We’ve just endured one of the toughest Decembers for stocks in decades.
But at the end of the day, what we have on our hands is a “Massive Disconnect.”
Let me explain. Just before Christmas, the tech-centric Nasdaq entered bear market terrain, defined as a 20% drop from a recent high.
If all you did was look at the headlines, you’d think economic growth and corporate earnings had just dropped off a cliff.
But nothing could be further from the truth. Fact is, third-quarter earnings were strong across the board, especially for high-margin tech leaders.
Plus, the economy remains in overall great shape. We have one of the best job markets in nearly five decades with consumer confidence near 20-year highs.
But fears about trade tensions, higher interest rates, and slower economic growth put stocks into a fast tailspin. In other words, it’s been fear and not fundamentals that caused the decline for stocks in every sector of the economy.
Now, the good news is that stocks are beaten down, and due for a rebound.
That just leaves deciding on which stocks are the right ones to choose in this type of market.
And that’s why I’m here today.
I’m going to reveal three oversold tech leaders that are due to rally and hand investors big gains in the year ahead… And can potentially give you your best shot at capitalizing on this volatile environment.
Tech Stocks Are Still A Go
(Editor’s Note: The following declines for the indexes, and for the stocks themselves, are all based on closing prices on Dec. 24, 2018. Michael used this date to give readers a better sense of the peak-to-trough decline.)
Let’s be clear about something very important right off the bat. While the Nasdaq is in bear territory, it’s far from alone. Stocks have been battered across the board.
Take the Dow Jones Industrial Average. Since the market turned south on Oct. 3, it fell nearly 18% through to Dec. 24. The S&P 500 dropped off 19% over the same timeframe.
I believe that tech will once again lead the market higher, as it has done since the bull market began nearly 10 years ago. And that means we will have plenty of chances to make money on tech shares in the year ahead.
I’ve identified three in particular that are greatly oversold. That means they’re due for nice bounce-backs.
Before we take a look, just a note that the figures of declines for the following stocks are all based on closing prices on Christmas Eve day. The reason I did this is to give you a better sense of the peak-to-trough decline.
Let’s take a look:
Tech Rebounder No. 1: Adobe Systems Inc. (Nasdaq:ADBE)
I was an early advocate of Adobe Systems based on its plans roughly five years ago to become a cloud-based company. This was a big change from the software sales model for the maker of Photoshop and Illustrator for creative professionals.
It now offers a suite of products through its Creative Cloud platform that is nothing short of a cash machine. It has operating margins of 31%, and a 29% return on equity.
Profits are growing more than twice as fast as sales, proving that Adobe’s shift to higher margin cloud sales have really paid off for investors.
Make no mistake. This is a shareholder-friendly firm. Last May, Adobe said that it intends to buy back up to $8 billion of its own stock through 2021. And that’s on top of the current $2.5 billion plan that ends later this year.
Adobe keeps pushing the growth curve. It recently bought Magento Commerce for $1.68 billion to move to e-commerce from a strict focus on digital content management and related analytics.
Magento handles more than $150 billion in gross merchandise volume. By contrast, that figure is nearly twice as much as eBay Inc.’s (Nasdaq:EBAY) $88.4 billion in 2017, the last year for full data, according to FactSet.
The firm also has a crackerjack CEO. Barrons named Shantanu Narayen one of the world’s best CEOs in 2016 and 2017.
Yet, the stock is off 24% from its recent high. Look for a rebound here.
Tech Rebounder No. 2: Square Inc. (NYSE:SQ)
Just a few years ago, Square offered a simple-to-use, mobile, point of sales system. It was a hit with mom-and-pop retailers, but didn’t seem to form the basis of a full-fledged, feature-rich fintech platform.
As a result, Wall Street was totally down on this aggressive growth-firm in 2016. But led by CEO and founder Jack Dorsey – also co-founder and CEO of Twitter, Inc. – the company has kept on rolling out new products that set the stage for new sales and profits.
This helps explain why the stock was up 55% in 2018, before the market sold off on Oct. 3. Between then and the end of the year, it was off roughly 24%.
But I see plenty of upside ahead in 2019. I say that with such confidence because Square is still in the early innings of its growth cycle. Over the past few years, this firm has launched a wide array of new services and features.
Take Square Cash as an example. It was first deployed as a peer-to-peer (P2P) money transfer system. But Square Cash quickly proved popular as a full-fledged financial service, offering new loyalty features like direct deposit and a physical cash card.
Though it’s only a few years old, Square Cash could be handling $50 billion in yearly payment volume by 2022. Square garners a profit on every transaction made on its platform. And in the most recent quarter, transaction fees rose 29% to $655 million.
Look for more from Square.
Tech Rebounder No. 3: HealthEquity, Inc. (Nasdaq:HQY)
Last summer, this was one of the market’s best performers. In fact, for the year ended in August, it had beaten the S&P 500 by a stunning 1,400%.
As impressive as that sounds, it actually understates the stock’s ability to make money. After all, since Trump took office in January 2017, healthcare stocks remained largely out of favor based on the president’s stated desire to curb rising medical costs.
The market’s recent selloff was particularly tough on HealthEquity, which saw its price drop more than 44% from its early November highs. It did so because of general market fears, and the uncertainty about what’s next for healthcare now that the Affordable Care Act (Obama Care) is coming apart at the seams.
But the fears mask a key fact: HealthyEquity is riding a massive trend of using health savings accounts (HSAs). These are wildly popular with the public, because it gives patients far more choice in their health-spending decisions.
HealthEquity manages 3.7 million HSAs, and $7.1 billion in assets. Over the past three years, HealthEquity has grown its earnings per share by an average 46%, which means they are doubling every 18 months.
And for the third quarter, it beats earnings forecasts and raised guidance for its fiscal quarter. Usually, a beat-and-raise quarter leads to a nice rally.
But the stock could not shake off the market’s fud (fear, uncertainty and doubt). I believe this year will be a much different story, as HealthEquity resumes its uptrend.
Add it all up and you can see that each of these three winners is riding very popular and highly profitable trends.
This alone should propel these stocks to much higher prices in the year ahead.
I believe that when we close the books on 2019, we’ll look back and see that these beaten-down leaders offered great opportunities to build your net worth.
Of course, some of 2019’s best investing opportunities don’t just stop there.
In fact, right now, you have a unique opprotunity to get in on one of the fastest growing industries in the U.S. today. I’m talking about legal cannabis. And it’s time to go all-in.
In the U.S. alone, the industry is already north of $10 billion annually – we’re basically at the very earliest stages of this economic boom.
But here’s the thing. You need to know which firms are best positioned to win in this highly competitive market. I’m talking about well-run firms that are disrupting the $1.1 trillion pharmaceutical industry, young gun innovators brining the latest tech to the space, and key startup targets.
See you back here soon.