- When should investors get “off this wild ride”…
- Where can we find “legit” 5G?
- How to know which stocks will hit the jackpot…
Welcome to our weekly mailbag edition of The Bleeding Edge. All week, you submitted your questions about the biggest trends in technology.
Today, I’ll do my best to answer them.
If you have a question you’d like answered next week, be sure you submit it right here.
It has been a remarkable week for technology IPOs. Three that I’ve been tracking are Snowflake (SNOW) – which I wrote about yesterday – JFrog (FROG), and Sumo Logic (SUMO). Unity (U) is lined up for today.
Please note, these are not recommendations.
Why? Well, here’s a trick question: How do we end up with $1 million in Snowflake? Invest $10 million while Snowflake is trading at 160 times annual sales, and then just wait…
JFrog is trading at 55 times annual sales. I could go on…
It doesn’t matter how much I like the company, the management team, the technology, the product strategy, and the growth prospects…
Investing at these valuations will guarantee a material loss of an investor’s hard-earned capital.
And I really hate to see that happen to anyone.
It is the IPO season, however. The last week of September is scheduled to bring both Palantir (PLTR) and Asana (ASAN) public. IPOs for both companies have been long awaited. And I’m certain that we’ll have a long list of great technology and biotechnology companies continuing the trend into October.
I’m still excited, though. After the hype has worn off and reality sets in, these are going to potentially be some great investments in the future. I’m glad for them all to become public companies.
We’ll also finish the week with some more good news. Initial jobless claims in the U.S. dropped again to about 860,000, and continuing unemployment claims also dropped a million to 12.6 million, which is about half of the peak that we saw in early May.
Better yet, things continue to improve on the COVID-19 front.
While the “casedemic” scandal continues, there continues to be a dramatic decline in hospitalizations related to COVID-19.
That’s why I wasn’t surprised when I read an interesting data point showing U.S. hospitals have turned down roughly one-third of their allocation for the FDA-approved COVID-19 drug remdesivir since July.
That’s right… not this month, but since July. That’s two months ago. Why? Because they haven’t needed it.
The pundits in the mainstream media have been telling us the real scandal is that the U.S. government is intentionally reducing the number of tests, and that COVID-19 is far wider spread than we believe.
Nothing could be further from the truth.
Yesterday, there were 835,868 tests, and on September 12, we just saw the second-highest amount of daily tests on record at 915,800.
Most of these tests are completely unnecessary and far too sensitive. They result in the majority of “positives” being false positives. But nonetheless, they are happening.
We know we can’t trust the new COVID-19 case numbers anymore, but at least the hospitalization rates are a useful barometer.
After all, if someone has tested “positive” for COVID-19, but it is a false positive, they clearly won’t have symptoms. And they obviously won’t be hospitalized.
So, tracking hospitalizations provides the filter that people are at least sick with something. We can see from the CDC chart below that the rate for “COVID-19-associated hospitalization” has been falling quickly since week 30 – the week starting July 20.
And with that, I bid you all a great weekend.
Now for our mailbag…
Time to take profits on Tesla?
Let’s begin with a question on investing in Tesla’s stock…
I invested in Tesla a year ago last spring, before I started following stocks. I wish that I had bought stock in Tesla when I recommended it to my sister. She bought one later that year! Now, I feel like I’m on a wild ride. I’m sure that it will correct and continue to climb, but my question is: How do I know when to get out or “off of this wild ride”?
– Judy L.
Hi, Judy. Thanks for your question. While I can’t give personalized investment advice, here’s what I can say…
As you’re keenly aware, Tesla’s stock (TSLA) has indeed had a wild ride this year.
TSLA climbed over 100% from the beginning of the year through late February. It then dropped over 50% during the market crash… before recovering and climbing 590% up until the volatility over the last couple of weeks.
It dropped over 33% at the start of this month, but it has since recovered 26%. That leaves the stock up an overall 378% year to date.
Whew! It’s no wonder you’re feeling a little whiplash, Judy.
Tesla is an exciting company benefiting from a lot of great headlines and hype. And it deserves a lot of the attention it’s getting.
