2020 has been a year that will go down in the history books as the year a virus broke the global economy. But something else happened that the world did not expect: prolific digitalization. We have condensed what seems like 5 years of digitalization into only 5 months.
Society has been forced to leverage innovative technology to keep businesses operating with cloud computing on platforms like Microsoft's best-in-class Azure (MSFT). We have turned towards e-commerce giant Amazon (AMZN) to satisfy our shopping needs & wants with brick-and-mortar retailers no longer deemed as "safe". Video communication has become a primary source of social interactions, with Zoom Video (ZM) growing from 10 million users at the end of 2019 to 300 million in just 4 months.
The world is relying on technology more than ever, and this dependency is being priced into innovation-driven equities as we speak with the Nasdaq 100 (QQQ) hitting new all-time highs daily. Information Technology has outperformed all 10 other sectors of the S&P 500 on effectively every time horizon, propelling over 460% growth in the past decade.
Now the question we need to ask ourselves as investors: what should we expect from tech in the coming decade?
What Does This Mean For The Roaring 20s?
Despite the medically induced economic coma that kicked off the decade, the 2020s will undoubtedly be filled with exciting opportunities (especially in the equity markets). The Roaring 20s are going to be underlined by life-changing innovations that will prolifically advance humanity.
The performance spread between tech-driven growth stocks and traditional value investments will only grow as life evolves with the ease and comfort of progressing technology.
What To Look For In An Investment
As an investor, the key is to decipher between the studs and the duds in the rapidly expanding tech sector. When I am assessing potential investments, there are 3 primary questions that I ask myself:
- Is the company fostering innovation with a large (hopefully growing) addressable market and does it have a wide competitive edge?
- Is the management team complacent in their current level of achievement, or are they always looking for new ways to stay ahead of the innovative curve?
- Is the stock price trading at a reasonable price that I am comfortable with paying?
The first 2 points are easy enough to discover. For example, Splunk (SPLK) is changing how enterprises manage, analyze, and act on real-time machine data, which is becoming a necessity to stay competitive in our increasingly speed-driven economy. The company has been transitioning to the cloud and has a pipeline of new product offerings underway that will not only increase its attractiveness to current customers but expand its addressable market.
I love everything about SPLK except for its current valuation. A lot of stocks have been propelled by the COVID related tech euphoria, to levels that I don't see as sustainable amid the enormous amount of economic uncertainty surrounding this health crisis. Stocks like Tesla (TSLA), Twilio (TWLO), Adobe (ADBE), Sea Limited (SE), and Nvidia (NVDA) are just few other examples of stocks that meet my first two criteria. Yet, these equities are trading at rich valuations that I am not comfortable with purchasing at.
I am waiting for a pullback before I start reloading on these stocks that will drive the Roaring 20s. The market excitement and euphoria will eventually fade, and reality will set in as it always does. I'm not saying this will happen tomorrow or even next week, but when it does, be ready. The coming Q2 earnings season may be the catalyst we need for a market correction we are waiting for.
We have seen 5 years of digitalization compressed into 5 months with the global pandemic accentuating the world's reliance on technology. Innovation-centric businesses are going to drive the equity market in this decade of trading. It is time to start queuing up limit orders on the stocks of the 4th Industrial Revolution.
The Hottest Tech Mega-Trend of All
Last year, it generated $24 billion in global revenues. By 2020, it's predicted to blast through the roof to $77.6 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
See Zacks' 3 Best Stocks to Play This Trend >>
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Zoom Video Communications, Inc. (ZM) : Free Stock Analysis Report
Twilio Inc. (TWLO) : Free Stock Analysis Report
Tesla, Inc. (TSLA) : Free Stock Analysis Report
Splunk Inc. (SPLK) : Free Stock Analysis Report
Sea Limited Sponsored ADR (SE) : Free Stock Analysis Report
Invesco QQQ (QQQ): ETF Research Reports
NVIDIA Corporation (NVDA) : Free Stock Analysis Report
Microsoft Corporation (MSFT) : Free Stock Analysis Report
Amazon.com, Inc. (AMZN) : Free Stock Analysis Report
Adobe Systems Incorporated (ADBE) : Free Stock Analysis Report
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