Market Bottom + Stock Earnings Point to BUY
We’ve hit the bottom, now it’s time to go UP!
Remember, you have to zoom out to see the big picture. Selling is normal. And some of our stocks are down.
But our strategy is solid, so you should hold with Strong Hands. In fact, this is actually a great time to buy.
If you’re looking for the best opportunities, we’ve got a few for you.
Earnings are coming out and I’m seeing some very #BOP projections in 3D printing, cannabis and more America 2.0 stocks.
Watch today’s IanCast for the full scoop, then come back and check out our new crypto content below.
What’s Going on With America 2.0 Stocks?
Paul: People want to know about the stock market, specifically the kinds of stocks we own across our services: growth stocks, Fourth Industrial Revolution stocks, America 2.0 stocks.
We are also going to cover Bitcoin (BTC). We’ll talk about where BTC is getting its value from and make our case for why a significant amount of it is coming out of gold. There’s big news on cannabis. Sales have hit a record. It’s a big number. We’re going to discuss that.
Then, within our regular roundup of BTC, Tesla and cannabis, on the Tesla front there are a couple analysts on Wall Street who are finally getting on board that Tesla is not going bankrupt. They are starting to look at Tesla as a software play rather than being a car.
Let’s start with the stock market and what has been going on. You start and I’ll have some comments.
Ian: It’s been a rocky period. A lot of growth stocks have taken a dive. We are seeing corrections in growth stocks, especially ones that have gone up a ton from last fall through the beginning of this year. We will look at how the small-cap stocks in the Russell 2000 are outperforming.
I know the short term can be painful in these stocks, but it’s still clear that these stocks are the leaders and there still is overall demand for them even though we see a lot of volatility right now.
Paul: This is the same chart we have put up before and it has six indices: S&P 500, S&P 500 cap weighted, Nasdaq Composite, Nasdaq 100, Nasdaq 100 equal weighted and the Russell 2000. I know you love quizzes.
What would you say is the best-performing ETF? These are actually the performances of the ETFs. That way we have a realistic performance. Which is the best performing since the March 2020 crash bottom?
Ian: I would say the Russell 2000.
Paul: For extra points, even after recent declines, where would you guess this is? Is it still 50%, 100% higher?
Ian: I am going to say at least 100% from the low.
Paul: Excellent. Right on both fronts. We have no gifts unfortunately. But awesome job getting it right. The Russell 2000 is in the lead. 123% even after what has gone on over the last two or three weeks. We won’t torture you with more quizzes.
We have been telling folks for some time that you want to be in smaller companies. You want to be in innovation companies, which tend to be the smaller companies. We will put this chart up. Our amazing team finds the perfect moments to put them up.
When you compare the equal-weighted ETF to the S&P 500 cap-weighted ETF, it’s a huge lead. It’s 92% versus 73%. This is since the crash bottom.
Ian: We have talked about this a lot. We have covered it since last summer, or maybe even before that. It was clear that the tech stocks and smaller stocks that are higher growth with more innovation really rebounded and made more highs right after that crash.
That was a clear sign that these stocks really had demand. They were what people bought first right after the crash and they lead for quite a while. If you look back, we just showed they are still leading from that bottom. It’s definitely the place to be.
Paul: The Nasdaq Composite is at about 91%. Comparing that to the Nasdaq 100 which is over weighted in Facebook, Amazon, Netflix, Google, Microsoft, it’s below that at 82%. It’s interesting that the equal-weighted version of the Nasdaq 100 is identical to the cap weighted.
Ian: Yeah, as opposed to the S&P 500 which is 500 companies. The Nasdaq 100 is fewer companies so it’s going to be more equal than the regular index. The S&P definitely has a big divergence.
Paul: The bottom line to making this point is these indices represent stock categories of growth, innovation, America 2.0, Fourth Industrial Revolution that have gone up huge.
Ian: The point I was going to make before is that in the S&P 500 equal weight, everything has the same weighting. So Apple is weighted the same as a smaller 3D printing company or a pot company.
When those smaller stocks that went up hundreds of percent in the last year have the same weighting as Apple, which did alright but hasn’t done as well recently, you can see we you even it all out the gains from those smaller stocks start to outdo the ones that have not done as well.
Paul: In all, there does need to be some perspective. After nearly one year, it’s normal for stocks to sell off. It’s painful. We understand. Particularly if you got in sometime later like in January or early February, you are definitely sitting on significant losses.
We don’t want to say it’s insignificant. Nonetheless, there needs to be some context for what is going on. The next chart will provide some context. It’s the same set of indices on a year-to-date basis. So it’s just for 2021.
