All posts by Tony Daltorio

Buy These 3 Stocks Warren Buffett Used to Hate

January 4, 2018 Tony Daltorio

In today’s world, there is one certainty when it comes to investing that you need to be aware of… new technologies will disrupt nearly every industry.

Take the stodgy airline industry. The Internet of Things (IoT) is about to make airlines more profitable than they’ve ever been in the past. I’m sure you’re wondering how this will be accomplished. Simple – instead of treating their passengers as mere travelers, airlines are beginning to look at them as online consumers that just happen to be on their plane.

Before I delve into more details, let me fill you in on more background on the industry.

Airlines and Ancillary Revenues

In this age of low-cost airlines, the days of when airlines made the majority of their money from airfares are largely gone. Thanks to low-cost airlines, so-called ancillary services have become a mainstay and an important source of revenues for all of them.

A report last month from the research firm IdeaWorksCompany in conjunction with the online car rental company CarTrawler gave insight into the growth of ancillary fees. The report projected that for 2017 airlines will have received a total of $82.2 billion in ancillary revenues. That is about 10.6% of their projected total revenues for 2017.

That $82.2 billion number is also a 22% increase from 2016, with most of the ancillary revenues being garnered by the traditional airlines. Quite a contrast from just 10 years ago when the top 10 airlines (ranked by add-on services) earned only $2.1 billion from ancillary services.

One main reason is the fact that, within the domestic U.S. market and the short-haul operations of airlines outside the U.S., the prevalence of a ‘Basic Economy’ product has driven ancillary sales. The aforementioned report cites airline estimates that over 50% of passengers who purchase this product opt for higher priced bundling options.

Since IdeaWorksCompany released its first report in 2010, the growth of ancillary revenue for airlines has been significant. At that time, the total figure was $22.6 billion with an average spend per passenger of $8.42. Utilizing worldwide passenger numbers provided by IATA (International Air Transport Association), the latest report showed an average spend per passenger of $20.13, with $13.96 being accounted for by to a la carte services, up from just $4.54 in 2010.

However, the lure of buying duty-free goods on airlines is becoming stale for passengers. A 2016 report from m1nd-set Generation forecast such sales would experience an annual growth rate of minus 1.5% for airlines through 2025.

Another revenue source has to be found and quickly. And it’s there… awaiting the airlines that adopt in-flight broadband and Wi-Fi – the Internet of Things in the air.

Passengers Want to Be Connected

Passengers’ expectations of the in-flight experience is changing rapidly. They now expect the same level of connectivity at an altitude of 30,000 feet as they do on the ground.

That much was pretty clear in a study conducted by the market research firm GfK and Inmarsat PLC (OTC: IMASY), the world’s leading provider of global mobile satellite communications. Here are the quite interesting results:

60% of passengers believe in-flight WiFi is a necessity, not a luxury.
61% of passengers said Wi-Fi is more important than onboard entertainment.
45% of passengers said they would gladly pay for WiFi rather being stuck with the onboard entertainment options.
66% of passengers traveling with children would consider in-flight internet a “life saver”.

Connectivity now ranks behind only ticket prices and flight slots as a priority for passengers. That could be seen when that same survey revealed 44% of passengers would switch airlines within a year if what they considered to be a minimal level of connectivity was not available. This is especially true of business travelers, as 56% said they want the ability to work while in flight.

Shopping at 30,000 Feet

Yet, most airlines still lag in offering connectivity to their passengers. The aforementioned report from IdeaWorks found that a mere 53 of the world’s estimated 5,000 airlines offer “in-flight broadband connectivity.”

Many seem unaware that they now have access to a global, reliable broadband network in-flight. As David Coiley of Inmarsat Aviation told the Financial Times, “Airlines have to adapt to this new opportunity.”

And it is an opportunity. Consider shopping an online store at 30,000 feet filled with everything from ground transport options to tours to other destination-related activities. Or returning passengers could do their grocery shopping while in-flight to have the groceries delivered when they arrive home. The possibilities are almost endless.

A study conducted by the London School of Economics and Inmarsat said that in-flight broadband – offering streaming and online shopping to passengers could create a $130 billion global market within the next 20 years. The study estimated that the airlines’ share of that total could amount to $30 billion in 2035. That’s quite a jump from the forecast $900 million in 2018.

Investing in Airlines Buffett Used to Hate

With this possibility of e-commerce revenue streams in the not too distant future, it may be time to look at the airlines. Even long-time skeptic Warren Buffett now owns airline stocks including Southwest Airlines, AmericanAirlines, Delta Air Lines (NYSE: DAL) and United Continental Holdings (NYSE: UAL).

If you are thinking of going the same route as Warren Buffett, I would stick with the airlines that have the best Wi-Fi connectivity. Conde Nast Traveler magazine reports that a survey from Routehappy found that U.S. airlines are leading the way, with at least a chance of Wi-Fi on 83% of the total seating capacity.

Two of the top three airlines globally with the highest percentage of seats with Wi-Fi connectivity, according to the survey, are Delta Air Lines and United. Other smaller airlines with good connectivity are JetBlue and Virgin America, which was sold to Alaska Air Group (NYSE: ALK). I would focus on Delta, United, and Alaska Air.

Delta operates a fleet of over 700 aircraft and serves more than 170 million customers annually.

Despite two major U.S. hurricanes, passenger revenue per available seat mile rose 1.9% year-over-year in the third quarter. The company forecast that in the fourth quarter this metric would climb somewhere between 2% and 4%, which is encouraging.

The company’s stock is up nearly 10% year-to-date. Nevertheless, it is trying to enhance its shareholders’ wealth through dividends and share buybacks. In May 2017, Delta announced that its board of directors approved a new share repurchase program worth $5 billion and raised its quarterly dividend by more than 50%. In the third quarter, Delta returned $769 million to its shareholders through dividends ($219 million) and buybacks ($769 million).

Another plus is the company’s discipline, which is sometimes a rarity in the airline industry. In the third quarter, Delta expanded capacity less than traffic growth and thus improved load factor by 150 basis points to 86.9%.

United is the world’s largest airline, operating about 5,000 flights a day. Unlike Delta, it is not showing growth in its passenger revenue per available seat mile. But it is showing improvement – the company’s latest estimate is for it to be flat to down 2% year-over-year. That compares to the previous estimate of down 1% to 3%.

Its return on equity (ROE) is 25.3% should support its robust expansion plans. Its ROE is impressive too when compared to that of the S&P 500, which comes in at only 16.1%. And it is cheap. Its trailing 12-month enterprise value to earnings before interest, tax, depreciation and amortization ratio is only 4.6. That compares to the value for the S&P 500 of 11.7.

The company’s stock has had a tough year and is down 13.25% year-to-date. Maybe that’s why it has stepped up its efforts to reward its shareholders. It has bought back $1.3 billion of stock in the first nine months of 2017. And in December, its board of directors gave the go-ahead for an additional share repurchase program worth $3 billion.

Alaska Air operations cover the western U.S., Canada and Mexico as well as, of course, Alaska. I like its purchase of Virgin America this year, despite the rise in the amount of debt it now has. The company also owns Horizon Air.

No denying that 2017 has not been a good year for its shareholders, with the stock down 21.5%. And like its airline peers, Alaska Air management is attempting to reward its patient shareholders through share buybacks and dividends. The company has increased its dividend every year since inception and will spend about $145 million on dividends in 2017.

Its after-tax return on invested capital (ROIC) is a very respectable 21.3% and its estimated 2017 pre-tax margin of 25% should lead the industry. In the first nine months of 2017, Alaska Air generated revenues passenger mile of just over 39 billion (up 6.6% year over year). Its load factor stood at 84.6%, compared with 84.2% in the first nine months last year.

The bottom line is that it has been a turbulent year for airline stocks as the combination of natural disasters and terrorist attacks have taken their toll. Not to mention industry overcapacity, high labor costs, and now rising fuel costs.

But now may be the time for contrarian investors to look past the short-term turbulence and take a small position in the airlines that are forward-looking. I fully expect we won’t recognize the industry in a decade as technology disrupts it.

