Creating Giants: Part 1

Future

There is a concept in technology known as Gates' law (covered in my last post), which states:

We tend to overestimate what can happen in the short term and underestimate what can happen in the long term.

I believe this concept provides a way to think about what happens in the stock market as we start to emerge from this dark tunnel of Covid 19:

• In the short term there has been significant bullishness around trends defined by the Covid 19 crisis and the associated companies. This is the overestimation and will work itself through the markets (although I am not sure how exactly).

• But, and this is a big but, some of the companies associated with these trends will become huge in the long run. How huge ? Next Apple ? No, bigger. How about the next Dutch East India company (valued at  $7.9T in 1637) ? This is the underestimation.

So which are these companies that we are underestimating but are likely to be giants in the future ? Let's try and answer that now.

Accelerant

There's a lot of great analysis around the trends that are strengthening due to Covid 19: One that I highly recommend is Bond Capital's coronavirus trends report.

Reading through it, I realized that coming into the lockdowns, certain existing long term trends either accelerated (e.g. On Demand Fitness) or decelerated (e.g. Air Travel) meaningfully. The stocks of the associated companies reacted accordingly and significantly e.g. Peloton (PTON) stock is up +485% since mid Feb 2020 while Southwest (LUV) is down -18% in the same time frame. This is the overestimation in the short term.

As this overestimation works itself out, it will create long term opportunities that most will underestimate.

Themes

With that, below are the themes that I believe will be dominant well into the future. There are more but I am focusing on the ones that resonate with me:

A. Health & Wellness

I have long believed that if I have my health, everything else can be worked on. Increasingly though, I found myself prioritizing life's responsibilities over my health which I suspect is the case for many of you too.

Covid 19 has served as a stark reminder that my health is the foundation for everything else. If I can't be assured my health, I'll literally stop everything else to seek assurance for my health.

Things that help us improve our physical and mental health will play a far greater role in our day to day lives going forward. On demand fitness is one of those things. Companies like Peloton (PTON) that embody this trend will likely thrive, as well they should, in terms of their impact on our wellness. (More details on this are here in my prior post)

Future Giant: Peloton (PTON)

Another winner: Nautilus (NLS)

B. Environmental Consciousness

One thing that has become crystal clear in my mind through this crisis is that we, as humans, are part of a much larger ecosystem: Our environment.

When we can't safely step from one key aspect of this environment (e.g. our home) to another (e.g. a beach) without taking unnatural precautions, life can start to get pretty dissatisfying. This underscores the importance of adapting our lifestyle to be more conscious of the environment.

As we start to emerge from this crisis and reflect on it, I believe more and more people will develop this point of view. Companies like Tesla (TSLA), that help us be more mindful of our environment and help us preserve it will likely gain more momentum. (More details on electric cars being better for the environment are here).

Future Giant: Tesla (TSLA)

Other winners: Nio (NIO), Ford (F)

C. Sustainable Foods

Continuing on the theme of environmental consciousness, there's the sustainable foods movement: I know that plant based diets are healthier for us but what I did not know is the ngeative impact of meat consumption on the environment. 

From deforestation to carbon emissions to resource intensity to the risk of disease, traditional meat foods just don't feel sustainable. Companies like Beyond Meat (BYND) and Impossible Foods (private) that are rapidly iterating to provide sustainable foods like plant based meat will not just be good for us, the planet but also for their investors.

Future Giants: Beyond Meat (BYND)

Other winner: Impossible Foods (private: impossiblefoods.com)

Part 2

That's three themes for now. Please "follow by email" for the next set of themes that are coming shortly. 

• The contents of this blog are the personal opinions and investment choices of the writer. Please don't treat them as investment recommendations.
•  I have long positions in  PTON, NLS, TSLA and considering long positions in BYND and F.