Mad Hedge Technology Letter
December 24, 2018
Fiat Lux
Featured Trade:
(THE CLOUD FOR DUMMIES)
(AMZN), (MSFT), (GOOGL), (AAPL), (CRM), (ZS)
Tag Archive for: (MSFT)
If you've been living under a rock the past few years, the cloud phenomenon hasn't passed you by and you still have time to cash in.
You want to hitch your wagon to cloud-based investments in any way, shape or form.
Microsoft's (MSFT) pivot to its Azure enterprise business has sent its stock skyward, and it is poised to rake in more than $100 billion in cloud revenue over the next 10 years.
Microsoft's share of the cloud market rose from 10% to 13% and is catching up to Amazon Web Services (AWS).
Amazon leads the cloud industry it created and the 49% growth in cloud sales from 42% in Q3 2017 is a welcome sign that Amazon is not tripping up.
It still maintains more than 30% of the cloud market. Microsoft would need to gain a lot of ground to even come close to this jewel of a business.
Amazon (AMZN) relies on AWS to underpin the rest of its businesses and that is why AWS contributes 73% to Amazon's total operating income.
Total revenue for just the AWS division is an annual $5.5 billion business and would operate as a healthy stand-alone tech company if need be.
Cloud revenue is even starting to account for a noticeable share of Apple's (AAPL) earnings, which has previously bet the ranch on hardware products.
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 important to understand the cloud, both its strengths and limitations. Giant companies that have it figured out, such as Salesforce (CRM) and Zscaler (ZS), are some of the fastest growing 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 such as 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 residing inside an in-house network.
3) A simple Internet connection will allow you to access your data at any time from anywhere.
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, collaborative vehicle for our globalized world.
Once you start using the cloud to store a company's data, the benefits are many.
- 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 costs 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.
- Greater Flexibility
Today's employees want to have a better work/life balance and this goal can be best achieved by 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, such as 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 money for penny-pinching entrepreneurs.
- 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 from DocuSign, 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 workflow, regardless of geographical location.
- 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 wreaked havoc on local data centers in New York City, forcing many websites to shut down their operations for days.
The cloud simply routes 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 capitulate, and data remains accessible no matter what happens. It's a system called deduplication.
- 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 that 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 such as Amazon's AWS have, creating an in-house data center seems about as contemporary as a buggy whip, a corset, or a Model T.
Mad Hedge Technology Letter
December 18, 2018
Fiat Lux
Featured Trade:
(THE BIG TECHNOLOGY TRENDS OF 2019)
(MSFT), (AMZN), (BBY), (SONO), (ROKU), (ADBE), (AAPL), (BAC)
As an astute purveyor of technology, it is my job to share with you the upcoming tech trends of 2019.
Some might be easily discernable and some might be a headscratcher, but all must be tabbed up and considered in the current tech outlook that is unpredictable and fluctuating, to say the least.
Part of the moody tech sentiment has been influenced by a changeable macro landscape - the tech sector’s winter freeze was woefully volatile and unfairly capsized good companies with the bad.
There is no means to get around it – the administration's delicate situation as it relates to Beijing and the American tech sector is front and center, and any movement of tech stocks must carefully absorb the ongoings from this complicated relationship.
The number of obstacles that confront this sensitive situation means that the 90-day window granted to solve the trade quagmires appear too brief of a timeframe to really knock out every single disagreement on the table.
The uncertainty over trade policy has really ruffled some of tech’s strongest feathers such as America’s pride and joy Apple (AAPL).
Apple is a great long-term story, but it does not preside over many short-term positive catalysts that can resuscitate the stock.
Analysts' downgrade after downgrade has been most harrowing for the chip components that make up Apple and other consumer electronic devices such as televisions and tablets.
This scenario is expected to extend into 2019 with Bank of America Merrill Lynch (BAC) slashing their price target by nearly 30% on electronics retailer Best Buy (BBY) then sticking the fork in them by downgrading it to underperform.
The premise behind this downgrade was that Best Buy carved out 25% of revenue from television sales and even though Adobe (ADBE) analytics has calculated record online sales in the holiday season, the follow-through has largely been without television sales participating in the seasonal bonanza.
