21 Stocks for Today's Market
Despite the volatility we're seeing, there are 21 stocks that are primed to outperform the market.
To kick off my first ever Substack article, I’m extremely excited to introduce the “21 Disruptors Index,” which I’ll just refer to as the “Disruptors” for the most part.
As the name suggests, this is a group of 21 companies that are paving the way forward in fields such as manufacturing, energy, finance (yes, it includes crypto!) and healthcare.
But if you’re pressed for time, we’ve got you covered. Click any of the timestamps below for a briefer update:
· Introducing the “21 Disruptors Index”! (0:00)
· Why the context of “Fed Pivot” matters. (4:42)
· Why are growth stocks down, and what should we expect going forward? (11:04)
Here’s a list of the stocks included in the index, sorted by the number of holdings in each sector:
Manufacturing:
Desktop Metal Inc. (DM) – 3D Printing Manufacturer
Proto Labs Inc. (PRLB) – 3D Printing Online Marketplace
Cadence Design Systems Inc. (CDNS) – Product Design/Simulation
PTC Inc. (PTC) – Product Design/Simulation
New Energy Resources:
Livent Corporation (LTHM) – Lithium Miner
Energy Fuels Inc. (UUUU) – Uranium and Vanadium Miner
Cameco Corporation (CCJ) – Uranium Miner
MP Materials Corp. (MP) – Rare Earth Metals Miner
New Energy Products:
Tesla Inc. (TSLA) – Leader in EV and Battery Storage Markets
Enphase Energy Inc. (ENPH) – Leader in Solar/Storage Systems
Plug Power Inc. (PLUG) – Leader in Hydrogen Fuel Cell Industry
Fintech:
Lemonade Inc. (LMND) – Algorithmic P&C Insurance
Bitcoin (BTC) – Decentralized, Uncensorable Global Payments System
Ethereum (ETH) – Leading the World of Decentralized Financial Services
Gig Economy:
Uber Technologies Inc. (UBER) – Disrupting Transportation and Freight Markets
Airbnb Inc. (ABNB) – Disrupting Hotel/Lodging Market
Pinterest Inc. (PINS) – Disrupting/Modeling the New Creator Economy
Healthcare:
Teladoc Health Inc. (TDOC) – Leader in the Emerging Telehealth Industry
Guardant Health Inc. (GH) – Disrupting Cancer Diagnosis Industry
Consumer Staples:
DocuSign Inc. (DOCU) – Bringing Paperwork Into the Digital World
The Trade Desk Inc. (TTD) – Revolutionizing the Advertising Market
But why did I create this index?
Right now, it’s hard to find a good way to measure the performance of growth stocks. The traditional indices, like the S&P 500, Dow Jones, Nasdaq and even the Russell 2000, are heavily influenced by stocks that are being disrupted.
When you hear someone say “the market is up,” they’re typically referring to these older indices. However, I believe that the stocks listed above have a very good chance of vastly outperforming them.
To put it simply, this index tracks the disrupting vs. the disrupted.
Going forward, I plan on giving a more detailed look into each one of the sectors each week. Next week, I’ll start with the manufacturing sector.
I’ll also give performance updates for the Disruptors vs. other indices (using an equal-weighted method for the Disruptors) as well as insight into their quarterly earnings reports. Not to worry, I will cover news topics as well.
Now, let’s move onto the exciting world of macro and the Fed!
Last Friday, you may have noticed that the market seemed to pull one over on everybody. Everything was looking good as things rebounded Thursday from a rough beginning to the week, and then the S&P sharply fell by 141 points (the ninth-biggest daily fall in history).
Of course, this drop coincided with Fed Chair Jerome Powell’s speech that very morning. But was the speech really THAT bad? What did he say that made everyone suddenly so bearish?
No, it really wasn’t that bad. In fact, to me, he really didn’t say anything new at all. To sum it all up, he said that the economy was still strong in certain areas (employment being the main one), and that this essentially gives the Fed more of a reason to keep raising interest rates.
During the first half of August, the market seemed to get a little ahead of itself in thinking the Fed would pivot. After all, inflation during the month of July is flat. And as Powell has repeatedly said, his No. 1 mission is to put an end to high inflation.
To take a step back, I don’t think the market really knows what kind of pivot it’s looking for. In general, a Fed “pivot” just refers to a change from their current trend of hiking interest rates and stopping the relentless flood of money into the economy that we saw in 2020.
So, what exactly is the market looking for? Is it looking for the Fed to start cutting rates and pumping more money into an economy that’s beginning to show some signs of stress?
After all, demand for housing has gone ice cold as we can see by the drop in monthly new home sales:
Inflation has drained people’s savings (first chart) and resulted in a giant rebound in credit card debt (second chart):
And the banks are significantly raising their credit standards. Put simply, they’re getting very stingy with who exactly they choose to lend money to, with growing fears that they might not get paid back:
So, maybe it’s time for some good old-fashioned relief from the Fed (aka stimulus checks, PPP loans, just “money printing” in general), right? Or at the very least, doesn’t this mean they’ll start lowering interest rates again soon?
