There are several things that it is important to be selective about… your friendships, your health, and, of course, your time.
Being selective is also good idea in the stock market, no matter what the conditions may be.
Selectivity begins by looking for opportunities where the crowd is not. If you only look where the crowd is looking, you will usually find pricey stock market darlings.
In today’s market, for example, the “Magnificent Seven” tech stocks are trading for 50 times earnings, on average. Within that group, only Alphabet Inc. (GOOGL) is selling for less than 30 times earnings.
Yes, these are spectacular, industry-leading companies. But because they are selling for spectacularly high valuations, they may struggle to “grow into” those valuations.
However, when tech stocks are flying high, many non-tech stocks are usually flying low. Often, you will find these stocks in out-of-favor industries or foreign markets, like those that excelled during the early 2000s. Most investors simply ignore these stocks, no matter how outstanding their investment potential might be.
That’s usually a bad idea.
As challenging as the dot-com bust was, for example, the stock market continued to offer fruitful opportunities throughout that period. But to find those “golden Easter eggs,” you couldn’t simply look under the same bushes as everyone else. You had to fan out away from the crowd.
As my colleague Tom Yeung pointed out in a Fry’s Investment Report weekly update, 29 of the top 30 performers of the 2000s tracked by Refinitiv, a provider of financial market data, were non-tech firms.
Tom also noted…
Of the 361 S&P 500 firms that made it through the 2000s without merging or going bankrupt, the five top-performing of that decade were…
With the exception of Apple, the top performers had almost nothing to do with the internet.
Tom’s insights are not merely a theoretical glance at the past. I was publishing investment research throughout the dot-com boom and bust. With few exceptions, my most successful recommendations during the bust phase were non-tech stocks with low valuations.
In fact, in that window, I recommended 11 different stocks to my subscribers that produced triple-digit gains during the decade after I recommended them. Six of them delivered those gains, even though the S&P 500 was falling during the identical timeframe.
Four of the stocks were from the natural resources sector, five were foreign stocks, and two were U.S.-based special situations. Yet, despite the diversity of this group, they all shared one key trait: a low starting valuation. On average, these 11 stocks were trading 65% below the S&P 500’s valuation at the time of purchase, based on price-to-EBITDA valuations.
Success was not always immediate. But because of their low valuations and because they were not in the firing line of panicked tech-focused investors, these stocks were able to deliver outstanding results over the course of the decade.
One of those recommendations was Cameco Corp. (CCJ), North America’s largest uranium miner. When I issued a “Buy” on the stock July 9, 1999, it was trading 40% below the S&P 500’s price-to-EBITDA valuation. But 10 years after my recommendation, while the Nasdaq 100 was still nursing a loss of 39%, Cameco had soared 690%.
I continue to make careful, selective recommendations like these to my Fry’s Investment Report subscribers. To look for opportunities where the crowd is not, click here to learn how to become a member of Fry’s Investment Report today.
Now, let’s look at what we covered here at Smart Money this past week…
Smart Money Roundup
The “Godfather” of AI’s Dire Warning… and How You Can Prepare NOW
The rapid advancements in artificial intelligence have become so dramatic that even Geoffrey Hinton, known as the “Godfather of AI,” is warning about its unprecedented and irreversible power. In a guest piece last Wednesday, my InvestorPlace colleague Louis Navellier discusses a massive upcoming shift in AI technology and reveals how you can prepare for it.
When Investing in AI, Substance Matters More Now Than Ever
While SoftBank founder Masayoshi Son made some early investments that paid off in the dot-com era, his track record was far more complicated than just those big wins. In Thursday’s Smart Money, Tom Yeung shares the similarities between the stock market of the early 2000s and today’s, and why it’s crucial to focus on AI stocks with substance.
Big Tech Is Going Nuclear – Here’s the Best Way to Profit
Following announcements from Alphabet and Microsoft investing in nuclear energy, Amazon is the latest name in Big Tech joining the party. The data centers that power AI technologies require such immense and reliable volumes of electricity that these tech giants “rediscovered” nuclear as an ideal energy source. For more on the revival that’s underway, click here.
Why You Should Be Bullish on Small-Cap Stocks Now
Last Thursday’s latest U.S. retail sales reports is proof of why you should never doubt the resilience of the U.S. consumer. In Saturday’s guest piece, Louis Navellier dives into the highlights of the report, what it means for the overall economy, and how it will influence future key interest rate cuts. Plus, he’ll share why you should keep a close eye on small-cap stocks.
Looking Forward
Stay tuned for your next Smart Money update, where we will continue to look for opportunities in AI and all the other trends we’re following.
Meanwhile, my colleague Jason Bodner believes that we are at the beginning of a rare stock market pattern… one responsible for producing big gains in the past. It’s an opportunity to accelerate profits – one that he calls a “Retirement Accelerator Window” – that is now beginning again for just the fourth time in 35 years.
Every time this window opens up, investors have the chance to put their retirement goals on hyperdrive.
We don’t want you to miss out, which is why Jason filmed a new broadcast to further explain the Retirement Accelerator Window and how you can benefit. He also shares the name of his No. 1 pick to buy now for a shot at a triple-digit gain.
Click here to watch Jason’s broadcast now.
Regards,
Eric Fry, Smart Money