Piggybacking on this trope, I believe electronic device sales could be hard-pressed to eke out growth next year and are set up for a rude awakening.
Therefore, it is sensible to extrapolate this idea out and assume that smart hardware competing against the big boys such as smart speaker firm Sonos (SONO), who I urged readers to stay away at $16 in September, is set up for a painstaking 2019.
To reread the story, please click here.
The stock is now trading at $11 and a mix of weakening consumer device demand layered with the domination that is the Amazon Alexa has pushed up this company’s risk-reward levels to untold heights.
Rounding out the negatives is that content streaming platform Roku has also debuted its own version of a smart speaker.
Roku (ROKU) is one of my favorite long-time tech plays but has been dragged down by the broader trade war because a portion of its revenue is still captured by hardware such as the new speakers and Roku OTT boxes.
Differing from Apple, Roku earns most of their revenue from targeted ads on their proprietary platform, and this is its reason why most investors are in this stock that is set to capture a secular migratory wave of cord-cutters traversing to online streaming.
However, Roku TVs made by Chinese company TCL still draw in small portion of revenue and even though the China revenue is not as high on a relative basis as Apple’s 20%, the stock has floundered in the short-term.
If disruptors such as Roku can get hit savagely with a small portion of revenues from China, then I am convinced that any tech investor going into 2019 should stay away from hardware and hardware that is made in China.
The consensus is that the drawn-out trade war could become the X-factor in the 2020 election because the Chinese are willing to wait for the next guy on the carousel searching for a better deal.
If you thought Chinese supply chains had a tough time of it in 2018, then 2019 is poised to be even more treacherous.
What 2018 convincingly demonstrated was that the late economic price action is getting into later and later stages boding negative for tech stocks.
To construct a healthy tech portfolio going into 2019, the change in the tech partiality has made the pivot towards software much more important.
Investors need to mitigate Chinese supply chain risk and seek out domestic software plays.
That should be the playbook as tech investors are on pins and needles going into the new year.
The domestic economy is robust and tech investors should be attracted to top-quality cloud-based enterprise stocks that are profitable.
The FANG story collapsing in our face signaled to investors that it is time to cautiously consider whether to invest heavily into deep loss-maker tech growth stories.
A healthy rotation to premium quality tech with superior cash flow is one way to lock up stocks and slyly deflect the external factors shaking up the tech momentum.
PayPal (PYPL) is a stock that has large international exposure mainly in Europe, but none in China whose 3-year EPS growth rate is 26% and still driving sequential sales in the mid-20% range.
This is just one example of a stock that has the correct make-up in a harsh and brutal tech environment planted with invisible booby traps.
And the most tell-tale sign that the American economy is in for an all-out software frenzy is the number of head-spinning investments from big tech companies looking to expand their footprint into new talent spots around the country.
First, the farcical Amazon beauty pageant came to an end with the e-commerce giant announcing a three-part package deploying new operations in New York, Washington D.C., and Nashville as the next phase of digital growth ramps up.
Google (GOOGL) followed that up by plopping a software office in New York City devouring a huge chunk of the Chelsea neighborhood aimed at doubling the 7,000 employees already there.
Then it was Apple’s turn choreographing a significant investment in Austin, Texas that will cost them $1 billion along with juicing up operations in Seattle, San Diego, and Los Angeles.
They weren’t finished there and promised to double down its presence in Pittsburgh, New York and Boulder, Colorado over the next three years.
It’s clear that big tech has finally understood that it’s not invincible and milking the China supply chain for all its worth is now a taboo business practice that has bipartisan support firmly against it.
Like I said before, the trade war came 1-2 years too early for Apple, and these headline-grabbing talent investments in data centers and its staff underscore the sense of urgency to fully and comprehensively pivot towards a software and services company.
The transition has certainly been an excruciating process exposing the weak spots at a brilliant company at the worst possible time.
I blame CEO of Apple Tim Cook who is the operations expert in the building grappling with Apple overextending themselves in the Middle Kingdom that has come back to haunt him at night.
You would have thought that with the troves of big data on their hands, Apple’s consultants might have found a country allied with America to invest in such a massive supply chain.
This leads me to communicate with conviction that Microsoft (MSFT) is my favorite tech stock going into 2019 because it is the purest, scalable, high-quality software name with minimal hardware drag devoid of weak spots in its armor.
