This spiel from Christian DeHaemer touches on many of the “trend” stories that investment pundits have been talking about in recent years, with a pitch about the “new normal” and the five big trends that will make you rich. It’s an ad for his Bull and Bust Report newsletter ($99 for the first year, renews at whatever their price is then), and the headline promises five disruptor stocks that will make the next “Pandemic Millionaires.”
That “new normal” is based mostly on the coronavirus and how that has changed the worlds of work, healthcare, payments and entertainment — so the five basic trends he’s pitching are teleconferencing, telemedicine, touchless payments, 5G networks for faster delivery of all these services, and 3D printing.
So what are the stocks he hints at, and can we name them? Or at least a few of them? Let’s look into the ad and see what he’s talking about… and what clues he drops in the pitch.
Here’s a bit to get you excited:
“Yes, this crisis has decimated the American economy and caused wild market volatility that we haven’t seen since 1929.
“But if you act now, you still have time to prepare yourself for some of the most explosive gains you will see in your lifetime.”
And he uses a chilling comparison to emphasize the scope of the coronavirus impact…
“September 11 hit two cities, shook us to the core, and made huge permanent changes to our daily lives.
“COVID-19 caused an unprecedented global event that has shaken the world.
“Half the world’s population was ordered to stay at home.”
“That didn’t just bring life to a standstill… It brought our economy to a screeching halt….
“Unfortunately, many of these jobs, businesses, and entire industries are never coming back from the dead.
“BUT… this crisis has also created massive opportunities.
“I’m about to show you how you can double, triple, or even quadruple your money right now if you know how to move fast on the winners of the ‘New Normal’ ahead.”
None of us know what the future holds, of course, but I think most of us suspect that some things might be permanently different for a while… maybe a lot more of us will be working from home now that we’ve had this mass global experiment and proven that telework is viable for lots of us, particularly tech workers who were already accustomed to collaborating with coworkers online (Google announced recently that a lot of their 100,000+ employees won’t be coming back to the office for at least another year, and other large players have said similar things).
More from the ad:
“Some of the coming gains could make Netflix, Apple, and Amazon look boring by comparison.
“That means you could easily recoup your recent losses and rescue your portfolio if it’s been through the wringer thanks to the ‘corona crash.’
“The crash wiped out the last eight-plus years of stock market gains in the blink of an eye.
Even with the rebound… most investors haven’t made up those losses.”
Well, they should have been able to “make up those losses” in most cases… the market is now above where it was on January 1, providing a return of 3.2% for the S&P 500 year to date, so even a passive “buy and hold” approach with the broad market index would have you in the green for 2020. And if, like most people, you added a bit to your investment portfolio each month, you’d be having probably an above-average year (because those purchases in March, April, May and June would be looking pretty great right now).
Of course, if you were betting big on airlines or cruise companies or just got unlucky, or panicked out of the market in March as probably a lot of people did, then you could certainly be having a bad year. Certainly there are a few stocks in my portfolio that got clobbered and didn’t bounce back… but that’s why you diversify, some of them also doubled or tripled this year.
A bit more gloom from the ad:
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“Don’t be fooled by the myth that if you just wait long enough, your portfolio or any given stock will miraculously recover…
“Because it won’t….
“… there are dozens of industries now on life support, waiting for their final hour.
“That’s why you simply can’t let your money sit around going nowhere in stocks that will take up to a decade to recover if they ever do!
“A Handful of Industries Will Soar”
I wouldn’t argue against that. The risks to a lot of industries remain huge, I’m glad that I’m not a restaurateur, or a college town landlord, or a cruise ship captain or owner of a movie theatre. Heck, I’m glad to not own Disney (DIS) right now, since that’s the large company that seems most dependent on “social crowding” (though I sold my DIS shares for much less than they’re going for today, and it could be that today’s earnings report will make me feel foolish).
