You’ve heard all about the FANG stocks, but the BAIT stocks are going to be some of the hottest investments in 2019.
And it’s no surprise why.
Just look at how badly the FANGs have gotten beat up lately.
Facebook Inc. (NASDAQ: FB) is down 30% over the last six months. Apple Inc. (NASDAQ: AAPL) is down nearly 20% over the last month. Netflix Inc. (NASDAQ: NFLX) fell 25% in the last six months.
Since these have been some of the most popular and biggest tech stocks on the market, they’ve weighed down entire indexes. The S&P 500 is down 10% – market correction territory – since the start of October.
But there’s a new breed of tech stocks that we believe are flying under the radar despite their enormous profit potential…
The FANG Stocks Didn’t Have a Great October
The FANG companies have excellent fundamentals, and their stocks climbed as sales and earnings soared. But the hype surrounding these companies pushed their share prices to exorbitant levels.
Now that companies like Apple are projecting slower (but still healthy) growth, some investors are cashing out and waiting for a new entry point to emerge.
But you don’t have to sit and wait – some of the best tech stocks are sitting at bargain prices right now.
Money Morning Chief Investment Strategist Keith Fitz-Gerald says investors should look for solid companies that have these characteristics:
- Strong growth prospects without much exposure to trade tariffs.
- Robust cash generation.
- Share prices below peak highs.
The FANGs might not meet these criteria right now, but others do. That’s especially true if you look toward China.
China is the second-largest global economy behind the United States, but it will soon be the largest economy in the world.
And China’s tech giants are dominating their respective markets, making them lucrative buys.
We’re calling these the BAIT stocks, and they offer extreme upside for those who buy in now. Wall Street analysts are giving them one-year price targets, implying gains of up to 80%.
That’s spectacular potential, and they can all be purchased on American stock exchanges…
Why The BAIT Stocks Are the New FANGs
BAIT is our acronym for the tech companies Baidu Inc. (NASDAQ: BIDU), Alibaba Group Holding Ltd. (NYSE: BABA), iQIYI Inc. (NASDAQ: IQ), and Tencent Holdings Ltd. (OTC: TCEHY).
Baidu is China’s equivalent of Google, a search engine with a massive – nearly 70% — share of the search engine market, according to data from StatCounter. It’s the world’s second largest search engine, behind Google.
Baidu’s revenue in core operations increased 14.67% from 2014 to 2017 year over year. It was especially strong in advertising. Baidu is also a market leader in simultaneous language translation in real time. It challenges Google here too.
Alibaba’s businesses to some extent mirror those of Amazon, although Alibaba does even more.
Like its Seattle-based cousin, Alibaba’s business model consists of an extremely large e-commerce platform serving both the B2B and B2C markets, extensive artificial intelligence (AI), payments, and more. BABA has been expanding throughout southeastern Asia buying start-ups like Lazada, a Singapore-based e-commerce company whose own growth has been very rapid.
Baidu recently spun off iQIYI, whose business is video streaming. Since pointing out the analogies with U.S. companies helps U.S. investors get a bead on the BAIT stocks, iQIYI can be viewed as China’s Netflix. Its competitors are Chinese as well. They are Alibaba’s Youku and Tencent’s Video.
All the video market leaders are in cooperation to hold down the costs of content production. It indicates that Chinese political leadership is in favor of market leaders sharing the growth. That makes both these stocks valuable to own long-term.
Tencent’s business is a bit harder to describe because it has multiple divisions. In Western terms, it’s a bit like Netflix, Facebook, PayPal Holdings Inc. (NASDAQ: PYPL), and Spotify Technology SA (NYSE: SPOT) all rolled into one. It’s the biggest gaming and social media company in China.
Tencent’s revenue and profits have risen more than 201% and over 143%, respectively, over the last four years. It also garners the majority of its social media revenue from subscriptions rather than advertising, which is a more lucrative model.
Yes, China can be a more risky area to invest in than the United States. But it has been growing rapidly, and that looks set to continue, even if occasionally at a slower pace. The combination of large tech companies, big growth, and beaten-down stocks makes it an excellent time to invest in the BAIT stocks.
Source: Money Morning