron, Procter & Gamble and BMW).

Management sees demand improving and fundamentals well intact heading into 2021—especially for its construction segment (which includes insulation). The company’s auto business is also on the rebound and showing positive trends, along with nearly all its other end markets. Huntsman also believes it is well positioned to benefit from anticipated demand in the global insulation market (its single biggest market and likely one of its highest-growth markets in the coming years).

Owens Corning (OC) is a well-known name in the building materials space. It provides building products for residential, commercial and industrial customers, including reinforcement materials for automobiles, rail cars and shipping containers.

The company’s prospects for 2021 are good. Moreover, the stock trades on just 10 times its current free cash flow and nine times its forward earnings before interest, tax, depreciation, and amortization (EBITDA). Analysts estimate that Owens Corning is poised to generate between $600 and $700 million in free cash flow annually in the coming years. All told, it’s an attractive company.

Rio Tinto PLC (RIO) explores, develops and mines a diverse range of mineral resources, including aluminum, iron ore, copper and diamonds. It also produces several energy-related assets, such as uranium, and has exposure to industrial minerals like borax, titanium dioxide and salt.

Increasing demand for industrial metals from the world’s largest commodity consumer, China, is expected to boost Rio Tinto’s prospects in the coming year, as that nation accounts for a substantial part of the company’s sales. What’s more, analysts expect Rio’s diamonds, energy and minerals businesses to get a boost from a stronger global economy going forward. Rio is also a steady and generous dividend payer, which is icing on an already delectable cake.

Old vs. New Automakers: Which Should You Invest in Today?

Electric vehicle stocks were hot in 2020, as growing numbers of investors came to recognize the major shift going on in the industry, both in the U.S. and abroad. Then, the year kicked off with President Biden signing an executive order that the federal government would only buy electrical vehicles made 50% or more in the US by union workers—although those cars don’t exist yet. Tesla (TSLA) is close, they just aren’t unionized (yet).

Further below, I have a list of electric vehicle stocks that might deserve a spot in your investment portfolio. But first let’s take a look at the established big players, to see if any of them have a chance.

The Old Automakers
Ford (F) has seen quarterly revenue fall from $41.8 billion to $37.5 billion over the last two years, but that’s not bad considering the pandemic. And Ford has a chance in the electric car race. Coming this year is its all-electric Ford Mustang, which will actually be a four-door crossover that looks nothing like any previous Mustang, and coming next year is the electric F-150 pickup that will likely be a big seller. As for the stock, it’s rallied from 4 to 9 since the March bottom, but is still an underperformer in this group. The only saving grace is a dividend yield of 6.9%, but there’s no telling how long that will last.

General Motors (GM) has seen quarterly revenue fall from $38.4 billion to $35.5 billion over the last two years (similar to Ford’s slowdown), but GM has a more aggressive plan to go electric, aiming to spend $20 billion by 2025 to launch a range of EVs powered by new low-cost, lithium-ion Ultium batteries (predicted to reduce battery cell costs to under $100 per kilowatt-hour) while selling off underperforming assets around the globe (like a factory in Russia). Then there’s GMC’s newly unveiled all-electric Hummer truck, billed as the world’s first all-electric “super truck” (first year production is already pre-sold).

Toyota (TM) was the most valuable automaker in the world until last summer, in part because of its leadership in the hybrid car market. But while Toyota was working on making electricity from fuel cells, Tesla was selling cars running on batteries, and the result was that Tesla blew past Toyota in the market capitalization race last summer without even blinking. Like most of the big old automakers, Toyota suffered in the pandemic; quarterly revenues fell from $71.1 billion to $64.2 billion over the past two years. But TM doesn’t look bad, all things considered. The stock has recently hit all-time highs.

Daimler (DDAIF) saw quarterly revenues slip from $53.3 billion to $47.2 billion over the past two years, but the company is definitely heading in the right direction technically; it sold off its fuel cell assets and is now intent on catching up to Tesla by focusing on electric vehicles. In 2021, Mercedes will offer the EQS, a battery-powered counterpart to its S-class sedans, for over $100,000, and following that will come a wide range of models.

Volkswagen (VWAGY) had the best results of the big old automakers over the past two years; revenues dipped only slightly, from $70 billion per quarter to $69.6 billion. Valuation-wise, it’s still cheap, with a price/sales ratio of 0.12, and technically, its rally from 10 at the March bottom to a recent high of 21 is decent. Also, VW is actually selling electric cars in the U.S.—in small numbers.

BMW (BMWYY) is the only one of the old German automakers that has actually grown over the past two years; revenues are up from $25.2 billion per quarter to $30.8 billion. But it wasn’t because of electric cars. After an early start with the i3 and i8 in 2014, BMW retreated to the hybrid world and won’t market a pure electric car until 2025. As for the stock, despite having risen from 14 at the March bottom to a recent high of 30, it’s still not expensive; its price/sales ratio is just 0.47—and the dividend of 2.2% adds a little sweetener.

Honda (HMC) is not big enough to buy someone, so someone will probably buy it. Not that Honda is doing badly. Revenues have only dipped a bit over the past two years from $36.6 billion in a quarter to $34.6 billion. But there’s no momentum here, and no electric future, given that Honda also went down the fuel cell road. The stock has rallied from 20 at the March bottom to a recent high of 30, and that means it’s a real underperformer.

Subaru (FUJHY) is the smallest of the Japanese automakers, and the good news is that its revenues have grown over the past two years, from $6.9 billion per quarter to $7.2 billion. The bad news is the stock is quite soft, having rallied only 25% from its March low to its recent high. Subaru has no electric car offerings today but is hoping to partner with Toyota to make some.

FiatChrysler (FCAU) has no electric cars, but just last year announced that it will build an electric Ram pickup truck. Before then, though, it’s going to merge with Peugeot. The good news here, aside from the merger, is that the stock is cheap, with a price/sales ratio of 0.29, and revenue growth was actually up over the past two years, from $27.5 billion per quarter to $30.3 billion. As for the stock, it’s up from 6 at the March bottom to a recent high of 19, a rather impressive recovery.

Nissan (NSANY) has been making electric cars for 10 years. Nissan hasn’t parlayed that early start in the electric vehicle world into any kind of success. Quarterly revenues have fallen from $27.8 billion to $18.2 billion over the last two years, and the company has lost money in the past three quarters. As for the stock, it’s rallied from 6 to 10 since the March bottom, but remains in a long-term downtrend.

Tata Motors (TTM) has now owned the Jaguar and Land Rover brands for 12 years—but the past two years have been rough at the company (which also sells plenty of cheaper, more utilitarian vehicles in India), with revenues falling from $12.6 billion per quarter to $7.4 billion. Both of the company’s iconic brands have dabbled in electric models, but the world has barely noticed. Still, the stock is cheap, selling at a price/sales ratio of 0.30—and the stock is up from 4 at the bottom to a recent high of 13, rather strong.

The New Electric Vehicle Stocks
Tesla (TSLA) is the company that every automaker is trying to emulate today in some way. In 2020, the company delivered nearly 500,000 vehicles, up 36% from the year before. Over the past two years, quarterly revenues have swelled from $7.2 billion to $8.8 billion. Earnings continue to boom. And the company continues to raise cash, which enables the production of new Gigafactories (in Austin, Berlin and China), which will enable continued production growth. So fundamentally, all is well at the company. The problem for me lies with the stock, which is up more than 2,000% from its 2019 low and more than 700% since the start of 2020. The result is a market capitalization of $700 billion and a price/sales ratio of 25, which is a sign of how much investors love this stock today. And as all investors know, stocks bottom when they are least loved, and top when they are most loved. I’m not saying it should be sold; I also know that trends can go farther than expected. Those who have owned Tesla stock since late 2011 know the trend has been very good to them. So for long-term investors with big profits, my rating today is still hold.

Nio (NIO) makes “premium smart electric vehicles” for the Chinese market. Quarterly revenues have grown from $500 million to $666 million over the past two years, and even though there are no profits yet, the company has a market capitalization of $150 billion, a sign of very great expectations. (That’s a price/sales ratio of 82, even higher than Tesla’s!) As for the stock, it was very hot through the second half of 2020, hitting a peak of 57 in late December and correcting minimally since.

BYD (BYDDF) is the number two Chinese automaker by market capitalization ($81 billion) but number one by revenues; quarterly revenues over the past two years have grown from $4.8 billion to $5.4 billion. The company’s vehicles include internal combustion and hybrid vehicles, but there’s no question the company is pushing hard to serve the market for electric cars. And the market likes what it sees, as the stock is very strong, and the price/sales ratio is just 5, fairly reasonable in this group.

Li Auto (LI) is young; the company only started making electric cars in China in late 2019. But by the end of 2020, it had delivered 30,000 vehicles, and third-quarter revenues were $370 million, signifying a good fast start. With a market cap of $29 billion, LI is pricy, but the chart is healthy, currently on a normal correction after hitting a high of 48 two weeks ago.

Xpeng (XPEV) started before LI but has made slower progress, which is one reason the stock is cheaper, with a market capitalization of “only” $18 billion. That’s a price/sales ratio of 33; third-quarter revenues were $293 million. The chart is young—only public since August—but it’s healthy, currently on a normal pullback after hitting a high of 75 in late November.

Workhorse (WKHS) was born from an old GM business unit, taken over by Navistar, and then acquired by AMP Electric Vehicles, which changed the name. The company is currently manufacturing electric delivery vans (in small quantities) in partnership with Ryder (and others) at a plant in Indiana. With a market capitalization of $2.8 billion and a positive chart, it’s clear that expectations are high.

Nikola (NKLA) is a Utah startup with dreams of building electric semi-trucks powered by hydrogen fuel cells. The company has no revenues yet, but the stock has a market cap of $6.3 billion, indicating great expectations. Technically, however, the stock is a disaster, down 83% since its June peak as several potential deals have collapsed.

Lordstown Motors (RIDE) plans to use an old GM factory to build light duty electric trucks for fleet owners, emphasizing the lower maintenance costs of electric vehicles. With a market capitalization of $3.5 million, but no revenues, it’s one more sign of the great expectations in this segment. The chart shows a process of consolidation around 20 in recent months.

The Smaller Electric Vehicle Stocks
Fisker (FSR) is led by Henrik Fisker, who has a legacy of designing strikingly beautiful vehicles (for BMW, among others). But out on his own, while he’s produced some very expensive cars, he’s not yet made a profit at it, nor quite succeeded (yet) in making cars in volumes to serve the mass market. Now he’s promised the Fisker Ocean, an SUV that’s billed as “The World’s Most Sustainable Vehicle,” featuring a solar roof, recycled carpeting and vegan interior among other attractions. With no production yet and no revenues, the market capitalization of $1.1 billion tells us investors are expecting good things. The chart is moderately healthy, and not overinflated like so many in this group.

Greenpower Motor (GP) is a Canadian company focused on the electric bus market. Revenues have grown from $2.5 million to $2.8 million over the past two years. The market capitalization is $590 million, and the chart is strong.

ElectraMeccanica (SOLO) has a market capitalization of just $550 million, so we’re in small-cap stock territory here—and we’re talking about a small electric car as well. In fact, the Solo seats only one person—and has only three wheels! Currently imported from China, the Solo’s price is $18,500, but the company’s plan is to open an assembly plant in either Arizona or Tennessee—and drop prices as scale grows. The chart is actually healthy, currently on a normal correction after hitting a high of 13 in November.

Canoo (GOEV) is a Los Angeles-based company with dreams of vehicle membership instead of ownership, fashion-forward urban vehicles and multi-purpose electric delivery vehicles—but there are no revenues yet. From my east coast perch, it appears that Canoo risks letting style take precedence over substance. A market capitalization of $440 million tells us there’s some market interest.

Electric Vehicle Stocks to Buy Now
This is a great sector to invest in, as revolutionary developments challenge the old guard of the industry. But I don’t think there’s any hurry to invest; I think it’s wise to look for good set-ups, like pullbacks to 50-day moving averages and solid bases. And what electric vehicle stocks would I focus on this year?

My first picks are the four Chinese stocks, NIO, BYDDF, LI and XPEV. They’re all growing and they’ve got a big hungry market to serve.

But I would also consider WKHS, RIDE and GP, which are focused on the booming commercial electric vehicle market in America.

These 3 Indicators Will Tell You Where the Market is Headed Next

So far in 2021, the market is volatile, both for the major indexes and individual stocks. In what could be a tricky time, I wanted to relay three market indicators I’m keeping a close eye on. Besides big down days in the market, they should provide some insight as to whether the market is changing character—or if the buyers are actually pushing their advantage.

#1: Aggression Index
I’ve become more and more fond of our Aggression Index over time, as it gives a background view of whether big investors are putting money to work in growth stocks, or whether they’re hunting for safety. The Aggression Index is simply the relative performance (ratio) of the Nasdaq (growth) to the SPDR Consumer Staples Fund (XLP). Up means growth-y names are outperforming, down means that safe toilet paper, cigarette and toothpaste sellers are in favor.

So far, the Index is acting encouragingly—it actually went sideways from early July through mid-November before resuming its post-pandemic advance. And it’s still in a firm uptrend today despite some hiccups this week.

Technically, our Aggression Index is positive as long as the ratio is above its longer-term 40-week line (it’s a longer-term indicator), which isn’t close to being threatened. But in the near-term, I’ll be looking to see if the Index cracks its 25-day line or (more important) its 50-day line, which could happen if the Nasdaq sags or XLP really ramps up—which would be a sign that big investors are ringing the register on growth stocks.

#2: Stocks Hitting New Lows
One of the underpinnings of the latest upmove has been the tremendously positive breadth of the market, as cyclical stocks have kicked into gear—in fact, we received a couple of blastoff-type green lights soon after the November election, including the Three Day Thrust rule (three straight days of at least 1.5% gains in the S&P 500) and our New High Buy signals (basically the greatest level of new highs on the Nasdaq in at least two years), both of which portend good things down the road.

Not surprisingly, such strength from the broad market has kept the number of stocks hitting new lows at minuscule levels—new lows on the NYSE (our old Two-Second Indicator) have come in at 10 or less since early November, while the Nasdaq’s new lows did a similar disappearing act (24 or fewer during the same time).

Looking ahead, I’ll be watching to see how these figures react in relation to the overall market—if the indexes pull in but new lows remain very tame, it’s probably a sign that the selling pressures won’t persist. On the other end of the spectrum, if new lows really expand (especially if the indexes are falling), it would be a heads up that the selling pressures are broadening to more nooks and crannies of the market. So far, so good.

#3: Monitor Early-Stage and Recent Breakouts
This is a bit more nuanced, but it’s probably the most important one. Even if I don’t own many leaders (and because I run a concentrated portfolio, I won’t own them all), I like to keep track of many that have recently (past couple of months) gotten going from fresh launching pads—their action (good or bad) usually goes a long way toward telling you about the health of the underlying market. Here are a handful to keep an eye on, though I watch around a dozen or so.

Applied Materials (AMAT) isn’t a go-go growth stock, but it’s one of the leaders in the chip equipment space, where many stocks (including AMAT) broke free from long-term bases in November. Right now, AMAT is on a good-looking, early-stage consolidation—it “should” be a decent buy in or around here (though it might futz around a bit more). Conversely, a decisive break below the 50-day line (now nearing 80) would be a bad sign.

Floor & Décor (FND) is one of my favorite names in the housing/construction space, and like AMAT, it’s on a reasonable consolidation (pulled back for a few days and snapped higher since) after marching to new highs near 100. A move back into the mid/upper 80s would be a yellow flag, while obviously new highs would be bullish.

PayPal (PYPL) isn’t the most powerful leader, but this was a recent breakout (including a bullish volume cluster in November) and has held up well so far. A break back to 210 or so would be a borderline failure in the intermediate term.

Peloton (PTON) is not early stage, of course, as the original breakout occurred around 37 last May. That said, it’s clearly one of the major leaders of this bull market and actually hit new price and RP highs recently before pulling back. Right here, it looks fine (possibly even buyable), but a drop into the low 120s (giving up the recent move) would be bearish.

Frankly, while I wouldn’t be jumping into four stocks right now, nibbling on a couple of these seems like a decent risk-reward bet. But my bigger point is, even if you never own a share of them, watching the action of these and some other leaders will be among your best market clues in the weeks ahead.

8 Ways to Uncover the Best Growth Stocks

With the market at record highs, and a lot of “what ifs” regarding the year ahead, it’s worth taking a moment to think critically about what investments we should buy and hold over the coming year.

The high-level checklist I use below to find winning growth stocks is not complicated, nor is it perfect. But it serves its purpose, which is to work as a first line of defense as I screen stocks. Let’s get into each line item in the checklist:

1. Find Big Ideas That are Part of Big Trends
There are a zillion trends out there that seem attractive. But it’s the really big and durable trends that you need exposure to when enacting a buy and hold strategy to build long-term wealth. Current examples include cloud computing, personalized health care, data security and clean energy. Really big trends are so big there are many ways to play them. That translates into lots of stocks, which means investors can buy several to play different angles of the trend and retain the freedom to make an occasional mistake without doing outsized damage to their portfolio.

2. Look for Revenue Growth Above 20%
Growth is a must-have for a young company, especially these days, and the more the better. Beyond the obvious that revenue growth shows demand for products and solutions, growth companies are sure to raise capital through equity raises and convertible debt offerings to fuel even more growth. This can become a self-fulling prophecy in which a higher share price allows more capital raises with less dilution. The key is that the pace of that growth needs to be enough to overcome the dilutive impact of such capital raises and keep investor confidence high.

3. Look for Earnings Growth Above 20%
It should also go without saying that EPS growth is necessary. Attractive early-stage growth stocks don’t need to be profitable. But they do need to be trending meaningfully in the right direction, even if there is the occasional quarter (or year) where EPS growth is down due to investments, acquisitions, pandemics or other short-term reasons. Earnings growth that’s faster than revenue growth is a plus as it shows the business has leverage to increase profitability as it gains scale.

4. Seek a Strong Chart (But Not Too Strong)
This seems like an obvious statement, but I still get tons of emails from subscribers wondering if an ailing stock is a “deal.” No! Sure, there are always examples of a banged-up stock that pops on an earnings report, new initiative or takeover. But what are the chances you can identify these opportunities with any regularity? Life doesn’t need to be that difficult, and enacting an investing strategy focused on turnaround stocks is a very different game than the one I play. Buying on a pullback or a dip when the longer-term trendlines are still up is fine. But don’t try to be a hero. The same is true on the flipside. While there are examples when buying on strength makes sense, “strength” is a relative term. A stock that’s gone parabolic and appears detached from the public information supporting the directional change requires that investors dig quite a bit deeper to make sure they understand the risks, and potential opportunity, of buying on such strength.

5. Invest in Companies with Good Business Models
Big Trends and Big Ideas are great. But a company is only going to start gushing cash if management has developed and implemented a rational business model to seize the opportunity. The hard part for investors is that understanding a company’s business model takes time, and not all have the time or attention span to do that work. This is where an advisory service can be helpful so investors can focus on the opportunities and not do so much homework.

6. Look for Repeatable Positive Events and Catalysts
Pick any stock and you can figure out at least one potential reason for it to go up (and down). But management teams running early-stage growth stocks can’t build sustainable growth around one potential growth catalyst. They need several, and they need a constant supply of fresh ideas that they can execute on within a reasonable time frame. Examples include new products that resonate with the market and help drive deeper, more profitable relationships with customers. Also, pay attention to acquisitions that make sense, are aligned with the business model, are integrated relatively smoothly and represent a more efficient way to acquire technology and talent than building from within.

