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Tech Is Just Getting Started Going Into 2020

2019 finishes with an extra kick for investors. Part of that is the continued strong run of the market, erasing memories of last year's near bear market and extending the decade-long bull. There also are plenty of market headlines and events that have sprung over the end of the year, from Phase 1 trade deals to M&A to political whirlwinds and more.

More trivially, the 2010s are ending and the 2020s begin. It's been quite a decade for equity investors, with the S&P 500 returning over 250% in that time. Even underperformance could leave a portfolio in good shape, and any alpha that was found would really leave investors well off.

Where does that leave investors and the markets for 2020, at the start of a new decade? That's what we try to answer in our annual Marketplace Roundtable series. We are publishing roundtable discussions featuring more than 80 authors from across the spectrum of investing styles and focuses you find on Seeking Alpha: Macro to value investing, small cap to energy, gold to quant and alternative strategies, and more.

Today's discussion focuses on the Tech sector, which was again a market leader. We're featuring the following panel:

  • From Growth to Value, author of Potential Multibaggers
  • Damon Verial, author of Exposing Earnings
  • Integrator, author of Sustainable Growth
  • Andres Cardenal, CFAauthor of The Data Driven Investor
  • Bull & Bear Trading, author of Trader’s Idea Flow
  • Elazar Advisors, LLC, author of Nail Tech Earnings
  • Julian Lin, author of Best of Breed
  • Robert Castellano, author of Semiconductor Deep Dive
  • Rick Pendergraft, author of Hedged Alpha Strategy
  • Cestrian Capital Research, author of The Fundamentals
  • Mark Hibben, author of Rethink Technology
  • Joe Albano, author of Tech Cache
  • EnerTuition, author of Beyond The Hype
  • The stock market has had another strong year, recovering from last year’s Q4 correction. The S&P 500 has returned 10% annualized over the last two years, as of early December. Yet there’s still a sense that the music is due to stop among many investors (see the theme of "most hated bull market"). Where do you fall out?

    From Growth to Value: I think too much time and energy is wasted in trying to predict the market. You never know when investor sentiment will turn sour. The fact that this is "the most hated bull market" is rather a good thing. I see the constant bear market threat as insurance against irrational valuations.

    Some stocks that have outstanding results, raise guidance and fall nonetheless because the beats and the raise were already priced in. This is very healthy for the general market. It's only when there is exuberance and overreaction you might see a big fall in stocks. Some stock categories are richly valued but that is always the case in a bull market. As long as not all stocks are severely overvalued, the bull market may continue.

    Damon Verial: This bull market has been seen as one of momentum. Whenever that momentum is perceived to stop, such as last Q4 or back in August, you start to hear about the bull market ending. Recently, momentum is back up, and the fear mongering has ceased. However, the market doesn’t work as most people believe. Momentum typically is bullish but weakening right before a bear market – not negative. Hence investors should be fearful when they see positive but declining momentum in stocks – not after momentum turns negative.

    Integrator: I tend to focus more on high quality, secularly growing businesses so I'm less concerned about how the overall market performs but I will say that I expect to see a much stronger divergence in distribution of returns going forward with higher quality growth names continuing to provide stronger returns and lower quality names with limited growth prospects for revenue and earnings struggling to deliver satisfactory returns. As we likely enter into a cycle of more tepid economic growth, you will see a greater disparity between the "haves" and "have nots." Companies that can grow earnings will be rewarded and those that can't won't. I expect much lower overall returns for markets in 2020.

    Andres Cardenal: Many analysts tend to lose sight of the fact that the market is not driven by the fundamentals alone, but the fundamentals in comparison to expectations. When expectations are low and there is a healthy degree of fear in the market, it is relatively easy for the fundamentals to outperform those expectations and for stock prices to do well going forward. Bull markets are born on pessimism and die on euphoria, and we have not reached euphoria levels at this stage. This is indicating that the path of least resistance for the market is higher.

    Bull & Bear Trading: The recent momentum higher will usher us into 2020 with a fully valued market. Near term, the optimism of USMCA and China trade deals may fade as expectations are tempered by reality. A strong U.S. consumer may combine with better global growth for 3% GDP in the U.S next year. A historically strong labor market may be accompanied by further wage growth that could help move inflation toward the Fed's target of 2%. This economic strength means that a key bull market driver of decreasing interest rates may be absent in 2020.

    The changing interest rate environment may create less favorable conditions for the market. We anticipate 2020 to be a trading range market with a slight upside bias. Near term we are wary of a market correction.

    Elazar Advisors, LLC: The Fed is pumping money into the market like crazy. Buckle up. The key word being up.

    Julian LinThe time to sell the market is when you can't find any stocks to buy. I am still finding many deeply undervalued stocks, and as a result I do not fear any market crash.

    Robert Castellano: Corporate earnings are rolling the game, but some sectors are overbought.

    Rick Pendergraft: The momentum is obviously still to the upside, but we all know the rally has to come to an end at some point. I am cautiously optimistic for 2020 with an eye on lowering equity allocations if certain technical events happen.

    Cestrian Capital Research: We believe the market will continue to rise, albeit punctuated by more spasms and sell-offs than has been the case over the last decade.

