Tom Yeung here with this week’s Sunday Digest.
Last week, I told you the story about news magnate Charles E. Marsh. The Ohio-born businessman had built an incredible fortune buying up small newspapers across Texas in the 1930s… but knew little about the oil boom happening under his nose.
To invest in the bonanza, he bankrolled Sid Richardson, an expert oil wildcatter who had fallen on hard times during the 1920s oil bust. Marsh wrote a $30,000 check, and the oilman went to work.
It was a resounding success. Within a year, Richardson had discovered the Keystone Field, a part of the massive Permian Basin that remains in production today. Both he and Marsh split the profits, built more wells, and cemented their legacy as one of the most successful teams in Texan oil history.
I used the story to illustrate how investing alongside experts can work stunningly well. Marsh’s profit from his oil ventures is unknown, but one of his foundations has distributed at least $700 million since 1947 and is still worth $620 million. And Richardson eventually passed away in 1959 with an estimated net worth of $200 million, turning his children into eventual billionaires.
This type of “coattail” investing continues to work today. Every $1,000 invested in Warren Buffett’s Berkshire Hathaway Inc. (BRK-A) at its IPO would now be worth over $2.3 million today. And one of Eric Fry’s top Berkshire-style picks has risen 42% in the past year alone (subscription required).
That’s why I was excited to invite you to a presentation last week by InvestorPlace Senior Analyst Louis Navellier. In the talk, he unveiled a quantitative tool that helps investors identify stocks with just the right amount of institutional buying behind them – not too much, and not too little. According to back-testing, the system – known as MoneyFlow – has outperformed the market by a 6-to-1 ratio since 1990.
I also shared three of the system’s top picks with you.
If you missed out on the event, it’s still not too late to watch a replay. And in the meantime, I’ve been given permission to share another three top MoneyFlow stocks with you this week.
The Hidden AI Gem
In 2023, Meta Platforms Inc. (META) quietly launched its latest generation of smart glasses. These spectacles look surprisingly ordinary – at first glance they’re virtually indistinguishable from the ordinary Ray-Bans they’re modeled after. The only giveaways are small camera on the frame that captures what the user is seeing and a pair of built-in speakers to give Meta AI’s voice assistant a way to communicate.
Reviewers have noted these glasses have improved significantly in recent months. Users can now get near-instant responses to queries (i.e., why does my lawn look that way?), and the Meta glasses have become a surprise hit among vision-impaired users. Blind people can ask the glasses what they’re looking at and get an AI-generated response in under two seconds.
Much of this magic is made possible by better AI. Meta Platforms has been pouring resources into improving their flagship large language model, LLaMa 3, and has become one of the Top 5 U.S. spenders on AI infrastructure.
But the other half of the success is thanks to companies like Ericsson (ERIC), a Swedish firm that dominates 5G network equipment. Meta still relies on offsite AI data centers to do heavy lifting, so lightning-fast connections across mobile devices is essential. Ericsson provides the hardware (antennas, cables, microwave technologies, etc.) and the software that connects everything together.
That’s helped Ericsson notch some of its best quarters yet. On October 15, the firm announced Q3 earnings that knocked expectations out of the park. North American wireless network revenues grew 75%, reaching some of their 2022 cyclical peaks. Net income flipped back positive.
The MoneyFlow system sees even greater gains ahead. The quantitative system awards Ericsson an 85 out of 100 – a figure on the upper cusp of being overbought, but not quite yet.
The fundamental picture backs this up. The global 5G industry is recovering from a cyclical downturn in 2023, and companies like Ericsson are on the forefront of this uptick. Louis’s Stock Grader system awards Ericsson an “A” for its upward earnings estimates and improving cash flow. In addition, the increased demands from mobile AI devices will keep telecom companies investing in 5G upgrades (and 6G down the road).
A Potential AI Winner
Meta Platforms Inc. (META) itself is also a high scorer in the MoneyFlow system. The company scores a 79 – right in the center of the “sweet spot” of insider buying.
There are good reasons to suspect more gains to come. This week, Meta reported fiscal 3Q earnings that blew expectations out of the water. Advertising revenues surged 19%, driven by an 11% increase in advertising prices and solid improvements in customer usage. Presidential election years are a historically excellent period for advertising firms, and Meta has become a key beneficiary.
