Welcome to our weekly mailbag edition of The Daily Cut.
All week, you submitted your questions about the biggest investment opportunities on the radar here at Legacy Research.
And our analysts have come back with in-depth answers.
Two of the profit themes on your fellow readers’ minds this week were tech stocks and gold.
But first, a quick shout-out to folks who joined colleague Teeka Tiwari for his “livestream exposé” last night.
Nearly 14,000 people attended Teeka’s event – about a disturbing new phenomenon he’s discovered about stock market data.
He showed attendees exactly how this irregularity has been tricking some of the best investors in the world in 2020.
He also showed how accounting for the phenomenon allowed him and his team to rack up trades with an average win of $19,740 over 21 days in a series of backtests.
So if you missed Teeka’s big reveal last night… you’ll want to catch the replay here.
Now, on to this week’s questions…
The first is from a reader who wonders about buying tech stocks to play defense. Standing by with an answer is our tech expert, Jeff Brown.
Reader question: Please tell me what sectors are safe during a depression. I understand from your writings that gold, gold stocks (precious metals), and cash are the best. But what about FAANG, biotech, and 5G stocks? Thank you.
– Ravi M.
Jeff’s answer: Hi, Ravi. I can help answer your question. I’ll give you my opinion on each of the groups you mentioned.
The FAANG stocks (Facebook, Apple, Amazon, Netflix, and Google) have been rallying since the fear-induced selling in late February and early March.
Three of those five stocks are up double digits for the year. Amazon is up 48%. Compare that to the S&P 500, which is down about 6% year-to-date.
This is very logical.
In the wake of the COVID-19 lockdowns, the world turned to a variety of technologies to carry on with daily tasks.
Can’t go to the grocery store? Order groceries or everyday products on Amazon’s e-commerce platform.
A company’s workforce can’t go into the office? They must rely on cloud-based applications supported by Amazon’s AWS [Amazon Web Services].
Stuck at home? Turn on Netflix or browse the web, where Google can serve us more ads.
Need to stay in touch with friends and family? Scroll through Facebook or Instagram [which Facebook owns] to communicate.
That’s a very high-level explanation. But it demonstrates how these companies have been supplying the essential technology for a world on lockdown.
And thanks to COVID-19, the biotech industry is progressing at a pace I have never seen in all my years as an analyst. Breakthroughs that would typically take years are happening in months or weeks.
Suddenly, the world is aware how quickly we can sequence a virus and develop potential vaccines… use AI to find compounds that might bind to COVID-19 and render it ineffective… and create antibodies that can fight a virus in a matter of weeks.
Every venture capitalist and private equity house has just woken up to how powerful these technologies are and how quickly biotech can move. We’re going to see an acceleration in biotech investment, early stage companies, and IPOs (initial public offerings) as a result.
And many biotech companies are not impacted by supply chain problems. They don’t care if the market is volatile. And when they make progress with their research and development, their stocks run higher.
Finally, there’s 5G…
My readers already know this, but the COVID-19 lockdowns caused data traffic to spike dramatically.
In the weeks after lockdowns were initiated, videoconferencing traffic – for both work and socializing – spiked 300%. Gaming traffic exploded 400%… probably because the kids are staying home from school.
Our current network infrastructure just can’t handle this volume of data traffic effectively. The world needs 5G more than ever. For companies that provide 5G technology, business is booming. And that’s shown up in a number of 5G stocks.
Take SBA Communications (SBAC). This is a company that erects and maintains wireless infrastructure, including 5G wireless architecture. I recommended this company to readers of my large-cap investing service, The Near Future Report, in June 2018.
SBAC dropped with the rest of the market earlier this year. But once the market realized how essential 5G technology would be for a world in quarantine, the stock rallied.
It regained all of its losses and even made a new 52-week high. We sold SBAC for a 90% gain in the model portfolio in less than two years. Outstanding.
5G is not a “nice-to-have” technology. It’s an essential piece of national architecture on par with roads, bridges, and tunnels. It’s coming no matter what the economy is doing.
In the event of a depression – which I don’t expect – quality 5G companies will weather the storm better than the broader market.
For readers interested in which 5G companies I’m recommending right now, go right here.
Next up, a question about our favorite form of disaster insurance here at the Cut – gold.
Reader question: Hello, I want to ask how I should divide my gold portfolio. How much in bars… how much in gold stocks?
– Frederic H.
Chris’ answer: Thanks for writing in, Frederic. Gold investing expert E.B. Tucker answered this question in detail in an interview I did with him for our Legacy Inner Circle advisory.
Here’s what E.B. told me…
First off, you’d never want all of your portfolio to be in gold. We’re talking here about a part of your overall portfolio mix.
But let’s say you have a chunk of money you want to put into the gold market. I would have 20% of that in the physical metal – a mix of bars and coins. I’d have another 30% in gold royalty stocks. That half of your gold portfolio is your disaster insurance.
Once you have that, I’d take the other half and put 25% into the best-of-breed gold mining majors… 15% into the most promising juniors… and 10% into the most promising explorers.
I consider my Q&A with E.B. a master class on how to build the ideal gold portfolio. Usually, it’s available only to paid-up Legacy Inner Circle members. But this is a question I see all the time from readers, so I’m unlocking that issue for you all. You can access it – for free – here.
That brings us to the long-running debate here at the Cut: Which is better in a crash – gold or bitcoin?
Bitcoin’s supply is scarcer than gold’s. That’s because of a phenomenon we’ve explored called “Peak Bitcoin.”
So it’s potentially an even better store of value than gold. But not everyone is convinced that bitcoin can weather a real crisis…
Of course, bitcoin is too dependent on the electrical grid to be considered true “disaster insurance.” Bitcoin will continue to rise based on simple supply and demand.
The world can crash and burn, or we can all hold hands around the campfire and sing kumbaya… In either scenario, bitcoin rises in value over time. However, in the event of an EMP [electromagnetic pulse] attack or nuclear strike, cryptos won’t mean much when the lights are out.
My parents instilled in me the “four Gs” for a successful life. God, gold, gardens, guns. If you’ve got those four things in your life, you can survive anything. God bless!
– David C.
Some folks have a different view, but still favor gold…
Just curious… David C. isn’t impressed with bitcoin if the lights go out. But how good are gold stocks if the lights go out? Don’t both need electricity to access?
Looks like physical assets win… provided the physical assets are not locked up in an inaccessible bank or vault somewhere.
– Kyle E.
I cannot believe that anyone who has anything to do with Casey, Bonner, et al. would promote “bitcon.”
The concept that one spent a lot of money to create a digit on a distributed ledger and this would give it value is beyond ludicrous.
There is no reason that this already failed currency should gain in value. Nothing changes the fact it’s just a digit created from nothing and nothing more. Merchants have no reason to accept it. 99.9% of them don’t.
To promote it as an asset is criminal. I am surprised that Bonner and Casey have anything to do with this scam.
It is hard to believe that Doug Casey would lend his good name to this fraud. Over the years, Doug has held up Ayn Rand as an ideal. Rand would be turning in her grave over Casey’s fall from grace. (I don’t mean that in a religious sense. Rand, like Casey, was an atheist, as are all rational and logical people.)
Bonner may be an exception. But I thought he, at least, had ethics.
Oh well, I guess it’s the world we live in… must be some kind of virus of the mind.
– Henry P.
What’s your take? Is bitcoin a failed currency and a fraud, as Henry claims? Is it too dependent on the electrical grid, as David says?
Let us know at [email protected].
June 26, 2020
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