    Mark Hibben: I viewed the collapse of tech stocks, the focus of my service, in December 2018, as panic selling and I made clear that I thought it was a good time to buy. I added to my portfolio as stocks were going down. As I expected, the portfolio recovered, about doubling in value from the December lows and exceeding the high point of the portfolio total return in late August 2018. But that was then.

    Lately I've had the feeling that we're approaching the end of the bull market, either do to continuing trade tensions or recession, so I took profit and pared back the portfolio to key long term growth companies. In a market downturn, I'll be a buyer once again. In short, I regard an end to the bull market as a buying opportunity.

    Joe Albano: Most would agree you can't time the market. So why try predicting a massive correction, recession, or depression? Stick to your risk tolerance and goals. Keep cash at all times, and watch the charts. If things look like they're about to fall then situate yourself to hedge. I wrote an article this past month saying the Nasdaq could be in trouble before the year is out. And it could have been based. But the key was I didn't hedge or sell my portfolio. I just created a heads up for myself in case it happened. I circled the key levels and would begin hedging if it got there. If it didn't, then I hadn't changed course and I'm still fully invested (per my goals and cash allocation).

    EnerTuition: I generally focus on long-term wealth generation through individual stock picking and not the market. Having said that the market is very frothy which is understandable in the context of low interest rates. As a result of ZIRP/NIRP climate, there may be a correction but not a steep one as the money has to go somewhere.

    What’s a lesson you learned in 2019?

    From Growth to Value: One of the great things about the stock market is that you never stop learning. There are many things I have learned about investing in 2019. One of the things I like the most is looking the competitive moat of a great company culture. That means how happy employees are but also customers. That can seem petty, but retaining or attracting top talent with little perks and a great company culture is really an advantage and it doesn't show up in the books.

    Damon Verial: One of my friends, an investment advisor, says that my ability to predict the market accurately comes from being a trader, not an investor. He says that traders, who make daily actions in the market, have their fingers on the market pulse and can predict the market more correctly than can investors. If this is true, then I believe earnings traders have the best pulse-monitoring ability of all traders, as it is earnings that move the market. I have found that monitoring my earnings trades’ directions has helped me in predicting future market movements - More short earnings trades implies a general overpricing in the market, more long trades implies too much pessimism in earnings estimations and a better chance for companies to surprise on the upside, moving markets higher.

    Integrator: The power of patience. The markets often give you what you want, you just have to be patient and disciplined enough to wait for it. I saw this illustrated really strongly in 2019. I happened to pick up some Facebook (FB) stock during the throes of the late December 2018 panic that saw this name heavily sold off. 2019 saw a return to business as usual and the name rebounded 50%. Similarly, I have had my eye on high growth SaaS business like The Trade Desk (TTD) and Avalara (AVLR) for sometime, but couldn't get my arms around the valuation. Opportunity struck in late 2019. You need to be patient to wait for quality on sale, and if you stick with high quality names long enough and can maintain patience in the face of turmoil, the market eventually rewards you.

    Andres Cardenal: I reaffirmed a key concept - do not fight the Fed. I was heavily hedged and even net short during the fourth quarter of 2018, mostly because the Fed was mistakenly rising rates and the economic data overseas was looking quite ugly. But then monetary policy started to pivot and markets were oversold, so we turned long in January of 2019. Even if there have been plenty of reasons for concern on the economic and political front during the year, being on the right side of liquidity trends has proven to be of utmost importance once again.

    Bull & Bear Trading: China's communists have learned to weaponize capitalism and have been waging economic hybrid warfare against the west for decades. Chinese state-sponsored, corporate espionage is an enormous economic threat that is growing rapidly. This trade war was launched by the Chinese against the U.S. decades ago and we are very late in responding. This trade war is very likely to escalate despite the headlines of a Phase I deal. Many Chinese companies listed on both U.S. and Chinese exchanges are not using anything close to accepted accounting practices and some companies are outright fraudulent. China's national debt is a house of cards that is unsustainable. Alarmingly, China has now begun to export its bad debt by the billions on world credit markets. Why would anyone ever believe that communists who refuse to provide transparency of their accounting would be responsible capitalists? These two differing ideologies are incompatible with starkly irreconcilable differences. A dragon cannot also be a lamb any more than a communist can also be a capitalist. The west is allowing the capitalist foundation of the global economy to be destroyed by communist China's refusal to allow transparency into their accounting at all levels. Decades of bad Chinese debt are now unsustainable so they are being exported to the west via world credit markets and the IMF, which may have become corrupted by China. Western capitalists believed that introducing capitalism into communist China would provide a more attractive ideology that all Chinese would embrace. Instead, this effort has gone very wrong with China's communists weaponizing capitalism as a means to increase their power, build a world-class military, become integral to the world's supply chain, and weaken the financial structures of global capitalism. Capitalists have created a communist economic monster that now threatens to destroy its creators.

    Elazar Advisors, LLC: This economy is incredibly resilient. It held up given this ridiculously annoying trade war. If this trade deal sticks I have to believe the economy can actually improve.