That was what the investment in GitHub for $7.5 billion was about, highlighting the value of owning the meeting place for coders, literally buying up a stash of over 28 million users and 57 million coding repositories in which 28 million are public.
Microsoft has also bought up six video game studios in 2018 attempting to capture a bigger piece of the pie for the video game market that has been throttled by Fortnite.
If the Microsoft baby gets thrown out with the bathwater, then the tech bear market is upon us in full force.
If you didn’t really believe content is king in 2018, then you will really feel the phenomenon further embedded into the economy and society in 2019.
Next year, almost all tech investments will result in more data centers and software engineers in the hope of pumping out the best content and data, whether it’s enterprise software, video games, or pure data storage.
In 2019, I am bullish on companies with a cloud-based bedrock able to grind out the best content in the world, backed by a strong balance sheet that dovetails nicely with a lack of China-based revenue exposure.
The uber-growth models could be taking a rest boding negatively for Uber, Lyft, and Airbnb who must convince a more skeptical tech audience with tighter purse strings as they inject yet another unique dimension into the tech world next year.
Global Market Comments
December 14, 2018
Fiat Lux
Featured Trade:
(DECEMBER 12 BIWEEKLY STRATEGY WEBINAR Q&A),
(SPX), (MU), (PYPL), (SPOT), (FXE), (FXY), (XLF), (MSFT), (AMZN), (TSLA), (XOM),
(SIGN UP NOW FOR TEXT MESSAGING OF TRADE ALERTS)
Below please find subscribers’ Q&A for the Mad Hedge Fund Trader December 12 Global Strategy Webinar with my guest and co-host Bill Davis of the Mad Day Trader
Q: Is the bottom in on the S&P 500 (SPX) or are we going to go on another retest?
A: It’s stuck right in the 2600-2800 range, and I think that’s probably where we bounce off of 2600 again. The question is whether or not we can clear the top of the range at 2800. If we can’t, I would fully expect a retest of this bottom in which case I could see it going down to 2500.
Q: You say you’ll go 100% cash by Dec 21st but also stated that the S&P 500 will go up 5% by the year's end. Should we stay in until we get the up 5% move?
A: Yes, all of our options positions expire by the 21st but if you’re just long in stocks, I would stay long, probably through the end of the year.
Q: Will the Chinese-U.S. dispute ruin the Tech industry?
A: No, I think the Trump Administration will have to do some kind of deal and call it a victory, otherwise the trade war will pull the U.S. into recession. If we go into the next presidential election with another recession—well, no one has ever survived that. Even with the China-U.S. dispute, the U.S. is still dominant in the Tech industry and will continue to do so for decades to come.
Q: China has managed to duplicate Micron Technology’s (MU) biggest selling chip, undercutting prices—thoughts?
A: True, Micron is the lowest value added of the major chip producers, therefore their stock has gotten hit the worst of any of the chip stocks down by about 46%, but I know Micron very well and they have a whole range of chips they’re currently upgrading, moving themselves up the value change to compete with this. So, that makes it a great company to own for the long term.
Q: I’m up 90% on my PayPal (PYPL) position—should I take a profit?
A: Yes! Absolutely! How many 90% profits have you had lately? You are hereby excused from this webinar to go execute this trade. And well-done Dr. Denis! And thank you for the offer of a free colonoscopy.
Q: What can you say about Spotify (SPOT)?
A: No, thank you—there’s lots of competition in the music streaming business. We are avoiding the entire space. The added value is not great, and many of these companies will have a short life. And with China’s Tencent growing like crazy, life for Spotify is about to become dull, mean, and brutish.
Q: What’s your view on currencies?
A: So you’re looking to make another fortune? Yes, I think the Euro (FXE) and the Yen (FXY) really are looking hard to rally, and the trigger could be dovish language in the next Fed meeting. Once the Fed slows its rate of interest rates rises, the currencies should take off like a scalded chimp.
Q: Will the banks (XLF) rally in the next 6 months for a better sell?
