Add These 2 Stocks to Your Portfolio as the Tech Rally Goes Global

2017 will likely be remembered by investors as the year of the big rally in technology stocks. Unlike 1999, this year’s gains were powered by more than hype. As I’ve written a number of times, earnings for these firms have been fabulous.

In the third quarter of 2017, S&P technology companies had an earnings growth rate of about 21%. That kept the sector’s P/E ratio in the 20 range. Quite a contrast from early 2000 when it the forward price-to-earnings ratio for tech stocks was a whopping 52.

An even bigger story for 2017 was how the tech rally went global and how all the global tech giants became even bigger. Overall, tech stocks globally are up about on average about 42% year-to-date. That is roughly double the gain for the broad-based MSCI AC World Index.

Global Tech Stock Rally

And here’s an even more amazing number for you to contemplate… as of the day before Thanksgiving, just eight companies had gained an incredible $1.4 trillion in market capitalization in 2017. That was likely on the back of investor expectations that the big will only get bigger thanks to their huge user base, large cash piles and access to data on consumers.

Here is the list of these eight companies, starting with five American names you’ll recognize:

Apple (Nasdaq: AAPL)

Amazon (Nasdaq: AMZN)

Netflix (Nasdaq: NFLX)

Alphabet (Nasdaq: GOOG)

Facebook (Nasdaq: FB)

…along with the three Chinese tech powerhouses:

Alibaba (NYSE: BABA)

Tencent (OTC: TCEHY)

Baidu (Nasdaq: BIDU)

Of the top 10 companies globally by market capitalization, the first seven are all very familiar technology names – Apple, Alphabet, Microsoft (Nasdaq: MSFT), Amazon, Facebook, Tencent and Alibaba.

No real surprises here. But here is something that may surprise you. . . . .

China Tops the U.S.

That is the fact that the top Chinese tech stocks have easily outpaced the FAANG stocks in 2017. I brought these stocks to readers’ attention earlier in an article on the so-called BAT stocks – Baidu, Alibaba and Tencent.

This differential came to the fore last week when, at least temporarily, Tencent surpassed Facebook in market capitalization. It became the first of the Chinese tech titans to surpass $500 billion in valuation. It temporarily pushed Facebook out of the top 5 globally in market cap.

Tencent (up 121% in 2017) is a fitting champion for what China is becoming in the 21st century. Its services are ubiquitous in China with more than half of the 980 million users of its WeChat platform spending over 90 minutes daily on the app chatting, playing games, listening to music, paying bills, ordering food, etc. Its QQ social network platform also has about 900 million users.

However, Tencent gets two-thirds of its $32 billion in annual revenue from gaming, with hit games like Honour of Kings ‘printing’ money for Tencent. People download games, buy add-ons like virtual weapons and sign up for digital media options like its YouTube-like video service.   

Not far behind Tencent is Alibaba, which is up 118% year-to-date and has a market cap of nearly $490 billion. The e-commerce giant will most likely become a member of the exclusive $500 billion club very soon.

And while the U.S. financial media went gaga this week over Black Friday and Cyber Monday, the financial press around the world is still talking about the world’s largest online shopping day – Singles’ Day in China.

Back in 2009, Alibaba started the Singles’ Day sales event and it has grown to enormous proportions, benefiting chiefly Alibaba. This year it set another record, with $25.3 billion in sales (a 39% increase from a record 2016) for one day! In a side note, 90% of these sales were conducted via a mobile phone.

Both Alibaba and Tencent dominate another red-hot area of growth in China – e-payments. Stocks here in the U.S., such as Square and Paypal, have soared this year on the back of the move toward e-payments. But in China, the e-payments sector is like Square’s and Paypal’s growth on steroids. China is the world leader with volumes in 2016 rising nearly fivefold to $8.8 trillion, according to iResearch.

Currently, Alibaba is number one in the sector, as its Alipay unit has a 54% market share. But Tencent’s WeChatPay is closing fast with a 40% market share.

Related: 2 Payments Company Stocks Heating Up

The story holds true in the digital advertising space as Alibaba still dominates the sector, with Tencent steadily closing the gap. By 2019, Tencent’s ad revenues are forecast to hit $11.4 billion, which would be a 15% share of the digital ad space in China.

Don’t Be Afraid

I am happy to say that I’ve owned both of these stocks for a while. And you should not be afraid to own them just because they’re Chinese companies. Here’s why…

First off, the Chinese government has specifically stated it wants technology champions that are recognized globally. So while the government may poke its nose into corporate business once in a while, it’s not about to kill these two golden geese.

More importantly though is the growth of China’s middle class, which is doing most of the consuming and generation of revenues for both Tencent and Alibaba.

According to a study by the consultancy McKinsey & Co. 76% of China’s urban population (currently 750 million) will be considered middle class by 2022. In 2000, only 4% of that population was considered middle class. That translates to 550 million people, which would be the world’s third most-populous country.

China’s consumer economy is forecast to grow by 55% by the end of the decade to $6.5 trillion. That would be an increase of $2.3 trillion or the equivalent of 1.3 times the current German consumer market.

With these sort of economic tailwinds – and the sheer numbers working for you (China is so much larger than the U.S.) – both Alibaba and Tencent should continue their winning ways into 2018.

