Talk on Wall Street lately has turned to whether it’s the end of the world.
After all, the Nasdaq is down 7% from its peak and long-term interest rates are inching higher. On the surface, it seems like the wrong season to be talking about stocks handing investors triple-digit-percentage gains, but that is exactly why that’s my primary focus this week.
In fact, I’ve uncovered and tested not just one but four separate ways to keep finding 100% wins at a moment when a lot of investors seem more worried about staving off triple-digit-percentage losses.
I will be unveiling my findings next Thursday, March 18, 1 p.m. EST, on an exclusive conference call. You’re invited. Click here to sign up and get your phone number on the list.
And yes, so-called “triple-digit” stocks still exist. You just have to keep your eyes open and be willing to stretch your portfolio beyond the big names that everybody talks about.
As I write this e-letter, 65 members of the S&P 500 have at least doubled in the trailing 12 months. Ten have tripled or better. Go beyond the elite index stocks, and I see more than 1,400 names earning their way into the triple-digit-percentage club during the pandemic year.
Their shareholders are thrilled. They’ve beaten the broad market with plenty of profit to spare.
Big Tech Doesn’t Make the List
On the other hand, mighty Apple Inc. (NASDAQ:AAPL) has dropped 17% in the last seven weeks, erasing $400 billion in shareholder wealth along the way.
Roughly $240 billion has vanished from Amazon.com Inc. (NASDAQ:AMZN). Microsoft Corp. (NASDAQ:MSFT), Alphabet Inc. (NASDAQ:GOOG) and Facebook Inc. (NASDAQ:FB) as they have taken a collective $250 billion step back.
That’s nearly $1 trillion in pain spread across just five stocks. When you consider that all U.S. stocks put together total about $40 trillion in market capitalization, that’s not a fatal wound, but it still stings.
And as that capital evaporates, Big Tech shareholders have stopped accumulating wealth. Their account balances are going in the wrong direction now.
If these were isolated companies, the market would simply absorb the losses and continue on course. But when five stocks have swelled to the point that they account for 21% of the S&P 500 and 40% of the Nasdaq, good news elsewhere gets crowded out in the noise.
A casual calculation reveals that more than half of the Nasdaq’s decline comes from these five stocks. If not for them, the benchmarks would be doing just fine and we wouldn’t be talking about interest rates so much.
(Are Treasury yields a problem? If they were, Jay Powell and the Fed would do something about them. But that’s a topic for a future discussion.)
Now all of these Silicon Valley titans have given long-term shareholders an amazing ride, creating billionaires in the process. I simply don’t see them doubling or tripling again in the near term without engineering the equivalent of a financial miracle.
Is Apple a Triple-Digit-Percentage Prospect?
Take Apple as an example. At the end of 2018, it wasn’t even a $40 stock because Wall Street had figured out that its growth had effectively hit a wall.
The company simply can’t sell any more phones at any price point. Services, tablets, headphones and everything else are nice, but they aren’t big enough to move the overall needle.
To double earnings again over the next decade (let alone this year), CEO Tim Cook has a few options, each less plausible than the last.
He can keep growing the services ecosystem around the phones about 12% a year, which amounts to bolting half a Microsoft onto his existing operation. That might actually happen.
He can boost Apple Watch sales 20% a year over the same period. In that scenario, there will be 26 times as many of these devices on people’s wrists in 2031 as there are today. There’s no sign that demand will reach that level.
Just look at sales of Apple tablets and computers. That market has stalled. Extrapolating early growth rates in these categories is a fool’s errand.
And of course, Tim Cook could always pull something amazing out of the lab like a self-driving electric vehicle. The problem there is simple.
If we were looking at a smaller company, it wouldn’t take a lot of Apple Cars to move the needle. Unfortunately, if margins on these hypothetical vehicles match what Tesla Inc. (NASDAQ:TSLA) has been able to capture, Cook needs to sell 150 million of them every year to double his current cash flow.
That means doing it once and then turning around 12 months later and doing it again. Meanwhile, the world has demonstrated that there’s only demand for about 80 million new cars a year.
Finally, Cook can always turn around and buy back enough shares to artificially boost his earnings trend. With a $2 trillion company, he’d only need to find $1 trillion to cut the float in half and double his per-share profit.
And now I think you see the bind these gigantic companies face. They aren’t going away. They just aren’t finding it easy to keep reaching for the stratosphere.
The Triple-Digit Club
Stocks able to double or triple in a matter of months are, by definition, smaller than Apple and its peers. Many are as obscure today as Apple was a generation ago, before the iPod changed the world.
Looking at the list, I see some familiar names and a few surprises. Many, like Twitter Inc. (NASDAQ:TWTR), aren’t even consistently profitable yet, or, like Pioneer Natural Resources Co. (NYSE:PXD) and Ford Motor Co. (NYSE:F),are recovering from the pandemic shocks.
Others are profitable but carry multiples many investors would consider extreme. Etsy Inc. (NASDAQ:ETSY) carries an 86X earnings valuation and is up an astounding 339% in the past year.
To some, that’s pure high-tech froth. But Etsy also managed to triple its profit last year and is on track to deliver at least 10% growth for the foreseeable future.
By 2025, I project three times as much cash flowing through this company as we see today. The secret is relative scale: Etsy is still only 1% the size of Apple in terms of market cap, so every dollar earned has a bigger impact on the bottom line.
Tim Cook could buy this little company with cash, but it’s not going to be more than a drop in the Apple ocean. Only shareholders in an independent Etsy can enjoy these growth rates.
These are the kinds of prospects we’ll be exploring on next week’s conference call. Don’t think about giants. Think about the giants of tomorrow. Click here to sign up and get your phone number on the list.
And in the middle, we trade the controversy. I’m talking about all of this on my Millionaire Makers radio show. Now there’s a podcast (Spotify)(Apple) as well to keep you focused on opportunities to build real wealth while avoiding obvious threats.