    Julian LinThe public has a seemingly universal hate for share buybacks, but the hate confuses me. This year confirmed my belief that share buybacks are an efficient catalyst to take advantage of an underperforming stock price. We saw this with Facebook, which rebounded over 50% from its lows as it directed all of its free cash flow to buying back shares at 16-18 times trailing earnings. Identifying companies trading at a discount with a large share buyback program is a highly underrated investment strategy.

    Robert Castellano: A correlation of revenues and stock prices doesn't exist in 2019 nor 2018 in tech.

    Rick Pendergraft: I came in to 2019 expecting the market to rally in the first quarter and then hit some resistance at the long-term moving averages. The resistance never really materialized and I learned to trade what I was seeing, not what I was thinking.

    Cestrian Capital Research: That nothing matters!

    Mark Hibben: The big lesson I learned was not to adhere rigidly to the buy and hold philosophy. Not all companies can be the next Apple (AAPL). Some companies such as Nvidia (NVDA) and IPG Photonics (IPGP) became so overheated in value by mid-summer in 2018 that it would have been worthwhile to sell. The indicator for me was that the share value was far above (like 100% above) my calculated DCF fair value. Nvidia has recovered somewhat since then, and IPGP continued to decline. Neither company returned to their high valuations of 2018. I missed an opportunity to take profit in these companies. I still hold Nvidia, however, since I believe that it does represent a strong long-term growth prospect at its current valuation.

    Joe Albano: To stick to the data and act on your data. Sometimes it takes longer for a thesis to play out. If your goals and time horizon are long term, don't fuss about the short term. Everyone wants instant gratification but the mature investor knows if the story hasn't changed the market will come to grips with the story.

    EnerTuition: The ongoing lesson of the booming market is that shorting high valuation is not a great idea and even shorting junk may not be a good idea.

    It’s been another strong year for tech, as the Nasdaq has outpaced the S&P 500. What is your high-level view of the sector - more good times ahead, or time to get defensive?

    From Growth to Value: Tech is the engine of change so, over the long term, it will do great. Some tech stocks have high valuations and a lot of growth baked in. But because of that, some investors shy away from the whole tech sector, which can create opportunities for long-term investors.

    I think it's always best to scale into tech stocks, as some are very volatile. Because of their often very high gross margins, tech stocks will be rewarding patient long-term investors.

    Sometimes stocks that need time to grow into their valuation. A great example is Square (SQ) that has not revisited its high of mid-2018. Because some very vocal investors look too much at the stock price as an indication for the underlying business, there have been a lot of negative comments about Square. That gives long-term investors a chance to scale into the stock.

    Damon Verial: Tech stocks have been taking three steps forward and one step back: For every three good months, expect one correction the next. In the short term, we have several warning signs pointing to a pullback in tech. Recently, I issued warnings for both Apple and Oracle (ORCL), the latter of which we aim to play over earnings. In the medium term, too, the risk/reward is not in favor of the bulls, as many companies are becoming unsustainably overpriced. In the long term, the momentum in tech should continue to hold as companies improve their products/services, the fruits of which will be seen in stronger earnings reports, thereby helping justify the increasingly high prices.

    Integrator: Tech is home to many long-term secular growth stories including the shift to SaaS (Software as a Service), digital advertising, digital payments and digital commerce. These themes have been playing out over the last few years, but what's less appreciated is that they still have many years to play out. That means more years of strong earnings and cash flows for businesses that have competitive positions in these spaces. I think the SaaS correction that we saw toward the end of 2019 was good for the sector. I see many of the SaaS names having a strong 2020, when investors realize just how disruptive this space will be for a long period of time.

    Andres Cardenal: Valuations are getting extended in technology, so investors need to be more selective in terms of stock picking in the sector going forward. Short-term pullbacks are perfectly normal and should even be expected. However, over the long term the technology sector is creating enormous amounts of value and innovation, so investors in technology stocks will probably benefit from superior returns over time.

    Bull & Bear Trading: The character named Old Turkey in Jesse Livermore's classic novel Reminiscences of a Stock Operator" would remind you that, "It's a bull market, you know." However, we might like to inquire of Mr. Old Turkey how he feels about very mature bull markets that have the Fed punch bowl of decreasing interest rates taken away at the end of the party? Generally, the scenario of the Fed reaching the end of an interest rate reduction cycle can signal caution in the markets. We believe caution is exactly the correct posture to adopt at this time. Bullish sentiments may be tempered with caution now to protect recent gains. We expect 2020 to be a trading range market where stock pickers excel. The optimistic expectations for the China trade deal may disappoint by the realities of communist China's incalcitrant focus upon its own global ambitions. A strong labor market and economy is likely to combine for the Fed's 2% target on inflation being met. The discussion may evolve to rising interest rates.

    Elazar Advisors, LLC: We're looking for stocks with 45% upside potential. I think there's always those opportunities in every market, if you do the work. Fundamentals held up nicely in the face of a trade war. Pull that trade war aside for election year and it's easy to see how things can actually get better. Plus the Fed printing and pumping can't hurt.