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Source: Investors Alley

Growth Stocks

These 3 Companies Are Closer than Ever to Providing a Cure for Cancer

December 18, 2017 Tony Daltorio

The world of medicine is quickly moving from the pages of a science fiction novel to reality. Imagine a time when a person’s cells are “re-engineered” to recognize and attack cancer, so that conventional therapies are not needed.

Well, that time is upon us. Immunotherapy – therapies that use and strengthen the power of a patient’s immune system to attack cancers – has emerged in what many are calling the “fourth pillar” of cancer treatment joining surgery, radiation therapy and chemotherapy.

The immunotherapy that is closest to actually helping cancer patients is called Car T-cell therapy. After literally decades of painstaking research, the field has reached a tipping point, with several companies producing very promising results recently.

If you are unfamiliar with the term CAR-T, it stands for chimeric antigen receptor cell therapy. But before I reveal to you those companies that have had outstanding trial results, let me fill you in on what exactly CAR-T therapy is, which some doctors describe as a “living drug”.

What is CAR-T?

Here in general is how the Car-T process works:

Millions of a patient’s white blood cells are extracted through a process called apheresis. These cells are then sent on to a lab where scientists isolate T-cells from the white blood cells. T-cells are often called the ‘workhorses’ of the immune system because of their crucial role in orchestrating a response from our immune systems, killing cells infected by pathogens.

The next step, using a ‘disarmed’ virus, involves genetically modifying these T-cells to produce chimeric antigen receptors on their surface. This process once took a six-week period, but the times for cell modification have now been greatly reduced.

These chimeric antigen receptors allow the T-cells to recognize and attach to a specific protein, or antigen, found on cancer cells. Additionally, scientists believe modified T-cells have the ability to reactivate other immune system elements that have been suppressed by the cancer. They ‘talk’ to other cells of the immune system using chemicals known as cytokines.

Once these modified T-cells have been produced in the laboratory, they are ‘expanded’ by scientists to number in the hundreds of millions.

After receiving the chimeric antigen receptor CAR T-cells back from the lab, doctors infuse them back into the patient’s body. But not before one final round of chemotherapy, called lymphodepleting, which eradicates out the existing T-cells. This allows the re-engineered cells more room to multiply themselves and (hopefully) attack the cancer.

Now let me tell you about some of the companies that have had recent successful trials for Car-T therapies that were reported at the focus of the biotech world this week – the annual meeting of the American Society of Hematology in Atlanta.

Car-T Therapy Company #1 – Gilead Sciences

The first company I want to tell you about is Gilead Sciences (Nasdaq: GILD), which revealed results of a trial that took place at the University of Texas on December 10. The trial was conducted by what is now a subsidiary of Gilead – Kite Pharma – that was acquired in August for $11.9 billion.

Gilead’s product, Yescarta, was given an okay by the FDA in October. The trial results showed that after a median period of 15.4 months, 59% of patients with non-Hodgkin lymphoma were still alive, while 42% were in remission and 40% exhibited absolutely no trace of cancer. That is quite a contrast to existing therapies, where the median survival time for people at stage of this disease is only six months!

This is a key point because most of the doubters of Car-T therapies expressed reservations about the longevity of the effects of the treatment. But apparently, the modified T-cells do remain in a patient’s system, guarding against recurrence of the cancer.

Gilead sees the long-term promise of these types of therapies and bought a second Car-T company, Cell Design Labs, recently for $567 million. Going big into Car-T therapies should, over the long term, boost the company’s stock which is up only 6% year-to-date.

Car-T Therapy Company #2 – Bluebird Bio

The second company, which revealed spectacular trial results at the Atlanta conference, is Bluebird Bio (Nasdaq: BLUE). The stock soared about 30% on December 11 and is now up about 225% year-to-date!

A novel therapy from Bluebird Bio and Celgene (Nasdaq: CELG) was given to 18 multiple myeloma patients that were nearing death (four months expected left to live) from a very aggressive form of the cancer. A single infusion of bb2121 at the highest dose generated an 86% overall response rate and all but one of the patients saw a clinical benefit. After nine months, 56% of the patients were in remission – an improvement from May when only 27% of the patients were in remission (again those beneficial long-term effects).

The results are important because, despite advances in drug therapy improving survival from three years to 8-10 years, multiple myeloma is still largely incurable.

This apparently successful Bluebird therapy targeted the BCMA protein that is found on myeloma and plasma cells. Targeting that particular protein is a path also taken by other companies involved with Car-T therapies – Novartis AG (NYSE: NVS) and GlaxoSmithKline PLC (NYSE: GSK).

Car-T Therapy Company #3 – Novartis

That brings me to the third Car-T company with promising results presented in Atlanta, Novartis, and its Kymriah therapy, which was given the go-ahead by the FDA in August. The stock of this pharma giant is up over 15% year-to-date.

New analysis of trial data for Kymriah presented at the conference showed that the drug sustained complete responses in adults with a difficult to treat form of blood cancer – diffuse large B-cell lymphoma (DLBCL).

The overall response rate among patients was 53%, with 40% achieving a complete response and 14% a partial response. At six months, 30% of patients were in complete response, with a 74% rate relapse-free rate after the onset of response. Again, very promising longer-term results.

The Good and the Bad

Will these life-saving therapies become commonplace, benefiting these companies and, most importantly, the patients?

There are two obstacles as I see it. The first one includes the side effects from these therapies.

In the attempt to kill cancer cells, the treatment effectively sends the immune system into overdrive. That jacked-up immune response can often cause something called cytokine-release syndrome. The cells that the engineered T-cells target release a group of proteins known as cytokines, triggering a massive inflammatory response. This can be too much for the body to handle, and can cause life-threatening side effects like severely high fevers, dangerously low blood pressure or even a temporary inflammation in the brain.

Luckily, both the drug companies and the doctors are making improvements along this line… the actual side effects are less severe than in the original trials and the doctors are getting better at managing the side effects in patients.

The bigger obstacle may be the cost, thanks to the still very complicated process to engineer a patient’s T-cells. The cost is possibly the highest ever seen in the drug industry. For example, Gilead charges $373,000 for Yescarta, while Novartis put a price tag of $475,000 on Kymriah, although it says it will offer refunds if the treatment does not work.

Prices though should drop as Car-T therapies become more common. That makes a company like Bluebird Bio worth a look by you on any pullback as a long-term investment.

Uncategorized

Top 3 Electric Vehicle Stocks to Buy Instead of Tesla

December 13, 2017 Tony Daltorio

almost feel sorry for the hype machine known as Elon Musk and Tesla. First, the electric car field is becoming crowded with more and more players, making it tougher to stay ahead in the race to an electric future.

Then, Musk boasted about the 75-megawatt lithium-ion battery Tesla built within 100 days in Australia to help with their power shortage. That glory will fade quickly as Korea’s Hyundai’s Electric & Energy Systems Co. is building one twice as big – 150-megawatts, that will go live in about three months on the country’s southeast coast.

Finally, he rolled out Tesla’s e-Truck with much fanfare. However, more established players in the field have already beaten Musk to the punch with their version of an electric battery-powered truck. But before I delve into those companies, let me tell you about Tesla’s electric truck.

Tesla’s e-Truck

Elon Musk unveiled Tesla’s electric truck last month that has been in development for over a year. It is supposed to have a range of about 500 miles and, according to Musk, will be “impossible” to jackknife. He said that it would go into production in late 2019.

While the range is too short for long-haul drivers, the truck will still have a ready market. That’s because 80% of routes driven by truckers are less than 250 miles. Already, a number of large companies have placed orders for Tesla’s electric truck. These firms include: Walmart (15 trucks), Anheuser-Busch (40 trucks), Sysco (50 trucks) and JB Hunt (40 trucks) along with a host of other companies that placed smaller orders.

Tesla’s truck does have some nice features. It will use the same sensors as its smaller vehicles for its autopilot system. At the moment that means safety features such as automatic lane control and braking, but it eventually will allow full autonomy. The truck uses cameras instead of wing mirrors, helping its aerodynamic look.

