The major technology stocks have been in a washing machine market cycle lately — up one day and down the next.
The tech-centric NASDAQ hit a new high on September 2, but then fell off in following days as investors pondered sky-high valuations for big names like Tesla (TSLA), which currently has a stratospheric price-to-earnings ratio of 1,118!
Not coincidentally, Apple (AAPL) also hit a 52-week high of $137.98 on the same day the NASDAQ soared, and subsequently fell off while investors weigh what’s to come in the third quarter.
I say not coincidentally because big tech stocks currently dominate the NASDAQ. In fact, Apple, Microsoft (MSFT), Amazon (AMZN), Facebook (FB), Tesla and Alphabet (GOOGL) make up nearly 50% of the allocation of the NASDAQ 100, as well as the Invesco QQQ Trust (QQQ), an index that tracks the performance of the NASDAQ-100.
Those stocks continued to dip Wednesday and Thursday and dragged down the NASDAQ and S&P 500 with them.
Even though they have fallen back in the first part of September, many of the large tech stocks have very good forecasts is sales and earnings ahead, so I’m not worried.
Case in point: Analysts expect Amazon will grow year-over-year earnings in the third quarter by 70% and revenue by 32%. Microsoft is expected to grow earnings 11.4%, year-over-year, and increase sales by 8.2% in the upcoming quarter.
But the recent dip in big tech stocks points to the larger problem with index funds in general.
Index funds are investment funds that track a specific market index, like the S&P 500 or the NASDAQ 100. Index funds don’t try to beat the market. They are the market. They mindlessly buy and sell whatever stocks are in an index.
Indexing also makes the big stocks bigger because it puts a base under the stocks and keeps the money flowing to them.
Index funds are incredibly easy to buy. They charge low management fees. And, for some folks, they are a good option.
But if you’re willing to do just a little work and a little extra thinking each year (or let me do it for you), index funds are actually the wrong choice for your portfolio.
The reality is that the real money will be made in individual stocks. And if you focus on owning only the best stocks the market has to offer — particularly those with superior fundamentals like those available to my Platinum Growth Club subscribers — you can crush the returns people earn in an index fund!
I’ve spotted a just such a technology investment opportunity that’s flying under the radar at the moment but won’t be for long: cloud computing.
Simply put, cloud computing is when you put data on the internet. You can access it anywhere. Say you snap a picture or video on your smartphone. You can use the cloud to view the same picture on your computer through your Google Drive.
The reality is that there is a lot of data that needs to be housed and backed up somewhere. And cloud computing fills that need.
Cloud computing has been on the uptrend for a while now. According to Gartner, for 2019, the public cloud computing market should hit $214.3 billion – a 17.5% year-over-year increase from $182.4 billion in 2018. By 2022, that number should jump another 55% to $331.2 billion.
So, it’s no surprise that the tech giants – Microsoft, Amazon and Google – are trying to take over the market. During the second quarter, the companies brought in $26.3 billion combined in cloud computing revenue. Microsoft’s Azure made $12.5 billion; Amazon’s AWS saw $10.8 billion; Google’s Cloud totaled $3 billion.
As more and more data are created, the demand for data storage will only increase. This is why cloud computing companies are on my list of “recession-proof” stocks. They should do well regardless of where the market turns next.
On my Platinum Growth Club Model Portfolio, not only do we have Microsoft, but several other cloud computing companies that are well-positioned to benefit from this demand.
Near the top of my list is a company that has cloud computing applications to manage a variety of internal departments—from IT to Security to Human Resources to Customer Service. These apps can be tailored to each company’s specific needs and organizational structure. They are designed to reduce the amount of time that employees need to hunt around for answers, saving them time and money.
The company is up over 55%, year-to-date, and over 81% since the low on April 3.
Compare that to the performance of QQQ and the S&P 500, which have gained 29% and 4.8%, respectively.
During my cloud company’s second quarter, earnings climbed 3.3%. The company grew sales 30%, year-over-year, and expects to see 26% to 27% sales growth in the third quarter.
The company has thrived during the coronavirus outbreak, as it helped other businesses better streamline their workflows to improve employee and customer experiences.
I recommended the stock back in July 2018, and now it’s sitting pretty with a 150% return for my Platinum Growth Club subscribers.
But that’s just the start, as I have a host of cloud plays across all of my services, and as a Platinum Growth Club subscriber, you have full access to each and every one.
If you’re interested, you can click here to sign up now. Once you do, not only will you have instant access to all my recommendations, but you’ll also receive my Crisis Master Plan – absolutely free. This is an important read, as it details my blueprint to take advantage of a set of extraordinary financial opportunities that you might not see ever again.
And be sure to check back here tomorrow, as I’m going to get into more specifics on the cloud stock I mentioned today.
Note: I held my latest Platinum Growth Club Live Chat Event for September this past Monday. If you missed the live event, you can watch the recording here. I discussed a range of topics – my current market outlook, the big tech rotation, the third-quarter earnings season and much more! Catch up here now!
Note: The Editor hereby discloses that as of the date of this email, the Editor, directly or indirectly, owned the following securities that are the subject of the commentary, analysis, opinions, advice, or recommendations in, or which are otherwise mentioned in, the essay set forth below:
Amazon (AMZN), Facebook (FB), Microsoft Corporation (MSFT)