Last Updated on 29/01/2024 by Carl-Peter Lehmann
Stocks to buy now has been written for information and educational purposes only and does not represent advice to buy or invest in any of the securities discussed. This article has been written simply to share some ideas on a few investment trends that are supported by secular growth trends and may provide an opportunity for investors with a long-term horizon. Always due your own due diligence before purchasing a security or making any investment decision. The best stocks to buy now should always be a function of your risk tolerance, goals and form part of well structured and holistic financial plan.
Important Reading: Our 2024 Update on the 10 Best Shares to Buy to Achieve Financial Freedom
Investing Complexity
It’s important to always have an investment strategy customised to your needs and what’s important to you. But that doesn’t mean you shouldn’t pay attention to some of the opportunities out there that can be tactical additions to a balanced and diversified portfolio and provide the opportunity for achieving alpha in the long-term.
The world is evolving rapidly. And the speed that change is happening at is accelerating as we move deeper into the digital age, and innovation is happening at unprecedented scale thanks to advances in technology and computing power.
There is always debate in the investment community about which investment styles or approaches (example growth vs. value) are better. Go watch two different fund managers give a presentation and both will deliver very compelling arguments via charts and graphs (and all the rest of it) why their view is correct, even if they’re diametrically opposed. The stocks to buy now that they will be looking at will be totally different.
Jargon sows confusion:
Their arguments will often quote other experts, usually famous (Warren Buffet being the most common), to give credence to their theory and fit into the narrative they’re trying to create, even though they come to totally opposite conclusions. The growth fund manager will use a Warren Buffet quote to suit his narrative and the value manager will do the same.
If that isn’t confusing, you’re then faced with all the jargon. Growth, value, deep value, contrarian, GARP (growth at a reasonable price), PE, hawkish, dovish, alpha, beta, bull, bear, standard deviation. Enough to give anyone a headache. And these are just a handful of dozens of examples you will hear sitting in on a presentation, reading a report or listening to a pundit speak in the media.
Go back just over twenty years and many people thought the idea that the internet and all the opportunities and ways it would develop and change our lives was absurd. Yet here we are and some of the biggest, most important, and valuable companies of today were founded during that period. Amazon, Alphabet, Meta, Tesla, Tencent, Nvidia are just a few examples that would have represented great stocks to buy now when you go back a decade (or two).
Innovation and the Future
Anyone that suggests going out and investing all your money in unprofitable, unproven stocks should be treated with caution. Having said that, though, discounting companies entirely because they are focused on maximising growth over profitability in the short-term is also not smart. Like anything in life, balance is key. And understand the risks. A small allocation to opportunities that are shaping our future is how to play it. And it takes only one big winner that can lead to life-changing returns. Think Amazon 20 years ago.
Looking forward is simply a play on human ingenuity, innovation, and our disposition to want to improve our lives and makes things better/easier for ourselves. The economics of capitalism certainly help because those that get it right are richly rewarded. But don’t cross the line between speculation and investing.
This approach does come with additional risk however, because knowing who will succeed and who will fail is the hardest part to predict. Go back to 1999 and see who the biggest companies in the world were then. Only Microsoft is still part of that group. General Electric, Exxon, Intel, Cisco, Nokia have all seen a massive fall from grace and been overtaken by more innovative, dynamic competitors. Or their type of business/product has simple become obsolete.
3 Megatrends and potential stocks to buy now in each
Investing in innovation and the future will always come with additional volatility and risk because rapidly growing companies and sectors will inevitably experience big swings in investor sentiment (as we are seeing now) and who will ultimately rise to be amongst the winners in nascent sectors is hard to tell. Like the days Yahoo and MSN were regarded as leaders in search until Google came to eat their lunch. Or when Nokia and Blackberry were regarded as leaders in mobile phones (which isn’t even that long ago!) Below are 3 sectors we think are ready for prime time and worth consideration (out of more than a dozen in the running which we think are still a bit too early and speculative in nature).
Artificial Intelligence
The launch of ChatGPT towards the end of 2022 certainly caught the imagination around the potential of AI. But artificial intelligence in a modern context and its enormous potential already started coming to the forefront in about 2015 when Nvidia launched the most powerful processor ever to train deep neural networks.
The potential for AI is clearly huge. It probably has the most wide reaching and all-encompassing opportunity set across all industries and sectors. Another great example how advanced it has already become is in health and biology related research. DeepMind (a google owned AI firm) recently announced that they had solved one of the greatest challenges in Biology by mapping the structures of 200 million protein folds found in the human body – a feat their AI programme called AlphaFold did in about 2 years. Ordinarily it would take an individual (usually working on their Doctoral Thesis) years to map out one structure correctly – so the implications for genomics, drug development etc. are massive.
Much of the acceleration and speed at which data and information can now be analysed and run through AI programmes is thanks to advances in the computer chip. Computer chips have become so powerful and fast at processing data that AI models are now able to operate huge amounts of information at speed and scale to solve problems, recognise patterns etc.
No corner of society will be left untouched. That might be a scary thought. But its already here and as AI becomes more advanced and sophisticated it will literally impact every area of our lives in some shape or form.