Though I’d be remiss if I didn’t also note that the market knows this. Those industries that are “on life support” have mostly seen their stocks crater and not recover, even as other industries set new records and saw their stocks soar higher, but the companies (department stores, etc.) that are really likely to disappear were in trouble well before the coronavirus. Eventually those things tend to even out, probably this year’s (likely) record number of bankruptcies will lead to some attractive and cheap stocks in the next few years as the economy charts its new course.
But this is certainly not a ‘buy low’ pitch from DeHaemer, and I don’t blame him for that — he’s talking about buying up the beneficiaries of this “new normal,” not the survivors in the rubble, and that means he’s almost certainly talking up stocks that have already soared dramatically this year, an implicit bet that the growth will continue to be remarkable as COVID lingers into the fall and possibly threatens the re-opening steps that have been taken around the world.
More from the ad:
“We’ve just pegged a handful of trends, industries, and companies set to explode as the world adapts to the ‘New Normal.’
“These companies fought tooth and nail for years (some for decades) to break into the mainstream but were only gaining popularity at a snail’s pace.
“Suddenly, these little-known technologies have gone from an ‘Oh, that’s kind of cool’ novelty to ‘We can’t live without this!’
“When you’re lucky enough to catch the wave of a stock just before it breaks into the ‘can’t live without it’ mainstream… that is when you make a small fortune.”
He starts with three examples of “work from home” stocks that soared, particularly thanks to the boom in video conferencing…
“Zoom, Slack, and Citrix.
“Get used to saying these strange new household names as they become just as essential for everyday life as your cellphone and your internet connection.
“Before COVID-19, these little-known companies were strictly reserved for tech-savvy businesses that embraced remote work.
“Their customer bases were growing slower than molasses runs on a winter’s day…
“Then COVID-19 hit.
“Suddenly, knowing how to use these tools was mandatory for anyone working from home.
“Millions of schools switched to teaching classes via Zoom when the pandemic shut everything down. And most colleges will offer students the choice to continue online learning even as schools open back up this fall.
“That’s why I think a 262% gain in Zoom is just the beginning.”
That is the “year to date” return for Zoom (ZM), by the way — or at least, it was a week ago (it’s up to 287% now). And while Zoom was fairly popular among early adopters before February, it’s true that the first nine months of their life as a public company (starting in May of 2019) were a disappointment, with revenue growth of “only” 40-60% failing to drive the stock higher until revenue accelerated in 2020 and it (arguably) became the hottest “story stock” of the pandemic.
But he’s not picking Zoom as his favorite here, nor is it Citrix — it’s something else. More form the ad:
“I want to see you cashing in big on the ‘Remote Revolution.’ That’s why I’m going to reveal my No. 1 top stock pick for you in just a moment.
“And it’s not any of the stocks I just mentioned. I have something that’s a much better buy now. So read on.
“… we see torrential downpours of cash on the horizon for my No. 1 “Remote Revolution” stock….
“The stock I’m going to reveal to you has seen 33% gains, going straight up in just 30 days.
And that’s just the start of the long run I expect ahead!”
With the chart he shows, going from about $120 in early April to above $160 in early May, there are a few candidates who might match reasonably well — including Atlassian (TEAM), which is a collaboration software company more than it is a “teleconferencing” company, but pretty close and clearly exposed to “remote work” trends. That one has been a favorite of the Motley Fool, among others.
But actually, the best match for that chart that the Thinkolator can ID here — despite the fact that it’s not really a “pure” videoconferencing play — is Okta (OKTA), the “identity as a service” company that offers secure login capabilities. RingCentral (RING) and Twilio (TWLO) had similar trajectories over that month or so, too, but their charts don’t come close to matching price-wise.
Since Okta does actually integrate with the big video conferencing providers, including GoToMeeting and Zoom, I’ll stick with that one as our best answer — they are at least an ancillary beneficiary of the push for more secure remote video work, and remote work in general.
