In March 2021, I explained in an article that, unlike most other investors, I tend to avoid exciting tech stocks and instead invest most of my net worth into boring real asset heavy businesses like REITs (NYSEARCA:VNQ).
Back then, I argued that REITs should pummel tech in the years ahead because:
The valuation discrepancy had grown historically large.
Tech stocks have historically been poor performers following periods of bubbly valuations.
With market caps in the 100s of billions and even trillions, the growth of tech stocks will inevitably slow down as size is the enemy of growth.
The end of the pandemic will ultimately benefit REITs, but hurt tech stocks that benefited from it.
And finally, in a world of ultra-low yields and high inflation, REITs had substantial upside (and still have), but tech stocks were more at greater risk. Allocations to real assets are rising rapidly and at least a portion of this capital is coming from tech stocks:
It has gotten so bad that some call it the dot-com crash 2.0.
The ARK Innovation ETF (ARKK), which is a collection of some of the most popular tech stocks, has dropped nearly 50%:
Following this crash, I still think that most tech stocks remain overpriced, but I have now begun to buy the dips and in what follows, I highlight two tech stocks that I bought recently.
COIN probably doesn’t need an introduction here on Seeking Alpha. It is one of the most popular crypto stocks and it has been getting a lot of coverage after its recent collapse from $430 all the way down to ~$200 per share.
I think that this is an opportunity and here is why:
The market has for whatever reason treated COIN as if it was a derivative for Bitcoin (BTC-USD). When Bitcoin rises, COIN also rises, and when Bitcoin drops, COIN drops as well. You can see a clear correlation in the chart below:
In reality, COIN isn’t dependent on Bitcoin. As an exchange, COIN makes money whether Bitcoin drops or rises. It profits from transaction fees, which may even grow during times of market volatility. Whether you are bullish on bearish on crypto as investments, COIN can profit as long as you agree that crypto is here to stay for the long run.
That’s the primary, but not the only reason why I think that COIN is a better investment than Bitcoin itself. COIN also offers Ethereum (ETH-USD), Solana (SOL-USD), and all other major currencies on its platform, so its reliance on Bitcoin will only continue to decrease over time.
But if that was all, I probably wouldn’t invest.
The exchange business is highly competitive and while I think that COIN has a narrow moat (from its first-mover advantage, trusted reputation, innovative tech), it is not compelling enough to invest just based on that.
Fortunately, COIN is much more than just an exchange. It is becoming a “one-stop-shop” for everything crypto-related. The CEO has himself explained that their goal is to become the “Amazon (AMZN) of Crypto”, and I think that they are on track to achieve that. Today, already, COIN has many other products to complement its exchange:
You get the point: it is wrong to perceive COIN as just another exchange. The exchange is what gets people in the door, but it is just one piece of the puzzle.
To give you an example: what first got me interested in COIN was the Coinbase Earn marketing program that kept appearing in my YouTube (GOOG) ads. It is a brilliant marketing strategy that allows people to earn crypto by taking free courses on Coinbase’s platform. By the time, you have finished the courses, you have already invested so much time into it that you may as well create an account to buy some crypto, and once the account is created, COIN can upsell you all the other products.
Right now, COIN is priced at just around 16-17x normalized EPS. The low multiple would make sense if COIN was only an exchange with no moat to protect it from the growing competition. But if you buy into the idea that COIN actually has a moat and that it is more than an exchange, then the valuation makes little sense.
Perhaps that is why COIN is Cathie Wood’s third-largest position if you combine all its funds together. It is the pick and shovel approach to crypto investing.
If you run a business that receives and makes foreign payments and/or you are a person who regularly travels abroad, then you are probably familiar with Wise, formerly known as Transferwise. I have myself used Wise for years and it is one of the few companies that I constantly recommend to my friends and family.
Today, it is estimated that their payment infrastructure handles 2.5% of all foreign money transfers. To get a quick overview of the company, I recommend that you start by watching this short video:
About 10 years ago, the founders of Wise realized that the underlying technology that moves money across borders had not been changed for decades.
Wise then began to build their own proprietary international payment infrastructure that allows sending money cheaper, faster, and more conveniently. If you want to learn about how it all works, you can read about it on their website, but in short, it is a connecting tissue between local payment systems around the world and it is the result of over a decade of investing in the technology, working with regulatory bodies, gaining over 60+ licenses, and expanding into new markets.
This infrastructure is their competitive advantage because it allows them to offer better prices while still remaining profitable. Fintech peers like PayPal (PYPL) are far more expensive, and newcomers like Revolut have booked massive losses throughout most of their history.
This infrastructure is also the foundation of their four products:
Wise Transfer was their first product. It allows you to send money rapidly and cheaply. 40% of transfers arrive instantly, 58% within an hour, and 86% within 24 hours. It is also 8x times less expensive than your average bank and you can money send to 80+ countries in 20+ currencies.
Next came Wise Account, which was created in 2017. It comes with local bank details and a debit card, allowing you to spend money like a local anywhere you are.
This led to Wise Business, which is essentially an expansion of the Wise Account for business clients. I use it all the time to receive payments in different currencies, convert them, and send them to my main bank. It also includes additional features that are important for businesses such as multiple cards, multi-user access, batch payments, and automatic syncing with accounting software.
And most recently, they launched Wise Platform, allowing all other banks and payment processors to integrate Wise’s infrastructure into their own platforms. That’s how you may have already used Wise without even knowing about it. Wise has already signed such partnerships with banks on four continents, but also major SaaS companies like Xero, and payment processors like Google Pay (GOOG).
Today, Wise is not a tiny tech start-up anymore. It is a scale-up with an $8 billion market cap, real revenue, real profits, and a long runway of growth potential.
In 2022, it just isn’t acceptable anymore for people and businesses to get ripped off by the excessive and intransparent fees of banks. Yet, it is estimated that 97.5% of all international transfers are still flowing through these costly legacy systems.
So when Wise decided to go public, I was immediately interested to invest. After all, I have used their products for years and brought many people to the platform.
They started trading at around 950 GBp in July 2021, quickly rose all the way to 1150 GBp, but as tech stocks sold off, and some negative press came out, the stock dropped all the way to ~650 GBp, even as the company kept posting rapid growth.
Is this sell-off an opportunity?
I believe so. The company still isn’t cheap by any means. On the contrary, it is currently priced at ~10x forward revenue if you annualize the most recent half-year results and add ~25% growth to it, which is what they have guided for.
But I like the story. I think that we are still early. The valuation makes sense after the dip. And the growth run-way appears to be very significant.
I am not alone to think so. Richard Branson is one of the largest shareholders of the company:
Today, I still believe that REITs offer better risk-to-reward than most tech stocks, and that’s why I invest 50%+ of my net worth in them. In a world of high inflation and ultra-low interest rates, you want to own leveraged real assets, and especially so if you can buy them at attractive prices.
But I am not against the idea of investing in tech stocks. It just has to make sense price-wise, and lately, it has been difficult to find opportunities in this segment of the market.