Back in 1970, my young mind was both unlocked and unsettled by the book Future Shock.
In the best-seller, futurist Alvin Toffler took a hard look at the world, was disturbed by what he observed, and then warned of the perils of “information overload.” He foretold a future where people were mentally frozen because of the endless streams of data they were receiving.
However, I don’t think we’re as isolated and unable to act as Toffler predicted. In many ways, the Internet has made us less isolated – and with a few simple tools I’ve put together, you can cut through the noise and find ways to build your wealth.
Today I want to show you my most reliable “Overload Busters” – three signals that cut through the floods of data every time. These “Busters” have long proven to be accurate barometers of the markets – and surefire ways to instigate profits.
Read on for my full strategy…
A Mixed Bag – Every Day
It’s easy to get overwhelmed by the reams of contradictory data out there.
After all, the U.S. Commerce Department has boosted its estimate of gross domestic product (GDP) growth to a 3.9% annual pace from last month’s estimate of 3.5%. That creamed economists’ predictions of a fall back to 3.3% growth.
On the other hand, the Conference Board reported that the consumer confidence number fell to its lowest level since June.
Markets were up and then down – and ended the day mostly flat.
And that was yesterday.
It’s enough to drive tech investors crazy.
But I’m not worried about the economy.
Or the tech sector for that matter.
That’s because all three of my Overload Busters – you could call them the “real news” – are moving in positive directions.
It’s taken me an honors degree in economics and 30 years of tech investing to hone this system to perfection. But it’s actually a pretty simple system that tech investors like you can pick up and start following immediately.
Let’s get started.
Overload Buster No. 1: Jobs and the Economy
In the early part of the economic recovery, high-tech companies weren’t too concerned about job growth. That’s because the “jobless recovery” in 2009 and 2010 actually helped the tech sector.
With sales rising, firms were able to improve productivity and increase profit margins without adding to their labor costs. Instead of people, they invested in software, business electronics, cloud computing and robotics.
However, no industry can keep growing without solid economic expansion and lower unemployment. After all, people need jobs in order to afford the latest smartphones, HDTVs and connected cars.
By employment standards, 2014 is now a growth year. The economy has added an average of more than 200,000 jobs for nine months in a row. That’s the highest rate since 1995.
Unemployment continues to fall. It recently dropped to 5.8%, the lowest level in a decade. And jobless claims as a percentage of the workforce are the lowest they’ve been since the government began keeping these stats back in the 1970s.
We’ve also had two strong growth quarters in a row for the U.S. economy, as defined by GDP. It came in at 3.5% in the third quarter, beating forecasts of 3.1% by nearly 13%.
That followed 4.2% growth in GDP in the second quarter, which reflected growing personal consumption, private inventory investment, exports, fixed investment for home and commercial buildings and local government spending.
Indicators to follow:
- Employment Situation Report, released first Friday of the month, U.S. Bureau of Labor Statistics
- GDP Forecast, tracked by the Conference Board
Overload Buster No. 2: Earnings
Next, I look at profit growth not only in the stocks I follow but also in the various markets.
Profits are important, of course, because stocks trade at multiples of their earnings. Generally, the higher the price-earnings (P/E) ratio – calculated by dividing a stock’s price by its earnings per share – the more valuable the stock.
And because many tech firms are growth oriented, these stocks tend to have higher multiples than the broader marker – that’s a big reason we like them.
Because I want a good forecasting statistic, I look at the forward P/E rather than at a multiple of past earnings (or trailing P/E). Specifically, I’m looking at the P/E one year out to get a sense of profit growth for the sector.
With this in mind, tech remains in great shape. The tech-centric Nasdaq 100 currently trades at 19.85 times next year’s earnings, or 16.4% higher than the Standard & Poor’s 500 Index‘s multiple of 17.05.
And it’s not all just about tech. We also want to see an overall healthy earnings environment. And so, you also need to take a broad look at corporate profitability.
According to third-quarter data compiled by Thomson Reuters, U.S. companies are beating earnings expectations at a rate of 74%. Since the early 1990s, when Thomson Reuters began tracking the so-called “beat rate,” the average has been 63%. And the national “beat rate” has been well above that all year long.
Strong earnings like this show us that these stratospheric stock prices we’ve been seeing are not unreasonable – that they’re not caused by U.S. Federal Reserve stimulus alone.
During the third quarter, corporate profits grew roughly 10%. In that regard, tech came out well. High tech overall basically matched the market, with a growth rate of 9.8%.
But two key tech-related sectors crushed the S&P. Healthcare, which includes biotech and medical device companies, grew profits by nearly 16%.
And with a 21% growth rate, the materials sector doubled the S&P’s average. Here we’re talking about high-tech products like lightweight composite materials for aircraft, structural plastic for tech components and specialty glass for smartphones and tablets.
Indicators to follow:
- Nasdaq 100 Forward P/E, tracked by Birinyi Associates, updated Fridays
- “Beat Rate,” tracked by Thomson Reuters I/B/E/S
- S&P 500 Earnings Growth Rate, tracked by Standard & Poor’s
Overload Buster No. 3: The Mobile Revolution
It never ceases to amaze me that true mass-market smartphones only debuted in June 2007 with the introduction of the iPhone from Apple Inc. (Nasdaq: AAPL).
Today, the mobile revolution is an unstoppable global trend.
And we can use mobile sales as a snapshot of the health of the overall tech industry. That’s because tablets and, especially, smartphones are big drivers in the demand for semiconductors, sensors, and advanced “miracle materials” like shatter-resistant glass.
So it’s good news for tech investors like you that sales of mobile phones worldwide are still strong, with smart devices enjoying huge growth.
The forecasting firm CCS Insight forecasts that worldwide mobile phone shipments will reach 1.94 billion units in 2014, up roughly 10% from the 1.8 billion units shipped last year.
And of those, 1.28 billion units are smartphones. That means smartphones will account for nearly two-thirds of all mobile phones sold this year – compared with basically zero less than eight years ago.
Growth in mobile device sales more than replaces the decline of PCs, which fell 10% last year to just 316 million units.
And it’s driving a boom in another segment, mobile commerce – that is, the buying consumers do with their mobile devices, as opposed to desktop e-commerce or storefront or catalog shopping.
ComScore found that second-quarter, mobile commerce spending jumped 47% year over year. ComScore projects that mobile commerce sales will hit $35 billion this year.
Indicators to follow:
- Mobile device shipments and forecasts, tracked by CCS Insight
- Mobile commerce spending, tracked by comScore
Thus, all three of our Overload Busters are telling me that U.S. markets – and, therefore, tech investors like you – are in excellent shape going into 2015.
Of course, there’s always the risk that world events could change our situation dramatically and quickly. But right now, the risks of that occurring in the next quarter or two seem remote.
And yes, there are plenty of modern-day Alvin Toffler’s out there foretelling doom and gloom. Give them a listen, as there might be bits of wisdom in their rants.
But day to day, keep your eyes on our Overload Busters – these few regularly reported signals will help keep you on the road to wealth.
This is no time to be sitting on the sidelines. It’s time to be investing in high tech and building your fortune.