As I wrote back in July, Elon Musk thinks the company is very close to reaching Level 5 autonomy… perhaps as soon as the end of this year. Level 5 is complete autonomy. That’s where a self-driving car can go anywhere, anytime, irrespective of conditions or weather.
Given that Tesla vehicles will have driven more than five billion miles on Autopilot by the end of this year, that goal seems entirely possible. As they drive on Autopilot, these vehicles “learn” to drive better thanks to the billions of miles of data collected. That’s how the company has made so much progress in a short time.
And Level 5 autonomy will enable Tesla’s masterstroke… a fleet of self-driving vehicles in a ride-hailing network similar to Uber or Lyft. Tesla owners will be able to opt-in to this network and send out their vehicle to earn money for them when they aren’t using it.
Imagine what happens if a Tesla can make enough money each month to pay its own lease. At that point, the car essentially becomes “free” from a purchase/lease perspective. How many consumers will rush out to lease a Tesla then?
So the optimism for Tesla as a company isn’t unwarranted. However, I do think the stock has gotten a bit ahead of itself. Tesla is now worth more than several other top carmakers combined, with an enterprise value of more than $400 billion.
And Tesla’s enterprise value-to-sales ratio – a good metric for how “expensive” or “cheap” a stock is – is around 15.5. That means the current price of TSLA is equivalent to 15.5 years of sales (not profits).
Speaking generally, it is a smart investing strategy to take profits off the table when a stock reaches unsustainable valuations like this.
That’s especially true if investors have held the stock in question for more than 12 months. This allows investors to capture long-term capital gains and, thus, lower tax rates.
And here’s the great part. Investors can sell, take the lowest capital gains tax, and keep most of their money. Then they can wait for 30 days to pass and buy back into the same stock after it has returned to a more reasonable valuation.
The only argument for holding is if an investor just can’t be bothered placing the trades and wants to hold for the next five years so they won’t have to monitor the investment.
With a long enough time horizon, a great company will do well.
I’m very bullish on Tesla, and I believe it has a bright future ahead. But investing at these elevated “expensive” levels isn’t investing… It’s just speculation.
And Tesla isn’t alone in this situation.
In fact, there are several highly popular tech stocks on the verge of falling as much as 92% in the coming months. I don’t want my readers to be surprised… If you’d like to see my recent interview on the state of the market… and a potential “splintering” I see taking place… go right here for all the details.
Which carrier has the real deal for 5G?
Next, a reader wants to know more about how to locate 5G coverage…
Hi Jeff! As I wait as patiently as I can for the new iPhone, I had a question. Can you tell us which carrier will have the first legit 5G and not the 5GE that you’ve talked about? They all seem to be bragging about having the best, fastest coverage – blah, blah, blah. What’s the truth? Thanks as always for your insights and very large brain!
– Kelly K.
Hello, Kelly. You’re asking the right questions.
As you mentioned, I wrote in June about AT&T’s antics with marketing its “5GE” service… which was really just 4G under a fancy, intentionally confusing name tag. It was a marketing ploy that ended up getting AT&T’s wrist slapped by the National Advertising Review Board (NARB).
And as I wrote about yesterday, even with actual 5G services, there’s still a huge difference among the carriers…
Both AT&T and T-Mobile are taking marketing-centric approaches to 5G. They are racing to build out a “low performance” 5G network as soon as possible so they can claim nationwide 5G coverage. As you said, they want the bragging rights.
And somewhat humorously, in many cities AT&T’s 4G network outperforms its new “5G” network. That doesn’t make much sense at all if you ask me.
Launching at lower radiofrequency spectrum is easier and cheaper than launching in the higher frequency bands at 6 GHz and above. Lower frequency bands, like the UHF bands, require fewer towers, but suffer when it comes to 5G performance.
Customers will be able to use 5G devices on these networks, but they won’t find anywhere near 1 gigabit per second (Gbps) or better speeds until carriers like AT&T and T-Mobile go back to build their 5G networks in high-frequency bands capable of operating at real 5G performance.