7. Try Not to Sell Too Early
It’s incredibly hard to hold on to stocks for the long term. That’s especially true when talking about early-stage growth stocks because a lot of them go through meaningful corrections, then take off again. That’s why it’s so important to focus on everything I’ve just said, from big trends to business model, to durability and scarcity premium. No single thing defines a great early-stage growth stock; it’s the sum total of many smaller things that matters, and which will give you the confidence to stick with it.

8. Have Your Own Opinion AND Seek Help
Investors are responsible for their own actions. You can read research reports from the best numbers guy or strategic thinker out there. But it’s your cash and your future. Be a skeptic, understand that even the best companies in the world are less than perfect. Your opinion of a stock’s potential is what brings the entire stock selection process full circle.

At the same time, most of us need help to find winning growth stocks, vetting them, and following along as a company matures. For those that are able, paying a few bucks to work with somebody that has a stock selection process that resonates and kicks out intriguing opportunities can be well worth it.

Can You Invest in Any of these Zero Emissions Companies?

Late last year, 28 companies, both public and private, joined forces to create ZETA, the Zero Emission Transportation Association.

The aim of this association: to push for 100% electric vehicle sales in the U.S. by 2030.

That’s an ambitious goal, to be sure. But as Tesla’s Elon Musk has shown, ambitious goals can be achieved, particularly when they bring progress. And in this case, it helps that they align (roughly) with the interests of the political party in power.

ZETA’s individual goals include:

1. Outcome-driven consumer EV incentives. These include point-of-sale consumer incentives to buy electric and incentives to retire gasoline-powered cars early.
2. Emissions/performance standards enabling full electrification by 2030. Emission targets have long been an effective legislative tool; they’re well understood by consumers and they enable markets to find solutions.
3. Infrastructure investments. This would be mainly federal investment in charging infrastructure.
4. Domestic manufacturing. For the jobs, obviously.

Now, some of these companies in ZETA are private, so you can’t invest in them yet, and some of them are big stodgy utilities, only attractive if you’re looking for dividends, but a handful have great potential to thrive as ZETA work towards its goal—and even to become the next Tesla!

So let’s take a look at the list.

The ZETA Companies
ABB (ABB) — Formerly known as ASEA Brown Bovieri and based in Switzerland, the company is a global leader in the power business and related technologies, with roughly 110,000 employees in more than 100 countries. It pays a 2.5% dividend, but it’s not growing.

Albemarle Corporation (ALB) — Based in North Carolina., it’s the world’s largest producer of lithium, and its stock is strong!

Arrival— Based in the U.K. and bankrolled by Hyundai and Kia, Arrival is preparing to manufacture commercial electric vans and busses—and to go public soon via a SPAC.

ChargePoint — Not yet public, but working on it, California-based ChargePoint provides access to a network of over 100,000 electric vehicle chargers in 14 countries with an integrated suite of hardware and software. I’ve used ChargePoint numerous times.

Consolidated Edison (ED) – The big New York, New Jersey and Pennsylvania electric utility, ConEd is not really growing but its dividend is 4.1%.

Copper Development Association — A trade association of the copper industry, it aims to influence policy, not make money.

Duke Energy (DUK) — Based in North Carolina, it’s a big electric utility, not really growing, but you get a dividend of 4.1%.

Edison International (EIX) — Another electric utility, based in California, it’s also not really growing but it also pays a dividend of 4.1%.

Enel X — Based in Rome and operating globally, the privately held company, previously known as EnerNOC, is focused on applying solutions resulting from digital transformation to the energy sector (like charging stations). From my brief research, I’d say it appears to be the opposite of Tesla from a management perspective, with no real leader and a plethora of committees.

EVBox — Based in Amsterdam this privately held company operates a network of more than 150,000 charging stations across more than 70 countries and appears to be growing fast.

EVgo — Based in New York (and a division of LS Power), this privately held company is focused on providing fast chargers to the public market; it currently operates more than 800 in 34 states. I’ve used its slower Level 2 EVgo chargers, but it’s been a few years.

Ioneer — Not yet in operation, this mining and development company plans to extract lithium carbonate and boric acid from its mine in Nevada and become a globally significant source of both lithium and boron.

Li-Cycle — Based in Ontario, this privately held company is the largest lithium-ion battery recycler in North America—and growing.

Lordstown Motors (RIDE) — With a market cap of $4 billion, Lordstown is far from Tesla territory, but it has good potential as management plans to use the old GM factory in Lordstown, Ohio to build light duty electric trucks for fleet owners, emphasizing the lower maintenance costs of electric vehicles. The stock is strong.

Lucid Motors — Based in California, privately held Lucid is targeting Tesla’s flagship Model S sedan with its high performance Lucid Air sedan and the early results are very impressive, with a price, $69,900, that’s close to Tesla’s. You can’t buy one yet, but you can pre-order a vehicle to be built at the company’s just-completed factory in Arizona.

Piedmont Lithium — Based in North Carolina, this privately held company is focused on the development of its mine—in an area where two major lithium mines operated from the 1950s to the 1990s.

PG&E Corporation (PCG) — San Francisco-based Pacific Gas & Electric is still growing, but it isn’t currently paying a dividend; a judge ruled that the company should use the money to cut down trees instead (to reduce fire risk).

Proterra — Based in California, this privately held company has sold more than 1,000 electric buses over the past decade to more than 45 customers in over 20 states, but the competition is now heating up.

Redwood Materials – Headquartered in Nevada, and led by Tesla co-founder JB Straubel, Redwood has big plans to tackle (and profit from) the imminent challenge of recycling millions of batteries.

Rivian — Bankrolled by nearly $3 billion invested by the likes of Ford, T.Rowe Price and Amazon (which has ordered 10,000 electric vans), Rivian is based in California, but has a manufacturing plant in Illinois, where it will make expensive (starting at $67,5000) pickup trucks and SUVs. You can pre-order now.

Siemens — The German power generation and transmission giant isn’t growing but it has a yield of 3.6%.

Southern Company (SO) —Based in Atlanta, this utility is actually still growing, and it yields 4.2%—so if you’re going to invest in one of these utilities, this is the one.

SRP — Shorthand for Salt River Project, it’s the electrical utility for the Phoenix Metropolitan area, and it’s pushed hard for electrification of its own fleet of vehicles in recent years.

Tesla — The king of the hill today, Tesla is not only the leading producer of electric cars globally, it also has the best network for charging during long-distance travel (as long as you’re driving a Tesla), a growing solar power division, a growing battery operation, and plans to break into the semi truck market. But with a market capitalization of $550 billion, a very high profile thanks to the S&P 500 inclusion, and a YTD gain of well over 500%, it’s due for a rest.

Vistra (VST) — This Texas utility is still growing, and it yields 2.9%.

Volta — An investment company focused on battery and energy storage innovation, this Illinois organization excels at enabling cross-sector collaboration among a variety of stakeholders.

Uber (UBER) — As Uber grows, experts expect its services (delivering both people and meals) to increasingly be provided by electric cars, and eventually self-driving cars—and its stock is strong!

WAVE — An acronym of Wireless Advanced Vehicle Electrification, this company embeds inductive power transfer pads in roadways, so vehicles can recharge on the move. Today it has commercial deployments in six locations.

All told, this list of ZETA members is impressive, representing companies large and small, all of whom should benefit as battery-powered vehicles go increasingly mainstream and eventually account for the majority of vehicles sold. As for investments, among the public companies in the group, the best investments today for investors looking for big long-term gains look like Albemarle (ALB), Lordstown Motors (RIDE) and Uber (UBER).

4 Ways to Invest in the Surge in Base Metals Demand

If you’ve been looking at the global base metals market, you’re likely noticing that the automotive and construction industries are in full rebound. There’s rising demand and tightening supplies for the materials used in these (and other) industries.

One industry that is a heavy consumer of metals is the electric vehicle (EV) market.

Among the metals most commonly used in EV production are copper, lithium, nickel and steel. The latter is the starting point for EV manufacturing and is increasingly used instead of aluminum for the production of the vehicle’s body and chassis (though aluminum remains a key material for battery production due to its lower weight).

The four investments we’re recommending below that that align each, are:

• Steel: VanEck Vectors Steel ETF (SLX)
• Copper: United States Copper Index Fund (CPER)
• Lithium: Global X Lithium & Battery Tech ETF (LIT)
• Nickel: iPath Series B Bloomberg Nickel Subindex Total Return (JJN)

Indeed, steel production is on the upswing again after mill closures caused by COVID-related shutdowns in 2020. According to the Wall Street Journal, “Steelmakers are straining to keep up with resurgent orders from U.S. manufacturers, just months after preparing for a long, pandemic-driven slump in steel demand.” And automakers are a big reason for the increased demand, which has pushed steel prices significantly higher.

Investing in Steel with VanEck Vectors Steel ETF (SLX)
To give you some idea of just how “hot” the steel market is right now, the price for benchmark hot-rolled steel is $850/ton, well above the pre-pandemic level of $570 in March before the nationwide shutdowns began. One way to participate in the steel bull market is through the VanEck Vectors Steel ETF (SLX), which seeks to replicate the price and yield performance of the NYSE Arca Steel Index (STEEL)—and which in turn is intended to track the performance of companies involved in the steel sector.

With a vast majority (86%) of steel buyers who were polled in November by an industry source expecting another round of price increases from steel mills in the coming months, the likelihood is that prices will continue to rise in 2021, which should bode well for SLX.

Investing in Copper with United States Copper Index Fund (CPER)
Along with steel, EVs also need lots of copper and can utilize up to three-and-a-half times as much of the red metal compared to a traditional gas-powered passenger car. And while conventional cars use around 18-to-49 pounds of copper, EVs typically contain around 85 pounds.

It’s also worth mentioning that copper has been one of 2020’s best-performing commodities and stands to benefit from continued strong demand in the coming year—both from China’s resurgent industrial economy as well as from recovering automobile sales.

Along these lines, the research consultancy Wood Mackenzie has noted that copper “is a cornerstone of the EV revolution” and is heavily used in charging stations and other EV applications due to its high electrical conductivity, durability and malleability. Consequently, consumption of the red metal for passenger EVs is projected to increase by nearly 700% over the next two decades.

One of the best investment vehicles for participating in the copper boom, aside from investing in individual copper mining stocks, is the United States Copper Index Fund (CPER). This ETF is designed to track the performance of the SummerHaven Copper Index Total Return, and is a convenient, less expensive method for participants to access the returns of a portfolio of copper futures contracts.

Investing in Lithium with Global X Lithium & Battery Tech ETF (LIT)
Along with copper, lithium is a key commodity used in EV batteries. Lithium demand is expected to double by 2024, thanks to EV market growth. Moreover, BloombergNEF estimates that by 2030, lithium demand for passenger EV production will rise by nearly 500%.

A key to this bullish demand forecast is China, which is ranked #1 in the world among countries most heavily involved in the lithium-ion battery supply chain in 2020. And with lithium consumption expected to accelerate in 2021, the companies that produce lithium and lithium-ion batteries are well positioned to outperform.

An excellent way to capture this anticipated growth is via the Global X Lithium & Battery Tech ETF (LIT). LIT invests in the full lithium cycle, from mining and refining the metal to battery production. According to the fund’s prospectus, it “seeks to provide investment results that correspond generally to the price and yield performance, before fees and expenses, of the Solactive Global Lithium Index.”

Investing in Nickel with iPath Series B Bloomberg Nickel Subindex Total Return (JJN)
A final base metal worth discussing is nickel. Analysts expect nickel prices to increase in 2021 on the back of rapidly growing demand from EV battery manufacturing. Nickel, which is also used in steel manufacturing, has been on a rip-and-tear this year, thanks largely to China ramping up stainless steel production along with an Indonesian export ban-related supply crunch. What’s more, the need for battery-grade nickel continues to grow, with experts forecasting a 10% demand bump for 2021 (which is likely to prove too conservative).

While nickel-related ETFs are in short supply, one of the best ways to grab a piece of the nickel bull run is via the iPath Series B Bloomberg Nickel Subindex Total Return (JJN). This is actually an exchanged-traded note (ETN), not an ETF. Liquidity is an issue due to the extremely low daily trading volume average, so there’s more leverage risk involved. But with nickel prices in the early stages of what looks to be a fundamentally-induced rising trend, having a small position in JJN is probably a good idea if you want full exposure to the anticipated 2021 base metals boom.

Here’s What the Top Investment Management Firms are Buying

Finding good investment ideas is hard work. It takes time and effort to sort through the 3,500 or so relevant publicly-traded stocks in the United States, understand the business, evaluate their leadership, and assess their financials. Even then, selecting the few stocks with the most promising prospects adds further complexity.

3 Investing Signals to Watch For

1. Look at what the best investment management firms are buying. These fund companies have vast resources and a lot of analysts that spend their days doing all the research. When they buy a large new position, or add to an existing position, it may mean that it is time for you to buy, as well.
2. When shadowing investment management firms, focus on the managers with an investment approach similar to your own. You might already be familiar with some of their holdings, and you can better understand their rationale for choosing their investments.
3. Look for holdings with a risk level that suits your own tolerance. Sometimes managers and investment management firms hold higher risk stocks but benefit from diversification in ways that you may not. Remember, too, that managers generally file only at quarter-end, so the precise timing of their trades can be cloudy. For most investors, this is close enough.

Listed below are three holdings of top-quality value-oriented investment management firms that have some interesting appeal:

What are the Investment Management Firms Buying?

Liberty Sirius XM Group (LSXMA) – This company is part of the Liberty Media empire founded and led by the legendary John Malone. Liberty Sirius XM is a tracking stock, which means that holders receive the economic benefits of ownership but don’t have a direct claim on the underlying assets. Malone shuffles holdings in complex ways, but over time has produced exceptional returns for investors. The company’s primary holdings are ownership stakes in the Sirius XM satellite radio company and Live Nation Entertainment, the world’s largest live entertainment company. Shares of both of these companies also trade independently, but buying LSXMA shares allows investors to own these at a sizeable discount. While LSXMA shares have surged recently on optimistic news about a Covid vaccine, the shares remain down year-to-date. When the economy fully re-opens, both companies should benefit.

The Baupost Group (estimated $29 billion in assets) holds a large position in Liberty Sirius XM Group after adding substantially to its position recently. Notably, Berkshire Hathaway is the largest shareholder, with a 16.9% stake.

McKesson Corporation (MCK) – McKesson is the largest of the three major wholesalers that supply hospitals, retail pharmacies and other healthcare providers with the right products. It navigates the logistical complexities of buying in bulk from major manufacturers, then distributing to many thousands of customers, while maintaining acceptable profitability. With a clear and valuable niche, and high barriers to entry, these three companies are in many ways irreplaceable. Recent profitability has been pressured by the slowing growth of patented pharmaceuticals, weaker price inflation, and rising negotiating power of its customers. However, with rising demand for Covid protection gear, its role as a primary distributor of Covid vaccines, and a cheap stock at 8.5x forward earnings, McKesson’s shares have interesting value-oriented appeal. McKesson is one of the largest holdings of noted value investor Pzena Investment Management ($33 billion in assets), which recently raised its position.

Charles Schwab Corporation (SCHW) – One of the original discount brokers, Schwab has grown into a $5 trillion (assets) financial services powerhouse. The company recently acquired competitor TD Ameritrade in a $22 billion deal, providing new revenue and cost-cutting opportunities. Also, Schwab is looking to boost its growth by expanding its roster of ETFs, robo-advisory services and human-advised services. The company is well-positioned, as a new generation of traders emerge and eventually migrate from basic phone-based trading apps to more robust platforms like Schwab. While the shares have jumped in recent months, they remain below their highs due to low interest rates and intense competition, along with some controversy around the merits of the TD merger. SCHW is a top holding of Diamond Hill Capital Management ($22 billion in assets), a highly-regarded and research-intensive value investment firm, which recently added to its holdings.

Should You Invest in Pfizer or BioNTech as a Vaccine Play?

Not surprisingly, the stock market reacted very positively to the most encouraging news yet of a COVID-19 vaccine. Pfizer (PFE) and German biotech company BioNTech (BNTX) reported 90% efficacy in their coronavirus vaccine trial that included 43,538 participants. Shares of the two companies involved skyrocketed right away. But which is the better buy: Pfizer or BioNTech stock?

Let’s put aside the matter of whether Pfizer and BioNTech’s prospective vaccine actually becomes the first one to market. Former FDA commissioner Scott Gottlieb told CNBC that the vaccine could be available on a limited basis by December, and widely available by the third quarter of 2021. But that still amounts to speculation, despite the very strong trial results. The who and when of things remains unknown.

So let’s stick to the knowns. What we know is how each company looks from a fundamental and technical standpoint. Sticking strictly to those knowns, let’s break down which looks like the better buy: Pfizer stock or BioNTech stock.

Pfizer vs. BioNTech Stock: Tale of the Tape

Trailing P/Es: PFE 23, BNTX N/A

Forward P/Es: PFE 11, BNTX 14

Latest earnings growth: PFE -71.4%, BNTX N/A

Latest sales growth: PFE -4.3%, BNTX 58.8%

Cash per share: PFE $2.05, BNTX N/A

Institutional ownership: PFE 71%, BNTX 12%

As you can see, this is a bit of an apples-to-oranges comparison from a fundamental perspective. Pfizer is the much larger company, whose $215 billion market cap is nearly 10 times BioNTech’s ($24.2 billion). Pfizer did $51.75 billion in sales in 2019. BioNTech brought in a mere $121.6 million. Meanwhile, Pfizer earned $2.92 per share in 2019 BioNTech has never been close to profitability.

That said, BioNTech is getting closer, and its sales are growing fast while Pfizer’s have actually slipped. And BioNTech’s revenue growth is expected to accelerate greatly in the coming quarters, with analysts projecting 99% growth in the third quarter (earnings are due out this week), 1,186% in the fourth quarter, and 341% for the year. And those estimates were before the coronavirus vaccine news came out.

Pfizer is expected to return to top-line growth too, but minimally by comparison: 9.2% in the first quarter of 2021.

In addition, Pfizer already had Wall Street’s full attention, with institutional ownership at 71%. BioNTech stock is a relative unknown, with institutional ownership at a mere 12%. That’s likely to change now that BioNTech is part of the most effective COVID-19 vaccine trial to date.

Comparing the Charts
While BioNTech stock has far more room to grow in theory than Pfizer, especially should their vaccine come to fruition, how have the two stocks actually been performing? Let’s take a look.

Here’s Pfizer’s year-to-date chart:

That’s pretty up-and-down. Pfizer shares are now narrowly in positive territory (1.1%) for the year. That’s not very impressive when you consider that healthcare stocks as a group are up 8.6% year to date.

Now let’s look at the chart of BNTX stock, which is an American Depositary Receipt (ADR) that trades on the Nasdaq:

That’s quite a difference! BioNTech stock is up more than 200% this year. From a pure momentum perspective, this is a no-brainer: BNTX is the far better growth stock.

Ultimately, this may come down to investing preference. If you’d prefer the safety of a reliable dividend stock with plenty of history, then Pfizer is probably the better bet. Its 4.2% yield is attractive, and vaccine news may be just the thing to give its share price a jolt.

