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After a brief yield-fueled market pullback to start the year, 2022’s looks ripe with fresh investment opportunities. Below I break down 6 innovation-powered picks for the rapidly digitalizing economic environment that the new normal is poised to drive materially higher.
An Accommodative Fed
Fed Chair Powell's dovish words of relief in his reconfirmation hearing on Capitol Hill provided a friendly bid for recently pressured equities (especially deeply discounted innovation), giving US Treasury yields a chance to take a momentary pause before the Fed's January meeting at the end of this month.
Jerome Powell remains stoic in his positioning regarding the persistent nature of global supply and demand imbalances that he maintains are being generated by relentless COVID pressures, which have yet to subside (I agree with this perspective).
Jerome acknowledged that the aggressive monetary stimulus the Fed provided public markets for nearly 2 years now is no longer necessary but didn't sound anxious to raise the Fed Funds rate back to pre-pandemic levels in any expedited manner.
Powell reiterated what he had said in December's FOMC meeting: we are operating in a digitalized economic environment that is entirely different than the one we left behind in 2019 (no past comparable can be used as reference). The Fed has lowered its long-term target Fed Funds range by 50 basis points since the pandemic began, implying a systemic economic shift that could support lower rates.
Jerome's dovish comments about the natural inflation curbing ahead coupled with a slow and steady monetary tightening strategy were just what the market needed to hear. Powell may have put a bottom in for the best-positioned high-growth stocks in the market. It's time to get greedy as others remain fearful.
When asked what he thought the greatest threat to the US economy was at present, Fed Chair Jerome Powell's answer wasn't the Omicron-variant, inflation, or even global economic turmoil but a cyberattack on a prominent US financial institution. CrowdStrike CRWD and its unmatchable cutting-edge AI-fueled cybersecurity platform is the long-term opportunity for this looming digital threat. Any price below $200 a share is a steal for CRWD.
CrowdStrike is trusted by Wall Street's top firms, including Goldman Sachs GS and Credit Suisse CS, who can't afford to have any digital vulnerabilities.
CrowdStrike is a modern cloud-based solution for the escalating security threats that the increasingly mobile internet age has brought. This company leverages AI, cloud computing, and graph databases for its vigilant security software. CrowdStrike's security AI is perpetually improving as it advances from crowdsourcing and economies of scale. CRWD's cloud-based Falcon platform is an intelligent and evolving digital protector that detects and stops breaches in real-time.
This business was provided with a tremendous tailwind in 2020 as the enterprise's best-in-class AI-driven cybersecurity platform became arguably the most sought-after in the industry. Business spending is taking off as we enter 2022 and the economy finally reemerges from the Pandemic downturn. Upgrading cybersecurity is on the top of that Cap Ex list for many financial institutions. CrowdStrike's best-in-class AI-powered Falcon platforms are the obvious solution to any business's digital susceptibility concerns.
The Fed has now set its interest rate expectations for 2022, and I believe it's prudent to start a position in this best-in-class cybersecurity stock for the future.
The market looks to have put in a bottom to CRWD's precipitous decline at just below $175 a share. Look to buy CRWD between $200 and $190, which I presume we reach at some point in today's session, with profit pulling in mega-cap tech weighing on sentiment for high-valuation stocks.
Final Thought On CRWD
CrowdStrike is taking over the cybersecurity space with its unmatchable threat detection and immediate response capabilities that continue to improve as its proven AI-driven platform learns and adapts to mounting risks. No matter what happens in the broader economy, there will continue to be a swelling demand for this technology as the rapid digital adaptation exposes more and more endpoint liabilities.
The company is expected to turn a full-year profit in 2022. Its proliferating subscription-based business model provides the visibility & reliability that justify its still frothy valuation (24x price to forward sales).
This is a high-risk/high-reward play, so I am only giving it a 5% allocation. Still, with price targets averaging around $300 a share, I am confident that reward far outweighs the risk in the long run, as long as you can stomach some short-term volatility.
ACM Research (ACMR)
The time to reopen our Headline Trader portfolio to the recently suppressed Chinese stocks has come, with Biden's administration making clear efforts to resume its alliance with Beijing (after years of political turmoil). At the same time, China's overdue economic recovery commences as it prepares for the 2022 Olympics in Beijing, which is now less than 4 weeks away.
At the same time, the ripping rally in US public equities has been decelerating over the past 2 months, following an over 100% bull run from the S&P 500 since the pandemic lows in March 2020 (40% above pre-pandemic high), and investors are beginning to look abroad for higher return opportunities.
