Technology

3 Driverless Car Stocks as Automakers Pull Back From Fully Automated

The main takeaway I got from the annual Consumer Electronics Show (CES) in Las Vegas was that enthusiasm for autonomous (driverless) vehicles among the world’s auto makers has really cooled.

Just a year or two ago, car and some tech companies could hardly restrain their excitement over the next revolution in mobility – driverless vehicles. But now, as the next step in driving automation comes closer to reality, some auto industry executives seem keen to back away from implementation and move directly on to the next step. Let me explain…

Levels of Vehicle Autonomy

First, let me fill you in on the levels of autonomy for a vehicle as set by the standards organization, the Society of Automotive Engineers International. There are six levels of autonomy, from zero for absolutely no autonomy to Level 5, which would be complete autonomy. In other words, completely controlled by computers. This technology is probably a decade away.

Here are brief descriptions of the other levels of autonomy:

Level One: Driver Assistance: At this level, the automobile includes some built-in capabilities to operate the vehicle. The vehicle may assist the driver with tasks like steering, braking or acceleration. For several years now cars have been manufactured with controls on the steering column that allow the driver to maintain a constant speed or gradually increase or decrease speed. These functions are enacted by the driver and not automatically performed by the automobile. Most modern cars fit into this level. If your vehicle has adaptive cruise control or lane-keeping technology, it’s probably at level one.

Level Two: Partial Automation: At this level of automation, two or more automated functions work together to relieve the driver of control. An example is a system with both adaptive cruise control and automatic emergency braking. This is referred to as an advanced driver assistance system (ADAS). Examples of level two include Tesla Autopilot, the Mercedes-Benz Distronic Plus and the General Motors Super Cruise.

Level Three: Conditional Automation: This level is marked by both the execution of steering and acceleration/deceleration and the monitoring of the driving environment. In levels zero through two, the driver does all the monitoring. At level three, the driver is still required, but the automobile can perform all aspects of the driving task under some circumstances. Levels three and higher qualify as automated driving systems (ADS). There’s a big jump in capability between levels two and three. The driver still has to keep his eyes on the road, ready to take over at a moment’s notice. But a level three vehicle can handle certain parts of the trip on its own – mainly highway driving.

Level Four: High Automation: Level four vehicles don’t need a human driver. The vehicle can do all the driving, but the driver can intervene and take control as needed. This level of automation means that the car can perform all driving functions “under certain conditions.” The test vehicles currently on the road would fall under this category. Google’s Waymo is testing level four vehicles.

The Level Three Barrier

However, many auto companies are reluctant to even move to Level 3 autonomy. And it’s easy to see why – that’s the first point at which full responsibility — and legal liability — shifts from the driver to the car. Both automakers and regulators are wary about whether transferring control between car and driver can work effectively in an emergency.

That could lead to a legal nightmare when accidents do occur. And it’s why Audi has never turned on its Level 3 software on its vehicles sold here in the U.S.

The idea of a driverless car that can hand back control to a human with little warning has always divided the auto industry. Carmakers such as Toyota, Volvo and Ford, as well as Waymo have always been skeptical about the idea of Level 3 vehicles. These companies believe it is safer to wait longer for more advanced forms of automation that require no human intervention.

Daimler Trucks, the world’s biggest maker of commercial vehicles, also turned its back on Level 3 recently. It said that the technology sent a confusing message to drivers: they are encouraged to switch their attention to something other than the road, but expected to be ready to retake control at a moment’s notice. Other car companies, such as BMW, are moving ahead – its iNext vehicle in 2021 will feature Level 3 technology enabling hands-free, pedal-free driving.

Driverless Vehicle Investments

So what companies seem best poised to benefit from the move toward greater autonomy for vehicles?

I do like Toyota Motors (NYSE: TM) because it seems to be moving on its own independent path, separate from the other automakers with regard to new technologies. I like their skepticism toward Level 3 vehicles.

And their skepticism toward electric vehicles is interesting. Instead, it is concentrating its efforts on both solid state batteries and fuel cell vehicles. I will be discussing Toyota’s and Japan’s move toward a hydrogen economy in a future article.

I find solid state batteries fascinating. They are capable of holding more electricity and recharging more quickly than their lithium-ion counterparts. These batteries could do to lithium-ion power cells what transistors did to vacuum tubes: render them obsolete.

As the name implies, solid-state batteries use solid rather than liquid materials as an electrolyte. That is the stuff through which ions pass as they move between the poles of a battery as it is charged and discharged. Because they do not leak or give off flammable vapor, as lithium-ion batteries are prone to, solid-state batteries are safer (lower fire hazard). They are also more energy-dense (leading to higher power capacity) and thus more compact. Solid-state batteries are also a promising power source for internet-of-things devices that are coming into wider usage daily.

I also like Daimler AG (OTC: DMLRY). Its Freightliner Cascadia will go on sale this year and be the first truck in North America to feature partially-automated driver assistance.

And Daimler is heading straight from level two to level four, in which a truck can operate without user intervention on specific routes because the company says level three “does not offer truck customers a substantial advantage”. Unlike Tesla, it considers Level 3 to be a dead end since it would have to rely on human attention during the crucial 1% of the time after telling the driver not to pay attention 99% of the time. With truckers on long haul routes, I see sleep and Level 3 not being compatible.