But if it’s growth you seek, BNTX is the easy pick. It has way more momentum, higher upside, and superior sales growth. Sure, with no dividend and no earnings, it’s more of a risk, particularly if its coronavirus vaccine trial hits an unexpected dead end. But the upside is too hard to pass up right now.

Breaking Down the 9 Publicly Traded Electric Vehicle Companies

Electric vehicle stocks are hot, as growing numbers of investors come to recognize the major shift going on in the industry, both in the U.S. and abroad. Electric vehicles are more efficient, better for the environment, deliver better performance, and cost less to maintain. So let’s look at the electric vehicle stocks — presented in order of market capitalization—and see which ones might deserve a spot in your investment portfolio.

Tesla (TSLA)
The king of the hill delivered 139,300 vehicles in the third quarter of 2020 from its gigafactories in California and China and is building two more gigafactories in Berlin and Austin. Third quarter revenues were $8.77 billion, up 39% from the year before, while EPS was $0.76 per share, up 105% from the year before, marking the company’s fifth consecutive profit. Investor expectations are very high for the company; the market capitalization is $400 billion! And the chart looks quite healthy, consolidating in a stable pattern after zooming from a low of 36 in June of 2019 to a high of 500 in September.

General Motors (GM)
Everyone knows General Motors—but what’s exciting to investors today is the possibility that good old GM might become one of the leaders of the electric vehicle revolution. GM plans to spend $20 billion by 2025 to launch a range of EVs powered by new low-cost, lithium-ion Ultium batteries (predicted to reduce battery cell costs to under $100 per kilowatt-hour). GM also recently entered a partnership with Nikola (see below); as part of the agreement, GMC will build Nikola’s Badger truck using its Ultium batteries and Hydrotec fuel cells. Then there’s GMC’s newly unveiled all-electric Hummer truck, billed as the world’s first all-electric “super truck” (first year production is already pre-sold) plus a just-announced $2 billion plan for six new U.S. production sites. Plus the stock is cheap, selling at a PE of just 8—and the chart has positive momentum. GM’s market capitalization is $51 billion.

Nio (NIO)
A few years ago, China offered massive subsidies to jump-start the country’s electric vehicle industry—and the result was hundreds of home-grown contenders! But those subsidies have since been reduced, and what’s left today are the cream of the crop, like Nio, which makes “premium smart electric vehicles” for the Chinese market. Second-quarter revenues were $526 million, up 140% from the year before, and the third quarter (results will be released November 17) saw deliveries hit 12,206, up 154% from the year before. There are no profits yet, but all trends—including the stock chart—are good. Nio’s market capitalization is $35 billion.

Nikola (NKLA)
Taking Mr. Tesla’s first name, Nikola is a Utah-based startup with dreams of building electric semi-trucks powered by hydrogen fuel cells. Technically, the idea has a lot of merit; the challenge is overcoming the established fossil-fuel-centric order. In the meantime, noting the appetite for Tesla’s Cybertruck, the company is taking reservations for its own (non-hydrogen) electric pickup truck—the Badger—which is far more conventionally styled than Elon Musk’s vehicle. And it convinced GM, which will build the Badger, to take $2 billion of stock as part of their partnership. Nikola’s market capitalization is $7.2 billion. Newly public this year, the stock’s chart shows some heavy buying in May and June as all that news came out, but short-sellers threw water on the fire and the stock has been cooling off since. In my mind, the company has some major obstacles to surmount (it has no revenues yet), but success is possible.

Workhorse (WKHS)
Born from an old GM business unit, taken over by Navistar, and then acquired by AMP Electric Vehicles, which changed the name, Workhorse is currently manufacturing electric delivery vehicles in partnership with Ryder (and others) at a plant in Indiana. With a market capitalization of $1.9 billion and a positive chart, it’s attractive.

Fisker (FSR)
CEO Henrik Fisker has a legacy of designing strikingly beautiful vehicles (for BMW, among others), but out on his own, while he’s produced some very expensive cars, he’s not yet made a profit at it, nor quite succeeded (yet) in making cars in volumes to serve the mass market. But that may change with the Fisker Ocean, an SUV that’s billed as “The World’s Most Sustainable Vehicle,” which features a solar roof, recycled carpeting, and vegan interior among other attractions. The initial reveal is scheduled for the Los Angeles Auto Show in May 2021, with volume production beginning in 2022—but you can reserve a car now. As for the stock, FSR came into being through a reverse merger and here’s the chart—young and crazy. The company has a market capitalization of $610 million.

Hyliion Holdings (HYLN)
Targeting the semi-truck market, Hyliion has a full-electric and a hybrid diesel-electric, but is not actually manufacturing yet. The company’s market capitalization is $505 million, and the chart is going the wrong way—though it may have bottomed at 20.

Lordstown Motors (RIDE)
A child of sorts of Workhorse, Lordstown plans to use the old GM factory to build light-duty electric trucks for fleet owners, emphasizing the lower maintenance costs of electric vehicles. With a market capitalization of $495 million, and a chart that’s not strong, it’s not attractive today.

ElectraMeccanica (SOLO)
With a market capitalization of just $175 million, we’re in small-cap territory here, where risk is even higher—and we’re talking about a small electric car as well. In fact, the Solo seats only one person—and has only three wheels! Currently imported from China, the Solo’s price is $18,500, but the company’s plan is to open an assembly plant in either Arizona or Tennessee—and drop prices as scale grows. Going forward, the company is also taking pre-orders for a beautiful electric roadster that looks like a vintage Porsche convertible, but the price is $125,000! As for the stock, it’s low-priced and neither strong nor weak.

The next three companies are private, but still worth knowing about.

Lucid Motors (Private)
Having raised $1 billion from private investors, Lucid is targeting Tesla’s flagship Model S sedan with its high performance sedan and the early results are very impressive, with a price, $69,900, that’s close to Tesla’s. You can’t buy one yet, but you can pre-order. However, it’s worth noting that today Tesla gets 90% of its revenue from its lower-priced mass-market Model 3 and Model Y vehicles.

Rivian (Private)
Started by RJ Scaringe in 2009 (six years after Tesla), Rivian is based in Michigan, the traditional home of U.S. truck-makers, and it’s trucks that Rivian will be making. With nearly $3 billion invested by the likes of Ford, T.Rowe Price, and Amazon (which has ordered 10,000 electric vans), these will range from plain vanilla delivery vehicles to “electric adventure vehicles.” You can pre-order now.

Bollinger Motors (Private)
Founded in 2016 and located in Michigan, Bollinger plans to make utilitarian, high-performance off-road electric vehicles (a pickup and an SUV). Aesthetic design is minimal, and the prices will be high, so these vehicles won’t serve the mass market, but they may fill a niche—and you can reserve one now. Also, following in the footsteps (tire tracks) of Rivian, the company has introduced an electric delivery van.

This Little-Known Biotech is Bucking the Recent Growth Stock Sell-Off

Let’s start with some good news first involving the overall market. It turns out there have been two recent “signals” that portend nicely higher prices going forward.

One occurred in early November, where not only did the major indexes score big gains, but the S&P 500 did something that’s very rare—it rose at least 1.5% on three straight trading days. Since 1970, that’s only occurred nine other times. And as with most shows of unusual strength, it usually leads to great things. Three straight days of gains that big has a history of representing a solid kickoff to future gains. To be fair, the signal does have one drawback: About half the time, the market suffered a good-sized correction soon after the signal (if it occurred near a bear market bottom, a retest wasn’t unusual).

The second positive factor comes from seasonality. The market tends to have a “best six months” (November through April) that over decades has produced most of the overall gains, while the “worst six months” (May through October) have historically produced little to brag about.

However, it turns out when the market stages a solid gain in the “worst-six-month” period, it almost always portends further good things for the ensuing “best-six-month” period. And that has occurred this year: 2020 saw the Dow up more than 8% during the May-October time frame for just the 12th time since 1950. On average, those 12 times saw the Dow rise as much as another 14% during the next six months!

None of this means it’s up and away from here. But it’s confirmation of many other pieces of longer-term evidence I see that this is a bull market and the next major move is likely to be up.

3 Growth Stocks Bucking Recent Growth
One thing I like to keep an eye on is recent breakouts to see how they fare. For instance, take a look at Axon Enterprise (AAXN), which gapped to new highs recently; Zendesk (ZEN), which exploded to new highs after its October pullback to the 50-day line; and Farfetch (FTCH), which went vertical after inking a deal with Alibaba. If you start seeing two or all three of these really give up the ghost (AAXN below 105, ZEN below 107, FTCH back to its breakout level of 32) it would tell you this likely isn’t just a coincidence.

Ultragenyx Stock is a Buy
We’ll see how it goes, but in the meantime, I’m keeping my eyes open for areas that have a growth story that are acting well. Right now, I’m seeing a decent amount of those in biotech, and one of the stronger names in that area is Ultragenyx (RARE) stock.

The market for rare diseases is underserved, with diagnoses of rarely seen medical conditions taking up to 10 years while available treatments often don’t exist. Ultragenyx is focused on filling this void by developing products for treating ultra-rare, debilitating genetic diseases. The company has a diverse drug candidate portfolio that addresses diseases where the unmet medical need is high and biology for treatment is clear. Its recent successes include Mepsevii, which was approved in 2017 for the treatment of an inherited condition known as Sly syndrome. Then there’s the firm’s Crysvita therapy for treating patients with tumor-induced osteomalacia (TIO), which causes weakened and softened bones; that was approved by the FDA in June. And there’s also Dojolvi, which treats adult patients with long-chain fatty acid oxidation disorder. In terms of the pipeline, Ultragenyx has two gene therapy candidates in Phase 2 trials (expectations are that Phase 3 will soon begin), including DTX301 (for treating ornithine transcarbamylase (OTC) deficiency) and DTX401 (a potential treatment for Glycogen Storage Disease Type 1a (GSDIa). On the financial front, Ultragenyx is storming out of the development stage—in Q3, revenues leapt 216%, while total revenue for the first nine months of 2020 was $180 million (up 163%). Analysts foresee continued revenue increases of between 90% and 100% in the coming two quarters as Ultragenyx remains active (including its recent collaboration with Solid Biosciences to develop and commercialize new gene therapies for Duchenne muscular dystrophy). For 2021 as a whole, Wall Street sees the top line expanding 33%, which could prove conservative. Encouragingly, an Ultragenyx stock share offering last week was gobbled up with no trouble despite the market’s plunge. Overall, it’s a compelling story.

As for Ultragenyx stock, it had a nice recovery from the March market crash, and after a three-month rest, has lifted out of a multi-year base on solid trading volume. Biotech stocks are always somewhat risky, but RARE looks like it’s early in a new run.

4 Stocks and ETFs to Buy in the Red-Hot Cloud Computing Sector

While the cloud has been on investors’ radar screen for some time, it took this year’s pandemic-related shutdowns to drive home just how critical cloud infrastructure is to the global economy—not to mention the burgeoning work-from-home paradigm.

Those who were perceptive enough to identify this trend early on were amply rewarded by stellar returns on leading cloud computing stocks over the last several months. On the other hand, investors who may have missed out on this year’s cloud stock blast-off are no doubt kicking themselves for this oversight and perhaps thinking it’s too late to jump aboard the cloud trend.

But not so fast! The prevailing evidence suggests that we’re still in the early innings of a long-term cloud expansion phase. According to industry experts, the cloud computing industry is expected to grow at an annual rate of around 18% between now and 2025. The cloud’s multiple benefits are driving migration away from traditional data storage (including lower storage costs, improved internet speed, and improved cybersecurity).

This is good news for those who want to add some cloud-related exposure to their portfolios. Here we’ll look at three such cloud leaders which have more upside potential in the months and years ahead.

Global X Cloud Computing ETF (CLOU)
Let’s start by looking at one of the leading cloud exchange-traded funds, the Global X Cloud Computing ETF (CLOU). This relatively new ETF commenced trading in 2019 and invests in companies which are poised to benefit from the increased adoption of cloud computing technology, including companies whose main business involves Software-as-a-Service (SaaS), Platform-as-a-Service (PaaS) and Infrastructure-as-a-Service (IaaS).

Its holdings encompass IT infrastructure, cloud real estate, manufacturing, consumer discretionary and communication services stocks and provides investors with a wide and varied exposure to some of the most actively traded cloud names in several segments of the broader industry.

Altair Engineering (ALTR)
Altair Engineering (ALTR) is one of the older, more established cloud and software names (perhaps best known for its suite of computer-aided design tools). Founded in 1985, it provides cloud-based solutions for product design and engineering, enterprise services, data analytics, IoT and other computing applications. Basically, Altair enjoys a leadership position across many verticals, including manufacturing, pharmaceuticals, financial services and energy, allowing the company to discern rapid changes occurring in several major industries while delivering its cutting-edge software solutions. It uses this knowledge in turn to improve its service and product lines, with an increasing focus on cloud computing.

Altair delivered excellent top- and bottom-line results in the third quarter, beating expectations and guidance. In Q3, the firm also released a beta version of its latest offering, Knowledge Works, which is a cloud-native end-to-end platform for data analytics (which it believes will be a major revenue driver going forward). Altair has an innovative company with a growing new product pipeline for data analytics, which should allow for more growth in 2021 and beyond.

Alarm.com (ALRM)
The home security market is booming, and the number of U.S. houses with security systems is predicted to nearly double between 2019 and 2024 (from 37 million to 63 million). Alarm.com (ALRM) is a leader in “smart” security, providing remote monitoring and operating systems (hardware and software) for homes and businesses.

The firm works with over 9,000 third-party service vendors (such as ADT) to install and maintain security systems, which are then merged into its cloud-based platform. Its vendors do most of the grunt work, obtaining clients and installing systems, while Alarm handles product development and maintenance. It operates in the Software as a Service (SaaS) space, with roughly 67% of its revenue coming from its SaaS license, and it boasts a 93% revenue renewal rate.

Top-line growth has been impressive, rising at an average annual clip of 25% over the last five years. In the most recent quarter, the firm delivered consensus-beating revenue of $159 million (+24%), along with an 18-cent earnings beat of $0.49 per share. Video camera sales were also a big growth contributor in Q3 (+24%), along with hardware and other sales (+37%) benefitting from its recent acquisition of video surveillance firm OpenEye. All in all, it’s a solid-looking growth story.

Five9 (FIVN)
Five9 (FIVN) provides cloud-based software for contact centers, helping them cut costs and improve the customer support experience. Its artificial intelligence (AI) software—based on the premise that it’s easier to keep existing customers happy than gain new ones—analyzes real-time calls and provides live assistance to customer agents.

The firm’s latest earnings report underscored another outstanding quarter for Five9, driven by strong execution and product innovation. The company reported record revenue of $112 million (up 34% from a year ago and up 12% sequentially—both records since the firm went public). Enterprise subscription revenue grew 35% in Q3, while earnings of $0.27 per share beat the consensus by nine cents.

Looking ahead, Five9 is focused on increasing average revenue per user by continually increasing its product portfolio. Management is also guiding for a 25% top-line increase in Q4 and raised the midpoint of its annual revenue guidance from $400 to $422 million (a 26% increase). Analysts, moreover, predict top-line growth in the low-to-mid 20% range in the next three quarters. With cloud migration and AI-driven digitization among call centers continuing at a breakneck pace, Five9 is well positioned to maintain its strong growth trend in the years ahead.

Ford v. Ferrari: The Sequel

In the 2019 film Ford v. Ferrari— a true story set in the 1960s—a stodgy Ford Motor Company, desperate to appeal to a new generation of thrill-seeking young drivers, took up a challenge to beat Ferrari at the legendary Le Mans, a 24-hour race considered to be the most prestigious indicator of car-building and racing prowess. Ferrari’s reputation as the perennial winner of Le Mans made Ford’s lumbering and bureaucracy-laden attempt seem absurd and fated for certain humiliation.

A Ford win in the 1960s seemed as ridiculous then as the chances today that Ford Motor Company (F) shares would outperform those of Ferrari N.V. (RACE). One indicator: over the past five years, Ford shares have fallen by nearly 50%, while Ferrari shares have more than tripled since their October 2015 IPO.

What would it take for Ford stock to become competitive with Ferrari stock?

Ford vs. Ferrari in the Stock Market
Ferrari clearly has some impressive advantages. First, Ferrari is perhaps the most desired sports car on the market – the brand itself is synonymous with super-elite performance and styling. Its cars sell for an average of $300,000 each, among the highest in the industry. Its appeal to wealthy individuals has generally insulated the company from the financial impact of the pandemic-driven recession.

In terms of numbers, Ferrari’s revenues have grown at a 5-10% clip for years, and this pace appears likely to continue. Cash operating profit margins, at about 24%, might be enviable at many technology companies. And the company has a sturdy balance sheet, with its modest $3.3 billion in debt partly offset by about $1.3 billion in cash.

Ford, on the other hand, has struggled for years with lackluster revenue growth. Hard-hit by the pandemic, revenues may not return to 2019’s pace for another three years, and Ford will likely post only 1-3% annual growth beyond that. In a good year, Ford’s cash operating profits margins may reach 9-10%. Although its F-Series pickup trucks have the #1 market share in the United States, no one would consider Ford to be a highly-desirable brand. And, with its average vehicle price of about $29,000, “elite” doesn’t quite sound right.

Ford’s balance sheet is reasonably sturdy but not pristine. While its auto-lending arm, Ford Credit, has so far escaped meaningful recession-related damage, the credit cycle has not yet fully played out.

The Critical Advantage Ford Has
However, Ford stock has a critical advantage over Ferrari stock – the blessing of low expectations. Ford shares sell at only 7x estimated 2022 earnings and a very humble 3x Enterprise Value/cash operating profits. Ferrari shares, on the other hand, trade at 39x estimated 2022 earnings and nearly 18x EV/cash operating profits.

Adding to Ford’s edge are signs that the company is emerging from the stagnation induced by its ineffective and buzzword-laden strategy. On October 1, Jim Farley will take the helm as CEO, initiating what we believe will be a product-led and market-savvy approach to reviving Ford. Farley brings deep auto-industry operating and leadership experience, having progressed from heading several regions to currently overseeing all of Ford’s global operations.

Perhaps unique among top auto executives, he has nearly 20 years of experience working for a competitor (the highly regarded Toyota Motor Company (TM)), where he led their Lexus brand and had senior marketing and sales roles – skills that Ford clearly needs. Recruited to Ford in 2007 by then-CEO Alan Mullaly, who saved the company from bankruptcy (a fate not shared by its two Detroit competitors), Farley is widely known as a passionate and execution-focused “car guy.”

Ford’s pace of change is already accelerating. The company recently announced new all-electric varieties of its F-Series trucks and a large round of lay-offs to cut its operating costs. We see potential for many additional major improvements, including exits from chronically unprofitable overseas operations. Also, Ford can make significant changes to its domestic operations that can expand its margins and step up its pace of innovation with newer technologies. These changes would boost Ford’s cash flow and help it bolster its Ford Credit operations.

It wouldn’t take much to re-ignite the currently dim investor interest in Ford shares – and the powerful catalyst is soon to be in place. Ferrari stock, however, already assumes a prosperous future. Any stumbles along the way, including the chances of weak execution from its upcoming SUV launch or its efforts to introduce electric vehicles, or even the brand erosion that either of these might produce, could weigh on Ferrari’s valuation.

The actual 2020 24 Heures du Mans race had Toyota winning for the third consecutive year. Unlike car racing, Ford doesn’t have to beat Ferrari in any metric other than stock performance. Whose shares will win this competition? We’re placing our bets on Ford stock.