I am adding ACM Research ACMR, a niche small-cap semiconductor play with ideal exposure in Asia. ACMR provides substantial upside potential at its currently discounted valuation, with its rapidly accelerating chipmaking capacity and its strategic Chinese exposure being the primary buy catalyst.
ACM Research is a global leader in semiconductor equipment. As chip manufacturers in Asia begin ramping up production, ACM's best-in-class chipmaking equipment is poised to take flight following a year and a half of sideways trading action.
Chip demands far surpassing current production capacities entering the digital renaissance of the 4th Industrial Revolution, positioning this business to explode as the Roaring 20s recommence.
China Risk's May Be US
Chinese stocks have been hammered for nearly a year now, as President Xi and his increasingly autocratic communist administration crackdown on the swelling wealth in its booming tech sector. Xi's fear of losing control of "his" nation to a wealthy group of elites is reminiscent of Mao Zedong's totalitarian regime.
This paranoid egotistical positioning has led to a tidal wave of new tech-focused regulations under the guise of elevating "equality" and improved "productivity." These have capitulated the value of this nation's most prominent innovators by a meaningful amount.
Those stocks that had been at the center of these regulatory headwinds have seen their share values significantly deteriorate, presenting some superior long-term prospects as the global economy reemerges from the pandemic with a digitally fueled ambition.
ACM Research is a US-based capital equipment firm. Yet, its 3 most prominent customers, representing 76% of 2020 revenue, are based in mainland China, with another nearly 10% of its sales going to a South Korean chip innovator. Over the past 5 years, China and Korea have seen their semiconductor spaces drive compounded annual revenue growth of 20.7% & 19.5% and have become the epicenter for future development for ACMR.
As ACM Research takes advantage of the booming demand, this chip equipment powerhouse is rapidly ramping up its own equipment production capacity and capabilities (more offerings) in the region. The company has several new expansion projects for organic growth that will continue to fuel this stock's growth in 2022.
ACMR remains a small-cap equity with a market cap of less than $1.5 billion, but with proven profitable growth between 35% - 45% in the past 3 years, and a place in Morgan Stanley's short list of 2022 chip picks, it’s only a matter of time before the market gets wind of this unique investment thesis and lifts ACMR out of its small-cap shadow and into the large-cap spotlight.
6 out of 6 analysts are calling ACMR a buy today now, with price targets between $100 and $150 (representing upsides between 27% and 92%). Not to mention the increasingly bullish outlook on ACMR has thrusted this stock into a Zacks Rank #1 (Strong Buy).
SMART Global Holdings (SGH)
SMART Global Holdings SGH is the under-the-radar semiconductor stock you've been looking for, with its broadening portfolio of cutting-edge chips poised to take flight in this commencing technological Renaissance.
SGH is roaring out of the shadows with an ambitious growth strategy that won't remain under the investors' radars for much longer. New CEO Mark Adams is transforming this once complacent memory-focused legacy tech business into a motivated leader in niche innovations.
The company released a record quarterly report at the start of 2022, blowing analysts' estimates out of the water and raising forward guidance. However, SGH's undiscovered attributes appear to have both positive and negative consequences, which we saw in its (unwarranted) post-earnings capitulation. This drop-off is a technical retreat catalyzed by the overbought RSI levels it had reached in recent weeks after an over 100% 52-week run into this year opening earnings report (confusion about the upcoming stock split may also be playing a role).
The good news is that it presents us with an excellent long-term investment and short-term trading opportunity as the stock picks up support at its 50-day moving average.
SMART Global shares' exceedingly thin trading volumes (low liquidity due to its under-the-radar quality) allowed a small group of controlling institutional shareholders to direct its post-earnings narrative. They pulled profits from this recent winner (up 70% since mid-October), and the downward momentum catalyzed a fear-fueled momentum sell-off.
Don't let these big-shot Wall Street firms scare you away from this clear-cut winner. SGH's post-earnings capitulation is extraordinarily overdone and with the recent shareholder shuffle.
Silver Lake, a nearly $100 billion tech-focus private equity fund, had been the primary shareholders of SGH since it went public in 2017 until this past fall when the global investment group completely exited the trade (with public returns of nearly 400% in just a few years), leaving $10s of millions in stock value up for grabs.
SMART Global's ownership has since been erratic, with most of the investing world still unaware of this small-cap stock's existence. SGH's ownership is almost entirely institutional at this point, and with the already thin volumes, its vulnerability to short-term price manipulation is high.
Nevertheless, those analysts covering SGH are more bullish than ever after its most recent quarterly release.