That means shares of the social media firm continue to have upside, despite rising 50% in recent months. Earnings have grown so quickly that Meta’s stock continues to trade at historically average price-to-earnings (P/E) ratios. High usage figures are also keeping earnings estimates through 2027 elevated.
Best of all, markets seem to be completely ignoring Meta’s efforts in AI. As I noted earlier, the company is building a world-class system of AI-focused data centers; they could theoretically someday offer excess computing power to outsiders for a fee. Companies like Amazon.com Inc. (AMZN) and Microsoft Corp. (MSFT) made similar pivots when they began offering cloud computing.
The social media firm also remains at the forefront of large language model development, with its flagship LLaMa 3 widely considered the fastest foundation model in the world. (It’s easy to forget that Meta’s AI team is run by one of the three “godfathers” of AI, Yann LeCun.) Its augmented reality and virtual reality (AR/VR) products also remain world class.
That means investors buying Meta’s stock are essentially paying for a lucrative advertising firm with a “free” AI option on top. The social media firm is positioning itself to become the AI device in our living rooms (and the spectacles on our face), and markets continue to assign no value to that potential upside.
Fast Fashion
Fashion companies are notoriously difficult to buy. Fads come and go, and what’s hot this season is often uncool the next. Shares of Crocs Inc. (CROCS), for instance, saw a 1,000% surge during the Covid-19 pandemic before return-to-work policies sent shares plummeting 75%. Apparel firms from Gap to Guess? have seen equally large swings.
The one exception to this is athletic shoes, which has been dominated by a handful of companies for the past four decades. Consumers are far more “sticky” in their preference for sporting footwear, and companies from Nike Inc. (NKE) to Adidas AG (ADDYY) have benefited from their loyal customer bases.
Now, Deckers Outdoor Corp. (DECK) appears to be profiting from the same forces.
The owner of the Hoka brand has been carving out a niche in comfort-oriented running shoes. HOKAs are known for their thick, cushioned soles, and casual runners have flocked to the brand. Last week, Deckers announced in its fiscal Q2 earnings report that Hoka sales had risen 35% to $570.9 million, helping shares of the parent company reach record highs. Deckers also has seen success in its UGG brand of comfort footwear – a segment we see as less fashion-oriented.
The MoneyFlow system believes more gains are on the horizon. Institutional investors have been accumulating shares, putting Deckers in the “sweet spot” with a score of 76.5. Wall Street also has been upping estimates thanks to the company’s strong quarterly earnings; the average analyst has raised fiscal 2026 earnings estimate by almost 20%.
However, please note that Deckers should remain a shorter-term play. The company has seen significant revenue declines in its Sanuk-branded flip-flops, and stagnation of its Teva brand, telling us that the firm lacks a “magic formula” to make any particular brand succeed. (i.e., they could have simply gotten lucky with Hoka and UGG). Shares are also relatively expensive, creating the potential for downside and reducing the possibility of a takeover offer. Though Deckers should do well for the next three to six months, investors will want to be sure to sell once the company’s MoneyFlow score begins to wane.
The Day After Summit
The 2024 election has created a frenzy among gamblers. Over the past several weeks, Americans have bet at least $100 million on the election (despite its gray-area legality), and one French national alone has put $45 million bet on a Donald Trump victory. So much money and attention has been focused on predictive markets that some even believe they could sway the election itself.
However, we remain unconvinced of the wisdom of such wagers. High-quality polls-of-polls continue to show the race in a dead heat, so winning the election trade will come down to luck, not skill. Besides, current election betting markets makes it a zero-sum game (or a negative one once you consider the house cut).
The same is true of stock markets. Millions of dollars have traded hands on “Trump Trades” like Trump Media & Technology Group Corp (DJT) and “Harris Trades” like risky clean energy stocks. Options market makers are having a field day selling high-priced derivatives.
That’s why we believe that using systems to invest is a far superior strategy, especially in times of rising volatility.
In his “Day-After Summit,” Louis shows folks how to use MoneyFlow to navigate the volatility he sees coming and turn it into profits by using the system. During that event, he has a lot to say about the period of extreme market chaos that’s coming. Millions of Americans risk getting into trouble as markets whipsaw… and he doesn’t want you to be one of them.
And in addition to showing you the best way to navigate the chaos, Louis shares a postelection trade – for free – with everyone who attends. It’s designed to pay off no matter who wins the election.
Here’s that link again to watch a replay.
I’ll see you back here next Sunday.
Regards,
Thomas Yeung
Markets Analyst, InvestorPlace