I wrote a piece near the bottom of the COVID-crisis on March 19th called My Top 10 Watch List, now I want to dissect my picks. I want to look at how and why they performed the way they did. The market has rallied an incredible amount since mid-March, and hopefully, you were able to reap the same strong returns that I was the past 4 months.
Tech stocks have been the relative outperformers in the past few months, with the world experiencing 5 years of digitalization in 5 months. Innovation-driven growth stocks made up the largest portion of my gains since mid-March, as I sure you have experienced in your portfolios.
My 10 picks were intended to provide investors with a wide range of high-quality stocks that would maintain liquidity amid the highly uncertain times and were poised to drive returns throughout the Roaring 20s. As a whole, my picks (equal-weighted) outperformed the S&P 500 by 4 percentage points.
Below are the 5 outperformers from My Top 10 Watch List.
Splunk ((SPLK - Free Report) )
Splunk was my high-risk/high-reward play, and its performance has illustrated that with a soaring share price from the March bottom. SPLK rallied over 90% since the article, with the markets pricing back in the necessity of this enterprise’s real-time data management.
With the world moving towards full automation, managing, analyzing, and providing actionable outcomes on machine data is going to be a requirement for businesses to stay competitive. Splunk’s market control of this niche segment makes the stock incredibly attractive.
I’m not looking to add to my SPLK position until we see a pullback as the shares have risen to very frothy levels.
Microsoft ((MSFT - Free Report) )
Microsoft has been a powerhouse of stock since March 19th, driving returns of 57% for those investors lucky enough to in at this time. Microsoft’s sizable cloud product breadth of essential software and digital business necessities has continued to drive this cutting-edge enterprise to new seemingly impossible levels.
MSFT is being pushed to new all-time highs seemingly every day. Microsoft has been driving innovative growth in the equity markets for decades, and I’m confident it will continue in the decade ahead. Again, I will not be adding to my position in MSFT until I see a broader tech pullback.
Invesco Nasdaq 100 ETF ((QQQ - Free Report) )
QQQ is being propelled to continuously new highs by the trillion-dollar club, aka Apple (AAPL - Free Report) , Amazon (AMZN - Free Report) , and Microsoft (MSFT - Free Report) . These three innovation-driven enterprises makeup roughly 1/3rd of QQQ and have driven the ETF to the stratosphere with returns of more than 57% from March 10th.
This an excellent ETF option that I would highly recommend holding in your portfolio for the anticipated technological revolution of the Roaring 20s. Still, I would wait for a pullback before I considered adding to my position.
Adobe ((ADBE - Free Report) )
ADBE, MSFT, and QQQ all tied for second on my March 19th watch list, with each of them appreciating roughly 57%. ADBE’s sails have been filled with a pandemic-driven tailwind that has propelled the “stay-at-home” cloud market.
Adobe is a legacy software player that has been able to stay ahead of the innovative curve for decades. Adobe was able to transition its essential business software to a cloud-based offering successfully.
The enterprise was an early mover on cloud computing, which has propelled ADBE shares to continuously new highs. These shares have outperformed the S&P 500 by almost 10-fold in the past 5 years. I expect this relative outperformance to continue as this trailblazing tech giant continues to expand.
Adobe’s subscription-based business model has allowed the company to grow its sales quarter-over-quarter for more than 5 years. Expanding revenues by more than 20% while producing large growing profits is a feat that very few companies can claim.
Alibaba ((BABA - Free Report) )
BABA shares are just starting breakout of their COVID trading rut since the beginning of July, driving 20% growth since the beginning of this month. BABA is relatively undervalued from my perspective, and I would still consider these shares a robust buy around the $250 per share price level.
Alibaba controls the e-commerce space (80% market share), as well as its cloud-computing category (roughly 50% market share) of the most populous and soon-to-be-largest economy in the world.
Alibaba is valued at less than half of Amazon despite producing substantially wider margins, much stronger profitability, and having a much larger topline growth outlook for the next couple of years.
I expect big things out of BABA in the coming decade.
The equity market has run up quite a bit these past 4 months with tech leading the way. We are approaching Q2 earnings season, and these seemingly stretched valuations in the tech sector will be put to the test. I would be cautious with any stock purchases going into this earnings season. Investors may be looking to pull profits with technology stocks illustrating parabolic gains the past few months.
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