The Earnings Report
SMART Global SGH reported its November quarter results (fiscal Q1 2022) after the closing bell Tuesday afternoon (1/4), beating analysts' estimates and raising guidance, yet SGH fell off a cliff. SMART Global achieved record revenues and margins that flowed down to an incredible 177% increase in per-share profits, with its top-of-the-line intelligence platforms (AI, HPC, & other cloud-functionality) being this next-generation innovator's primary growth driver.
SGH was down as much as 18% in its post-earnings price action, but I remain unconvinced that it will stay below $70 a share for long. This knee-jerk sell-off reaction resulted from its small market cap (less than $1.5 billion), concentrated ownership, and overbought RSI levels, which SGH had floated up into following its sizable 25% end-of-year rally.
SGH also announced that it would be initiating a 2-for-1 stock split, which would go into effect at the beginning of February. This is a clear signal from SMART Global's new CEO, Mark Adams, whose savvy ambition for innovative growth is the primary reason we are in SGH, that this stock is headed much higher. Either way, I'm more bullish on SGH post-earnings than ever before.
Now is the time to add this hidden gem to your portfolio before the broader investing world catches wind of this discounted chip winner.
SMART Global has been around since the late 80s, but it wasn't until Mark Adams took the helm amid the pandemic last year that this chipmaker's upside potential went through the roof. Adams is transforming this once complacent memory-focused legacy tech company into an energized visionary.
Adams was the leading force behind SGH's quick strategic acquisition of Cree's niche LED chip business at the peak of pandemic fear for a steal at $300 million. Cree LED's synergies are already paying dividends as it drives margin expansion, improves the firm's capital & operational efficiency, and provides critical industry relationships.
SMART Global's new forward-thinking chief has already vastly improved its operational performance and is ramping up R&D spending to ensure that the enterprise remains ahead of the innovative curve.
Analysts are getting increasingly bullish on this under-the-radar transformation play as SGH flips the switch on accelerating profitable growth, knocking estimates out of the park by an expanding percentage over the past 3 quarters. Zacks Consensus EPS Estimates for SGH's have been soaring across all time horizons after this most recent quarterly report driving the stock into a Zacks Rank #2 (Buy), and all 6 covering analysts agree on a buy rating for the unique value opportunity here.
The New Business Mix
SMART Global Holdings had been a reliable pure-play memory leader in the chip space for over 30 years before deciding to broaden its product portfolio, which appeared to be catalyzed by activist investors following SGH's 2017 IPO. The company has since executed 4 strategic acquisitions.
Penguin Computing was SGH's first vital acquisition ($85 million price tag) back in 2018, adding a broad portfolio of leading next-generation products, including high-performance computing (HPC), cloud computing, hyperscale data centers, and the development of artificial intelligence (AI). This segment has exploded since its acquisition as its AI-focused products experience budding demand.
In the summer of 2019, this resourceful chip giant acquired Artesyn Embedded Computing and Inforce Computing for $80 million and $12 million, respectively. Artesyn (which is now called Smart Embedded Computing) provides critical data center architecture used in "industries such as telecom, military and aerospace, medical, and diverse automation and industrial markets," according to its website.
SMART Wireless Computing (formerly known as Inforce Computing) exposes the enterprise to cutting-edge technologies like "medical imaging, collaboration/videoconferencing, wearable hands-free computing, and robotics/unmanned aerial vehicles," according to its investor relations page.
SMART's diverse set of growing end-market demands provides the company with an enormous total addressable market (TAM), significant upside potential, and not to mention an excellent hedge against the cyclical nature of the semiconductor market.
The mere 11x forward P/E that SGH is currently trading at is a remarkably underappreciated valuation multiple for a high-growth tech business that is expected to exhibit consistent 20%+ earnings growth in the years to come.
Final Thoughts On SGH
With its fresh innovation-oriented operational outlay, Mark Adams at the helm (with a now proven track record of skilled management), and an industry-wide outlook of accelerating growth, the future SGH has never been brighter. SGH’s post-earnings capitulation has presented us with an incredible investment opportunity today.
Analysts are more bullish than ever on this undiscovered profitable growth chip innovator, which will likely not remain under the broader market’s radar for long. I’m looking at price targets between $90 and $100 a share.
Uber's UBER heavily discounted valuation is finally receiving the attention it deserves as investors begin to recognize the opportunity that this leading mobility-as-a-service (MaaS) business provides in the new normal. Uber Eats & Uber Rides are poised to explode with margin expanding growth in the new normal as our digitally conditioned global economy relies on these leading mobility services more than ever.
A flood of analysts are coming out with exceptionally bullish outlooks on this next-generation global leader in digitally fueled mobility solutions. 22 out of 25 analysts are calling Uber a buy now, with no sell ratings. UBER is trading 75% below its average price target of more than $70 a share and it continues to rise.
