Mad Hedge Technology Alerts!
When the dust settles from this sharp selloff, the bargain hunters will come out in droves. A plethora of high quality names will be available for a serious discount and the Mad Hedge Fund Trader is going to tell you exactly which tech names you should dip your toe into.
Many investors have been shut out of tech because their ascent was so rapid. Here is a chance for a second bite of the Apple.
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Apple (AAPL)
Apple, the creators of the iPhone and IoS operating system, is hitting all the right notes despite the recent correction. Apple stock is under selling pressure due to tepid guidance.
However, iPhone unit sales are not as bad as initially thought when analyzed more closely. The underlying growth drivers are still intact, and management will explain details about how they will allocate their cash hoard in the spring.
The stock valuation is mouthwatering and just dropped from 15.7X forward PE to the current 13.74X in a matter of 10 trading days. For investors who can withstand the short-term whipsawing, the recent pullback in Apple looks like a godsend long term.
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Amazon (AMZN)
The unrelenting land grab continues for this stock and the health industry is the latest potential victim.
This predator is blowing past any guidance put forth and analysts estimates are repeatedly blown out of the water. Carrying the load is their cloud play, Amazon Web Services, which finances its e-commerce division to full effect.
This is why they can afford operating at such low margins and offer prime subscribers free two-day shipping. Amazon's cloud unit is the rapidly expanding and most profitable business of the company.
For the quarter, AWS sales jumped 45% YOY, while generating $1.3 billion in operating income, a whopping 64% share of Amazon's total operating income.
The AWS revenue came in at??$5.11 billion vs. $4.97 billion, and Amazon's CFO Brian Olsavsky detailed record order volume and improved warehouse efficiency during the busy holiday shopping season for the recent winter.
In the last few days, some analysts have raised their price targets to $1800 and cannot keep pace with the parabolic price action.
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Alphabet (GOOGL)
Digital advertising is a two horse race these days, with Google (GOOGL) and Facebook (FB) controlling between 60-70% of the total digital ad market share.
The total market revenue of global digital advertising and total media advertising are shaping out to be like a hockey stick. This should spur major revenue growth on just advertising alone.
Advertisers are demanding more granularity in hyper- targeting capabilities to reach specific desired consumers. Google and Facebook have smartly positioned themselves at the front of this demand curve by being the ad publishers with some of the best-of-breed targeting abilities in the digital ad space.
Facebook is able to provide targeting based upon consumer interests and Google executing based on the data provided by user searches and this twin behemoth have an insurmountable lead among digital ad publishers.
Facebook (FB)
This stock is a great buy and shares many of the same synergies with Google. Duopolies are very positive for shareholders, meaning very little digital ad revenue are not taken in by these two tech giants.
Cornering an industry is a tough objective to meet, but decades of perfecting and beefing up their ad developer technology is showing up vividly on the earnings reports.
There simply is nowhere else to go if you want to advertise on a mobile, digital platform and expose yourself to a great number of high quality customers.
Advertisers do not have any other choice except Google, which is on this list to no surprise. Facebook approximately tracks users to 80% of habitually used websites by operating tracking tools that activate if you are still logged in to the social media platform. They can literally see and jot down your every digital move.
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Netflix (NFLX)
An Amazon-esque stock that shrugs off earnings for new subscriber growth. Who cares if they have negative cash flow if they are growing their subscribers at a insanely fast clip?
The only metric investors are interested in is total new subscriber growth, and the street had expected a not too shabby 6.39 million. Netflix easily eclipsed this total by adding 8.33 million.
Netflix has an uncannily low attrition rate due to the high premium content it offers customers creating an optimal customer experience. Netflix is really going pedal to the medal by investing over $8 billion in original content this year.
This is a stark difference from their previous business model by investing in non-original programming produced by other companies like Disney. Disney finally woke up to the erosion and swiftly purchased 21st Century Fox last year and plans to launch its own Netflix imitation shortly.
If Netflix persists to deliver fantastic content and I am confident they will then this growth story will remain intact for shareholders.
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Alibaba (BABA)
The Chinese online sales platform is a proxy for the health of the Chinese economy and particularly the Chinese consumer.
The sales segment surged 57% higher in its core commerce division. This division accounted for 88% of Alibaba's total third-quarter revenues.
Though far smaller, the cloud computing division more than doubled its sales to $553 million. Alibaba's management plans to invest large chunks of the quarter's $7.1 billion in free cash flows into accelerating this vital business even further.