Finally, if I must go with a company that is pursuing Level 3 automation, I’ll go with General Motors (NYSE: GM) instead of the cult stock known as Tesla.

Its Level 3 system is better than Tesla’s. If the driver still doesn’t take control after several prompts, the system will gradually bring the vehicle to a complete stop, activate the hazard warning flashers, and call for help (using GM’s OnStar system.) GM also built a slew of additional safeguards into Super Cruise to try to ensure that it’s only used in circumstances it can safely handle. For example, if the vehicle isn’t on a highway, the road’s lane markings aren’t clearly visible, or the system thinks that the driver isn’t fully attentive – it won’t even switch on.

And GM is challenging Tesla in the electric car space. It is re-casting its luxury Cadillac brand as an electric brand. GM says the premium marque would be the company’s “lead electric vehicle brand and will introduce the first model from the company’s all-new battery electric vehicle architecture”. Tesla has long dominated sales of premium electric vehicles, but it faces fresh challenges, not only from the upcoming electric Cadillac, but also from European premium nameplates.

GM is making a lot of right moves, from cost cutting to getting major investments from Honda and Softbank. That led it to recently forecast higher than expected 2018 profits. It also said earnings will rise further in 2019, despite flat or declining car sales in both the U.S. and China, its two primary profit drivers. The automaker expects adjusted earnings per share for 2018 to exceed the guidance given in October of $5.80 to $6.20, and 2019 EPS to rise to $6.50 to $7.00 per share, above market estimates.

Stay tuned to this space though, the race for autonomous vehicles is just getting interesting.

Source: Investors Alley

Pot Stocks

Bank 100% with the Best Marijuana Stock to Buy Today

We’ve been telling you for some time about the top pot stocks to watch.

Today, we’ve got a slightly different story about the best marijuana stock to buy today.

It’s Money Morning Director of Cannabis Investing Research Greg Miller’s top pick.

best marijuana stocks to buy today

It’s Aphria Inc. (NYSE: APHA).

And Greg Miller believes that the share price of the best marijuana stock to buy today has been beaten down by the actions of short sellers. As a result, investors can benefit.

We believe APHA could double investors’ money in 2019.

Here’s why…

Short Selling and How It Works

Traders sell stocks short by borrowing shares from other investors and selling them on the market. Short sellers hope that they can buy back shares at a reduced price when it’s time to give back shares to the folks they borrowed them from. They then return the borrowed shares at a lower price and make a profit from the price differential between when they borrowed and when they returned.

But if the prices of the shares they’ve borrowed actually rise, short sellers stand to lose money. In fact, they can lose an infinite amount of money, since the share price could theoretically climb continually.

So Miller says that sometimes short sellers take matters into their own hands. They publicize that a company is riddled with problems via articles and television appearances, for instance. If investors are then convinced to sell the stock, the price is more likely to decline. And that’s good news for short sellers.

But if a company targeted by short sellers is in fact in good shape, knowledgeable traders can make money by doing the opposite of the short sellers.

Take the example of Herbalife Ltd. (NYSE: HLF) back in 2014. HLF shares were hit hard when Bill Ackman, a prominent hedge fund manager, took a billion-dollar short position on HLF.

He took to TV, print, and even conferences to tell investors Herbalife was a doomed company. But his gambit failed when investors weren’t fooled. Ultimately, Ackman had to abandon his position at a massive loss.

In the past year, HLF has risen 67%. Revenue climbed 7.7%. Its EBITA rose 4%, and its free cash flow at a 1.2% rate. The company enjoys cash of $1.28 billion and has debt of $2.17 billion.

It’s a strong company financially, so Ackman’s war was ultimately defeated by business growth and good financials.

We believe that Aphria is in a similar situation now.

Why Aphria Is the Best Marijuana Stock to Buy Today

Short sellers are currently alleging that Aphria made illegal transactions in overseas markets, including Colombia, Argentina, and Jamaica.

Aphria didn’t respond quickly enough, and the shares took a hit. But because we believe there is scant substance to the claims, the shares are currently undervalued.

Aphria shares fell a huge 70% between Sept. 12, 2018, and its low point. In fact, after research firms Quintessential Capital Management and Hindenburg Research questioned its Latin American acquisitions in early December, the stock dropped 23% in a single day.

The stock’s trading was halted the day after.

Aphria management, however, said it’s committed to its acquisitions. Then, it purchased over $3.1 million of APHA – a vote of management confidence.

Purchases like that by company insiders is a testimony to what the company’s actual financial position and growth prospects are.

Miller points out that the allegations about Aphria don’t really hold up. One of the allegations, for example, is that the company’s cash flow is negative. But that’s a common issue among both companies engaged in marijuana and in startups. They are still in the development stage.

Other allegations center around product quality. But Miller observes that the company’s business model is mass-market consumers, not high-end. In fact, it’s analogous to Anheuser-Busch InBev S.A. (NYSE: BUD), the company that produces Budweiser. Plenty of money can be made producing products for the bulk of people, not for the artisanal crowd.

Neither of these reasons is compelling, in Miller’s view.

But the short sellers’ final argument is really the worst. And it could be the impetus to double investors’ money in the best marijuana stock to buy today.

The Last Allegation

Short sellers are also claiming that Aphria overpaid for assets because insiders wanted the money.