    Julian LinEveryone - everyone - is saying that tech is in a bubble. While I agree that many firms have traded at lofty valuations at some point in 2019, I however believe that the general skepticism shows a fundamental misunderstanding of the software business model. I have written many times that the lack of profits at tech companies is more of an accounting than fundamental issue - over time, the inherent operating leverage from the software as a subscription ('SAAS') model should generate substantial operating margins. The key, of course, is correctly projecting one's ability to capture market share and the overall size of the market. The big winners in the stock market have been tech companies over the past 10 years, and I expect that to continue over the next 10 years.

    Rick Pendergraft: I think you have to handle it on a company-by-company basis. I try to start with companies with solid fundamentals and then try to time the entry with sentiment and technical analysis. There are certainly some companies where I think investors should be defensive and I have taken profits on some. I think software is primed to pace the gains within the tech sector in 2020 after semiconductors outpaced the sector in 2019.

    Cestrian Capital Research: We anticipate continued growth in the sector. Why not? The economy is strong and we are only midway through a tectonic platform shift in tech, from on-premises to cloud. That means plenty of enterprise spending still to come.

    Mark Hibben: I have been getting more defensive, in the sense that when there was an opportunity to take a substantial profit in a company, I went ahead and sold. If I had thought that the near term (next couple of years) offered better prospects, I might have just held.

    In many cases, I missed out on some profit. I sold Qualcomm (QCOM), Teradyne (TER), Lumentum (LITE), ASML Holding (ASML), and TSMC (TSM) this year. These companies subsequently rose above my selling price on trade optimism. In most cases, I realized substantial (40% or more) returns, so I'm not too concerned.

    Generally, these companies were trading well above fair value, as far as I was concerned, so they had become problematic to justify as holds in any case. My perception was that we're very near a high point in the tech sector, so that added to the imperative to sell. But overall, I think tech is a great sector to invest in during a downturn, and some of the companies I sold this year I expect to buy back into.

    Joe Albano: It's just getting started. Semiconductors are a large part of the sector and they only have just come alive at the end of 2019. Some have hit new 52-week highs while others are still working their way there. Don't discount data center giants like Amazon (AMZN), Microsoft (MSFT), or Facebook either though, they are coming up on refreshes of hardware and infrastructure weighted toward the latter half of the year so it may take a few months to get rolling, but I see the momentum starting and the train gaining steam now.

    EnerTuition: Tech has seen a huge bull run and it is difficult to find good values unless one looks at the market with the lens of ZIRP/NIRP expansion. We are not fans of low growth companies in that context.

    Semiconductors have had a couple steep drawdowns this year, but are still likely to outpace the Nasdaq. Has anything changed in where we are in the cycle, or is this all macro (e.g. trade) related movement?

    From Growth to Value: I don't follow semiconductors closely, because I think it is more or less a commoditized sector and it is very dependent on outside factors, especially the trade war and its consequences. A prime example is the Chinese announcement that all foreign PC hardware and operating systems must be removed from all state offices in the next three years.

    Integrator: Largely macro, but I also feel there is a secular element to this as well. The semi's power all manner of embedded systems for connected devices, and with internet of things (IoT) still in the really early stages of a long term uptrend, I think there's some thought there could be a real structural shift underlying some of this movement and its not merely just cyclical any more. Time will tell.

    Andres Cardenal: One of the main positive factors is that semiconductors have already been through a slowdown in demand, and many of the companies in the sector delivered superior performance than what the market was expecting. Long-term demand for semiconductors is increasing due to technological trends, and cyclicality risk is proven to be more moderate than it was in the past.

    Elazar Advisors, LLC: Memory prices like NAND have turned up. DRAM is bottoming. 5G and the trade war behind us can keep the party going.

    Julian LinCommentary from semiconductor management teams has indicated that the cyclical downturn is trade-war related. No one, however, can judge the extent of the downturn. I am positioned only in semiconductor companies with strong balance sheets and ample free cash flow - Texas Instruments (TXN) is a conservative pick in the sector with an A-rated balance sheet, growing dividend, and strong share repurchase program.

    Robert Castellano: The semi drawdowns this year are largely company dependent depending on exposure to the China trade/technology war. But it is also impacted by micro factors such as delays in Intel (INTC) chip shipments or large inventory of memory chips at Micron (MU).

    Rick Pendergraft: The downswings from semis were mostly tied to the trade war as so many stocks in the industry are heavily dependent on trade with China. Now that we have the first phase of the trade agreement, we shouldn't see as many wild swings from the chip sector in 2020.

    Cestrian Capital Research: We believe semis will move up, but remain volatile and are challenging long-term holds, if only for the psychological damage the stocks can inflict. Trading semis can offer rich rewards, however. Trade isn't a real thing. It's just a game. It will wash out in the end.

    Mark Hibben: I viewed the semiconductor selloffs as trade related. Any time the Chinese market for semiconductors seemed threatened by the state of the trade negotiations, semis tended to sell off. Although my portfolio has been heavily into semis, I've avoided the more cyclical semis such as memory and storage. Instead, I've focused on what I call “new paradigm” semiconductor companies that combine extensive software and hardware into integrated products. Apple is the archetypical new paradigm company. Many of the companies I held fed into the new paradigm such as Lumentum, ASML, and TSMC.