The company reached 580 million monthly active users in December, a 17% year-over-year gain. Annual active subscribers for calendar year 2017 landed at an amazing 515 million, a 16% increase from 2016's levels.
The expansion of smartphone and ubiquitous high-speed internet penetration has helped drive revenues in the core commerce business across China. They also agreed buy a 33% stake in valuable??Ant Financial Services Group, formerly known as Alipay. Ant Financial is the most valuable fintech company in the world and its 3rd party payment processor is the most popular method of payment in greater China.
The relationship started back in 2014 and unremarkably most goods bought on Taobao and T-Mall, Alibaba???s digital sales platform, are paid with Ant Financials payment technology.
In the cloud segment Alibaba leads all Chinese companies and is comparable to the Amazon???s AWS in America. Trailing distantly, but growing rapidly, was Alibaba, whose cloud??earned $553 million??in revenue in the last quarter, representing a 104% YOY jump, yet they still lag behind Amazon, Microsoft, IBM, and Google in the cloud wars.
The stock was in dire need of a healthy pull back and the selloff was exactly what the doctor ordered after Alibaba made a parabolic move in January from $172 to $205.
This is no doubt at least a $200 stock and investors will be vindicated for buying the dip.
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Salesforce (CRM)
Salesforce provides enterprise software, delivered through the cloud and is present in many Fortune 500 companies.??
This Customer Relationship Management (CRM) platform is the modern way to amalgamate staff???s resources and give them tools to work together, even if different branch offices dot both hemispheres.
The Company focuses on cloud, mobile, tablet, Internet of Things (IoT) and artificial intelligence technologies.
The Company???s service offerings are configured and integrated with other platforms and enterprise applications and really is the best of show in this space.
Marc Benioff leads this brigade and audaciously set a mammoth target of $20 billion in revenue by FY2022. I am the last person that would bet against this.
Micron (MU)
The DRAM and NAND chip company from which companies beg to get sufficient amount of chips to power their smartphones, homepods, AI related products, IoT devices, and autonomous cars.
These products are simply pieces of junks without these (MU)???s chips. From 2017, numerous semiconductor chips CEO???s have chimed in with declaring the pricing environment as ???firm???.No surprise that Apple is charging $1000 for smartphones now, as pricey chip inputs erode more of their margins which are passed on to the consumer.
DRAM and NAND chip demand see no signs of slowing, as the exponential growth in data require more of these chips per device to be adequately functional. DRAM and NAND chip players should be the heart of any tech portfolio investors assemble.
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Nvidia (NVDA)
The GPU (Graphics Processing Unit) is the core driver for Nvidia. The fundamental levers for this company are Artificial Intelligence (AI), self-driving cars, cryptocurrency, and eSports. All of these drivers hugely depend upon Graphic Processing Units (GPUs) and Nvidia is one of the main manufacturers of GPUs.
Every segment of their business is ascending, and their CEO, Jensen Huang, is a genius. When all these brand spanking new technologies hit the mass market, exponential growth in demand for GPU???s will be a certainty. The problem until today is finding any sort of entry point into this stock. Now you finally have one!
Microsoft (MSFT)
This is not your father???s Microsoft.
The revamped version of this company has a fresh business model based on the cloud. A few years ago (MSFT) was headed for the graveyard with its stale legacy business of Bill Gates???s era percolating around their Seattle offices.
However, what a comeback with Microsoft Azure; Microsoft???s enterprise cloud software offering a mix of solutions for companies and is the number two cloud platform behind Amazon.
Microsoft Azure is also growing faster that Amazon with 98% growth YOY, this is double Amazon???s AWS growth. They are truly a force to be reckoned with and are a legitimate option for companies looking for a hybrid medley of enterprise cloud software.
The product performance has fostered rave reviews around the business community. The demand for cloud solutions will explode in the coming years with every mom and pop shop and up looking to move their operations onto these platforms.
The recently upward price action is a direct result of the cloud segment catching up with Amazon and providing a legitimate alternative.
Yes, I???m Going in for a ???BUY???
Mad Hedge Technology Letter
February 6, 2018
Fiat Lux
Featured Trade:
(A PRIMER FOR THE CLOUD),
(CRM), (ORCL), (MSFT), (GOOGL), (AMZN)
One fact came out loud and clear last week among the deluge of big technology companies last week.
You want to hitch your wagon to cloud based investments in any way, shape or form you can.