8 Companies that Could be the Next Tesla

In 2020, Tesla has been a great stock to own, zooming 424% and splitting its stock 5-for-1 in the process.

Long-term, I think investors with large unrealized capital gains in Tesla (TSLA) should continue to hold the stock, simply because prospects for the company are still bright, as it revolutionizes not only the automobile industry but also the energy industry.

But short-term, I think the stock is priced to perfection right here. We’ve just had a great quarterly report, a massive five-month advance, and then the stock split, which means absolutely nothing as far as the company goes, but is catnip to individual investors. Short-term, I think the stock’s potential downside exceeds the potential upside, even after the big ups and downs of the last month.

So if you’ve got new money to invest and you want Tesla-like profits, I think you should try to find—and invest in—the next Tesla. And how do you identify that stock?

Here’s my short checklist.

• The company serves a mass market—which means it can grow very large.
• The company has the potential to revolutionize an important part of that market.
• The company has the potential to make a large profit in the process.
• The stock is NOT loved by most investors today. And the less it is loved, the better!
• The stock has positive momentum. It doesn’t have to be hot, but it does need to be positive.

Who’s the Next Tesla?

Nio (NIO) A few years ago, China offered massive subsidies to jump-start the country’s electric vehicle industry—and the result was hundreds of home-grown contenders! But those subsidies have since been reduced, and what’s left today is the cream of the crop, like Nio. Second-quarter revenues were $526 million, up 140% from the year before. I think Nio ticks all the boxes, though short-term the stock is high; its 50-day moving average is 30% below the stock’s current level.

Nikola (NKLA) Taking Mr. Tesla’s first name, Nikola is a Utah startup with dreams of building electric semi trucks powered by hydrogen fuel cells. Technically the idea has a lot of merit; the challenge is overcoming the established fossil-fuel-centric order. In the meantime, noting the appetite for Tesla’s Cybertruck, the company is taking reservations for its own (non-hydrogen) electric pickup truck, one that is far more conventionally styled than Elon Musk’s vehicle. Newly public this year, the stock’s chart shows some serious buying in May and June, through the initial strength has faded and then some, especially after a damning short-seller report emerged last week. In my mind, the company has some major obstacles to surmount (it has no revenues yet), but success is possible. And the company is definitely not loved by the masses; it’s hardly known.

Zoom Video (ZM) Zoom Video checks almost all the boxes. Mass market. Revolutionary. Capable of big earnings (the second quarter saw revenue of $664 million, up 355% from the year before and EPS of $0.92, up 1,050%). And (very) positive momentum; the stock is up 595% this year! The one box unchecked is that of low public opinion. Everyone knows Zoom and many people love Zoom, which is one reason the stock is up. Additionally, I don’t see any real barriers to entry.

Roku (ROKU) Roku might be called the gatekeeper to the streaming media-verse, as its digital media players enable the playing of content from any provider on any device. The mass market is global and growing. Revenue growth (up 42% in the second quarter) is good but not exceptional. The barrier to entry is substantial. The chart is healthy, not overextended. And public/investor opinion is good, neither hot nor cold.

Teladoc (TDOC) Accelerating revenue growth is one of my favorite metrics; it tells you that business is improving at an increasingly fast pace, which makes it hard for analysts to adjust their estimates upward fast enough. That’s the case at Teladoc, the provider of on-demand health care services over the internet. Revenues in the latest quarters grew 27%, 41% and 85%—accelerating. The service is revolutionary in an industry that sorely needs it. The chart is healthy, not overextended. And public sentiment is good, but not gaga.

Spotify (SPOT) The streaming music (and more) service definitely addresses a mass market and it has a healthy chart. But it’s evolutionary, not revolutionary. And it’s not growing fast enough. In the latest quarter, revenues were up just 12% from the year before—decelerating.

Virgin Galactic Holdings (SPCE) If all goes well, Sir Richard Branson will be on his company’s first flight to space that includes paying passengers sometime next year. Revolutionary? Absolutely! Big potential? Yes! Big earnings potential? Eventually—the long-term goal is ultra-fast transcontinental travel, like New York to Tokyo in two hours. Obviously, there are major hurdles. But the company is well funded and has experienced management, so it’s quite possible. As for the stock, it was strong in July, peaking at 27, and has cooled off since in a normal correction so sentiment has cooled as well; many people aren’t even aware of the company.

Curaleaf (CURLF) Curaleaf is the biggest marijuana company in the U.S., and because the barriers to entry in the industry are not technical, but regulatory, it’s the odds-on favorite to remain the leader. Second-quarter revenues were $117 million, up 142% from the year before, and the company is expected to have positive earnings in 2021. The chart is healthy, but the sector as a whole peaked, so I think it needs more time to cool off. And sentiment among Americans as a whole is varied, with a third of the population still not in favor of legalizing the industry and a very large percentage unaware of the company.

Looking at the charts as much as anything (because buying smart is the first step to long-term gains), Teladoc (TDOC) and Virgin Galactic (SPCE) are my top two candidates to be the next Tesla.

3 Trends that Point to Another Market Rebound

It’s been a bit rough for the market lately. Given the prior prolonged runs in many of them, my guess is that many of these stocks are going to need time before starting their next upmoves. However, there have been a few growing positive stock market trends emerge.

Trend #1: First is the fact that the major indexes, unlike so many of the initial growth leaders of this rally, have (so far) held key support near their 50-day lines. That’s key for my intermediate-term trend model (called the Cabot Tides), which has remained positive. (Yes, that can always change, but I never anticipate these things—if it’s positive, you have to assume it will stay positive, even if it’s close.) The fact that buyers stepped up where they were “supposed” to is a good sign.

Trend #2: The second positive is something we’ve seen numerous times in recent years, and it involves investor sentiment. While investors can get a bit giddy at times during advances, sentiment quickly backs off and gets fairly negative within a couple of weeks. This is what we’re seeing in the market, and granted, sentiment is a secondary indicator, but it’s good to see so many investors hit eject after recent declines.

Trend #3: The third positive stock market trend is the most encouraging—while the initial, extended leaders still look ragged, with many unable to get off their knees, money has begun to flow into other stocks. And I’m not just talking about rotation into cyclical names (although there is some of that going on)—I’m seeing a decent number of growth stocks either come back to life after corrections or set up after resting for two or three months following their off-the-bottom moves this spring.

Three Stocks to Look at for the Rebound

#1: Seattle Genetics (SGEN)
For coming back to life, I’m intrigued by biotech stocks, which are getting a boost. One of the big news items recently was Merck inking two collaborations with Seattle Genetics (SGEN), which we’ve viewed as an emerging blue chip in the oncology space. (Merck also took a $1 billion positive in SGEN, a solid vote of confidence.) The stock was a leader earlier this year but stalled out with the biotech group, but it flashed a major volume clue on the Merck news and is approaching its old high.

#2. Five Below (FIVE)
Another example of a name that’s been out of favor for even longer is Five Below (FIVE), the dollar store for teens and pre-teens that sported rapid, reliable growth for years before (a) the trade war and then, just as that was being ironed out, (b) the shut-in associated with the virus. But after a big comeback, shares tightened up for 11 weeks and then broke out after the recent quarterly report showed that the growth story is back on track.

#3. Beyond Meat (BYND)
And then there are names that have a great longer-term setup and have been resting for two or three months, building strength while the initial leaders were ripping higher—now they’re in position to lead the market’s next advance.

A good example is Beyond Meat (BYND), the leader in the alternative meat area that, after a big post-IPO droop through March, showed fantastic accumulation through mid-June. There were some virus-related hiccups (foodservice sales fell in Q2), but in-store and direct sales were red hot, and the stock has spent the past few months building a nice cup-shaped base, with volume drying up on the way down, some tightness on the bottom and some volume accumulation as the stock perks up—all good signs.

Of course, if the market has another big leg down like it just had, then all bets are off—such action would likely bring everything back down. But it’s vital to have a watch list of some of these new potential leaders should the recent weakness be more of a shakeout than a real change in character.

4 Exercise Stocks for the Getting-in-Shape-at-Home Era

Going to the gym isn’t really an option these days. Neither are in-person yoga classes, spin classes, or even venturing to the nearest public swimming pool to get in a few laps. Such is the weird state of the world in 2020, when being around too many people is faux pas and sharing sweat with others is considered lunacy. To stay in shape, you mostly need to exercise at home. That’s been big business for certain fitness-related companies—and fitness stocks are booming as a result.

Some fitness stocks, that is.

Planet Fitness (PLNT), Foot Locker (FL), any other fitness enterprise whose business model is predicated on human beings entering their stores/gyms—those companies aren’t doing so well. But the companies that cater to the working-out-from-home spike are benefitting from Covid-19.

Fitness Stocks Worth Your Consideration for Investing

A couple of the names on this list are all-weather fitness stocks—companies so large and familiar that they tend to do well regardless of whether people are exercising at home or going to the gym. But the pandemic has certainly helped them, as more Americans are turning to exercise for both their physical and mental health—and to shake the monotony and boredom of being at home all the time. Hiking a mountain or going for a long bike ride or brisk jog are great ways to get out of the house and get some fresh air.

However, another name on this list peddles a product that doesn’t require fresh air and should continue to perform well in the winter months.So, without further ado, here are four fitness stocks that have gotten a nice bump in recent months, and should remain in an uptrend as long as the pandemic rages on—and perhaps beyond…

Peloton (PTON)
Your local spin class is probably closed, but Peloton brings the spin class to you. It’s a stationary bike (the company also sells treadmills) but with an interactive screen that enables users to stream live cycling classes, or even yoga classes, from the comfort of their home. How prescient that business model has become!

Despite the hefty price tag ($2,245) and monthly membership fees ($39 a month), Pelotons have been selling like hotcakes since Covid began. The company grew revenues by 65% in the prior quarter, and analysts expect triple-digit top-line growth when it reports tonight (September 10). It may be worth waiting to see how the stock reacts to those results in the days ahead. But PTON has plenty of momentum: it’s up 213% year-to-date and has actually been ticking upward as most other growth stocks have retreated in recent days.

Lululemon (LULU)
This is one of those all-weather fitness companies I was talking about. Lululemon has virtually cornered the market on yoga wear and “athleisure” apparel; you can’t walk into any grocery store or coffee shop without seeing someone wearing Lululemon yoga pants. And the company is coming off a strong quarter.

Lululemon topped sales and earnings expectations in the second quarter, as 97% of its stores around the world have reopened and online sales soaring 157% versus a year ago. As a result, the company beat top-line estimates by 7%, and EPS estimates by 34.5%, though total in-store sales are only about three-quarters of what they were a year ago.

LULU stock didn’t respond well to the earnings beat, perhaps in part because it was up more than 45% year-to-date prior to reporting (now up “only” 37%), or perhaps because CEO Calvin McDonald saying he’s “cautiously optimistic” for the rest of the year wasn’t exactly a ringing endorsement.

Regardless, the long-term trend in Lululemon stock remains up, and this 13% pullback looks like a prime buying opportunity.

Nike (NKE)
Speaking of all-weather companies … do I even need to explain this one? Even with hard-charging upstarts like Lululemon and Under Armour entering the sports apparel fray in recent years, Nike is still king by a long shot, with a larger market share (18.3%) than its four closest competitors (Lululemon and Under Armour included) combined.

While Nike’s sales were down sharply in the last quarter, like most retail companies, they’re still expected to grow 4.8% in their current (fiscal 2021) year. And Nike stock has been just fine, rising 14% so far this year (more than double the 5.9% rise in the S&P 500). In fact, it’s comfortably outpaced the market over the last one-, two-, and five-year periods.

Nike isn’t growing the way it once was, of course. But it’s still a reliable outperformer, and even a pandemic can’t keep it down.

Dorel Industries (DIIBF)
This one’s much more speculative, and thus only for the adventurous investor. It’s a Canadian micro-cap ($288 million) bicycle maker that trades over the counter. And yet, it’s been on a tear since Covid began, zooming from less than a dollar a share at the beginning of April to 8.70 now. Of course, that share price is well below its 2016 highs above 30, so DIIBF is plenty volatile. But the upward trend is clear and unrelenting, and the company grew earnings by 277% in its latest quarter.

It’s not a pure play on the exercise-from-home craze. In addition to making road and mountain bikes under popular brand names such as Schwinn and Cannondale, it also makes car seats and toys for babies and toddlers, and home furnishings such as couches and rugs. However, that diversification could be viewed as an advantage, especially now.

Given the furious run-up of late, and the fact that shares still trade at little more than a quarter of their 2016 highs, DIIBF could be worth taking a flyer on, with a small position size.

Alternative Energy Stocks Can Make You Rich

Nothing seems to excite and capture the imagination of investors like getting in ahead of a future wave.

For example, the performance of internet related companies in the 1990’s was incredible, even before many of those companies were making any money. Take a look at the performance of electric car company Tesla (TSLA). That stock has averaged a return of 58% per year over the last ten years. The stock is up 768% over the past year, and the price has doubled in the last month.

The company now far exceeds the market capitalization of the biggest car companies in the world—not because the company is making so much money, but because Tesla is ahead of the curve and stands to inherit the future. The overwhelming majority of cars still run on gasoline and will for a while. But that won’t be the case in the future. And Tesla has emerged as the dominant player in tomorrow’s world.

Why Alternative Energy is the World’s Fastest Growing Energy Source

But Tesla isn’t an island. In fact, it fits into a broader theme from which many other companies and stocks will thrive. The theme is alternative energy. Alternative or clean energy, such as wind and solar, is by far the world’s fastest growing energy source. And the trend will only accelerate going forward.

Skeptics may point to the fact that the world still generates 85% of its energy from fossil fuels (oil, coal and natural gas), and the U.S. still generates about 80% of energy from those sources. It’s also true that fossil fuels are not going away anytime soon. But the trend toward clean energy is undeniable, and it’s not about politics.

It doesn’t matter where you stand on the issue of Climate Change. Regardless of that issue, fossil fuel is dirty and not optimally efficient. Whether because of politics, profit or technological evolution, clean energy will dominate the future. That fact is already playing out in the stock market.

The iShares Global Clean Energy ETF (ICLN), a fund that invests in 30 stocks involved in the solar, wind and other clean energy sources, is up over 40% year-to-date. It’s up over 93% in the past two years, compared to an 11% return for the S&P 500 over the same period. And most of the companies in the portfolio are dogs that aren’t even making any money.

Clearly alternative energy is an area where great profits will be had going forward. But it can be like the Wild West picking the right stock. More conservative investors cede this oh-so-profitable ground to more aggressive investors and take a pass. But you don’t have to.

You can get in on the amazing growth in this incredible sector by investing in a certain utility stock. That’s right, a utility. You can gain exposure and profits from the clean energy juggernaut by simply investing in one of the most defensive and reliable stocks on the market. You can have your cake and eat it too.

Why Nextera Energy (NEE) is Worth the Investment

Nextera Energy (NEE) isn’t a regular utility. It’s two companies in one. Investors love it because they get the safety and income of a utility and still get great growth and capital appreciation. It’s like a football player that’s not only huge but fast as well. Here are a few other reasons why it may be worth investing in:

1. NextEra Energy is the world’s largest utility. It’s a monster with about $20 billion in annual revenue and a $133 billion market capitalization.
2. For the last ten-, five-, three- and one-year periods, NEE has not only vastly outperformed the Utility Index but it has also blown away the returns over the overall market.
3. NEE stock has more than doubled that of the S&P 500 over the last ten years (587% with dividends reinvested). It has also more than doubled the index return over the last five years, three years and one year.
4. NEE has one of the best regulated utilities in the country, which accounts for about 55% of earnings and provides steady cash flow, but it also has a world-renowned alternative energy company, which accounts for about 45% of earnings and provides a higher level of growth.

Ordinarily, when you think of a huge utility you probably think it has lackluster growth and a stable dividend. But that’s not true in this case. Earnings growth and stock returns have well exceeded what is normally expected of a utility.

Alternative energy is the future and this company is the top of the heap. The government and regulators love them for it. It’s also a huge benefit that the cost of clean energy generation constantly gets cheaper as technology advances. Alternative energy isn’t going away. There’s no reason why this stock can’t continue to perform as it has in the past.

Why Nvidia (NVDA) Has Overtaken Intel (INTC) as the Top Chip Stock

The financial media loves a good Bad News Bears story, where the newcomer, who shouldn’t have left the playground, plays harder and better and wins the game. That’s why they’ve gone crazy over the story of Tesla’s (TSLA) market value soaring past traditional automakers such as Toyota, GM and Ford, or some combination of them.

But recently, a supercharged chip designer Nvidia’s (NVDA) market value surpassed semiconductor stalwart Intel (INTC) with nary a notice.

The latter might tell you more about both the market and technology in America. It also begs the question: if you had to choose only one of INTC vs. NVDA, which is the better semiconductor stock?

What exactly are semiconductors?

Semiconductors are crucial and the most strategically important technology because they are the materials and circuitry needed to produce microchips that are at the heart of everything from smartphones to advanced satellites. You might think of these microchips as the brains inside all advanced technology.

Semiconductor chips are in the spotlight because one of the areas that China is still relatively behind in is advanced chip technology, which runs across chip design, computer software and equipment. Washington’s chief concern is that while many of the advanced chips are designed in America, only around 12% of all chips are manufactured here, and they tend to be the less advanced chips produced in older plants.

How Nvidia surged beyond an industry giant

Nvidia is riding the demand for the more high performance chips used in gaming. The company also expanded into data centers, recently closing on its $7 billion acquisition of Mellanox Technologies. NVDA is also gaining market share in artificial intelligence (AI)-focused chips and in cloud computing. These are all profitable, big growth areas that prompted earnings to surge 113%, and pushed NVDA stock up 194% year-over-year. That surge pushed Nvidia past Intel in market value, as INTC stock has gone the other way.

It is important to note that Nvidia only designs its advanced chips, outsourcing production primarily to Taiwan Semiconductor (TSM), which fabricates more than half of the world’s chips.

What happened to Intel?

Intel is a different animal than Nvidia in a few ways. First, it produces semiconductor chips for a much broader array of industries while still dominating its core PC and data-center markets. Intel has nine manufacturing facilities around the world leading to a reported $58 billion in net property, plants and equipment. Plus, being in business since 1969 has netted substantial intellectual property of manufacturing semiconductors.

Despite this experience, Intel has publicly stumbled in terms of the next-generation chip manufacturing process known as 7-nanometer technology, referring to the size of the transistors it produces. Chips that use smaller transistors can run more efficiently and use up less physical space.

This led the company to shake up its technology team overseeing its manufacturing operations, and it’s considering outsourcing more to foundries like Taiwan Semiconductor.

As you might guess, all this hit Intel stock pretty hard so that its stock is up only 5% year-over-year, woefully underperforming Nvidia.

Which is a better buy? Intel or Nvidia?

It seems a no-brainer to go with Nvidia over Intel since NVDA seems to have unbeatable momentum in this critical industry at the heart of advanced technology.

This market doesn’t pay much attention to fundamentals and valuations but consider this: Nvidia stock is trading at 84 times earnings while Intel is trading at 9 times earnings. And despite Intel’s stumble on advanced chip plans, INTC still delivered a return on equity of 33% and earnings growth of 22% in its last quarter.

