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It’s Not Time to Panic… It’s Time to Buy

18 | By Michael A. Robinson

Over the last couple of weeks, I’ve heard some pundits on TV refer to the current tech market as a “crash” in the making.

Don’t believe them.

Seems like whenever some big tech leaders get clipped, the “pundits” come out of the woodwork with all sorts of dire predictions.

To be sure, the Nasdaq is down about 5% over the last month. However, during the five-year bull market, we’ve seen short-term drops of about 10% at least four times.

And yet, in each of those cases, the losses evaporated in just a few weeks as tech inevitably led the market higher once again.

Here at Strategic Tech Investor we look at declines as great buying opportunities that, if handled correctly, can help you build your net worth.

So today I want to show you four investments that you can make right now to turn the market’s recent turmoil to your financial advantage.

Take a look.

Tech Net Worth Builder No. 1: Facebook Inc. (NasdaqGS:FB)

CEO Mark Zuckerberg recently proved why Facebook is the one social networking stock everyone needs to own.

He turned the industry on its ears by spending $19 billion to acquire WhatsApp, a five-year-old mobile messaging service startup with just 55 employees but 450 million dedicated users scattered over several continents.

Facebook already derives something like 53% of its revenues from mobile ad sales. The potential synergies of this linkup are amazing.

At the end of last year’s fourth quarter, Facebook had 1.2 billion monthly active users, up 16% from 2012. But active mobile users climbed 39% to 945 million, or 77% of its user base.

This acquisition could bring billions in new sales to Facebook in a short amount of time. If it just captured $1 a month per user, Facebook would post around $5.4 billion in new sales on top of 2013 revenue of $7.8 billion, itself a 55% yearly increase.

Zuckerberg has shown he’s a strong leader with a clear vision of how to continue building Facebook’s franchise.

Three weeks ago, he followed the WhatsApp deal with a decision to pay $2 billion in stock and cash for virtual reality firm Oculus Rift. At first, Oculus will continue to focus on immersive gaming.

In the long run, however, Zuckerberg sees this as a key piece of wearable tech that will combine virtual reality with WhatsApp and Facebook for a seamless user experience.

Trading at roughly $62.50 a share, Facebook has a market cap of $159 billion. It has operating margins of 37%, an 11% return on equity, and nearly $11 billion in cash on hand.

Tech Net Worth Builder No. 2: Honeywell International Inc. (NYSE:HON)

This is a big-cap aerospace firm that offers investors both strategic growth and income. It’s also poised to benefit from the historic aviation boom.

The two largest commercial airplane makers — The Boeing Co. (NYSE:BA) and Airbus Group (OTC:EADSY) — have a backlog of roughly 10,000 jetliners that will take nearly a decade to build.

Against this backdrop, Honeywell’s stock is poised to benefit from three big catalysts.

First, Honeywell recently announced a strategic plan under which it will spend up to $10 billion buying other companies that fit Honeywell’s focus. That more than doubles the $4 billion it spent on M&A in the past five years.

Second, Honeywell is projecting organic sales growth of $7 billion to $12 billion over 2013 levels to get it to $46 billion to $51 billion by 2018. On top of all that, the company says that through 2018 it will have “double-digit earnings growth.”

And third, Honeywell says it intends to maintain a “competitive dividend.” With a current 2% yield, Honeywell has raised the dividend 10 times in eight years, a period in which the yield grew by 130%.

In today’s low-interest environment, higher yields alone are bound to attract more investors, bidding up the stock’s price.

Trading at $93 a share, HON has a market cap of $73 billion. It has operating margins of 14%, a 26% return on stockholders equity, and last year brought in nearly $3 billion in free cash flow.

Tech Net Worth Builder No. 3: Bitauto Holdings Ltd. (NYSE:BITA)

A lot of investors are taking a dim view of China these days. I think that’s a big mistake. Though growth in China has slowed, the economy there is still expanding at about 7% a year, more than three times that of the U.S.

I think you would do particularly well to take a look at Bitauto, a leading e-commerce player focused on China’s burgeoning auto market.

With a population of 1.3 billion people, China needs a lot of cars. The China Association of Automobile Manufacturers says auto sales rose 15.7% last year to 17.9 million vehicles. That outpaced U.S. sales last year by more than 12%.

It provides online advertising, reviews and pricing info. The company even helps dealers with digital ad campaigns as well as setting up and maintaining websites.

In other words, it’s got a seat at both sides of the table – buyers and sellers – with a very high-margin business model.

The stock recently sold off on concerns about China and was down nearly 20%. But it looks to be on the verge of resuming its uptrend with two recent sessions that saw cumulative gains of more than 8%.

Trading at roughly $32 a share, Bitauto has a market cap of $1.3 billion. It has operating margins of more than 16% and a return on stockholders’ equity of 20%.

Tech Net Worth Builder No. 4: The First Trust IPOX-100 Index (NYSE:FPX)

This ETF targets one of the most important forces driving the market to new heights — initial public offerings.

Strictly speaking, it doesn’t specialize in high tech. Instead, it’s a broad play on new issues in which tech and health care account for nearly a third of its holdings.

Besides tech, FPX holds positions in finance, auto, retail, heavy industry, energy, and a smattering of metals covering nearly 100 stocks.

Also, consider that during the market’s recent retreat, several IPOs still managed to have very strong debuts.

Indeed, in the first three months of 2014, IPOs had an even stronger performance that in the same period last year, which was itself a record amount since 2000.