These are the numbers. The S&P 500 is still up 2%. That makes sense. What is going on is all the stuff that was lagging before — banks, oil companies — is all being bid up. That’s still a significant part of the S&P 500. The S&P 500 equal weight is still up 6.5%.
Then the Russell 2000 is up 12% still. It looks like it was up nearly 18%, so it has given up about one-third of its gains. Then the Nasdaq Composite is flat for this year. The Nasdaq 100, reflecting some of the selloff in those big names, is down 1.5%. The equal-weighted version is about flat.
Even within the context of 2021, we realize it had a rapid start that was a follow-on from 2020. Even with that, the smaller companies are still doing pretty well.
Ian: That’s demonstrated by the Russell 2000 still up 12% as of yesterday’s close. Even in this downturn, the Russell 2000 still hasn’t been hit as hard as some other indices. In pockets of the market, growth stocks have been crushed the past few weeks.
Overall, the Russell 2000 is still looking pretty good.
Paul: We would make the argument that when you look forward the growth prospects still look good for these stocks. Can you think of a factor that has dramatically changed other than the demand and supply balance? Clearly there are a lot of sellers of these growth stocks who are willing to take lower prices to get immediate liquidity.
Interest Rates, Secular Change and Paradigm Shifts
Can you think of a factor that has significantly shifted? I am getting a lot of questions on Twitter about interest rates, secular change, paradigm shift. Can you think of anything that has changed?
Ian: No. Of course whenever something like this happens there’s a bunch of headlines to try to explain it. Rather than just the supply and demand imbalance that affects every market move. When you have stocks go up hundreds of percent in a matter of a few months, there has to be some profit taking at some point.
That profit taking at the temporary top turns into panic selling at some point. That’s what we are seeing right now I think. We are getting to the end of the panic selling in some of these areas, specifically pot and 3D printing. They have gone down fast with lots of panic because people bought in at the top.
They are down 30% in a couple weeks. It’s not great, but that’s the situation we are in. Nothing has changed in regards to the companies. If anything, they’ve gotten better. Especially 3D printing. It’s just getting started and hasn’t been adopted on a commercial level yet.
Over the next few years I think we are going to see a lot of things 3D printed in the stores and it’s just going to become very normal.
I have read a lot of earnings reports from 3D printing companies. There’s tons of optimism in 3D printing in general. I would not say this is a time to sell. If anything, it’s time to buy more.
Paul: From my side I will say those stocks had been sold in a terrible bear market for something like four or five years. That mix of a shift in the outcome short, mid and long term, fundamentals, short covering and then people who are in it just for a quick buck all came in.
When you have some of that coming out, you are definitely going to see some gains given up. However, nothing has changed. Like you said, it’s actually getting better. You said something earlier that we’re getting the sense this correction is nearing its ending point.
Ian: Even though the market was down yesterday and today, I saw some stocks making 52-week highs. Not to get off on a tangent, but I look at the options market a lot as a gauge for stock sentiment. The number of call options bought, which is the bet a stock will go up, was actually up Wednesday when the market was down a lot.
It was kind of surprising to see. It’s a sign to me that people are starting to bet on a rebound.
Paul: The high and low data on the 52-week highs suggests there is a turn unfolding. When you look at the chart you can see a sharp drop in January where the number of 52-week lows is in steep decline. Our point we’re making is that there are always ebbs and flows in the market.
There are no straight lines. There are always dips and rises. There is always a churning and tumbling of demand and supply as buyers and sellers interact with different amounts of stock. When big sellers come and want instant liquidity, wholesale prices are always lower than retail prices.
Ian: Exactly. At the top of some of these areas, it was a big seller who wanted to sell a big chunk of their shares. It drove the prices down very fast. Those are areas in the market where a lot of retail buyers bought in at or near the top because they saw it go up so much.
That factor drives it down even more because of the panic selling there. The big buyers and sellers really can influence something if they have a big retail presence in the stock as well.
Paul: Many folks who have never worked in fund management or on Wall Street sometimes never think there is a lot of different markets. There’s a market for 100-share lots. There’s a different market if you want to sell 100 million at a time. People may think, “Why would anyone do that?”
They want instant liquidity. If you want to sell 200 million shares all at once, you’re never going to get that price. You are going to take a haircut. If you’d like guidance on when to buy, what to buy, we would recommend our services.
Our flagship service is called Profits Unlimited. If you go to ProfitsUnlimited.com, that’s the easiest way to check into the service and subscribe. The other way is to follow us through our free e-letter Bold Profits Daily. You get an email pretty much every day.
It includes points of view, ETF recommendations. We largely like to keep individual stocks for our services, but there are a few things we do put out in terms of single stock names to try to show you what we work on.