Now consider geopolitical risks. The chief risk for Nvidia is its dependence on Taiwan Semiconductor for production. Taiwan Semiconductor is a powerful company in a strategically important place so it has to diplomatically balance both customers and countries. For example, roughly 14% of its sales go to Huawei and the U.S. Commerce Department announced that companies would require licenses for sales to Huawei of semiconductors made abroad with U.S. technology. How will this impact Taiwan Semiconductors and its relationship with Nvidia?

And don’t forget another Washington factor. Intel’s stumble came just as the U.S. Senate and House of Representatives were considering a bill that will financially support domestic chip production. The final bill lays out a framework for $25 billion worth of direct incentives to stimulate investment in manufacturing capacity, along with advanced research.

Which stock to buy now depends on your time frame. Momentum traders should go with Nvidia stock. But if you’re looking out 6-12 months or more, I would go with Intel.

Like any stock, chip and semiconductor stocks rely on a variety of factors to profit. Similarly, you may find that safer, slower profits are more to your liking that quick, but riskier profits.

3 Fertilizer Stocks to Help Grow Your Portfolio

It’s true that you won’t find many dinner conversations where fertilizer is a topic of interest. It’s not likely to evoke strong opinions or elicit much more than a shrug from many investors. That’s unfortunate, because fertilizer stocks can play a big role in stabilizing your investment portfolio.

After soaring to prominence during the 2000s commodity market boom, fertilizer stocks have slipped quietly under Wall Street’s radar in recent years. But while the companies that produce the inputs needed to ensure a steady food supply are currently unloved, they offer some attractive opportunities for investors with longer time frames looking to hedge against a softening U.S. currency. Here we’ll examine three such companies which could benefit from a weakening greenback.

Fertilizer producers admittedly aren’t among the sexiest segments of the market. But they produce a product which is vital to ensure our high standard of living. For without modern farm chemicals, high-production agriculture would be impossible and our grocery bills would be considerably higher. While farmers are among America’s unsung heroes, agrichemical producers are equally underappreciated.

To understand what drives the fertilizer industry, it’s first important to know what the main fertilizers are used for. For those of you who don’t garden, the three macronutrients essential for healthy plant growth are: nitrogen (N), phosphate (P) and potash/potassium (K). Sulfur (S) is needed in smaller amounts than the other three, but is often used as a soil amendment. Fertilizer producers often specialize in just one of these three nutrients, or sometimes all three.

Nitrogen fertilizer is made through a combination of natural gas and air, while phosphate and potash are typically mined from the earth, although some commonly used fertilizers—such as monoammonium phosphate (MAP) and diammonium phosphate (DAP)—combine nitrogen with phosphate rock.

It’s also useful to know that nitrogen is the most widely used nutrient, especially in corn and grain crop production, while phosphates and potassium are mostly used in legumes, fruits and vegetables. The following pie graph breaks down fertilizer usage by grains sector.

Fertilizer companies ultimately profit from buoyant N-P-K prices, and rising nutrient prices are determined by three key variables, including: 1. rising crop prices (and thus rising fertilizer demand), 2. input costs (e.g. natural gas prices) and 3. currency factors.

The currency factor is particularly worth mentioning. In fact, some of the strongest bull markets in fertilizer stocks have occurred when the U.S. dollar was falling in a sustained fashion over a period of several months-to-years.

This year’s falling dollar is a prime reason why fertilizer stocks are strengthening, for dollar weakness typically translates into commodity price strength. COVID-related shutdowns have resulted in reduced economic output, and with government committed to increased spending—and central banks embarking on an unprecedented loose money policy—there’s an excellent chance that the dollar’s value will continue to erode in the months ahead.

The graph below compares the U.S. dollar index (DXY) with the Invesco DB Commodity Index Tracking Fund (DBC), illustrating the inverse correlation between the dollar and commodity prices. Indeed, a weak dollar is one of the most powerful stimulants for higher crop nutrient prices.

With this in mind, let’s take a look at three stocks which should be able to benefit from continued dollar weakness.

3 Fertilizer Stocks to Consider

CF Industries (CF)
The first is CF Industries (CF), which manufactures nitrogen fertilizers including ammonia, urea and urea ammonium nitrate (UAN) solutions. Nitrogen fertilizer prices have been low, which has hampered the company’s revenues. However, though many analysts expect this price weakness to persist, a global increase in government farm subsidies (in response to COVID-related shutdowns) and increased nitrogen demand anticipated from greater planted corn and grain acreage across North America should benefit the firm in the coming months.

Aside from corn (by far the biggest consumer of nitrogen fertilizer), other nitrogen-intensive crops, such as rice, command higher premiums than corn and should help drive increased demand. Sugar futures prices are also on the rise, so sugarcane and sugar beet production should also contribute to rising nitrogen use.

Elsewhere, strong demand in India and Brazil is supporting the global nitrogen market as urea sales have increased significantly. CF’s management believes this will help contribute to the bottom line in the coming quarters. In terms of its input costs, CF expects to remain on the low end of the global cost curve due to its access to low-cost, plentiful North American natural gas. This in turn should help the firm generate substantial free cash flow in both the short-term and the long-term.

From a technical perspective, meanwhile, as long as the share price can remain above 30, I view the stock as an attractive turnaround candidate.

Mosaic (MOS)
Mosaic Co. (MOS) specializes in the production of phosphate and potash fertilizers and is one of the strongest performers among the major U.S. crop nutrient companies. DAP and MAP fertilizer prices are on the rebound, which should help boost the company’s profits going forward. Recently, Mosaic featured per-share earnings of 11 cents, beating analyst estimates of a loss of 4 cents per share (a 375% surprise!). What’s more, analysts expect EPS to grow 69% for full-year 2020 and 269% in 2021. If you’re looking for a longer-term turnaround play, MOS is a worthy candidate. It should benefit from continued U.S. currency weakness while also taking advantage of increasing global phosphate demand.

Intrepid Potash (IPI)
Denver-based Intrepid Potash (IPI) is the United States’ largest producer of potassium chloride (muriate of potash, or MOP), which is extremely water soluble. Global demand for such environmentally-friendly fertilizers is increasing as growers in several major countries must now comply with government-mandated sustainable farming guidelines.

Although COVID-related headwinds plagued the company in the second quarter, the company announced a strong finish to the spring application season, as well as good 2020 evaporation rates at its potash production facilities. The firm is also focused on sound balance sheet management by retiring debt and increasing its cash holdings. What’s more, analysts expect to see a return to revenue growth in 2021 and 2022. And if the U.S. dollar continues to weaken as anticipated, IPI should get an extra boost from higher farm commodity prices.

This stock carries more risks than the other two mentioned here, however, so it’s not for the faint of heart. From a technical perspective (especially given the recent above-normal trading volume signatures), I’d view a decisive breakout above the 15 level as a sign that informed buyers have taken command of the stock’s near-term trend.

In conclusion, if the dollar resumes its COVID-driven deterioration as I expect, higher crop and fertilizer prices are likely to result. And while the stocks mentioned here aren’t of the high-growth variety and may take time to play out, they should nonetheless be able to benefit from a weaker domestic currency.

7 Electric Pickup Truck Stocks to Watch

Until this year, an electric pickup truck was an idea most people would laugh at. But then the Tesla Cybertruck was unveiled last November—and now every car manufacturer in the U.S., both established and still-wet-behind-the-ears, is making plans to serve this potentially huge market.

After all, pickup trucks are the biggest and most profitable segment of the U.S. automobile market—and it would be folly to let Tesla (TSLA) run away with the electric truck segment without at least a fight.

So let’s take a look at the offerings and see how they stack up, starting with the truck that kicked off the race.

Tesla Cybertruck

Unveiled in November, the Tesla Cybertruck is not your father’s pickup truck, unless your father was Mad Max or John DeLorean. It’s got a stainless steel exoskeleton, a choice of one, two or three driving motors, and its price will start as low as $50,000. For that you’ll get range of at least 250 miles and a 0-60 mph time of 6.5 seconds, but if you go with the top-end model, you’ll get a range of 500 miles and a 0-60 mph time of 2.9 seconds.

It’s definitely going into production, in the Gigafactory that will be built outside Austin, Texas, and sales won’t be a problem; Tesla already has 650,000 deposits from people who want to own a Cybertruck and relish the idea of driving a truck that looks futuristic.

Should you invest? TSLA has had a great run this year and now it’s taking a well-earned breather, building a base centered on 1,500 a share. I’ve been on board since late 2011 and I’m still holding for the long-term—because after vehicles, Tesla is going to revolutionize the energy industry!

Nikola Badger

Nikola (NKLA), which like Tesla is named for the brilliant Serbian-American inventor Nikola Tesla, is a truck company with no manufacturing plant and no prototypes of its vehicles, but it does have a good story—as Tesla did 10 years ago—so it’s possible that the company will be a big success.

In the long run, Nikola’s key idea is using hydrogen fuel cells in semi trucks to generate electricity to power motors. In the long run, I think it’s a good idea.

But in the short run, Nikola is taking advantage of the buzz generated by the Tesla Cybertruck to rush its own electric truck offering to market. It’s the Nikola Badger, a pickup truck that would run on batteries, and use 906 horsepower to achieve a 0-60 mph time of 2.9 seconds (just like Tesla’s most expensive Cybertruck).

Such a package would deliver range of 300 miles and cost about $60,000—not bad.

Nikola has received about 15,000 pre-orders for the Badger and expects to begin deliveries in the middle of 2022. But first they’ve got to line up some manufacturing partners. Unlike Tesla, which likes to do everything possible in-house, Nikola plans to outsource whatever it can. Optimistically, this will happen.

Should you invest? NKLA was hot in June after the Badger was announced, but the gains haven’t lasted. Optimistically, the stock might find support at 30. Pessimistically, it could easily fall to 20, where the 200-day moving average is—or even lower.

Lordstown Endurance

Unveiled in June, the all-electric Lordstown Motors Endurance is aimed squarely at the heart of the commercial pickup truck market. Base price is $52,000. Range is 250 miles. Top speed is limited to 80 mph. And 0-60 time is not mentioned. What is mentioned is that Total Cost of Ownership, thanks to lower costs of fuel and lower costs of maintenance, will be lower over time.

Lordstown Motors bought GM’s old Lordstown Assembly Plant in Ohio last year and is currently retrofitting it to produce the Endurance. Production is expected to start in late 2021. Pre-orders currently exceed 27,000, primarily from commercial fleet customers. This is definitely happening.

Should you invest? Lordstown is not yet public, though it expects to come public through a reverse merger late this year and trade under the symbol “RIDE”. Investors in Lordstown include Fidelity, BlackRock, Wellington, and others.

Rivian

Rivian is aiming for the adventurous outdoorsman, with an electric truck whose base model may cost less than $60,000 but whose loaded models (with range of 450 miles and 0-60 mph times of under 3 seconds) will easily top $100,000. The R1T was first shown at the LA auto show way back in November 2018 (a year before the Tesla Cybertruck), but it’s still not in production, though the old Mitsubishi factory in Normal Illinois will be the eventual factory location. But I’m not sure this is going to happen.

Should you invest? Rivian is not yet public.

Bollinger
Another newbie, clearly going for the utilitarian look, is Bollinger, which aims to build the world’s most capable pickup truck, with no expense spared. The all-aluminum Bollinger B2 can hold 72 4×8 sheets of plywood and carry a 5,000 lb. payload, but range is only 200 miles. Prices start at an eye-popping $125,000. At that price, these can be hand-built, so I assume this will happen, though not at significant volumes.

Should you invest? Rivian is not yet public, however Ford has invested in Rivian, so if/when it does go public, pay attention.

Ford F-150 Electric
The name says enough. It’s coming in 2022. As mentioned, it’s interesting that Ford has invested in Rivian.

Should you invest? Value investors might well find something to like about Ford.

Chevy BET Truck
Once again, the name says enough. It may show up in late 2021. Interestingly, GM has invested in Lordstown.

Should you invest? This is another value pick and in fact, one of our value analysts likes GM here. But both Ford and GM suspended their dividends earlier this year as the COVID shutdown both forced factory shutdowns and kept consumers from showrooms, and value stocks are simply not my style.

The Mindshare Winner
Admittedly, it’s early in the electric pickup truck race, but potential buyers are clearly interested, as evidenced by both pre-orders and internet activity.

In fact, one enterprising person at partcatalog.com, using geotagged data from Twitter, built a map showing the most anticipated electric truck in every state.

Tesla has California (where its factory is located) and Florida. Nikola and Rivian have definitely made an impression. But the expensive Bollinger leads in only four states and Lordstown leads in only one, Ohio, where it’s being built.

Ford and GM didn’t even make the list.

For investors, of course, the big question is which of these companies will be good investments.

I’m sticking with Tesla (TSLA), keeping an eye on Nikola (NKLA), and especially intrigued by the practical vision of Lordstown, which may begin trading later this year.

3 Self-Driving Car Stocks for Now - and for the Future

Way back in 1982, the world was introduced to crimefighter Michael Knight and his Pontiac Trans Am, KITT. I know we’re all too young to remember this, right? Here’s a recap. Even with David Hasselhoff (formerly the most-watched man on television, according to the Guinness Book of Records) on the show, KITT was arguably the real star.

KITT was a self-driving, artificially intelligent car, complete with silent mode, a comlink, and video display monitors. In other words, KITT was the fictional early version of some of the cars you see on the road today. Of course, KITT also came with a flame thrower and laser guns. For good reasons, you won’t find those on commercially available autonomous vehicles. Still, even though we’re in the very early stages of self-driving cars, when that dam does break, the automakers, suppliers and tech companies shelling out billions on research and development in the autonomous driving space will be flooded with revenues. When it happens, you’ll want to own self-driving car stocks.

But the best way to invest in stocks is to get in early on a trend before it’s too late. And while autonomous driving technology is certainly a hot trend on Wall Street now, it’s not nearly what it will be when we start seeing actual self-driving cars on the roads in a few years. Economists estimate that autonomous driving technology could become a $556 billion industry by 2026. Investing in a revolutionary idea, product or company before it strikes gold is why early investors in Apple (AAPL), Amazon (AMZN), Google (GOOG) and Netflix (NFLX) are all retired and living on yachts right now.

Self-driving cars are the latest revolutionary technology. Thus, investing in self-driving car stocks now could make you a very rich person five, 10 or 15 years from now.

That said, we don’t like to try and predict the future. We like to recommend stocks that already have good-looking charts with plenty of momentum. So, here are three self-driving car stocks that have the right combination of a good chart and a strong foothold in the driverless car industry.

Self-driving car stocks that are on the road to future profits

Self-Driving Car Stock #1: Tesla (TSLA)
Inventors of the luxury electric car for long-distance driving, Tesla is also leading the charge in autonomous driving. Back in 2019, though, many Wall Street pundits were declaring its demise.

Boy were they wrong! Tesla stocks gained 496% since then, including a 60% coronavirus crash. And its semi-autonomous driving system, Autopilot—which could soon allow drivers to literally fall asleep at the wheel while “driving” their cars, according to CEO Elon Musk—is among the many reasons why. It may take longer than Musk expected, but eventually, Tesla will be a big part of the self-driving-car story.

Self-Driving Car Stock #2: Nvidia (NVDA)
Nvidia is best known for the chips it makes for the gaming industry and cryptocurrency. But it also makes system-on-a-chip (SoC) units for the automotive market. Its autonomous driving revenues were down 15% in 2017 as the company transitioned from infotainment system chips in self-driving cars to artificial intelligence cockpit systems. But the company expects huge growth in its driverless car wing, as not only automakers but also ride-hailing companies like Uber debut cars or capabilities that use Nvidia’s chips.

Self-Driving Car Stock #3: Aptiv (APTV)
Spun off from Delphi Automotive in late 2017, Aptiv develops hardware and software designed specifically for driverless car technologies. Its Centralized Sensing Localization Planning (CSLP) platform gives cars semi-autonomous capabilities by using cameras and other artificial intelligence; and the company recently unveiled its new Smart Vehicle Architecture (SVA), a cloud-based setup that makes driverless vehicles easier to assemble.

Bottom Line
The long- and short-term patterns in all three of these self-driving car stocks are up. But thanks to the immense potential of the driverless car industry, the recent gains could pale in comparison to their returns over the next five to 10 years.

Tesla Has New Competition in the Electric Car Space

With climate change at the top of mind, electric vehicles are hotter than ever. And not long ago, Tesla (TSLA) was the only electric vehicle stock worth paying attention to, but now there are two more.

Nikola (NKLA), also named for the brilliant Serbian-American inventor Nikola Tesla, is valued at an amazing $25 billion.

Workhorse (WKHS), which is valued at “only” $1 billion today, is catching up fast as investors discover the company.

Nikola vs. Workhorse vs. Tesla

Who is Nikola (NKLA)?

Nikola, headquartered in Phoenix, Arizona, has no manufacturing plant and no prototypes of its vehicles, but it does have a good story—as Tesla did 10 years ago—so it’s possible that the company will be a big success.

Nikola’s key idea is using hydrogen fuel cells in semi trucks to generate electricity to power motors.

Semi trucks are the most logical first users of a hydrogen-fuel network, as they adhere to regular highway routes. And battery-hydrogen semis promise great torque and acceleration, regenerative braking, and greater efficiency than today’s diesel engines.

• Nikola Semi: The range of the Nikola semi would be 500-750 miles and the vehicle could be refueled in 10-15 minutes—assuming those hydrogen refueling stations get built. It’s a bit of a chicken-and-egg problem.
• Nikola Badger: The Nikola Badger is a pickup truck that would run on batteries—delivering 906 horsepower and a 0-60 mph time of 2.9 seconds. Such a package would deliver a range of 300 miles—not bad. But Badger owners would have the option of adding a hydrogen fuel cell to the system, which would add another 300 miles of range—and that’s impressive.

Today it’s difficult for drivers to find hydrogen outside of southern California, but if Nikola achieves its goal, users would eventually (perhaps by 2028) be able to access a “massive” network of 700 hydrogen refueling stations across the U.S.

(For comparison, Tesla, globally, has 1,870 Supercharger stations with 16,685 Superchargers—with more being added all the time.)

Right now, Nikola doesn’t even have a prototype (it’s looking for manufacturing partners), so success is far from assured. But the stock saw a huge wave of buying three weeks ago when the company announced it would begin taking pre-orders for the Badger pickup truck on June 29—and since then the stock has built a nice base centered on 70. Technically, that’s positive, though fundamentally, it’s hard to accept the idea that this company has a market capitalization roughly equivalent to Ford’s.

Who is Workhorse (WKHS?)

Workhorse is based in Cincinnati and is focused on developing sustainable and cost-effective electric vehicles for the last mile delivery sector.

Workhorse already has two vehicles in development, one with 650 sq. ft. of cargo volume and one with 1,000 sq. ft. Both have a range of 100 miles (enough for a day’s deliveries) and last week the company announced that both vehicles had completed Federal Motor Vehicle Safety Standards (FMVSS) testing. So this is definitely happening.

• Workhorse C650: Workhorse has licensed technology to Lordstown Motors (still private), which is also developing electric pickup trucks and other work vehicles. Thus, it’s very clear that in the years ahead, Amazon, UPS, FedEx and others will have a range of great zero-pollution vehicles to choose from.

Trouble is, all these companies (Nikola, Workhorse and Lordstown Motors) are going down the same well-paved road Detroit has used for years, outsourcing various segments of the vehicle as well as operations.

How Do Nikola and Workhorse Compare to Tesla (TSLA)?

