Why these lesser-known tech stocks are ready to shine in 2021, says this money manager

by Warrior2

Stocks are off to a mixed start on Tuesday as we wind our way toward the long holiday weekend. Investors finally have a U.S. stimulus bill, but a new Covid-19 strain in the U.K that could be more contagious, continues to unsettle.

If a pandemic year has shown us anything, it is that investors keep returning to tech stocks, which have delivered this year. Apple AAPL, 4.68% and Amazon.com AMZN, 0.18% up over 70% each, Netflix NFLX, -0.78% added 60% and Alphabet GOOGL, -0.44% increased 29%.

But our call of the day from Michael Loukas, chief executive of exchange-traded fund provider TrueMark Investments, suggests investors start digging a little deeper for younger, hungrier technology companies. Because, as he says, what happens when those bigger tech stock start to run out of steam?

“We’ve gone through different waves of tech, and you look at some of the mega caps in tech right now, and are they really innovating? Not necessarily at this stage. So we are on the lookout for these up and comers that are category killers, that embrace innovation, that bring some sort of competitive technology like artificial intelligence to the table,” Loukas told MarketWatch in an interview.

To be sure, those big companies, Netflix and the like, have enjoyed years of dominance as “category killers,” dominating their fields and developing ecosystems that individuals and companies depend on.

The up and comers Loukas invests in also blend into another theme he’s keen on headed into 2021—work-from-home after lockdown. That is, the view that the end of lockdowns won’t materially slow growth for cybersecurity and cloud computing companies that benefit from the trend.

As for his stock picks, he points to Okta OKTA, 2.21%, an enterprise-grade, identity management service, which can connect anyone with any device and works in the cloud. Cybertechnology company CrowdStrike CRWD, 3.88% is another, and then there is Zscaler ZS, 2.98%, a security platform that connects users and their apps.

These are the stocks he puts in TrueMark’s ETFs—TrueShares Structured Outcome ETF DECZ, +0.27% and the TrueShares Technology, AI and Deep Learning ETF LRNZ, +2.39%. “

As for the view that some think valuations are being stretched, he says that is one more reason to look at secular growth stories— which is when an industry shifts and there is new demand. “They lead you to these category killers and smaller companies that are gaining market share and have a lot of room to grow over the next few years,” said Loukas.

The markets

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The Dow industrials DJIA, -0.37% and S&P 500 SPX, 0.03% are lower, but the Nasdaq COMP, 0.74% is higher, with European equities recovering ground after Monday’s heavy losses. And the Nikkei NIK, -1.04% led Asian markets south. Worries over virus-related lockdowns is keeping the pressure on oil CL00, -1.83%.

The buzz

A second major coronavirus aid package cruised through Congress late Monday, after nine months of haggling, but a future fight for another aid package looms. One Democrat suggests tossing in an extra $300-$400 as a reward for Americans who get vaccinated for Covid-19.

In U.S. economic news expect, third-quarter growth was revised higher and existing home sales fell, while consumer confidence index is still ahead.

Taiwan has broken the world’s longest run of being free of new Covid-19 cases —more than 8 months—after a pilot tested positive.

Peloton Interactive PTON, 14.06% has agreed to buy rival exercise equipment manufacturer, Precor, in a deal valued at $420 million, with it hopes will help it catch up with all those pandemic-driven back orders.

An unredacted draft lawsuit reportedly said technology groups Facebook FB, -1.07% and Alphabet GOOGL, -0.44% have promised to work together if they ever face an antitrust suit over online advertising.

Big U.S. technology groups, Cisco CSCO, 0.17%, Intel INTC, -0.88% and Nvidia NVDA, -0.41% are added to the list of companies that have been victims of the suspected Russian hacking of IT management group Solar Winds SWI, 4.96%.

MGM, the studio behind the James Bond films, is reportedly exploring a sale.

The chart

A December investor survey by RBC finds that the date some investors expect life to return to normal has been pushed out. “In aggregate, 61% of investors think normality will return sometime in 2021, with another 39% saying 2022 or later,” said Lori Calvasina, head of U.S. equity strategy.

Also in that survey, here are the stock sectors investors were looking to sell:

And buy:

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