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When It Rains - It Pours

Tech Letter

Don’t get gaslighted by believing that growth companies now are at a discount and primed to shoot higher.

This couldn’t be further from the truth.

Honestly, this is just the beginning of a hard slog to prove to investors they are worth their time of day.

Once investors get a sniff of top-line growth capitulating, investors cash out in droves and try to not be the last one holding the bag.

In many cases, the latest rout in tech stocks has been far more crippling to investor portfolios than what we saw during the stock market collapse of February and March 2020, just after Covid was hyped around the world.

Fintech has been a sub-sector of tech that has been blinded by the light.

The collapse in PayPal shares has been swift and bloody.

From its March 2020 low, shares more than tripled over the next 15 months as usage and revenues soared. And then, just as quickly, the shares collapsed as fintech competition became crowded.

The digital payments specialist has now lost two-thirds of its value since its mid-summer 2021 all-time high. The extraordinary loss has been stark, but it epitomizes the current environment for growth tech.

If investors learned anything from the dot-com sell-off a generation ago, everybody rushes for the exit at the same time to rotate into more attractive companies.

Simply, "can’t miss innovation" are bid up like no other on the way up in a bull market with low rates. Conversely, they overshoot to the downside in a bear market with rising rates.

Growth tech is going to have to shake off this stereotype if they want to perform in this new normal environment.

That’s not to say these are worth nothing, but there is always a time to shine and a time to rain.

Unfortunately for remote medical services company Teladoc (TDOC), it is time for the latter, which is why I strapped on a bear put spread with a 16-day horizon that TDOC will not rise above $79.

If anything, the case for best of breed is getting stronger, such as the likes of Microsoft (MSFT), Apple (AAPL), Alphabet (GOOGL).

On the trading front, we took profits on a bear put spread last month on TDOC with a February expiration after the omicron virus peaked in the short-term, meaning that no incremental investor would be interested in buying TDOC in the short term.

TDOC is part of a bigger tech growth portfolio helmed by Cathie Wood's ARKK Invest, and that portfolio has gotten slaughtered this year as Woods has no concept of market timing and indiscriminately buys tech at any price based on a zillion year time horizon.

She also said that she is seeing deflation two weeks ago in this market which is an outright breach of fiduciary duty to investors. Since her interview, Russia has invaded Ukraine and oil has spiked to $110 per barrel of crude.

Any novice investors should just wait for Wood to speak and then do the opposite, and there is in fact an ETF built for that very purpose.

TDOC is ARKK fund’s biggest holding, and they just underwent a relief rally as the market is betting that Jerome Powell will become more dovish. The latest rally is most likely a dead cat bounce.

This is a GOLDEN OPPORTUNITY to sell the hell out of TDOC, and ARKK funds for a no-brainer short-term trade of 16 days as the fresh inflation forecasts should start to trickle in and suppress growth tech again.

This is just the beginning of elevated inflation brought on by another foreign war, and the pockets of Americans are about to be hit by a wave of higher food and energy prices.

That spells trouble for underperforming growth tech and TDOC is the poster child for that.

Don’t buy this stock – if anything, sell the rallies like we are doing here. Growth tech is dead for the foreseeable future.

 

growth tech

 

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