Miller doesn’t believe that claim. He says that the chief executive officer of Aphria, Vic Neufeld, is also on the board of directions of SOL Global Holdings. SOL is a company that did sell assets to Aphria. But a CEO sitting on another board is extremely common. Neufeld’s holdings in SOL were under 2%.

He therefore wouldn’t profit much for the risk of impropriety. Without firm evidence, the claim can’t be substantiated.

But there’s good news coming out of this. APHA retained Clarus Securities Inc.for an independent appraisal and fairness opinion. Clarus is a highly important investment bank that works with the Canadian marijuana sector.

Miller believes the allegations are hot air that can’t hold up. But the damage inflicted on the stock does create a buying opportunity for investors.

Aphria is one of the best five marijuana firms in Canada. Given the importance of the Canadian market, that means it’s one of the top cannabis companies today.

The stock currently trades near lows it hasn’t seen in 15 months. It also has a past pattern of huge swings in price. Both position investors to make a profit in the best marijuana stock to buy today.

Aphria is approved by Health Canada, which is very important in its market. Its agreements for distribution throughout Canada still stand. And our neighbor to the north doesn’t have enough marijuana to meet demand in the wake of the 2018 legalization.

Company management has faith in Aphria, as witnessed by management buying more shares.

We believe this is a compelling company at a compelling price.

Even if APHA just returns to its November 2018 levels, which were under the high for last year, investors could realize a 100% profit on the stock.

Source: Money Morning News Team

Bear

7 Long-Term Value Stocks to Buy Now

Let’s take a longer-term investing perspective. Which are the stocks you should be buying now for maximum long-term gains? This is the question asked by analysts over at Mizuho Securities.

“We challenged each of our analysts to select the stock that he/she believes would most likely provide long-term value for our clients” says the firm. The result: a highly valuable report revealing each analyst’s top stock pick. These names range from a $65 billion biotech company to a $48 billion industrial company. And with prices generally depressed right now, many of these stocks are trading at bargain levels.

Here we delve into why each analyst is so bullish on their chosen stock. Let’s take a closer look at these top long-term stocks to buy now:

biogen stock

Source: Biogen via YouTube

Biogen (NASDAQ:BIIB) has a dominant position in neuroscience. The company has a leading portfolio of medicines to treat multiple sclerosis (MS). It also offers the only FDA-approved treatment for spinal muscular atrophy (SMA).

To top it off, Biogen also boasts an extensive pipeline of new medicines in development. This includes Aducanumab for Alzheimer’s disease. It is estimated that over 25 million individuals are living with Alzheimer’s worldwide.

The memory loss of Alzheimer’s disease is linked to amyloid plaques, abnormal protein deposits that build up in the brain. Aducanumab is an antibody that binds to and may reduce amyloid plaques from the brain, potentially slowing the disease.

“2019 will likely be a big year for BIIB as investors prepare for Aducanumab’s Phase 3 data in Alzheimer’s, slated to be released at the end of 2019/early 2020. This will likely be an incredibly high profile catalyst, not just for Biogen, but for the therapeutics space in general” writes Mizuho’s Salim Syed (Track Record & Ratings).

If the trial works, it could send BIIB stock up $100-plus (about $33%) from current levels. “Potential moves of this magnitude are rarely seen in Large-Cap Biotech and, in our view, sets up the possibility of FOMO (fear of missing out) trade” he says. According to Syed, Aducanumab’s profile is the most compelling, with a 70% success probability. Interested in Biogen stock? Get a free BIIB Stock Research Report.

Long-Term Stocks To Buy: Facebook (FB)

Source: Shutterstock

Ok so Facebook (NASDAQ:FB) had a pretty challenging 2018. The New York Times published a blockbuster expose recently. They claimed that the social network knew about Russian interference in the U.S. elections, but held back the information for “over a year.” Facebook has denied these claims.

Whether or not this is true, James Lee (Track Record & Ratings) still selects FB as his top long-term value pick. He has a buy rating on the stock with a $220 price target. From current levels, that works out at juicy upside potential of close to 55%. Lee is sticking with his bullish thesis on FB for three main reasons:

  • The transition to FB Stories is on track for success based on increased demand and pricing leverage for Instagram stories;
  • The recent price weakness resulting from the Times articles is overstated. He does not expect advertisers to meaningfully alter their ad budgets on FB (because of the platform’s scale and efficiency); and
  • The valuation is very compelling at 7x 2020 EBITDA. “This is a steep discount to the firm’s estimated growth rate of 20% and below Google’s multiple” writes Lee.

The analyst concludes: “We expect products yet to fully monetize to deliver a 60% upside over our estimated 2020 ARPU, the highest in our coverage universe.” Get the FB Stock Research Report.

Long-Term Stocks To Buy: FirstEnergy (FE)

Source: Erik Drost via Flickr

Arizona based FirstEnergy (NYSE:FE) is an electric services company worth following. In 2018, while the rest of the market faltered, FE put on a 23% sprint.

“We are recommending FirstEnergy as our top large-cap utility pick because of the above-average long-term 6%-8% EPS growth and a dividend policy to match” writes Mizuho’s Paul Fremont (Track Record & Ratings).

At its EEI conference, FE reaffirmed this growth rate and announced a lucrative new dividend policy of 6% increases. This is with a targeted payout ratio of 55-65%. Indeed, the company currently pays out a quarterly dividend of $0.38.

