Stock Market at New Highs? Here's What I'm Buying Part 2 of 2

Summary

In this video, the speaker discusses the misconception that the S&P 500's all-time high means all stocks are overpriced. They highlight that only a few sectors, particularly technology and communication services, are driving the market boom. The speaker advises against chasing overvalued stocks like Nvidia and instead suggests looking for undervalued companies with strong economic moats. They share investment criteria, such as consistent earnings growth and high return on equity, and demonstrate how to use screeners to find quality stocks. Examples of undervalued yet strong companies mentioned include Lululemon and Pepsi, and the speaker emphasizes the importance of understanding a business's economic model and intrinsic value before investing.

Takeaways

• 📈 The S&P 500 has recently made a new all-time high with technology and communication services stocks driving the gains, particularly AI-related hardware stocks.
• 🧐 Many other technology stocks like Accenture, Salesforce, and Veeva Systems have been left out of the rally.
• 🚫 Avoid chasing stocks that are currently overextended and overvalued in the short term, such as Nvidia, Microsoft, and Apple.
• 💡 Instead of chasing high stocks, look for undervalued companies with strong economic moats.
• 🔍 Stocks like PayPal, SoFi, and Unity Software are not recommended for long-term investment due to weak competitive advantages or poor financial performance.
• 🏆 Focus on investing in companies with dominant market positions and strong long-term growth prospects.
• 📊 Use tools like TradingView and screeners on Finviz to identify undervalued stocks that are profitable and have consistent earnings growth.
• 💪 Some recommended stocks include Abbott Laboratories, Adobe, Lululemon, and Pepsi, which are currently undervalued but have strong fundamentals.
• 📉 For low-growth consumer defensive stocks like Pepsi, consider short-term trading and selling covered call options to generate additional returns.
• 🤓 Always perform thorough research on a company's fundamentals, including revenue growth, net income, free cash flow, and return on equity, to ensure it's a solid investment.

Q & A

What is the main point the speaker is making about the S&P 500's recent all-time high?

The speaker emphasizes that despite the S&P 500 reaching new highs, it's not true that everything is overpriced. The increase is primarily driven by a few stocks in the technology and communication services sectors, particularly those related to AI hardware.

What sectors are primarily driving the market boom according to the video?

The technology and communication services sectors are the main drivers of the market boom, with a specific focus on AI-related hardware stocks.

Why does the speaker advise against buying stocks like Nvidia, Microsoft, and Apple at their current levels?

The speaker advises against buying these stocks at their current levels because they are short-term overextended and overvalued. He prefers to wait for better prices during the next pullback or correction.

What is the speaker's view on PayPal as an investment?

The speaker does not consider PayPal a good investment because he believes it lacks a strong economic moat and faces significant competition, making it vulnerable in the market.

What is the speaker's general approach to investing in businesses?

The speaker focuses on investing in dominant companies with little or no competition, strong economic moats, and those that are down for short-term reasons but have intact long-term growth prospects.

What does the speaker suggest when looking for stocks to invest in outside of the major indexes?

The speaker suggests using screeners like Finviz to find stocks that are down for the year, focusing on mid to large-cap companies with consistent profitability and positive earnings growth.

What is the speaker's opinion on Unity Software as an investment?

The speaker considers Unity Software as 'crap' because it does not make money, and he is not interested in investing in companies that are only built on speculation and stories.

How does the speaker approach finding undervalued high-quality companies?

The speaker uses a combination of fundamental analysis, looking at consistent revenue and net income growth, high returns on equity and invested capital, and a strong balance sheet. He also uses technical analysis to identify chart patterns and entry points.

What is the speaker's strategy for dealing with low-growth stocks like Pepsi and McDonald's?

The speaker accumulates low-growth stocks when they are significantly undervalued and sells covered call options on them to generate additional returns. He does not hold these stocks for the long run but trades them based on their valuation.

How does the speaker determine a good entry point for a stock like Pepsi in his trading account?

The speaker identifies technical patterns such as a double bottom and uses risk-reward ratios to determine entry and exit points for trades, setting stop losses to manage risk.

What is the speaker's final advice for investors looking at the current market?

The speaker advises investors to focus on a well-balanced, diversified portfolio of high-quality businesses, including a mix of technology, consumer staples, financials, and healthcare, and to apply different strategies depending on the type of stock.