Of course, the stock is also up another 30%+ in the couple months since that initial COVID bounceback, so it’s not cheap — like most of the “remote work” stocks, it hasn’t been cheap in years (or ever) and trades at a valuation we all would have laughed at five or ten years ago… 40X sales, probably no profit for at least another couple years, negative return on equity, and a steady increase in the shares outstanding as they use stock options to cover much of their employee compensation. They aren’t burning cash, thanks in part to that share-based compensation, so it’s not like they’re in any trouble, and it’s possible that they’ll grow into this valuation… but that’s a steep price to pay even if growth is good.
And yes, growth is VERY good, thanks in part to COVID – revenue growth has been gradually coming down over the past couple years, as is typical of growing companies (still growing, but the rate of growth slows down — the rapid acceleration of growth is what caught investors fancy with Zoom, not just the fact that they were growing quickly), but as with lots of other work from home stocks the revenue growth re-accelerated a little bit last quarter, from 44% back up to 46%.
We’ll see if that continues, the trend is still down so it hasn’t become dramatic acceleration (revenue for OKTA was growing at about a 50% pace last year, and 60% in 2018), but even if revenue growth moderates a bit it’s still very high — 40%+ revenue growth is a wonderful thing, particularly for a software/cloud service provider who should have recurring revenues and improving margins over time, and investors lap that up these days. It will be ugly if that love falters at some point, since then Okta’s share price would be likely to collapse along with Twilio, Shopify, Zoom and the rest of the stocks who trade at almost-unheard-of valuations, but until that love falters (assuming it does someday), investors are telling you with their wallets that they want growth, and especially recurring revenue growth. Okta has that.
I should note, by the way, that I’m torn and a little hypocritical when it comes to these richly valued growth stocks. Despite my worries about these valuations, I have continued to hold a lot of similar momentum stocks as they’ve reached prices that I think are pretty ludicrous. I am a longtime Okta shareholder, and I also own Shopify shares. I haven’t had the stomach to buy either one recently, and in fact have taken some profits along the way, but both are still meaningful positions for me (as are some other very richly-valued stocks that are often mentioned in the same breath as “COVID beneficiaries,” including Amazon, Fastly, DocuSign, The Trade Desk, Roku and a few others).
So that’s the best match for his “#1 recommendation,” though since there weren’t many clues dropped and we’re just going from a good match to the stock chart, I can’t say that this is a 100% certain answer for you today.
What else does he hint at?
“This stock is at the forefront of a “Remote Revolution” in health care…
“A revolution that only just started.
“Just imagine what will happen to this telemedicine stock when 90% of all routine checkups and doctor visits are done remotely.
“My No. 1 telemedicine pick is powering this fast-moving breakthrough.
“Getting in now is like buying oil shares the day Henry Ford released the Model T.”
That’s an easier one, there are a few other clues dropped along the way, and another matching stock chart for us, and he’s clearly teasing Teladoc Health (TDOC), which I’d argue is the best-financed and strongest early mover in telemedicine. There is competition for Teladoc, which both provides software for hospital groups to create their own telemedicine services and actually hires doctors to provide virtual visits, but I’d argue they’re the best situated of the “pure play” telemedicine companies right now, partly because they came public first and raised a large warchest (now well over $1 billion) that has allowed them to acquire some of their competitors and spend heavily on growth.
And yes, I own this one, too. I first bought a couple years ago and got disenchanted with management and sold, but then in January when new management was getting settled in, they made a smart acquisition, and they boosted their forecasts, I bought back in again. I added a little bit in February and early March as the company became a clear beneficiary of the emerging epidemic, but haven’t been willing to chase the shares higher as they’ve doubled again, so I’m just holding now.
Growth has been amazing, with revenue growth accelerating back up to 40% in March and then 85% in June after a bad year in 2019, so if you believe that Telemedicine will be a core part of healthcare AND that regulated providers like Teladoc will get a larger portion of the business once things shake out, you can probably still justify the price here — they are still getting an almost infinitesimal share of the “virtual visit” market, since Zoom and Skype have been the default choices of lots of doctors and patients so far, given the loosening of regulatory rules, but if privacy and security rules tighten back up it’s quite possible that a lot of providers will shift to more health-specific offerings like Teladoc provides. Telemedicine is one of the more obvious beneficiaries of COVID, since the trend was not very strong before — doctors, patients and insurers were very slow to embrace telehealth, but now that they don’t really have a choice and we’re all being forced to try it out, there’s a decent chance that the world will really change.