That said, my favorite U.S. carrier right now is Verizon. Verizon has gone all in from the very beginning, building out “legit” high-frequency 5G networks. That’s where we will see the best experience from the promised gigabit-plus performance.
As I shared yesterday, Verizon’s networks were by far the fastest of the bunch, with max speeds reaching 2 Gbps. That’s about 20 times faster than the average AT&T 4G connection. Verizon’s latency was also the lowest of the carriers over 4G networks, with the least delay. And latency is about 90% less over Verizon’s 5G networks compared to its 4G network.
Verizon is currently available in 36 major cities around the country. If readers want to experience real 5G, I recommend checking to see if Verizon covers your area.
The only disadvantage to Verizon’s network strategy is that it is going to take longer for its 5G networks to reach suburban areas. The network build-out will take years.
But I’m OK with that. Even when I’m not on Verizon’s 5G network, I’ll still get a strong 4G network, and I’ll have Apple’s latest and greatest iPhone, which is the most secure smartphone we can buy. And it will have the most advanced semiconductors powering it. The improved performance makes a big difference to me, so I’m willing to upgrade early.
And as a final note, Kelly, I too am looking forward to the launch of the 5G iPhone. As I wrote about on Wednesday, we can expect that to hit next month. And when that happens, we’ll see the inflection point in 5G that we’ve been waiting for…
When the new 5G iPhone launches, hundreds of millions of people will be eager to upgrade. And that has important implications for investors.
I’ve identified one Apple supplier that I expect to do very well once the 5G iPhone hits the shelves. Without this company’s product, the 5G iPhone won’t work. That’s why this company is my No. 1 large-cap 5G stock of 2020. You can find the details right here.
How to pick the right “penny” stocks…
Let’s conclude with a question about investment strategy…
I understand that penny stocks can be very rewarding, if you buy the right stock at the right time. Question is, how do we decide which of the plethora of stocks that are recommended will actually hit the jackpot? Sure, if I were to buy a little of every recommended penny stock, then some of them would be successful. But subtracting all the misses would offset the gains, no?
– Paul Z.
Hey there, Paul. Thanks for your astute question. As I mentioned above, I can’t give personalized investment advice. But here are my general thoughts…
It’s true that there are a lot of stocks out there to choose from, including stocks selling for just a few or even less than a dollar per share. But even if the share price of a stock is “cheap”… it doesn’t mean it’s a good deal.
What we really want to find are the small stocks that have yet to experience most of their growth… and have the potential to become the next Amazon.
When I analyze small companies, there are a few things that I am looking for.
Who are the companies and people backing the company, and are they legit? Is the technology strong or just repackaging other technology? Is the company operating in an exciting market with lots of growth potential? Does it have any novel intellectual property? And very importantly, does the company have any near-future catalysts that have the potential to drive the share price higher?
Finding promising small companies that meet my criteria above in this environment has become more difficult than at any time in the last two decades.
Most of the stocks going public these days aren’t actually small companies anymore. A company like Uber may have just gone public last year… but it was already nearly a decade old when that happened. And it was valued at tens of billions of dollars at that time.
So the chance to make money on Uber had already passed by the time most investors were able to get in.
I’ve been sick of this dynamic. And I spent over five years searching for a solution. That’s how I discovered a small subset of tiny tech stocks that I call “Penny IPOs.” These are stocks that still go public early in their life cycles… and they have the explosive potential to make investors hundreds of percent in days or even just hours.
These Penny IPOs fall into a specific area of technology… they follow a predictable pattern… and they are one of the few opportunities that still exist to give investors life-changing gains.
And when I backtested my system for finding these stocks, 98% of them were winners.
If you’d like to learn more about my system, Paul, I encourage you to attend my upcoming event, Penny IPOs: The 4X Window. It’s happening next Wednesday, September 23, at 8 p.m. ET. While there, I’ll give investors the scoop on how these stocks can achieve such incredible results… and reveal the reason they’re set to go into overdrive as soon as October 1.
That’s all we have time for this week. If you have a question for a future mailbag, you can send it to me right here.
Have a good weekend.
Editor, The Bleeding Edge
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