Why I remain constructive on stocks; My 'Discarded Dozen' is crushing SpaceX; Software stocks have staying power despite AI fears; Meeting a reader at the U.S. Open
1) It's the best advice I've given since I joined the publishing universe of Stansberry Research's parent company MarketWise (MKTW) more than seven years ago...
Remain "constructive" – and many times, outright bullish – on stocks overall.
No, I didn't predict the COVID-19 crash, the 2022 downturn, or the mini-crashes triggered by the tariffs and the Iran war. But in each case, at the bottom, I pounded the table to buy – and stocks quickly recovered.
These calls have paid off...
Since the April 2019 inaugural issue of my old newsletter, Empire Investment Report, the S&P 500 Index is up a whopping 164%.
And the four core stocks I recommended in that issue – from which I also haven't wavered – have done far better. They've risen by an average of 252%:
I'm writing this because I've noticed the "boobirds" are out again. They're warning of a market downturn because of high valuations, rising interest rates, our national debt soaring past $40 trillion (doubling in less than a decade), political turmoil, unsustainable AI spending juicing corporate profits, and unresolved wars in Ukraine and Iran.
Yet stocks have been resilient. The S&P 500 – even the equal-weighted version of the index – is within a smidge of its all-time high. This recent New York Times article explains why:
Roughly 88 percent of the companies in the S&P 500 that had reported results for their most recent quarter by Aug. 31 beat expectations on their earnings per share, according to Scott Rubner, a Citadel Securities analyst. And those that missed expectations didn't miss by much...
What explains this broad strength? Some sectors, like energy, have been boosted by high oil prices, helping them rake in bigger profits.
There's also a tariff-related tailwind. Since the U.S. Supreme Court struck down a slew of tariffs on imported goods in February, the Trump administration has had to refund tens of billions of dollars collected from American companies.
The refunds provided a huge boost to some companies in the second quarter...
And then there were earnings that were lifted by A.I.
The article does identify two main risks to stocks. The first is rising interest rates:
Rates on government bonds have been ticking higher. And if they keep rising, they could cast a cloud over the stock market.
Higher-yielding bonds offer investors a strong return but with fewer risks than stocks. That's one reason rising bond rates often push down stock values, as investors rethink the risk-reward of stocks versus bonds.
"When the yields are high, stocks look relatively unattractive all of a sudden, especially stocks where most of the earnings are in the future," said Thierry Wizman, a fixed-income and rates strategist for Macquarie Group.
As rates on government bonds go up, they also increase borrowing costs for companies that use debt to keep growing.
The second is the popping of the AI bubble:
Investors have also become more touchy about anything's going awry in the A.I. story. That means becoming more perceptive to how much companies are spending on A.I. projects and whether those investments will translate into profits. When Google released a solid earnings report in July, for example, its stock dipped after a higher-than-expected spending forecast.
I don't dismiss these risks. In particular, I've repeatedly warned in recent weeks that the AI sector reminds me of the late stages of the dot-com bubble.
Nevertheless, I remain constructive on stocks overall.
Over nearly three decades in the markets, I've learned – too often the hard way – that one should tune out the boobirds 90% to 95% of the time. They predict calamity every year.
But in reality, it only makes sense to get fully defensive once every decade or so. I don't think now is one of those times.
So my broad advice remains the same...
Have modest expectations – for example, I'd guess that the S&P 500 will compound at 5% annually for the next five years. But if you own well-diversified index funds like the State Street SPDR S&P 500 Fund (SPY) and/or modestly valued stocks of quality companies, then stay the course.
Meanwhile, still be on the lookout for special situations to take advantage of...
That's what I did in 1999, at the height of the dot-com bubble. I made a huge bet outside the tech industry – and it paid off big-time, helping me build my $200 million hedge fund.
Since then, I've been waiting for a similar opportunity to emerge... and it finally has.
It's all thanks to a new stock-filtering system, which I'm unveiling in a special presentation tomorrow, September 10, at 10 a.m. Eastern time. Click here to reserve your spot.
2) One key to earning better-than-average returns in a fully valued market is to avoid obvious foolishness. The other key is to be a contrarian – though only infrequently and carefully.
A good example of this is when I warned investors away from the SpaceX (SPCX) IPO in my June 12 e-mail, calling it "the most overhyped, overvalued large-cap stock of all time."
Instead, I highlighted 10 out-of-favor stocks, then added two more on June 15, creating the "Discarded Dozen."
In the three months since then, these 12 stocks have crushed both SPCX and the S&P 500, as measured by SPY:
3) The four software stocks on the list – Salesforce (CRM), ServiceNow (NOW), Adobe (ADBE), and Intuit (INTU) – have led the way, rising an average of 31%. This Wall Street Journal article explains why:
While it is true that AI is disrupting corporate software, the incumbents are mounting a defense. And they have a lot more staying power than it might seem.
One reason is that most software development isn't about writing code, where AI excels. It is about maintaining, updating and improving on existing software.
AI has made it easier and cheaper for companies to create new programs and features from scratch. But AI coding agents can't yet easily be tasked with keeping software up-to-date and adjusting it to new business priorities.
The incumbents' deep integration with their customers' IT systems provides another bulwark against AI disruption. Most large companies have a tangle of software from different providers that they've knit together over time. To replace existing software with their own AI-generated code, companies must handle integrating it themselves, which is no easy engineering task.
This is consistent with what my Stansberry's Investment Advisory team and I have been saying for months: Investors have wildly overreacted to fears of the "SaaSpocalypse," which has created wonderful investment opportunities.
We took advantage, recommending ServiceNow in our March issue and fellow software firm Okta (OKTA) in our July issue. Both are up more than 20%. And we're recommending another high-quality software stock in our upcoming issue...
Subscribers have access to all our historical buy reports, our model portfolio of open recommendations, and our best stock idea each month. If you're not already a subscriber, you can become one by clicking here.
Best regards,
Whitney
P.S. I welcome your feedback – send me an e-mail by clicking here.
P.P.S. One of the most fun parts of my job is putting faces to longtime readers I only know from e-mails. This happens a lot at the annual Stansberry Research Conference & Alliance Meeting in Las Vegas. This year, it's being held on September 28 through September 30.
In-person tickets are sold out. But you can still watch the event and see the presentations from the comfort of your own home with a Livestream Pass – you can get one right here.
Sometimes, I run into readers at other places – like the U.S. Open... Longtime reader Scott W. has been going to the Open for nearly 50 years (!), so he reached out to me.
It turns out that we were both at Louis Armstrong Stadium on Sunday, so we got together and had a great chat for half an hour. In addition to tennis, we share many other common interests, including travel and health/fitness/longevity. Here's a picture of us:
