Reader Letters: Cyber Fraud, Tech Valuations, Solar Power…and More

With the vast amount of information available on the Internet, it’s getting difficult to tell what’s valuable or worthless, real or bogus.

Ever since the U.S. presidential election in 2016, the phenomenon of “fake news” has been a hotly debated topic. Even more insidious is the increasing habit of some politicians to denounce as “fake” any news that they don’t like, even if the news is accurate. The presidential election of 2024 is shaping up to be even worse.

The rise of artificial intelligence (AI) is exacerbating these fears. That’s why the judgment of human editors is more important than ever. You can always count on Investing Daily for straight answers and honest analysis.

We’ve been enjoying a stock market rally so far in 2024 but with volatility and pullbacks along the way. Reader letters lately have reflected an undercurrent of anxiety, as geopolitical tensions worsen, economic growth decelerates, inflation remains stubbornly persistent, and monetary policy remains in flux. Let’s see what questions are on your minds.

The Growing Demand for Cyber Security

“Hacking has reached epidemic proportions. As an elderly retiree, I’m concerned. How bad is the problem and what’s your view of cyber security stocks as investments?” — Nathan G.

The FBI on Thursday, May 2 released a new report revealing that fraud schemes targeting people over 60 occurred at a record rate in 2023 and accounted for reported losses of $3.4 billion, an 11% increase over 2022.

The FBI report pinpointed a wide range of scams, including identity theft, tech support impersonators, phony investments, extortion, and “romantic” fraudsters. More than 100,000 elderly victims lost an average of $33,915 in 2023, and roughly 6,000 of them lost more than $100,000 each.

However, according to the AARP, the vast majority of elder scams aren’t reported, and it estimates annual losses are more than eight times higher, at $28.3 billion.

Of course, it’s not just the elderly who are falling prey to cybercrime. Hacking is proliferating around the globe, as cyber criminals and spies increasingly breach government agencies and heavily trafficked sites. They’ve posted customers’ sensitive information, including user names, passwords, email addresses, and device IDs, on the Internet for the world to see.

Heads of the FBI, CIA, and NSA warn that Russian President Vladimir Putin is eyeing this year’s U.S. presidential election and seeks to disrupt our electoral processes, as his “troll farms” did in 2016, 2020, and again in 2022. Think of it as Cold War II.

Chinese hackers tend to focus more on corporate espionage. According to recent studies, information theft accounts for roughly 50% of corporate external costs on an annualized basis around the world.

An investment megatrend is the soaring global demand for the products and services of companies in the cyber security sector. Major companies that provide cyber security are tapped into an unstoppable momentum. In a recent article, I recommended my favorite cyber-security stock.

Portfolio Protection

“I’m a senior citizen of 76 years with my pension money around $400K. I want to invest for a regular income so I can survive, support my family, and pay my monthly bills. However, I am afraid that the market is too risky and I can’t afford to lose what I have at my age.

I’m very fond of your daily Mind Over Markets newsletter and your sound advice. Please advise me how I should invest with full protection of my principal amount.” — Indy C.

If you hate to lose money as much as I do, you need to balance your assets in a way that’s appropriate for today’s investment environment.

Our flagship publication Personal Finance currently advises the following portfolio allocations: 40% stocks, 40% bonds, 10% hedges, and 10% cash (see pie chart).

The stock market is poised to continue rising in the coming months, but many risks remain.

Inflation could suddenly spike and prompt a hawkish pivot by the Federal Reserve, Putin could commit a desperate act in Ukraine, or the conflict between Israel and Hamas could spiral out of control. This bull market could get derailed.

More than ever, investors should stick to high-quality stocks that boast inherently sound fundamentals. Maintain ample cash levels and emphasize hedges such as gold and cryptocurrency.

Safe havens such as utility and real estate stocks make sense because they offer income combined with ballast.

Valuation Yardsticks

“The tech sector has been on a tear so far this year. After robust gains in 2023, many large-cap tech stocks are trading again at lofty valuations. My question is: how do you define overvalued stocks? I sense that the classic P/E or PEG ratios aren’t enough. What other financial metrics should be looked at?” — John M.

Key valuation metrics include the price-to-book ratio (P/B), which indicates what investors are willing to pay for each dollar of a company’s assets; price-to-sales ratio (P/S), which indicates the value placed on each dollar of a company’s sales; and enterprise value-to-EBITDA, calculated by dividing a company’s enterprise value (EV) by its earnings before interest, taxes, depreciation, and amortization. The latter allows investors to compare the value of a company, debt included, to the company’s cash earnings less non-cash expenses.

A Bad Deal

“I keep getting these come-ons to buy payment protection insurance. It seems like a good idea but I’m skeptical. What are your thoughts?” — Carlson P.

This financial product preys on consumers’ anxiety about losing their jobs. In theory, it seems like a good idea: Buy extra insurance to cover your payments on personal loans, mortgages, credit cards, car payments, etc. If you’re suddenly unable to pay, the insurer pays for you.

But there’s a catch. The protection is expensive and often riddled with loopholes that allow the insurer to wriggle off the hook. Indeed, the cost of the insurance every year can potentially exceed the total cost of the interest payments. Chances are, you won’t need it, anyway.

File payment protection insurance under “bad deal.”

Still Shining Brightly

“The solar power sector has been through a lot of ups and downs lately. What do you think of solar’s investment prospects right now? And how will solar get affected by volatile oil prices this year?” — Mary G.

The solar power industry enjoys strong fundamentals that make it a good bet for long-term investors.

The deadly heat waves and droughts afflicting the globe underscore the imperative to reduce carbon emissions, by supplanting fossil fuels with “green” energy such as solar. The U.S. and China, the world’s two biggest emitters of carbon pollutants into the atmosphere, are increasing their adoption of solar. Other countries are doing the same.

Under the Biden administration’s new climate legislation, solar and wind farms can apply for a 30% tax credit on the costs of their facilities. Meanwhile, the price of photovoltaic (PV) cells continues to plummet, making solar increasingly affordable. Energy storage capabilities for solar are improving as well.

As for solar and its relation to oil and gas prices, the infrastructure for the solar industry is now so pervasive and entrenched, it has precipitated a “price decoupling” between solar and fossil fuels. Solar and other renewable energies are increasingly part of the energy status quo and no longer need high oil and gas prices to attract end users.

Solar power equities have encountered a rough patch so far in 2024, due to elevated interest rates, tariff concerns, and a backlash against environmental, social, and governance (ESG) initiatives.

However, these headwinds are temporary and I remain bullish on the solar sector. The consensus of analysts is that the sector as a whole will finish 2024 with a gain of at least 10%.

Got questions or comments? I’m here to help:

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John Persinos is the editorial director of Investing Daily.

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This article previously appeared on Investing Daily.