A: Many people are waiting for a rally in the banks so they can unload them and haven’t gotten it—they’re back to pre-election price levels. The issue here is structural, and you don’t get recoveries from major structural changes in an industry. It’s significant that this is the first bull market that had no net new employment in the banks whatsoever; the business is fading away. They are the new buggy whip makers. These gigantic national branch networks will all be gone in ten years because the banks can’t afford them.
Q: Would you enter the Microsoft (MSFT) trade today?
A: I actually think I would; Microsoft only pulled back 10% when everything else was dropping 30%, 40%, or 50%. That shows you how many people are trying to get into this name so if you could take a little short-term pain (like 5%), the stock outright is probably a screaming buy here. I think it’ll go to $200 one day, so here at $110-$111 it looks like a pretty good deal. The story here is that Microsoft is rapidly taking market share from Amazon (AMZN) in the cloud business and that’s going to continue.
Q: When will you be updating your long-term model portfolio?
A: I usually do it at the end of the year, and rarely make any big changes. I’ll still be selling short bonds and still like Tesla (TSLA) and Exxon (XOM).
Q: I just joined your service. What is the best way to get started?
A: I’ll give you the same advice that I gave every starting trader at Morgan Stanley (MS). Start trading on paper only. When you are making money reliably on paper, move up to using real money, but only with one contract per position. When that is successful, slowly increase your size to 2, 3, 5, 10, and 20 contracts. Pretty soon, you will be swinging around 1,000 contracts a lot like I do. The further you move down the learning curve the greater you can increase your size and your risk. If you never get past the paper stage at least it’s not costing you any money.
I hope this helps.
Good luck and good trading.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Global Market Comments
December 13, 2018
Fiat Lux
Featured Trade:
(WHAT’S THE MATTER WITH APPLE?),
(AAPL), (MSFT), (KO), (AMZN), (CLX), (NFLX),
(WHY YOUR OTHER INVESTMENT NEWSLETTER IS SO DANGEROUS)
It was 38 years ago today that Apple (AAPL) went public and has generated a 43,000% return since its $22 IPO price. If you bought one share of Apple way back then for $22 it would be worth a breathtaking $95,000 today.
I waited until the next crash and then bought it at $4, and it sits in one of my “no touch” ultra-long-term retirement portfolios today.
Suddenly, the torture I endured taking Steve Jobs around to visit the New York institutional investors during the early 1980s was worth it.
The great rule of thumb I have learned after 50 years of investment is that if you hold a stock long enough, the dividend will exceed your original capital cost, giving you a 100% a year annual cash flow.
Three months ago, Apple was the Teflon stock of the entire market, the company that could do no wrong, the only “safe” stock that traded. Any selling met a wave of buying from Oracle of Omaha Warren Buffet and Apple itself, limiting corrections to a feeble 4%.
What a difference three months make!
Now the shares have become a market pariah, targeted by algorithms and hedge funds alike, and beaten like the proverbial red-headed stepchild. As a result, the shares have plunged an eye-popping 29.61%, vaporizing $311 billion in market capitalization.
Which begs one to ask the question, “What’s the matter with Apple?” How can things go from so right to so wrong?
Just like success has many fathers, failure is an orphan.
The harsh truth is that Apple became too much of a good thing to too many people. Expectations had become excessive and it had become too widely owned by traders with weak hands. In other words, people like me.
I had been cautious of Apple for a while because if its massive China exposure. You don’t want to own a company that relies entirely on Middle Kingdom production during a running trade war. Apple sold an incredible 216 million iPhones in 2017, and all of them are made at the Foxconn factories in southern China.
Apple has become the whipping boy for both sides in the trade conflict. The company has always run the risk of its Foxconn workers arriving at work late someday, or not showing up at all at the prodding of Beijing. Recently, Trump said iPhones imported from China could be subject to the current 10%, soon to be 25% tariff.
The final nail in the coffin came on Monday morning when we learned of a lower Chinese court’s ruling against Apple in a lawsuit from QUALCOMM (QCOM). Never mind that the suit was years old and applied only to the company’s older phones. With the shares in free fall, that is just what investors DIDN’T want to hear.
However, Apple is not dead, it is just resting. Or, call it ripening.
Not only could Apple recover strongly from these abysmal levels, IT COULD DOUBLE IN VALUE.
