1/3/2024: 2023 Prediction Review: Battered SaaS Stocks are Now Reasonably Priced
I nailed this one
Stock market returns for 2023 were spectacular. SPY 0.00%↑ gained 25.86% while tech heavy QQQ 0.00%↑ gained 54.76% last year. Most of the returns are concentrated on the Magnificent Seven: Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia and Tesla. It’s very hard to beat the index unless you own at least one of these seven issues. But one of my predictions for 2023 was that battered SaaS stocks were going to do well because their valuations had become fairly cheap. As shown above, the five cheap SaaS stock portfolio I constructed ended up delivering a 53.54% return, which handsomely beat SPY 0.00%↑ and matched QQQ’s performance
The main takeaway here is that valuation matters. Buying companies with strong business fundamentals that can weather a severe downtown at deep discounts is a recipe for success. Investors do have to diversify though because a company can be destroyed by a black swan event that’s not predictable. But at a time like January 2022, there were good opportunities to scoop up these companies at cheap prices all at once. I don’t know if these companies will continue to do well in 2024 but they are still cheaper than most of the magnificent seven stocks. In other words, they are less risky. I don’t think I can stomach being an investor of Nvidia or Tesla due to their sky high valuations. But I will be fine holding onto these five stocks at current levels. In five years, most of them will probably become mature profitable businesses at a bigger scale. I am glad I bought these stocks at great discounts.