Transcript:

Caroline WoodsFinding the next big winner isn’t easy. My next guest says it starts with identifying the right long term theme. Today, she sharing when she’s watching and the stocks she thinks are best positioned to benefit. Jessica Inskip is director of investor research at StockBrokers.com and joins me here at the desk. Jessica. Great to have you back.

Jessica InskipHappy to be here.

Caroline WoodsAll right. So you call this theme interconnectivity. What is it? Why now?

Jessica InskipWell, so I’m thinking about the largest gap with the within the emerging trends that I’m seeing within the market. The last time that we did this was the artificial intelligence boom. That was the emerging trend. And then the gap was bringing that to life. What were the picks and shovels that created those LMS? What are the enterprise solutions?

Jessica InskipHow would that transform? So the next emerging theme that I’m seeing is actually these new type of assets. As the market is evolving, which started with crypto, we have blockchain now. We have tokenized assets. We have the onset of prediction markets and those event contracts. And there’s a lot of regulation that I can see that the SEC is looking at.

Jessica InskipFinra is asking for commentary from brokerage firms where essentially these are all different trading venues that don’t talk to each other. And so that’s the big bottleneck. So right now in traditional markets we have something through Reg NMS SIP, which is a consolidated tape. A retail investor might see this, as we call it, the top quote. You have the bid and ask whenever you’re looking to buy a stock or an equity.

Jessica InskipThe ask is the best price available for you to buy. The bid is the best price available to you for you to sell. That best price is from a ton of different venues. It is the New York Stock Exchange. It’s all of the exchanges. It’s market makers. It’s the interconnectivity that is through this consolidated tape that they can access to see the best price to buy, the best price to sell.

Jessica InskipThat does not exist for these new type of assets. If you have an event contract, if you’re at Poly Market, you can have the same event contract. It does not talk to that identical event contract at Chalcedon, for example. And it’s a bigger issue when we’re looking at tokenized securities, because this is Apple and you don’t have actually the best price available to Apple, you have the best price available at the trading venue that you chose, which is a historic issue that we’ve had some problem solving and innovations on as our modern markets have evolved.

Jessica InskipI know this is so deep into the weeds. Sure.

Caroline WoodsSo yeah, I guess let’s break it down a bit more simple. If someone buys into this theme, what are they actually betting on?

Jessica InskipThey are betting on the infrastructure layout for someone to connect these together, for there to be a consolidated team for whoever is building the picks and shovels for this new emerging market in order to have an efficient market system.

Caroline WoodsOkay, so let’s get into the top picks, your top interconnectivity picks. The first pick is Coinbase a big loser year to date. But why are you betting on Coinbase.

Jessica InskipSo Coinbase very specifically is the tokenized stocks component of that. And I also want to put this with circle as well. I like to put those together because of stablecoins. Now we think about settlement prediction markets event contracts all settle in stablecoins.

Caroline WoodsDid you know that.

Jessica InskipAnd so it’s a very important component with Usdc. The stablecoins for Coinbase and Circle specifically I group those together. So that’s important for the interconnectivity because it’s the settlement aspect right now stocks settle in cash. They have a one business day. It goes into your money market. There’s a bunch of guardrails that and infrastructure that occurs with that.

Jessica InskipCoinbase and circle are the forefront of the settlement aspect of tokenized securities.

Caroline WoodsOkay. So your first pick is actually two picks Coinbase and Circle. Next up, Robinhood actually has been recovering. Did have a tough first half of the year. It’s been recovering. Think it’s near the flatline last I checked. Why Robinhood.

Jessica InskipSo Robinhood is the forefront of this push to tokenize securities. So if we want to put these in layers, the circle and Coinbase is going to be the settlement aspect of actually bringing those to life, they’re a component of that. But Robinhood is bringing those to retail investors. We can see that with their earnings. You can see that with their conference calls.

Jessica InskipYou can see that with their client events and their brokerage events. They just did one overseas. And the big push was tokenized securities. And that has to do with inner market connectivity to overseas. Because, to put this in perspective on the retail world, we’re seeing this influx of 24, seven and 25 trading. That doesn’t mean that there’s retail traders in the middle of the night wanting to trade.

Jessica InskipIt’s actually market access for our friends over in a pack and more global market access so they can trade securities on their time. In order for that to happen, that requires liquidity. And the provider that one of the main providers that is doing that from a tokenized perspective is Robinhood. And so that’s why it’s my top pick from this theme specifically.

Jessica InskipBut I do also like them. Essentially because of their retail trading boom, they are a huge component of that. But they also are very volatile. They follow Bitcoin a lot. If Bitcoin is falling down, that tends to hurt their revenue. So I think that’s something to be cognizant of. But they have a retail app that spans all three of those markets that are talking about for that interconnectivity bottleneck.

Jessica InskipSo that’s why it’s my exposure for a brokerage firm specifically.