The core of my argument (no pun intended) is that Apple is in the process of fundamentally evolving its business model. It is rapidly morphing from a one-time sale only hardware company to a recurring subscription services company. And that is where the big money is in the future.
Microsoft (MSFT) is already doing it, so are Amazon (AMZN) and Netflix (NFLX). In fact, everyone is doing it, even the Diary of a Mad Hedge Fund Trader.
In fact, Apple's services revenue could balloon to $100 billion in five years, compared to its estimated total sales this year of $265 billion.
This accomplishes several important things. It moves the company out of a 30% gross margin business to a 70% gross margin. It converts Apple from a highly cyclical to stable earnings growth. Stable earnings growth companies are awarded much higher share price multiples.
Look no further than my next-door neighbor, Clorox (CLX), which trades at a much loftier 23X multiple and Coca-Cola (KO) which can be found at generous 19X multiple. Earnings visibility is worth its weight in gold. This could make Apple’s current 14X multiple a thing of the past.
Of course, we are not going to see a straight line move from one dominant business to another, and the road along the road could be bumpy. We could easily see one more meltdown which takes us to the subterranean $160 handle.
But $10 of downside risk versus $170 of upside? I’ll take that all day long. I bet you will too!
Time for a Nibble?
Mad Hedge Technology Letter
December 13, 2018
Fiat Lux
Featured Trade:
(HOW PAYPAL IS DESTROYING LEGACY BANKING)
(MSFT), (TWLO), (ADBE), (PYPL), (CRM), (SQ), (ROKU), (AMZN)
Gazing into the future, investors know it’s time to deploy strategies to make money in 2019.
This year has been a bizarre one for technology stocks.
The industry was overwhelmed by a relentless geopolitical circus that had more sway on tech stock’s price action than in any year that I can remember.
Technology stocks have never been more intertwined with politics.
The so-called FANGs have really been taken out behind the woodshed and beaten, and their get-out-of-jail card is no longer free to access with politicians eyeing them as take down targets.
They are no longer invincible even if they still earn bucket loads of money.
A good amount of the public animosity towards the big tech companies has been directed to socially awkward CEO of Facebook Mark Zuckerberg and his negligence towards the concept of personal data.
Facebook was once the best company in technology to work, I can tell you now that prospective applicants are scrutinizing Facebook’s actions with a gimlet eye and turning to other opportunities.
Current Facebook employees are putting in feelers out to former colleagues planning optimal exit strategies.
Remember that it’s not my job to always tell you which tech stocks are going up, but also to tell you which tech stocks are going down.
One stock poised to outperform in 2019 is international FinTech company PayPal (PYPL).
The stock has proven to be Teflon-like deflecting the pronounced volatility that has soured the tech sector in the second half of the year.
The pendulum of regulation-flipping will concoct new winners for 2019 and I believe PayPal is one of them.
PayPal is in a dominant market position with a core customer base of 254 million users and growing.
The company is so dominant that it processes almost 30% of all global payments excluding China where foreign companies are barred from operating in the FinTech space.
The quality of the product is demonstrated by a recent note from research firm Nielsen offering data showing that on average, PayPal customers complete transactions 88.7% of the time.
This astoundingly high number for PayPal checkout conversion is about 60% better than “other digital wallets” and 82% better than “all payment types."
PayPal’s home country, United States, is still vastly unmonetized in terms of the breadth of penetration of online and e-commerce payments.
America has failed so far to adopt the amount of FinTech that Chinese consumers have rapidly embraced.
The great news is that late-stage adoption of FinTech services will offer PayPal a path to profits that bodes well for the earnings and its share price in 2019 and beyond.
Investors can expect total payment volumes (TPV) consistently nudging up in the mid-20% range.
The firm helmed by Dan Schulman is just scratching the surface on pricing power.
PayPal has changed its approach of ‘one‐size‐fits‐all’ in merchant contracts to a dynamic pricing model reflecting the value‐add of recently acquired products that are more powerful.
Jetlore, launched in 2014, is a provider of predictive artificial intelligence for retail companies able to comb through the data to help boost sales.
Hyperwallet distributes payments to those that sell online, and its purchase was centered around protecting the company's core business, enabling marketplaces to pay into PayPal accounts.
iZettle, an international mobile point-of-sale (POS) provider, is better known as the Square of Europe and has a large footprint. The relationship in PayPal has sounded alarm bells in Britain for being too dominant.
