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The Virtual Economy: Digital, Remote, Intelligent

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On Monday August 24, I published a special report for Zacks Confidential members titled The Virtual Economy: Digital, Remote, Intelligent.

It was the culmination of many economic and market themes I had been researching since early 2016, including the massive productivity and low inflation of technology industries that were showing companies and workers how to "automate everything" with data power tools.

More recently, I've done several presentations on the unpredictable acceleration of digital transformation because of the pandemic...

Software Goes Stratosphere on Planet COVID: SaaS pure-plays launched 80% since last July, ignited by a rush to get fully digital.

Inflation Coming? 12 Charts You Must See to Believe!

Bull Market on Steroids: Why Do Fund Managers Keep Buying?

This week, I got some great help from Wall Street Journal technology writer Christopher Mims who published Covid-19 Is Dividing the American Worker on August 22 in the paper.

The summary teaser for the piece reads "The rapid adoption of remote work and automation could accelerate inequalities in place for decades. Economists say the resulting ‘K’ shaped recovery will be good for professionals—and bad for everyone else."

FYI, I'm not taking political sides here and have no idea if Mims has a bias beyond the data. I'm solely interested here, as always, in the structural changes to work and economics from advanced and converging exponential technologies that impact us as investors, and Mims has done some important research here.

He actually posted on Twitter that he believes "This is the most important thing I've ever published, and I've been a technology journalist for more than a decade."

But, I should add, I also have a strong personal interest in the impact on high school and college students. As I've been screaming for a decade, tell your kids, grand kids, nieces and nephews to get as broad and deep of a STEM education as they can, with a focus on statistics and probability. This will be essential to compete in the high-paying, "data-based" job market that just got accelerated by a decade.

In the video that accompanies this article, I share some slices of the Mims piece via his Twitter feed, including a few of his primary data and reference points -- and conclusions -- about the "K" recovery and what it means for workers separated by an increasing digital chasm.

Cooker Note: The "K" recovery is a play on typical "V" or "U" shaped recoveries in economic vitals. Here, the idea is that many workers will ride the upper leg of the "K" onward and upward to the right, while those without digital skills will ride the bottom leg down.

Mims also reminded me about some of the most important things I've written as a technology investor, including these two Zacks Confidential pieces...

Big Economic Disruption: Big Data, AI, & Robotics from June of 2016

Here I said I wasn't sure how 50% of jobs would be replaced by automation, but I was pretty sure I knew who the winners would be. Thus, I recommended buying Amazon (AMZN - Free Report) and Alphabet (GOOGL - Free Report) under $750 and Microsoft near $50.

The Technology Super Cycle from December 2017

This was my treatise on why productivity was hidden and inflation missing from the economic data. I advised to buy NVIDIA (NVDA - Free Report) and Lam Research under $200.

By the way, I was recently reminded that Zacks Confidential is one of the most incredible bargains in investment research as you get a fresh report every Monday -- with top stock picks -- from our team of 10 strategists and analysts. And it goes for just $60 a year.

Since each team member only publishes once a quarter, we have plenty of time to think about, research, and compose our most important ideas that we've been burning to share for over two months.

Email Ultimate@Zacks.com if you are interested in getting on board this weekly streaming intelligence.

A Renaissance Man Speaks Truth to Bias

In the video, I also share the latest views of Neil Dutta, head of economic research for Renaissance Macro. Just this morning he published a short opinion piece on Business Insider titled The 'rising stocks are ignoring the terrible economy' crowd is missing the clear reasons for the market's surge.

Dutta's biting summary of the piece on Twitter: "Those analysts that continue to lament the market's rise would be better served trying to understand why they've been wrong instead of regurgitating mindless platitudes about the market's alleged irrationality."

And he shares a data view of what he and his team are seeing that describes the digital chasm between companies across sectors...

"The stock market has been rewarding companies doing well & punishing companies doing poorly. Figure plots the % change since February of S&P1500 sub-sectors against the comparable retail sales category. The results send a clear message. The market is not, not the economy either."

You can find that chart in Dutta's Business Insider article linked above or in the @RenMacLLC Twitter feed where he adds "For example, non-store retail spending has surged since February, and so have share prices for internet & catalog retail firms. Home improvement store spending has advanced and so have prices for home improvement retailers. Department stores an example of the opposite."

My first thought about Dutta's data: While small business employs over 60% of workers and makes up much of GDP, this is not the bulk of what drives the stock market directly. Rather, indirectly through the back door it does because consumers are still spending, just through different channels. I'll have to check with Dutta about my spin on the data.

Until then, be sure to catch the video for all the other details and analysis. And I'll give you one of my favorite stock picks from my recent ZC report: Alteryx .

Here's what I said about this mid-cap data engine -- vs. the $33 billion Splunk -- for companies who want to mine and model their way to higher efficiency, creativity, and profits...

3. Buy Alteryx : This $7.5 billion provider of a plug-n-play data analytics platform is trading at only 12X sales and as I've said for the past year, "buy it at 12X and sell it at 18X" because they have raving fans and MSFT or GOOGL won't replace them. They might buy them, but won't be able to steal their customers.

Alteryx is easy to use for the non-data science employee who can create automated machine learning algos to mine all their data, inside and outside the company. It will be a $12 billion company some day, just like Tableau was before CRM bought them for $15B. Machine learning with data is so much more powerful than mere visualization.

Oh, did I mention the stock just went on sale after a mixed quarter and cloudy guidance? Shares dropped over 35% from $180 to $110. Get some like I did, as I love to buy the fear of technology.

(end of ZC buy rationale for AYX)

As intelligence would have it, this morning my friend Dan Ives at Wedbush assumed coverage of Alteryx with an Outperform rating and $132 price target. Ives notes that while COVID-19 has negatively impacted expansion and new business activity in the near term, he expects Alteryx to "exit the storm stronger as companies are now realizing the need for greater analytical rigor within their organizations."

And while we know that big-data behemoths Apple, Amazon, and Microsoft have led the market charge higher, there are many dozens of smaller software, e-commerce, and data companies whose shares have been gobbled up by large investors hungry for "growth at any price," including Zoom, The Trade Desk, and Fastly. I think AYX will find it's way back to $150 in the next year.

Bottom line: Don't focus on the stock market heights right now, or its momentum. Look deeper at those industries and specific companies becoming central to the "virtual" economy where remote, fully-digital "intelligence workers" are seeing their companies spend money to get ahead -- or to get goods to consumers faster, better, and cheaper.

Disclosure: I own NVDA, AYX, and BABA shares for the Zacks TAZR Trader portfolio.

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