Fail This Investing History Test, and You Lose Money
.Plus the billions pouring into satellites and an AI-energy related winner ...
In this weekend edition of Stock Picker’s Corner (SPC) …
Using investing’s past to build yourself a prosperous future.
Satellites’ critical role in the AI Era and the New Cold War.
And the biggest winner of data center demand in 2024.
📚Investing in U.S. Financial History
With an event-filled year that still has two months to run, it feels like the return of “Roaring Kitty” — and the renewed, short-lived GameStop Corp. GME 0.00%↑frenzy — was more like five years ago than just a little over five months ago.
As a quick catch-up, after three years of silence from being the face of meme stock mania in 2021, Keith Gill (“Roaring Kitty”) made his return by posting a cryptic image on X on May 13.
From May 10 to May 14, shares shot up 179%:
There was already a history lesson available of what happened from the previous speculative frenzy around GameStop, but one of the big differences was that Chief Stock Picker Bill Patalon said this time around felt more “mercenary” than a “movement.”
As shares dipped after Gill’s post but rallied ahead of his livestream video back to $46.55 on June 6, Bill told people to just stay out of this whole mess. And as expected, shares plummeted and are now down 56% since June 6.
This type of “opportunity” still sucks people in because there’s a surface-level novelty accompanied by a hypnotic “easy money” allure.
However, if you dig a little deeper, you’ll see the “bones” for all of these look similar and play out the same way.
In Part 2 of his book Investing in U.S. Financial History: Understanding the Past to Forecast the Future, author Mark Higgins starts off with a quote from economist Arthur Hadley: “What has been true of railroads has been true of other forms of permanent investment. First, high charges and high profits. Then speculative investments in the same line. Next, an overstocked market, and no profit at all. Finally, cut-throat competition and widespread insolvency.”
Hadley said that in 1886 about railroads. But as we just saw from GameStop, the core lesson is still relevant over 100 years later.
The “hot investments” of the moment may change, but they all have the same result: The vast majority of people will lose money when they’re chasing after something.
So when you know those “lessons” of financial history, you can start spotting those patterns and warning signs faster.
You can quiet that “loud speculator on your shoulder” dangling the “promise” of “easy money” in front of you.
And you can ultimately avoid being a Wealth Killer.
Of course, understanding speculation will always hover around is just one of the takeaways from Investing in U.S. Financial History.
With nearly four years of research put into the book, all the hard work has been done for us, leaving an “ investing playbook” for better decision-making.
In another proof point that some of the best writing and most interesting conversations are happening on Substack, Bill sat down with Mark and got into more details about his book, the similarities between the 1960s and 1970s and our current economic situation, and Mark’s concerns with the Federal Reserve’s recent rate-cut decision.
You can find his book on Amazon and Barnes and Noble.
🔵The Increasingly Vital Role of Satellites
Because they’re out of sight, satellites are easily out of mind as investable opportunities.
But satellites are critical for ensuring self-driving cars constantly connect to a signal to navigate roads and for providing secure communications, real-time intel, and missile detection and defense for military operations.
That’s why we say satellites play a role in both the AI Era and the New Cold War, which amplifies the moneymaking opportunities.
The global internet satellite market was valued at $5.6 billion in 2023 and is projected to reach $58.1 billion by 2032, for a whopping CAGR of 33.90%.
And when we drill down into a few of the companies in the satellite market, we see a third storyline present: Special-Situation Investing.
One of those companies is Iridium Communications Inc. IRDM 0.00%↑, which recently authorized $500 million in share buybacks and has authorized a total of $1.5 billion in buybacks since 2021.
Then there’s Viasat Inc. VSAT 0.00%↑, which has a bit of a misunderstood business model that could become a turnaround play. One investment fund believes its defense business alone is worth double the company’s total value.
We have more on Iridium, Viasat, and two other satellite companies in this concise research briefing.
✨Cooling Down Data Centers Made a Hot Stock
Since the launch of SPC earlier this earlier, we’ve been saying that investing in AI goes beyond investing in just chipmakers - a big opportunity is in data centers and the companies involved in keeping those data centers up and running.
Companies like Vertiv Holdings Co. VRT 0.00%↑.
From design to continued maintenance, Vertiv offers something for every stage of a data center’s lifecycle. Its modular offerings allow companies to expand capacity quickly, and it also markets cooling solutions and management and monitoring tools.
Vertiv just released its fourth-quarter earnings on Wednesday, where it beat earnings per share (EPS) estimates of 69 cents by reporting 76 cents a share. It also beat revenue expectations of $1.98 billion by reporting $2.07 billion.
The stock dipped after the results, but that’s not surprising as expectations were sky-high and shares have already run up 140% this year.
This situation is reminiscent of when Nvidia Corp. NVDA 0.00%↑ reported stellar earnings that were still “disappointing,” and we said on Sept. 2 to use any pullbacks as an opportunity to accumulate shares. Nvidia hares dipped to $108 on Sept. 3 and opened on Friday at $140, representing a 29.6% gain in less than two months for anyone who followed along.
So with Vertiv, as you do your investing research and if you decide you like the stock, you’ll want to set up a plan to buy on pullbacks or set up an automatic reoccurring investment … or do both.
That’s because, even though shares are up triple digits this year, earnings are still projected to grow nearly 30% per year over the next five years, and higher earnings growth tends to lead to higher stock prices.
Jeffries analyst Saree Boroditsky began coverage on Vertiv earlier this month with a “Buy” rating, telling Barron’s that Vertiv has an advantage with 3,750 field-service employees and 300 service centers for cooling system maintenance. She projects earnings will grow 24% per year through 2027.
But she also added that is a tampered-down projection: “We believe our forecast is conservative,” said Boroditsky. She said that earnings could grow faster if the company makes acquisitions, buys back stock or if demand is higher than expected.
Outside of Vertiv, we also have six other AI-energy related plays to consider in the report below.
That’s it for this week.
Take care,