We were talking about call volume. I have felt from tracking a number of stocks to actually start to pull the trigger today. I actually sent a buy for our True Momentum service and a flash buy for Profits Unlimited. I am very excited for these because it’s the true beginning for artificial intelligence (AI).
We are really beginning to see the first generation. We had Microsoft, which was dumb software, then we had cloud and now we have AI. There are new moves that are going to come that are going to lead the market higher.
Ian: I put out a trade in one of the options services today too. So we are on the same page with that.
Paul: We know it’s hard to buy into moments like this. That’s because if you are looking at a lot of information, the time to put trades in is often the difficult times. We’ve done the stock market. We are still bullish, optimistic, positive — BOP. This is a hashtag I came up with on Twitter.
We use it as a way to communicate that we are still BOP on the market. If you see it, it just means we are bullish, optimistic, positive on America 2.0 stocks, Fourth Industrial Revolution stocks, innovation stocks. We believe this correction is going to come to an end.\
People are going to come back and bid up our stocks higher. If you are in our services, please hang in there. We have gone through many of these before. If you are interested at buying in a low prices, I believe we are somewhere near where you want to be a buyer.
Which Crypto is Performing Best Since March Bottom?
Let’s transition to discussions on crypto. Here’s quiz number two. No prize. You are playing for pride. In terms of all we cover on a regular basis — BTC, Tesla, cannabis and I’ll throw in Ethereum — what was the best performing of those from the March bottom?
Ian: I am going to say Ethereum (ETH). I think it went down below $100 and now it’s around $1,600.
Paul: That’s exactly correct. You are definitely on top of crypto. I have to tell you, that was a little surprising. I know BTC has sold off a little but the outperformance of ETH did make me think. One of the questions that comes up all the time is, “Where is the money coming from to bid up BTC or ETH?”
People say there is going to be massive inflation and crypto is only going up because of inflation. Or people say the dollar is going to collapse. There is an extreme theory often driving explanations for why crypto as an asset class is going up. What’s your theory?
Ian: If it was only because of inflation everything would be up like crypto. I am not sure what the main core of that argument is. I don’t think it’s inflation. I think people are looking for growth right now. Everything is transforming in pretty much every industry. New tech is going everywhere.
This is the way to buy in the new form of finance. It’s getting popular to want to have things decentralized. That’s what crypto can bring to finance. People have not forgotten about the 2008 banking crisis. There are still a lot of people affected and people don’t want to deal with that again.
I think people are putting the money they had in the stock market into crypto. I think a lot of money has flowed out of a lot of places in the stock market. Probably places like traditional banks and other sectors we have seen start to decline like oil and older forms of energy.
Another thing is that people have been hoarding their savings. I think they are looking for a place to put it. People aren’t putting their savings in a bank that earns basically nothing. They are putting it in crypto where you can earn 10% interest on a decentralized bank account.
I think a lot of people are interested in this and want to buy into BTC. They are seeing other people make money. They want to be part of that too. I think that’s another driver.
Paul: Our amazing colleague Amber also put out a tweet showing the amount of cash balance sitting around. The amount of savings is at an all-time record. I believe it’s 7% or 8% of GDP.
Ian: There’s a lot of money also in money markets, which is another form of savings account. Money that was in bonds is earning a percent. People are looking for alternatives. This isn’t just an alternative that can earn them more money, it’s actually an alternative to the financial system they currently have their money in.
Paul: One of the explanations we have put out there to justify our predictions for where BTC is going to go — let’s right now stick for now to BTC and where you think it’s going to go.
Ian: I think BTC will be $115,000 by August. I think the top in this whole bull cycle will be $350.000.
Paul: I am on record as saying I believe BTC will be at $250,000 over the next one to three years. Now let’s put up this chart. One of the explanations we put forth is that we believe a lot of the market capitalization is coming from gold. Gold is used as a store of value. I know this being from India.
This is a default. The Indian Rupee is at zero in terms of being a store of value. When my father looked to save any amount of money he had, there were only two options. One was gold, which he disliked. Then there was land, which he liked but was very difficult.
It’s illiquid. It’s hard to make a deal. Indian bureaucracy made your life hell. BTC is so much easier. It’s easily done around the world. I know you have tracked what’s going on in Africa and Nigeria with respect to BTC.
Ian: It has become very popular. Most countries have bad inflation problems. It has become very popular in places like Africa and South America that have the highest inflation. A few weeks ago, we were talking about Kenya because their leader said he was interested in making BTC the reserve currency for them.
