If you want to be a great tech investor, sometimes you have to forget some of your consumer habits.
From the time we’re children, we’re taught to be price sensitive, to look for bargains.
That’s a good idea in stocks, too – if you compare stocks’ price/earnings ratios and other metrics to find deals.
But too many investors just look at the “price tag.”
While comparing price tags certainly can help you out in the mall or the grocery store, it can be positively disastrous when investing.
When finding stocks, you’re shopping the future – gains and losses – not the present price.
As the four stocks we’re looking at today prove, it’s far more important to follow Rule No. 5 of Your Tech Wealth Blueprint. That rule says to “target stocks that can double your money.”
Two of the stocks we’ll be looking at trade for more than $140 and two for more than $800.
Yet they’ve all met the mandates of Rule No. 5, and the “worst” performer in the group beat the S&P 500 by more than fourfold in the past two years.
And two of them already doubled over the period.
But they’re not done yet.
Not even close.
In fact, all four stand to gain 50% or more over the next few years.
And that means these “expensive” stocks are actually bargains.
Let’s take a look…
Avoid the Trap
Now, I understand why many investors fall into this “price trap.”
After all, it feels “richer” to own 100 shares of a $5 stock than five shares of a $100 stock.
But we don’t care about feelings.
We’re looking for returns.
If that $100 stock earns 25% while the $5 stock nets 15%, the more expensive one is a much, much, much better deal.
In this hypothetical, the $100 stock earned 66% more than the $5 one. Which means you would have made $250 on the higher-priced stock and $150 on the cheaper one.
On the other hand, yes, micro caps – “penny stocks” – do tend to be priced cheaply. And, yes, those do tend to be the fastest-growing companies – and stocks – out there.
But there’s plenty of penny stock duds out there. And plenty of $100+ stocks poised for triple-digit gains.
It’s our job to separate this all out.
Are you “getting” the lesson here?
I thought so.
So let’s apply that lesson to the four tech leaders known as the FANGs – Facebook Inc. (Nasdaq: FB), Amazon.com Inc. (Nasdaq: AMZN), Netflix Inc. (Nasdaq: NFLX), and Alphabet Inc. (Nasdaq: GOOGL).
They all cost well over $100.
And they’ve all either doubled in the past two years – or stand to do so in the near future.
So if you avoided these stocks over the last two years, you gave up some truly gains.
F Is for Facebook
This social media giant has delivered a 69% two-year return, coming just shy of trouncing the market by 5 to 1.
And using March 24, 2015, as a start date, I believe it will have doubled to more than $160 by the end of this decade.
Who cares if you have to pay around $140 for growth like that?
The fact that Facebook saw its sales shoot up 122% and its profits surge 145% in the past two years doesn’t even begin to tell the full story here.
Instead, it’s the growing awareness that Facebook is becoming the most popular form of entertainment on the planet. What began as a way for friends to share thoughts and quirky pictures has become a portal for videos, music, civic action, and so much more.
This tech juggernaut counts 1.9 billion users, of which some 1.2 billion of them log on every single day. And over the past couple of years, Facebook has added video in a big way. That’s a growth platform that will lead to more user engagement – Facebook users will use the site more and stick around longer – and, therefore, higher ad sales.
Facebook also has the popular Instagram, WhatsApp, and Messenger, in its lineup. CEO Mark Zuckerberg wants Facebook to become a primary online hub for videos, messages, texts, photos, and news – all portals that will add profits for years to come.
A Is for Amazon
Amazon has completely changed the face of retailing – and is now the dominant player in hosting services for cloud computing. This double-barreled approach has Wall Street singing the firm’s praises after years of doubting its prospects.
Then again, you can’t argue with success of this nature – a two-year return of more than 120%, which beats the S&P 500 by 8 to 1.
Yes, it trades at around $855.
But so what?
Amazon has never grown less than 20% in any year in its history, building a $136 billion sales base along the way. At that rate, it could hit annual sales of more than $540 billion in a little more than seven years.
On the retail front, it is by far the dominant U.S. e-commerce site and has become the standard by which all retailing is judged – online or not. On the cloud-computing front, Amazon Web Services (AWS) has a roughly $14 billion sales run rate for this year.
Heavy investments in video content are also starting to pay off. This year, the Amazon-produced feature film “Manchester by the Sea” was nominated for a Best Picture Oscar, the first film from a streaming service to achieve that status.
And it’s still got enough gas to keep giving investors 20%+ gains a year for some time to come.
N Is for Netflix
Of course, Netflix isn’t taking the challenge from Amazon Video lying down.
The DVD-by-mail pioneer-turned-king of streaming services is doubling down on its own original TV programs and movies, betting that many consumers are inching closer to ditching their cable packages completely.
Netflix now has 93.8 million subscribers, and nearly half of them come from outside the United States. That’s a huge win, considering that just three years ago, Wall Street doubted the firm’s global growth plans.
By the time Netflix’s global expansion fully hits its stride in the next few years, look for total sales to at least double – and for its share price to keep up a smaller but similar pace as well.
Netflix already ranks as one of the fastest-growing profit producers of any firm in the S&P 500. Profits are likely to more than double in 2017, then grow in excess of 50% for many years to come.
That’s the benefit of higher revenue on a fixed-cost base. It also helps explain why the stock, now priced at $142, has surged 140% in the past two years, beating the market by more than 10 to 1.
And you can keep expecting more of the same.
G Is for Google
Most investors think of Google as an online search giant. But that obscures the real story here – it’s absolutely devouring the world of advertising.
To reach the massive online audience, major ad spenders have no choice but to work with Google parent company Alphabet and its vast set of digital ad tools and services.
And the firm just hit a huge milestone that means even more ad dollars. Users of YouTube, an Alphabet property, now watch 1 billion hours of video per day. That’s a lot of user-generated content – that Alphabet doesn’t have to pay for but for which it can collect (a lot of) ad dollars.
Now trading around $840, Alphabet beat the S&P 500 by more than 3 to 1 with two-year gains of 50%. That’s even after a recent controversy about some ads running alongside extremist videos on YouTube caused a 4.25% decline.
Using March 24, 2015, as our base period, I believe Alphabet shares will have doubled to around $1,130 by the end of 2020.
Alphabet has no intentions of slowing down. It has boosted its R&D spending by 129% over the past four years, to a recent $14 billion. The firm sees that as integral to developing new products that can bring the next round(s) of growth.
Now then, some investors will naturally wonder if the FANGs have had their run.
I don’t think so.
Each of the FANGs will continue to beat the overall market for years to come because each is a leader in the Singularity Era – a time when the global economy runs not on oil, coal, or steel, but on digital data… technology.
I believe all of them will gain at least 50% over the next few years.
We all want to use tech to get on the road to wealth.
And to do that, you must find stocks with the potential to double in price.
No matter how much they cost.
— Michael Robinson
Source: Money Morning