For Tech Investors, The Biggest Constant Is Change

October 16, 2024

For Tech Investors, The Biggest Constant Is Change

BY Keith Kaplan
CEO, TradeSmith

It’s hard to imagine anything outshining the gargantuan investment trend of artificial intelligence.

But, at the same time, we shouldn’t ever presume we’ve reached the peak of tech mountain.

If there’s one thing we can count on in the world of technology, it’s that it will always change, always be in flux… and at an exponentially faster pace.

This week, we got the perfect example…

Chinese researchers reported on Monday that they were able to use a quantum computer from Canadian company D-Wave to crack two widely used encryption standards.

Without getting into the weeds, this means that security for web browsers, email, virtual private networks (VPNs), Wi-Fi networks, and even certain physical computer chips just got a hole blown through them.

And as quantum computing continues to improve, we should hear about more encryption standards being cracked… and that could open up the world to an increased rate of cyberattacks.

This is massive news, but for some reason, not headline news. As I write, this story is nowhere to be found on the front page of major tech publications Wired, The Verge, or more broad-coverage sites like Bloomberg or Reuters.

Whether the mainstream media has wised up or not, understand that quantum computing is coming. It will change a lot. And it’s no longer as “early days” as it was just a few months ago.

It’s a big deal. But it’s not the only thing changing, either. AI is changing too.

I have a friend who’s been investing for as long as I’ve been alive – specializing in small-cap tech companies that went on to dominate the field. That makes him both the guy to talk to about tech innovation and investing in that innovation.

As he puts it, we’re set to enter a “Real AI Boom” that’s shifting capital away from the mega-cap chipmakers that have dominated the last two years… and into the smaller, niche companies using generative AI to make their businesses more efficient, if not reinvent them entirely.

It’s the kind of change we only see a few times over the course of our life, if we’re lucky. For us, there was the internet; for previous generations, it was nuclear fission, airplanes, steam engines, and so on.

Now, I understand that all of this can be hard to keep up with, especially if you aren’t technically inclined. Really, it’s hard to do even if you are. This much change at this fast of a pace does not come easily to even the smartest and most connected of us.

But like a lot of things in life, there’s a comforting counterweight to the ever-increasing pace of technological change…

Tech companies are just as dependent on capital and investment as anyone, if not more so, and those structures work largely the same today as they have for thousands of years.

Focusing on how capital moves in the face of technological change is key to making the most of it as an investor.

Think back to all those past technological changes you may or may not have lived through. They all hold one thing in common: they spawned huge investment manias, the likes of which we rarely see.

Scale aside, all of those manias worked the exact same way. Investors enthusiastically exchanged their capital for a slice of the growth in those tech breakthroughs.

And that brings me back to that friend I mentioned: Louis Navellier.

Louis became a master of growth-stock investing the same way anyone becomes a master in the investment world – by following a strict set of rules. Here’s a bit about his process…

First, he distilled the major factors that determine the success of any growth-oriented company – sales growth, margin growth, earnings growth, and a few more related metrics. These form one major factor, which he calls the Fundamental grade.

Next, he looked for the factors that contribute to positive momentum in the share price of any given stock. Without this buying pressure, even the best company in the world won’t go higher. That’s why it’s so important that both work in concert. This composite factor is called the Quantitative grade.

The crowning achievement of Louis’ career is the combination of these two factors. With them, he developed a stock-grading system.

Using simple letter grades, just like we had in school, this system tells you everything you need to know about any stock in the market.

Each stock’s fundamentals, momentum, money flows, and more are all covered in this simple score. You ideally want a portfolio full of A and B stocks, and completely devoid of Cs, Ds, and Fs.

Louis’ system has done so well over the years because it correctly gives winners the top marks.

It pointed out stocks like Lam Research (LRCX) before it ran up 4,350%. Amazon (AMZN) before it rose 8,151%. And during the recent Magnificent 7-focused rally of 2023, Louis’ system directed his readers to 100%+ gains in several of those household names.

A lot of this success comes down to the unique way that Louis’ Stock Grader gauges money flows in the market. Even if a company has incredible fundamentals – and Louis holds its business/sector in high regard – he’ll only recommend it if the stock earns a high Quantitative grade as well as Fundamental grade.

Being able to time your trades in this way is super valuable and at the heart of what Louis does. And while access to the Stock Grader is not free, Louis frequently shares some of his best ideas from this system with his readers.

Just yesterday, for example, Louis shared the ratings changes for dozens of large-cap blue-chip stocks:

Some were upgraded from a B grade (Buy) to an A grade (Strong Buy), like Netflix (NFLX), GoDaddy (GDDY), Royal Caribbean (RCL), and Teva Pharmaceuticals (TEVA).
Others were downgraded from a B grade to a C grade (Hold), like Darden Restaurants (DRI), First Solar (FSLR), Gilead Sciences (GILD), and Anheuser Busch (BUD). (You can read the full list of ratings changes here.)

The reason I bring all this up is because we just introduced a new feature to TradeSmith, in collaboration with Louis.

Louis Navellier’s Stock Grader Now Available in TradeSmith

We’ve recently integrated Louis’ stock-grading system into our TradeSmith Finance platform. Now, anyone that subscribes to Louis’ advisory services through InvestorPlace and any of our software or newsletters will get access to that system in TradeSmith.

Here’s what it looks like in our dashboard. There’s a widget on the home page of TradeSmith Finance that shows the top stocks in Louis’ system:

You can sort the list by Quantitative grade or Fundamental grade (both of which make up the Total grade to the left). Above you see the “Best by Fundamental.” In that screenshot of our widget above you’ll find quality stocks in every business from fire hydrant builders to chicken producers to fintech. It’s proof that there’s quality everywhere – not just in breakthrough tech.

You can also punch in any ticker in your portfolio to see what it rates in Louis’ system, and you can use it to filter new ideas from our Screener software. Here’s a quick screen for the top-rated stocks on his system, along with our own TradeSmith Health metric:

We did all this for a simple reason.

We want to give our subscribers every possible advantage we can within our software ecosystem. If they like our software and they like Louis’ research, we’d like them to be able to apply the latter strategy in the convenient form of the former.

Plus, Louis’ system is plainly useful. It uses those constants of investment we talked about earlier – growth and money flows – to find great stocks to buy in any category, at the right time.

Right now, Louis is making a call that we haven’t even seen the Real AI Boom yet… and that the biggest gains are still to come.

According to Louis, though, they won’t be in the same companies we’ve seen so far. The mega-cap tech behemoths that have stolen the headlines are now an “old story” for investors, as he puts it.

The buying opportunities now are in lesser-known companies and stories that haven’t made the front pages (yet)… but are starting to see huge inflows from major financial institutions.

Louis recently released a presentation all about this trend, why the AI trade is changing so fast, and how to find the early-stage growth companies with the best profit potential going forward. To get on the right side of it, I’d encourage you to check it out here.

All the best,