Hey folks, it's Hoda, Stock Card's CEO. The presidential election period tends to be a difficult time for investors. The news cycle gets faster, and there is a lot more attention to the state of the economy and the stock market. That leads to more speculations, regular changes in investor sentiments, and more rapid transitions between fear and hope cycles. Being jittery and worried about what to invest in and what to do about your portfolio is very normal and common and we all experience those ups and downs in emotions. In this post, I dig deep into whether everyone's worries about the impact of the election on the stock market are justified and how to pick stocks despite the election jitters. I'd also share a list of stocks that can help you election-proof your portfolio.
Are the jitters real?
If you look at the market volatility index (VIX) in the days leading up to the election in the last eight elections (since 1988), the implied volatility in the market peaks running up to the actual day. Wells Fargo Investment Research Institute had a chart that visualized such implied volatility:
Considering such a volatility level, investors have two choices:
At Stock Card, we tend to camp in the second category. It's essential to calm your emotions with the power of data and information. Let's look at whether being worried about the election result and its impact on the stock market is grounded on reality. When you look at the S&P 500 return in election years since 1928, there are only four instances when the market ended the year in negative. Let me say that again, in 23 election years, there were only four years that the return has been negative. Does that mean this year is going to be the same? No! But, as a rule of thumb, the stock market's odds of success are in favor of investors, election year or not.
Comparing the heightened implied volatility and the actual historical return of the market, it seems that there is a true disconnect between market jitters, perception, and reality. If someone is day trading, perhaps there is an opportunity to play with the market's jitters. For example, there is a theory called Presidential Election Cycle Theory that says the market typically hits its best return on the 3rd year of any president's term, all the way to the December of the election year. And, if you look at the history of the market in the last 50 years, there is actually enough evidence to support that. However, statistically, the theory is not proven. Fifty years of history only gives us 12 election cycles. Without getting to the science of calculating statistical significance, that's just not enough data to prove the presidential election theory. And, by the same notion, whatever historical analysis you'd want to do in order to play market jitters is not going to be scientifically proven. Media shares data that are correct, but they can't be used as a single source of truth due to the lack of statistically proven investment theories during the election years. You would need hundreds if not thousands of election cycles to come up with a scientifically proven election-based strategy, and there are simply not enough election cycles in our history.
How to pick stocks despite the reality and sentiment disconnect
Okay, we said all that, and I hope you've found such information enlightening and could use it to tame your emotions. But, now what? What does it mean for those of us who would want to invest in the stock market now? The answer to that question is to look at the current environment and evaluate what strategy goes well with the current economic and market conditions:
What are some of the sources of uncertainty when it comes to individual companies:
That's where Stock Card can help you.
Use Stock Card to pick election-proof stocks
On Stock Card's Discover page, you can find a "Filter" tab. This is one of the most powerful features of Stock Card. It enables you to screen stocks by themes that matter. For example, narrow the universe of publicly-traded stocks to those with no cash concerns and have a track record of sales and growth success. You don't need to figure out which financial metrics translate to those themes. You can simply choose the themes such as no cash concerns as filters and Stock Card does the rest for you.
A list of election-proof stocks
As we discussed above, stocks with low inherent uncertainties can help you reduce overall uncertainty in your portfolio and reduce the impact of the so-called election jitters. I used market capitalization, stock exchange, growth potential, cash availability, and past performance to build a list of stocks that fit such a description. I also went ahead and saved the list as an "election-proof watchlist." You can easily access that watchlist by visiting Stock Card. Click on the link below and get the list. You can add them to your personal watchlist, add additional filters and save a new filter that better fits your criteria. Go ahead, try it now!
Hey folks, it's Karen, Head of Data Science at Stock Card. This week I used the COVID-19 Testing Kit and meshed it with one fundamental indicator and two technical indicators using the new Filter function on the Discover page, used to result to come up with stock on my Watchlist. Let me share with you how I went about this screening.
Steps to follow
Visit Stock Card's Discover page, and follow these steps:
If you are a Stock Card user (on our free Starter plan or premium plans), you can see the final results by clicking on this link. It is noteworthy that the results may vary day to day due to price changes in the stocks included in the collection. As of the closing on Friday, September 11, 10 stocks are included in the screening results. Click to view the results, or continue reading.
Using filter results
The overall market has been quite volatile since the indices (e.g., Nasdaq-100, S&P 500) peaked on September 2. In particular, the rally of tech stocks fueled by Softbank has receded, and cautious investors may be inclined to refrain from “buying the dip” in the FAANG and tech stocks resulting in drastic declines in some of Stock Card most popular stocks. What other stocks can investors consider to diversify their portfolios away from the technology sector? Investing in the stocks in the COVID-19 Testing Kit collection could be an excellent way to get exposure to the biotech and healthcare sectors and diversify one’s portfolio.
Let’s take Thermo Fisher Scientific Inc (NYSE: TMO), one of the ten stocks in the filtering results, as an example.
Add to watchlist
The chart below shows that TMO has outperformed the S&P 500 index throughout the year and is very close to the Nasdaq-100 (NDX) Year-to-Date returns daily based on returns. In the most recent pullback since Sept 3, as both S&P 500 and Nasdaq have been laggard, TMO has shown increasing strength, which is reflected in the daily returns. This may qualify TMO as a good addition to your watchlist.
