By Matt McCallApr 18, 2017
At first glance, technology may not seem like a next-generation investment. In fact, there are a lot of people who view it as “been there, done that.” It made investors plenty of money when the NASDAQ peaked in 2000, and while the index is once again back at new highs, I would agree that some areas of tech – especially big tech – are not where you want to be right now.
But that doesn’t mean all of tech is past its hay day. In fact, I see a whole lot of opportunities brewing here both now and well into the future. I’m talking about the next generation companies at the forefront of the revolutionary technologies that you may not think much about or maybe even have never heard of before. Think of the chip in the cell phone you carry with you all around the world. You know the name of the phone company, but do you know the name of the company that manufactured that chip? More often than not the answer is no.
That’s where the opportunities lie. The next Technology Revolution has already begun – but don’t worry, you haven’t missed out on it yet. This is another one of those powerful mega-trends that is going to last for the next decade if not longer. We’re only in the first or second inning, so there is still a lot of money to be made.
This Technology Revolution is much more than just the next hot product. It’s the little technologies – think sensors – that are changing the world as we know it. We can turn off the lights with an app on our phone. Pay for groceries without taking cash or a credit card to the store. And one day doctors will be able to learn our full health history by simply looking at a chip in our arms. These are the kinds of technologies that are going to lead the revolution going forward.
The amazing thing is that these innovations are all around us. They impact our everyday lives, and I’m finding a lot of big investment ideas everywhere. My eyes and ears are always open because they have to be. The next time you walk down a busy city street take a look around you. Nearly everyone you see is holding on to something that’s connected. Ask yourself how those things are connected, and that’s where you’ll find the next big investment theme. Simple as that may sound, Wall Street is too stuck in its big, comfortable ways to do that.
As with everything we do in NextGen Investing, charts are also a huge help here not just in identifying buy and sell points with specific stocks but in alerting us to trends. You’re not going to hear about it when money starts flowing into these smaller areas, but you will see the charts moving. That’s why I’m doing scans every day. If and when I find a little-known company on the move, I always look into it, and I may just find out it’s a big part of the revolution.
A lot of this may sound futuristic and scientific, and while many of these trends will take years to fully play out, the next generation companies that are leading the charge in this new Technology Revolution have the potential to make us a lot of money over time.
In this report, I’ll guide you through all of the different themes we can play in this space.
Let’s begin with a simple but powerful trend – one that you may already be using in your everyday life! I’m talking about mobile transactions. Consider this: consumer spending accounts for two thirds of the U.S. economy. That means there are millions of transactions taking place every single day, but the way those transactions are being made is undergoing a major transformation. We already saw the shift from checkbooks to credit and debit cards. Now we’re seeing a shift from plastic to technology.
By the end of this year, the number of mobile phone users is expected to reach 4.7 billion, and did you know that 70% of transactions are already done electronically? By the end of 2018, it is estimated that mobile device transactions in U.S. stores will total $189 billion, up from a mere $1.8 billion in 2013. That’s a whole lot of growth to capture.
But these kinds of transactions aren’t solely between consumers and businesses. There are also person-to-person money transfers via mobile apps like Venmo, which is owned by PayPal (PYPL) – a name I also like for its ties to the mega millennials trend.
No longer is there a need to carry cash, credit cards or even go to the bank. Nearly everything can be done on your phone, whether it’s sending your friend $15 for spotting lunch or paying the sales clerk at the grocery store for your large haul. Simply click, tap and go. Payment has never been simpler or more profitable for savvy investors.
Now let’s kick things up a level with robotics. That may conjure up scenes straight out of a science-fiction movie, but in reality, it’s a lot less giant, talking, human-like machines and a lot more manufacturing arms and pre-programmed computers. Think of precision surgery that can now be performed by a robotic arm – even from a completely different city – or precision manufacturing on a fast-moving assembly line.
While a large portion of the robotics and automation industry is behind the scenes, it’s still a powerful mega-trend that is changing the global economy and creating a lot of great investment opportunities worth keeping an eye on.
The increasing use of robotics in manufacturing is a perfect example of how a company can cut costs by replacing a human with a machine, while at the same time increasing production and quality. According to an example cited by the Robotic Industries Association, a typical $250,000 installation – which includes training and parts – can pay for itself in two years through reduced payroll costs and increased productivity. Extrapolate that out over seven or eight years and the cumulative cash flow gained can reach $1.5 million.
Once the upfront costs are paid off, medium-sized robots can cost just $0.50 an hour to operate. For larger robots, it’s closer to $1. Still, that’s a lot less than minimum wage!