Also worth bearing in mind is a slew of significant regulatory milestones. These include a settlement in Ohio in the Grid Modernization and Tax Reform proceedings as well as an approval from the Bankruptcy Court on FES in September.

“With these regulatory milestones in the past, we believe FirstEnergy can focus on its fully regulated utility strategy with significant growth in its Transmission & Distribution business segments” writes Fremont. The company is currently modelling for strong Transmission & Distribution earnings and Rate Base Growth of 11% and 5% respectively. Get the FE Stock Research Report.

Long-Term Stocks To Buy: GrubHub (GRUB)

Source: Shutterstock

GrubHub (NYSE:GRUB) is a web commerce platform for ordering and delivering take-out food. And with over 50,000 restaurants in 1,100-plus cities, GRUB means food delivery or takeout is just a click away.

“We remain convinced that GrubHub will emerge as the primary winner in online delivery over the next decade” cheers Mizuho Securities analyst Jeremy Scott (Track Record & Ratings). His $145 price target translates into massive upside potential of 90%.

Perhaps what’s most compelling about GrubHub is its unique focus. “As the company’s competitors have zigged into building out new expensive verticals, Grub has zagged into redoubling its efforts to drive a stronger connection with its restaurant partners.” the analyst explains.

Ultimately these investments should solidify its standing as the most effective and least conflicted partner for chained restaurants. “It’s a key, yet we believe underestimated competitive advantage, and it drives our call that GrubHub will be the primary winner of delivery disruption” sums up Scott. Get the GRUB Stock Research Report.

Long-Term Stocks To Buy: Occidental Petroleum (OXY)

Source: Hayden Irwin via Flickr

Texas-based Occidental Petroleum (NYSE:OXY) is an international oil and gas exploration and production company with operations across the U.S., the Middle East and Latin America.

With a 4%-plus dividend yield, visibility on free cash flow and capital spending through 2022, and high-quality Permian assets, this is a top stock to track.

“Having reached its cash neutrality target earlier in the year, we think the company will begin growing dividends more aggressively starting next year, and we think this is underappreciated by investors” states Mizuho’s Paul Sankey (Track Record & Ratings).

As dividend growth becomes more meaningful, shares will re-rate towards their historical premium, says Sankey. Right now the company pays out 78 cents per quarter, on a yield of 4.7%. Compare that to the average basic materials dividend yield of 2.64%.

“Our top pick in E&P” adds the analyst. “That’s with an $82 price target, suggesting around 30% upside from current levels. OXY is trading at a ~0.3x turn discount to our US E&P basket, vs. a ~0.5 turn relative premium over the past one and three years.” Get the OXY Stock Research Report.

Long-Term Stocks To Buy: Williams Companies (WMB)

Source: Shutterstock

Williams Companies (NYSE:WMB) boasts 33,000 miles of pipelines — including America’s largest-volume and fastest- growing pipeline — providing natural gas for clean power generation, heating, and industrial use.

According to the company, demand for natural gas is tremendous and continues to grow. This is because gas is cleaner, less expensive and more efficient than other fuels capable of meeting around-the-clock energy demand.

“Strategically, the company is likely to stick to its focus on natural gas infrastructure, and we think its growth outlook will support an attractive double-digit dividend growth CAGR’ says Mizuho’s Gabe Moreen (Track Record & Ratings). That’s with a price target of $32 (36% upside potential).

He sees the possibility of additional asset sales as a positive catalyst for the stock. Selling non-core assets can both free up capital and de-lever the balance sheet. “We think it is likely that WMB elects to sell some of its West segment’s gathering systems, which could fetch attractive valuations” says Moreen. Get the WMB Stock Research Report.

Long-Term Stocks To Buy: FibroGen (FGEN)

Source: Shutterstock

FibroGen (NASDAQ:FGEN) creates first-in-class medicines to treat life-threatening conditions such as anemia, pulmonary fibrosis, and pancreatic cancer.

The stock has the thumbs up from Mizuho’s Difei Yang (Track Record & Ratings). This top-rated analyst singles out FibroGen with a $74 price target (63% upside potential). With shares trading at just $45, she spies meaningful upside on the back of upcoming potential catalysts.

Right now that involves the biotech’s lead product candidate, roxadustat. Yang believes this is likely to be a first-in-class for the treatment of anemia in chronic kidney disease (CKD).

Indeed the company has just announced positive top-line efficacy results. That’s from not one but three global phase III trials of the drug at the end of December. The next step- and potentially sizable catalyst- is the upcoming MACE event. This is the read-out of cardiovascular safety data due in 1H19.

“We believe the MACE data will likely be share moving in 2019 and has potential to differentiate roxadustat from a commercial standpoint vs. competitors” writes Yang. She has an 85% probability of success for roxadustat, and estimates $734 mil peak-sales in 2025. Get the FGEN Stock Research Report.

TipRanks.com offers exclusive insights for investors by focusing on the moves of experts: Analysts, Insiders, Bloggers, Hedge Fund Managers and more. See what the experts are saying about your stocks now at TipRanks.com. As of this writing, Harriet Lefton did not hold a position in any of the aforementioned securities.

