Warning: Don’t Get Complacent From Last Year’s Gains…
Some of you know that I live up in the Pacific Northwest. And around this time of year, I find myself shoveling a lot of snow.
Recently, we had six inches of snow. So once again, I found myself out in the driveway. Suddenly, I realized that I had been shoveling snow for nearly three hours. It had seemed like much less. I only noticed because the darkness swept through as if someone had suddenly turned off a light switch.
What can I say, the time slipped away from me. I just don’t mind manual labor. It gives me time to think about a lot of things and reflect…
Of course, my mind typically makes its way to the markets somehow. For example, I looked down at snow blower I was using and thought of the company that makes the product and whether it’s publicly traded or not. In this case, it was a snow blower made by Toro — and yes, it was. I make a mental note to check in on The Toro Company (NYSE: TTC) later to see how it’s doing.
But more than anything, with each shovel of the snow, or pass with the snow blower in the porch, patio, and driveway, I was lost in thinking about 2020…
No doubt the year will be remembered for the novel coronavirus, the shutdowns, and the economic damage that ensued. But for many, they will remember 2020 as a wonderful year for the stock market.
It’s hard to fathom that the S&P 500 ended the year up 16%. In any “normal” year that’s a fantastic return. It’s even more remarkable that it happened in the same year that not only ended a decade long bull market, but we witnessed the S&P 500 drop a gut-wrenching 34% drop in just four weeks, thanks to the coronavirus. A record.
Now keep in mind that a 34% drop requires a 51% return just to get back to even…
The market made up those gains five months later, then kept climbing. Looking back on the year, the shutdown and the stay-at-home orders provided traders — new and old — time to turn their attention to the market and make a bundle of money.
Simply put, 2020 was a fantastic year to invest in and trade stocks or options.
Over at my premium trading service, Maximum Profit, we had a number of excellent trades that were closed out in a short amount of time for nice gains last year. Our first trade in Digital Turbine (Nasdaq: APPS) closed out for a 40% gain in under two months, while Five9 (Nasdaq: FIVN) soared over 90% during the seven months we held it, and DocuSign (Nasdaq: DOCU) jumped more than 165% during its five-month tenure in our portfolio.
And we still have plenty more trades that we entered into last year in our portfolio that are doing quite well.
As I finished putting away my snow shovel and snow blower, I looked at the job I had just done and was satisfied. But as soon as I woke up the next morning, another eight inches of snow had come down.
You could hardly tell that I had worked for hours the day before removing snow.
It didn’t matter though. I put my snow clothes back on and got back to work, starting fresh…
The point is, as the calendar flips over and we start fresh, I’m not looking to sit back and reminisce about the great gains we made in 2020. I want to build on that wealth. We don’t know what 2021 has in store for us. We likely won’t be able to reproduce the sort of returns and opportunities that we had in 2020. Only time will tell.
One thing for sure is that all the great trades that happened in 2020 won’t matter if we lose focus. We can’t afford to anchor our beliefs in the sort of returns that happened in 2020. The market is an extremely humbling place. As quickly as it can provide you with euphoric returns, it will strip them away and not even blink.
With all that said, I sincerely hope you have a healthy and prosperous 2021.
The idea of mentally hitting the “reset” button in the new year is a challenging one. But I encourage you to do it – you’ll be glad you did in the long run.
And to help get you started, I’m going to share with you one of the recent picks my Maximum Profit system recently identified.
A Pick To Start The New Year Off Right
If you’re looking for someone to build your website, design a logo, or have someone edit your book, but don’t want to hire a full-time employee, then check out Fiverr (NYSE: FVRR).
Fiverr has built a marketplace that makes finding and working with freelancers as easy as buying something on Amazon. Its platform allows for a frictionless process for both parties, handling the entire transaction and payment process while taking a small cut.
Its marketplace model benefits from a powerful flywheel effect: as more buyers join the marketplace, they bring in more jobs which in turn drives more demand for sellers. This attracts more sellers to join our platform, who will list more service offerings which in turn gives our buyers more selection, better quality, and more value for their money, which leads to more repeat and more cross-category purchases.
Its platform has seen huge success bringing some order to the $750 billion-plus freelancer market. Just three years ago it had $52 million in sales, and it’s on track to reach $187 million in 2020.
One of the beauties of its cloud-based platform is that once built, costs to maintain the platform are low. This leads to swelling margins as the company scales.
Fiverr is still in its infancy on public markets (it IPO’d in June 2019), but we’re already beginning to see the margins climb as its business grows. For example, last year its operating cash flow was negative, which led to negative cash operating margins. But the company is expected to generate $19 million in cash flow in 2020, giving it cash operating profit margins of 10%. That excellent cash flow growth is of course a key component for the Maximum Profit system.
The stock is in a solid uptrend, breaking out into new 52-week highs. This is exactly what we like to see from our holdings. New highs typically mean more new highs are on their way. Take a look at the chart below, which I shared with Maximum Profit readers a couple of weeks ago…
Action To Take
It’s worth mentioning that Fiverr does trade at some pretty lofty valuations. But in the current market environment, this isn’t an outlier. Most tech stocks are trading at high multiples. The company will need to continue to grow its platform and revenue base to fulfill these high expectations.
With that being said, my proven system showed one of the highest Maximum Profit scores for FVRR when we added it to our portfolio. And if history is any guide, we could have another big winner on our hands in a very small amount of time.
Now, I normally don’t share these picks outside of the Maximum Profit inner circle. But we’ve been on a roll lately. My readers have made far more in returns than the cost of the service, and I’m feeling generous. So this one’s on me.
In return, I strongly encourage you to check out my latest research. It’s all about the promise of 5G technology – and how it could deliver some of the biggest gains of 2021 and beyond. And if you like what you hear, then consider joining us.