    The new paradigm is not cyclical in the way memory is (or can be) but it was just as sensitive to trade concerns, especially Apple, given the importance of China to Apple, and the way that Apple's China business declined starting in the December quarter of 2018.

    Joe Albano: Macro is only part of it. Macro was the cloud over the recovery for semiconductors. It was an added weight on the squat bar as semis tried to stand up again as OEMs digested their inventories. The cycle is now at the bottom, as seen by the upturn in NAND spot and contract pricing and the stabilized DRAM contract pricing and upturn in DRAM spot pricing. The cycles have gotten more shallow, and each wave will be higher than the last. I see more discipline by OEMs and producers on this side of the cycle, so it may be more drawn out and more stable as things move up - which is good for reducing volatility and increasing visibility.

    EnerTuition: As far as the whole sector is concerned, we are still at the bottom of the cycle in terms of prospects. The valuations already discount strong up tick in the sector and healthy growth for individual companies. Outside of select segments, it is not clear that the view is justified. We see signs of growth but no signs of strong widespread uptick in 2020.

    Last year we asked about unicorns reaching the market, and things seemed to come to roost with Uber (UBER) and Lyft’s (LYFT) poor market performance, among others. That’s even before we get into the WeWork (WE) parable. How much does this matter to the sector, the market, or the stocks you follow, and how does it matter?

    From Growth to Value: The fact that Uber, Lyft and WeWork fell from their pedestals is very healthy for the markets. It separates companies that are profitable or have a path to profitability from the windmakers that just trade on sentiment. These companies put on a tech cloak but they are really just in commodity businesses, where pricing power is close to zero: taxis and real estate. The fact that investors saw through the fog these companies created, makes me feel optimistic about the market as a good judge between substance and talk.

    Damon Verial: Right now, tech stocks show a huge split in winners/losers. The upward momentum in the Nasdaq is mostly due to the winners outpacing the losers. As for unicorns, tech IPOs usually underperform. For long positions, stick with older companies that are producing new tech instead of hopping on the bandwagon with whatever is trendy at the moment. For example, I’ve been shorting the newly listed Slack (WORK), personally, as I do not believe it will outcompete the better-funded, more-experienced Microsoft (MSFT), with its equivalent, Teams.

    Integrator: I really focus on technology businesses with strong competitive advantages that are profitable, or have a path to profitability, so this is less relevant to me. I don't know if this has major impacts on the sector over all, but what it will do is make investors more discerning. Quality will continue to do well, and speculative business models will get punished. A flow on effect may be to pull down valuations of some of the earlier stage tech businesses coming to market. You are already seeing a retracement in valuations in the unlisted, venture capital space. Really high-quality tech with strong earnings and reasonable valuations will continue to do well.

    Andres Cardenal: I think investors are smart enough to differentiate between companies with solid fundamentals versus the over-hyped IPOs, so this is not much of a risk for the strong companies in the technology sector. But I still watch the more speculative stocks in the sector only to assess risk appetite levels and to monitor bubble risk.

    Elazar Advisors, LLC: I was around in the dot.com bubble. I'm earnings focused so I just ignore these distractions until I have some inkling of EPS. Ultimately a stock without earnings is a hot potato.

    Julian LinPoor IPO performance, ironically, indicates a sense of rationality in the markets. At this point, however, investors may actually wish to ask - is the IPO bloodbath overdone? Are there any buying opportunities in the former bubble party?

    Rick Pendergraft: I think it has a minor reflection on the industry, but almost everything I write about or recommend has been around for a number of years. The analysis tools that I prefer to use aren't really suitable to stocks that haven't been around for at least a few years.

    Cestrian Capital Research: The collapse of unicorn hubris is a wonderful thing for investors. It will lead to more appealing IPO valuations and more sustainable value growth post-IPO. Less catastrophic but no less meaningful that the dot com collapse. Unicorns were borne of Internet 2.0. They will pass more quietly than the casualties of Internet 1.0 but will be no more mourned.

    Mark Hibben: I've had no interest or holdings in these types of companies. They don't matter to my portfolio at all. These companies are grossly overvalued, in my opinion.

    Joe Albano: I see Uber and Lyft as having other issues coming to IPO. Other than any already bloated valuation, there were headwinds with legislation and classification of drivers. It was just a not so great time to have IPO'd with those things on the radar. For the overall tech sector, it's not impactful. For every Lyft there was a Zoom. We just hear about the "big ones" and the rest are forgotten or never publicized extensively. The ones with good leadership and a solid product are the ones I follow closely. Zoom is an example of that as it has come down from the IPO high (pun intended). There's going to be winners in the group of the IPOs, research and patience will lead you to the right investment with them.

    EnerTuition: We have advocated a short in Uber and Lyft with 70% to 80% valuation correction. Most of this has played out in 2019. Given the massive overvaluations, we see correction continuing in 2020 but likely less so given the ZIRP/NIRP dynamics.

    Regulation of big tech is likely to be a common theme in the 2020 election cycle, and there’s arguably grounds for bipartisan enforcement of either antitrust or other increased regulation. What are you watching for in this arena?

