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There’s “Blood in the Streets” for These Tech Sectors

There’s “Blood in the Streets” for These Tech Sectors

All the finance courses in the world won’t prepare you for the reality of the stock market.

The problem is they assume investors are rational.

But in the market and all walks of life, emotions take over, and rationality goes out the window.

People rarely act by the book. Valuation models hardly matter when investors have a herd mentality.

This has and will continue to lead to market extremes.

For instance: The dot-com boom and bust, the COVID panic in 2020 and even the meme stock rally in 2021 were all market extremes.

In each case, logic went to the wayside, emotion took over and prices overshot.

These situations create great opportunities to buy and sell.

It’s this idea that inspired sayings like “buy when there’s blood in the streets.” Or “sell when the shoeshine boy talks stocks.”

In other words, you should take action when sentiment and prices get too high or too low.

That brings me to an important point…

We’ve seen a market extreme develop over the last year. And now there’s a huge profit opportunity.

Tech Valuations Have Taken a Nosedive

There are several indicators that I follow that support this view. But one of my favorites is the relationship between tech and consumer staples stocks.

Paying attention to the changes in both can signal investors’ sentiment.

Investors typically bid up tech when overall sentiment is high and bid up staples when sentiment is low.

Right now, activity in both indicates sentiment is extremely poor.

Consumer staples stocks are now the most expensive they’ve been in the last 30 years. Meanwhile, tech valuations have taken a nosedive.

This has put the forward price-to-earnings (P/E) ratio of consumer staples at the same level as tech.

(P/E) ratio of consumer staples at the same level as tech

(Source: Bloomberg.)

This may not seem like a big deal. But when I dig more, I see more support the market is being extremely irrational.

For example, investors are now giving consumer staples brands higher valuations than tech heavyweight Alphabet.

This comes despite Alphabet’s huge advantage in the earnings growth department.

Alphabet vs. Consumer Brands

(Source: Bloomberg.)

With sectors like consumer staples now extremely expensive, investors will need to put their money somewhere else to get a superior return.

Typically, investments go into areas of the market that were previously underperforming. This is because after periods of underperformance, they offer investors the highest return potential.

Right now, the highest return potential lies in innovative tech stocks and cryptocurrencies.

These have struggled as of late, down 32% and 45% from their respective peaks.

Innovation & Crypto Index

(Source: Bloomberg.)

They’re now in “blood in the streets” territory and are primed for a rebound.

We’ve witnessed this occur in oil and gas stocks since their sell-off in 2020. They’re now sitting over 300% above their 2020 lows, when investors punished them due to fear and uncertainty.

I expect innovative stocks and cryptos will see a similar rebound. But considering the huge growth behind the scenes, this one could be even stronger.

My colleague Ian King knows how to spot these opportunities more than anyone. He has helped his subscribers land gains like 1,934%, 3,981% and 18,325% in a year or less.

Now he’s breaking down his favorite opportunity in a new presentation. You don’t want to miss it.

Regards,

a black and white drawing of a hand with a long pointy point

Steve Fernandez

Research Analyst, Strategic Fortunes

Morning Movers

From open till noon Eastern time.

Nkarta Inc. (Nasdaq: NKTX) develops and commercializes cell therapies for cancer treatment. The stock jumped 111% after the company announced positive results from a Phase 1 trial of its cancer treatments targeting acute myeloid leukemia and B-cell malignancies.

 

Swvl Holdings Corp. (Nasdaq: SWVL) provides tech-enabled mass-transit ride-sharing services. It is up 34% after announcing that it is set to acquire Volt Lines, a Turkey-based Transport as a Service mobility company.

 

Redbox Entertainment Inc. (Nasdaq: RDBX) operates a network of self-service kiosks where consumers can rent or purchase new-release DVDs and Blu-rays. The stock is up 24% on a rebound after several analysts lowered their outlook on the stock ahead of the earnings report for its current quarter.

 

Cango Inc. (NYSE: CANG) is a Chinese automotive transaction service platform that connects dealers, equipment manufacturers, financial institutions, car buyers and other industry participants. The stock rose 20% after the company announced a special dividend and a share repurchase program.

 

Beyond Air Inc. (Nasdaq: XAIR) is a medical device and biopharmaceutical company that develops nitric oxide generator and delivery systems. The stock is up 17% after presenting positive safety and efficacy data for inhaled nitric oxide to treat COVID-19.

 

Veru Inc. (Nasdaq: VERU) is a biopharmaceutical company that focuses primarily on developing medicines for the management of cancers. It is up 16% after presenting Phase 2 results on its candidate, Sabizabulin, in patients with severe COVID-19 and at high risk for acute respiratory distress syndrome.

 

PS Business Parks Inc. (NYSE: PSB) acquires, develops, owns and operates commercial properties, primarily multitenant industrial and office space. The stock climbed 12% on the news that it is being acquired by Blackstone in a deal worth $7.6 billion.

 

Silicon Motion Technology Corp. (Nasdaq: SIMO) designs, develops and markets semiconductors for solid-state storage devices. It is up 9% on the news that the company is exploring a potential sale amid takeover interest from unnamed parties.

 

Ginkgo Bioworks Holdings Inc. (NYSE: DNA) is a synthetic biology company that develops platforms for cell programming. The stock is up 9% after the company announced a partnership with Bayer to significantly expand its capabilities in agricultural biologicals.

 

BioLife Solutions Inc. (Nasdaq: BLFS) develops, manufactures and supplies bioproduction tools and services for the cell and gene therapy industry. It is up 7% after analysts at Oppenheimer upgraded the stock to a buy rating and set a price target of $28.

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