At the same time, in Nigeria there is an effort to ban it. I think no matter what these countries are not going to find a better solution. I think BTC will be widely adopted as a store of value like you said. It’s easy to buy. You can do it as long as you have an internet connection.
There’s no easier alternative. Land is illiquid and hard to buy at times. Gold can be regulated or taken. BTC is portable, very fast to transfer — it’s just easy.
Paul: Another one of my predictions is that I believe a country is going to adopt BTC as its official sovereign currency. Many people thought that was preposterous. However, it’s now looking more likely. I retweeted something from Mira at Messari which does great work on crypto.
It quoted one of the senators from Nigeria talking about all these countries and currencies saying that BTC is basically telling you all these currencies are worthless. My response was to put a tweet with a Pacman. BTC is eating the world’s currencies that hold no value.
I believe the idea that BTC is taking share from gold is starting to unfold. If you look at the March bottom for silver, gold and BTC compared to the U.S. dollar, gold is now up about 13%. Silver is up 100%. BTC is up 916%.
Ian: It’s not even close.
Paul: And gold is starting to show a significant decline. This is in a period of time where countries around the world have put out stimulus packages where people have been given cash. Naturally this is a period of time where people are looking to put money into stores of value.
Ian: We have seen crypto really benefit from that. A lot of people have been hoarding savings. Some went into stocks, but a lot of it is people putting money into BTC, many of them for the first time.
Paul: We have seen a lot of activity in these DeFi coins. You have a prediction for ETH. Lay that out for folks.
Ian: I think ETH will hit $8,000 at the top of this bull cycle.
Paul: I believe ETH can be at $4,000 by the end of this year. It peaked out at about $2,000, so it would be about a double. Our colleague Tamara Barkhanoy has a prediction that 70% of mortgages could be on the blockchain by the end of this year. I would love for that to happen.
You track this. Where are we with smart contracts and being on the blockchain?
Ian: I don’t think we are at the point with mortgages yet. Maybe here and there someone might tokenize a house. We have seen other assets be tokenized. There’s one service I have seen that tokenizes real world art. They have classic paintings on their website.
You can buy these paintings and hold a share of them. I don’t think it will be long with mortgages. There are people who already want to buy art and mortgages have way more of a use case. I think it would be adopted quickly. It will be a niche thing for a short period of time and then everybody will catch on.
It’s so easy. It’s the same thing as DocuSign. When you use it once, that’s it. You only want to use that from now on.
Paul: It’s like our friend Cathie Wood at ARK Invest says, it slow at first and then suddenly. I believe the same thing. Whatever is going on in the art market, if you can fractionally own a piece of art and there’s an underlying structure, it’s no different than owning a house.
This is all going to unfold. This might all seem like science fiction today, but Ian and I track all this very closely. This is why we plan to have a crypto service. It’s going to be a trading service rather than a buy and hold service. We plan to put crypto in all our services.
The small-cap service will get small-cap crypto on a buy-and-hold basis, mid cap will get mid-cap crypto. Already in Profits Unlimited we have BTC and ETH. We are all in on this revolution. We are BOP on crypto and BTC. If you are interested, once again, ProfitsUnlimited.com.
U.S. Cannabis Sales Hit $17.5 Billion
Paul: U.S. cannabis sales hit record of $17.5 billion. I will add on to this that Virginia is set to legalize cannabis today.
Ian: That will be big. $17.5 billion was almost 50% higher than 2019. So it was a huge year in 2020. I think that was actually more than the rest of the world combined. It’s becoming a huge industry in the U.S. We are starting to see the stocks follow it.
There’s still so much upside, especially after this recent dip. It’s a great opportunity. I think the article mentioned even the more mature markets like Colorado and Oregon went up 20-30%.
Paul: This detail is from an article from Forbes, which is interesting. Of people living in states that have legalized recreational sales, 43% use cannabis, up from 38%. In Colorado, where market penetration is greatest in the country, 48% of Coloradoans imbibe.
There’s a comment from an analyst who says close to 50% market penetration is compelling, alcohol’s penetration is only 60%. We are really rolling along here.
Ian: Yes. It’s taking market share from alcohol for sure. It’s one of the main drivers of growth. I think people will drink less alcohol and have more marijuana. That’s definitely a huge factor here, especially for younger people. I think it will drive it even higher.
I think $17.5 billion was also way above the estimates. I don’t think anybody thought it would grow by 50% last year.
Paul: Absolutely not. In this article there is also a lot of suggestion that this is sort of recession proof. I can tell you that some of my millennial friends and others see alcohol as a lesser to cannabis. Cannabis goes through your system easier, people who use it for the same purposes of alcohol feel it has less of residue in the system.
