Luke Lango is issuing a warning about a rare event taking place in the stock market as we speak.
It's something we have not seen in 14 years, but if we act now, we can position ourselves ahead of it with so-called “Fourth Divergence” Stocks.
The Teaser
Nothing under the sun is new and neither is this outcome. It's happened not just once, but three times when multiple stocks explode during periods of extreme market uncertainty.
Luke Lango combines quantitative analysis with behavioral economics to identify long-term growth investments at early stages. We have reviewed Luke's services here before and several of his past picks, including his 5G Satellite Stock.
The three times this “divergence” has taken place have been:
- Following the Black Monday crash in 1987
- After the dot com crash of 2000
- And the housing bubble crisis of 2008
Now, according to Luke, it's happening again.
So what is “it”? And why do certain stocks explode not in spite of all the market uncertainty we’re seeing, but because of it?
The Divergence
This is a stock chart from 2008, the last time we saw this pattern emerge in the markets.
The blue line represents the market price of the stock. The daily ups and downs we’re all familiar with. The orange line represents what Luke calls the stock’s “true price” or what the stock SHOULD be trading for.
Maybe once every decade, these lines diverge and move in opposite directions. When they do, the market price usually quickly snaps back to its true price, with massive returns…as we can see here:
These snapbacks tend to produce abnormal returns, even while the rest of the market is bearish and choppy.
While most people panicked and ran for cover. Those who knew how to spot this divergence and get in at the right time could have turned a $5,000 investment into $31,000, in only 24 months.
The stock market volatility and uncertainty we’ve seen have caused this unique situation to emerge once again and there is a trio of stocks to play during this Fourth Divergence event.
The Pitch
All three stocks are revealed in a special report called: The Fourth Divergence: Three Companies That Could Snap Back 100% or More In the Next 12 months.
The report is ours with a subscription to Luke's flagship advisory service called Innovation Investor. The price for a 1-year subscription to Innovation Investor is normally $199 but for a limited time it's only $29. This special offer includes a bunch of extras, including four special reports, private 24/7 access to the Innovation Investor, and a model portfolio.
The Secret to Spotting Major Divergences in Stocks
Luke gives us countless divergence pattern examples, from Google
To Apple
And even Netflix
What stands out is how these stocks don’t just deliver incredible gains in that first year. It seems like investors who hold on for the long run can see massive returns too.
This is all well and good, but how do we spot these divergences and take advantage of them?
Luke's team has developed a proprietary metric, which he calls “Divergence Magnitude” to quantitatively calculate the size of a stock’s divergence. Simply put, it measures the gap between the true price and the market price of a stock and then assigns a number to it. Stocks whose divergence magnitude scored 40 or higher produced the best results. What am I talking about here?
See, the market price is only what a large group of people – the market, believe the price should be. This is the Efficient Market Hypothesis that's taught in economics classes and it's dead wrong.
The market is made up of people and people are by nature emotional and reactionary. They cause the market price to diverge from the “true price”, which is the underlying value of the business itself. These divergences are most pronounced during periods of uncertainty, like 1988, 2000, 2008, and RIGHT NOW. This is why Luke is calling it…
The Fourth Divergence
Inflation rates are at 40-year highs, and consumer sentiment hit the lowest point since 1952 last year, making one of the lowest readings ever in recorded history.
This has caused the divergence pattern to appear in multiple stocks, for the first time in 14 years.
Although the market is showing signs of a rebound through the first couple of months this year, there are still literally dozens of fast-growing, cash-flowing businesses out there trading far below their true price. During infrequent opportunities like these, as Warren Buffet himself has said in the past, “put out the bucket, not the thimble.”
Because timing is a crucial element if we want to secure maximum potential gains when these divergences appear, let's find out what stocks Luke's proprietary metric has identified as “can't miss.”
Revealing Luke Lango's Fourth Divergence Stocks
Luke and his Innovation Investor team have spent the last six months doing an in-depth analysis of every divergence event since 1987.
They have come up with three top stocks to buy for the Fourth Divergence event.
#1 Divergence Stock
The #1 pick to play this event is revealed to us as SoFi Technologies Inc. (Nasdaq: SOFI).
Shares are already up more than 45% to start the year and Luke thinks it has more room to run over the next 12 months.
As for the other two Divergence stocks, all that's mentioned about them is that one has a 493-point divergence. While the last one shows an “incredible 741-point Divergence.” This is of course absolutely meaningless to us and scouring the dark corners of the web didn't bear much fruit either.
The only other name I was able to unearth via a StockTwits thread no less, was Desktop Metal Inc. (NYSE: DM). This could potentially be one of Luke's picks, based on his teasing it as a Divergence stock in the past.
Opendoor Technologies Inc. (Nasdaq: OPEN) and Fluence Energy Inc. (Nasdaq: FLNC) are the other potentials. But no way to confirm the accuracy of these.
Make 100% or More in the Next 12 Months?
As an upfront disclosure, I'm inherently biased against shadowy proprietary trading strategies.
However, based just on what I know about Luke's “Divergence Magnitude” method, which isn't much. It is on the right track, insofar as seeking out stocks that are below their “true price.”
How it goes about determining the “true price” or intrinsic value is another matter. But this is the first thing we should all be aiming to do when deciding where to allocate our hard-earned money – determine the underlying value of what we are investing in and compare it against the market price. After all, “price is what we pay, but value is what we get.”
Quick Recap & Conclusion
- Luke Lango is warning about a so-called “Fourth Divergence” in stocks and he has a few picks that he says will thrive during the chaos.
- This “Divergence” tends to occur during times of market upheaval like we saw last year and in part, this year. It is what's causing market prices to diverge from their “true price.”
- A special report called: The Fourth Divergence: Three Companies That Could Snap Back 100% or More In the Next 12 months, covers everything in detail and reveals Luke's stock picks.
- Only one “Divergence” stock is revealed to us – SoFi Technologies Inc. (Nasdaq: SOFI). While leaving us guessing about the rest. Based upon Luke's past picks, these could be Desktop Metal Inc. (NYSE: DM), Opendoor Technologies Inc. (Nasdaq: OPEN), or Fluence Energy Inc. (Nasdaq: FLNC).
- Making investments where the “true price” is lower than the market price is what investors do, regardless of if they're following Luke's “Divergence Magnitude” method or not.
Are we right on or way off with our guesses about Luke's picks? Drop any insight in the comment section below.
Thanks . It is very informative