Welcome to our weekly mailbag edition of The Daily Cut.
Our mission is to uncover the market megatrends shaping the future before they go mainstream… so you can profit in your portfolio.
And on Fridays, we showcase questions about these trends from your fellow readers… and share our experts’ answers.
So if you have a question for Teeka Tiwari, Jeff Brown, Dave Forest, or another expert here at Legacy Research, write us at [email protected].
Coming up today, our “billion-dollar trader,” Jason Bodner, reveals why stocks will be higher by year end.
And our tech expert, Jeff Brown, weighs in on how to find the best cybersecurity stocks.
Earlier this year, we saw hackers take down the largest oil pipeline in the U.S… as well as a key meat-processing company.
Hackers could also take over your car, knock out the traffic lights on your street, even fry the grid that powers your home.
And the more devices we connect to the internet – smart thermostats, smart speakers, home robots – the more vulnerable we become.
So it’s no surprise the cybersecurity megatrend is a hot topic among Jeff readers…
Reader question: It seems as though there should be a good play on new technology related to cybersecurity. Cybersecurity is a huge need with all that is going on.
There must be some new innovative tech out there, perhaps using artificial intelligence (AI). Is there a new tech company with promise?
– David M.
Jeff’s response: Hi, David. Thanks for your question. You’re right. There’s a huge need for innovative cybersecurity solutions. It’s a timely question, too. October is National Cybersecurity Awareness Month in the U.S.
As we’ve seen this year, cybersecurity attacks are on the rise. A recent study revealed that 86% of businesses reported having at least one person in their organization connect to a phishing site.
That’s one of the ways hackers steal sensitive information like company logins. Likewise, malware and spyware – software that infects computers for nefarious aims – are constantly evolving.
I’ve seen estimates that cybercrime will cost the world $6 trillion this year alone. By 2025, that’s expected to jump to more than $10 trillion a year.
We saw firsthand how disruptive these attacks can be over the summer with the Colonial Pipeline hack. The JBS meat distributor hack swiftly followed.
These hacks on our critical infrastructure caused gas and food shortages. They also revealed our desperate need for stronger protections.
Back in August, I covered one private company working on this issue – Nozomi Networks. Its valuation had nearly tripled in just three years.
It’s working to protect critical infrastructure, such as government facilities and water and electrical utilities. What caught my eye is the CIA’s investment arm took part in Nozomi’s recent funding round.
The government knows how weak our critical infrastructure is. The CIA and other three-letter government agencies need to get ahead of the nation’s cybersecurity weaknesses.
And you’re correct – AI is helping find solutions.
One cybersecurity company I recommended at my small-cap tech investing advisory, Exponential Tech Investor, uses AI to spot suspicious activity on a computer network. It can even catch the hacker before he strikes. [Paid-up Exponential Tech Investor subscribers can find the issue here.]
CrowdStrike (CRWD) and Cloudflare (NET) are two of my other favorite cybersecurity stocks. But I don’t recommend you buy at their current prices. They’re trading at ridiculous valuations. Anyone investing at these levels is guaranteed to lose money.
CRWD trades at an enterprise-value-to-sales (EV/S) ratio over 55. This measure looks at the company’s total value relative to its sales. The lower the ratio, the better the deal for investors.
NET trades at an EV/S ratio of nearly 110. These are great companies with great products. But we’ll have to wait for a pullback before they trade at attractive valuations.
Switching gears, that question for Jason Bodner…
Before joining us at Legacy, he worked on Wall Street. He was one of the few guys authorized to make trades of $1 billion and up. And he spent nearly 20 years placing these monster trades for some of the world’s wealthiest investors.
He now uses a proprietary system he created to spot when big money starts pouring into the market’s strongest stocks.
At our Outlier Investor advisory, Jason has given his readers the chance to make gains of 154%… 402%… 445%… 507%… and even 742%.
And of the 33 open recommendations in the model portfolio, the average gain is 63.7%.
But not all his picks have gone up. And one reader is concerned about how Jason times his recommendations…
Reader question: Hi, Jason. I get that you follow the big money. But those data are available only after the quarter ends. By that time, big money has already bought the stock, and the stock price has often peaked. Therefore, almost always, the stock price falls substantially after your recommendation. Do you think it’s really an effective way of picking up the stock, as you proudly claim?
– Muhammad I.
Jason’s response: Thanks for writing in, Muhammad. Yes, I think it’s a very effective method.
Let me start by clearing up any confusion. I don’t follow the disclosures big-money investors file with the SEC [Securities and Exchange Commission] that you have to wait a quarter for. My system spots when big-money investors are buying before they have to report it.
I have over 30 years of data showing this system works well. But it doesn’t mean that when I recommend a stock, it will never go down.
This year, it’s happened more than in past years. That’s why we give these trades time to mature. Sitting with a couple or several losses is painful. It’s uncomfortable. But it happens at some point for just about every investment out there. You can’t expect to make long-term gains in the stock market if you’re not prepared to shoulder some losses along the way.
Keep in mind, the October-through-December quarter is typically a strong time for stocks. Going back 30 years, the S&P 500 has delivered positive gains 72% of the time in this quarter.
So the odds are in favor of a strong end to the year.
That’s all for this week’s mailbag.
Remember, if you have a question for anyone on the Legacy team, be sure to send it to [email protected].
Have a great weekend.
October 29, 2021