Back on Feb. 21, in the report “My ‘Sominex Strategy’ for Big Profits In This Rocky Market,” I explained why I was projecting an exceptionally volatile stretch for tech stocks.
And I even showed you the investment strategy to use to traverse it.
I did all this for one reason: I just knew that a strong tech rebound would follow. And the investors who stayed in the game would cash in big when that resurgence began.
No Dozing Here
When you’re in the investing business – as a fund manager, analyst, cable-TV pundit, or (as I am) a newsletter writer – it’s all about “making a call.”
You might refer to it as “making a prediction.”
And when a person in my business “makes a call” – about a stock, a sector, or even an entire market – there’s nothing more satisfying than being right.
It’s not about the “bragging rights” (well, OK, maybe a little bit …). For me, making a call that plays out just as I projected is gratifying, because I know that I helped all of you.
And I intend to keep helping you.
So let’s quickly review my Feb. 21 “call,” see how it’s actually playing out, and then move on to a strategy and some stock recommendations that will let you cash in … big.
In the Feb. 21 “Sominex Strategy” report, I acknowledged tech stocks were being whipsawed and said it was understandably scary. But I also said I was expecting a rebound and warned folks to hold the line, noting:
“When we reach the end of this year, I believe that the tech investors who stayed in the market will see that they‘ve been rewarded for their courage, while those who spent 2014 on the sidelines will be penalized for their caution.”
The tech-sector rebound is playing out just as I predicted. And the Wall Street pros and financial journalists are starting to notice.
Earlier this week, in fact, in a report headlined “Charting the Nasdaq’s Technical Breakout,” MarketWatch.com ran through a series of charts illustrating the strong recovery being made by the tech-centric stock index.
I was already at work on an investing strategy – complete with stock picks – that would let you ride and profit from the rebirth of the tech sector. But when I spotted this MarketWatchpiece, I knew I had to “put a rush” on it and get the strategy into your hands.
We referred to the last plan as our “Sominex Strategy” – underscoring the importance of embracing a strategy that would keep you invested, while still allowing you to sleep at night.
To have a little fun – and to underscore how important it is to wake up and not miss this tech-sector rebound – we’ve dubbed this strategy as our “No Doz Plan for Cashing In on the Tech-Stock Rebound.”
So let’s look at it. And let’s start by reviewing the “state of the tech sector” – and the Nasdaq Composite Index.
Anatomy of a Sell-Off
That MarketWatch I mentioned covered such key technical-analysis points as trend lines, crossovers, and moving averages. Let me explain it to you.
The tech-focused Nasdaq started its slide in early March over worries about potentially slowing corporate earnings and economic growth. Pressure built over the next couple of weeks. By April 11, when the Nasdaq hit bottom, it had lost 8% of its value – much less than the 20% needed to qualify as a “bear market,” but still enough to sting.
Since that nadir, Nasdaq has enjoyed a stealthy rebound of more than 6% as more cash has flowed into tech stocks. The rebound has pushed the that tech gauge up to a year-to-date gain of 2%.
And we believe there’s more to come.
Given this projection, we’ve created a near-term profit strategy focusing on what we view as the three best investing opportunities. These areas are experiencing good growth and strong business activity and are the focus of powerful-and-growing investor interest – all nice catalysts that should help us reap windfall profits in the weeks to come.
With that in mind, let’s take a look at the three tech investing strategies that will help you ride this market rebound.
No Doz Opportunity No. 1: Biotech
A good rule of thumb when considering where to put your money is to watch for sectors or companies that have taken a beating for reasons other than their innate fundamentals – otherwise known as “external events” in Wall Street parlance.
And when you find a good one, park your money there before “the crowd” realizes that a bit of investing injustice has been done.
Those “injustices” could have to do with politics, a media feeding frenzy, the misguided “pile-on” wisdom of crowds – or some combination of all three.
I like to call it The Noise.
That’s not just some neat little buzz term – it’s a very real tool that can lead to hefty profits. As my colleagues here at Money Map Press have heard me say many times, whenever you can “separate the signals (catalysts that are promising and real) from the noise” … you probably have a big profit opportunity right in front of you.
And biotechnology is a case in point.
The recent biotech sell-off is a classic example of a Wall Street overreaction to external events – in this case Washington politics.
Biotech stocks came under pressure when, back in late March, three members of Congress released a letter complaining that the cost of a new hepatitis C drug was simply out of sight.
Hepatitis C is a dangerous disease that, if left untreated, can cause serious liver damage and lead to liver cancer. It’s a condition that affects some 3.2 million Americans.
With a sticker price of $84,000 for a full regimen, Sovaldi from Gilead Sciences Inc. (NasdaqGS: GILD) certainly sounds costly. But compare that with the $250,000 a liver transplant costs – and that cost doesn’t include the anti-rejection drugs that follow the transplant.
Once all the Beltway harrumphing ended, Gilead countered with stunning financial results that brought folks back to “investment reality.” That helped Gilead shares rebound – and gave a boost to the biotech sector, as well.
Sovaldi racked up $2.3 billion in first-quarter sales for Gilead. That’s a record for a new drug and smashed analysts’ expectations by $1 billion.
So, how has Gilead’s stock done? Since bottoming out on April 11, it has rallied some 25%.
I’ve been saying here – and elsewhere – for months that biotech is one of the best long-term investment opportunities in high tech.
And during the sell-off this sector became way oversold.