    From Growth to Value: There are several aspects of regulation that make me enthusiastic as an investor. First, I think that the big tech companies are even worth more if they would be split up. The sum of the parts at Amazon (AMZN) or Alphabet (GOOG) (NASDAQ:GOOGL) is bigger than the total. If there is a restraint on advertising power, The Trade Desk (TTD), one of the Potential Multibaggers, might benefit a lot, because it is the biggest player outside of the walled garden players like Facebook (FB) and Google.

    Damon Verial: Ignore the news. Focus on the products. Focus on earnings. For example, Facebook is not going to hurt in the long-run from any government pressure on what ads the company can run. Digital marketing is a rapidly growing field, and any rapidly growing field will be the talking point for politicians, who are usually just speaking for the sake of holding onto their own positions. Every company with online presence wants to advertise with Facebook, and, like with YouTube’s changes to its advertisement policies over the years, policy changes to Facebook won’t dent demand for such services.

    Integrator: I have some meaningful interest in large tech such as Facebook, Amazon and Google, so I'm watching developments closely. Forced divestment of acquired properties would be the most concerning to me, particularly with Facebook and Google, and would undermine their ability to provide the broad user cohort for advertisers at scale that makes them valuable franchises. I don't think this is a realistic outcome though. More likely is a more extensive disclosure regime with opt in/out notices for consumers. I don't see this having meaningful impacts on as users have generally become immune to this. Also likely is a wave of political FTC/DOJ investigations, requiring settlement, which are more a distraction rather than meaningful threat.

    Andres Cardenal: Chances are that the stock market is overreacting to regulatory risk. The big tech players will need to provide more guarantees in terms of data protection and antitrust compliance, but this will not impair their ability to continue producing growing sales and cash flows for shareholders. If economic history is any valid guide, regulatory uncertainty could be a source of opportunity as much as a risk factor for the sector.

    Elazar Advisors, LLC: You're right. This is going to be an annoyance for Facebook, Google, and Amazon, and maybe Apple. It can probably help these stocks underperform. Big government can't be good for free trade and capital returns.

    Julian LinRegulation is inevitable, but Wall Street has overestimated the potential effects on fundamentals. Facebook is trading around 24 times trailing earnings with a net cash balance sheet and 25% revenue growth. If FB was trading 50% higher then its fundamentals would still support such a stock price - the fact that shares have traded at a deeply discounted valuation for several years indicates very clearly the negative sentiment seen at mega-cap tech names. In the meantime, mega-cap tech firms continue to buy back shares at a voracious pace.

    Rick Pendergraft: This is certainly a talking point on the campaign trail, especially with Democratic candidates, and I do think investors need to keep an eye on certain companies. Obviously companies like Facebook, Amazon, and Google are big targets and some politicians would love to make a name for themselves for helping take the monopolies down. I can definitely see more regulation toward big tech going forward, but I don't think there is enough support for major changes. One thing that could impact such regulation is whether we continue to see the strong numbers in the labor market. If the jobs numbers start to fall at all, heavier regulations on major job providers will lose their appeal very quickly.

    Cestrian Capital Research: We assume Amazon will be at risk, Google less so, Facebook not so much and Microsoft not at all.

    Mark Hibben: Much of the regulatory attention has been focused on social media companies such as Facebook (FB) for a variety of reasons. Social media appears to be easily manipulated by various malefactors spouting fake news. There are issues of competition and how the media platforms govern access. With companies like Apple, there's always going to be concern about competition, just because the company is so big. Apple has shown that it can be stupid about competition as in the e-book price fixing case. Now the main issue before Apple is the way it regulates the iOS app store and the percentage it takes from App sales (30%). Apple will probably face some regulatory push back on the app store and could see itself forced to open up iOS to apps delivered from outside the store. This would amount to legitimizing “jail breaking.” I think Apple will be able to weather whatever happens by way of regulation.

    Joe Albano: If anyone expects Congress to do anything other than grandstanding and smacking CEOs around, they haven't been watching C-SPAN. Now, if they were to get serious about it, exactly how would the incumbents be hurt? The only way is through telling them and forcing them not to do things with their products. Take the supposed FTC injunction reported to come against Facebook. Meddling first hand in a company's business would be the only way. But I doubt it passes judiciary muster. The market sunk FB stock on that news but has since recovered above where it was prior. Facebook has continued to bring in cash in increasing amounts throughout all of this grandstanding. This issue only slows it down temporarily but doesn't stop the cash machine. Just remember it's about image, not about justice. Equifax (EFX) still exists today.

    EnerTuition: This is not a threat that we play special attention to. However, of the names that we watch, Uber and Lyft have significantly more regulatory risk than others.

    What’s a tech story that we’ll be talking about more in 12 months than we have now?

    From Growth to Value: The integration of tech and health is only starting but will probably be more talked about next year. There are a few interesting companies that try to be the first in their markets and also big tech is moving more and more into health. Apple has the lead in big tech now but if Alphabet integrates Fitbit (FIT) fluently into its ecosystem, it could catch up very quickly.

