by Louis Navellier

April 27, 2021

Over the last year of stay-at-home work, we have developed some new ways of making money as well as some new ways of working within the corporate structure. Here are five such growth areas, along with ways we can make money as passive investors. During the California Gold Rush in the 1850s, for instance, the folks that sold picks, shovels, and jeans to aspiring miners made more money than the vast majority of gold miners trying to get rich in mining. Here are ways to invest in the “stores” that got rich.

Cryptocurrencies: Even though it started as a joke, Dogecoin is surging while other cryptocurrencies are oscillating. In the wake of the Coinbase IPO, our best play, in my opinion is PayPal (PYPL). Essentially, PayPal takes a healthy transaction fee of 1.8% to 2.3% off the top of many cryptocurrency transactions – just like the major credit card companies take their fee off the top of every credit card transaction.

Cannabis: The news broke last week that Canada has a glut of cannabis, and the legalization of pot has not generated the tax revenues they had previously expected. California and other states have also been disappointed in their cannabis tax revenue. I’d say the safest way to profit from the pot glut is with GrowGeneration (GRWG), which is essentially like a “Home Depot for cannabis growers,” as it sells hydroponic systems, lights, and other do-it-yourself supplies for successfully growing marijuana at home.

PayPal and GrowGeneration are not subject to the volatility of oscillating prices or supply gluts. They are like the bankers and storekeepers that sold picks, shovels, and jeans to the gold miners of the 1850s.

Artificial Intelligence: One way to profit from AI is through NVIDIA (NVDA), the dominant AI chip maker, which supplies most auto manufacturers with their specialty chips designed for semi-autonomous driving. One of NVIDIA’s biggest customers, Daimler, recently introduced its Mercedes EQS electric vehicle (EV), which shocked the EV world by being the most efficient EV thanks to its aerodynamics and smart regeneration system that sees the road ahead and automatically slows the car as it approaches turns.

5G may eventually replace broadband networks. Aviat Networks (AVNW) and Clearfield (CLFD) are good examples of companies that are making networks faster. Other examples are Cambium Networks (CMBM) and NETGEAR (NTGR), which sell Wi-Fi devices for the new 3-channel standard, which also provides better security than 2-channel Wi-Fi networks. The sophisticated and secure networks that Cambium Networks and NETGEAR specialize in remain a key to ever-growing broadband speed.

MicroLED. LG dominates the production of OLED televisions for its own LG brand as well as for Sony. However, Samsung is expected to rival OLED with its new MicroLED televisions that now come in 76, 88, 99, and 110-inch sizes. Whatever you do, only buy an OLED or MicroLED television. Kulicke & Soffa (KLIC) recently acquired Uniqarta to commercialize their LED die transfer technology. Uniqarta’s Laser-Enabled Advanced Placement (LEAP) technology will help the company increasingly dominate in LED manufacturing, especially MicroLEDs, which are expected to dominate high-end TV in the coming years.

Many of these stocks firmed up in recent days as liquidity returned to the overall stock market. The lack of liquidity on some days can be very frustrating, but whenever I sense that great first-quarter sales and earnings announcements are imminent, liquidity seems to miraculously return, and these stocks move.

Navellier & Associates owns Nvidia Corp (NVDA), Aviat Networks (AVNW), Clearfield (CLFD) Cambium Networks (CMBM), Kulicke & Soffa (KLIC), GrowGeneration (GRWG),  and NETGEAR (NTGR), in managed accounts. We do not own Ford (F) or PayPal (PYPL). Louis Navellier and his family own Nvidia Corp (NVDA), Aviat Networks (AVNW), Clearfield (CLFD) Cambium Networks (CMBM), Kulicke & Soffa (KLIC), GrowGeneration (GRWG), and NETGEAR (NTGR), via Navellier managed accounts. They do not own Ford (F) or PayPal (PYPL) personally.

Rapid Global Growth is Resurrecting Inflation Pressures

Inflation is clearly brewing, due mostly to “demand push” inflation for many high-demand goods, such as homes, vehicles, and now workers (via wages). The inventory of vehicles for sale remains super tight due to the semi-conductor chip shortage, which caused Ford to curtail production at five more assembly plants last week, including those making its popular F-150 truck. The worldwide shortage of shipping containers and bottlenecks at many ports continues to expose problems with the global supply chain.

