Keep Buying the Dips in These 3 Sectors
Dear Wall Street Daily Reader,
The market’s having a conniption right now as interest rates rise, stoking inflation concerns.
But please don’t join in on the near-sighted panic!
As I told you earlier last week, the sudden increase in 10-year Treasury yields is blinding many investors to the sobering fact that we’re simply returning to pre-pandemic levels that are normal, not dangerous.
They’ll figure it out eventually.
But while they do, I highly recommend you treat the resulting volatility as an opportunity to “buy the dip” in these three top sectors…
Semis or Die
Interestingly enough, the pandemic didn’t put a dent in innovation. Global patent filings actually increased, or were in-line with, 2019’s levels in most major countries last year.
What the heck does that have to do with anything?
Well, first of all, innovation is the new and enduring engine of economic growth in our digital world. What’s more, most new innovations involve and/or rely on semiconductors.
Or as I’ve said before, chips are the lifeblood of the current and future economy. Full stop.
Literally every major digital trend and initiative — from cybersecurity to cloud infrastructure to data management to artificial intelligence to remote work and collaboration — isn’t possible without chips.
That’s become blatantly obvious in the current environment, as the pandemic is causing a global shortage because demand is so strong.
In such a scenario, I recommend buying the front-end of the value-chain companies.
That means suppliers like Lam Research Corporation (LRCX), which sell the equipment used to make semiconductors. And technology providers like Atomera Inc. (ATOM), which enable performance and margin improvements for every type of chip.
If you want to be lazy and simply buy the semiconductor ETF, iShares PHLX Semiconductor ETF (SOXX), you should make out just fine, too.
As you can see in the chart below, the ever-growing demand for chips has led to every major dip being followed by a massive rally. For the last three years and counting.
I’d count on it again!
As a result of the pandemic, biotech is arguably the most vital sector in the world now. And rightfully so.
Without the ability to rapidly innovate as well as scale up trials and production, a single vaccine, let alone close to a half dozen of them, would still be years away.
Against this backdrop, it’s no wonder that billions in fresh capital are flooding into the sector to help propel startup biotechs to mainstream clinical success.
In terms of identifying the most compelling companies for investment, investors should focus on biotechs with “platform” technologies.
Because a single drug can only generate a finite amount of revenue. Even if it’s the top-selling drug in the world. But a biotech with a drug discovery platform can produce an endless number of drugs — and can therefore produce endless billions in potential revenue and profits.
One of my favorite biotechs involves a platform that leverages Artificial Intelligence to dramatically accelerate drug discovery, as well significantly reduce development costs. You can get all the details here.
Again, investing in a leading biotech ETF should still do the trick for those unwilling to do the work to find compelling, individual biotechs.
As you can see, the performance of the iShares Nasdaq Biotechnology ETF (IBB) has been remarkably similar to the semiconductor ETF, bouncing back quickly (and then some) following any sudden selloffs like we’re experiencing now.
E-Comm All the Way
The last sector I’m extremely bullish on is not a traditional one. It’s really two trends in one — a bullish one for e-commerce, and a bearish one for traditional retail.
And that’s because the pandemic has brought about a permanent shift in consumer buying behavior. In short, we’re rapidly going from a brick-and-mortar model to click-to-order society. For everything!
But in this case, forget trying to pick individual and overvalued winners, while simultaneously figuring out which traditional retailers are destined for the courthouse steps.
We can take all the guesswork and risk out of the equation by focusing on an ETF that combines the two trends into a single investment: the ProShares Long Online/Short Stores ETF (CLIX).
And thanks to market-cap requirements (> $500 million) and monthly rebalancing, this ETF ensures we’re never overexposed to a handful of stocks.
To go long the entire e-commerce sector, and to short the entire retail sector, this makes it as pure-play of an investment as we can get.
Ahead of the tape,
Editor and Founder, Trend Trader Daily