Source: Investor Place

Market Preview

Market Preview: Markets Lower on China Weakness, Big Bank Earnings This Week

Markets finished lower Monday after more news of economic weakness out of China, and an increasing sense of unease over the partial government shutdown. With mid-month January paychecks now not showing up in government employee bank accounts, the impact of the shutdown appears to be accelerating. And, with both sides digging in, there appears to be little hope of a near-term solution to the impasse. Investors are keeping one eye on the shutdown and the other on earnings, as earnings season is now in full swing. Many large banks report earnings this week, mixed with a number of transportation stocks. While most analysts agree earnings are coming down from the blockbuster growth of 2018, the question for investors is whether the bottom in stocks has already been put in when the market sold off last quarter, or if there is more pain to come in 2019.

PPI and the Empire State Manufacturing Survey are scheduled for release Tuesday. PPI is expected to come in flat, owing mainly to the continuing drop in oil prices in December. The Empire State numbers are expected to bounce back from a reading of 10.9, and to come in at 12 for December. Analysts will be watching this number closely to determine whether recently weak manufacturing numbers were an aberration, or the beginning of a more substantial decline in manufacturing.

JP Morgan Chase (JPM) and Wells Fargo (WFC) report before the open Tuesday. Many analysts believe the large banks are undervalued, while others are citing pressure from fintech startups and payment processors, like Visa (V), as a growing challenge to large bank profits. Citi’s (C) report on Monday, while not stellar, reinforced the pillars the large banks have come to rely on in recent quarters, large buybacks of stock and attention to cutting costs. Citi finished flat on the day. Some analysts are holding their breath hoping none of the large players encountered an unexpected trading loss given the massive volatility at the end of 2018. Also reporting Tuesday is Delta Airlines (DAL). Airlines have taken it on the chin since early December when earnings warnings began to emerge from the sector.

Banking earnings continue Wednesday, when Bank of America (BAC) and Goldman Sachs (GS) report. Goldman has been under the gun with an investigation of its involvement in an embezzlement scheme at 1MDB, a Malaysian state investment company. Revelations by Goldman employees, that they intentionally avoided the firm’s internal compliance rules, are being investigated by the Federal Reserve, and has spooked investors. CSX Corporation (CSX) reports after the close Wednesday. The rail company has been successful cutting costs and improving efficiency this year, but some analysts fear that may not provide much support going forward. CSX should be able to put forth some color commentary on the economy given its vital role in transporting goods. One question analysts have is whether the lead up to the China trade tariffs resulted in a bulge in traffic headed into the fourth quarter, and if that portends lower volume the next few quarters.

Economic numbers released Wednesday will include mortgage applications and the housing market index. Housing index numbers are expected to rise slightly to 57 after a devastating 8 point drop in November. Also on tap are retail sales, import and export prices, Redbook retail numbers, and business inventories. Both import and export prices are expected to decline, again due to the weakness in oil prices. Falling export prices were somewhat offset by a bounce in the price of farm products.

Dividends

3 High-Yield Restructured Energy Stocks

Energy infrastructure (commonly called midstream) companies have weathered a string of tough years since the energy commodity price crash of 2015. These were high flying stocks in the decade through 2014, with the master limited partnership (MLP) sector returning an average 18% per year from 2000 through 2014.

MLPs were the energy infrastructure/midstream business structure of choice. These companies owned pipelines, storage facilities, loading and unloading terminals. Customers accessed these assets through long-term fee based contracts. MLPs used the fee-based revenues to pay steady, attractive distributions to investors. Growth came from developing new projects, funded with a combination of debt and equity. The energy sector crash blew up the MLP growth model and revealed some ugly features of the typical publicly traded partnership agreement.

The last four years have seen a massive restructuring of the companies operating in the energy midstream space. There are now a number of corporations instead of the partnership structure. Balance sheets have been strengthened with companies focusing on using internally generated cash flow to fund growth projects. Onerous features of MLP partnership agreements have been abandoned. While share values have not recovered from the problems of recent years, the financial restructuring is basically completed, and these companies are on the verge of again generating attractive dividend growth and total returns for investors. Here are three stocks from the group that should do very well in 2019.

One of the first MLPs, Kinder Morgan Energy Partners launched with a 1997 IPO. For the next 16 year the company provided tremendous returns to investors in the MLP. As the MLP business model stopped generating the expected growth, in 2014, Kinder Morgan Energy Partners was acquired by the corporate sponsor, Kinder Morgan Energy Inc. (NYSE: KMI).

The consolidation was not enough to prevent the carnage of the energy sector crash. In early 2016, the KMI dividend was slashed to $0.125 per quarter from $0.51. The KMI share price fell from $43 in mid-2015 to $12 in January 2016. The stock now trades at $17.40.

Over the last three years, the company reduced debt and built cash flow to internally fund growth projects. In April 2018 the dividend was increased by 60% to $0.20 per share. The share price hardly budged. Management has stated the dividend will increase by 25% each year in 2019 and 2020.

Free cash flow is currently $2.00 per share and growing, so the $1.25 annual dividend for 2020 is in the bag.

KMI currently yields 4.6%.

In mid-2015 Magellan Midstream Partners LP (NYSE: MMP)was an $83.50 per unit MLP. The units now trade for $62 and change. Since its 2003 Magellan Midstream did not follow the MLP practice of raising growth capital in the public equity and debt markets.

All of Magellan’s growth has been funded through internal cash generation, without the need to tap the equity markets. Despite what the market price shows, the MMP distribution has been increased every quarter, and the current rate is up 42% compared to when it traded for $83.

With a 6.25% yield and continued 8% annual distribution growth, MMP could return 20% or more in 2019.

