Why I’m Not Recommending These “Hot” Stocks

[Brownstone Research] Why I'm Not Recommending These "Hot" Stocks By Jeff Brown, Editor, The Bleeding Edge Dear Reader, Tesla (TSLA) has had a wild ride in 2020. TSLA climbed over 100% from the beginning of the year through late February. It then dropped over 50% during the market crash... before recovering and climbing over 700% in the months since. Longtime readers know I am a fan of the company. As I've said before, it's not a traditional automaker. It's a leading-edge artificial intelligence company. As I wrote back in July, Tesla cars are on the verge of Level 5 autonomy. Level 5 is complete autonomy. That's where a self-driving car can go anywhere, anytime, irrespective of conditions or weather. Tesla vehicles drove more than five billion miles on Autopilot by the end of 2020. As they drive on Autopilot, these vehicles "learn" to drive better thanks to the billions of miles of data collected. That's how the company has made so much progress in a short time. And Level 5 autonomy will enable Tesla's masterstroke... a fleet of self-driving vehicles in a ride-hailing network similar to Uber or Lyft. Tesla owners will be able to opt-in to this network and send out their vehicle to earn money for them when they aren't using it. Knowing all this, what I say next might come as a surprise. I recommend all readers steer clear of Tesla's stock... A Critical Metric To be clear, Tesla is a great company. And long term, I remain a Tesla bull. But the stock has gotten ahead of itself. Tesla is now worth more than several other top carmakers combined, with an enterprise value of close to $700 billion. And Tesla's enterprise value (EV)-to-sales ratio – a good metric for how "expensive" or "cheap" a technology stock is – is over 21. That means the current price of TSLA is equivalent to 21 years of revenue (not profits). Tesla has a bright future. But investing at these elevated "expensive" levels isn't investing... It's just speculation. And Tesla isn't alone in this regard. There are a number of companies with exciting technology that I would love to add to our portfolio... but the valuation just isn't where I can feel comfortable recommending it to my readers. In fact, we're seeing these kinds of high valuations with newly public companies. A Growing Problem Palantir (PLTR) is a great example. Palantir's business is to take in huge amounts of data, analyze it, and extract key insights. It uses artificial intelligence and machine learning to find patterns and key data points that human analysts would likely overlook. Basically, the company specializes in finding the needle in the haystack. The technology is incredibly valuable. But Palantir went public at an EV/sales of about 22. And since its initial public offering (IPO) in September, its EV/sales ratio climbed as high as 70. That's just not rational for a company that lost $579 million in 2019 alone. Snowflake (SNOW) is another perfect example. Like Palantir, it also IPO'd in September. I really like Snowflake's technology; it is a bleeding-edge cloud-computing software company. In fact, I'd really like to recommend it... but I won't. At its IPO, SNOW opened at $245, more than double the IPO price of $120. It also means that there was no way for normal investors to pick up shares anywhere between $120 and $245 a share. And it has continued to run up since. Its enterprise value recently climbed as high as $105 billion. That puts its EV/sales at a mind-boggling 260. On any negative news or earnings miss, shares are likely to sell off. Investors are nearly guaranteed to lose money when investing at these levels. In my Near Future Report research service, I often tell my subscribers that we're investing in solid tech stocks that will let us "sleep well at night." Do readers think they'd sleep well holding PLTR or SNOW right now? I wouldn't... Retail Investors Missing Out The problem is widespread. Many recently public companies are trading at unreasonably high valuations... And it's cutting retail investors out of some of the largest gains. Unless we were able to invest in pre-IPO shares along with the venture capitalists (VCs) and hedge funds, regular investors simply had no window to get in. I mentioned Palantir above. It has an enterprise value of over $40 billion right now. The CIA's venture capital arm, In-Q-Tel, invested $2 million into Palantir back in 2005 in its Series A round. Palantir was worth a mere $5 million at that time. That means CIA's early stake in Palantir (with some estimates accounting for dilution) made roughly 2,500 times its original investment, turning that $2 million into $5 billion. It's a similar story with Snowflake. Early investors like Sutter Hill Ventures raked in as much as $12 billion after the IPO. Altimeter Capital brought in $4.4 billion. And Sequoia Capital had a $2.6 billion return. Don't get me wrong. It's great these companies have finally reached the public markets. And at the right valuation, they could still be good investments. But it's frustrating to see the largest gains get eaten up before retail investors even have a chance. And that's been my mission over the past few years. How can I bring pre-IPO gains like what VCs enjoy to my readers? A Special Kind of Opportunity I've spent over five years digging into this question. I've looked into early stage biotechnology companies... Regulation Crowdfunding (CF) opportunities... and unique small-caps with incredible potential. But recently, I discovered a whole new way for my subscribers to position themselves in pre-IPO shares. The best part? You don't need to be an accredited investor. There's no required level of funds to take part. And it's possible to invest right from your brokerage account... This might sound too good to be true... but it's real. And I'm excited to bring this newest idea to my readers. That's why I'm putting together a special presentation for interested investors... I'm calling it the Pre-IPO Code Event. It's going to air on Wednesday, January 13, at 8 pm ET. I don't want anyone to miss out, so please mark that date on your calendar. Additionally, I'll be sending you more training resources in the coming days. If you'd like, my team will notify you by text the moment they're available for your review. [Simply click here and register for the free VIP list.]( I hope to see you there. Regards, Jeff Brown Editor, The Bleeding Edge P.S. All event VIP's get access to these two free bonuses... [Check them out here.]( © 2021 Brownstone Research Group. All rights reserved. 455 NE 5th Ave Suite D384, Delray Beach, FL 33483. To ensure our emails continue reaching your inbox, please [add our email address]( to your address book. No longer wish to receive special offers from us? Click [here]( for options.