Article Highlights:
Investors have been fixated for a decade on the so-called FAANG stocks the Big Tech companies Facebook, Amazon, Apple, Netflix and Google.
I like those stocks too. But all of them are starting to run into inevitable headwinds.
If you invested in them around 2012 or 2013, youve done really well for yourself. If you just bought them recently not so much.
So I tend to walk right past the technology heavyweights and embrace other opportunities in their retinue especially companies that sell things Big Tech cant live without.
If you want to make money over the long term, you should do the same thing and Im going to show you how.
If you want to make serious gains from Big Tech, walk right past the usual suspects. Theres something even better standing behind them.
Since the beginning of this year, the S&P 500 Index has gained a little less than 17%. In fact, its value is about the same as it was this time last year.
The Big Tech stocks including the so-called FAANGs have done better, up 27% this year. But their constituent companies are flat over the last 12 months:
But an index of companies that provide essential inputs to these technology giants is at an all-time high. Its up 38% this year, trouncing the market and the FAANGs themselves:
My colleague Charles Mizrahi likes to say that if you want to make secure long-term profits, find the pick-and-shovel companies.
Like the smart businesspeople who sold tools to gold miners in the gold rush of 1849, those are businesses that supply essential inputs to other high-flying companies.
Big Tech is a perfect place to look for these pick-and-shovel companies.
One of the selling points of companies such as Google and Facebook is that their capital requirements are relatively low. They dont make things, they provide digital services. So their stock of physical capital is relatively small buildings, computers and presumably well-stocked cafeterias and play areas for their pampered employees.
That gives them a fantastic return on their fixed investments. Thats part of their attractiveness, and a reason why their stocks are so overvalued relative to other companies.
By contrast, everything else that makes their business possible is provided by other companies. And the single most important thing those companies provide is server space.
Data servers are powerful computers that run the software that comprises the services sold by companies such as Google and Facebook. The latter may write that software and reap profits from that intellectual property, but they depend entirely on farms of data servers to make it run.
The towering green column in the graph above represents the Pacer Benchmark Data & Infrastructure Real Estate Sector ETF (NYSE: SRVR).
Its an exchange-traded fund (ETF) that holds the major real estate investment trusts that own the server farms, cell towers and fiber backbone networks that make todays digital economy possible.
Without them, Big Tech wouldnt exist, and neither would its profits.
Ive recommended some of the underlying companies in this ETF to readers of my Bauman Letter, and those who bought them have enjoyed spectacular profits this year.
You can do the same.
A $54,072 Benefit Every Retiree Should See [sponsor]
Have you heard about the little-known way you could be rewarded for retiring early?
Its buried so deep amid the mountains of publicly available benefits information, most people are unaware it even exists.
And yet it could give you an extra $54,072 for retiring at 62 instead of waiting until youre 70. Click here now for more details.