Investing in biotechnology companies that focus on the fight against COVID-19 involves understanding four main components: diagnostics, cure, vaccine, and distribution. More than 100 companies are competing in the vaccine development race, and several others are already getting ready to produce and distribute it. However, to contain the spread, diagnostic testing is an important frontier as the vaccine development is. As always, what becomes a society's priority tends to become a noteworthy investment too. This week, we turn our focus on COVID-19 Testing Kit stocks to give StockCardians and our broader community a starting point for their fight against COVID-19, investing-style.
The overall process of diagnostic testing depends on several different products such as swabs, glass vials, RT-PCR testing machines, a laboratory apparatus most commonly in DNA segmenting via the polymerase chain reaction (PCR), electronic or disposable pipettes, filter tips, and refrigerated microcentrifuges. To those products, one can add services such as test sample transportation and imaging centers. To build a robust list of companies involved in manufacturing testing kits and distribute diagnostic testing, we first referred to Stock Card’s proprietary market database to look for diagnostic testing companies. We then validated the list with holdings of exchange-traded funds such as the GERM ETF, which seeks to track the Prime Treatments, Testing, and Advancements Index.
Because of the priority and popularity of the COVID-19- related topics, almost every pharmaceutical, and healthcare company associate its operations with developing a testing kit, vaccine, or cure. However, the tricky part of the research was to screen for companies that are much more committed to finding the cure, assisting with diagnostics, and producing materials needed for various efforts in the COVID-19 ecosystem and are achieving early success. Our analyst team spent more than two weeks evaluating the list qualitatively, and the result has turned out to be a reliable yet robust list of companies worthy of your attention.
Risk and opportunity
As always, when you invest in companies without a proven track record of product and financial success, it involves risk. The risk is exacerbated when dealing with biotechnology companies in the COVID-19 ecosystem of vaccine and testing kits developments and has no other revenue sources. Your investment success would have two possible extreme outcomes. Either the company succeeds, and you win with it. Or, despite all the efforts and stock price volatility, the investment loses all its value. A binary result is the most typical risk you'd need to be ready to face, should you choose to invest in the COVID-19 testing kit stocks. The evidence of such binary outcome is visible in the rapid decline of the stock prices of testing kit frontrunners such as Quidel, Hologic, and Quest Diagnostics, since the launch of the low-cost testing kit by Abbot.
While that's a substantial risk, it may also mean an opportunity. It is worth evaluating some of the beaten-down testing kits stocks to find well-managed companies that are not purely reliant on a testing kit's success and can recover into more reasonable valuation in the future.
After the thorough research and curation of the list, we identified more than 80 companies involved in producing the COVID-19 testing kits and providing diagnostic testing services. You can access them directly by clicking on the below button. Alternatively, type in "COVID-19 testing kit" in the search bar, and you get the list.
Stock Card's Founder and CEO invited Dr. Alex Koh from the Family Investments YouTube channel to dig deep and research Fastly's stock. There is a surprise stock pick at the end of the video. It may or may not be Crowdstrike (CRWD)!
Disclaimer: Stock Card, Inc. and Family Investments YouTube channel have an ongoing marketing partnership, and Stock Card sponsors some of Family Investments' videos and content.
Investing in promising innovations that can potentially shape the future could be one of the best long-term investment strategies. One prominent example is the Electric Vehicles market. Electric vehicles date back to the 1830s when the first generation of eco-friendly cars came about. Later on, companies like Tesla brought the technology into the limelight and made it somewhat affordable for mass production. Since then, the wave of fuel-efficient and low-emission cars has spread to all types of vehicles, including heavy trucks and trains, and the technology has even spread to adjacent markets such as electric spacecraft!
To become a part of such an innovative market, one can invest in the growing electric vehicle companies for several years and benefit from the long-term price appreciation. How do you find such companies, especially those that are not yet well-known but are developing the critical components of this truly future-defining industry?
When we say "electric vehicles," one would almost immediately think of Tesla! However, even though Tesla is one of the leading companies in this market, some well-established automakers such as Volkswagen, BMW, and Nissan, have entered into this new market as competitors. And, the story doesn't stop there. Who builds the batteries, the software, and other components that enable this industry?
To answer that question, Stock Card team (Shama Patwardhan, Head of LiveOps and Raj Arora, Research Analyst Intern) dug deep into the industry and identified the companies that are enabling the “Electric Vehicles” to evolve and grow.
Our research methodology
Investing in the electric vehicles industry is not limited to just EV manufacturing companies. A large number of companies support the supply chain, which qualifies them as potential investment choices. Investors may find hidden gems among these lesser-known companies.
We began our research by mapping all of the different markets associated with the electric vehicles manufacturing process. We looked at the various components manufacturers, electric car charging businesses, lithium-ion technology-based battery manufacturing companies, lithium miners, and software development that powers electric self-driving cars. Here are a few markets associated with the “Electric Vehicles” collection:
As we wrapped up our research on electric vehicles, we discovered close to 100 companies that belong to the "Electric Vehicles" collection.
Before jumping in, let's remember that this market is still relatively new, and investing in rapidly evolving but new technologies come with inherent investment risks. For instance, manufacturing electric vehicles requires a significant investment in the infrastructure, which may get delayed or impact investors' short-term returns. Moreover, several companies on this list are still in the early stage and do not have a commercial product (e.g., Nikola Corp). Investors may need to stay invested and be patient with their investment through several possible volatile periods before the investment pans out.
Keep those risks in mind and explore our new "Electric Vehicles" collection to discover investment-worthy companies to add to your watch-lists and portfolios
Disclaimer: Stock Card team owns shares of Tesla.