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My Thanksgiving Conversation With Johnny Shines a Light on the Real Reason to Invest in Bitcoin

My Thanksgiving was full of good cheer, as I expected. The food followed the usual script: The dark meat was better than the white… the stuffing was better than the mashed potatoes… and the pies were amazingly good.

What was different? A new topic dominated the conversation.

Yep, you guessed it: cryptocurrency.

I sat next to Johnny, one of my favorite people and a really smart dude. I don’t see him too often. I live in Maryland and he lives in Virginia. He commutes to Texas every week, working for a global energy company. His specialty is oil. This week he’s in London. Next week, who knows?

We began talking oil, then North Sea oil, then Norway’s huge oil windfall, then its $1 trillion sovereign wealth fund, grown this large thanks to oil revenues. At this point, I commented, “It’s going to be interesting to see whether the fund will invest in bitcoin, some other cryptocurrency or a blockchain-based company.”

The Case Against Bitcoin

Johnny said, “Those cryptocoins? They’re awfully risky, aren’t they? Why would the government of Norway invest in those?”

Johnny was just getting started. He proceeded to cover the entire spectrum of reasons why he wasn’t buying into that “crazy crypto bug.”

When he stopped, he looked at me in anticipation of… what? A fierce counter-offense? A point-by-point refutation? Anything I could tell him about cryptocurrency that would change his mind right there and then?

Well, none of that happened. Instead, I said, “You’re mostly right.” And I meant it.

When he said that bitcoin was new and largely unproven, he was mostly right. Compared to gold, it was born a minute ago. Compared to most fiat currencies, bitcoin is still in its infancy.

On the other hand, it’s proven to help millions of people who use it to transfer money. It’s a proven store of value to millions of users trapped in countries with runaway inflation, like Venezuela.

But its track record is relatively brief. Johnny’s mostly right.

When he said bitcoin wasn’t real, he was also right. It’s a man-made fabrication, a convenience, a proxy for value, just a piece of code that represents value.

Of course, paper money is also a convenience (though one backed by sovereign governments). Bitcoin is faster and cheaper to use and is backed by thousands of computers around the world that track the bitcoin blockchain and ensure it’s not abused.

When he said that bitcoin was in a bubble, he was roughly right. Not that the current bullish sentiment lifting bitcoin’s price to new heights is wrong. But sentiment can be fickle and can turn against an asset class, driving prices down as quickly as they had gone up. Who am I to say that bitcoin is immune to such a reversal? Of course it’s not.

When he said that bitcoin was like a ship with no captain, he got that right too. But it’s not all that different from the internet. No single organization or entity controls or guides the internet. Blockchains (sometimes called the interchain), the technology behind bitcoin and other cryptocurrencies, is just as freewheeling… and unpredictable.

Invest Like a Business Would

As I said, for the most part, Johnny was right.

It was his conclusion that was wrong.

One thing I’ve learned as an investor through the years is that you can always find a reason NOT to make an investment. There’s no such thing as the “perfect investment” or the “sure thing investment.” There is risk and uncertainty in every investment. It’s the differences in levels of risk and uncertainty that give asset classes their unique attributes.

Bitcoin certainly has its share of risk and uncertainty. No bitcoin enthusiast would argue otherwise.

And it would certainly be foolish to invest all your money or too much of your money in bitcoin. But none?

This is where Johnny and I part ways.

Here’s the wrong way to look at it: If you’re risk-averse, don’t invest.

Here’s the right way: It would be extremely risky NOT to give yourself at least some exposure to the cryptocurrency space.

Investors who think otherwise need only look at what businesses are doing. These entities don’t experience our emotional ups and downs. They make cold-blooded business decisions. And they have to grapple with the same uncertainties investors do.

The blockchain technology is unproven and in its infant stages. Businesses aren’t sure if infrastructure and digital identity problems can be solved in time to allow industries to adopt tokenization on a massive scale.

The road forward is strewn with obstacles. Businesses can’t see the future of cryptocurrency any better than you or I can.

But, ready or not, hundreds of companies in industries such as banking, insurance, technology, international trade and healthcare are spending millions of dollars on exploring and developing blockchain technology to make transactions more transparent, timely and secure.

Here’s the thing: They can’t afford not to.

If massive tokenization of industries does take place, businesses simply can’t take the chance of being left behind.

And neither can you!

Early Is When the Serious Money Is Made by Serious Investors

At this very moment, tokens are funding the rollout of hundreds of decentralized (and disruptive) technologies.

A few examples include cloud storage (Filecoin, Storj), digital advertising (Basic Attention Token, adToken), marijuana (PotCoin) and dentistry (Dentacoin).

Sure, it’s early. But it’s not too early to capture some exposure to the cryptocurrency space. Whatever fits your comfort range, be it investing 1%, 3%, 5% or 10% of your investible savings, DO IT NOW. It’s not too late, but sooner is better than later.

Because investing early is how you make big money. It’s at the heart of the investing premise we take very seriously here at Early Investing. By writing just a modest check today, you’re giving yourself a chance to reap a huge financial reward down the road.

So let me share with you a piece of advice I’ve been giving to the paid members of our First Stage Investor service…

I don’t care who you are or what your investment goals are, you cannot afford to ignore [cryptocurrencies] and ICOs.

Message delivered. Now go ahead and enjoy your leftover turkey!

Good investing,

Andy Gordon
Co-Founder, Early Investing

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Source: Early Investing