TheStreet's Stocks Under $10 portfolio scored many big catches in 2020.
Like hunters, we waited, watched and targeted opportunities as we saw business models get reset and refocused by new management teams, the weight of U.S.-China trade spats put pressure on expectations, Covid-19 force changes in the way we live, and new technology ramps prep for takeoff.
When the time was right, we pounced, scooping up companies poised to grow their revenue, cash flow, and earnings -- at much quicker paces than the growth seen in the overall stock market.
Our trophies included wins with Farfetch (FTCH) - Get Farfetch Limited Class A Report, Nio Inc. (NIO) - Get NIO Inc. (China) Report, Coty Inc. (COTY) - Get Coty Inc. Class A Report, AXT Inc. (AXTI) - Get AXT, Inc. Report, Ovinitiv (OVV) - Get Ovintiv Inc Report, ADT Inc. (ADT) - Get ADT, Inc. Report and MobileIron (MOBL) - Get MobileIron, Inc. Report. All of those investments handily beat U.S. equity market barometers through the first 50 weeks of the year.
In fact, the combination of quicker earnings growth paired with multiple expansion drove stock price outperformance -- or, to use the Wall Street lingo -- “alpha.” In most cases, the portfolio still has skin in the game for several positions with an eye on bigger returns in 2021 as several multi-year tailwinds look to continue.
Here are the three areas we've got our sights set on for the new year:
Scoping Out 5G
From now until 2025, mobile operators will invest around $1.1 trillion worldwide in mobile capital spending, excluding spectrum acquisitions, according to GSMA Intelligence. And guess where the bulk of that money will go? 5G.
That's right, roughly 80% of the funds will be spent on 5G networks, according to GSMA.
And, by 2025, the number of devices people have that are linked up to the internet will more than double to 25.1 billion, according to GSMA Intelligence.
At the same time, our connections will be blazing fast. According to the Consumer Technology Association, 5G data speeds could reach up to 10Gbps. That means that it will be possible to download a two-hour movie in less than four seconds. Right now with a typical 4G connection, the same download would take around six minutes.
The higher frequencies that make such speeds possible will also enable directional radio waves that can be targeted. The 5G antennas, which will be able to handle more users and more data, beam out over shorter distances, which means we will need more of them. Extra repeaters will need to be installed across cities.
While 5G did make its initial splash this year, 2021 will be the year of the actual dive in. 5G networks will become operational and devices will be available for purchase. This means coverage gaps will continue to be covered with additional network coverage in the U.S. and other markets that launched 5G networks in 2020, while new 5G networks debut in others. That should fuel additional spending on 5G network infrastructure from Nokia undefined and RF Industries (RFIL) - Get RF Industries, Ltd. Report as well as antennae and testing services from PC-Tel (PCTI) - Get PCTEL Inc Report.
Keep Safety on With Cybersecurity
Cyberattacks from bad actors surged in 2020, as the Covid-19 pandemic led to pronounced adoption in work-from-home and learn-from-home setups. Digital shopping and video streaming also soared during the year. It will likely take until the second half of 2021 for work and life to start to return to pre-pandemic activity, but cyber attackers will continue to look for digital vulnerabilities to exploit. Longer-term, as mobile connectivity moves beyond smartphones and tablets to industrial and another internet of things applications thanks to 5G advances, new attack vectors are likely to emerge.
While once known for its “Crackberry” smartphone, Blackberry (BB) - Get BlackBerry Limited Report has transformed its business model from mobile devices to intelligent security software and services to enterprises and governments around the world. Its customer base includes 18 of the G20 governments, nine of the Top 10 global banks, and nine of the Top 10 automakers. Late in 2020, Blackberry found a new partner in Amazon’s (AMZN) - Get Amazon.com, Inc. Report Amazon Web Services that will see the two develop BlackBerry IVY, a scalable, cloud-connected intelligent vehicle data platform.
Feast on Healthier Living
In keeping with my "cleaner living" investing theme that I often discuss on Real Money Pro, consumers are shifting their preferences to foods and beverages that are better for them. This means they're looking for foods with low or no sugar, no artificial sweeteners or colors, and no genetically modified organisms. Matching that with the tried-and-true strategy of geographic and product line expansion puts shares of The Alkaline Water Co. (WTER) - Get Alkaline Water Co., Inc. Report in a favorable position for 2021. The company continues to expand the reach of its core bottled water from the West to the East, with a grocery as well as convenience store customers including Walmart (WMT) - Get Walmart Inc. Report, Kroger (KR) - Get Kroger Co. Report, CVS Health (CVS) - Get CVS Health Corporation Report, Rite Aid (RAD) - Get Rite Aid Corporation Report, Publix, Albertsons (ACI) - Get Albertsons Companies, Inc. Class A Report and dozens of others. At the same time, Alkaline Water is expanding its water portfolio with flavor-infused and CBD-infused products.
While that business will be the primary driver of revenue and cash flow in 2021, a potential wildcard could be had with the company’s CBD product offering. CBD is the nonintoxicating cannabinoid oil that comes from cannabis and hemp. That offering currently includes tinctures, capsules, vegan gummies, and lemon-lime flavored A88 Infused water. Prior to 2021, the company aims to introduce gummies, powder packs, and fruit chews. Toward the end of 2020, Alkaline Water was “in active discussion with over 9,000 retail locations" to take its products over the next few months, according to management's discussion on the earnings conference call in November.
On that same conference call, Alkaline shared that during the September quarter it added distribution partners and is in negotiations with with "one of the fastest-growing convenience store chains in the U.S." Their convenience store chain offerings will focus on CBD-infused flavored gummies and powder packs in 400 stores in the South and Southwest. Alkaline also recently added CBD-focused direct store delivery distributor BettermentRS to drive convenience store and grocery store CBD sales growth. The key will be repeat business for Alkaline’s CBD products, which if successful means WTER shares could be a powerful play in the second half of 2021.
Christopher Versace is co-portfolio manager of TheStreet's Stocks Under $10 and a regular contributor to Real Money Pro, TheStreet’s premium site for active traders. Click here to learn more and get great columns, commentary and trade ideas from Jim Cramer, Helene Meisler, Mark Sebastian, Paul Price, Doug Kass, and others.