However, Musk claimed that the charge for these trucks would only take 30 minutes using a solar-powered “megacharger” that Tesla hasn’t invented yet. It is supposed to be 10 times more powerful than the current supercharger for Tesla’s electric cars.

Doubts and No Doubts

Some scientists have questioned Musk’s claims about the megacharger, saying it’s science that hasn’t happened yet. The fastest chargers today can support 450 kilowatts of charging compared to the roughly 1,500+ for Musk’s megacharger.

A U.K. consultancy called Aurora Energy Research, set up by scientists from Oxford University, estimated that the power required to charge a battery in that short a time frame would be 1,600 kilowatts. Questions arise then about the electric grid’s ability to handle that load since the scientists’ claim that’s the equivalent of providing power for several thousand homes.

While there doubts on the science side, if that is solved I have no doubt that production can be ramped up quickly.

Just look at China and e-buses. Just a few years ago, China only produced about 10,000 electric buses. But in 2016, output exceeded 100,000 buses. Market leader BYD (OTC: BYDDY) has also begun to churn out a good number of electric garbage trucks. The company, 8.5% owned by Warren Buffett, has been assembling them for two years at a California plant and is opening another facility in Ontario, Canada next year.

The question with electric trucks is whether Tesla will be the winner or will more established players in trucking and engines triumph. Here’s look at three of them.

Electric Truck Company #1 – Cummins

The first company is Cummins (NYSE: CMI), which will not build electric trucks. But it will supply a fully-integrated battery electronics system (with the batteries coming from an unnamed supplier. It is a leading maker of diesel and natural gas engines for commercial trucks.

Without any of the fanfare of the Tesla unveiling, this summer saw a big e-trucking announcement from Cummins. It revealed a Class 7 heavy-duty truck cab (the cab was built by Rousch Enterprises) that featured an advanced 140 kilowatt battery pack, which is capable of hauling a 22-ton trailer. Cummins said it would begin selling the 18,000 pound cab (named AEOS) to bus operators and commercial trucking fleets beginning in 2019.

The battery has about a 100-mile range, so Cummins is targeting urban delivery vehicles (like a beer truck or food delivery truck) as well as other short haul trips. It can be recharged in about an hour at a 140 kWh charging station, and the company’s goal is to get that down to 20 minutes by 2020. Cummins added that current battery technology doesn’t yet make sense for a Class 8 semi tractor-trailer (an 18-wheeler).

Cummins is also offering an extended range version (available in 2020) of the AEOS. It uses an efficient diesel engine as an on-board generator, which allows for up to possibly 500 miles between charges and 50% fuel savings compared to today’s diesel hybrids with zero emissions.

You may wonder if this is the right move for Cummins and if it can remain competitive when the trend is clearly toward electric vehicles.

The history of this 98-year old company suggests the answer is yes. It was at the forefront of environmental shifts, embracing stricter clean air standards while other manufacturers dragged their heels. It also led the shift from 2-stroke to 4-stroke diesel engines and was a leader in developing after-treatment systems for nitrous oxide particulates.

With its work on electric powertrains and fuel cells for about a decade, I think it will succeed again. That means more gains for its stock on top of the 25% gain year-to-date.

The next two companies offer more direct competition to Tesla.

Electric Truck Company #2 – Daimler

Daimler AG (OTC: DDAIY) is the world’s largest manufacturer of commercial vehicles and a former Tesla shareholder. So as you can imagine, it is taking the challenge from Tesla quite seriously. To that end, it has already started initial production of its Fuso eCanter urban delivery trucks. And it expects such vehicles to be competitive with traditional diesel vehicles cost-wise within two years.

Daimler introduced the light-duty eCanter haulers in New York in September, supplying a fleet to several New York City non-profits as well as signing United Parcel Service (NYSE: UPS) as its first commercial customer in the U.S. The truck has a range of 60 to 80 miles between charges and is coming to market as customers insist on cleaner vehicles better-suited to rising delivery demand (e-commerce) in cities.

The company will start mass production of these vehicles at its Tramagal plant in Portugal either late in 2018 or early in 2019. About 10,000 of the light-duty eCanter were produced at this plant in 2017.

Daimler is also taking Tesla’s challenge in heavy-duty trucks trucks seriously. It beat Tesla to the punch when it unveiled the E-Fuso Vision One in late October. This truck can carry 11 tons of cargo up to 220 miles before recharging. Its load is two tons less than a comparable diesel model in order to accommodate the weight of the 300-kilowatt battery packs.

It will be interesting whether these moves will boost Daimler’s ADR in 2018. It is almost unchanged so far in 2017.

Electric Truck Company #3 – Volvo

Another European company that Tesla should worry about is Volvo AB (OTC: VLVLY).

You may not be familiar with Volvo – it is one of the world’s leading manufacturers of trucks, buses, construction equipment, industrial and marine engines. The car division was first bought by Ford, which in turn sold it to the parent of Geely Automotive in China.

Volvo is one of the biggest providers of electric buses and hybrid-electric buses in the world. And it is a major producer of electric construction equipment and autonomous mining equipment. This being at the forefront of electric and autonomous vehicle design is a reason why I believe the stock is up 57% year-to-date.

It is testing in Sweden an autonomous garbage truck that uses sensor to continuously monitor its path and stops immediately if an obstacle appears in front of it. It drives itself from stop to stop with the driver walking in front of it to pick up the trash.

Volvo is also working other futuristic technology including charging pads and electrified highways that will themselves charge electric vehicles. And with 600,000 connected vehicles (200,000 in the U.S.), Volvo is collecting lots of data to further improve its vehicles.

Specifically with trucks. Volvo is testing a hybrid powertrain for long-haul heavy-duty trucks that is all part of its Super Truck project working in conjunction with the U.S. Department of Energy. Here are some of its features:

It recovers energy when driving downhill on slopes steeper than 1%, or when braking. The recovered energy is stored in the vehicle’s batteries and used to power the truck in electric mode on flat roads or low gradients.It has an enhanced version of Volvo Trucks’ driver support system I-See, which has been developed specially for the hybrid powertrain, which analyses the upcoming topography using information from GPS and the electronic map.

For long hauls, it is estimated that the hybrid powertrain will allow the combustion engine to be shut off for up to 30% of driving time.

Bottom line for you — a new age in trucking is right around the next bend in the road and there are a lot of other purer-play companies besides Tesla for you to profit from in this sector.

Growth Stocks

Buy These 3 Stocks to Ride the Bitcoin Boom

December 7, 2017 Tony Daltorio

For the longest time, Wall Street ignored the wild ‘party’ going on in the realm of cryptocurrencies and more specifically Bitcoin. But no longer… Wall Street is joining in on the party and supplying some of the ‘booze’.

That ‘booze’ is coming in the form of Bitcoin derivatives. On December 1, the Commodity Futures Trading Commission gave the green light to plans from the Chicago Board Options Exchange – owned by CBOE Global Markets (Nasdaq: CBOE) – and the CME Group (Nasdaq: CME) to begin trading Bitcoin futures. The CME announced trading will begin on December 18.

This is huge shift in attitude from Wall Street, where many of its leading executives had called Bitcoin nothing more than a ‘fraud’. This seeming endorsement now by Wall Street may be the beginning of a whole new asset class to invest into. The reason for this change in attitude is obvious – Wall Street can ‘smell’ the money. Despite some very sharp reversals, Bitcoin has been on a very fast elevator ride upward, from little more than $300 at the start of 2015 to over $11,000 last week and continuing to rise.

Despite all the headlines and the fact that Coinbase, the largest U.S. cryptocurrency exchange, now has more accounts than Charles Schwab, I suspect that many of them people chasing after Bitcoin don’t even know exactly what it is. If you fall into that category, here is a quick primer on cryptocurrencies and Bitcoin as well as three stocks to put in your portfolio to profit from the Bitcoin revolution.

What in the World Is Bitcoin?