What makes this sector so intriguing is that nearly every industry is increasing their exposure to robotics and automation. Manufacturing, healthcare, energy, agriculture, security, and others are already using robotics/automation to improve their businesses. As a result, unit sales of industrial robots are expected to rise 13% a year through 2019. That would push the number of robots in operation to 2.6 million, up from the current 1.8 million.
There are many ways to go about playing this trend, including the manufacturers of the robots and automation devices, the chip makers that are the brains of the robots, companies that are implementing the devices, the software makers that are driving the devices, and more. With so many avenues to profit from one of the truly innovative sectors out there, you can bet I’ll have a close eye on where the next opportunity is coming from. There is a lot of money to be made here, and in keeping with our NextGen approach, we can do better by going beyond the obvious places Wall Street is looking.
Another powerful tech trend is the cloud. That may not seem like a next-gen investment theme since the term is now well-known as something other than what’s in the sky. But this remains a fast-growing space as more and more data is being created. As a result, new storage demands are coming up all the time and that’s where our next-gen opportunity comes from.
As a society, we have become accustomed to having everything we could possibly need at our fingertips. We’ve already talked about how this has played into mobile payment technology, but it also has a lot to do with storage. Credit card information, passwords and other private and personal information is saved on the cloud. And millennials are storing everything from pictures to files to basically their entire life stories there. Without the cloud, none of this would be possible.
According to research firm IDC, worldwide spending on public cloud services has the potential to more than double from $70 billion in 2015 to more than $140 billion by next year. That’s a whole lot of potential to capitalize on, and there are plenty of companies vying for their spot at the top of the industry.
One I like in particular is 2U (TWOU), a leading cloud-based Software-as-a-Service (SaaS) company that works with nonprofit colleges and universities to deliver their education to their students no matter where they are. Think prestigious schools like NYU, Yale and UNC. These are big, well-known universities that offer online degrees, and they’re all customers of 2U. The stock is up nearly 40% so far this year and trading at all-time highs, which is why we use the charts to identify optimum buy and sell points, but overall I continue to see plenty of upside ahead.
Here’s another trend you may have heard of: the Internet of Things (IoT).
Each day the world becomes more connected. At first it was our cell phones, which allowed us to get in contact with someone on the other side of the world within seconds. But now it’s expanded to include so much more. We can close our garage door from our phone if we realize we forgot when we’re already out and about. We can turn off lights and program our thermostats.
The Internet of Things has even found its way into the workplace – nearly every industry has the ability to use IoT to improve production and reduce costs. And according to Gartner, over half of all new business processes will contain devices connected to the internet.
The worldwide market for IoT platforms reached $298 million in 2015. With an estimated compound annual growth rate (CAGR) of 33%, IoT platforms are one of the fastest-growing segments in the market. In fact, they’re forecasted to become a $1.6 billion opportunity by 2021.
Even municipalities that haven’t been big spenders over the last few years are making a major push into the Internet of Things. They’re expected to spend $133 billion in 2019, up from only $36 billion in 2014. Just think how great it would be if sensors could tell stoplights to reroute cars when there is traffic!
But the biggest industry within the IoT space has to do with automobiles. We’re already seeing cars with online capabilities, and by 2020 there are expected to be 250 million vehicles on the road that are connected to the internet. Right now it’s all about the car being able to collect and use data to share with others, but the eventual endgame is autonomous vehicles.
One of my favorite plays in this niche sector has to do with sensors that are used throughout the IoT process. Sensata Technologies (ST) is a Netherlands-based company that is the world leader in sensors and controls. Fundamentally, the company is undervalued versus its peers and the overall market, trading with a forward P/E ratio of 11.8 and PEG ratio of 1.13. Technically, the stock has been choppy and underperforming the market, making now a time to buy before the next leg higher.
It sounds like a futuristic word, but this is what the Technology Revolution has the power to do sooner rather than later! I love the growth potential here, especially because it expands to areas you may not have thought of.
One trend that may not initially come to mind when talking about mainstream technology is medicine. But the next-gen healthcare space is a truly exciting one for patients and investors alike.
Nobody enjoys going to the doctor. You have to take time out of your day to drive to the office and sit in a waiting room for who knows how long, only to receive an illegible slip of paper for antibiotics that you then have to waste half a day at the pharmacy just to get filled. There’s nothing fun about it.
But that’s where this new trend in technology comes in. Virtual doctors’ offices are the future, and they represent an experience that will not only benefit consumers, but also insurance companies and the doctors themselves. Think about it. More patients equal more money. It’s a win-win situation.
Teladoc (TDOC) is the perfect example of how this next-gen theme is already making an impact. The company was founded in 2002 with a goal of tackling healthcare’s three biggest issues: access, cost and quality. Today, it’s the leading provider of telehealth medical visits in the country. TDOC boasts being able to put you in contact with a licensed doctor in under 10 minutes – whether it’s via the phone, internet or mobile app.
