Market Insights & Analysis from Kramer Capital Research

Look No Further for The New FANG than Today’s Update

Big Tech has gotten so huge that all it takes is a few Silicon Valley giants nudging into trillion-dollar territory to keep the S&P 500 on its record-breaking trajectory.

If you haven’t updated your portfolio since 2015, that’s great news. We have plenty of great news to share with you today.

Apple Inc. (NASDAQ:AAPL) is up a breathtaking 77 percent this year. Microsoft Corp. (NASDAQ:MSFT) and its 53 percent year-to-date (YTD) performance aren’t far behind. Between them, they’re responsible for a full 1/5 of the S&P 500’s return, but the bulge bracket below the trillion-dollar duo (the so-called “FANG” group) hasn’t done as well.

Only Facebook Inc. (NASDAQ:FB) has outperformed the index. While Amazon.com Inc. (NASDAQ:AMZN) and Netflix Inc. (NASDAQ:NFLX) are up on the year, they’ve actually turned into a drag on the broad market.

And Alphabet Inc. (NASDAQ:GOOG), still known to many as “Google” or the “G” in the FANG, is only a few percentage points ahead of the S&P 500. Even now, it has taken 18 months to move 7 percent above where it peaked.

I’ve spent the year arguing that FANG was running out of steam. These companies have been juggernauts in their day, dazzling Wall Street and making many investors extremely rich over time. Now we’re seeing what happens when their stories mature.

Profit growth throughout the group has gotten patchy. The days of reliable double-digit-percentage earnings expansion projected endlessly into the future are over.

But while that’s a sad moment for investors who were hoping to chase historical returns forever, it’s really only business as usual. Every generation’s growth stocks eventually saturate their target markets and transition into more sedate propositions.

Even with innovation on your side, the gravity of big numbers ensures that every disruptive new product or service you create has to work harder to move the fundamentals. Amazon, for example, now needs to capture an extra $7 million a day simply to raise its top line an anemic 1 percent a year.

That might be achievable. But unless Jeff Bezos can feed another $300 billion into his company over the next 12 months, we’re never going to see triple-digit-percentage growth here again.

Alphabet and Apple are in the same general situation. Facebook is still small enough to have bigger prospects, but it’s slowing too. Microsoft expands through achieving massive synergies between its operations, not by capturing substantial amounts of revenue.

It is past time to start looking for the next wave of technology powerhouses, the “baby FANG” if you will.

Where the Growth Is

Start by reversing the big numbers math. If gigantic companies struggle to innovate, smaller ones are nimbler. More importantly, dollar for dollar, every account they land or every sliver of market share they take factors more heavily into their fundamentals.

The same $7 million a day that Amazon needs to avoid stagnation translates into 80 percent growth for a relatively tiny company like Shopify Inc. (NASDAQ:SHOP). That’s huge.

As it is, SHOP is no slouch, with revenue rising twice as fast as what Jeff Bezos is able to deliver. Is it any wonder the stock is up 180 percent this year?

Or take Roku Inc. (NASDAQ:ROKU), which you know I love as a small and hungry combination of Apple and Netflix. Lifting the sales curve a lowly $7 million a day would take this company across the profitability line overnight.

It has rallied close to 350 percent YTD. Not even Apple came close.

I could keep listing small stocks that are doing the real work of the market as 2015 recedes and 2025 gets closer. The FANG is where you wanted to be then. You want to be elsewhere in the future.

This is why I’ve launched a new IPO service that focuses exclusively on the newest kids on Wall Street. GameChangers has always given subscribers a taste. Now is the time to play the disruptors on their own.

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Cannabis Corner: Winners and Losers

The divergence we highlighted last week in Big Cannabis continues. There are clear winners and losers in the group now.

Over the past month, Canopy Growth Corp. (NYSE:CGC) and my personal favorite cultivator Aphria Inc. (NASDAQ:APHA) have rebounded a breathtaking 40 percent and 29 percent, respectively. They’re obvious winners.

But Aurora Cannabis Inc. (NYSE:ACB) has gone nowhere over that period and Tilray Inc. (NASDAQ:TLRY) is down 13 percent. That stock really can’t afford to miss the bounce. It has fallen 60 percent since June.

CGC has distinguished itself with a clear show of confidence from strategic investor Constellation Brands Inc. (NYSE:STZ), which installed its own chief financial officer as head of the once-leaderless cannabis company.

As someone who’s run my share of corporate restructuring programs, this kind of parachute appointment is about more than simply moving executive talent where it’s most needed. The real goal here is to permanently align the companies culturally.

That’s a good thing on Wall Street because it means the world’s biggest beer bottler sees long-term potential here. STZ isn’t going to write off its investment in legal cannabis and walk away.

And as for APHA, focusing on the medical market has been a steadier route to profitability. Nervous investors can see that this is much less speculative than any of the recreational stocks.

Now tell me in short words what makes ACB or TLRY special or even what differentiates them from each other. All the typical investor can see is that they both distribute a lot of dried plant matter and are struggling to achieve scale before they run out of money.

Given that kind of choice, money eventually will flow from the generic commodity names into those with a more compelling proposition. That’s simply how the market works.

We’ll keep watching that flow. Once Wall Street figures out that a few of these stocks are bouncing back, there might be a trickle-down effect to help ACB and TLRY join the party.

In the meantime, CGC and APHA have finally captured 50-day support and have a long way to rally before hitting resistance. They’ve fallen far. Those looking for a lot of upside can have a lot of fun investing here.

This is a buying opportunity if you’re selective. We’re choosy in my Turbo Trader Marijuana Millionaires Portfolio. Satisfaction may be on the way.

Which company will become “The Apple of Robotics”?
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