Sometimes called coins, a cryptocurrency is a creation of the 21^st century and is a mixture of digital assets, large computing power and a network of servers that store shared data. Besides Bitcoin, there are numerous other cryptocurrencies including Ethereum, Litecoin, Dash and Ripple. Ethereum, for example, is often used as the ‘money supply’ for initial coin offerings, or ICOs.

For simplicity’s sake, let me concentrate solely on Bitcoin. In basic terms, it is a cryptographically scarce and secure medium of exchange. In effect, it is a string of computer code. Each and every transaction is recorded in a database called a blockchain. This technology is accepted by even the Bitcoin naysayers as important.

I say scarce because there is only a finite number of Bitcoins – 21 million – that can be created through a process called mining (solving complex mathematical problems using powerful computers). In an interesting side note, the intensity of mining this year has used more electricity than the annual consumption by 159 nations, according to Digiconomist. Data from Chainalysis reveals that there are currently only 16.7 million Bitcoins in circulation. Of those Bitcoins in circulation, about 37% have been spent or traded in the past year, another roughly 22% is being held by strategic investors, and the rest can be classified as ‘lost’.

If you look at the valuation of Bitcoin, it is now approximately $170 billion, which is equivalent to the market capitalization of General Electric (NYSE: GE). Because of meteoric rise, there are myths that have grown around Bitcoin, which I will now address.

Bitcoin Myths

Probably the number one myth is that Bitcoin can be hacked. That is false – Bitcoin has not been hacked. But Bitcoin exchanges have been hacked. That means it’s up to you to keep your Bitcoin holdings secure from hackers. You’ll need to do due diligence research on finding the most secure digital wallets.

The largest digital wallet company in the U.S. is Blockchain.com. I would not keep my Bitcoin with the exchange you bought Bitcoin from. Not only is there the hacking risk, but if you keep it there my feeling is that you don’t own the Bitcoin, they do.

Another big myth is that Bitcoin really isn’t money. But it seems to me it is. I want you to think about some of the characteristics of money…

Limited supply – Bitcoins are limited, while some paper currencies (like Zimbabwe) are not.
Divisibility – Both dollars and Bitcoins can be broken up into smaller increments. Even though Bitcoin is trading at $10,000 you can buy $10 worth of it if you choose.
Uniformity – a dollar is a dollar and a Bitcoin is a Bitcoin. That is unlike primitive currencies like seashells.
Acceptability – U.S. dollars are accepted pretty much anywhere in the world. Bitcoin is not there yet, but that is changing. In April of this year, Japan passed a law stating that Bitcoin is acceptable as legal tender.
Durability and Portability – think about how gold’s characteristics fit these criteria. Here is the one weakness Bitcoin has. What if a nuclear electromagnetic bomb knocks out electricity for months? It will be a little tough to access your Bitcoin wealth.

Despite that, it still may make sense to put a little of your speculative money into Bitcoin. Bitcoin Investments But if you’re a stock market-type investor, there is still no pure-play way to invest into Bitcoin since the SEC continues to drag its feet on approving Bitcoin ETFs. And the Bitcoin Investment Trust (OTC: GBTC) still sells at a huge premium to the underlying value of the Bitcoins it holds. As of December 1, GBTC traded at $1,666 – but the Bitcoins it holds were valued at only $932.63.

That leaves only companies that are involved with Bitcoin, but in a peripheral way. Here are a few of those stocks: One very conservative way is through an exchange traded fund – the Ark Innovation ETF (NYSE: ARKK). The goal of this fund is to provide investors like you with exposure to innovation and new technologies across a broad range of sectors. The ARKK ETF owns a position in the aforementioned Bitcoin Investment Trust. The Bitcoin Investment Trust is the number one position in its current 53 stock portfolio and it makes up 6.79% of the overall ARKK investment portfolio. In other words, any major selloff (noted short seller Andrew Left is short GBTC) won’t devastate the fund.

Next on the list is the e-payments company founded by Jack Dorsey of Twitter fame, Square (Nasdaq: SQ). Its stock is up 180% year-to-date, although it is down about 20% from its recent Bitcoin-induced high. Square had already started to let its merchants accept Bitcoin as early as 2014. But the rocket to its share price was ignited when on November 15, Square permitted some of the users of its Square Cash app purchase Bitcoin. Square Cash allows customers to store money and send peer-to-peer payments without the use of a bank account.

Last on the list is the retailer Overstock.com (Nasdaq: OSTK), which is up 142% year-to-date. Shares of the discount online retailer tripled since the start of August (before shedding a third in value recently) when it began letting shoppers pay with Bitcoin and other major digital currencies. The shares got a turbo-boost (23%) on September 27, when the company announced plans for an exchange for trading digital currencies. The stock got a similar boost recently after plans for an initial coin offering (ICO) were unveiled. If the ICO is successful, through its tZero subsidiary, Overstock will be the first major public firm to do so. ICOs have raised an astonishing $3 billion this year. I strongly suspect we will see more companies, such as Paypal (Nasdaq: PYPL), follow the Square path as Bitcoin becomes more mainstream, sending their stock skyward.

Growth Stocks

5 Growth Stocks to Ride the Semiconductor Supercycle

December 4, 2017 Tony Daltorio

It’s the silly season again on Wall Street. It’s the time of the year when analysts look ahead and tell us what they think.

Fortunately for you, it’s also the time of the year when major profit-making opportunities present themselves. Why? Because analysts from the major Wall Street firms are often 100% wrong. However, their pronouncements often will drive down the price of a stock or even a whole sector, creating that opportunity.

We saw a perfect example of that last week, when analysts from major firms including Morgan Stanley and JPMorgan among others downgraded the semiconductor sector. And of course, traders (or are they lemmings?) promptly dumped semiconductor stocks across the globe.

Semiconductor stocks were due for a pullback. Not only had they been the strongest sector in 2017, but the semiconductor index just recently passed a major milestone. The index just topped the record set in March 2000 at the height of the dot-com bubble. Experience tells me indexes often pause after attaining such a milestone.

Semiconductor Supercycle

But let me get back to those Wall Street analysts. Many were basically saying, “Hey, the semiconductor cycle is over. Bad times are just around the corner.” And they are 100% wrong…

Because this cycle is different than the average cycle – we are in the midst of a supercycle that will go on for several years more.

I want you to think back to the commodity supercycle, which ran from 2000 to 2014. After the first few years, Wall Street analysts continued to proclaim that the cycle was over and that commodities and commodity stocks were due for a major tumble. But those analysts completely missed the fact that China was rapidly industrializing in a once-in-a-lifetime event.

Fast forward to today, and Wall Street analysts are missing the fact that products with semiconductors in them are becoming ubiquitous in every aspect of our lives. Artificial intelligence, Internet of Things, robotics, cloud computing, augmented reality, electric vehicles, and other technologies that will need lots of the latest generation of semiconductors are barely in the second inning of a very long ballgame.

Huge Growth Ahead

The growth the semiconductor industry is experiencing is clearly illustrated by a report issued on November 27 from World Semiconductor Trade Statistics (WSTS).

This year the market will reach $408.6 billion in valuation, a rise of 20.6% from 2016. That estimate is $30 billion larger than WSTS’s last report in June. This would be the first year of double-digit growth since 2010 for the industry and the first time ever sales exceeded $400 billion.

WSTS pointed to a number of factors for this growth including the spread of smartphones (and the constant replacement for upgrades), the growth in memory technology and the rise of video content. Memory chips, manufactured by the likes of Samsung and Micron Technology (NYSE: MU) now make up 30% of the semiconductor market and WSTS says this segment expanded by 60.1% in 2017.

It sees much more growth for this segment in particular thanks to the number of Internet-of-Things devices multiplying almost exponentially to more than 1 trillion units over the next few years. WSTS believes chip demand here will exceed even that from the 1.5 billion smartphones shipped annually. (Note: I explain much of this in my new Singularity report. If you’re not a regular Growth Stock Advisor reader then click here to check it out.)

Another demand driver, if you pardon the pun, will be our cars. They are rapidly turning into “data centers on wheels” according to the head of the automated-driving group at Intel (Nasdaq: INTC), Doug Davis in a story from the Nikkei Asian Review.