    Damon Verial: I don’t think Apple suing NuVia’s CEO will be a mere blip on the radar. I believe Apple will be switching to ARM-based chips for its higher-end laptops and desktops quite soon – which itself should be big news in 2020 – and the timing for the lawsuit coincides with NuVia hiring Jon Masters, the main architect for ARM for Red Hat/International Business Machines (IBM). With Samsung (OTC:SSNLF) and Advanced Micro Devices (AMD) both putting ARM development on the backburner, it would be quite a market shake-up for NuVia to go public and pose a public threat to Intel (INTC). We could also see a large movement in Softbank (OTCPK:SFTBY), which is the designer of the ARM architecture.

    Integrator: The role of the Internet of Things in driving digital intelligence and predictive analytics which will power a wave of digital transformation. Artificial Intelligence (AI) is certainly hitting hype cycle levels, but IoT's role in powering the wave of data that makes AI really impactful is very underappreciated, because enterprises are still figuring out what IoT means to them and how to deploy it. I think 2020 is the year where this becomes a more prevalent area of focus, and the businesses that are leveraged to this start to become noticed.

    Andres Cardenal: Artificial intelligence in combination with big data. We are still in the initial stages of this major game changer, and we are not even imagining the possibilities that this technological revolution will produce over the long term. Investing in companies with top AI capabilities and access to strategic and financial resources can produce outstanding gains over the long term. Alphabet is a top name in this area.

    Elazar Advisors, LLC: Let's talk about Splunk (SPLK) and the data boom. This is a wow story for me. Revenue growth is accelerating. Cash flow is going to triple in three years. Oh and they have EPS which I love. What's crazy about this story is that recurring revenue growth is running 50% vs. their reported revenues running 30%. There's not much reason why their overall growth rate doesn't accelerate those extra 2000 basis points. That doesn't make you giggle? It did me. I like a stock when it makes me giggle.

    Julian LinIt's unfortunate, but I think the narrative in tech will remain very similar to now - people will still complain about "egregious" price to sales multiples and a lack of profits. It may take a generational shift of investment thinking to change such a narrative.

    Robert Castellano: 5G

    Rick Pendergraft: I go back to the software industry. My investment theory has always been that the fundamentals tell us what to buy and then the sentiment and technical analysis tell us when to buy it. Right now there a number of software stocks with really strong fundamentals and now it is just a matter of trying to time the entries. Instead of lagging the tech sector, like it did in 2019, I see software leading the tech sector in 2020.

    Cestrian Capital Research: The Trade Desk. It's a stock which is a favorite of tech folk like ourselves, but still relatively unknown amongst normal people - despite being an $11bn EV stock.

    Mark Hibben: Probably the arrival of Apple's augmented reality glasses, or “smart glasses.” These will be fairly inconspicuous and resemble normal sun glasses. These will be tethered wirelessly to iPhone and provide an ultra high definition display for iPhone as well as for augmented reality content that is superimposed on the real world. The glasses will also provide a way to control iPhone using voice and hand gestures. Smart glasses will be a boost to the wearables segment for Apple, but sell in small quantities initially do to their high price. Numerous pundits will criticize them as over-priced, non-essential toys.

    EnerTuition: AMD

    What’s a favorite idea for 2020, and what’s the story?

    From Growth to Value: As a long-term investor, I think that most of my Potential Multibagger stocks are still great picks, but especially The Trade Desk and Square. They are both in industries at the start of a big secular trend and they are sometimes misunderstood. For Square, investors don't realize the huge potential of Cash App yet. It's only three years old, but it is already the biggest contributor to Square's revenue, bigger than the legacy point -of -sale technology. For The Trade Desk, investors don't understand enough that CTV and audio (podcast) commercials are still in their infancy and both grow by triple digits YoY.

    Damon Verial: With stocks nearing all-time highs, many have asked me whether to ditch stocks for bonds in 2020. The current state of the market shows that the probability favors the bulls, while the risk-reward favors the bears. In this regard, if you’re looking for both safety and income, the dividends offered in many industries, such as consumer discretionary, outperform the expected gains from bonds. Look for low-volatility, mid-cap stocks with solid dividend histories. Take a look at the ProShares S&P Midcap 400 Dividend Aristocrats ETF (REGL) or Vanguard Consumer Discretionary Index Fund ETF (VCR) for suitable alternatives to bonds.

    Integrator: Mastercard (MA). I've held this name for quite a long time, but the story and prospects just keep getting better. The part of the story that is known is that this business is a powerful cash generator with exceptional barriers to entry and strong returns on invested capital that is chasing the 85% of the consumer payments expenditure market that is still dominated by cash or cheque. That's a powerful secular growth story right there.

    What isn't as well appreciated is that the business will be a dominant player in B2B payments in 2-3 years time, through leveraging existing assets and relationships, with an addressable market that is 2-3x the size of its current core consumer payments market. Given the dynamics of this market, I see Mastercard and Visa sharing the spoils in this space over the long haul.

    I like to buy and hold and compound my capital over a decade long time frame or more, so I don't just see this as just a play for 2020, but one that can be held for a multi year time frame. I expect 2020 will see the company make more significant inroads into the space and that the stock will be rewarded accordingly.

    Andres Cardenal: The Trade Desk. The company is a market leader in programmatic advertising and it’s benefiting from massive opportunities due to the connected TV revolution and growing demand for online music and podcasting in the years ahead.

