If I had £20,000 squirrelled away in my Stocks and Shares ISA in February, I’d invest in certain neglected areas of the market right now. Though not guaranteed, I think narrowing my focus like this opens up the potential of higher returns than investing with the crowd.
Big tech
Big technology stocks drove the last decade-long bull market in the US. However, all good things have to come to an end at some point. And that point was last year, after the shares of tech giants took a hammering.
I’d say this was overdue because most valuations there had reached ridiculous levels. As the bull market neared its peak, it was like a speculative frenzy broke out. The whole thing reminded me of a farm animal getting in one last scoff as the farmer approached to remove the trough. This often happens at the end of a bull market cycle.
However, after the recent correction, I think some potential buying opportunities have opened up for long-term investors.
| Company | Share price decline from all-time high (%) |
| Alphabet | -29% |
| Amazon | -41% |
| Apple | -16% |
| Microsoft | -23% |
Of course, share price declines don’t tell an investor everything. If a business is truly in decline, it’ll almost certainly go down further.
But I don’t think Microsoft and Apple are in decline at all. They have fortress-like balance sheets and I fully expect the stocks to recover lost ground.
UK property market
Rising interest rates have sent UK house prices falling for the first time in years. This has been reflected in a decline in the shares of housebuilders.
Yet the UK faces a chronic shortage of affordable housing. The government has committed to building 300,000 new homes overall every year by the mid-2020s. This should keep demand high for years, despite the current economic uncertainty.
Two stocks I’ve been digging into are FTSE 100 housebuilder Persimmon and FTSE 250 mid-cap Redrow. These stocks are down 48% and 26% respectively in a little over a year. Both are on my watchlist.
Disconnection
Ouch…As of this writing, our shares are down more than 80% from when I wrote you last year. Nevertheless, by almost any measure, Amazon.com the company is in a stronger position now than at any time in its past.
Jeff Bezos, 2000 annual letter to Amazon shareholders
Why am I quoting an Amazon shareholder letter from over two decades ago? It’s not to highlight that the shares went up over 100 times from that point. Or that it’s unlikely an investor will find those magical 100-baggers (stocks that return £100 for every £1 invested).
No, it’s to highlight that it’s often more important to focus on the operational progress of a business than the share price. Sometimes the two things can become disconnected from each other.
That’s what Bezos was highlighting when he said “by almost any measure“, Amazon was a stronger business than a year earlier. Yet the stock price would have told you the opposite story.
I think there are other such opportunities out there now, with stocks that have lost between 50% and 80% of their value in the last 18 months. They may have further to fall in the coming months. But long term, some will appear like bargains at today’s prices.
