Top Stocks to Start 2018
2017 was a historic year for the stock market. The S&P 500 finished about 20% percent higher and the market closed at new highs every month for the first time in history. Some ague that this increase has been more to do with speculation, the new tax bill, and continuing to operate in a low interest rate environment then actual earnings and business growth. That argument tends to hold up as the market is trading a premium in some sectors only seen since the “dot com bubble.” What makes things tricky to evaluate is there has never been a time in history when interest rates have been as low are they are now, so it could be that stocks are fairly valued given interest rates. The sentiment at the beginning of the year was that the market was overvalued but despite this the market had one of the best years ever. Basically, if you invested based off valuation last year, you were wrong and missed out on great returns.
Given that the market just had one of its been years ever and we haven’t seen a decent market pullback since 2013, it is safe to assume lower returns. There is always value to be found in the market but I don’t think this is the year to expect blue chip, FAANG (Facebook, Amazon, Apple, Netflix, Google) songs to have the 30-50% returns we saw this year. If you are looking for Alpha (higher than market return) it will probably not be the FAANG Stocks leading the way this year unlike past years.
With that primer here are my favorite stocks for 2018
1. Tencent Holdings (TCHEY)
Tencent is a superpower of a company. Many Chinese companies such as Baidu and Alibaba are often compared to US companies i.e Google and Amazon respectively; but it is hard to find a good US comparison to Tencent. Tencent owns some of the most valuable tech properties in China such as QQ and WeChat. WeChat is perhaps the most valuable App in the world, it has 900 million monthly active users (MAU) and offers of different types of entertainment in app, such as streaming, gaming, and even transaction services. QQ is in the picture with 850 MAU often compared to the Facebook of China. Tencent is also the largest video game producer in the world, almost by a factor of two. They are involved in the growing field of internet marketing, and use their massive amounts of cash to make strategic investments in known companies such a Snapchat, Tesla, and Activation Blizzard. Tencent is currently the 7th largest company in the world, has excellent financials and intellectual property, faces less questions to legitimacy then other Chinese companies such as Alibaba, and given China’s comfortableness with monopoly like business there is nothing to stop Tencent from getting bigger. I also think investing in China could be a good bet given market highs.
2. Nvidia (NVDA)
Simply put Nvidia is the Cadillac of processors powering some of the biggest trends in technology: gaming, artificial intelligence, virtual reality, self-driving cars, cryptocurrencies, and in a lot of cases there is not good substitute for the products they provide. Granted Wall Street took notice and this was one of the best performing stocks of 2017 and is pretty expensive by valuation but sometimes you have to pay up for good companies. It’s gaming revenues continue to drive investment into their younger segments like AI, and self-driving cars. Nvidia is company built for the future. Some of the best investments often always look overvalued (Apple, Amazon are great historic examples) which is part of the reason the stock may still have some runway ahead of it—because people are scared of that valuation. Don’t expect another 2017 for Nvidia, but it it’s a good idea for this stock to have a place in your portfolio. Fun fact this is the first stock I bought $30/share in 2016. Not bad returns there.
3. Shopify (SHOP)
Look at this another big winner of 2017. What can I say? Like the president I like winners. Shopify has an absolutely awesome business model. They provide everything small to even large businesses need. They design website, do logistics, open up your products to larger channels, and connect and outfit your business with software and hardware to handle transactions, accounting and inventory. It can empower a single entrepreneur to do what 3-4 people used to do. Shopify makes money from both monthly subscriptions ranging in price as well as from transactions that their merchants make. Simply put the better Shopify does at making people who use their system successful, the more money they make. I love that symbiotic relationship. Stock has cooled off in recent months but Spotify merchants have consistently beat wall street estimates.
4 . General Motors (GM)
Yep, going out on a limb here with boring old General Motors. While the world is infatuated with Elon Musk and Tesla, general motors has quietly been researching the electric vehicle space and pioneered the first major electric car of this century, the Volt which actually compares pretty evenly to the Tesla Model 3, just without the sex appeal. What they lack in sex appeal they make up for in manufacturing and distribution. General Motors has been doing this for years. General Motors has been a strong company since the bailout. Stock has done well in recent months, but still this could be on of the best values in an expensive market.
5. Illumina (ILMN)
Genetics is the future of medicine, everyone knows it. When treatment can be personalized to your body it is more effective and cost-saving as doctors can prescribe what will work, and not guess until they get your body to respond the way they want it. There are a lot of ways the play this growing market. Illumina is the most sure-fire bet. Illumina is the company that actually sequences your genome for use. The cost of genetic sequencing is coming down drastically from thousands of dollars to hundreds of dollars. I think it is a safe bet that in the next 5 years, half of Americans will have their genes analyzed for medical and even other uses. Illumina will be the company that will sequences those genes. While the price coming down may be both good and bad for Illumina, what excites me most is the data they will be able to collect. It may seem scary but if you pool what we know about genetics and can aggregate risk factors and effective treatments that is immensely valuable. Big data has won in the past Illumina is in position to hold such data.
Twitter (TWTR), Celgene (CELG), Intercontinental Exchange (ICE), Amazon (AMZN)
I kind of hate things with titles such as "Top Stocks for XYZ" but it is fun to think about and interesting. Never buy and sell stocks just based off my advice and only buy stocks with a long term mindset. These stocks seem like good long term opportunities at this current moment headed into 2018. Happy Investing and Happy New Year!