A Double-Headed Stock Market

Two Things Can Be True At The Same Time

Exploring Nuances On Today’s Investment Landscape

This is Porter & Co.’s The Big Secret On Wall Street, our flagship publication that we publish every Thursday at 4 pm ET. Each month, we provide to our paid-up subscribers a full report on a stock recommendation, and also an extensive review of the current portfolio… At the end of this week’s issue, paid-up subscribers can find a link to our Top 3 Best Buys, three current portfolio picks that are at an attractive buy price.  Every week in The Big Secret, we provide analysis for non-paid subscribers. If you’re not yet a paid subscriber, to access the full paid issue, the portfolio, and all of our Big Secret insights and recommendations, please click here.

It's a tale of two markets within the artificial-intelligence (“AI”) revolution: one where valuations defy gravity, and another where innovative companies are building tangible, lasting value.

Investor interest in AI remains high. The broad gains across anything that touches the booming technology are reminiscent of the dot-com period in 1999. The investor discourse has increasingly turned toward whether or not the market is in a bubble – a rapid increase in stock prices not supported by the companies’ underlying value, therefore above their intrinsic value. Bubble talk certainly makes headlines – but those headlines don’t really tell the full story. 

The stock market is much more nuanced. Understanding dialectic thinking can help guide investors in this environment. Dialectic thinking is often referred to as “both/and” – recognizing that seemingly opposing ideas can coexist. And that approach helps to break free of the restrictive “either/or” mindset that can oversimplify complex situations. Great Gatsby novelist F. Scott Fitzgerald expressed it this way, “The test of a first-rate intelligence is the ability to hold two opposed ideas in the mind at the same time, and still retain the ability to function.” 

In short, two things can be true at the same time.

Many AI-related stocks appear wildly overvalued, destined to ultimately end up on the trash heap just like so many failed dot-coms of 25 years ago. And the AI revolution is very real and there are many companies with justifiable valuations poised to be massive beneficiaries supported by fundamental improvements in their businesses. The key is to look beyond the high-level bubble narrative and do the work to separate the real winners from the real losers. And the winners aren’t always the first stocks that come to mind.

Another broad proclamation is that the market is being divided into two categories – stocks that are levered as a result of their exposure to AI and all the rest that aren’t. The AI winners are the only stocks that can perform, this argument goes. All the rest of the stocks out there are sluggish underperformers. 

But once again, two things can be true at the same time. AI is a megatrend, and there are a group of prominent stocks with large market caps that are leading the way. And there are many other stocks that have virtually nothing to do with AI, but instead have company-specific idiosyncratic stories that make for great investment opportunities. The key is to look beyond just AI, making sure one’s portfolio is properly diversified with high-quality businesses that generate strong cash flow and have a sustainable investment thesis.

In this month’s update of the Big Secret On Wall Street, we provide updates on seven stocks that show how the market isn’t nearly as black and white as many would imply. The first is an AI behemoth, one that maintains such a dominant position that it is impossible to ignore. And then there are two more companies poised to benefit from the AI explosion in less obvious ways and flying below the radar of many investors as a result. Then there are updates on two great stories that have nothing at all to do with AI. One is a global leader in footwear and apparel that is gaining traction on its business turnaround. The other is a leader in the weight-loss drug space that benefited from positive news… for one of its competitors. 

Let’s use dialectic thinking to look beyond the simple narratives.