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Opinion: How to invest in the future — here’s an idea for a ‘Spacebook’ fund


Two years ago I was so bullish on Tesla that I basically wanted to become “the Tesla Fund.” Tesla was trading around $50 a share. It closed at $563 on March 8.

That was two years ago. I thought the setup was perfect for Tesla
TSLA,
-5.84%

and the pending electric-vehicle onslaught. Fast forward to today and Tesla is up more than 10-fold since we bought it, even after dropping more than 30% from its $900 high. The EV revolution is here and most of the stocks of the companies in that revolution have risen to bubblicious levels.

I am scouring the globe and even the universe to find the next revolutionary industries to get in front of, and I keep coming back to what I call The Space Revolution and The Virtual Reality Revolution.

So here’s what I’ve come up with as the best risk/reward for my hedge fund and perhaps for individual investors as well. I’m calling it “Spacebook,” which means being overweighted in space stocks and Facebook
FB,
-3.39%
.

Big bargain

Let’s start with Facebook. Holy cow, Facebook’s valuation is cheap. The shares trade for 22 times the consensus earnings estimate for the next 12 months among analysts polled by FactSet. This is for a company whose sales are expected to increase 25% in 2021 and 20% in 2022, following 22% in 2020. (You can see the consensus sales estimates for Facebook and other big tech stocks here.)

That valuation is only slightly ahead of a forward price-to-earnings estimate of 21.7 for the S&P 500 Index
SPX,
-0.54%
.
For the index, sale per share are expected to increase 9% in 2021 and 7% in 2022, after a 3.5% decline in 2020.

Facebook’s consistently high double-digit revenue growth is a lot for a company that did $86 billion in revenue last year. What’s most exciting about the growth numbers is that they don’t include any of the upside that Facebook is about to achieve in the burgeoning virtual reality market provided by the Oculus platform. As I wrote in January, the VR market is coming, and it’s coming soon. Facebook is going to be one of the biggest winners in that market, if not the biggest.

As I type this about Facebook, I can’t help but think back to two years ago (and 1,000% ago) as I wrote to you about Tesla. I’m getting the same exact feelings about valuations and revolutions.

To be clear, it’s not this current generation of Facebook’s Oculus virtual reality headset that is going to go mainstream, but it’s the next, lighter, even more advanced one and the versions thereafter. Facebook has a critical mass of developers as well as apps and games being created for its platform already. The first version of Oculus was like a late-version iPod.

Space revolution

Now, how many times do I need to talk about the Space Revolution? The technology has gotten advanced and cheap enough that the whole thing is literally taking off. This is a private company’s dream come true. We are starting to see private space companies come public just as I was saying they would be two years ago.

Over the next 20 to 30 years, there are so many applications that can come to fruition. Space factories, space tourism, space hotels, asteroid mining, supersonic transportation, new colonies — the list goes on. If your time horizon is the next two to three years, I don’t know what to tell you. It might not happen in that period.

But if you are like me and thinking about the next 10,000 days, then we have to get in front of this revolution. I started two years ago when I bought Elon Musk’s SpaceX in the private market for my hedge fund and followed up a year and a half ago when we got into Virgin Galactic Holdings
SPCE,
-2.78%
.

A lot of public technology companies are bubbled up right now, space players included. We are probably paying two to three times what these companies are really worth right now as they come public.

VC-like investments

However, we are making venture-capital-like investments in these with the potential to see 50 to 100 times our investment over the next 10 to 20 years. I’m OK paying up a little for that kind of opportunity. If we compare this sector to the bubbled-up electric-vehicle revolution that is already here, I like the risk/reward of the coming Space Revolution much more. The EV market has already had its huge run.

So how do we continue to invest in the Space Revolution? SpaceX is clearly the best company right now. If you’re wealthy enough, with a little work, you can find a way to make a private investment in the company. I’ve done that in my hedge fund.

But if you don’t have hundreds of thousands (if not millions) to throw at SpaceX, I think Rocket Lab
VACQ,
-4.00%

is the best way to invest in the space revolution right now. You can read more about Rocket Lab and Vector Acquisition Corp., the special purpose acquisition company, or SPAC, that is expected to take it public, here.

I have begun to take a position in both the hedge fund and my personal account. It has come down some (like most space stocks and high growth tech over the last week) since my initial report and I have continued to add to the position. Virgin Galactic remains another favorite public space company to invest in. We first got into that name in November 2019 at around $8 per share.

Virgin Galactic, just like the other space companies, is probably a little overvalued at the moment. Especially with no revenue and not being able to get its test flights successfully into orbit. But again, we are looking up to 30 years down the road and this is currently my third-favorite way to invest in the space revolution.

I’m researching four or five other space companies that have recently come public. I’ve also made Facebook one of my largest positions again for the first time in a while.

As always when making an investment, I suggest that you give yourself room to add to the position if it falls. Over the next six months to two years, I think we’ll have the opportunity to buy most small-cap tech stocks at lower prices. On the flipside, I can’t guarantee that those positions will drop, which is why I have begun to build my positions in the space and virtual reality revolutions, and why I will continue to add to them if given the chance at lower prices.

That’s why I am basically becoming “the Spacebook Fund.”

Cody Willard is a columnist for MarketWatch and editor of the Revolution Investing newsletter. Willard or his investment firm may own, or plan to own, securities mentioned in this column.



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Future

Dow Slips Amid New Travel Curbs


The index of blue-chip stocks fell 200.94 points, or 0.7%, to 30015.51, marking its largest one-day point and percentage decline in December. The S&P 500 slid 7.66 points, or 0.2%, to 3687.26 to extend its losing streak to a third session.