Tesla got where it is by trying to control as many aspects of its vehicles as possible, and doing as much inhouse as possible—with the result that Tesla’s profit margins, if it ever stops its rapid pace of expansion, could dwarf those of its competitors.

And Tesla has trucks coming too!

• Tesla Semi: The Tesla Semi (all battery power, no hydrogen) was announced back in 2017 and it’s already real. Several have been in use by the company on the route between its Nevada and California factories for over a year. But it’s not in production yet.
• Tesla Cybertruck: The Tesla Cybertruck is also not in production yet, though management is aiming to start in late 2021, using a factory that will be built somewhere in the middle of the country. But Tesla does have 650,000 deposits from people who want to own one, and relish the idea of a driving a truck that looks futuristic.

I’m a big fan of competition, because I think it makes everyone involved work harder, so I’m thrilled to see increasing numbers of entrants in the race to develop and manufacture a battery-powered pickup truck.

And I’m a big fan of strong stocks, too. I’m keeping a close watch on NKLA and WKHS. As for TSLA, I continue to expect great progress on many fronts as the company leads the world’s transition to sustainable energy. Of the three, it’s still clearly the best electric vehicle stock to buy today.

This South American E-Commerce Giant is Outperforming Amazon and Alibaba

MercadoLibre (MELI) is an Argentine e-commerce company that is compared to Amazon and Alibaba with a market cap of $49 billion. Year to date, MELI stock is up more than 73%. We don’t typically cover Argentina stocks because there are only 17 Argentina ADRs (American Depositary Receipts) that trade on major U.S. stock exchanges, and most of them are either very small, wildly underperforming—or both.

MercadoLibre (MELI) stock is neither of those things.

Why is MercadoLibre Doing So Well?
For many of the same reasons Amazon.com (AMZN) and Alibaba (BABA) have. It’s an e-commerce giant that dominates the country in which it is headquartered. Actually, MercadoLibre dominates an entire continent, with the largest e-commerce and payments ecosystem in all of Latin America. MercadoLibre has a presence in 18 countries, including Argentina, Brazil, Chile, Colombia, Mexico, Peru and Venezuela. In each of those countries, it’s the market leader in terms of unique visitors and page views.

With both an online merchandising and a growing digital payments business, MercadoLibre is almost a hybrid between Amazon and eBay (EBAY) or PayPal (PYPL). As Argentina, and South America as a whole, waits out the virus at home like most of the rest of the world, business has picked up for MercadoLibre the way it has for Amazon and Alibaba.

Sales were up 37% in the first quarter, and are expected to improve 32% for the year. Though the company has struggled to maintain profitability (much like Amazon until the last few years), its losses are expected to narrow significantly this year.

The valuation is extremely rich, as MELI trades at 161 times forward earnings estimates and a whopping 2,900 times trailing earnings. But MELI stock has been expensive for a while, and that hasn’t stopped it from rising.

MELI is rising faster than both AMZN and BABA stock, and its business has way more upside: according to Statista, only about 5% of retail sales in Latin America were online last year, compared to 36% in China and 11% in the U.S. The market in which MercadoLibre operates is relatively untapped, despite the immense sales growth in recent years.

Thus, it’s reasonable to think MercadoLibre stock will continue to outperform AMZN and BABA, though the sky-high valuation is a bit concerning, and the beta is a touch higher than those other two stocks. I’d wait for a pullback closer to support in the mid-920s before buying (it currently trades at 994, a new all-time high). Long term, however, the trajectory is quite clear.

MELI is essentially a higher-risk, higher-reward version of Amazon or Alibaba. For the more adventurous investor, it’s worth adding to your portfolio once the share price comes down a bit more.

These Stocks Are on a Caffeine Buzz

You might not believe it based on the number of coffees in the supermarket aisle, but the United States is far from the largest coffee consuming population. Sort of. While Scandinavian countries far outpace the U.S. in per capita consumption, the U.S. imports more coffee than any other nation. In fact, only the entire European Union (27 nations) imports more coffee than the United States. What does that have to do with the stock market?

A well-known market analyst once quipped that “bull markets run on caffeine and sugar.” While the reference may sound tongue-in-cheek, it definitely rings true if you consider that U.S. sweetener and caffeine consumption levels have closely tracked long-term rises in the S&P 500 Index in the past. And you can play America’s escalating caffeine addiction with caffeine stocks.

It shouldn’t be surprising that companies which make food and beverage products aimed at caffeine lovers tend to be leaders in bullish market environments. With the S&P 500 having risen over 30% from its March low, it’s fair to say that a new bull market is most likely underway. The fact that caffeine stocks are outperforming the S&P and other major averages is even more encouraging.

If you agree the bull is back, then you might consider taking a closer look at the leading coffee, soda and energy drink companies. So let’s examine some of the top hyper-caffeinated performers of this latest bull run.

Brewing a cup of tasty stocks

Caffeine Stock #1: Starbucks (SBUX)
When most people today think of caffeine, they think of Starbucks (SBUX). With top-line sales of $27 billion in 2019, Starbucks is the world’s largest coffee retail chain with over 30,000 stores globally and a presence in virtually every city of size in the U.S. Although in-store sales in the U.S. were negatively impacted by the pandemic, nearly 100% of its stores in China remain open and the firm plans to open 500 net new stores in fiscal 2020. Its Nitro Cold Brew has been a recent sales leader for the company, and its mix of hot and cold caffeinated beverages were strong sellers in grocery stores nationwide during the shutdown.

While the firm has suspended earnings guidance for the rest of 2020, analysts believe that as more states re-open their economies, Starbucks is poised for a strong sales rebound in the U.S.—especially given that 80% of pre-COVID customer occasions in stores were to-go, which should make it easier for the firm to transition to a more restricted post-COVID environment.

Starbucks’ management is confident it has the financial strength to make investments for the long term while navigating short-term challenges, and it’s worth noting that SBUX stock has tended to outperform the S&P during past bull markets. That said, I expect the outperformance in SBUX to continue in the six to 12 months ahead.

Caffeine Stock #2: Restaurant Brands International (QSR)
Restaurant Brands International (QSR) is the parent company of Tim Hortons, Canada’s largest quick-service food chain, as the result of a 2014 merger with Burger King. Hortons is especially beloved by Canadians for its delectable coffee, and it’s one of the largest java vendors in the world. The firm unfortunately struggled during the coronavirus crisis, as daily sales were down 40% in March due to a precipitous drop in the number of commuters.

But as governments gradually open up economies, the company has plans to lure customers back by implementing new safety standards in its stores, including sneeze guards at order counters, temperature tests for employees and floor markings to encourage social distancing. What’s more, management plans to fully re-open Tim Hortons dining rooms across Canada. Since the onset of COVID-19, Hortons has quickly rolled out home delivery services, going from around 250 restaurants participating to more than 1,000 in less than two months (and still growing). While QSR isn’t my favorite caffeine stock, the company appears to be well on its way toward recovery, a factor which is already reflected in the stock price.

Caffeine Stock #3: Monster Beverage (MNST)
One of the best-performing caffeine stocks is Monster Beverage (MNST), the maker of the popular Monster Energy drinks. This fast-growing company managed to flourish during the coronavirus economic slowdown, as highlighted by a 12% net sales increase and an 8% per-share earnings boost in this 2020’s first quarter. While sales briefly dipped during the early stages of the coronavirus lockdowns, they roared back to life in April as energy drink sales skyrocketed in the U.S., with sales of Monster increasing 138% year-over-year. Meanwhile, the firm’s share of the coffee-plus-energy category—which includes stiff competition from Starbucks products—rose to 54% in April.

The cash-rich company ($935 million) has the added benefit of a lucrative partnership with industry giant Coca-Cola (KO), which acquired a 17% stake in Monster Beverage in 2015. The deal has helped extend Monster’s retail distribution reach and has been integral to the company’s current (and likely future) success.

Shares of MNST are up almost 40% from the March low, but an important chart “resistance” at the 70 level (the February high) is being tested. Profit-taking is normal around major resistance levels like this one, so I wouldn’t be surprised if the stock pulls back or spends some time consolidating beneath the 70 level. But the firm’s growth story is too impressive to ignore and should continue to attract attention from institutional investors, which I expect will eventually push shares to new highs.

Caffeine Stock #4: Keurig Dr Pepper (KDP)
Although shutdown orders forced millions to forgo their morning ritual of visiting their favorite coffee shop, home-brewed coffee experienced something of a renaissance. Keurig coffee makers have surged in popularity in recent years since they allow consumers to sample their favorite coffee shop beverages (including Starbucks, Dunkin Donuts and Caribou coffees) in the form of single-serve K-Cup pods. Earnings and revenue for the machine’s maker, Keurig Dr Pepper (KDP), were higher in Q1 and, unlike many companies, it reaffirmed its 2020 guidance. For full-year 2020, Keurig Dr Pepper expects diluted earnings to be an above-consensus $1.38 to $1.40 per share, while also anticipating net sales growth of 3% to 4%.

Analysts further expect the firm’s earnings to rise, as its diverse offerings (including coffee, tea, juices and soft drinks) should keep the caffeine-craving consumer’s interest alive. The company is also expected to maintain a stable dividend and remains well positioned to continue growing, thanks in part to its ever-expanding product portfolio. After its recent 40% rally, investors who are interested in KDP should consider using pullbacks to do some nibbling in this stock.

These companies are among the top performers in the caffeinated beverage category and should be able to benefit from any improvement in economic conditions. Assuming a new bull market is underway, investors should expect that caffeine stocks will continue to show relative strength as the nascent bull grows to maturity.

Two Renewable Energy Stocks Are Taking The Lead

Renewable energy stocks have been notoriously volatile over the past several years, but that’s changing quickly. As fossil fuels become more difficult and expensive to access, alternative energy sources are an obvious solution to the issue.

Just look at the facts. A decade ago, coal provided nearly half of the electricity in the U.S. Today, coal is expected to provide just 19% of our electricity, as economic forces have compelled the closure of more and more coal plants. By 2025, analysts expect coal to account for just 10% of our electricity, and soon after that, none.

One factor in this unexpectedly rapid downtrend has been natural gas, which has enjoyed a supply boom as fracking increased our access to oil and gas. But a bigger factor has been the surprisingly quick adoption of renewable energy (mainly solar and wind), thanks to continuing lower costs.

In fact, renewable energy has produced more electricity than coal in the country on 90 separate days, a huge improvement over last year’s record of 38 days.

The coal industry, of course, has seasoned lobbyists, and they aren’t taking this beating quietly, but in the end, economics will win, and the result will be not only cheaper electricity but also cleaner air—and that makes everyone a winner.

So what are the best renewable energy stocks to invest in to take advantage of this trend?

Interestingly, it’s not the solar power panel manufacturers. They’re engaged in a cut-throat battle with Chinese companies, so growth is unpredictable and margins are continually squeezed.

No, the best prospects today are a couple of firms that make key electronic components for the solar modules.

The 2 Best Renewable Energy Stocks

Best Renewable Energy Stock #1: Enphase (ENPH)
Located in sunny California, Enphase is the world’s leading supplier of microinverters, which convert direct current (DC) energy from solar modules into alternating current (AC). Its products are used all around the world (U.S., Europe, Australia), though it’s notably weak in the Chinese market. Year-over-year revenues are up 105% and earnings are up 375%.

That‘s great growth, but that’s not all. A big reason why Enphase’s growth story still has plenty of upside is its Encharge battery system, which will allow homeowners to generate, store and control energy in a single system. All told, the firm believes its target markets will nearly quadruple in size by 2022; given the solar industry’s ups and downs, that’s not a sure thing, but there’s no doubt the potential is huge if things go right.

Today, the stock has a market capitalization of $7.3 billion, and the forward P/E ratio is 59, which is high, but lower than the growth rate!

As for the stock, it’s been public since 2012, and it’s had a lot of bull phases since then, interrupted by major pullbacks as the industry has been through boom and bust phases. But it’s been very strong since the March bottom, breaking out to new highs.

Best Renewable Energy Stock #2: SolarEdge (SEDG)
Solar Edge, which went public in 2015, has a market cap of $6.7 billion and a forward P/E ratio of 45, so it’s definitely in the ballpark with Enphase. The company has invented a smart string inverter solution that’s a game-changer in harvesting power and managing it in a solar photovoltaic (PV) system for residential and commercial use. The company also makes power optimizers, which are electronics that attach to the back of solar panels.

In a SolarEdge DC system each PV module is connected to the intelligent power optimizer electronic chip that maximizes energy from that module individually. This means if one module is messed up, dirty or covered with snow, the others run unaffected. Think of it like a system that lets any given bulb in a Christmas light strand break, without affecting how any of the other lights perform. The company’s string inverter system is more expensive than more simple string-array systems, but more cost effective than micro inverter systems, which require an inverter for every PV module.

Big picture, SolarEdge should grow as the rooftop and distributed solar market grows. Industry analysts see rooftop and distributed solar as the fastest-growing area of the market due to declining technology costs, increasing efficiency, wider use cases (i.e. electric vehicle charging) and ease of use for first-time buyers, remote locations and emerging economies. Just to point to two examples, California has mandated that all new residential homes include rooftop solar systems as of the beginning of 2020, and Texas is ramping up solar use because it is now the lowest cost source of electricity in the state.

Year-over-year revenue is up 59%, while EPS is up 48%. As for the stock, it’s behaved a lot like ENPH.

Coal is dead; renewable energy is the future. And the best renewable energy stocks are worth your consideration.

9 Tips for Better Investing

The following rules have been carefully selected as the most important set of guidelines an investor can use when investing. These rules form the foundation of growth investing and the investment philosophy we use, which have been applied and refined since 1970.

9 Ways to Become a Better Investor

1. Buy Stocks with Strong RP Lines

Relative performance (RP) studies are a superb way to identify successful companies and to avoid problem companies. You should buy stocks that are consistently outperforming the market. This is a good indication that they are under accumulation, week after week, month after month, and that the companies are succeeding.

2. Use Market Timing

Be cautious when the broad market is against you and aggressive when it’s with you. Don’t underestimate the power of the market to move stocks, both up and down. When market timing indicators are signaling a bull market, don’t delay. The trend is up, so stocks will be going up! Buy your favorite stocks and hang on as long as the ride is profitable.

3. Once You’ve Invested in a Stock, Be Patient

Recognize that time is your friend. Frequently stocks don’t go up as fast as you might want them to. But if you can develop a persistent and tolerant attitude coupled with plenty of patience, you’ll have a great advantage. We call this STAYING POWER! (The need for patience does not apply to losses. Read Rule 5.)

4. Diversify Your Portfolio

For our Model Portfolio, 10 stocks provide plenty of diversification. Smaller investors can do well with as few as five stocks, but you should never have all your eggs in one basket.

5. Cut Losses Short

This is the key to ensuring that you retain enough capital to stay in the game. No matter how hard you try, you are going to select stocks that go against you as soon as you buy them. Get rid of these stocks quickly! Never let your loss of your original money invested exceed 20%, based on the closing price of the stock. This is a most important rule, and yet we repeatedly hear from new subscribers who ignore it, hold on and suffer far greater losses. They learn the value of this rule the hard way.

6. Sell a Winning Stock When it Loses its Positive Momentum

This is a clear indication that other investors are selling too. And a lot of them know more than you do. So don’t wait for the company to tell you about the bad news. Sell first and read the bad news later. You can usually tolerate RP line corrections of as long as eight weeks but seldom more than 13 weeks before concluding that the stock’s momentum has turned negative. When these limits are exceeded, sell the stock without regret.

7. Let Your Profits Run

The power of compound growth can swell your account dramatically—if you are patient. Long-term investments make more money than short-term investments. So learn to develop staying power. Let your profits run and run and run. This is how big money is made in the market. Not by taking 10% and 20% profits but by thinking big—in terms of 100%, 200% and larger profits.

8. As Time Passes, Buy More Shares of Your Best-Performing Stocks

Add a modest number of shares to your winners from time to time, trying to do this during corrections in the stock, not after the stock has posted a major run-up. Called “averaging up,” this is a great way to reinforce your investments in your best stocks.

9. Be An Optimist

In our nearly five decades of business, we’ve seen many ups and downs for both the market and our country. But after every tough event our dynamic country and economy have eventually rebounded. So no matter how bleak the situation, always stay optimistic because our country and stock market will give you some dazzling opportunities.

Fasten Your Seatbelt (and Buy This Stock)

Like any industry, there will always be news and hype. Choosing if and when to react to it, is up to you. Let’s touch on a few things that are going on in the markets (including some clear signs of a potential market breakout), my take on them and how I suggest reacting to them, if at all.

Oil Stocks Volatility

The big news that we can’t seem to get away from is the seemingly continuous spike and drop in the price of oil and oil stocks. My biggest thought here is to keep some perspective—even within a spike, oil prices aren’t always that high relative to their prices looking back six months or a year.

That doesn’t necessarily mean the upmoves are fakeouts, per se. But to me, if oil stocks are going to make a sustained move, they’ll likely set up first by etching some launching pads above their longer-term moving averages.

The Fed

My (very) old trading rule that used to be popular (and worked wonders up until 2000) was called “Two Tumbles and a Jump.” Popularized by Norm Fosback (his 1970s book Stock Market Logic is a classic if you’re into various market timing studies), it simply said that the second time the Federal Reserve loosened monetary policy in a row represented a buy signal—from 1913 through 2000, it happened 18 times, and the market was higher a year later 17 times, by an average of 30%!

Of course, the system hasn’t worked during the last couple of easing cycles as first the Internet Bubble burst and, second, the Great Recession took hold. Nothing is perfect in life, and certainly not in the markets!

Growth Stocks

The rotations in the market can be vicious, as exemplified with the wild action following the 2016 Presidential Election. This rotation brought many of the market’s highest fliers—especially cloud software stocks and cybersecurity stocks—back down to earth. For many, it dug a hole and threw them in it.

My overly general take on these stocks is simple: Most are broken in the intermediate-term, and given that most originally broke out back in February 2018 and rallied four- to eight-fold since then, these mega-volume breakdowns could mark some meaningful tops in a bunch of them.

That doesn’t mean none are worth hanging onto if you have a good profit, but the odds favor that most won’t be the leaders they were.

Of course, a dip in your growth stocks isn’t fun, but once the dust settles, take a look at the broad market. Often with a severe sector rotation, any number of uncertainties could cause money to slosh back and forth for a while, but the key isn’t to focus on yesterday’s leaders, but to look for some solid setups among high-potential stocks that look ready to run on any market breakout after long rests.

One Stock Worth Buying

Amidst the chaos of the market, there’s one stock worth buying. Teladoc (TDOC) is a stock we owned last year (got out around breakeven when the market began falling apart in October) and have kept an eye on ever since. Now, though, it’s perked up near resistance on big volume.

You won’t find many stories bigger than Teladoc’s: The company is the clear leader in virtual care (often called telemedicine), allowing millions of people to get medical advice (and often run-of-the-mill prescriptions) over the phone or videoconference in a variety of fields. All told, clients can access 50,000 experts across 450-plus specialties along with 7,000 clinicians—and those clients include 40% of the Fortune 500 and thousands of small businesses (including 30,000 small businesses in Canada that recently signed up) along with many public health plan users (Medicare Advantage has 20 million members and is a new opportunity for Teladoc next year) and 300 hospital health systems.