This growing demand may be lost on Wall Street analysts, but not by the chipmakers themselves. The research firm IC Insights sees $90.8 billion in capital investments this year, which is 35% more than in 2016: an obvious boost for chipmaking equipment sector.

5 Semiconductor Supercycle Investments

Here are five ways you can participate in the semiconductor supercycle:

The first and the broadest way you can invest in semiconductors is the MarketVectors Semiconductor ETF (NYSE: SMH). It owns 26 of the world’s top semiconductor-related companies such as Intel. The only major stock not in this portfolio is Samsung. This ETF has, of course, done very well for its holders. It has soared over 50% over the past year and is up about 42% year-to-date.

Second is the aforementioned Intel, the world’s biggest supplier of semiconductor products, which both designs and manufactures chips. The company is rapidly diversifying away from its PC-centered business. That was evidenced in its third quarter earnings report where results were pushed ahead by strong performances in its data center, Internet-of-Things and memory solutions groups.

Today, its chips can be found in iPhone modems, drones and self-driving cars. Its acquisition of Mobileye will significantly boost its presence in the autonomous vehicle market, accelerating Intel’s growth. Despite its move into growth areas, Intel’s stock still sells at a 15 p/e. The stock is up 21% year-to-date and 24% over the past 12 months.

Next on the list was the hottest stock in the market earlier this year, Nvidia (Nasdaq: NVDA). Its stock is still up 84% year-to-date and 108% over the past 52 weeks.

Founded in 1993, Nvidia like Intel, missed the entire mobile phone revolution. Its strength though, as always, has been in graphical processing units (GPUs), which run alongside CPUs. Gamers, such as those using the Switch console from Nintendo, love its GPUs. And, of course, its GPUs have been in the news a lot lately because of their popularity with the miners of cryptocurrencies like BitCoin.

I expect even faster growth for Nvidia as its processors become crucial to artificial intelligence, deep learning and driverless cars. As Goeff Blaber, an analyst at research firm CCS Insights said to the Financial Times, “Nvidia is at the center of AI, machine learning and deep learning.”

Next up is Broadcom (Nasdaq: AVGO), which is currently attempting to take over rival Qualcomm. Its stock is up 55% year-to-date and about the same amount over the past year.

The company’s origins date back to the 1960s at AT&T’s Bell Labs and also at Hewlett Packard. It supplies components to telecoms and industrial customers, which are used in items such as TV set-top boxes, smartphones, broadband infrastructure and energy systems. The company has particularly benefited this year from demand for its wireless solutions, but it is looking to the Internet-of-Things as a future driver of growth.

Finally, we come to Taiwan Semiconductor (NYSE: TSM), whose stock is up 37% year-to-date and about 33% over the last 12 months.

Apple (Nasdaq: AAPL) is believed to be designing its own power management chips for use in iPhones as early as next year. These new chips will be manufactured by Taiwan Semiconductor, the world’s largest contract chip manufacturer. It has been Apple’s sole supplier manufacturing chips for iPhones since 2016.

In 2016, Apple was the company’s number one customer, contributing 17% to its overall revenues. That contribution should be about 20% for 2017 and even higher in 2018, especially if it does begin to manufacture those power management chips. The growing relationship with Apple remains a big plus in Taiwan Semiconductor’s corner.

My bottom line message to you is to ignore the Wall Street lemmings and enjoy the semiconductor supercycle to its fullest.

Technology

Add These 2 Stocks to Your Portfolio as the Tech Rally Goes Global

November 30, 2017 Tony Daltorio

2017 will likely be remembered by investors as the year of the big rally in technology stocks. Unlike 1999, this year’s gains were powered by more than hype. As I’ve written a number of times, earnings for these firms have been fabulous.

In the third quarter of 2017, S&P technology companies had an earnings growth rate of about 21%. That kept the sector’s P/E ratio in the 20 range. Quite a contrast from early 2000 when it the forward price-to-earnings ratio for tech stocks was a whopping 52.

An even bigger story for 2017 was how the tech rally went global and how all the global tech giants became even bigger. Overall, tech stocks globally are up about on average about 42% year-to-date. That is roughly double the gain for the broad-based MSCI AC World Index.

Global Tech Stock Rally

And here’s an even more amazing number for you to contemplate… as of the day before Thanksgiving, just eight companies had gained an incredible $1.4 trillion in market capitalization in 2017. That was likely on the back of investor expectations that the big will only get bigger thanks to their huge user base, large cash piles and access to data on consumers.

Here is the list of these eight companies, starting with five American names you’ll recognize:

Apple (Nasdaq: AAPL)

Amazon (Nasdaq: AMZN)

Netflix (Nasdaq: NFLX)

Alphabet (Nasdaq: GOOG)

Facebook (Nasdaq: FB)

…along with the three Chinese tech powerhouses:

Alibaba (NYSE: BABA)

Tencent (OTC: TCEHY)

Baidu (Nasdaq: BIDU)

Of the top 10 companies globally by market capitalization, the first seven are all very familiar technology names – Apple, Alphabet, Microsoft (Nasdaq: MSFT), Amazon, Facebook, Tencent and Alibaba.

No real surprises here. But here is something that may surprise you. . . . .

China Tops the U.S.

That is the fact that the top Chinese tech stocks have easily outpaced the FAANG stocks in 2017. I brought these stocks to readers’ attention earlier in an article on the so-called BAT stocks – Baidu, Alibaba and Tencent.

This differential came to the fore last week when, at least temporarily, Tencent surpassed Facebook in market capitalization. It became the first of the Chinese tech titans to surpass $500 billion in valuation. It temporarily pushed Facebook out of the top 5 globally in market cap.

Tencent (up 121% in 2017) is a fitting champion for what China is becoming in the 21^st century. Its services are ubiquitous in China with more than half of the 980 million users of its WeChat platform spending over 90 minutes daily on the app chatting, playing games, listening to music, paying bills, ordering food, etc. Its QQ social network platform also has about 900 million users.

However, Tencent gets two-thirds of its $32 billion in annual revenue from gaming, with hit games like Honour of Kings ‘printing’ money for Tencent. People download games, buy add-ons like virtual weapons and sign up for digital media options like its YouTube-like video service.

Not far behind Tencent is Alibaba, which is up 118% year-to-date and has a market cap of nearly $490 billion. The e-commerce giant will most likely become a member of the exclusive $500 billion club very soon.

And while the U.S. financial media went gaga this week over Black Friday and Cyber Monday, the financial press around the world is still talking about the world’s largest online shopping day – Singles’ Day in China.

Back in 2009, Alibaba started the Singles’ Day sales event and it has grown to enormous proportions, benefiting chiefly Alibaba. This year it set another record, with $25.3 billion in sales (a 39% increase from a record 2016) for one day! In a side note, 90% of these sales were conducted via a mobile phone.

Both Alibaba and Tencent dominate another red-hot area of growth in China – e-payments. Stocks here in the U.S., such as Square and Paypal, have soared this year on the back of the move toward e-payments. But in China, the e-payments sector is like Square’s and Paypal’s growth on steroids. China is the world leader with volumes in 2016 rising nearly fivefold to $8.8 trillion, according to iResearch.

Currently, Alibaba is number one in the sector, as its Alipay unit has a 54% market share. But Tencent’s WeChatPay is closing fast with a 40% market share.

The story holds true in the digital advertising space as Alibaba still dominates the sector, with Tencent steadily closing the gap. By 2019, Tencent’s ad revenues are forecast to hit $11.4 billion, which would be a 15% share of the digital ad space in China.

Don’t Be Afraid

I am happy to say that I’ve owned both of these stocks for a while. And you should not be afraid to own them just because they’re Chinese companies. Here’s why…

First off, the Chinese government has specifically stated it wants technology champions that are recognized globally. So while the government may poke its nose into corporate business once in a while, it’s not about to kill these two golden geese.

More importantly though is the growth of China’s middle class, which is doing most of the consuming and generation of revenues for both Tencent and Alibaba.