IPO research firm Renaissance Capital shows that through Monday, some 64 IPOs had debuted this year in the U.S. That figure is more than double the number that launched in last year’s first quarter.

For the year to date, IPO’s have raised a total of $10.6 billion, a nearly 40% increase from the similar period in 2013, Renaissance Capital says. Not only that, but the average IPO is up 24.6% from its offer price, more than 10 times the S&P ‘s return in the period.

FPX is weighted toward more stable mid-caps with an average valuation of roughly $3.3 billion. It trades at about $44 a share. Over the past year, it has returned more than 28% to investors, or roughly 55% more than the S&P 500.

So there you go…

Four excellent long-term plays you can take advantage of right now to build your portfolio.

Finally, I can’t emphasize enough how important it is to stay focused and disciplined at times like these.

By staying focused, and looking for the right opportunities – you can stop worrying and get back to the job of building your net worth.

We’ll talk again next week…

18 Responses to It’s Not Time to Panic… It’s Time to Buy

    • robert conlin says:

      Just finished your “book” on bitcoins and are impressed, but not surprised, by your down-to-earth and logical explanations on a difficult topic. Thanks.

  1. florence levkus says:

    Michael,

    I believe that you are really good at what you do. However, I have a dilemma.
    I m trying to complee your portfolio but I also would like to buy your stock suggestions. I really cannot afford to buy everything so how should I prioritize, portfolio first and then suggestions or suggestions first and then portfolio.? Thank you for your help .

  2. gerald hirsch says:

    Your right on…but I sell put options in these companies to bring down cost.If stock put to me
    I then sell covered calls.This is a perfect market for these plays.

  3. Michael Kennedy says:

    Most of the time you are right on Michael. I like your picks and am in most of them. FLT, HON, OMER, IBB, FPX, RGEN and ARMH. You should also look at ACT, GOOG, AMBA, BX, V and VIPS.

  4. Christie Hurwitz says:

    I am a novice at all of this. I don’t have a lot of money, but would like to slowly start investing what I do have. Any suggestions on how I should go about finding someone who i can have do the actual investing. I’ve heard horror stories about some companies so not sure where to go. We live in San Diego. Any suggestions would be appreciated. Thanks.

  5. Cecelia says:

    How and where can I buy into BItcoin? I don’t understand How its value changes extremely. I do not have money to waste and I hear many pros and cons about it. Give me your honest opinion, please.

  6. Cecelia says:

    I do not understand Bitcoin. Can you explain it in layman”s terms.I would like to buy some but I want to know the names of businesses that accept it for II wouldn”t want to be stuck with something that perhaps could become worthless.

  7. michael says:

    My daughter just decided to bring her excellent skills to Facebook and her experience as a new employee was that of a company that will draw and hold the best of employees.

  8. John says:

    Do you thing the average investor has an unlimited supply of money to continually buy all of these recommendations? Why not make fewer recommendations to parlay the money into a bigger return.

  9. Edward K. Levi says:

    Sorry, but with all due respect, you are missing everything here.
    We are currently in a “bear market” that began near the end of January when most stocks hit their highs. The recent rally was a “sucker’s rally” and, near the top of this bull market, happens to simply be the most dangerous period to be fully invested.

    Everything I am looking at points to mostly two declining waves of the market downturn I’m expecting this year. The initial low will likely be in the 14,000 area of the DOW, followed by a significant rally, and ultimately a bottom, possibly around the October time frame at the 12,800 DOW support, which also happens to be almost a perfect Fibonacci retracement of 38.2% of the 10,000 + points gained in the 5-year “bull market” of 2009 to 2014.

    If you were truly a student of the market, you would understand that we have passed the point of no return, in that extremes of sentiment in bullish/bearish advisors (in some respects highest since 1987), option speculators, record margin debt (other spikes at 2000 and 2007 highs, lowest money market holdings versus the S&P since 1979, speculation in the Rydex Ratio (buying of ultra-long funds vs. ultrashort, lack of new highs in the recent rally (S&P 7% vs. 27% in January, RSI bearish divergences on every major index (new highs in the market in conjuction with lower highs on the RSI), 74% of recent IPO’s that are companies losing money, a recent 35 year high of the Russell 2000 PE versus the S&P PE ratio, a Nasdaq PE of 35 vs. the recent 17 on the S&P, speculative activity in low priced stocks, etc. All these and more portend a “bear market” trend this year.

    A “bear market” has begun within possibly a 15 -20 year secular “bull market” trend. A final capitulation, exacerbated by forced margin liquidation may take the DOW down to it’s major support at 12,800. This is a time to protect portfolios, not to buy on dips. Although I’m expecting a fairly shallow “bear market”, on the order of 23.5% (the DOW), it is still greater than 30% on the Russell and Nasdaq, nothing to sneeze at.

  10. Anthony Cacciottolo says:

    Wow Mr. Levi has really fired a barrage at the Stock market and frightens newbies like away. All these contradictory comments and opionions are very distressing and depressing.

  11. Barry Geltner says:

    Dear Michael:

    I’ve got a load of gripesbuying a stock or two comes down to a close with you and your fellow-editors with how you send out loads of info. regarding stocks you believe might bring subscribers untold wealth. But in the end NO NAMES are ever mentioned, just enough comments to try to sell more subscriptions.
    Like others have stated, I don’t have a lot of money. Purchases are limited.
    So let’s try to cut the bull and maybe help some of us make a little money with your advice.
    Best,
    Barry

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