Name to watch: Nvidia (NVDA)
Nvidia started as a gaming company that invented the GPU which is used to create high end graphics for games (and turns out can dramatically speed up computational processes for deep learning) which has led it over the last decade to evolve into the global leader and engine of various AI applications with its full-stack AI technology platform – with some 25,000 companies using Nvidia AI technology to power their AI factories as just one example of its reach. It’s grown its revenue from c. USD 4 billion to c. USD 30 billion in the last 8 years and its shares have delivered an almost 4,000% return in the last decade. With the impact and reach of AI still only getting started and as it becomes more sophisticated, it wouldn’t be a surprise if Nvidia eventually becomes the most valuable company in the world. That could make Nvidia a very good stock to buy now if you have a long-enough time horizon.
ETF to watch: Global X Robotics & Artificial Intelligence ETF (BOTZ)
The Global X Robotics & Artificial Intelligence ETF (BOTZ) seeks to invest in companies that potentially stand to benefit from increased adoption and utilization of robotics and artificial intelligence (AI). This ETF has a good mix of different types of companies across the globe who all use AI and Robotics in a lot of what they do so is a more diversified way to play this sector. Returns have been poor this year (like much of the growth/tech market) which has seen it give up most of its gains since inception, but as a small tactical allocation to a diversified portfolio, it could add some serious thrust to performance over the longer-term.
Cyber Security: Stocks to buy now?
Warfare isn’t only conducted on the battlefield anymore. National defence and security budgets are more than just about securing military hardware (fighter planes, rockets, missiles, tanks etc.) but as we move deeper into the digital and information age – also include securing access to confidential data, infrastructure, networks and other critical systems.
Being hacked has massive implications for just about every person and entity on the planet – whether it be to steal personal data for ransom, uncover trade and company intellectual property, or gain access to national security secrets. The threats are real, high and with massive consequences. Technology budgets (both government and corporate) are seeing increased allocations to deal with this threat, so cyber security is a sector that could do very well for investors with patience and and a long-enough time horizon (because it willl be volatile).
Name to watch: Crowdstrike (CRWD)
One of the biggest trends of the last decade has seen how data storage has migrated from on premise to the cloud which means cyber defence and security systems have needed to adapt – and Crowdstrike is regarded as leader in its field. Founded in 2011, it went public in 2019 and has seen massive growth, with revenue increasing from c. USD 250 million in 2019 to c. USD 1.8 billion YTD in 2022. It’s one of the fast-growing tech names that isn’t yet profitable (but is generating significant free cash flow) and despite its rich valuation, has held up pretty well relative to the rest of the market so far this year so far where high growth, unprofitable names have been hammered. Crowdstrike could also be a very good stock to buy now if you don’t mind volatility and are prepared to look out a decade as this sector matures.
ETF to watch: Global X Cybersecurity ETF (BUG)
A good, diversified mix of leading-edge cybersecurity firms that offers investors a more diversified way to play this space. BUG has many of the ‘new-age’ cyber security firms amongst its largest holdings. In this space, scale and speed of growth matters more than immediate profitability because for those who get it right, the rewards are likely to be significant.
Clean Energy
This has become a contentious and politically charged area and clearly with everything happening in the world right now, energy security is massively important for policy makers and governments – as the energy transition from fossil fuels to cleaner and more sustainable forms of energy is managed in a way that is viable. Energy (or a lack thereof) is something we feel especially acutely in this country with our broken primary energy supplier (Eskom) – and as the world at large struggles with the impact of climate change as we move to net zero, there is going to be massive investment in different parts of the clean energy spectrum whether it be solar, wind, hydrogen, battery storage, and dare I say it, nuclear?
Name to Watch: Enphase Energy (ENPH)
Tempted to say Tesla (just to annoy the Elon haters) – a name many won’t know is a company called Enphase Energy. Enphase initially made its name developing marketing-leading micro-inverters to distribute power from solar panels to the home, and now offers a full package of solar, batteries and software to create an integrated clean energy system to power homes and businesses. From a company in trouble 5 years ago, as the clean energy revolution has taken off, Enphase has become a highly successful, profitable and radpidly growing business whose share price just happens to have appreciated about 10,000% in the same time frame. With a market cap of about $30B, there should be a lot more room for growth in a massive market. This could be one of the best stocks to buy now for anyone wanting to play the clean energy space.
ETF to watch: iShares S&P Global Clean Energy Index ETF (ICLN)
A more diversified way to play the clean energy revolution, this ETF of about 120 constituents aims to capture players across the clean energy value chain. Once the world returns to some sort of normality, particularly in relation to inflation and interest rate expectations (and this bear market ends), these sectors are well positioned to benefit thanks to the secular tailwinds that support their growth.
Read More: The Henceforward approach as a wealth management company that does does things differently helping clients grow their wealth and achieve what matters to them.
Conclusion:
Stocks to buy now was written as a fun piece to explore some of the biggest investment trends of our lifetime with a few ideas and opportunities in each. None of the information herein should be considered as advice and is for informational purposes only. But when we look back in a decade, it will be interesting to see what opportunities and sectors have done well. If the prior decade was that of FAANG+, what will the next be?
Carl-Peter Lehmann
Carl-Peter is a Director and Partner at Henceforward. One of his hobbies and interests is stock investing and the themes and trends that are changing our society as we know it.