According to a study by the consultancy McKinsey & Co. 76% of China’s urban population (currently 750 million) will be considered middle class by 2022. In 2000, only 4% of that population was considered middle class. That translates to 550 million people, which would be the world’s third most-populous country.

China’s consumer economy is forecast to grow by 55% by the end of the decade to $6.5 trillion. That would be an increase of $2.3 trillion or the equivalent of 1.3 times the current German consumer market.

With these sort of economic tailwinds – and the sheer numbers working for you (China is so much larger than the U.S.) – both Alibaba and Tencent should continue their winning ways into 2018.

Technology

Here’s Where to Invest in The Promise of Quantum Computers

November 28, 2017 Tony Daltorio

Nothing has changed the world more than technology, or to be more specific, the ability to compute. Computers today are helping you in nearly every facet of your personal and business lives. And everyone else too – a large portion of the world’s population now carries a computer in their pockets (smartphones).

All of this has been possible because of the capability to manufacture billions of silicon computer chips every year. Each one of these of these chips is composed of billions of transistors, the basic building blocks of a computer. Today, these transistors are mere dozens of atoms across.

Technological progress has moved steadily forward because of our ability to shrink the size of transistors regularly. That trend is known as Moore’s Law – which at its core says, that every two years, the number of transistors we can cram into a computer chip will double, and it has for decades now.

But guess what? Scientists agree that Moore’s Law is now kaput. It is believed the number of transistors we can cram into a computer chip is slowing and will likely reach its limit at about seven nanometers circa 2020. That view was backed earlier this year by the CEO of Nvidia (Nasdaq: NVDA), Jensen Huang.

Quantum Computers

So what happens then? What’s next?

I found the answer to those questions in the course of my research for the Singularity project. It is a technology so advanced that even Microsoft founder Bill Gates says he doesn’t understand it. And he’s a pretty bright guy.

The technology in question is the coming next age in computing… quantum computers.

The physics behind this is extremely complex, thus stumping Bill Gates even with his knowledge of physics and math. My physics background helps, but I’m no expert on quantum mechanics… so here is the simplest explanation for you I can come up with…

Current conventional computers represent each ‘bit’ of information – the logical zero or one – in the on/off state of a transistor. However, by exercising control over sub-atomic particles known as Majorana fermions, quantum computers will instead work with “qubits”. Unlike a standard bit, a qubit can adopt a uniquely quantum superposition of the two logical states. However, quantum states exist for only a short period of time (a process called coherence). In other words, quibits revert extremely quickly back to a classical computing stage – zeros and ones.

One interesting aspect is that, because of the basic properties of quantum mechanics, a quantum computer will be more prone to errors than a conventional supercomputer. In a Financial Times article, Jeremy O’Brien of the University of Bristol’s Center for Quantum Photonics estimated that to create a quantum computer with 100 ‘logical qubits’, a system with about a million actual quibits would be needed.

Once quantum computers reach the 50 quibits level, they will be superior to every existing conventional computer in existence. And when that happens, quantum computers will be exponentially faster than current computers. And even more importantly, quantum computers will able to solve problems beyond the capabilities of our current machines. Tasks such as designing complex molecules – new drugs or advanced materials – will then be within reach.

The Battle for Quantum Computing Hardware Supremacy

In his recently published book, Microsoft CEO Satya Nadella called the battle over quantum computing an “arms race” as important as AI (artificial intelligence) that has “gone largely unnoticed”. Although not by Microsoft – it began development in the field more than a decade ago.

However, the technology behind quantum computing is now moving out of the science discovery stage and into the engineering phase. As with the very early days of semiconductors, what now is needed is to find ways to scale up a technology that scientists have proven does work.

Ironic that Nadella would that ‘arms race’ term. Because China is racing to beat the U.S. in this new technology and some say it is making great progress toward a 40-qubit machine.

Luckily, a number of the top U.S. technology companies are working hard on scaling up quantum computing technology. The companies involved in this ‘arms race’ include as I mentioned Microsoft (Nasdaq: MSFT) as well asAlphabet (Nasdaq: GOOG) and IBM (NYSE: IBM).

Google plans to use a 50-qubit machine later this year as a demonstration of its problem-solving power.

IBM has been offering since last year quantum computing as a cloud service with a 5-qubit computer. Just a week ago, IBM announced it is releasing 20-qubit quantum computers – its first truly commercial offering.

You can see clearly here that the engineering scale-up of quantum computer technology has begun. The problem remains though as to how to keep the errors down. That’s because the more qubits there are, the more complex their interactions (a process appropriately named by scientists as entanglements) are.

IBM has also made progress on the aforementioned time problem. Its machines last year had coherence times of only around 50 nanoseconds. This year, its quantum machines are in the 90 microsecond range. Again, quite a leap forward.

And for Quantum Software and Chips

You may be wondering – so where does Microsoft fit in since it is not really a hardware company like IBM? Think about it – of what use will quantum computers be without software to run on them?

So beginning late this year, its Visual Studio, which is used to writing programs that run on Windows, will include tools to produce software that can run on its quantum machines as well. Through its Azure cloud service, developers will have access to simulations with machines of up to 40 quibits.

With the long time Microsoft has been preparing for the quantum computing age, I would not be surprised to see it dominate the next age of computing software as it did the prior age with Windows.

And despite the high-powered physics behind quantum computers, there will still need to be semiconductor chips to power them. For example, IBM has a quantum computing chip made from metals that become superconducting when cooled to extremely low temperatures. Its chip operates at a temperature a fraction of a degree above absolute zero.

Several types of controlled systems can be used to create qubits – superconducting circuits, trapped ions, and even single particles of light – photons.

Growth Stocks

The #1 Pick to Stop Amazon from Taking Over the U.S. Drug Industry

November 20, 2017 Tony Daltorio

A new word has appeared in American lexicon in the past few years: Amazoned, often used in the phrase, “to be Amazoned.” To me, it is a synonym for disruption. Just look at what Amazon.com (Nasdaq: AMZN)has done and what it threatens to do.

First, Amazon disrupted the U.S. book sector then the general retail industry, pushing many of the traditional companies in the sector it seems toward the dust bin of economic history. Then, the online retail giant moved into the roughly $800 billion U.S. grocery market in June with the purchase of Whole Foods. And once again, the traditional participants in the sector are seemingly headed the way of the dinosaur.

Now another sector may be in the sights of the gunslinger Jeff Bezos and his company – the $450 billion U.S. prescription drug industry. The question is whether this industry is ripe for disruption as were the retail and the grocery businesses.

Let me take you on a tour of the U.S. prescription drug industry value chain.

The Four Links in the Drug Distribution Chain

There are four basic links in the chain of how prescribed drugs get to you.

At the top of the chain is of course, the pharmaceutical companies that actually produce prescription drugs. These companies have little to fear from Amazon (at least for now).

The next link in the chain is the pharmacy benefit management companies, or PBMs. Their role is to negotiate drug prices with the pharmaceutical companies, process pharmacy claims and operate home-delivery pharmacies.

This sector is dominated by just three companies and they control three-quarters of the market. The three PBMs are Express Scripts (Nasdaq: ESRX), Caremark and Optum Rx. The latter two are controlled by the largest U.S. pharmacy chain CVS Health (NYSE: CVS) and the biggest U.S. health insurer UnitedHealth Group (NYSE: UNH) respectively.

Then we come to the next link in the pharma chain – the drug wholesale companies. And again there are three dominant companies, which distribute 90% of the drugs sold in the U.S. The companies are McKesson (NYSE: MCK), AmerisourceBergen (NYSE: ABC) and Cardinal Health (NYSE: CAH).

Finally, of course, there are the drug store chains that likely operate your corner drug store. And once again there are three main players – the aforementioned CVS Health, Walgreens Boots Alliance (Nasdaq: WBA) and Rite Aid (NYSE: RAD).

What Amazon Sees

I don’t know about you, but I think industries that are in effect oligopolies are perfect for disruption from Amazon.

It looks like something well-suited for Amazon… it is an industry big on logistics (physical and digital) – getting the right drug to the right person ASAP.

