It used to be such a lonely place.
But now it’s becoming a more crowded place.
As a contrarian investor we’re not keen on crowds.
We prefer to run ahead of the crowd, and then duck into a quiet side alley when things start looking dangerous.
At the moment things aren’t too dangerous. But the crowd is starting to grow. That means it’s still too early to sell stocks yet…
If you’re bullish on stocks you’ll love the report we came across from Bloomberg News yesterday.
According to the report:
‘European stocks are poised for a third year of gains, restoring almost all the losses suffered during the financial crisis, as economic growth overcomes record pessimism on earnings.
‘Equities will rise 12 percent in 2014, according to the average projection of 18 forecasters tracked by Bloomberg News. Ian Scott of Barclays Plc says the Stoxx Europe 600 Index can rally 25 percent because shares are cheap even after a 49 percent gain since 2011…
‘The average estimate is the most bullish since at least 2010, with no strategist predicting a gain of less than 3.3 percent…‘
No one with even the mildest bullish bent could fail to smile after reading that report. It goes some way to confirming what we’ve said for some time; investors and analysts are starting to turn bullish on stocks after spending most of the previous two years worrying about central bank policy decisions.
But now, thanks to the implied message from the US Federal Reserve last week that money printing, bond buying and low interest rates will be around ‘forever’, investors are starting to understand that the future for stocks is only pointing in one direction – up.
Don’t Watch This Boom from the Sidelines
Before we go on, one thing.
Remember that despite our bullish view we’re still cautious about putting too much money into stocks. Unlike the mainstream analysts, we understand this market for what it is – a central bank induced bubble.
And you know what happens to bubbles. At some point they pop.
The issue for you as an investor is whether you take the risk and play along with the asset bubble (that’s what we suggest you do) or do you sit on the sidelines earning a few bob in interest and grumble about how the market is rigged…all the while missing out as stock prices ratchet higher.
As much as we criticise investors for sitting on the sidelines, we understand why they do it. No one wants to lose money. And with the market this risky there is a chance investors could lose money.
But the way we figure it, and the way two particular sectors are set-up right now, it’s a risk most investors should take.
Before we explain which two sectors (you can probably already guess), we’ll explain which stocks may disappoint investors over the next 12 months…
These Stocks are High and Going Higher
A group of stocks we still like, but we’re not expecting huge gains from, are dividend stocks.
That’s not to say you shouldn’t own dividend stocks, because you should. In fact small-cap analyst Tim Dohrmann is still on the lookout for what we call ‘Turbo Cap’ stocks as part of his work in Australian Small-Cap Investigator.
But what we’re saying is that you shouldn’t expect the big double-digit or triple-digit gains that you saw during the early part of this year.
Instead we like two sectors that have had differing fortunes over the past two years. We’re talking about technology stocks and resource stocks. To show you what we mean by ‘differing fortunes’, cop a look at this chart:
The NASDAQ technology index is the blue line. It’s up 65.5% since late 2011. The S&P/ASX 200 Metals and Mining index is the red line. It’s down 26.1% since late 2011.
It’s clear where the smart money has gone since 2011. Now, you could look at this chart and say, ‘Tech stocks are overvalued and mining stocks are undervalued.’ We’ll agree with half of that. Mining stocks are undervalued.
But there’s no way we can agree with the statement that technology stocks are overvalued. You only have to look at the way the tech sector is merging with and infiltrating every part of every industry to see that technology and the global economy are pretty much a single entity.
The Best Stock in the Sector
In a way that sums up the work Sam Volkering is doing in Revolutionary Tech Investor. Sam’s big focus heading into 2014 is ‘immersive technology’.
There isn’t enough space in this letter to outline the complete story behind ‘immersive technology’, but the gist of it is that human interaction with technology will eventually become passive rather than active.
That’s the best way we can think of to explain it. Some folks may find that idea a bit scary, but they shouldn’t. We’re not talking about the rise of the cyborgs. We’re talking about a situation where humans, machines and technology interact impulsively.
For instance, it could be where in the future your clothing contains tiny microscopic sensors. These sensors monitor your body and provide you with a continuous update on your health. These sensors could help you stave off a cold or other illness by giving you instructions on changes to your diet.
Another way immersive technology could develop is with driverless vehicle technology. You would get in your car and the car would instantly know your destination. Perhaps it could be voice activated instructions – ‘the office’. Or maybe the cars of the future would instinctively know your destination based on your clothing or the time of the day.
These things may seem crazy to you. Heck, they seem crazy to us as we’re writing them! But that’s the amazing thing about technology; crazy things have a habit of happening.
Sam knows this. That’s why he recommended what he says is the best ‘immersive technology’ stock on the market in the December issue of Revolutionary Tech Investor, and it’s why he has more ideas on this theme to come.
This is why we’re so bullish on the tech sector. Resource stocks look great to us as a value play. They are the most beaten-down bunch of stocks on the market. But every investment you make doesn’t have to be about finding beaten-down value.
It can also be about finding stocks that are exploiting an explosive new trend. That’s what the tech sector is all about. And it’s why we say tech stocks should be part of every investor’s portfolio in 2014.
It’s set to be a bumper year…especially as the NASDAQ creeps closer to its all-time high.
Cheers,
Kris+
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