This is an extremely bifurcated market. While the generals like Apple (AAPL) and Google (GOOG/GOOGL) have mostly held up (and the indexes have too as a result), a stealth bear market in important but not leading stocks has taken place beneath the surface.
This presents an opportunity to short the mature and expensive mega cap names that dominate the QQQ while accumulating positions in the leaders of the future that have been demolished in the last few months.
Of course, not every stock that has been destroyed is a leader of the future. But you can find some bargains if you sift through the wreckage. I already wrote about Snapchat (SNAP) as being one of the leaders of the future. This morning I’m going to write about another one: Shopify (SHOP).
SHOP is the leading provider of ecommerce platforms for small businesses. It is a great company with secular tailwinds at its back. However, it got extremely overvalued at the end of 2021. It reported solid 4Q21 earnings Wednesday morning though the guidance was a little vague. With investors selling first and asking questions later these days, SHOP shares are currently -18% Wednesday.
Altogether, SHOP shares have lost ~60% of their value in the last three months. Enough is enough IMO. I’m not calling a bottom but I think that SHOP now represents real value and scaling into a position at these levels will be highly profitable over the long term.
Skeptics will say that despite the haircut SHOP is still by no means cheap. SHOP earned $6.41/share in 2021. My estimate is that they’ll earn $8/share this year. At a current price of $730, that’s a forward P/E multiple of 91x. But the thing is, the best companies never really get that cheap. Many investors know that SHOP is a high quality business with a terrific long term growth trajectory ahead of it. My contention is that SHOP will grow into its current valuation over time. I happily bought some shares this morning.