There is a lot of money being made here. For example, in the PBM segment, Express Scripts’ return on invested capital is in the mid-teens and it earns about $5 for every prescription filled. Can’t you imagine those numbers being brought down to next-to-nothing by Amazon?

Similar numbers are also prevalent in the drug distribution segment. Even the retail drug stores have numbers (return on capital, etc.) above what Amazon typically has. It is this potential threat from Amazon that has already wiped out over $40 billion of stock market value of the drugstore chains so far in 2017.

What Amazon Could Do

We don’t know what Amazon has planned. But it has quietly met with industry executives in recent months as well as made hires from insurers and PBMs. So I suspect something is in the works for 2018.

The company already has begun to sell professional medical equipment, which is part of the business that recently applied for wholesale pharmacy licenses in several states.

But the mystery remains as to where will Amazon aim its guns in the prescribed drug chain.

Unfortunately, I do not think it will be in the PBM segment. There is just too much medical expertise needed. Remember these are the people that control the “formularies” – the master list of drugs that employers and governments will pay for. Amazon would have to hire a lot of medical expertise at great expense. And I doubt it would want to get involved in whether patients could or could not have access to certain medicines.

But the drug distribution segment seems to be perfectly suited for disruption by Amazon. It has a massive logistics operation, which could easily start its own mail-based drug delivery business. That would bypass both the drug distribution firms as well as the drugstores. Having your prescriptions mailed to you by Amazon would simply be part of your Amazon Prime membership.

And do you think it would really be a stretch to see an in-store pharmacy pop up in each and every neighborhood Whole Foods?

That could tie in nicely with Alexa – “Alexa, refill my Lantus (the top-selling insulin drug)”. The prescription could then be picked up by you at a Whole Foods pharmacy or at pharmacies that Amazon has made agreements with.

Where to Invest

So how can you invest in what is likely to be a vastly changing landscape for the distribution of U.S. prescription drugs?

One obvious choice is the subject of this article – Amazon. It will continue growing and disrupting industry after industry. The only possible obstacle is if the government goes the anti-trust route and muddies the waters for the company.

Among the companies in the prescription drug distribution sector, I believe the best of the lot is UnitedHealth Group. About 40% of its revenues come its Optum Rx PBM business, with the remaining 60% of revenues coming from its vast health insurance businesses.

Its membership has been growing steadily for many years thanks to its leadership position in private health insurance in both North and South America. As of the end of 2016, it served 48.6 million members, up 4.7% year-on-year. In the first nine months of 2017, membership rose to 49 million people, up 2% year-on-year.

And the Optum PBM business is booming. In 2016, revenues grew 24% to $83.6 billion. The trend continued into 2017 with earnings for the first nine months of the year rising by 15%. This will help maintain the company’s enviable track record of a compound annual growth growth rate (CAGR) of 11% in its revenues from 2006 through 2016.

No surprise then the company raised its guidance for 2017 earnings to about $10 a share, a gain of 24% year-on-year. That will continue to boost its stock, which has risen 31% year-to-date and 38.5% over the past year.

It is the only pure play in the sector I would own in the face of a likely disruption coming in the form of Amazon in the near future.

Growth Stocks, Technology

Find Triple Digit Returns from Your Kid’s Video Games

November 16, 2017 Tony Daltorio

This digital age in which we live is literally changing everything. . .including when it comes to sports. Forget physical smashmouth sports like football and hockey. This new generation of sports fan wants to see lots of action – but only on a digital screen.

Welcome the world of e-sports, which unlike most sports, originated in Asia. The love of such activities extended to the stock market as Monday saw a red-hot IPO in Hong Kong, called Razer, debut. The company is the “arms merchant” for serious gamers making mice, headsets and notebooks.

And I do mean serious gamers. There are tournaments where there is a $10+ million top prize.

It’s hard for someone not a teenager or in their 20s, like myself and maybe you, to understand the attraction of e-sports. But one thing I do understand – it is already a huge business and growing rapidly.

e-Sports Business

I want you to think for a moment about its potential. In sheer numbers, video gaming is a market that is bigger than China and larger than the number of Facebook users (over one billion). And last year, the sport’s fans watched more than 6 billion hours of competitive gaming!

According to data from the consultancy Frost & Sullivan, the global industry generated more than $100 billion in 2016! Of that figure, e-sports is still rather small, at about $892 million. A rather conservative forecast from another consultancy, PricewaterhouseCoopers, says the industry will generate $133 billion in revenues by 2021. The investment bank Macquarie forecasts that e-sports will be a $5 billion business by 2020.

I think the $5 billion number will even be exceeded by 2020. You see, there are three main areas where e-sports can produce revenues. First is direct payments from live streaming services – some live tournaments have tens of millions of viewers. Last year, there were 11.1 billion e-sports videos streamed in China and 2.7 billion in North America, where about one-third of gamers reside.

The next source of revenue is the sale of content rights to broadcasters. Finally, advertising revenues, which today come largely from the gaming industry. But it isn’t hard to imagine a whole raft of companies looking to get their message in front of millions of viewers. That new reality is already beginning to unfold, which I will show you in a moment.

e-Sports Growth

The growth of e-sports looks to just be accelerating with two Las Vegas casinos planning to build dedicated e-sports arenas.

More importantly, the backers of e-sports are being smart and adapting what works for traditional sports and applying it to e-sports. Such as creating a league and having teams in many of the major cities. The parent companies of the New England Patriots, Los Angeles Rams and the New York Mets now own franchises (at a cost $20 million) in the first attempt to create an actual league.

The teams were sold by the world’s largest publisher of video games, Activision Blizzard (Nasdaq: ATVI), which came up with the idea of a 12-team Overwatch League. Unlike traditional sports leagues, this league also has teams from London and Shanghai.

The Overwatch League is not the only e-sports league in existence. There is a similar venture from Riot Games, which is owned by Chinese tech giant Tencent (OTC: TCEHY). It is charging $10 million for franchises in the North American League of Legends Championship Series. Over 43 million people watched last year’s League of Legends World Championship online, up from just 8 million in 2012. Major venues such as Seoul, South Korea’s Olympic Stadium were sold out to watch the event.

The build-out of leagues is already attracting sponsors, as I hinted at before. Both Intel (Nasdaq: INTC) and HP (NYSE: HPQ) are lead sponsors for the Overwatch League, whose regular season starts on January 10.

e-Sports Investments

So how can you invest into this e-sports phenomena?

You’ll want to look at companies whose business is heavily e-sports related. A firm like Amazon.com (Nasdaq: AMZN), which paid about $1 billion in 2014 for Twitch – the favorite live streaming platform to watch gamers battling has many other businesses. Even with a $1 billion price tag Twitch is just too small a part of Amazon to significantly affect the company’s performance.

At the top of my buy list is the aforementioned Activision Blizzard, which also has a live streaming channel called Major League Gaming. It acquired the firm in 2016 for $46 million.

I believe its CEO, Bobby Kotick, really understands the video gaming and e-sports better than the CEOs at its rivals. He sees e-sports as becoming more broad-based in its appeal in 2018 and I agree. During the company’s latest earnings conference call, he said “We view that (e-sports) as a major growth initiative and a very sizable standalone opportunity for the company.”

The company is already enjoying the growth in the general gaming industry with $1 billion from in-game (digital games) revenues in the last quarter. It currently has eight $1 billion franchises, including the very popular Call of Duty.

Not surprising then Kotick raised the company’s guidance for the next quarter and that the stock is up nearly 75% year-to-date and almost 60% over the past year.

Next on the list is a rival of Activision, Take Two Interactive Software (Nasdaq: TTWO), which is best known for its Grand Theft Auto franchise. Its stock soared nearly 10% after its recently-released earnings report.

While trailing in the e-sports business, the company is finally moving ahead now. It inked a deal with the NBA to launch a NBA eLeague. The NBA will be the only major professional sports league to have its own e-sports league. The league will begin in May 2018 with so far 17 of the 30 NBA teams saying they will play for at least three years.

