2024 Wins and a Peek into 2025
Louis reviews several of his wins and losses in 2024 and gives us a view into his thoughts for the upcoming year.
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DocuSign's Leap: Case Study in Transitioning from Losses to Profits
One of my favorite types of investments is in fast-growing companies that have products or services in high demand, transitioning from losses to profits. I like this type of company because their operating leverage often leads to rapid growth in earnings. As companies shift from losses to profits, many analysts tend to lag in updating their earnings estimates. A key indicator of potential excessive growth or profits is strong sales performance and a unique market niche.
An example of this is DocuSign DOCU. In the past week, the stock saw a significant increase as it consistently exceeded Wall Street expectations. This is the kind of company I favor, as it moves from negative to positive earnings while maintaining a robust sales growth pattern and a clear competitive edge, particularly in electronic signatures where DocuSign is the acknowledged brand leader. This has contributed to a notable stock price increase. I first mentioned DocuSign in an article on November 2, 2024, titled "Stocks That Need Love," when the stock closed at $71.11; it's now trading at $97.07, up 36.51%, outperforming the S&P 500's 29.23% gain over the same period.
A Review of Trade Ideas That Paid Off in 2024
Bitcoin: Despite being a popular choice, the trend continues to be bullish, especially with the new Trump administration fostering a more optimistic outlook. I see continued retail participation and money flows. I mentioned Bitcoin in an article on September 28, 2024, "Is the Recent Rise in Gold a Trap?" The price for the iShares Bitcoin Trust IBIT was $37.39 at that time, now at $57.22, a 53.04% gain, which I use as a benchmark against commodity markets for risk management in my asset allocation models.
- Alpha and Omega Semiconductor AOSL: Discussed in my October 12, 2024, article "Fishing for Less Crowded Tech Stocks," this stock closed at $38.56 on that date and is now at $49.09, up 27.31%, beating the benchmark by 33.52%.
- Plexus Corp. PLXS: Also mentioned in the same article, it closed at $103.695 and is now at $166.48, a 60.54% increase.
- Spotify SPOT: Covered in the "Stocks That Need Love" article, it closed at $384.50 and is now at $471.14, up 22.53%.
Stocks that Have Not Turned Profitable
As for most investors, 2024 was a an above-average profitable year. No matter what, I like to look at the investments that have not turned profitable yet. On the downside, stocks like Jackson National Life JXN (down 8.09%), Lincoln National LNC (down 8.52%), Donnelley Financial Solutions (down 5.33%), and Suncor SU (down 6.26%) have experienced losses. This performance aligns with my investment style, where my goal is to maximize winning ideas. My strategy involves holding recommendations for longer periods, expecting more companies to turn profitable over time, with the expectation that my winners significantly outweigh my losers.
2025 Is a Year of Big Change
I see 2025 as a big year of change. The overall sentiment has abruptly shifted as I write this. I’m noticing deals that were previously stalled suddenly moving forward. I’m hearing from savvy investors who are reaching out to discuss decisions they’ve been putting off.
While I can’t pinpoint it quantitatively, I sense the potential for significant volatility but with a bullish ending for patient investors.
Perhaps we will see numerous head fakes in the coming year as the news cycle swings up and down. Much of this could stem from the establishment resisting political changes introduced by the new administration or geopolitical backlash as new approaches challenge the status quo. Current economic and spending habits seem likely to shift quite abruptly, potentially leading to changes in leadership and a reshuffling of power.
The second- and third-order consequences of past policies have left us with substantial uncertainty.
Typically, in such scenarios, market jitters can lead to sudden declines. The amount of change we’re likely to see in 2025 is considerable. Therefore, I believe the best strategy is to focus on investments in businesses that concentrate on areas unlikely to change. Instead, prioritize companies that offer new products and services with strong growth potential or that possess competitive advantages.
A significant amount of speculation may drain from market valuations...especially if inflation resurfaces and interest rates rise further. Such conditions would likely harm overpriced growth companies. I am prepared to manage this risk but remain optimistic.
One thing I've learned is to expect some big upside surprises because the entrepreneurial capitalism embedded in our economy can be underestimated. For that reason, I'm looking for asymmetric upside opportunities with relatively low risk.
The only way I know how to do this is to allocate capital rationally, react less, and reason more.
