This Algorithm Just Showed Us the Best Stocks to Buy for 2018

A computer algorithm has given investors a road map for finding the best stocks to buy in 2018.

And all signs point to tech as the fertile ground where you'll find the most promising investments.

This story has its origins in an experiment conducted in 2009 at the request of BusinessWeek magazine.

A Bloomberg BusinessWeek editor, Ira Sager, had learned that a company called YouNoodle (since renamed Quid) had developed an algorithm capable of identifying which startup companies had the most potential.

Sager asked YouNoodle's CEO, Bob Goodson, to come up with a list 50 startups out of some 50,000 contenders.

Earlier this year, BusinessWeek revisited that list and was surprised at how well the algorithm fared. Not all survived, of course, but a surprising number became very successful.

Several of the startups went on to have IPOs, including Cloudera Inc. (NYSE: CLDR), Etsy Inc. (Nasdaq: ETSY), and Zynga Inc. (Nasdaq: ZNGA). Spotify is expected to go public within the next year.

Quite a few were acquired: Admob by Alphabet Inc. (Nasdaq: GOOGL), Boxee by Samsung, Fusion-io by SanDisk Corp., Kosmix by Wal-Mart Stores Inc. (NYSE: WMT), OpenDNS by Cisco Systems Inc. (Nasdaq: CSCO), Justin.tv (later renamed Twitch) by Amazon.com Inc. (Nasdaq: AMZN), and SecondMarket by Nasdaq Inc. (Nasdaq: NDAQ).

Others, like Palantir Technologies, Scribd, Yola, and RockYou, have continued to grow as private companies.

In a follow-up article in March, BusinessWeek said that had the original list been an exchange-traded fund (ETF), it would have been one of the best performers of the past 20 years.

In addition, BusinessWeek asked Quid's Goodson to repeat the exercise. The results have much to tell us about where to find the best stocks to buy in 2018…

Nearly All of Today's Best Startups Share One Key Trait

Of the 50 startups in the 2017 list, all but two are tech-related. Several companies nominally focused on non-tech fields nevertheless are based on tech concepts: digital health, mobile retail, the digitization of education.

This is as much of a flashing neon sign as it gets in investing.

"This is why I've been telling my subscribers for years – that the road to wealth is paved with tech," said Money Morning Director of Technology & Venture Capital Research Michael A. Robinson. He edits the monthly tech investing newsletter Nova-X Report and shares some of his ideas on the free Strategic Tech Investor website.

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The areas of tech that turn up again and again in the 2017 list of promising startups mirror the themes that Robinson preaches to his readers. Here's a list of the sectors that appear most frequently.

• Artificial Intelligence (nine startups)
• Cybersecurity (six startups)
• Sensors (four startups)
• Smart Homes (four startups)
• Augmented Reality (four startups)
• Drones (three startups)
• Fintech (three startups)

That tech is an ideal place to look for the best stocks to buy has been true for a while now.

Consider this: The top six companies with the biggest market caps today are all tech companies. That would be Apple Inc. (Nasdaq: AAPL), Alphabet Inc., Microsoft Corp. (Nasdaq: MSFT), Amazon.com Inc., Facebook Inc. (Nasdaq: FB), and Alibaba Group Holding Ltd. (NYSE: BABA).

That's no coincidence.

In fact, Robinson sees an even more profound trend here.

"This is the era of the convergence economy," Robinson said. "Every business is a tech business."

The evidence is everywhere. "A connected car will have as many as 1,000 chips and sensors. There are about 100,000 health apps now. People are using AI in their homes with voice assistants like Amazon's Alexa," Robinson said. "Tech is eating everything in its path. It's an unstoppable force."

And this unstoppable force is creating new profit opportunities all the time, Robinson said – opportunities with vast growth potential…

The Best Stocks to Buy Are Tech Stocks

Robinson said one of the main reasons tech stocks have been so phenomenally successful is that most scale easily – particularly if they're Internet-based.

"A restaurant chain has to build new restaurants one at a time," he said. "But a company like Facebook can go from a base of a few hundred thousand college students to a more than 2 billion global users in just 13 years."

That's also why companies like Amazon and Google got so big so fast, and why Uber Technologies Inc. became a household name just a few years after launching.

With this in mind, Robinson spends his days scouring the tech landscape for up-and-coming stocks to buy. (It helps that he lives in the Silicon Valley area.)

And he recently uncovered one of his most promising finds ever.

This is the fastest-moving technology we've ever seen. It's revolutionizing the treatment of nearly every form of cancer, which is why analysts project its sales to spike 63,000% and create $7 trillion in new wealth. Read more…

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David Zeiler

About the Author

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Dave has been a journalist for more than 35 years, including 18 spent at The Baltimore Sun. He has worked as a writer, editor, and page designer at different times in his career. He's interviewed a number of well-known personalities - ranging from punk rock icon Joey Ramone to Apple Inc. co-founder Steve Wozniak.

Over the course of his journalistic career, Dave has covered many diverse subjects. Since arriving at Money Morning in 2011, he has focused primarily on technology. He's an expert on both Apple and cryptocurrencies. He started writing about Apple for The Sun in the mid-1990s, and had an Apple blog on The Sun's web site from 2007-2009. Dave's been writing about Bitcoin since 2011 - long before most people had even heard of it. He even mined it for a short time.

Dave has a BA in English and Mass Communications from Loyola University Maryland.

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