Tallgrass Energy LP (NYSE: TGE) is the result of the 2018 merger of traditional MLP Tallgrass Energy Partners and the publicly traded general partner, Tallgrass Energy GP LP.

Through its life as a traditional MLP, Tallgrass Energy Partners was one of the top distribution growth companies in the sector. The merger with the general partner eliminates the payments the MLP was paying to the GP. This means lower expenses and more cash to continue the distribution growth record. Tallgrass owns and operates one of the largest crude oil and natural gas pipeline networks in the country.

Dividends could grow at a mid-teens per year rate.

With a current 8.6% yield, TGE is grossly undervalued and could double in 2019.

Source: Investors Alley

Growth Stocks

Buy These 3 Stocks Growing in the Sharing Economy

The sharing economy is thriving because it offers consumers a faster, more efficient, and often cheaper, service or product. At its core, the sharing economy encompasses a new business model that in some industries, such as ride-sharing, is disruptive, and in others is complementary to current businesses. And, in yet others, the sharing economy is a brand new opportunity that is solving big problems and generating consumer demand. But what exactly is the sharing economy?

Sharing Economy Size, Sectors, and Drivers

Merrill Lynch estimates the size of the sharing economy at $250 billion with an addressable market of $2 trillion. They also identify a number of sectors that are being impacted by the sharing economy, including transportation, travel, food and retail among others. I’m sure you’re familiar with Uber (Nasdaq: UBER, pre-IPO), as the company has basically become the poster child for the rise of the sharing economy.

The sharing economy was birthed by a combination of big data, powerful platforms that run algorithms utilizing that big data, and the ever increasing power of the smartphone. Did you know Amazon is a card carrying member of the sharing economy? In addition to being one of the largest online retailers in the world, the company also matches buyers and sellers of goods through programs like its Fulfillment By Amazon (FBA) program.

If you’re like most people you don’t even know that half of the items you buy on Amazon are sold by a third party, and not Amazon itself. Using big data and advanced algorithms, Amazon not only recommends products to you as a buyer, but recommends products for sellers to supply, and can even provide a discount to fees charged to sellers for hot products it is trying to have listed on the Amazon site. And, these products which Amazon may or may not warehouse, and may or may not ship to you the consumer, are actually more profitable for Amazon than products it maintains in inventory and ships itself.

But it’s not just retail and transportation where the sharing economy is proliferating. In a report on the sharing economy BCG points out an example of a new sharing business formed by Mahindra and Mahindra (OTCMKTS: MAHMF). Mahindra, based in India, is one of the largest tractor manufacturers in the world. But, only 15% of India’s 120 million farmers even use mechanical equipment. To meet the needs of this underserved market Mahindra, “could have created lower-cost products by removing features or sacrificing quality. Instead, it created a sharing platform, Trringo, which allows farmers to rent equipment made by Mahindra (and even by its competitors) by placing a call.”

Finally, the World Economic Forum (WEF), in an article published just last week, highlights two of several drivers of the sharing economy which should continue to propel it forward. First, the WEF points out that ⅔ of global disposable income in the next ten years will be controlled by women.As the WEF states, “Women are already among the most ardent sharing-economy customers, and the growth of the “she-conomy” is likely to further boost this.” And Second, the WEF believes the sharing economy will play a vital role in reshaping the lives of a growing number of retirees. As individuals look to age in place and minimize disruption to their daily lives, companies already at work in the sharing economy will provide a means of earning income as well as provide care for those in need.

Let’s look at a few stocks that are already public and provide a way to invest in the sharing economy, as well as a few that are scheduled for IPOs in 2019.

GrubHub (Nasdaq: GRUB)

GrubHub is the quintessential sharing economy stock. The food delivery company not only delivers food from your favorite restaurant, but puts in place the entire order and delivery platform for restaurants it partners with. This has allowed non-delivery focused restaurants, on the mom and pop scale all the way up to the Taco Bells of the world, to add another revenue stream to their business model.

While the stock has pulled back in-line with the recent market selloff, the company is hitting on all cylinders. As CEO Matthew Maloney stated in their most recent earnings call, “We added more new restaurants to our network in the third quarter than any other quarter in the history of Grubhub. Our diners now have over 95,000 restaurants to choose from…” Revenue in the third quarter grew 52% year-over-year, with earnings growing 41% on a year-over-year basis. The company is projected to grow earnings an average 26% per year over the next 5 years.

The company’s stock had become a little overheated, and the recent pullback gives investors a second bite at the apple at a much better price. In addition to the stock pullback, another catalyst which makes the company attractive right now is the fact that they are beginning to realize economies of scale. This allows their marketing to be more effective, and is reducing their cost per order. Lastly, the recent addition of YUM! Brands (NYSE: YUM) as a partner should further accelerate growth.

Match Group, Inc. (Nasdaq: MTCH)

Match Group owns and operates several dating and relationship sites including Tinder, Match, OKCupid and Hinge. The company has over 57 million users of its apps globally, and was the highest grossing app in the Apple Store in 2017. The company is clearly dominating the dating app space and has built a critical mass of users which makes it difficult for competitors to infringe on the company’s market.

Match used the network effect to build out its user base with a savvy “hot or not” marketing campaign. The company’s range of apps now covers a broad spectrum of the population, from young people looking for casual social interactions to established career adults looking for long-term relationships. Match has mastered the big data world of dating, and has built a platform that is both user friendly and profitable. Revenue at their flagship Tinder brand was up close to 100% year-over-year in the latest quarter, and subscriber growth was up 61%. Earnings grew over 126% over the past year.

