As I wrote yesterday, technology stocks are absolutely on fire, lifting the S&P 500 Index with them.
Today, we’re doing a deep dive into the tech sector. The iShares Semiconductor ETF (SOXX), which holds most of the high-flying AI infrastructure stocks currently infatuating Wall Street, is up by nearly 70% since the end of March.
So, how do you play a market that hot?
I play it the same way I would play any other market. I stay disciplined, and I follow my system.
It certainly hasn’t failed me yet.
My Infinite Momentum Tech Titans portfolio got my subscribers into this trend early. We’re up over 100% in five out of our 10 open positions. And remember, this is a momentum-based portfolio that I update every four weeks.
It isn’t a “buy, hold and pray” strategy where we buy a bunch of high-flyers and hope for the best. Every month, my system re-ranks the stocks in its universe, and these triple-digit winners are consistently the strongest.
More on that in a minute…
Let’s first get back to our deep dive on the tech sector.
A Peek Under the Hood
The chart below should really be a wake-up call. Yes, tech shares are ripping higher. But my system suggests that the grand majority of these stocks should be avoided.
At 40 out of 73, more than half of the stocks in the sector rate as “Bearish,” and another 19 rate as “Neutral.”
Only 14 in the entire sector rate as “Bullish,” meaning they have a score of 60 or higher. (For those new to my Green Zone Power Ratings system, “Bullish” rated stocks outperform the S&P 500 by double on average over the following year.)
Fourteen stocks isn’t nothing. It gives us a decent pool of potential buys to work with. But the massive preponderance of “Bearish” and “Neutral” stocks should really drive home the point that discipline is crucial here.
Of course, we want to ride this trend higher. Trillions of dollars are being invested in the AI revolution, and we’d be missing out on the opportunity of a lifetime not to participate. I’m not exaggerating when I say that we may never see a boom this big again.
But given the massive amount of hot money chasing tech stocks, I am 100% confident that many investors will get burned. The key to not being one of them is to stay disciplined and follow a system.
With that said, let’s keep digging…
Where Do Tech Stocks Pick Up Points?
The Green Zone Power Rating is a composite score based on six primary factors: momentum, size, volatility, value, quality and growth, each of which is composed of several sub-factors. (As we are looking at large-cap constituents of the S&P 500, I don’t consider size when doing the sector X-ray.)
Let’s take a look at where tech stocks are putting points on the board.
A massively high number rate as “Bullish” on their quality factor. Fully 65 out of 73 have a quality factor of 60 or higher.
My quality factor is a composite of various measures of profitability, balance sheet strength and capital efficiency. So, it’s not unusual for tech stocks in general to rate well here.
Technology is a “winner-take-all” industry prone to natural monopolies. “Everyone” is on Instagram because “everyone” is already on it, and leaving it would mean losing access to friends and contacts. Likewise, virtually every corporate office in the world over uses Microsoft (MSFT) Word, Excel and PowerPoint because they are the de facto standard.
These networking effects tend to boost profitability. Furthermore, because technology tends to be highly scalable, it also tends to be highly capital efficient. One good graphics processing unit (GPU) patent by Nvidia (NVDA) can be used to make an infinite number of chips.
Tech’s Achilles heel tends to be valuation. The quality and growth potential in tech is well known, of course, and investors tend to bid up the prices as a result. Only nine out of 73 stocks in the sector rate as “Bullish.”
Perhaps not surprisingly, given the wild swings in tech stock prices this year, the sector also rates poorly on volatility, with only eight out of 73 rating as “Bullish.”
So, where should we look for investable tech stocks?
Let’s take a peek at those 14 rated as “Bullish.”
“Bullish” Tech Stocks
Some of these names will look familiar, as I covered them yesterday.
Micron Technology (MU) is the best-performing holding in my Tech Titans portfolio, up over 500%. And Lam Research (LRCX) isn’t looking too shabby either. It’s been in the Tech Titans portfolio for about a year and is up nearly 300%.
I also added Applied Materials (AMAT) back in September, and it’s up a good 125%.
Of course, buying stocks is only half of the trade. Knowing when to sell is just as important. It does you absolutely no good to generate hundreds of percent in gains if you end up giving it all back.
That’s what I fear will happen to many of the investors chasing this market higher.
I do not, however, worry about that happening to my Infinite Momentum readers. We won’t precisely time the market top, of course. That’s impossible. But our monthly portfolio adjustments will ensure that we sell our winners once they inevitably start to lose their momentum.
That’s how the system works… and how I plan to squeeze as much juice as I can out of this tech boom.
To good profits,
Adam O’Dell
Editor, What My System Says Today
P.S. Over the past year, my long-running Max Profit Alert service has been quietly evolving to adapt to changing market conditions.
What began as a traditional approach has now shifted into a more consistent, cash-flow-focused system designed to generate repeatable income opportunities. As part of this evolution, I’m reintroducing the service to reflect a clearer emphasis on “deals” you can make to boost your income every week.
During a LIVE presentation on May 19 at 1 p.m. ET, I’ll demonstrate how these deals work step by step — no specific stocks, just a clear look at how the process functions in action.