There are a lot of moving parts and costs (the bottom line is drenched in red), but it’s a simple, powerful concept that’s working. Not only are revenues cranking ahead, but the sub-metrics look great, too, with total visits expected to rise this year, while utilization continues to rise, with 40% of U.S. members accessing at least two products. The biggest recent news is of an expanded relationship with United Health, which could bring in an addition five million paid members and 10 million fee-only members, with further upside beyond that. This remains a big idea with plenty of potential if management continues to execute.

What Comes Next?

It’s been a historic month, both in the market and in the real world, and given that so many of us are glued to the financial and regular news, I won’t rehash all the gory details. But I do want to touch on a couple of common themes in questions I’m getting, about growth stocks and the market in general.

First, I’m getting some questions on whether or not “the bull market is over.” I think that misses the point, as labels sort of pigeonhole you into a certain way of thinking. After all, when did the bull market really start? Back in 2009? 2016? What about the 20% plunge in late 2018? It’s more for debate class than to help you make (and keep) money.

What I think people are really asking is, “Have we entered a prolonged bear phase?” Nobody knows, of course, but I doubt it—the level of fear/panic out there is immense, and the reason is obviously well known at this point. Plus, fundamentally, the world’s best and brightest are working on medical cures/helps in a hurry; I’m not going to pretend to know the science of the virus, but I have a lot optimism that we’ll have a cure in the months ahead. As for the market, more likely is that we need some time to build a bottom after the market finds support, but we’re not at the front edge of a two-year bear phase.

All of this is a long-winded way of saying: Take it day by day and stay in gear with the market. Right now, obviously, the sellers are in control, but that will change someday, and when it does, you want to be there—no matter how anyone wants to label this market.

Picking Up the Pieces
As for what comes next, there’s obviously widespread panic and worry, but believe it or not, we’ve seen a slight improvement in the market’s internals during that time—when the market bombed on March 12, there were an amazing 4,400 stocks hitting new lows on the NYSE and Nasdaq. The following week, when the market plunged to lower lows, there were “only” 3,900 or so. And then a few days later, as the market fell to lower lows, the figure was again around 3,900. That’s not a reason to party, but it’s the first sign of some resilience from the broad market since the crash phase began.

Will that finally translate into a workable low? Time will tell. Two short-term things to look for—the 10-day moving average on the major indexes (see S&P 500 chart below), which hasn’t been breached on the upside since this crash got underway on February 19. And, conversely, I’m looking to see if/when the CBOE Volatility Index (VIX) dips below its 10-day moving average.

I’m not saying moves through the 10-days would be a sign to party, but it would at least be a short-term change in character and tell us the immediate market crash may be over. Of course, even after that, the odds favor a multi-week or multi-month bottoming process even after such a change in character. I usually sit that phase out, but if you’re aggressive, you might want to play it.

Two Growth Stocks Holding Steady
One way to do that is to go the traditional route and look for names that have actually held up near their highs. The only stock set up in a “real” base here that I see is GSX Techedu (GSX), a rapidly-growing online Chinese education firm that will likely benefit from the virus. Despite a monstrous run this year, you can see that GSX has actually held its 50-day line—a breakout above 46 with a strong market upmove could be tradable.

GSX Techedu (GSX) is one of two growth stocks holding up well amid this crash.

The other option is to look for stuff that’s taken a good-sized hit but has observed logical support. So far, one idea on this front is Advanced Micro Devices (AMD), which was definitely a leader in the chip stock space earlier this year, and it’s taken a hit since the top—but it’s held above its 200-day moving average line so far. Impressively, the biggest weekly volume during the month-long wipeout was when the stock was up on the week.

Advanced Micro Devices (AMD) is one of two growth stocks holding up well amid this crash.

We recommend reserving cash, ready to put to use for the next big upturn.

Two Stocks Thriving in a Pandemic

I started in this business on a very part-time basis in 1970, stuffing envelopes, typing addresses, drawing charts of stocks and calculating market-timing indicators—in short, working for my father.

I became a full-time employee in 1986.

And a little over one year later, on October 19, 1987, the Dow plunged 22% in one day.

We didn’t stare at our screens in disbelief. We had no screens to stare at in 1987 (though we did soon after). Instead we got updates on the phone from brokers, trying, in a state of shock, to understand what was happening.

But the market came back. Not all at once, obviously. But eventually, and irrepressibly, because that big one-day drop was an over-reaction, caused in part by program trading, and when it was over, the market was simply too low.

So the market came back. It has come back after every other crisis in the intervening decades (the S&L Crisis, Gulf Wars, a currency crisis, the popping of the internet bubble, 9/11, and the 2008 financial crisis) and it will no doubt come back again after the current scare is over.

Back in 1987, I didn’t know this. Sure, I may have known it intellectually, but I didn’t know it in my investing soul. Now I do.

Long-term, I know that the market will come back to hit new highs again, and that if I live as long as the actuaries expect, I have several more market cycles in front of me.

Why will the market come back? Because in the long run, the market reflects the growing value of the world we continue to make—our civilization—and I’m confident that mankind will surmount the current challenge just as it has surmounted every previous one.

What I Worry About Today
My wife has always been a big proponent of hand-washing, so I’m not doing much new in that department. Additionally, I’ve long made it a habit—whenever someone sneezed or coughed—to exhale for as long as possible while I turn and walk away. I’m rarely sick. So I’m optimistic that—even as I head toward the category labeled “elderly”—I will survive coronavirus.

What I do worry about is the coming recession, which is going to hurt people in ways no one currently foresees—a recession that is being triggered by intentional acts of the people in charge of events of all sorts that typically bring people together.

The Intentional Recession
Yes, these moves will flatten the curve of the spread of the virus—and that is good. But there will be a huge cost (just as there was a huge cost to the response to 9/11) and the resulting recession is going to hurt. And that—combined with the fact that the market was overbought just last month—is why the market is down in bear market territory.

The last recession was triggered by the collapse of the subprime lending market. This one will be different. They’re always different.

What is almost certain about this intentional recession is that unemployment will grow, our GNP will shrink (perhaps precipitously) and debt will become a problem for growing numbers of people and institutions.

The proven ways to cope with a recession, however it unfolds, include reducing debt, building cash and living within your means.

Eventually there will be a new bull market. There always is.

In the meantime, here are two healthy stocks of businesses benefitting from the current situation.

GSX Techedu (GSX)
GSX is one of many online Chinese education firms enjoying great growth. Its market share is growing significantly, and its ability to host massive classes (as many as 100,000 participants!) should help it take a big leap during this virus outbreak as more people look to learn from home. The company turned profitable in 2018 and continued that winning streak with its latest quarterly report. In Q4, GSX saw its revenues increase by a stunning 406%, while earnings per share of 11 cents were up a similar amount.

Zoom Video Communications (ZM)
Video conferencing was growing before coronavirus hit and now the technology is hot. In fact, CEO Eric Yuan recently told CNBC that the company’s products are experiencing “record usage” in the virus’s wake. In the quarter ended December 31, revenues were $188 million, up 78% from the year before, as the number of customers with more than 10 employees grew 61% from the year before to roughly 81,900. All told, Zoom is arguably one of the most popular video conferencing providers today, and there’s lots of room for this young company to grow.

Indicators that a Bull Market is on the Horizon

You’ll end up ahead of 75% of investors if you dedicate yourself to following the market’s trend, up or down, and not judging it. It’s a bit more complicated with individual stocks, where one piece of news (like earnings) can wreck an uptrend overnight. But even there, while I often take partial profits as a stock works its way higher, I always hold at least a piece of my original shares to sell “defensively”—i.e., on the way down, after the trend has turned, thus giving my portfolio a chance to benefit from huge winners.

One of the big advantages of being a trend follower is that I don’t have to worry much about the dozens of overbought/oversold market indicators out there—from MACD to RSI to Bollinger Bands to Stochastics and many more that supposedly tell you when a stock has gone too far, too fast.

However, there is one aspect of the overbought/oversold equation that I pay a great deal of attention to, partly because it runs contrary to what most investors believe. The concept was stated best by the now-retired technician Walter Deemer, who wrote a short (but great) “idea” book last year called When the Time Comes to Buy, You Won’t Want To, which included more than 60 market truisms.

My favorite of the bunch: “The Market Gets the Most Oversold at the Bottom and the Most Overbought at the Beginning of an Advance.” That’s right—it turns out that when the market becomes extremely, extremely overbought, it’s usually early in a new advance.

Over time, I’ve followed a handful of bullish market indicators that indicate highly unusual strength in the market; I call them “blastoff indicators,” for obvious reasons. The signals don’t come often—many flash just once every five to 10 years—but when they do, they almost always point to good things down the road.

The reason they work is actually simple: Very unusual strength occurs because there’s a sudden positive change in investor perception. That’s like a big boulder dropped into a lake, with ripple effects that take time to play out.

Why focus on this now? Because these blastoff signals are often flashed after a big market decline—and it’s possible we’ll get some signals in the days ahead. There are many out there, but I like to stick with a handful.

Bullish Market Indicators
The first and my favorite is the 2-to-1 Blastoff indicator, which was likely invented by Walter Deemer (though I read about it first from the late, great Marty Zweig, so I’m not really sure who gets the credit). It happens when, over a span of 10 trading days, the NYSE Advance-Decline Line averages a positive 2-to-1 reading. Translation: Over two weeks, every day averages at least twice as many advancing stocks as declining stocks.

The last time this happened was back on January 9, 2019, just as the market was taking off from its late-2018 market correction (first arrow in the chart below). That led to 13 months of great performance, of course, and that wasn’t unusual—there have been just a couple dozen or so signals since 1960 (!), and the market gained as much as 25% a year later on average. More than that, the signals usually came at or near the start of major bull markets.

Another of my favorite bullish market indicators is the 90% Blastoff indicator, which flashes when 90% of NYSE stocks rise above their respective 50-day moving averages at the same time. It flashed back in late February 2019 (second arrow in the chart), and not only does it lead to good gains looking out a year (20%-ish max gain on average), but drawdowns after these signals tend to be minimal (2% or so) despite the fact that the signals often come a couple of months after a market bottom.

There are other “quicker” measures I track, such as the 10-day blastoff (90% of stocks get above their 10-day moving average) and the Whaley Breadth Thrust (named after Wayne Whaley, it occurs when the five-day A-D Line averages 2.8-to-1), but the above two are my favorite.

What’s interesting is the fact that the 10-day blastoff actually flashed just after the March 23 market bottom (good long-term track record, but near-term can lead to lots of ups and downs) and we just missed a Whaley signal in April (five-day ratio came in at 2.7-to-1). I don’t take action on either of those signals, but they’re certainly plusses.

Now, watch to see if the old reliable 2-to-1 Blastoff signal can flash. If the market can enjoy a good few days, we could be looking at a rare bullish signal—and a reason to take more than a couple of steps back into the market.

The Most Expensive Thrill On Earth

It was just over 50 years ago that Neil Armstrong became the first man to walk on the moon, the culmination of a nearly decade-long NASA program—and now we have three major commercial entities making continued progress in the field of space travel.

Jeff Bezos’ Blue Origin has been taking commercial payloads into space using a reusable rocket that returns to land.

Elon Musk’s SpaceX is working for NASA (among others), carrying payloads and soon astronauts into space (taking the business away from Russia) and also reusing rockets. Additionally, SpaceX has been building a new satellite-based broadband network dubbed Starlink, composed of satellites in low-earth orbit linked to ground transceivers. The company is aiming for 800 satellites to provide moderate coverage, and has already launched 422, so the service may debut by the end of this year.

And then there’s Sir Richard Branson, whose Virgin Galactic (SPCE) is aiming to take paying tourists—including Branson on the first flight—into space (perhaps later this year) and then parlay the experience gained in that venture into a hypersonic point-to-point travel service that could provide a flight from New York to London in one hour and Los Angeles to Sydney in 2.5 hours.

You can’t invest in SpaceX or Blue Origin yet, but you can invest in Virgin Galactic, so that’s the company it makes sense to watch—especially if you, like me, like investing in big, revolutionary ideas.

SPCE: The Final Frontier
Virgin Galactic’s space tourism trips are expected to take around 90 minutes and cost $250,000 per person—making them perhaps the most expensive thrill on Earth. (What else costs nearly $3,000 a minute?) But there are plenty of interested parties! The company already has over 600 reservations. As for the hypersonic intercontinental transportation market, that’s the larger opportunity, and it could eventually revolutionize the multi-trillion-dollar airline market, which is in deep trouble today thanks to the coronavirus.

The amount of investment required is massive, but I like management’s strategy because it reminds me of Elon Musk’s strategy with Tesla (TSLA): first, build a small number of expensive cars (Roadsters) for rich people, then use the profits from that to build a larger number of luxury cars (Model S and Model X) for a larger segment of the population, and then use the profits from that to build cars for the mass market—the Model 3!

Management believes Virgin Galactic’s space tourism business could grow to 270 flights by the end of 2023, assuming five aircrafts make 54 flights a year. In this scenario revenue could top $500 million in three years. The company generated $4 million in revenue in 2019 from transporting scientific payloads, lost $211 million and ended the year with $480 million in cash. Consensus estimates assume zero revenue in 2020, then $110 million in 2021.

There are plenty of risks. One in-flight explosion would be a major problem; two or more could be devastating.

But the long-term potential is enormous, which is why SPCE is one of the stocks that I’ve recommended to my readers in Cabot Stock of the Week.

But I wasn’t the first Cabot analyst to recommend Virgin Galactic stock. That was Carl Delfeld, chief analyst of Cabot Global Stocks Explorer, who recommended the stock to his readers in December when it was trading under 7.5. Looking at the chart, you can see he pretty much caught the low!

I recommended SPCE stock to my Cabot Stock of the Week readers a few days later, just as it was taking off (most of them bought around 9), and then it was off to the races, with the stock soaring to a peak of 42! Along the way, both Carl and I recommended some profit-taking, but both Carl and I continue to hold SPCE for the long-term, because of the world-changing potential of the business.

Amazon Continues to Thrive While Retail Tanks

Amazon.com, Inc. (AMZN) is one of a handful of companies that are benefiting from the COVID-19 pandemic. Its e-commerce, AWS, and Prime divisions are all seeing strong growth. Charles B. Carlson, CFA, editor of DRIP Investor has some good insights into its retail growth.

He says, “Retailing hasn’t exactly been the sweet spot of this market for the last several years. Brick-and-mortar retailers, in particular, have had a rough go of it, and the actions taken to combat the coronavirus will most likely be the death knell for some retailers and severely cripple others.”

“However, one retailer that remains in a unique position to thrive both in the near and long term is Amazon.com. Indeed, the retailing giant’s online business model continues to show its strength. The stock has held up relatively well during the recent market downdraft. It is possible that consumer spending will be severely hobbled over the next six months, which will matter to all retailers, including Amazon.

“But from a stock perspective, I expect these shares to continue to show good resilience relative to the market. Though not cheap based on traditional valuation metrics, the shares have become a “must have” for growth investors.

“And due to the recent implementation of a direct-purchase plan, Amazon shares are accessible for virtually any investor, regardless of the size of his or her pocketbook.

“While it seems like it has been around forever, Amazon is still a relatively young company. The firm, incorporated in 1994, started out as an online marketplace for selling books. Over the years, the company has grown into a global retailing and services juggernaut, focusing on ecommerce of all kinds, cloud computing via its Amazon Web Services (AWS) business, and digital streaming.

“Sales in Amazon’s most recent quarter totaled $87.4 billion, up nearly 21% over the year-earlier quarter. The firm now has over 150 million paid Prime members around the world, a very nice annuity-type cash stream. Amazon’s reach provides it with a plethora of opportunities. In fact, founder Jeff Bezos has said that “your margin is my opportunity,” implying that Amazon has the ability to disrupt virtually any industry.”

Contributor Jon Markman, editor of Pivotal Point, agrees, saying:

“The COVID-19 crisis is pushing supply chains and logistics networks to their limits. Something has to give soon. [Recently] Amazon.com signed an agreement with the Canadian government to distribute critical medical supplies nationally. The partnership is a big step forward for private companies.

“With people being quarantined at home, they are utilizing Amazon.com, trusted by nearly 112-million Prime members, as their personal supply chain for food and essential supplies. A Morning Consult research study found that Amazon.com was the most trusted public company in United States. It is more trusted than the police, labels on food packaging and capitalism.

Given this sentiment, the investment calculus for Amazon is strong. Shares trade at 48x forward earnings and 3.4x sales. While both metrics may seem exorbitant, they are far below historical norms and neither reflect the true potential for long-term growth even in this market.

“The COVID-19 pandemic exposes investors to the reality that most consumers have known for a long time: Amazon is a well-managed business that treats customers well and is renowned for its reliability. In times of uncertainty, reliability is more important than ever. Investors should continue to use all weaknesses to buy Amazon shares.”

I delved into the company a bit more, noting that Amazon is actually benefiting on three levels from the coronavirus pandemic.

First, streaming. Strategy Analytics estimates that worldwide demand for subscription streaming video services will see a 5% increase this year from the stay-at-home orders. That amounts to some 47 million more subscriptions, industry-wide, than the previously forecast 96 million, for a total growth rate of 18%.

That’s great news for all the streaming services, but especially for Amazon. That’s because it’s a two-fer, which leads me to the second way Amazon is benefiting from the virus. Not only does the company profit from the rise in streaming, but because both Disney+ and Netflix use its Amazon Web Services (AWS) to deliver their streaming products, Amazon will also make money from that channel. And AWS—already accounting for two-thirds of the company’s operating income and $35 billion in revenues—is ready to attract more investors with its offer of $20 million worth of credits and technical support to those AWS customers who are developing faster COVID-19 testing. Wedbush Securities estimates that Amazon Web Services alone could be worth a half a trillion to a trillion dollars in the near future.

Lastly, the third way Amazon is poised to reap profits from the virus is the stunning rise in e-commerce sales since the pandemic began. Researchers at Listrak estimate that online sales have risen 40% since the virus started its global devastation. Amazon’s Prime revenues last year were $19.21 billion. And its online stores—product and digital sales—brought in $141.25 billion. The company’s total e-commerce business accounts for 40% of all U.S. online retail sales and its grocery business was just ranked #1 for new online shoppers, so expect a really big bump in sales this quarter.

Merrill Lynch analyst recently climbed on board the stock (along with 41 other analysts who rate the company ‘Buy’), noting, “Amazon’s logistics infrastructure “could be the 4th leg of the ‘services’ stool.” His analysis concluded that Amazon already has a first-party (1P) relationship with its customers, acting as the retailer who sells branded merchandise, and it has now moved into 3P, as a third-party retailer of e-commerce, advertising, and cloud services, selling its own brand directly to the consumer via its online site.

The analyst focused on Amazon’s fulfillment centers, which have grown from 16 in 2009 to 1,137, cementing the company’s place as the U.S.’ 4th largest delivery company. And Amazon delivers almost one-half of its 4.5 billion packages a year through its own delivery network of planes, vans, drones, and sidewalk robots.

Other analysts have recently raised their price targets for AMZN, up to $2,800.

The latest stats back up the potential for Amazon. While retailers around the world are suffering and even closing stores, the Guardian reports that Amazon customers are spending almost $11,000 a second on its products and services, according to the Guardian.

While the shares have been on a tear, if you value each of its businesses separately (all of which could be spun off), the valuation of the shares of Amazon with its unprecedented retail growth looks pretty attractive.

Is Netflix the Best Pandemic Stock?

