Spotting Real Winners in a World of Hype: Game of Drones

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Our team enjoys gathering investing insights from our most trusted and favorite peers. 

One of those peers is Deep Sail Capital, a respected hedge fund manager with over 50,000 TwitterX followers. 

We’ve had the privilege of interviewing the founder of the fund twice (9/17/2024, 8/1/2023), and his insights often get us thinking.

A recent tweet from Deep Sail’s founder struck a chord with us. It’s a powerful reminder about how hot investment trends can lure in both winners and “wannabes.” Here’s the tweet that got us thinking:

“In the recent Quantum, AI, and automation bubble it’s important to distinguish between real companies that will have a real future and companies trying to ride the coat tails of the trend. Both groups will trade together going up, but the shitcos will never recover after peaking.”

This  perfectly aligns with how we’ve approached stock picking over the years—focusing on substance over hype.

For example, investors too often end up chasing stocks like $QUBT (because of the name) before looking under the hood. Doing so shows a company with only $300,000 in revenue through the first nine months of 2024, losing $17 million! The stock now has a market cap of $1.66 billion, after rising 6450% over the last 2.5 months on quantum computing hype. 

This is probably one of the “coattail” stocks that Deep Sail Capital was referencing.

Finding Quality Winners Among Emerging Trends Is Possible

While we realize hot trends can be full of hype, we believe it’s a colossal mistake to ignore trends that can benefit high quality, legitimate companies. 

We think we’ve done a pretty good job for our subscribers in identifying quality companies who could be early participants in emerging trends. As a result, they don’t have to waste time with the hype. Here are a few examples that highlight this:

• $TSSI (Data Centers): While most data center stocks were riding the hype train, we zeroed in on TSSI—a company with strong fundamentals and a unique position in its industry. The result? TSSI has delivered 4711% just this year alone.

• $LFVN (GLP-1): Our team is required to pick their favorite sources of information to spot emerging trends, so we can discuss findings as a group. Our understanding of the GLP-1 weight loss space (Think Ozempic) started when one of our team members caught a key insight on a Wall Street Journal podcast. That insight, combined with our in-house research on LFVN, led us to take early action. Since adding the company to our Universe of Select stocks, the stock has delivered a return of 246.3%.

• $KLNG (Subsea Technology): Subsea technology has quietly emerged as a key area of growth as nations and certain industries are increasing the money they spend to improve the infrastructure and monitoring technology under oceans and seas. Our team’s consistent attention to industry whispers led us to KLNG, a company that’s been making “waves” in this space. Since we’ve covered it, KLNG has delivered 42.3% in 4 months.

What’s the common thread in all of this? Keeping an open mind in order to perform the due diligence to connect the dots before the rest of the market catches on. This is the essence of what we call Information Arbitrage—our ability to identify and act on under-the-radar information disconnects before the crowd figures it out.

What’s Next? Our Eyes Are on Drones

The next trend we’re actively investigating is the drone industry. Drones are hot right now. The hype around drones has been exacerbated by Donald Trump Jr., who recently joined the advisory board of Unusual Machines (NYSE AMEX:UMAC), a U.S.-based drone and drone components manufacturer. The hype was furthered by drone sightings in New Jersey over the past couple of weeks. 

Red Cat Holdings, Inc. (NASDAQ:RCAT) is another drone stock with wild price movements. But, like most of their “peers,” their financials tell a different story with no profits to back it up

That’s why we’re going deeper. We’re currently vetting a company in the defense industry that we believe may be uniquely positioned to benefit from the drone emergence by beginning to market existing technologies into the industry. 

This isn’t a “fly-by-night” operation—it’s a business with strong, profitable operations, a solid backlog of contracts, an established relationship with the defense industry, and a 37-year operating history.

We believe this company’s position could give it an edge as drones become a more critical component of modern defense strategies. We know the company well, because it’s already part of our Coverage Universe.

Want to Join Us on This Journey?

Follow us as we dig deeper into this story. We’ll be sharing our findings with Premium Members, from initial research to final conclusions, and you’ll have a front-row seat if you subscribe below  to our premium service today.

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