The tech-heavy Nasdaq Composite, in contrast, rose 65.40 points, or 0.5%, to 12807.92, a new all-time high.

Much of the stock market has lost steam this week as some nations began taking steps to curtail travel in an effort to contain the emergence of a fast-spreading variant of coronavirus from England. The U.K. imposed stringent restrictions on social and business activity, prompting concern that more countries may be required to adopt measures that would hamper the global economic recovery.

“It would be a brave man to suggest this will just remain a U.K.-specific issue,” said

Derek Halpenny,

head of research for global markets in the European region at MUFG Bank. “Are we going back into another phase of more pronounced global lockdowns again?”

Oil prices slipped for a second day amid growing worries over the new restrictions imposed on travelers from the U.K. to other countries. Brent crude futures, the benchmark in international energy markets, dropped 1.6% to $50.08 a barrel.

Meanwhile, the yield on the 10-year note ticked down to 0.917%, from 0.941% Monday, as some investors looked to the relative safety of U.S. government bonds. Yields fall when prices rise.

Investors are trying to gauge whether the new strain of Covid-19 will impact the efficacy of vaccines that are being rolled out this month.

BioNTech

Chief Executive

Ugur Sahin

said the vaccine developed by his company, in partnership with

Pfizer,

would likely work against the new variant and is being tested. If a new mutation would make the current vaccine ineffective, BioNTech can develop another tailored to the new variant in six weeks, he said.

Technology stocks traded higher on Nasdaq, in contrast to declines for the S&P and Dow.



Photo:

Michael Nagle/Bloomberg News

“The big unknown is to what degree could the new strain make the efficacy of the vaccine lower,” said

Peter Garnry,

head of equity strategy at Saxo Bank. “If it just turns out to be more infections, and it doesn’t have an effect on the vaccine, then the market will be less concerned.”

Late Monday, a fresh $900 billion fiscal stimulus package was passed by Congress, ending weeks of anticipation from investors about whether lawmakers could end their stalemate. The bill, which includes direct checks to households and relief for small businesses, is expected to be signed by

President Trump.

Even so, the bill’s passage wasn’t enough to propel the broader stock market higher.

“We’ve had the positive news on the vaccines and the fiscal deal, so there’s probably not a catalyst to drive stocks meaningfully higher in the next few weeks,” said

Brian Levitt,

global market strategist at Invesco.

When Is the Market on Holiday?

Select stock-market closures through year’s end

  • Thurs. Dec. 24: U.S. stock market closes at 1 p.m. ET
  • Fri. Dec. 25: Markets closed
  • Mon. Dec. 28: London stock market closed
  • Fri. Jan. 1: Markets closed

Still, Mr. Levitt noted that he maintains a positive outlook on equities.

“In my opinion, betting against stocks over the next year and beyond is betting against medicine, science and policy makers,” he said. “And I’m not willing to make those bets.”

In corporate news,

Apple

rose $3.65, or 2.9%, to $131.88 after Reuters reported that the iPhone maker intends to move forward with its own self-driving car technology.

Exercise-equipment maker

Peloton Interactive

gained $16.82, or 12%, to $161.21, hitting a new all-time-high, after it agreed to buy commercial fitness-equipment provider Precor for $420 million in cash.

Travel stocks and shares of energy companies tumbled.

Norwegian Cruise Line Holdings

slid $1.70, or 6.9%, to $23.08.

Chevron

fell for an eighth consecutive day, losing $1.73, or 2%, to $84.36. That marks the longest losing streak for the oil giant since October 2013.

Meanwhile,

Tesla

tumbled $9.52, or 1.5%, to $640.34, extending its losses for the week to nearly 8%. The electric-car maker made its S&P 500 debut Monday.

Moves in stocks could be big and markets may be especially choppy in coming days because fewer people are trading as the holiday period starts, said

Salman Ahmed,

global head of macro at Fidelity International.

The final stretch of trading in December is historically positive for the stock market. But this week’s losses may be a sign that investors are starting to take profits after a blockbuster year, especially as they consider the possibility of tax changes after President-elect

Joe Biden

takes office, said

JJ Kinahan,

chief market strategist at TD Ameritrade. The S&P 500 is up 14% in 2020, and the Nasdaq Composite has catapulted 43% higher.

Footage shows empty supermarket shelves while trucks bearing cargo get stuck at the border after France imposed a travel ban on Britain following the spread of a new coronavirus strain. Other countries have also barred passengers from the U.K. Photo: Neil Hall/EPA/Shutterstock

Additionally, Mr. Kinahan noted, Tuesday’s worse-than-expected consumer confidence report may also be weighing on markets.

The Conference Board, a private research group, said its index of consumer confidence dropped to 88.6 in the first two weeks of December, from a revised 92.9 in November. Economists surveyed by The Wall Street Journal had expected a level of 97.5.

Still, there were small signs of optimism. Data from the Commerce Department showed Tuesday that U.S. gross domestic product—the value of all goods and services produced across the economy—increased at an annualized rate of 33.4% in the third quarter, slightly stronger than the previous estimate issued last month.

Overseas, European shares rebounded after Monday’s losses. The pan-continental Stoxx Europe 600 gained 1.2%.

Major stock indexes in Asia closed lower. China’s Shanghai Composite fell 1.9%, and South Korea’s Kospi declined 1.6%.

Write to Caitlin Ostroff at [email protected] and Caitlin McCabe at [email protected]

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