Longer-term, the U.S. will undoubtedly strive to create more suppliers here in North America, since these supply bottlenecks are proving to be very expensive for most auto-makers and other manufacturers!

The Wall Street Journal on Friday reported that global growth is picking up as the rebound in both China and the U.S. is helping to lift other economies. Furthermore, the pace of Covid-19 vaccinations in the eurozone is finally picking up. Purchasing manager indices (PMIs) are now positive in Australia, Japan, and the eurozone, which bodes well for overall GDP growth. The only major drag on global GDP growth (in a large economy) is in India, which is being hindered by a record number of new Covid-19 cases.

In other statistics, the Labor Department on Thursday announced that unemployment claims in the latest week declined to a pandemic low of 547,000, vs. a revised 586,000 in the previous week. Continuing unemployment claims declined to 3.674 million, vs. a revised 3.708 million in the previous week. Economists were estimating weekly and continuing unemployment claims to be 610,000 and 3.65 million, respectively, so weekly claims were better than expected, but continuing claims continue to run higher than economists’ consensus estimate. Overall, the jobs market continues to improve and labor shortages are now developing, which is expected to put upward pressure on average hourly wages.

Also on Thursday, the National Association of Realtors announced that existing home sales declined 3.7% in March to an annual pace of 6.01 million. However, in the past 12 months, existing home sales have risen 12.3% and the median home price rose 17.2% to $329,100 in those 12 months; so the market remains “hot,” as the average home was on the market for only 18 days in March. However, there are only 1.07 million existing homes for sale. That’s a super-tight 2.1-month inventory at the current annual sales pace. Due to this tight inventory, median home prices are expected to continue to rise steadily.

And finally, on Friday, the Commerce Department announced that new home sales rose 16.2% in March to an annual rate of 1.02 million. The median new home price rose 0.8% in March to $330,800. Since long-term rates have come down in April, following the peak of the 10-year Treasury bond yield at 1.75% on March 31st, mortgage rates may also moderate in April, further stimulating home sales during April.

It is Imperative that Long-Term Capital Gains and Qualified Dividends be Taxed at the Same Rate

Last Thursday, the Biden Administration proposed raising the long-term capital gains tax rate from 20% to a punitive 39.6% for taxpayers with incomes over $1 million per year. And that’s only the beginning of their attempt to “soak the rich.” Another proposal is to raise the tax basis on estates by using a “stepped up basis” versus the cost basis of the asset. Frankly, I suspect that these proposed tax increases will be “knocked down” by the Senate, just like Senator Joe Manchin (D-WV) rejected the Biden Administration’s proposal to raise corporate taxes from 21% to 28%. Since Senator Manchin remains the “swing” vote in the Senate, his input will likely determine the ultimate tax rates that pass the Senate.

As I have said previously, it is imperative that long-term capital gains and qualified dividend tax rates remain the same, since they are both being taxed on the corporate level and then “double taxed” on the individual level. If the long-term capital gains tax rate is raised above the qualified dividend tax rate, then Corporate America will just raise their dividends, so that insiders can take money out of the corporation at a more favorable tax rate. Politicians should realize that smart Americans know how to avoid tax traps!

As a result, I expect that the Biden Administration’s proposed long-term capital gains tax increase to 39.6% will fail. A more modest proposal to raise long-term capital gains and qualified dividend tax rates the same amount, say from 20% to 28%, would be much more likely to pass the Senate. However, the outcome remains in Senator Joe Manchin’s hands, since he is the most powerful person in the Senate!

All content above represents the opinion of Louis Navellier of Navellier & Associates, Inc.

Please see important disclosures below.

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Louis Navellier
CHIEF INVESTMENT OFFICER

Louis Navellier is Founder, Chairman of the Board, Chief Investment Officer and Chief Compliance Officer of Navellier & Associates, Inc., located in Reno, Nevada. With decades of experience translating what had been purely academic techniques into real market applications, he believes that disciplined, quantitative analysis can select stocks that will significantly outperform the overall market. All content in this “A Look Ahead” section of Market Mail represents the opinion of Louis Navellier of Navellier & Associates, Inc.

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