There’s a reasoning for why people prefer it. We’re getting pretty close to having half the country have legalized recreational sales. At that point, do you want to venture a guess where it might be at the end of 2025? Will be we be at $100 billion, $120 billion?
Ian: $17.5 billion last year. I think five years out I don’t see how it couldn’t be $80 billion. More places are going to legalize and you have crazy growth. I can see $80 billion.
Paul: I believe there’s extraordinary growth and the stocks seem to be indicating that. There was a bear market bottom, a huge bounce which is normal and a drop post that which was profit taking. Now we are starting to see serious demand for these stocks.
Anything on ETFMG Alternative Harvest ETF (NYSEArca: MJ)? Do you feel like it’s a buy here?
Ian: I do have a prediction for that this year. I think it will go to $40 a share. In the beginning of the year that looked like a sure thing. It’s dropped. I still think it’s highly probable it will hit $40 and probably blow past that.
Paul: I will go in full agreement of that. I think the vast majority of selling in MJ and cannabis stocks is mostly behind us. I believe Ian is right. Cannabis stocks are going to soar and rocket higher. You can see the benefit of being late versus early.
You come in early, you have to sit through a correction or decline. Then you have to wait even longer to get to the next high to feel like you get a lot of money. Ian and I cover cannabis in our service. If you are interested, check out the links below that will tell you how to get into Profits Unlimited.
We do have a cannabis stock in Profits Unlimited and scattered across our services. We are all in on cannabis. To summarize, we are BOP on cannabis and cannabis stocks. Let’s talk about Tesla. I found this discussion on Barron’s which had the headline, “How much is Tesla’s software worth? A lot.”
It talks about an analyst at UBS named Patrick Hummel trying to break down the value of Tesla in terms of its hardware versus software. He works it out that based on an overall package worth $800 billion, $600 billion is actually software. So just $200 billion is hardware. What’s your view?
Ian: I think probably at least $600 billion is software out of that. First of all, that’s why everybody was wrong when they said Tesla was overvalued as a car company. They are not a car company. They are a software company that uses software in cars, as well as a bunch of other things. Also, energy storage.
It’s a unique company. I think their software is top of the line. No one else has anywhere near the commercialization of self-driving software that they have. Who knows what’s coming down the path with them integrating that in the energy grid. They already have a niche product that allows you to sell energy back to the grid if you don’t need it.
You can actually make passive income doing that. So that’s one area. I think their software is going to affect a lot of things.
Paul: I believe the UBS analyst, even within the context of trying to get something right, is still making a mistake of only considering Tesla a car company with software. The car company is a transportation and mobility company that uses software.
Over time it will use the software to move things, whether it be a person, goods. I believe he missed what you said which is that there will also be software that runs the energy stuff and optimizes around that. What would you value that at?
Ian: Hundreds of billions of dollars down the road at least. Everybody is connected to the grid. Everybody will be able to benefit from the software. I’m sure it’s going to be groundbreaking. The thing where you can sell energy back to the grid is already groundbreaking.
That in itself is worth a lot. I imagine whatever they come out with next is going to be worth even more.
Paul: This is a company that has so many shots on goal. Obviously people focus on the cars, but it’s transportation, mobility, software, AI and the energy business. The energy business is where they were when they were first making cars.
Ian: Probably right around when they made the Model S in 2013.
Paul: The analysts are not even thinking about the software that optimizes all these things in the energy part. That will be several hundred billion at a minimum. Energy is an even bigger part of the human ecosystem.
Ian: There are two, trillion-dollar markets this is disrupting and no one is even on the same level or even close to it.
Paul: It’s crazy that Tesla is compared to GM and Exxon.
Ian: I haven’t heard them compared to energy because nobody even thinks about that. Everyone just thinks they are a car company. Their energy business is arguably more valuable or will be at some point.
Paul: To recap, despite what is going on, we are still BOP on Fourth Industrial Revolution stocks, America 2.0 stocks, crypto, BTC, cannabis and Tesla.
And in the coming weeks, we’ll be launching a brand-new cryptocurrency research service to profit from the historic boom we’re witnessing in this new and exciting sector of the market.
Before that happens, Paul and I are going to release exclusive content to a small group of IanCast viewers. To make sure you’re on the list for this content, click here to sign up (completely free).
Editor, Rapid Profit Trader
Editor’s Note: Paul and Ian have nailed pretty much every major crypto call over the last three years. From the 80% bitcoin drop in 2017 to the 2018 rally to new highs in 2020 … these are the guys you want in your corner. And coming soon: a brand-new Paul and Ian crypto trading research service. But before we launch, we’re sending out exclusive crypto updates. You can get these completely free if you sign up here now.