Match also suffered in the market selloff, and is in the process of recovering from an earnings miss last quarter, but has already recovered much of its losses. The company has a few specific catalysts that make it a good buy now. First, it is increasingly moving users to paid subscribers by adding additional relevant features to its paid subscription model. Second, the company is using data it already has to bring new products to market focused on narrower niches, making the experience more relevant for the user. And third, the company continues to enhance its algorithm to provide a better experience for users and find a relevant match on first use of its product, a major goal of the company.

Booking Holdings (Nasdaq: BKNG)

Before discussing some of the IPOs that are scheduled for 2019, I feel I would be remiss if I did not also mention Booking here. While I understand the stock is high priced, trading around $1,650, the valuation is fairly compelling. The stock currently has a PE of 19, is expected to grow earnings 16% per year on average over the next 5 years, and has profit margins of almost 20%.

Booking is not a pure sharing economy play, but does have over 5 million unique sharing economy listings on its site. This allows Booking to be an all-in-one offering for those unsure if they want a traditional hotel stay or a shared house, apartment, etc. I believe at these levels, and with a number of shared listings, Booking deserves a look as a sharing economy competitor.

Potential 2019 IPOs

Finally, I’d like to talk for just a moment about two potential sharing economy IPOs that may come public in 2019. Following on my mention of Booking Holdings, is sharing economy stock Airbnb (Nasdaq: AIRB).

Financial data is limited on companies that aren’t yet public, but we have a sense of the numbers from various media reports and piecing together data from reported private investments. Airbnb lists a little over 4 million unique properties ranging from houses to apartments to treehouses to tents, in a range of normal to exotic locations. The company was reportedly profitable for the second year in a row in 2018, after making $100 million on revenue of $2.6 billion in 2017.

While we’ll have to wait for the exact numbers to determine if the stock is a buy when it goes public, one of the things I like about the company is its innovative nature and the fact that it is not resting on its laurels as a “real estate rental” company. As CEO Brian Chesky puts it, “…people who misunderstand Airbnb, they tend to just see a bunch of real estate. But of course, if you look a little deeper, what you’re going to see are three million people — our hosts — and that’s in many ways, really, what you’re buying.”

One great example of this is the company’s Experiences business. Experiences provides travellers, or anyone for that matter, with a range of activities they can engage in when on vacation, or visiting a specific area. The “experiences” are hosted by Airbnb rental hosts, and the business is now doing over 1.5 million bookings per year. I would suggest that as the IPO nears and you are performing your due diligence on the company, look at the company and possible growth in its component parts, as opposed to viewing it simply as another online rental platform.

The final sharing economy stock I’d like to put out there is Lyft (Nasdaq: Lyft) Lyft is also projected to go public in 2019. Lyft has filed confidential IPO paperwork with the SEC as of early December 2018 concerning its IPO. A private funding round in 2018 valued the company at $15 billion, and the financial media recently valued the projected IPO at between $18 and $30 billion. Lyft reportedly had revenue of $563 million in the third quarter of 2018, losing $254 million in the same quarter.

In my view Lyft is benefitting from being second to market behind Uber. Lyft management has learned from the Uber experiences with unsatisfied drivers and regulatory challenges and has been able to avoid much of the bad publicity that has befallen Uber. If you’ve taken a Lyft ride recently, and had conversations with the driver (many of whom worked previously for Uber) like I have, you’ve heard how they were very unhappy with Uber and like driving for Lyft much more.

One of the things I like about Lyft is what appears to be a relatively aggressive move toward autonomous vehicles, which will increase margins by eventually eliminating the need for a driver altogether. In October, Lyft announced it was acquiring augmented reality (AR) company Blue Vision Labs. The company will join with an already robust autonomous vehicle initiative within Lyft, its Level 5 autonomous car division. The company is working closely with Ford (NYSE: F) to put an autonomous hybrid on the road as well.

The sharing economy is in its early stages with an abundance of growth ahead. Whether you prefer already established companies like GrubHub, Match, or Booking, or are looking forward to IPOs from Airbnb or Lyft, exposure to sharing economy stocks should be a part of your diversified portfolio.

Source: Investors Alley

Market Preview

Market Preview: Markets Start Off 2019 Positive Despite Volatility

Markets finished flat Friday to cap a good week on Wall Street. The S&P 500 is now up 3.49% on the year, with the Nasdaq jumping just over 5% to ring in 2019. The mini rally has restored some of the heavy losses suffered at the end of 2018. Earnings warnings have not been as dire as many had feared heading into a new earnings season next week, which has helped to rally markets off the recent bottom. But, U.S,/China trade talks, seemingly moving in the right direction, remain fragile. And, the continuing partial government shutdown will start showing up in economic numbers very soon. While unnerving for the employees involved, some market commentators are pointing to the positive returns markets have seen when gridlock has ruled in Washington, and lawmakers have been handcuffed when it comes to policies that impact stocks. The plethora of earnings next week will keep investors busy trying to pick the winners and losers of 2019.  

