I know it’s scary out there.
The markets have been shellacked, and the days where 200 Dow-points represented a “big” move are long gone. Adding insult to injury, there are still terrifying headlines ahead as the coronavirus rages.
Yet, at the same time, this combination is exactly why savvy investors are lining up big profit potential now, when nearly everyone is looking the other way.
Even if there’s more selling ahead.
Here’s what you need to know.
Hunting down big profits may be a bit more challenging at the moment thanks to the coronavirus.
Not impossible, though.
The key comes down to three things we talk about frequently:
- Unstoppable Trends
- “Must have” products and services
- Prudent risk management
We’ve talked about each of those things a lot in recent weeks, so I won’t repeat that analysis here today but, instead, encourage you to take a quick spin through the Total Wealth archives if you’re just joining us or could use a refresher.
What you want to focus on right now is deceptively simple when it comes to finding quality companies with huge upside potential even if there’s more selling ahead.
Investing now is about repositioning your portfolio and, to my way of thinking, finding companies perfectly positioned when the crisis ends. And it will… end, that is.
Start by reformatting your thinking.
…Which industry segments are critical to recovery efforts?
…Which companies standout in each segment and do they have a clear path to profits?
…Will the coronavirus increase demand for their products?
Remember, you’re looking to rise above the short-term volatility that’s getting the better of most folks right now. It’s the longer-term perspective that matters.
I am particularly focused on technology-related stocks at the moment simply because they’re the singularly most focused and best positioned group of companies I can find.
And on DRAM technology, specifically.
DRAM stands for “dynamic random-access memory,” and it’s a key component in everything from modern computers, to smartphones, video games, portable devices, medical equipment and more.
Any place where high-capacity, low cost memory is required.
My favorite choice is Micron Technology Inc. (NasdaqGS:MU).
There are really only three players in town, so this was a pretty simple choice made even easier but the fact that a lot of investors are scare to wade into semiconductors at the moment.
DRAM memory is absolutely critical to the coronavirus recovery if, for no other reason, that 92% of the world’s GDP is under some sort of travel restriction according to Bloomberg data.
Laptops and computers are flying off the shelves as increasingly large numbers of people work from home – albeit via remote pickers and mail rather than inside traditional retailers – but, still. So are video games, smartphones, monitors, and more. Many medical instruments also use DRAM chips as do smart-cars and intelligent machinery.
Micron has an exceptionally strong balance sheet coming into the coronavirus crisis, with more than $8 billion of cash on hand with additional credit capacity of $2.5 billion on tap if needed.
Management upgraded EPS guidance to $0.55 from $0.45 last quarter, even in the face of growing coronavirus concerns. That’s a real vote of confidence in my book because executives are notoriously risk averse at the moment.
What’s more, DRAM prices are going up as demand for coronavirus-driven tech spending rises. Estimates vary, but projections range from 15% on the low side to more than 25% on the high side.
Either way, that’s also a good sign because it means gross revenue can increase commensurately with profit margins at the same time. This is about as a clear a path to profits as I’ve seen in a long time.
Then there’s 5G.
It’s kind of a big deal – and I’m saying that with a big grin – because it really is a HUGE deal.
5G will dramatically increase data transmission capacity to the point where transformational data services enable lower latency, faster speed, and true remote control over everything from medical equipment using in surgery from thousands of miles away to vehicles and infrastructure. What’s more, 5G is dramatically more power efficient, lower cost, and forward compatible as upgrades happen.
Micro is tapped into that with something called 3D Xpoint, and it’s the only company with a “portfolio” of memory needed to bridge the gap between current 4G technology and what’s to come.
Shares are trading at $43 and change as I type, which means you can pick up a round lot of 100 for just $4,300 bucks or so, not counting commissions which vary broker to broker.
Expect shares to be volatile as the coronavirus situation evolves, and treat any shares you pick up as a speculative investment using appropriate risk management, and especially Position Sizing, to protect your profits and capital. You may need to nibble in a little now then again later if prices drop from here.
I can easily envision a double in concert with broader markets when the major averages truly do bottom and confidence returns.
More aggressive investors may wish to consider LEAPs calls like the MU January 15, 2021 $42 Call (MU210115C00042000) which could offer even more upside for the same amount of capital.
Until next time,
— Keith Fitz-Gerald
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Source: Total Wealth