Many folks have been making the argument that COVID essentially accelerated some trends that were already emerging, and just let them leapfrog ahead a few years, like telework and online collaboration and ecommerce and home video streaming, and that’s probably true… but it’s also quite possible that COVID has boosted the establishment of some trends that were arguably failing to catch hold before, and telemedicine is one of those.
That’s really the question for Teladoc — the stock is expensive at 25X sales, and unprofitable, so in order to buy it with any confidence here you have to have some certainty that telemedicine is entering the mainstream, ready to be a tool that a lot of folks use for primary care visits and routine healthcare consultations, letting the company finally move beyond niche applications (like providing specialists to rural areas, or coverage for traveling businesspeople). If that turns out to be true, then Teladoc is certainly not as expensive as the crazier story stocks like Zoom, and it does have a huge addressable market. I’m willing to keep holding while we see how it plays out, there is still plenty of competition from both established video conferencing tools and other (mostly private) telehealth companies, and it’s always possible that the huge health insurance companies or hospital groups will favor one software over another, which means Teladoc isn’t guaranteed to win… but I’d argue they’re the winner so far, and often those early winners are hard to supplant.
His next one is a little bit more esoteric…
“Another stock that COVID-19 launched sky-high won’t surprise you…
“Now, before we go one step further, let me be crystal clear…
“I don’t want you to buy Netflix… The big gains there are already behind us.
“I want you to buy the company that will keep Netflix afloat!”
This is about bandwidth demands and the pressure on the internet, in general…
“The week after stay-at-home orders went into effect, Verizon executives reported demands on bandwidth increased 75% over the previous week.
“Millions of Americans are frustrated with slow connections as everyone is videoconferencing, streaming movies, and playing video games… all at the same time!
“Simply put, our networks are overloaded…
“We need a solution for faster internet, and we need it ASAP….
“Certain 5G players, small and large, will make untold fortunes, minting new millionaires and even billionaires in the next months and years. However, you have to know which 5G companies will win big… and which will lose.”
So it’s mostly a generic “we need 5G because the internet is being counted on to do more” pitch — though the internet has mostly held up pretty well with this work/play/educate from home stuff, surprisingly enough.
Which 5G investments is he talking about, though? Here’s a little more:
“But 5G doesn’t just require microchips for your new iPhone…
“It requires an entirely new infrastructure, far more advanced than our current grid. Instead of the big, centralized cellphone towers we’re used to, this new 5G grid will require many more tiny towers to repeat and bounce the signal.
“This means thousands of these smaller, more advanced cell towers must be built ASAP to support our new 5G network.
“And my 5G ‘rock star’ stock is right in the middle of it all.”
That’s not enough clues to be certain about this one, I’m afraid — it could be an equipment supplier whose products make it into new towers, like Nokia (NOK) or Ericsson (ERIC), or even a chipmaker like Qualcomm (towers use chips, too), but I suspect he’s touting cell tower owners, just like he did for much of last year.
If we’re talking 5G, I expect the biggest beneficiary to be Crown Castle (CCI), since they’ve made the biggest bet on running fiber to “small cell” locations that will supplement the existing tower landscape and benefit from 5G’s demand for more and closer antenna locations… but that’s just a guess, and I own that one so it’s a self-serving guess. American Tower (AMT) and SBA Communications (SBAC) are the other two big players, all three of which he has recommended in the past, and both SBAC and AMT have done better than CCI partly because of CCI’s small cell investments (that got CCI some activist pressure recently, Paul Singer wants them to cut it out and go back to investing in more-profitable towers instead).
FYI, this is what I shared with the Irregulars last month, when that activist campaign started:<