Take Two is also expanding rapidly into mobile games. It strengthened this area of the company with its acquisition of Barcelona-based Social Point for $250 million earlier this year. Social Point is one of the most prolific mobile games developers.

Again not surprisingly, Take Two management also raised guidance for its next quarter. Its stock has even outperformed Activision with a 133% gain for the year so far and it has risen 140% over the past 12 months.

Finally, an alternative way to play the e-sports trend is through the semiconductor company, Nvidia (Nasdaq: NVDA). Its stock has soared 101% year-to-date and 144% over the past 52 weeks. As I’m sure you may know, Nvidia is a worldwide leader in visual computing technologies and the inventor of the graphic processing unit, or GPU.

The key to its rapid growth to date has been the video gaming industry. The company continues to steadily gain market share among gaming service providers, strengthening the company’s position in the workstation-based gaming services in supercomputing segments. That’s because its lineup of advanced graphics and gaming cards offer significantly higher functionality. That should continue to be a strong tailwind for Nvidia.

You also need to add in the company’s moves into the latest tablet computers and the automobile technology space and data centers and Nvidia continues to tell an exciting tale. Its recent alliance with China’s Baidu (Nasdaq: BIDU)on artificial intelligence (AI) technology could also be another big winner for Nvidia.

Bottom line – you may not understand video gaming or e-sports, but do realize they will continue to be big money winners in the years ahead.

Growth Stocks

3 Stocks for Double Digit Gains from Personalized Medicine

November 14, 2017 Tony Daltorio

A recent approval from an U.S. Food and Drug Administration (FDA) advisory panel has heralded a new era of medicine. An era where diseases are tackled in a totally different way, by inserting into disease sufferers functioning copies of genes that are either missing or mutated.

Gene therapy is a complex subject. So think of it this way…

Your genetic sequence is like a long book and your body is essentially a DNA ‘reading machine’. Each gene or ‘word’ sends a signal to your body to produce a specific protein it needs in order to function normally and healthily. The problem is that you and I and everyone else have genes that are mutated. Think of them as ‘typos’. Depending on the severity of the ‘misspelling’, diseases – some of them very serious – may result.

That’s where the promise of gene therapy lies, replacing the faulty genes with normal ones. In other words, diseases are tackled right at their biological source with a one-time only treatment.

I want you to think about the state of modern medicine today. Patients are giving chemicals (drugs) that treat the symptoms of various diseases for a few hours at a time. But gene therapy means diseases such as cancer, Parkinson’s, cystic fibrosis and many other diseases could possibly be cured.

First FDA Approval

The aforementioned approval from the FDA was for a product called Luxturna, which was developed by Spark Therapeutics (Nasdaq: ONCE). Notice the symbol for Spark, emphasizing its treatments are one-time only.

Luxturna is designed to help a subset of those diagnosed with Leber congenital amaurosis (LCA) that have a mutation in a gene known as RPE65. Sufferers of this particular diseases number about 6,000 in the developed world, including the United States. People with LCA suffer severe vision loss and are at high risk of becoming totally blind.

Many of the patients treated with Luxturna in the Phase III trial are once again enjoying the gift that is vision. So everything looks idyllic for this type of treatment, right? There is one major hitch though – the current sky-high price for such treatments. Spark is waiting to set the price of Luxturna until its gets official FDA approval in January, but it is expected to be in the $700,000 to $900,000 range per eye.

This price looks then to be in the same ballpark as two CAR-T therapies recently approved by the FDA – Kymriah ($475,000) and Yescarta ($373,000). CAR-T is a form of gene therapy that harnesses a patient’s own immune system to attack and kill cancer cells.

Despite the high price, gene therapies may be worth it if they indeed do cure the diseases.

And I believe that gene therapies will become much more affordable. As with almost every technology, the price will decline as the market for them grows larger in scale. In other words, larger eligible patient populations will equal lower prices for every treatment.

Gene Therapy Investments

As you can imagine, many of the major pharmaceutical companies are getting involved in gene therapies, such as Novartis AG (NYSE: NVS) and GlaxoSmithKline (NYSE: GSK). But I would prefer more of a pure play in the sector. Here are several companies to consider.

Gene Therapy Stock #1 – Spark Therapeutics

Let’s start with Spark Therapeutics. Most of the company’s $2.8 billion market capitalization is not due to Luxurna. The real excitement for the company comes from several early-stage gene therapy projects that are aimed at hemophilia.

Spark reported positive initial data from its Phase I/II trial of SPK-9001 in hemophilia B, which is a serious and rare inherited hematologic disorder, caused by mutations in the FIX gene that leads to deficient blood coagulation and increased risk of hemorrhaging. Spark is working with Pfizer (NYSE: PFE) to develop this treatment.

The company also initiated the Phase I/II trial for SPK-8011 for hemophilia A. This disease is characterized by a mutation in the FVIII gene and again results in deficient blood coagulation.

These hemophilia therapies would address a larger market than Luxturna since there are about 190,000 sufferers around the globe. A one-time treatment, even with a big price tag, would likely look good to cash-strapped health systems. That’s because infusions for a single hemophilia patient can cost about $500,000 per year.

Spark Therapeutics’ stock is up nearly 60% year-to-date and 66% over the past year.

Gene Therapy Stock #2 – Bluebird Bio

The second company to consider is Bluebird Bio (Nasdaq: BLUE), founded in 1992, and has expertise across the areas of gene editing, T-cell immunotherapy and lentiviral-based gene therapies. It does have a pretty broad pipeline including:

Lenti-D, which is in the Phase II/III Starbeam Study, and is targeted at childhood cerebral adrenoleukodystrophy.
Lentiglobin, which are in four Phase I/II studies, and is aimed at patients with rare hemoglobinopathies – severe sickle cell disease and transfusion-dependent ß-thalassemia. The stock soared over 10% at the start of November when results were announced that updated data would be revealed in December.

Other therapies in earlier stages of Bluebird’s pipeline are: bb2121 and bb21217 for multiple myeloma, BCL11a shRNA for severe sickle cell diseases, as well as several oncology treatments at the pre-clinical stage. On bb2121, it is partnered with Celgene (Nasdaq: CELG) in the Phase I study.

Overall in 2017, the stock is up 137% so far and it has doubled over the past 12 months.

Gene Therapy Stock #3 – AveXis

The third clinical-stage company worth a look is AveXis (Nasdaq: AVXS). The company’s primary focus is on gene therapies to develop a cure for Spinal Muscular Atrophy (SMA), Rett Syndrome and a genetic basis for ALS (Lou Gehrig’s disease).

AveXis’ stock spiked on September 29 after the FDA gave the go-ahead for the company to go forward with its pivotal clinical trial (STR1VE) on its flagship AVXS-101 candidate for the treatment of SMA. The treatment uses neutered viruses as a delivery mechanism for healthy genes to suffering patients. These genes will begin in the body production of a protein, the lack of which – called survival motor neuron – causes the disease.

Short sellers had targeted AveXis claiming it would not be able to produce its treatment for SMA in sufficient quantities while meeting the FDA’s high manufacturing standards. The FDA go-ahead should allay some of those fears.

AVXS-101 has shown good results so far. Earlier this year, AveXis showed that nine children with a particularly severe form of SMA, who were dosed for 20 months, are all alive and well. That compares to an average of 8% of untreated children that would be on major breathing support, if they were still alive.

The company’s stock has soared 112% year-to-date and 53% over the past 52 weeks.

The performance of all three of these stocks is remarkable in what has been not a good year for many biotech stocks. Gene therapy is a paradigm shift in how to treat people afflicted with diseases, offering potentially very high profit opportunities. More good gains should follow for the companies in the sector as science fiction slowly becomes reality.

Let the basic premise sink in for a second. Diseases and conditions like hemophilia, ALS, even blindness are on the cusp of being cured with one treatment. Not managed. Not endured. But cured. Forever.

And all of that’s possible from the convergence of biology, chemistry, computer technology, even government policy. We’re looking at a whole new era for humankind, one where one day in a new world practically every disease can be cured.

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