Alaskan Air (ALK)
Alaskan Air ALK is perfectly positioned for the 2022 as it becomes the go-to budget airliner. Alaskan took advantage of the unique growth opportunity the pandemic shutdowns presented, adding 70 new markets, and is one of the few commercial airlines to return to profitability in the third quarter of 2021. Its commitment to customer satisfaction and focus on ESG goals will keep ALK at the top of its class.
Alaskan Air ALK, primarily driven by vacationers instead of business travel, generated its first positive quarterly earnings since the pandemic began in Q3 as it benefited from the summer getaway rush. I see ALK as the best-positioned airline moving forward with its best-in-class budget vacation offering and still ripening synergies from its acquisition of Virgin America back in 2016.
ALK has been an outperforming airline throughout the pandemic with an ESG-focus and no business travel reliance. Analysts have been pushing their price targets to around $80 a share (38% upside), with estimated record earnings by 2023. ALK just busted above its 50-day moving average, and is on its way towards its consensus price target.
With remote working functionalities like cloud computing, video conferencing, team messaging, workflow automation, etc., analysts are beginning to rightly question whether companies will be paying up for flights when the job can and has proven to be done in a remote environment.
Corporate travel will not return to pre-pandemic levels, at least not anytime soon, and the stocks to stick with are the budget vacation plays, with Alaskan Air being at the top of that value list. I’m looking at price targets between $75 and $100 a share, for this airliner of the New Normal.
Upstart UPST, the AI-driven fintech innovator changing the way creditworthiness is assessed, is ripe for a buy today with a couple of key support levels ready to maintain its recent buoyancy, following an overdone sell-off.
The final quarter of 2021 was horrendous for the top fintech innovators, with Cathie Wood's ARK Invest Fintech ETF ARKF, the benchmark for next-generation digital finance, falling over 25%. Investors have been selling growth stocks indiscriminately, creating some excellent buying opportunities for the best-positioned fintech equities.
UPST has seen significant valuation compression from its mid-October 2021 highs at $400, but the over 1,500% gain it saw from its IPO last December may have been a little overzealous. With UPST now 70% below those highs, it's time to consider adding UPST to your portfolio.
Upstart's recent capitulation was catalyzed by profit-pulling in the face of Q3 earnings coupled with the Fed's accelerating tapering timeline, which has valuation compressing impacts on this fintech giant, do to its outsized growth outlay (analysts expecting to see 250% topline appreciation in 2021).
UPST found critical support at a vital Fib-derived level around $160, where the markets appear to have put in a temporary bottom.
I am looking at a UPST price target of $300+ with quarterly performance continuously outpacing even the most optimistic analysts. Upstart is looking at an unprecedented profitable growth outlook, and with most fresh fintech startups not even able to post positive earnings, UPST is more attractive than ever.
This AI-powered cloud incepted fintech business is changing the way banks assess creditworthiness. Many fintech giants are competing against banks, but Upstart has decided to partner with them in its next-generation offering. This is an excellent position to be in as a high-growth company in a rising interest rate environment because higher rates means more profits for banks, which should inevitably drive significant demand for Upstart's one-of-a-kind product offering.
The AI platform uses more than 1,600 differing variables before coming to the conclusion of creditworthiness compared to the typical bank, which only looks at 8-15 and the most sophisticated models 30.
Upstart's CEO David Girouard said his lending algorithm is 5 times more effective than current systems at accurately depicting a person's ability to repay a loan. Saying that on a scale of 1-100, the current credit regimes are only at about 2 on predicting risk of default, and David believes his AI platform would put banks at closer to a 10, with still a lot more room to grow. Upstart's AI is continuously learning and will continue to be more effective as it is provided with more datasets.
A Strategy To Stick To Amid 2022’s Chop:
“Be Greedy When Others Are Fearful”
Continue to buy the dips in your favorite stocks and look past the short-term volatility (don’t let this choppy market discourage you).
Equity Strategist & Manager of The Headline Trader Portfolio at Zacks Investment Research
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The Goldman Sachs Group, Inc. (GS) : Free Stock Analysis Report
Credit Suisse Group (CS) : Free Stock Analysis Report
ACM Research, Inc. (ACMR) : Free Stock Analysis Report
Alaska Air Group, Inc. (ALK) : Free Stock Analysis Report
SMART Global Holdings, Inc. (SGH) : Free Stock Analysis Report
ARK Fintech Innovation ETF (ARKF): ETF Research Reports
Uber Technologies, Inc. (UBER) : Free Stock Analysis Report
CrowdStrike (CRWD) : Free Stock Analysis Report
Upstart Holdings, Inc. (UPST) : Free Stock Analysis Report
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