That was the writing on the wall after Amazon Web Services (AMZN) announced a blistering 45% growth in sales off of an already enormous base. Microsoft followed up with an eye-popping 98% jump is cloud services. Cloud is even starting to account for a noticeable share of Apple's (AAPL) earnings.
The future is about the cloud.
These days, the average investor probably hears about the cloud a dozen times a day. If you work in Silicon Valley you can triple that figure.
So before we get deep into the weeds with this letter on cloud services, cloud fundamentals, cloud plays, and cloud Trade Alerts, let's get into the basics of what the cloud actually is. Think of this as a cloud primer.
It's import to understand the cloud, both its strengths and limitations. Giant companies that have figured it out, like Salesforce (CRM) and Oracle (ORCL), are some of the most profitable companies in the world.
Understand the cloud and you will readily identify its bottlenecks and bulges that can lead to extreme investment opportunities. And that's where I come in.
Cloud storage refers to the online space where you can store data. It resides across multiple remote servers housed inside massive data centers all over the country, some as large as football fields, often in rural areas where land, labor, and electricity are cheap.
They are built using virtualization technology, which means that storage space spans across many different servers and multiple locations. If this sounds crazy remember that the original Department of Defense packet switching design was intended to make the system atomic bomb proof.
As a user you can access any single server at any one time anywhere in the world. These servers are owned, maintained and operated by giant third-party companies like Amazon, Microsoft, and Alphabet (GOOGL), which may or may not charge a fee for using them.
The most important features of cloud storage are:
1) It is a service provided by an external provider
2) All data is stored outside your computer and in-house network
3) A simple Internet connection will allow you to access your data at any time.
4) Because of all these features, sharing data with others is vastly easier, and you can even work with multiple people online at the same time, making it the perfect vehicle for our globalized world.
Once you start using the cloud to store a company's data, the benefits are many.
1. No Maintenance
Many companies, regardless of their size, prefer to store data inside in-house servers and data centers.
However, these require constant 24 hour a day maintenance, so the company has to employ a large in-house IT staff to manage them, a costly proposition.
Thanks to cloud storage, businesses can save tons of money on maintenance since their servers are now the headache of third-party providers.
Instead, they can focus resources on the core aspects of their business where they can add the most value, without worrying about managing IT staff of prima donnas.
2. Greater Flexibility
Today's employees want to have a better work-life balance and this goal can be best achieved through letting them telecommute. Increasingly, workers are bending their jobs to fit their lifestyles, and that is certainly the case here at Mad Hedge Fund Trader.
How else can I send off a Trade Alert while hanging from the face of a Swiss Alp?
Cloud storage services, like Google Drive, offer exactly this kind of flexibility for employees. According to a recent survey, 79% of respondents already work outside of their office some of the time, while another 60% would switch jobs if offered this flexibility.
With data stored online, it's easy for employees to log into a cloud portal, work on the data they need to, and then log off when they're done. This way a single project can be worked on by a global team, the work handed off from time zone to time zone until it's done.
It also makes them work more efficiently, saving penny pinching entrepreneurs money.
3. Better Collaboration and Communication
In today's business environment, it's common practice for employees to collaborate and communicate with co-workers located around the world.
For example, they may have to work on the same client proposal together or provide feedback on training documents. Cloud-based tools like Hightail, Dropbox, and Google Drive make collaboration and document management a piece of cake.
These products, which all offer free entry level versions, allow users to access the latest versions of any document, so they can stay on top of real time changes, which can help businesses to better manage their work flow, regardless of geographical location.
4. Data Protection
Another important reason to move to the cloud is for better protection of your data, especially in the event of a natural disaster. Hurricane Sandy wrought havoc on local data centers in New York City, forcing many websites to shut down their operations for days.
The cloud simply routs traffic around problem areas as if, yes, they have just been destroyed by a nuclear attack.
It's best to move data to the cloud, to avoid such disruptions because there your data will be stored in multiple locations.
This redundancy makes it so that, even if one area is affected, your operations don't have to suffer and data remains accessible no matter what happens. It's a system called de-duplication.
5. Lower Overhead
The cloud can save businesses a lot of money.
By outsourcing data storage to cloud providers, businesses save on capital and maintenance costs, money which in turn can be used to expand the business. Setting up an in-house data center requires tens of thousands of dollars in investment, and that's not to mention the maintenance costs it carries.
Plus, considering the security, reduced lag, up time and controlled environments that providers like Amazon's AWS have, creating an in-house data center seems about as contemporary as a buggy whip, a corset, or a Model T.