Back on February 19, as it became apparent that a mysterious virus in China had begun reaching across the globe, I named Netflix (NFLX) “The Best Coronavirus Stock”. At that time, I wrote to my investment subscribers at Cabot Undervalued Stocks Advisor:

“Want a stock that’s probably going to gain customers during this virus epidemic? Look no further than Netflix (NFLX) … There are tens of millions of people in China and surrounding countries that are quarantined, or simply voluntarily avoiding public places. What are they going to do with their time? My guess is that a significant amount of movie-watching will be taking place, with lots of folks signing up for Netflix – an internet commodity that can’t be constrained by a human virus.”

Fast forward to the afternoon of April 21, when Netflix reported first-quarter earnings results. The big, celebrated number was the 15.8 million new subscribers, far surpassing Wall Street’s expectation of 8 million new subscribers. It appears that movie-watching was a far more popular activity during this quarantine season than even the experts had predicted!

Within the earnings press release, the balance sheet numbers were preceded by a lengthy letter addressed to shareholders. The letter discusses:

• the fortunate but unsustainable surge in new subscribers;
• the customer support issues arising from work-at-home challenges, which the company has resolved;
• 2,000 new hires in customer service;
• the almost complete cessation of film production;
• a $150 million donation to provide income to out-of-work television production cast, crew and support personnel, which includes setting up hardship funds for unemployed industry personnel in seven countries in Europe, Central & South America;
• the company has doubled its own match to their employees’ charitable giving.

Netflix management also delivered surprisingly high forecasts for the second quarter, including an expectation of $1.81 diluted earnings per share, when the analysts’ consensus estimate was only $1.55. This earnings projection nails down the answer to the question, “How is the outlook for Netflix, going forward?” Between the outstanding first-quarter subscriber growth and the continued rising operating margins that are enhancing profits, investors should remain confident about owning this superb growth stock.

Ignore the Headlines; Netflix is in it to Win it
You’re going to read negative headlines that announce that coming quarters will not be as strong as Netflix’s first quarter, as COVID-19 fades from the scene. Well, it didn’t take a rocket scientist to figure that out, but the news stories will present that as a bad situation, as in, “Oh no, will Netflix become a mediocre company after the virus is gone?!” Sigh. Ignore the headlines, which are meant to scare people into tuning in to that particular news medium. Instead, focus on Netflix’s second-quarter projections, which are outstanding, and read the press release, which is informative.

By the way, I’ve noticed that investors love to complain about some of the really popular stocks, in a sneering manner, with the implication that these companies are on the downtrend in terms of product popularity and balance sheet performance. All you’ve had to do in the last couple of years is go on Twitter and write, “What do you think of Apple (AAPL) stock?”, and the naysayers come out of the woodwork. You can tell that they’re mostly people who are desperate for attention and want to project a superiority over Apple, or Netflix, or whichever company is their target du jour. I’ve even had several investors seriously question me, in recent days, about Netflix’ viability as a growing company!

I’ll control my reaction here … they’re out of their minds. If an investor wants to feel superior to a company, then perhaps they should start by insulting a company that’s losing money. But picking a fight on social media over Apple or Netflix earns them a scarlet L sewn onto their shirtfront … L for “loser”.

So if you’re at a cocktail party and you mention Netflix stock, and Mr. Suave-and-Debonair insults the company as if he has some sort of serious inside information about its impending demise, just smile, knowing that he’s not a terribly happy or confident person. Happy people don’t insult smart people who own shares of NFLX.

I expect 2020 to present difficult moments for U.S. stock investors as the economic impact of the global quarantines continues to deliver waves of bad news. Despite this year’s stock market turmoil, Netflix shares rose to all-time highs.

However, no stock is impervious to trauma in the broader stock market. Accumulate NFLX during pullbacks. Buying low is an investor’s best revenge.

New Leading Growth Stocks Emerge

There’s a book called Ten Years of Wall Street by Barnie Winkelman who was quoted in Barton Biggs’ book Hedgehogging (highly, highly recommended book), and it applies to those who are overly obsessed with the current economic malaise:

In other words, for the many saying the market “can’t go up” because of the damage of the virus and the shut-in, they’re dealing too much with facts and figures and not listening enough to the market itself.

It goes the other way, too—just because the Fed is buying any asset that isn’t nailed to the ground, for instance, doesn’t guarantee the market is headed higher. While the real world runs on exact numbers, the market moves on expectations and perceptions, both up and down. That’s why it’s better to rely on the action of the market itself (major indexes, leading stocks), which helps you stay in gear with what’s actually happening, instead of coming up with a biased judgment based on the news.

A second point here comes to that exact point—interpreting the action. These are the kind of environments where it really pays to at least take a glance at some stock charts to get some perspective among all the noise and volatility out there.

For instance, let’s take a look at a daily chart of Veeva Systems (VEEV), an emerging blue chip in the cloud software sector that was out of favor for eight months but has acted extremely well since the market’s late March bottom. If you were a shareholder, you know they took two dips, and none of the dips they took were fun—but neither dip was really out of the ordinary. In fact, relative to the action of the past couple of months, it looked downright normal, with neither dip even approaching the 25-day line.

On the flip side, look at Disney (DIS), the blue-chip stock that’s fallen on hard times as parks have closed and movie production has halted. Since the absolute low, the stock’s had some sharp bounces. But, while it could be just fine longer-term, the recent moves aren’t decisive by any means; DIS remains miles below long-term resistance and hasn’t recovered much of its February/March crash.

That doesn’t mean Disney stock is doomed for years to come, but the point is dramatic headlines and big one- or two-day moves can often get the heart pumping—but don’t often tell you if the stock is really making a meaningful move.

Thus, you want to focus most of your attention on the market and leading growth stocks, but you also want to add some perspective. And last, don’t forget to look for the market’s top merchandise—something that’s shown meaningfully bullish action on the chart, but also has a growth profile that is rapid, reliable and has a long runway ahead of it.

One idea on that front: Wingstop (WING), which has a great long-term cookie-cutter story.

The company has long had one of the simplest, but most powerful, cookie-cutter story—the firm offers wings with all sorts of flavors, as well as the usual pub-ish fare like fries, dips and soda though its 1,413 generally small format restaurants (1,700 square feet), the vast majority of which are franchised. The firm’s track record has been hard to beat, both from new store openings (boosted its store count by 10% last year) and excellent growth from existing locations (same-store sales up a whopping 12.2% last year; plus, each year’s new openings outperform the prior year’s level), and the big idea here revolves around management’s ambitions—it sees Wingstop as eventually being one of the top 10 global restaurant brands (6,000 potential locations worldwide, including more than 3,000 in the U.S. alone), and at its Investor Day in January, it says it’s seeing zero signs of saturation in any of its markets. The top brass’ digital efforts are also a plus—39% of orders are now digital or delivery, and that rose to 47% in Q1. Most important of all, Wingstop just gave an update on business, and any slowdown as been minor; even in March, domestic same-store sales rose 8.6%, and for Q1 as a whole, the firm opened 28 new restaurants. It looks like even a pandemic isn’t slowing down this steady cookie-cutter story.

The stock’s comeback from its crash lows has been jaw-dropping—a pullback/shakeout would be tempting.As the market claws out from the coronavirus crash rubble, new leading growth stocks are emerging. But a former market darling has fallen from grace.

10 Rules for Big Profits in Growth Stocks

At the Cabot Wealth Network, all our growth stocks must meet our 10 rules for growth stock investing—a rigorous analysis that requires a thorough knowledge of a company and the action of its stock. These rules form the foundation of growth stock investing and the investment philosophy used by our growth analysts.

1. Invest in Fast-Growing Companies

You’ll usually find them in today’s fast-growing industries, where revolutionary new technologies and services are being created. As you study the companies in these growth industries, you should favor lesser- known companies that have yet to reach peak perception. Frequently these will be smaller companies, where growth potential is greater!

2. Buy Stocks with Strong RP Lines

Relative performance (RP) studies are a superb way to identify successful companies and to avoid problem companies. RP measures how a stock is performing relative to the market. You should buy stocks that are consistently outperforming the market. This is a good indication that they are under accumulation by big, usually institutional investors, week after week, month after month, and that the companies are succeeding. The best investing tips come from the performance of the stocks themselves. (Ignore hot tips!)

3. Use Market Timing to Guide Your Investing

Be cautious when the broad market is against you and aggressive when it’s with you. Don’t underestimate the power of the market to move stocks, both up and down. When the Federation’s market timing indicators are signaling a bull market, don’t delay. The trend is up, so stocks will be going up. Buy our recommended stocks and hang on as long as the ride is profitable.

4. Once You’ve Invested in a Stock, be Patient

Recognize that time is your friend. Frequently stocks don’t go up as fast as you might want them to. But if you can develop a persistent and tolerant attitude coupled with plenty of patience, you’ll have a great advantage. We call this STAYING POWER. (The need for patience does not apply to losses— read Rule 6.)

5. Diversify Your Portfolio

For the Model Portfolio, 10 stocks provide plenty of diversification. Smaller investors can do well with as few as five stocks, but you should never have all your eggs in one basket.

6. Cut Losses Short

This is the key to ensuring that you retain enough capital to stay in the game. No matter how hard you try, it’s inevitable that some stocks go against you as soon as you buy them. Get rid of

these stocks quickly! Never let your loss of your originalmoney invested exceed 20%, based on the closing price of the stock; in practice, we usually cut losses between 10% and 15%. This is a crucial rule, and yet we repeatedly hear from new subscribers who ignore it, hold on and suffer far greater losses. They learn the value of this rule the hard way.

7. Sell a Winning Stock when it Loses Positive Momentum

This is a clear indication that other investors are selling, too. And a lot of them know more than you do. So don’t wait for the company to tell you about the bad news. Sell first and read the bad news later. You can usually tolerate relative performance (RP) line corrections of as long as eight weeks but seldom more than 13 weeks before concluding that the stock’s

momentum has turned negative. When these limits are exceeded, sell the stock without regret.

8. Let Your Profits Run

The power of compound growth can swell your account dramatically—if you are patient. Long-term investments make more money than short-term investments. Learn to develop staying power. Let your profits run and run and run. This is how big money is made in the market. Not by taking 10% and 20% profits but by thinking big—in terms of 100%, 200% and larger profits.

9. As Time Passes, Buy More Shares of Your Best-Performing Stocks

Add a modest number of shares to your winners from time to time, trying to do this during corrections in the stock, not after the stock has posted a major run-up. Called “averaging up,” this is a great way to increase your investment in your best stocks.

10. Be An Optimist

In our four-plus decades of publishing the Cabot Growth Investor, we’ve seen many ups and downs for both the market and the United States. After every tough event, our dynamic country and economy have eventually rebounded

No matter how bleak the situation, always stay optimistic because the stock market will give you some dazzling opportunities.

6 Ways to Pick Monster Growth Stocks

It’s what every investor dreams of: finding the next Microsoft, the next Cisco, the next Amazon, the next market leader that will soar five-, 10- or 25-fold. Although finding these home runs is a daunting challenge, it can be done. Even in a pandemic-riddled economy. And we’ll show you how!

Before you even begin to look for monster growth stocks, however, you first need to develop the desire to find and hold on to big winners. It’s natural to want to sell out of a strong stock after a “small” profit of 20% or 30%. But if you truly find a stock that is on its way up 100%, 200% or more, why would you want to sell so early? Many investors owned Microsoft, Cisco or Amazon at one point or another. But few held on for the entire trip higher. So let your winners run!

Back to finding these super stocks. We’ve been examining growth stocks for over 40 years, constantly searching for monster growth stocks to carry our portfolio higher. In that time, we’ve found some, missed some, made some mistakes, and learned from everything. And what we learned was that most of the huge winners had common characteristics … characteristics that propelled astounding advances that just kept going and going!

Below we’ll show you six key traits to look for. The more of these traits your potential purchase has, the better the chance it can mushroom many-fold in price.

Momentum, Momentum, Momentum

First of all, if a stock lacks strong positive momentum (as defined by a steadily rising relative performance (RP) line), then avoid the stock. No matter how much you like a stock, you need other investors to agree with you! If the stock has consistently underperformed the market in recent months, then — at best — your money is better off somewhere else. At worst, something could be quietly unraveling at the company, which will eventually lead to a much lower stock price.

Remember, momentum represents the constantly changing perception of a stock’s future. When the RP line is powering ahead, for six months or more, it’s alerting you to increased sponsorship, as investors bid a stock higher because they perceive the future to be bright. The opposite is also true, with a poor RP line informing you of a darkening outlook by investors.

Beyond the main trend of the RP line, we also like to see an RP line pull back for just a week or two at a time, with each correction stopped by new buying. Steadily rising RP lines often point to intense accumulation, a situation that often leads to continued rapid gains.

Bottom line: don’t jump into a stock — no matter how good its other traits — unless its momentum is positive. In particular, you should favor strong RP lines showing shallow and brief corrections in recent months.

Mass Markets are Key

Once the RP line meets your requirements, it’s on to the fundamentals. To start off, it’s best to search for companies whose products and services address big markets. The bigger the better! Without a mass market to serve, it becomes far more difficult for any company to grow its business two-, five- or 10-fold. How many companies do you know that have served a niche market, yet have grown at stupendous rates for years? Not many.

The mass market could be an old, well-established market, or a new, rapidly developing market. In the first case, the company you’re inspecting must be serving this huge market in a new way. This will allow sales to mushroom as the company takes market share away from others.
XM Satellite Radio (XMSR)

Let’s look at an example. XM Satellite Radio (XMSR) was a little-known stock back in early 2003. But its satellite radio service soon became very popular, and the company

became a household name. Every month, the company was signing up tens of thousands of new subscribers, people who wanted the freedom to listen to the music or talk they wanted, when they wanted. The potential market was in the tens or hundreds of millions, and investors began to discount the possibility of big things down the road.

You can see just how fast XMSR rose during the 2003-2004 bull market. Even though the company was unprofitable, its super-fast sales growth, combined with the huge potential mass market, attracted big-money investors who envisioned big things on the horizon

Therefore, look for companies serving huge mass markets, or rapidly growing newer markets.

Show Me Sales and Profit Growth

Growth companies are named as such for one main reason. They’re growing! All too often, investors fall in love with companies that promise to do something great in the years ahead. Disease cures? Faster data transmission? Cheaper trading methods? We’ve heard them all. Many times, firms that are striving to do such great things never succeed — leaving their shareholders holding the bag.

But we’re not here to tell you what doesn’t work. We’re here to tell you what does. And what points you in the direction of the market’s leaders is powerful sales and earnings growth. It’s true — the late 1990s saw even unprofitable dot-com and biotechnology stocks race to the heavens. However, that period of time was the exception, not the rule. Nowadays, companies showing explosive growth in sales and earnings are the ones attracting the most investment dollars.

Of course, there will be some unprofitable or speculative firms that end up being Wall Street darlings. Some will be worth investing in. But finding rapidly growing companies definitely puts the odds in your favor. In general, we like to see firms growing current sales and earnings at least 30%, though many of our biggest winners were growing much faster … 100%, 200% or more.

Consider Intuitive Surgical (ISRG). It was gaining traction with its revolutionary da Vinci surgical robot, which allowed surgeons more effectively operate, leading to less complications and shorter recovery times. In 2003, the company booked $92 million in revenue, while it posted a loss of $0.15 per share. Within three years, revenues had exploded to $373 million, while earnings catapulted to $2.32 per share. That provided the fuel for the stock’s huge advance in late 2004 and 2005.

An example of less explosive but more consistent growth is Coach (COH), the luxury retailer in the U.S. and abroad. Quarter after quarter, year after year, Coach racked up 25% to 35% sales and earnings gains; take a look at the earnings line in the chart below. Such steady, powerful growth helped the stock enjoy steady, powerful gains during the post-2003 bull market.

Thus, strive to find companies showing terrific sales and earnings growth today. Doing so will put the odds of finding a big winner in your favor.

What’s the BIG IDEA? Revolutionary Product with a Major Benefit

Probably the most important fundamental characteristic we look for in a company is a BIG IDEA. Ask yourself: Is the company offering a revolutionary product? Does it have patents or intellectual property that protect it from competitors? Does this product or service provide customers with a major benefit?

Past studies of our own stock selections tell us that companies providing a revolutionary product or service have made up most of our biggest winners. It’s true! Whether it was Qualcomm’s CDMA wireless technology, (profit 354%) JDS Uniphase’s fiber optic switches, (profit 388%) Home Depot’s unique home-improvement stores, (profit 240%) American Power Conversion’s uninterruptible power supplies (profit 1,000%) Summit Technology’s laser eye surgery equipment, (profit 443%), XM Satellite Radio’s new service (profit 396%), or NetEase’s wireless communication in China (profit 150%), most of our big, big winners were offering something new and revolutionary.

Two things to consider here. First, it’s not easy finding revolutionary products or services. That’s why they’re revolutionary! But that just makes the few you find that much more valuable. Second, the term revolutionary has different definitions depending on whom you ask. That makes it somewhat difficult to classify the truly revolutionary offerings. As a guideline, we like to ask ourselves, is the company’s product or service significantly altering the market it sells to? Is it delivering its product or service in a new, more efficient way? In general, is the company doing something new, giving it a leg up on its competitors? It’s impossible to quantify “revolutionary,” but these questions should help you find the truly outstanding

firms.

So search for companies providing new, unique and revolutionary products or services.

Look for Leaders, not Laggards

Here’s the situation: Let’s say you’ve got a major presentation to make to your boss in the days ahead. If you do well, there’s a good chance you could be looked upon favorably when bonus talks come up at the end of the year. If you bomb, it’s probably going to take a while before you get another chance to impress. Knowing this, do you look for the best data available for your research? Yes! You get the best you can because the payoff is worth it. It’s the same in the stock market.

When buying a stock, you want to search for a true leader in its business. Don’t settle for second or third best! You’re looking for the company with the best products and services, some of the best growth and profit margins (the percent of sales that ends up as profit) and the one making changes in its industry. These leaders are the ones that big investors gobble up, pushing them higher and higher over time. Conversely, the laggards, though they may appear cheap, rarely provide a comparable return.

Oil boom stocks provide a good example of this. Ultra Petroleum (UPL) was one of the biggest market winners during the oil bull market, thanks to an aggressive exploration campaign, and rising prices for both oil and gas. Sales and earnings went through the roof, and the stock appreciated significantly in the few years prior to 2006! Another profitable firm oil explorer was Houston Exploration (THX) … but the stock’s rise was nothing great, and it petered out more than a year before UPL, all due to growth prospects that were sub-par. One was a leader, producing historic gains. The other was a laggard, teasing you that it was “cheap” or “about to come around.”

The moral of the story: Search for true leading companies in their fields. Laggards rarely do as well in the market.

Putting it All Together

Put in a few hours of research and you can find a stock that has one or two of the characteristics mentioned above. And the stock you find may even do well, bringing you a handsome profit. But our goal is to garner big profits, totaling 100%, 200%, 500% or more. It’s these big winners that, over the months and years, make all the difference in your portfolio’s return. Our experience has been that stocks meeting all of the above criteria have a great chance of yielding these superior returns.

So don’t settle for mediocre stocks. Search for companies serving huge mass markets or rapidly growing developing markets. Look for firms displaying extremely rapid sales and earnings growth. Dig deep for revolutionary products and services. Focus on industry leaders, not laggards. And be sure that the company’s stock has strong positive momentum. If it has all of these characteristics, congratulations! You may have found your portfolio’s next big winner.