    Customer retention rates are above 95%, and revenue increased 38% last quarter. The company is aggressively investing for growth, but it's already producing positive earnings and cash flows.

    The Trade Desk has built key alliances with leading players like Amazon (AMZN) and Disney (DIS), so the company is strategically positioned to capitalize on exponential growth opportunities in 2020 and beyond.

    Bull & Bear Trading: We are proud of our 8-for-8 published and documented track record of trading calls on Snap, Inc. (SNAP). We were long the momentum on Snap's IPO day in March 2017. We sold short at $28 on day 3 after the IPO. And we covered our short and went long in January 2019 at $5 per share, pretty much nailing the inflection point at the bottom of the chart.

    We covered our short and went long Snap when sentiment was extremely negative, a good indicator of an oversold stock. During interaction in the comments section of a Seeking Alpha article on Snap, another SA contributor guided us to a very significant item of research. It was a brief Digiday article (yeah, rather obscure but that's the point here!) discussing Snap's low-end marketplace strategy just beginning to show first signs of gaining traction. In this case it was another SA contributor that deserves the credit for uncovering this golden research who contributes to SA as True North Alger. We covered our short and established a long position.

    This social media alternative to Facebook has successfully implemented a low-end of market strategy that has increased their market share among advertisers. 2020 may see the company begin to expand their margins and revenues by increasing prices and gaining a larger portion of ad-spend budgets. Facebook's current challenges are well documented and the threat of anti-trust regulation against tech giants has given Snap an opportunity. Newer, more experienced management has been rescuing Snap's business model methodically for the last 18 months. 2020 may be the time for Snap to begin trading at a premium in this bull market as the company's turnaround justifies the positive sentiment that has been replacing the overly bearish sentiment of the past. Snap has transitioned from the company that Wall Street loved to hate into what may become one of the best turnaround stories in social media since Twitter's (TWTR) financial engineering to boost its own stock price. However, Snap's turnaround may prove to be more legitimately based upon actual revenue growth and the taking of market share in social media than Twitter's turnaround. This revenue growth by Snap in a growth industry is the stuff that often rewards stocks with a very aggressive premium. We anticipate all-time new highs above the $29 per share mark in 2020 for this stock currently trading at about $15.00.

    Elazar Advisors, LLC: Tesla (TSLA). Way too many bears and volumes and margins are about to launch.

    Julian LinSimon Property Group (SPG) is my repeat favorite idea for 2020. SPG is a real estate landlord of high quality "Class A" mall properties. The stock has returned -40% since 2016 vs. +40% for the S&P 500. The fundamentals however remain strong, with the company guiding for 2% comparable cash flow growth in spite of numerous retail bankruptcies. High quality malls have had no trouble finding replacement tenants for store closures, but the high concentration of store closures has made the struggles appear secular rather than cyclical. SPG has a strong balance sheet with an A-credit rating and capacity to take on more leverage. SPG pays a 5.8% dividend and is generating enough free cash flow to fund the dividend, $1 billion to $1.5 billion in anchor redevelopment projects, and buy back stock. There is blood in the streets of malls, and SPG is best of breed.

    Rick Pendergraft: Looking at the list of stocks that currently meet my fundamental requirements, the two sectors that are most represented are tech and financials. Within those sectors, the software industry in particular is heavily represented so I can see software being attractive this year. In the financial sector, banks are well represented on my list of stocks to watch.

    Cestrian Capital Research: US space and defense stocks, particularly Northrop Grumman (NOC) and Lockheed Martin (LMT). Defense spending is rising and the newly-real Space Force will bring with it the arming of space. NOC and LMT are best placed to take advantage of that trend in our view. A more volatile but equally profit-capable stock riding the same wave is Aerojet Rocketdyne (AJRD).

    Mark Hibben: The recession of 2008 and the recovery of the tech sector this past year show how durable technology companies can be in the face of an economic downturn. This is the sector to buy into during the downturn to come. It's important to be selective and focus on quality companies with real technical advantages and good bottom lines. The story for the next few years will be what companies survive and prosper during the downturn compared to what companies do not. I will tend to avoid companies that have racked up large losses during the good times. Uber comes to mind.

    I think the “platform” companies will ride out any recession just fine. These include Apple, Microsoft (MSFT) and Nvidia. These companies combine hardware and software into integrated products, and have extended hardware development to the silicon level.

    Joe Albano: Anything semiconductor. With trade headwinds easing and inventories in the OEM supply chain normalized after a huge build up, 2020 will be setting itself up for anything with a bit or a byte in it. Nvidia, Western Digital (WDC), Micron (MU), Skyworks (SEKS), and Broadcom (AVGO). Each have their own strengths and story in the market so it depends how risky you want to get or how aggressive you want to get. I own them all, and I see large gains in 2020 and already have as 2019 comes to an end.

    EnerTuition: Advanced Micro Devices continues to be the top idea for 2020 in spite of being one of the best stocks in the market and Beyond The Hype subscribers in 2018 and 2019. While some view the stock as played out with a big run, we do not see slow down in market share gains against Intel (INTC) and, if fact, expect market share gains to accelerate in 2020.