As the S&P 500 continues to hit new highs in 2022, after a 27% rise last year, investors are justifiably questioning where potential upside will come from next. Indeed, prospects for earnings growth are expected to cool considerably compared to the last few years and the Federal Reserve is starting to remove its monetary policy juice while the Omicron variant is resulting in another likely economic headwind.
Amid this backdrop, where are the attractive opportunities?
I’ve been rather critical of sector-focused investing, preferring instead to focus on structural changes brought about by the evolving landscapes of economics, demographics, psychographics and technology. Through that lens there are a number of attractive growth areas, ranging from cybersecurity and data privacy to precision agriculture and products tied to consumers embracing cleaner living. What gets me excited about these areas are the multi-year opportunities that will likely drive earnings growth not just in 2022 but in 2023 and beyond.
Which multi-year opportunity I am most enthused about? One that will enable a number of new applications, creating a virtuous demand cycle along the way. Indeed, we’ve positioned the Actions Alerts PLUS portfolio to capture this opportunity and the earnings growth it will drive.
I’m talking about the rollout of 5G.
5G on a Roll
The rollout of 5G offers attractive growth prospects associated not only with the much-expected smartphone upgrade cycle that will benefit Apple (AAPL) - Get Apple Inc. Report and chip companies such as Qualcomm (QCOM) - Get Qualcomm Inc Report and Skyworks Solutions (SWKS) - Get Skyworks Solutions, Inc. Report, but because of the next wave of connective applications the technology will bring with it.
Higher data speeds, greater network capacity and lower latency compared to 4G are expected to spawn the “industrial internet,” better known as the Internet of Things, or IoT. According to Mordor Intelligence, IoT was a $761.4 billion market in 2020 and is expected to reach $1.39 trillion by 2026 with the manufacturing, retail, and healthcare sectors fueling adoption.
5G networks are expected to be the communication backbone of IoT as well as enablers of the auto sector moving toward semi-autonomous and eventually autonomous driving. And then there is the metaverse, which will fuel greater network demand and also drive adoption of AR/VR technology, with the same being said for Microsoft’s (MSFT) - Get Microsoft Corporation Report Mesh technology, which it touts as revolutionizing the video conference experience.
To be sure, those are big picture outlooks. However, at the heart of it all are networks and chips.
And how do we know how expectations are tracking? Are there any proof points that we as investors should be looking for?
The short answer is “yes” and that’s something we do constantly at Actions Alerts PLUS along with revisiting the thesis behind our existing portfolio positions even as we assess those for new investment candidates. Confirmation can take a variety of forms, from new products and component capabilities to revolutionary services, all of which tend to leave breadcrumb-like trails that start with company analyst days, quarterly earnings reports and industry trade association events.
That brings us to this week’s CES 2022, the annual tech event that historically showcases the coming intersection of technology and products as well as the next round of gadgets that will soon hit shelves. I’ve been to CES several times, and it’s always chock full of information that one can weave into your investment mosaic. I suspect that will once again be the case due in part to a wave of new products to be unveiled from the likes of General Motors (GM) - Get General Motors Company Report, BMW, and Blink Charging (BLNK) - Get Blink Charging Co Report as well as new chip introductions from Advanced Micro Devices (AMD) - Get Advanced Micro Devices, Inc. Report, Nvidia NVDA and Intel (INTC) - Get Intel Corporation Report.
CES Smaller Than Usual, But Just as Big an Influence
Even though this year’s CES will be smaller than originally expected (thank you Omicron), as companies including Amazon (AMZN) - Get Amazon.com, Inc. Report, Meta Platforms (FB) - Get Meta Platforms Inc. Class A Report and Twitter (TWTR) - Get Twitter, Inc. Report have opted not to conduct in-person presentations and meetings, the event’s keynote speakers suggest we will hear quite a bit about the aforementioned IoT and connected car. Among those keynotes will be those from representatives of Nvidia, AMD, Intel, Samsung, GM, Abbott Labs (ABT) - Get Abbott Laboratories Report, LG and Sony (SONY) - Get Sony Group Corporation Report.
But a note of caution on CES.
A common investing pitfall is being overwhelmed by data or, in the case of CES, a plethora of announcements and press releases, resulting in “analysis paralysis.” Simply put, there is so much noise from the event, some people aren’t sure where to begin or can’t crystalize some of the key takeaways.
When we step back from all of the new product introductions, keynote speeches, marketing videos and press releases, we at Actions Alerts PLUS continue to see vibrant demand for digital infrastructure and connective chips, as well as for the capital equipment companies that make them. In other words, further confirmation for many of our holdings in the Action Alerts PLUS portfolio.
-- Chris Versace is co-portfolio manager of TheStreet's Action Alerts PLUS member club.
(Apple, Abbott Labs, AMD, Amazon, Ford, Microsoft, Nvidia and Skyworks Solutions are holdings in the Action Alerts PLUS member club. Want to be alerted before AAP buys or sells these stocks? Learn more now.)