Welcome to our mailbag edition of The Daily Cut.
Every week, your fellow readers send in questions. And on Fridays, I showcase some of the best answers from our analysts.
This week, former Wall Street insider Nomi Prins shares why the central banks’ “Great Distortion” isn’t ending anytime soon… even if rates are rising.
You’ll also hear from world renowned crypto expert Teeka Tiwari on how to navigate the bear market in bitcoin.
But first, our tech investing expert, Jeff Brown, shines the spotlight on one of the best bargains in the tech sector right now…
Hi Jeff, I appreciate the depth of the research and information you provide. It is all very thorough and insightful, giving us readers many fantastic investment opportunities. But sometimes it feels slightly like information overload, and I assume other readers likely feel the same.
As a younger investor (30 years old), I’m curious about what tech stocks you’d rate as the best buys right now.
I’m talking about companies us readers with a modest amount of capital to deploy right now could get serious bang for our buck. Thanks for your time. And keep up the great work!
– Brett C.
Jeff’s response: Hi, Brett. Thanks for writing in. It’s always great to hear from younger subscribers. For an investor like you – with a decades-long time horizon for investing – I get the urge to go “bargain shopping.”
The timing of your question is spot on. I just published the latest issue of Exponential Tech Investor. It contained what I’m calling my “Never Been Cheaper” list.
This is a list of high-growth tech stocks trading at or near record low valuations. They’re all fantastic companies. And now is a great time to start building a long-term position.
Out of fairness to my paid subscribers, I can’t reveal the full list here. But I will profile one company. It shows how steeply discounted some of these great companies are right now.
Zuora (ZUO) helps businesses solve the complexities around pricing and packaging subscription services.
Recurring subscriptions are one of the most desirable and well proven business models in high tech. We usually see this in the shape of a software-as-a-service business model. Adobe Creative Suite, Box, and Microsoft Office have all made the transition to subscription models in recent years.
And Zuora abstracts away all the complexities of designing and implementing this model. And there’s a lot to like about Zuora.
The company has grown revenue from $168 million in fiscal year 2018 to $371 million today. It operates with 60%+ gross margins. And it’s the clear leader in the billings management systems industry
Its stock is also historically cheap right now. Zuora has traded at an average enterprise value-to-sale (EV/sales) ratio of 6.3 since it went public.
It’s a financial ratio that measures how much it would cost to buy a company in terms of its sales. The lower the EV/sales ratio the more undervalued it is.
And today, Zuora trades on a EV/S ratio of about 2. That means you could theoretically buy it for just two years of sales.
Now, I’d offer an important caveat. Just because companies like Zuora are at all-time low valuations does not mean that this market can’t punish them further. The Fed appears hell-bent on driving us into a recession and punishing our retirement accounts.
So, if you decide to act on any of the companies in the “Never Been Cheaper” list, do so knowing we’re going to get some major volatility in the stock market over at least the next six months or so.
But when the next bull market rolls around – and it will roll around – its valuation will rise back to more normal levels. So if you’re comfortable weathering volatility, you can start easing into Zuora today.
Next up, a question for colleague Nomi Prins on what she calls The Great Distortion.
If you’re not familiar with Nomi, she used to work on Wall Street. But in 2001, she quit, discouraged by shady practices there. And since then, she’s been on a mission to help regular inventors beat Wall Street at its own game.
Nomi has focused on how governments and their central banks have unleashed trillions of dollars of stimulus since the 2008 financial crisis and in the wake of the COVID pandemic.
This has led to what she calls The Great Distortion – a mismatch between how money flows to the real economy versus to the financial markets.
The money keeps flowing to the top while ordinary Americans get screwed over. But this new reality is also handing us profit opportunities – if we know where to look.
And reader Gary M. wants to know how long we can expect these distorted times to last – and what it means for his money.
Fiat currency and the ability to create money from thin air have always been a road to ruin. Once you start down that road, you must keep doing more of it, and there’s no orderly way to stop.
Is it your contention that The Great Distortion will go on for the rest of our lives? Should we invest accordingly? Or do you feel you will know the proper time to exit?
– Gary M.
Nomi’s response: Hi, Gary. You’ve hit the nail on the head in terms of the number one motivating factor for The Great Distortion!
My new book, Permanent Distortion, discusses the reasons why this great distortion isn’t going away – certainly not in our lifetimes. The magnitude of quantitative easing has reached phenomenal levels.
Quantitative easing, or QE, is when central banks digitally “print” currency to buy bonds and other assets such as stocks.
This started in earnest after the 2008 financial crisis. Since the pandemic, it’s gone into overdrive.
The size of the Fed’s balance sheet – a reflection of how much QE it’s done – nearly doubled in just a few months during the first half of 2020. And it was already at $3.8 trillion.
What that has shown me – and Wall Street – is that whenever the Fed and other major global central banks deem there to be a crisis (however they choose to define that), they will create money. And they will use it to buy bonds and other assets.
This allows the recipients of that cash to turn around and buy more financial assets.
We saw this in action with the Bank of England, Britain’s central bank. On September 28, it announced it would buy bonds to stave off a crisis in the British currency, the pound.
The European Central Bank has also announced that, even though it’s raising rates, it may also increase its QE purchases.
There will be weeks and even months of great volatility and uncertainty in the market. But there will also be lots more QE stimulus.
This will give us long-term investment opportunities along the lines of our distortion profit themes. As a refresher, these are the parts of the economy that will benefit from the continuation of central bank stimulus.
They are New Energy, Infrastructure, Transformative Technology, Meta-Reality, and New Money. You can read more about them here.
Last up, a question for Teeka on bitcoin bear markets…
Big T, I love your videos on bitcoin. They help keep me level-headed and rational and provide great information.
For a comparison/benchmark, how long would you say the last couple of crypto bear and bull markets were (in months) and can you compare that to today? Thank you.
– Gregory F.
Teeka’s response: Thanks, Gregory. Your kind words mean a lot.
To give you an idea of what past crypto bear markets have been like, here’s a handy table of all the major falls for bitcoin. It shows when each started and finished, how steep the drawdown – or peak-to-trough fall – was, and how long it lasted.
As you can see, the duration of these past bear markets was between a day and just over a year.
The current bear market has been running for just over a year. So we’re close to the longer end of that scale.
Regards,
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Chris Lowe
Editor, The Daily Cut