Caroline WoodsBut going back to Bitcoin for just a second. Bitcoin has been disappointing quite a bit this year. So can this theme or these picks Robinhood Coinbase same thing succeed if Bitcoin doesn’t outperform or if it continues to struggle.

Jessica InskipI do think it can. So with Robinhood specifically that drives a lot of their trading revenue. So if there is less there but it’s outweighed by something else as they add more diverse revenue streams. So top of mind we’ve had Bank of America reporting. They talked about their resilience because of their diverse revenue streams. Robinhood is building that out.

Jessica InskipThis is another measure of that diverse revenue stream. So I do think they could overcome it. But it is a risk. So do you want to flag that? Interestingly enough with Coinbase and Circle there it was this Coinbase specifically last year when Bitcoin was falling down. They still exceeded earnings. And it had to do with stablecoins because of the settlement that was happening within prediction markets.

Jessica InskipThat’s already proving out with those. I just think the market’s forgotten that. But they’re all three of these thus far are high beta volatile names, high risk high reward. So it’s important to consider these are risky investments. But with higher risk comes higher reward potential okay.

Caroline WoodsAnd we’ll come back to that. But let’s get to your next pick. Intercontinental exchange Ice, the parent company of the NYSE. Why is that one of them?

Jessica InskipSo they have tokenization plans. They have decided to be on the forefront of that. And from an exchange perspective, I think that’s great because it’s going to provide that interconnectivity. I’m not sure how they’re going to get tokenized. Apple to talk to traditional equity. Apple unless we move completely into tokenized securities, which will be interesting from a transfer agent perspective.

Jessica InskipAnd it’s not my job to fill that gap, but I want to understand who is filling that gap and where the opportunities are. And that’s where I see ice. Plus, they have a.

Caroline Woods$2.

Jessica InskipBillion stake in Poly Market as well. So there is exposure to event contracts. So I want to look at those themes. And if they are a component that is provides interconnectivity day to today to our capital markets from the equities perspective and others, I believe that they want to make sure that they’re in the forefront of that because they recognize it’s an opportunity with these tokenized securities.

Caroline WoodsOkay. Next on your list actually has NYSE or Ice connections. And that’s bullish because it’s led by Tom Farley who used to run the NYSE. It’s not necessarily a household name yet. Why should investors know this one. Why should they buy this one.

Jessica InskipSo if we’re looking for complete exposure from the public of companies that are available, this is the one with the most exposure to this bottleneck specifically. So it’s also the riskiest. And it’s been in a freefall lately. I think that’s important for listeners to know. They had this equity deal. I’m probably pronouncing that incorrectly because I read a lot more than I listen up there.

Jessica InskipThey are the first regulated tokenized securities trading approval that was happened in June 2019. Very, very recently. That means that they are a huge component of actually building the interconnectivity and bringing everyone together. So it makes sense why ISIS related and working with them. So if you want the actual exposure to how is a consolidated tape going to exist?

Jessica InskipIt is bullish.

Caroline WoodsOkay. So the most speculative of the names you would say the most speculative but with the most.

Jessica InskipOpportunity potential okay. So that means you could lose the US. And it’s a longer term view. It’s going to take some time for this to even play out. Remember with the AI theme, even if we I was talking about ChatGPT very early on, there was still a sell off. And they sell off in sympathy, especially when, things are misunderstood.

Jessica InskipThe market, it’s market mechanics also come into play. So I think that’s just important to know to be cognizant of.

Caroline WoodsOkay, finally, Mastercard, probably the most established company on the list or one of the most I would probably not want me to say that, why does it fit alongside the others?

Jessica InskipSo this is adjacent to the gap that I’m seeing. So we’ve talked a lot about interconnectivity of assets, settlement of said assets and how they can talk to each other. We’re in the year of energetic AI. I have lovely AI agents that go and track the market for me and I. I am obsessed with it and it is increase my productivity so very much.

Jessica InskipThere are others that are more advanced than me that have AI agents that physically go spend money for that, that require stablecoin. So there’s another bull case back, but Mastercard is the first. Payments incubate on a genetic reals. So if you are going on the computer and you had a website that you can’t access, you’ll get error code 404 or doesn’t exist.

Jessica InskipThere’s something called error code 402 or embracing protocol 402. That’s for agents specifically in order to process payment. So they are the first, at least agent payment rails that I’m seeing within the financial space that’s established, that is embracing that. And of course, I think that’s going to be the way future as we have enhanced productivity as these agents mature, the fun thing to say and start needing to pay for themselves on, on their ventures that their users are enterprise are even accessing.

Jessica InskipSo I think that’s in materials earnings today.

Caroline WoodsOkay. And we’ve mentioned a few times that these are higher risk picks. So who is this team actually who should not be investing in these stocks.

Jessica InskipThat is such a great question and I appreciate you asking that. It’s a time component. The one asset I can wish I wish I could get my hands on is more time. And that’s something that’s finite that we’re eventually going to run out of. If you are further on in your trading journey and you are in a wealth preservation, these are high risk names.

