COVID-19 and technology are dividing investors into their own version of “haves” and “have nots” — which camp are you in?
COVID-19 is destroying any illusion of equality between the “haves” and “have nots.”
While some Americans are able to shelter at home, continuing to receive a paycheck as they work remotely, countless Americans have lost their jobs, have no savings, and are now facing an economic crisis.
But this isn’t the only way in which COVID-19 is creating division.
Even among the “haves,” the virus is serving as an agent of separation.
In one camp are investors who “get it” and are generating substantial wealth (you’re about to see an example of this in real-time).
In the other camp are investors who don’t “get it.” Being candid, they’re going to be left behind.
Please don’t misunderstand … I won’t be dramatic and make wild claims about these individuals heading to the poorhouse.
They won’t. The stock market will recover, and assuming these individuals have balanced portfolios, they’ll see their wealth edge up over time.
But the truth is the average investor who doesn’t adapt his portfolio to COVID-19, in combination with one other factor we’ll discuss today, will miss perhaps the greatest wealth-building opportunity of our lifetime.
***An example of COVID-19 exploding the wealth gap in real time
Regular Digest readers know Matt McCall as our resident thematic expert. He finds the massive trends that are reshaping our world, and by extension, our investment markets. He then identifies the specific stocks best positioned to ride those trends higher.
As we’ve been highlighting here in the Digest for the last few weeks, Matt has been imploring readers to begin buying into this market. To be clear, his bullishness is reserved for certain types of stocks — namely, the “best-of-breed” investments that are related to the megatrends he tracks.
As to those megatrends, we’re talking about things like artificial intelligence, driverless cars, precision medicine, next-generation batteries, and robotics, among others.
Can you spot the common thread between them?
Technology.
The massive trends that are reshaping tomorrow’s world are all powered by technological advancements.
The companies that harness the technological breakthroughs in their respective sectors will thrive. The average company that doesn’t will either produce average returns, or perhaps close doors.
But rather than tell you, I’ll show you.
***Today, COVID-19 is accelerating the division between the “tech haves” and the “tech have-nots”
To illustrate, let’s look at Catasys, the tech stock Matt gave away for free at his Crisis and Opportunity Investment Summit on April 2.
Catasys is an innovative, small-cap stock that does predictive analytics for big data, artificial intelligence, and telehealth. In other words, it’s a tech company with a specific niche.
So, how do you think COVID-19 is impacting Catasys?
As I write, the stock is up 102% … in three weeks.
A huge congratulations to Matt’s subscribers who acted on the recommendation.
This isn’t Matt’s only tech winner which COVID-19 has pushed higher. Below, you can see another one of his tech picks, Teladoc, surging over 115% in 2020.
By the way, Matt is still seeing significant opportunities in small caps, and plans on recommending similar tech plays in his Crisis and Opportunity portfolio in the coming weeks. To learn more, click here.
***These examples are not outliers — technology is creating a huge rift in the stock market
To illustrate, let’s look at the S&P Equal-Weight Index.
To make sure we’re all on the same page, the S&P Index is comprised of a shade more than 500 of the largest companies in the United States. However, all of these companies don’t get equal representation in the index. That’s because the S&P is “weight-averaged.” In other words, the bigger the company, the more “representation” it has in the index.
So, when a massive stock like Apple surges, it has a far greater lifting-effect on the value of the overall S&P than would a similar surge from a smaller company like, say, paper packing company, Avery Dennison.
Given this, when we look at the S&P, we’re not receiving an accurate depiction of how all stocks are doing. These S&P returns are being highly-influenced by the big dogs. And who are they?
Tech.
The biggest companies in the S&P are Microsoft, Apple, Google, Amazon, and Facebook.
So, let’s begin to pull back the curtain on “tech vs non-tech” by evaluating the normal, weight-averaged S&P 500 index (with the tech big dogs leading the way), with the S&P Equal-Weight index, which places equal value on every stock.
As you can see below, over the last three years, after factoring in this Coronavirus black swan, the S&P is up 18% … yet the S&P Equal-Weight has gone nowhere.
“But Jeff, many other sectors could impact this. You’re jumping to conclusions about the influence of tech.”
Fair enough.
To try to isolate “tech” versus the S&P Equal-Weight index, let’s now use IXT, which is the S&P Technology Select Sector Index.
As you just saw, over the last three years, the average equal-weight S&P company is flat. Meanwhile, the average tech company as represented by IXT has climbed 63%.
Specialized niches in tech are doing even better.
Yesterday, our CEO, Brian Hunt tipped off a few of us as to the performance of IGV; it’s the iShares Tech-Software sector ETF.
Below, you can see it’s up 80% over the last three years compared to the S&P Equal-Weight Index.
“But we’ve been having a huge bull market up until the Coronavirus. How can the average equal-weight S&P stock-return be so underwhelming?”
Because the average equal-weight S&P stock isn’t a tech stock. It’s that simple.
***Eric Fry has been leading the research into this wealth cap and its impact on the stock market
Regular Digest readers will recognize the term “Technochasm.” That’s Eric name to describe this “tech versus non-tech” divide.
For months, Eric has been urging readers to give their portfolios exposure to elite tech stocks.
But aligning your portfolio with tech is only part of what’s required today.
There’s also a need to play defense. In other words, investors need to perform a ruthless cross-examination of all the stocks in their portfolios. After all, though technology creates wondrous new industries, it destroys archaic old ones.
Given this reality, what good is, say, $5,000 of savings thrown at a new tech stock if your $100,000 portfolio is filled with old-school stocks such as retailer Macy’s?
(If you’re not familiar with the plight of this iconic American retailer, its stock has been gutted 70% in 2020.)
From Eric:
Today there are so many ticking time bombs in so many people’s portfolios, because of bad business structures … heavy debt loads … and completely outdated business models that are being disrupted by fast-moving and creative, technological startups.
If you own doomed firms like these you are all but guaranteed to miss out on the biggest gains of the years to come.
Last week, Eric did more than issue another broad warning. In an update to subscribers, he highlighted seven stocks to purge from your portfolio immediately.
Back to Eric:
… today, in order to help you raise that cash, I’m showing you a way to stack the odds in your favor when analyzing your investments …
And revealing seven stocks all investors should purge from their portfolios …
- Williams Cos. Inc. (WMB)
- Kinder Morgan Inc. (KMI)
- Public Service Enterprise Group Inc. (PEG)
- Apache Corp. (APA)
- Sempra Energy (SRE)
- Edison International (EIX)
- Davita Inc. (DVA)
Obviously, there are plenty more timebombs in people’s portfolios. To help dig them up, in Eric’s update, he provided a “Portfolio Purge” formula which readers can apply to their stocks.
He also included a bullet-point list about company traits that signify strength. It’s a helpful way to do a diagnostic on your portfolio.
To access all this as one of Eric’s subscribers, and to see his research video on the Technochasm, click here. Whether you watch it or not, at least recognize how the combination of technology and COVID-19 is dividing investors today …
Which camp will you fall into?
Have a good evening,
Jeff Remsburg