Simility, an AI-based fraud prevention specialist, round out a comprehensive list of new tools and services to PayPal’s all-star caliber lineup that can offer upgrades to businesses through a hybrid solution.
This positivity surrounding the sum of the parts will allow the company to build custom solutions for merchants of all sizes.
Augmenting a solid, stable business is a start-up inside of PayPal’s umbrella of assets with enormous growth potential called Venmo making up one of PayPal’s large future bets.
Venmo is a peer-to-peer payment app acquired by PayPal in 2013.
It is a favorite and mainstay of Millennial users who have gravitated towards this FinTech platform.
PayPal is intently focused on monetizing Venmo and the strategy is paying dividends with last quarter seeing 24% of Venmo traffic monetized which is up sequentially from 17% the quarter before.
Part of the increase in profits can be attributed to integrating Uber Eats into the platform, tacking on a charge for instant money transfers linked to bank accounts, and a Venmo debit card rolled out to the masses.
This innovation was not organic and in fact borrowed from FinTech Square, a great company led by Jack Dorsey, but the stock is incredibly volatile scaring off a certain class of investors.
Former CFO of Square Sarah Friar left her post at Square to boldly take on a CEO job at Nextdoor, a social network app, illustrating that an executive management job at Square is a golden credential able to springboard workers to a CEO job in Silicon Valley.
Shares of Square have doubled in 2018 and 2017, and the recent weakness in shares is more of a case that Square went too far over its skis than anything materially wrong with the company as well as a harsh macro climate that stung most of tech.
The price action can sometimes be breathtaking with 7% moves up and down all in a few days.
If you are searching for a slow grinder on the way up, then Microsoft (MSFT) would be a better tech play to plop your money into.
In my eyes, Microsoft is the most durable, all-terrain tech stock that will weather any type of gale-force squall in 2019.
For me, CEO of Microsoft Satya Nadella is the best CEO out there in the tech industry minus Jeff Bezos at Amazon (AMZN).
The Azure Cloud business is ferociously nipping at Amazon’s heels and Nadella has created a subscription-based monster out of legacy components left behind by failure Steve Ballmer who almost sunk Microsoft.
The stock has risen three-fold since Nadella took the reins, and I believe that Microsoft will soon surpass the trillion-dollar market capitalization level and end 2019 as the most valuable tech company.
Microsoft is indestructible because it’s a hybrid mashup of a growth company whose legacy products are also still delivering fused with a top-notch gaming division and a chance at catching the Amazon cloud.
The only company that can compare in terms of potency is Amazon.
Microsoft is not a one-trick pony like Apple, Facebook, Netflix and the way I see it, there are only two top companies in the tech landscape that will leave the last three companies I mentioned in the rear-view mirror.
Echoing Microsoft, PayPal has adopted a similar magical formula with its legacy core growing at 20% yet has growth levers with Venmo layered with targeted add-on companies that will enhance the firm’s offerings.
Moving forward, tech companies that have one or more growth drivers funded by a successful legacy base will become the ultimate tech stocks.
Playing on the same trope, Adobe (ADBE) is another company that has a software-based iron-clad legacy twinge to it and has the potential to spread its wings in 2019.
PayPal, Microsoft, and Adobe do not have the potential to double like Square or Roku next year, but they have minimal China trade war risk if things turn ugly, highly profitable with growing EPS, and are pure software companies whose CEOs put a massive emphasis on software development.
Expect this trio to melt up in 2019, and be prepared to strap on call spreads at advantageous entry points.
Another pure software service stock I love for 2019 is Twilio (TWLO) who I chronically use when I call an Uber to shuttle me around and take weekend getaways on Airbnb.
I would also lump Salesforce (CRM) into the discussion for stocks to buy in 2019 too.
Notice that all the stocks I favor next year are heavily weighted towards software and not hardware.
Hardware is going out of fashion at warp speed, the China tariffs just exacerbated this trend since most of the hardware supply chains are based in China.
Currently, the Mad Technology Letter has open positions in Microsoft and PayPal and if you are like most people online, you will probably use their service next year and more than a few times.