Jessica InskipYes, they have opportunity. But if you need to preserve your nest egg, this is not the time for you. If you have a 5 to 10 year investing horizon, it absolutely is. It’s longer term. I think it will play out quicker than that. However, I think it’s important to know it’s just your risk tolerance. If you have the ability to be a little more riskier, this is higher on the risk pyramid.

Caroline WoodsWhat milestones are you watching that will tell.

Jessica InskipYou that.

Caroline WoodsThis is actually playing out and working.

Jessica InskipWell? It’s one earnings calls is going to be the first one giving insight into commentary of the exposure of this. And any additional bottlenecks that are appearing. So it’s going to tell me that it’s working because the focus is still there. If the focus is still there for earnings and we want to keep consistently telling shareholders about it, then that means it’s it’s playing out.

Jessica InskipAdditionally, we want to show see it show up literally in earnings. But that takes some time, especially with companies that have negative earnings. So we’re just looking for profit margins to start expanding, expenses to start slowing down, earnings starting to be less negative and moving more towards that positive line. So that’s going to give me indication that it is working.

Jessica InskipAnd then as soon as we start seeing additional news headlines on it, someone starts talking about it more, just almost but.

Caroline WoodsWhat would that headline be?

Jessica InskipYou know, it’s hard to say. I wish I could predict that very specifically. The headline is going to be all of a sudden we can access tokenized securities on this exchange that that, to me would be very, very big. That means it’s playing out as in the these are coming to life. If these are coming to life like an LLM is coming to life, it’s amazing to me that I’m using that as an analogy right now.

Jessica InskipBut as large language models came to life, that proved the bull case for semiconductors. This is very similar as tokenization will come to life. This is the bull case for the interconnectivity that requires that to come to life.

Caroline WoodsOkay. And you brought in circle. So I just want to give you a chance. We like to pack in as many picks as possible. Are there other names that fit into this theme that we didn’t get to, and are there any that you would avoid that also fit into this theme?

Jessica InskipThere are others. So I gave you my my top picks kind of tier. There’s some more speculative that I have. There’s Net that is very similar to Mastercard with the agent request payment guardrails. BitGo with custody. And then there’s institutional proxies. So these are actually I want to say less speculative, but they’re going to offer some type of exposure because of the way that banks react.

Jessica InskipSo for example, banks have come together and started creating their own stablecoins because they understand that this is a process that’s moving forward and they diverse their revenue streams. A great example of that, if we think about when Venmo came on, the banks came together and they created. So yeah, and that was a threat to their business. If there’s a threat to their business, they’ve learned that they have to embrace it and create their own.

Jessica InskipAnd they can because they can scale it. So it doesn’t put down the other one, but it does amplify theirs as well. So you can get exposure from JP Morgan, you can fund Blackrock and you can even from Bank of America, a smaller exposure there. But they have, tokenized funds. JP Morgan has been working on unchained settlement proofs and things of that nature.

Jessica InskipSo, that helps validate those rails.

Caroline WoodsOkay. All right. So you gave some of the big names and then you also mentioned. Net which is Cloudflare and then BitGo, which is BitGo, but more speculative there. So the more risk okay, I think it’s a great time to pivot to our rapid fire round. So this will be quick questions and very quick answers. You’ve played before.

Caroline WoodsYou know there were also you ready okay. If you can only own one of these stocks for the next five years, which is it?

Jessica InskipI have a high risk tolerance but I would go with bullish.

Caroline WoodsWhich name would you cut from the list first?

Jessica InskipOh, that’s so tough.

Jessica InskipI do so much research here. It’d be the speculative ones. Net and you.

Caroline WoodsWhat’s the first stock you’d buy on a pullback. Apple. Oh and on this list okay. First stock on this list that you’d buy in a pullback. Circle okay. What stock on the list doubles.

Jessica InskipFirst it would be bullish but it also would double losses first.

Caroline WoodsMost resilient name. If the economy slows.

Jessica InskipJP Morgan.

Caroline WoodsWhich on the list has the biggest competitive advantage over its rivals.

Jessica InskipRobinhood only on this one specific component. Otherwise its rivals have other competitive advantages.

Caroline WoodsAnd the biggest risk to your picks,

Jessica InskipRegulatory regulatory risk. A lot of this hangs on the Clarity Act, portions of that going through. So if something comes in where, Finra wants to put a stop to it, the SEC wants to put a stop to it or slows it down. That’s the biggest risk.

Caroline WoodsOkay, we’ll leave it there. Jess, I always appreciate you joining us. Appreciate those picks as well. Thanks so much. Thank you. That’s Jessica Inskip, director of investor research at StockBrokers.com.

UnknownIf you enjoyed this stock pick video, check out our full interview with Dan White where he breaks down the top five stocks he’s rotating into for the next leg. Higher.