Well, that’s one definition of a pivot, and it’s hopefully not going to happen anytime soon. If that happened, we’d see inflation get even worse and the “zombie companies” — companies with no real growth that rely on massive amounts of debt to stay in business — could be on life support even longer.
While it might be exciting in the short term and provide some relief to markets, it would only cause more inflation. More inflation would drag this economic drama out for much longer.
Another way the Fed could pivot is by stopping the rate hikes cold after September.
For a while, this is what I was expecting to happen. But the Fed made it clear that as long as inflation is high (above 2% to 2.5%), they’re likely going to keep raising rates.
Although I’m not completely convinced of that, I do know that they’re desperate to keep some modicum of credibility after more than three years of getting things dead wrong.
I think that we need to see at least three to four months of flat or negative monthly inflation data before they’re open to pausing rate hikes indefinitely.
Which brings me to the third “pivot” scenario: the Fed keeps raising rates at a slower pace.
I believe this is most likely going to be their path forward. Keep in mind that the things they’re focusing on the most are inflation and the jobs market. Inflation is still high, with CPI (Consumer Price Index) expected to be 8.7% for the month of August.
The jobs market is still healthy, meaning (at least according to them) that they can “get away with” more rate hikes, the implication being that rate hikes damage the economy.
So, to recap, there are three possible ways I think the Fed could pivot.
1.) They stop rate hikes, do an immediate 180 and start cutting rates.
2.) They stop rate hikes and leave them as-is for the foreseeable future.
3.) They keep raising rates, but at a slower pace.
Now, it’s one thing to make a prediction on what the Fed will do, but what does this mean for the market?
The immediate reaction from most people to this question is probably that “higher rates mean stocks go down.” However, that’s not necessarily the case.
I’ll be the first to admit that the rally in July and August was a little too optimistic. I think a lot of it had to do with the fact that so many people had sold and/or shorted so many stocks from April through June, that a big move up was necessary to clear out all the people who shorted at or near the bottom.
This is the same effect as buying into an extreme FOMO point in the market; if you buy in when things are going parabolic, most of the time you’ll see a huge reversal in the market and end up losing money.
Another way of saying this is: “The market was too oversold.” There was extreme uncertainty about inflation due to soaring energy and food prices, and lots of people were caught off guard by the Fed raising rates from 0% to more than 2% in four months.
I know that doesn’t sound like a lot, but last time it took them three years to do it:
In July and August, we saw oil and gasoline prices come way down. July monthly inflation came in at 0%, and unemployment remains low at 3.5%. That’s a much tamer mix of ingredients than the mess we saw in the first half of the year.
So, a rebound in the market was justified, but I believe people got a little too excited toward the end. If we continue to see food and energy prices move down, that would obviously be a good thing for the market. The faster inflation goes down, the better.
But there are still several other points to consider:
1.) How many months of low monthly inflation data will the Fed need to see to pivot?
2.) Will the Fed see a continuously strong jobs market as a reason to keep raising rates?
3.) There are currently about two job openings for every unemployed person. People will work wherever pays the most. How much/how long will that affect inflation?
4.) How much cash is going to keep sitting on the sidelines?
Point No. 4 is arguably the most important; the market moves based on supply and demand. The market was so bearish in the first half of the year that we may very well see the S&P move higher in 2022.
In fact, I wouldn’t rule out the possibility of new highs. I believe it’s a very small possibility, but if economic data continues to fuel optimism, there’s plenty of cash sitting around to pump the market back up:
With that being said, if the market tries to paint a very rosy picture of the economy and rally back up once again, I think we’re actually more likely to see a sizeable decline afterwards.
That’s because we’re simply not out of the economic mess yet.
As long as the Fed is raising rates and winding down their balance sheet, the market is facing an uphill battle despite any rallies in the short term. They’ve made it clear that one or two months of good inflation data isn’t enough for them to tone down the rate hikes.
And good data related to the jobs market, consumer spending, manufacturing, etc., just gives them more leeway to raise further.
My prediction is that the S&P 500 will most likely end up bottoming out somewhere around the pre-COVID high, which was 3393.52. Again, I wouldn’t rule out a rally in the short term (although we did just have a big one).
But I think there’s so much uncertainty ahead that if the market begins to act like it does when inflation is 2%, consumers are healthy and everything is relatively fine, the likelihood is that either persistent inflation or high interest rates will cause far more damage than the market expects.
I know it sounds bearish and negative, but we have to play the hand we’re dealt! I know what you’re thinking: What does this mean for growth stocks?
This is why I wanted to tell you about the Disruptor Index. I believe that each one of these companies presents a very promising path forward and provides products and services that will be in demand for years to come.
In addition, the overall combination of stocks in the index is spread across very different yet necessary industries. This is intentional, and it means that you’ll rarely see all 21 stocks down in the same day.
I want to give you the best chance to win given our situation, and even if things struggle in the near term, I believe that these investments present a winning combination for years to come.
If you enjoyed this post, please consider subscribing!
Thanks, Ian. Would you consider all those disruptive stocks to apply within our Silver membership/Tier 1 of stocks?
Amazing write up chocked full of actionable information!!! TY!