Tech-focused and tech-enabled companies are leaving their old-school counterparts in the dust — both on Main Street and Wall Street.
You know this because, for almost a year now, I’ve been showing you how the “Technochasm” phenomenon is dividing our economy — and our stock market — into distinct groups of winners on one side … and losers on the other.
Members of Fry’s Investment Report have been seeing those effects since the very first day we launched that service.
The Amplify International Online Retail ETF (NYSEARCA:XBUY) and Global X FinTech ETF (NASDAQ:FINX) have gained 100% and 58%, respectively, since I recommended them on June 11, 2019 — handily outperforming the S&P 500’s 36% return over the same time frame.
And this isn’t just because both ETFs recovered faster than the broader market. The Nasdaq is up by just over 43% from this time last year, while XBUY is up by more than 80% and FINX is up by over 45%.
In other words, they are outperforming the Nasdaq … and they’re on the right side of the Technochasm.
Let’s take a closer look at why.
And at my next set of recommendations in the Investment Report …
The E-Commerce ETF
XBUY invests in companies that its managers expect to benefit from the increased adoption of e-commerce around the world.
In the past, I said this about online shopping:
Online shopping is the new normal. Nearly 80% of Americans have shopped online, with 43% purchasing at least a few times a month, according to a survey by the Pew Research Center.
That trend is all but certain to gain momentum as generations Y and Z become a larger percentage of the total shopping public. Already, more than three-quarters of shoppers under the age of 30 make their purchases on a smartphone, rather than a tablet or computer. That means these buyers are “purchase-ready” every waking minute of their day.
The expanding scope of e-commerce will also drive growth. Online retailers are working hard to break into several hard-to-crack product categories like groceries and beauty products.
I made that statement a full year before COVID-19 forced us all to stay inside.
Back then, online grocery sales made up just 2% of the $750 billion grocery industry. By 2019, that number climbed to 3.4%.
But now that we are hunkered down indoors, online grocery sales have rocketed to more than 10% of the total, according to a study from Mercatus. Further, Mercatus predicts online sales will account for at least 20% of the total by 2025.
We’ve also seen tremendous changes in how some of the biggest brick-and-mortar retailers do business. As I noted before:
With a click of a mouse, we can purchase almost any product under the sun — and then expect it to arrive within a day or less.
That’s a big reason why “big box” retailers have been struggling for many years. Wave after wave of formerly successful retailers have been shutting their doors for good. Sears, Blockbuster, RadioShack, Circuit City, Borders, Sports Authority, and Toys “R” Us have all gone to retailing heaven (or are almost there).
Even many “best of breed” retailers are struggling to compete. During the last three years, revenues at Walmart Inc. (NYSE:WMT) have grown a meager 7%, while Amazon’s have doubled.
Now the “big box” stores are catching on. Target Corp. (NYSE:TGT), Walmart’s Minnesota-based rival, reported strong holiday sales in part thanks to same-day online pickup and delivery orders.
“Many of the top performers had robust e-commerce businesses already in place before the pandemic and are now benefiting as more shopping shifts online,” The Wall Street Journal noted.
There is one big problem we still need to address, though.
If the pandemic is so good for these companies, what will happen when it ends?
In the short term, not much.
We’re not returning to “normal” any time soon. And whenever we do start leaving our houses, many of the habits we’ve formed during the pandemic will stick.
HelloFresh (OTCMTKS:HLFFF) sells meal kits online and distributes them to consumers, and its sales have grown during the pandemic. Company CEO Dominik Richter thinks the growth in its customer base will stick around after the pandemic is over.
He had this to say:
A study from food industry association FMI found one-third of respondents cooked at home six to seven days a week during March and April when stay-at-home restrictions were in effect nationwide. Looking ahead, nearly one-third of U.S. adults plan to continue cooking more at home, led by more than 40% of Generation Z respondents, according to a recent survey from Bloomberg and Morning Consult.
The research that Richter cites bodes well for meal-delivery services, but I think we can learn a more general lesson about human behavior from it.
Many of us have formed habits during this pandemic that won’t just disappear. We learned a new mode of life that we will not entirely abandon. On the contrary, we’ll continue taking advantage of COVID-era conveniences like online ordering.
That means e-commerce is going to hold on to a lot of its new customers, which means Investment Report members can expect much more from XBUY in the future.
The Fintech ETF
The companies in FINX use innovative technologies to improve or automate financial transactions.
These technologies include peer-to-peer lending, mobile payments, instant short-term lending, and cryptocurrencies — and the companies that provide these services can be incredibly profitable.
PayPal Holdings Inc. (NASDAQ:PYPL), for example, is one of the earliest and best-known payment processing companies, facilitating e-commerce and even expanding to offer credit to customers. Today it is more than 90% higher than its pre-pandemic all-time high.
There’s also Square Inc. (NYSE:SQ), the San Francisco-based company focused on enabling small businesses to take payments through a variety of point-of-sale mobile payment methods. Square is more than 100% higher than its pre-pandemic peak.
Products from companies like this are seeing wider use thanks to the pandemic, and people are more satisfied with their banks when they integrate peer-to-peer payment methods into their systems. As Forbes writes:
Customers shopping online are increasingly appreciative of seamless transactions via digital payments platforms like PayPal. In a tangentially related finding, the J.D. Power survey found that customer satisfaction with their bank rose significantly with integration of peer-to-peer (P2P) platforms like Zelle, Apple Pay and Venmo.
In that same article, Forbes reports that mobile banking traffic ballooned by 85% in April 2020, and older Americans are becoming increasingly comfortable with online banking.
As with online shopping, I expect these new habits to stick around, giving fintech companies an advantage going forward.
Research from McKinsey shows that 6% of U.S. consumers have opened a new fintech account during the pandemic.
Regardless of whether people want to adopt these technologies, companies are increasingly relying on them and integrating them into their prices.
As they become more accessible, more people will adopt them. Because the pandemic made these technologies more necessary, it has only accelerated their widespread adoption.
And that means the fintech industry and FINX are likely to continue growing rapidly over the next few years.
These are just a few of the picks that members of Fry’s Investment Report are using to build their wealth.
Just yesterday, in the latest monthly issue, I showed them a 5G play whose stock has been doing a whole lot of nothing for a very long time.
But I believe a change of fortunes is imminent.
In 2030, the idea of this stock in 2021 may seem like the most obvious investment anyone could have ever made. But in the here and now, the stock seems like nothing more than a perpetual loser … a stock market has-been.
But I suspect today’s naysayers are off-target and will be kicking themselves in 2030, or perhaps as soon as this year, for not buying the stock today.
Find out how to join Fry’s Investment Report here.
On the date of publication, Eric Fry did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Eric Fry is an award-winning stock picker with numerous “10-bagger” calls — in good markets AND bad. How? By finding potent global megatrends … before they take off. And when it comes to bear markets, you’ll want to have his “blueprint” in hand before stocks go south.