I’m not the only one who believes the biotech sector was oversold. A new report from Credit Suisse AG (NYSE ADR: CS) says that – thanks to strong fundamentals – the biotech resurgence has plenty of legs.
Credit Suisse notes that large-cap biotech stocks are trading at 13.5 times estimated 2016 earnings. The brokerage says that turns the dynamics upside down-biotech is now priced below the 14.2 multiple for the Standard & Poor’s 500 for the same period.
This is a simple, powerful fact that is giving investors new confidence in the industry. You can see that in the performance of the Nasdaq Biotechnology Index, which is composed of dozens of stocks, including both industry giants and small caps.
This bellwether index broke through the critical support line of the 200-day moving average on April 11 and bottomed out three days later. From its recent low, the index has gained nearly 12%.
No Doz Opportunity No. 1 Lesson: When “The Noise” knocks down a stock or sector, look for “Signals” that tell you the investment is actually healthy. And right now, biotech is one of the best profit opportunities around.
No Doz Opportunity No. 2: Semiconductors
Sometimes completely healthy sectors sell off just because everything else is falling off. It’s absurd. So, when you see it happening, that’s your chance to buy in.
I’ve been knocking around Silicon Valley for 30 years, and right now, the semiconductor industry is as healthy as I’ve ever seen it.
Even so, when tech stocks sold off in March and April, chip shares were taken down in kind. Just look at what happened with the SPDR S&P Semiconductor ETF (NYSE: XSD) that we’ve talked about in the past.
With about four dozen stocks, XSD is an exchange-traded fund (ETF) that touches a wide swath of the semiconductor industry. Beginning on April 2, XSD lost more than 6% of its value in just seven trading sessions.
Since then, this widely watched ETF has clawed its way back – and then some. XSD recently hit an all-time high of $70.35 on an intraday basis.
Smartphones may be the main catalyst behind this semiconductor boom. While your personal experience may lead you to believe the smartphone market is mature, these devices, which use an array of chips for processing, cameras and power management, will continue to see big sales numbers for years to come.
The tech forecasting firm IDC recently estimated that global sales of smartphones hit 1 billion last year. That number is expected to rise by nearly 70% to 1.68 billion by the end of 2017.
No wonder the semiconductor industry is so optimistic. The trade group known as SEMI notes that at the end of the first quarter new chip bookings were running 16% ahead of last year.
We’re talking about $1.28 billion in sales – up from the year-ago total of $1.10 billion. And for every $100 in sales, the industry booked $106 in new orders.
Independent analysts also are expecting yet another good year for semiconductors. For instance, Research and Markets says global semi sales will increase 4.4% this year. And the growth is even higher in the more developed Americas markets.
No Doz Opportunity No. 2 Lesson: When you see a stock or sector getting taken down in a “guilt-by-association” sell-0ff, pick it up before the rest of the crowd notices, too. And right now, despite the recent sell-off, the semiconductor sector is as healthy as it’s ever been.
No Doz Opportunity No. 3: IPOs
Strictly speaking, initial public offerings (IPOs) are not part of the high-tech industry, because they include everything from energy firms to restaurant chains.
However, IPOs are an integral part of the tech ecosystem. Without eventual access to the public markets, privately held startups would have a tough time attracting the venture capital they need to fund cutting-edge ideas.
A great gauge of the health of the IPO market is the First Trust IPOX-100 Index Fund (NYSE: FPX), an ETF focused on newly minted stocks.
Sell-offs are a death sentence for a healthy IPO market. And as the first quarter came to a close, the previously hot market for new issues was cut down with the rest of the tech sector.
From its recent high, reached on March 6, FPX fell a bit more than 10% before reaching its closing low of $43.60 on April 11. Since then, the fund has sharply rebounded and has bounced back almost 7%.
This occurred as market experts Renaissance Capital said there were more IPOs during this year’s first quarter than during any other quarter since 2000.
In all, 64 companies raised $10.6 billion in the first three months of 2014. That’s more than double the number of IPOs in the first quarter of 2013. And the first quarter of last year stood as a record with the most public offerings in more than a decade.
In fact, 2013 was a downright blistering year for IPOs. Researcher Dealogic says there were roughly 230 U.S.-listed IPOs issued last year. That’s up 58% from the 145 in 2012. The 2013 offerings raised $61.7 billion, up 31% from a year earlier, making it the largest annual haul since 2007.
No Doz Opportunity No. 3 Lesson: Big demand for IPOs is one of the single-best signs of a healthy stock market. Although the offerings market took a temporary hit in conjunction with the tech-stock sell-off, it has quickly bounced back. In recent weeks we’ve seen lots of buzz surrounding such IPO deals as Alibaba and GoPro. Investment bankers are loath to bring out potentially hot deals in a lousy stock market; they’d rather “shelve” them and wait. So the fact that the new-offerings market has rebounded so quickly – especially with hot tech IPOs – is strong evidence that the tech-stock rebound will also continue. And the First Trust IPOX-100 Index Fund is definitely a good way to play this sub-trend.
The bottom line here is that our February prediction was correct – and so was my advice to stay the course. And the “No Doz” strategy we’ve outlined today will keep you alert – so you can spot the next opportunities that come your way.
Have a great weekend.
- Strategic Tech Investor: My “Sominex Strategy” for Big Profits in This Rocky Market
- MarketWatch.com: Charting the Nasdaq’s Technical Breakout