The company already has more than 15 million users and a 95% satisfaction rate. Sure, it may not take off with older generations used to seeing their doctor in person, but the millennials, who are used to having everything they need at their fingertips, are more game for a remote visit. Remember, we’re looking at the areas that will drive the next generation of profits on Wall Street and this is definitely revolutionary technology.
Virtual doctors’ offices aren’t the only interesting thing going on within the theme, though. As the Baby Boomers age, the demand for new and better healthcare (everything from drugs to medical devices) is growing rapidly. And President Trump has already stated that he plans to speed up and simplify the FDA’s drug approval process. This is great news for all biotech companies, but specifically the smaller ones that Wall Street isn’t keeping as close of an eye on.
Then there’s the wearables space. More and more often I’m seeing people walk down the street with some sort of fitness tracker on their wrists. Whether it’s a Fitbit (FIT), Apple (AAPL) Watch or some other brand of tracker, there are all kinds of dynamic devices out there that allow users to monitor all their vital health stats. As new products come on the market, investors will have more options to profit from.
There’s no question the future is changing, and I suspect healthcare is going to look a lot different down the road thanks to the ever-growing tech space.
Another sector that isn’t often automatically linked to revolutionary technology is the finance and banking industry, but we’ve actually been seeing progress in this space for some time now and investors can’t afford to ignore the results.
Going to the bank used to be a weekly chore. But when was the last time you actually stepped foot inside your regional branch? I would guess it’s been awhile. That’s because banks have been building up their online presence, and there are even a lot of banks out there now that work solely online – with no physical brick-and-mortar stores.
Online banking is more convenient for consumers and while it has definitely created increased competition for the banks themselves, it’s also helped lower operating costs. I suspect there is still a lot of growth potential here, especially as banks concentrate more heavily on the needs of entrepreneurs and younger generations.
Robo-advisors are another big technological advancement in the financial industry. Like magazines and brick-and-mortar retail, human financial planners are becoming a thing of the past and investors are looking toward robots to manage their wealth. These robo-advisors use the same software as their human counterparts, but they don’t get involved in the more personal aspects of financial planning. Instead, they offer portfolio management at a lower cost.
Speaking of brick-and-mortar retail, virtual shopping is quickly replacing a trip to the mall. In 2016, online purchases took over buying at physical stores, with shoppers making 51% of their transactions online compared to 48% in 2015 and 47% in 2014. In addition, 44% of smartphone users made purchases through their devices versus 41% a year ago.
It’s no secret that big-name brick-and-mortar retailers have struggled recently. Stores like J. C. Penney (JCP), Macy’s (M), Nordstrom (JWN) and Kohl’s (KSS) have reported a dip in sales while Amazon (AMZN), on the other hand, is still seeing double-digit gains.
Online sales in the United States are expected to reach $523 billion in the next five years, up 56% from jut $335 billion in 2015, mainly driven by purchases on mobile devices.
Shopify (SHOP) will be one of the biggest winners in the space, as it provides an ecommerce platform to retailers and individuals who are selling their products online. The company currently powers more than 377,500 businesses in about 175 countries, and some of its customers include Tesla (TSLA), General Electric (GE) and Nestle.
SHOP has come close to doubling its annual revenue each year since 2013 – a truly remarkable feat – and I think that growth only continues from here.
This is another area you may not immediately think of playing a large role in the new world of technology, but the United States is actually on the verge of a manufacturing revolution the likes of the industrial revolution in the early 20th century. The growth of productivity is expected to boom, as innovation has changed the landscape of the way goods are manufactured.
We’ve all heard of Software-as-as-Service (Saas), but have you heard of Manufacturing-as-a-Service (MaaS)? This is a new service where companies can rent production capabilities as they need them, and it’s expected to help reduce inventory while at the same time allow companies to scale down (or scale up) with an extremely quick turnover. Think of it as a virtual manufacturing facility that can produce goods for a large number of diverse companies – it’s the way of the future.
The next generation of manufacturing is where all of the trends we talked about come together: robotics and automation, the Internet of Things, cloud computing and more. They all play an integral role not only in the advancement of the way we make things, but the new path the United States is headed down in the near future.
Well there you have it! As you’ve now learned, there is so much more to the new wave of technology than simply self-driving cars and the next round of supercomputers. Investment ideas are everywhere, often right in front you. My job is to identify the strongest of them and then find the best ways to profit from it. That’s what I’m excited to do for you, so I hope you’ll join me as we take advantage of all the opportunities these mega trends represent.
Thanks for reading!
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