A lot can happen in a month.
The US can propose new tariffs against China.
Investors can fall out of love with tech stocks, after years of adoration.
Governments can encroach on your rights just that little bit further.
It’s sometimes hard to keep a long-term perspective. Everything happens so fast. It’s also sometimes difficult to discern whether the mainstream is spouting off noise or news (it’ll usually be the former).
There’s always something to fear, always something to do.
If you listen to the mainstream, you might think now is the worst time to invest in tech. The FAANGs (Facebook, Apple, Amazon, Netflix and Google) could drop even further.
Today I wanted to discuss why jumping into technology stocks now, could be a great decision. Of course, you’ll have to pick the right ones.
Let get into it…
Mainstream’s short-termism creates long term opportunities
It’s very hard to know what will happen next.
Trying to predict earnings five years out, heck even five quarters out, is rough.
That’s why analysts usually only try to predict immediate outcomes.
That’s typically easier to do. Predicting what could happen in the next three months might only require slight changes from today. Predicting what could happen in three years from now is a whole different ball game.
Just look at all that’s happen in the past three years.
Did you think Donald Trump was going to become US president? Or that we would see three prime ministers in quick succession? Or that the US Federal Reserve would get serious about lifting rates? Or that the US and North Korea and the US and China would butt heats? Or that regulators would force Aussie banks to stop handing out loans, causing property prices to fall?
The list goes on…
The point is, a lot can happen when you extend your time horizons. That’s why the mainstream sticks to what’s easy…or should I say easier (and yet they often get it wrong).
By never looking up past their spreadsheet, most analysts give up the chance to find stocks that rise 5- to 10-times in value.
If you’re only looking one quarter ahead, you’ll probably sell the next Amazon because upcoming earnings are at risk of falling below expectations.
You might also buy grossly overvalued stocks based on the silly belief that next quarter’s earnings will be a few percent lower than the prediction.
Analysts didn’t surprise this earnings season. They stuck to their old ways. Those tech firms that fell short of expectations, but had amazing long-term prospects, still went down.
At least this time, the direction of tech stocks is creating opportunities for you.
‘…investors recognise that the setbacks several leading tech companies reported this earnings season may presage a longer-term reality,’ Bloomberg Businessweek writes.
‘Facebook’s adjusted earnings growth is estimated to slow from 20 percent in 2018 to 5 percent in 2019, according to data compiled by Bloomberg; Google parent Alphabet Inc.’s, from 19 percent to 6 percent; Amazon’s, from 173 percent to 32 percent.’
More could come off the FAANGs in the coming months. US interest rates will likely continue to rise. It will make all income generating assets, including stocks, more expensive on a present value basis, which will encouraging selling.
Old Trumpy could propose more tariffs, affecting Asian expansion plans for these tech giants.
Then of course there’s declining enthusiasm working against the FAANGs. Sure, each of these companies are great. But is Netflix really worth 100-times earnings? Or is Amazon really worth 64-times 2018 earnings?
I suspect investors are happy to pay such prices for rising stocks, but I doubt they’ll do the same for falling ones — human irrationality at work.
Rather than wait for the FAANGs and other tech stocks to come down further, why not look overseas for opportunities today?
The best opportunities in tech are overseas…
Both trades trade for far less than their US counterparts.
Samsung, in particular, trades for less than seven-times earnings, lower than half of what Apple trades for. Of course, that alone doesn’t make the stock an obvious buy — there could be something wrong with both stocks that I’m overlooking. But it certainly justifies a closer look.
In 2018, Alibaba improved sales by more than 50%. They did the same in their most recent quarter too. Yet I’ll bet analysts are concerned about rising costs.
In 2018 for example, cost of goods sold rose more than 75%. In their most recent quarter, cost of goods sold more than doubled.
Samsung doesn’t have the same problem. In 2017, sales improved close to 19% while costs rose only 7.4%. The hairy part of Samsung is their latest quarterly earnings. Sales fell 4% and profits were unchanged.
Could it be a signal that Samsung is losing market share? Maybe.
The point I’m trying to make is that there are still opportunities for you out there. Even with recent declines, a lot of tech companies in the US and Australia still look expensive. So, it might be worth looking overseas until more obvious domestic buys present themselves.
Editor Money Morning
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