Monday, Citigroup (C) kicks off a busy week of earnings when the company, along with Shaw Communications (SJR), reports before the market open. Citi is the first of several big banks to report this week, and analysts are projecting $1.61 a share for the New York based bank. After a 30% decline in 2018, investors are looking for growth plans than include more than stock buybacks and tax breaks. Citi may set the tone for the other major banks, as JP Morgan Chase (JPM) and Wells Fargo (WFC) both report Tuesday.

Also reporting Tuesday are UnitedHealth Group (UNH) and Delta Airlines (DAL). Delta, already damaged in the December market selloff, fell sharply last week after downward revenue and sales revisions were released by the company. Bank of America (BAC) and Goldman Sachs (GS) report earnings pre-market open Wednesday. They’ll be joined by CSX Corp. (CSX) and Alcoa (AA) after the close. Thursday, the financial parade continues as American Express (AXP), Morgan Stanley (MS) and BB&T Corporation (BBT) all report earnings. Also reporting Thursday is Netflix (NFLX). The stock has rallied strongly in 2019 after suffering big losses at the end of last year. Finally, Schlumberger (SLB) and State Street (STT) will close out the week’s earnings when they report on Friday.  

Due to the partial government shutdown, no economic data is scheduled for release Monday. But Tuesday, investors should see the release of PPI data, as well as the Empire State Manufacturing Survey. PPI is expected to rise .1% month-over-month and 2.5% year-over-year. Wednesday analysts will examine Redbook retail sales data as well as government retail sales numbers released by the Bureau of the Census. Redbook data put sales at up 8.9% last week. Also released Wednesday are mortgage applications, business inventories, and the housing market index.

Thursday morning, housing starts, jobless claims and the Philly Fed Business Outlook Survey will all be on investor’s minds. Jobless claims came in at 216K last week, in line with estimates. While some numbers, such as recent manufacturing data, point to a weakening U.S. economy, jobs numbers have held steady to this point. The Fed balance sheet, which it is using to continue quantitative tightening, even as interest rate fears subside, will be released Thursday afternoon. Friday, industrial production, consumer sentiment, and the Baker-Hughes rig count numbers will all be released to close out the week.

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7 Stocks to Buy That Are Run By Billionaires

Elon Musk’s 'Billionaire Games' Continue to Prop Up Tesla (TSLA) Stock
Source: OnInnovation via Flickr

I recently viewed a list of the 50 richest people in the world. I don’t look at these kinds of lists as some sort of worship ritual towards the wealthy, but rather to find out about businesses run by these people I might have overlooked in my never-ending quest for stocks to buy.

When you get to billionaire status you’ve obviously done a lot in your life to make it happen. Most billionaires on the list made it without a family inheritance. Some run private companies. Others have publicly traded investment vehicles. All of them play a role in the global economy.

Rather than find stocks in really interesting companies, why not find really interesting billionaires and invest alongside them? You can bet Jeff Bezos and company are going to succeed far more often than they fail. Not to mention the fact a big chunk of their wealth is tied up in their company’s stock.

Men and women who put their money where their mouths make the best investment partners, don’t you think?

Here then is my list of seven stocks to buy that are run or controlled by billionaires. 

Stocks to Buy: Leonardo del Vecchio, Luxottica (LUXTY)

Source: Eva Rinaldi via Flickr

Leonardo del Vecchio: Luxottica (LUXTY)

The poorest person on my list — Leonardo del Vecchio, at $20.2 billion — founded Luxottica (OTCMKTS:LUXTY) in 1961 in Milan, Italy.

You might not know the name Luxottica, but you likely have heard of Sunglass Hut, the retail shop it uses to sell Ray-Ban and Oakley sunglasses, two of the many brands it has acquired over the years.

In May 2017, Luxottica voluntarily delisted its ADR from the New York Stock Exchange to save costs. Only 3.7% of the company’s worldwide average daily volume was in the U.S. Investors can still buy its shares on the over-the-counter market.

Also, in 2017, Luxottica and Essilor, the world’s largest lens maker, agreed to merge in an all-stock deal that would generate more than $20 billion in annual revenue with more than 140,000 employees around the world.

The merger, making Luxottica a vertically integrated powerhouse, was completed this past October. Del Vecchio is executive chairman and owns 39% of the company.

Stocks to Buy: Elon Musk, Tesla (TESLA)

Source: JD Lasica via Wikimedia Commons

Elon Musk: Tesla (TESLA)

This man needs no introduction. Nor does Tesla (NASDAQ:TSLA), his company, the world’s biggest electric car company.

As both a Canadian and a fan of Musk and the company, I find it gratifying that not only did the billionaire spend some time in Canada during his college years — in his freshman and sophomore years he attended Queen’s University in Kingston, Ontario — he’s got a Canadian girlfriend.

Clearly, his attachment to Canada goes beyond two years of university. A grandmother and aunt live in Alberta and he met his first wife while studying in Kingston.

Geography aside, you either love or hate Musk’s personality. However, regardless of your thoughts on the man’s behavior, what he’s doing with Tesla and electric vehicles will stand the test of time.

In the fourth quarter of 2018, Tesla delivered 90,700 vehicles, 204% more than in the same quarter a year earlier. More than likely the company will generate a second consecutive quarter of profitability, a sign Tesla is gaining traction in the marketplace.

The stock is incredibly volatile but the rewards a decade from now should be tremendous. Of all the stocks on the list, this is the one I’m rooting for the most.

America needs more Tesla’s.

Stocks to Buy: Li Ka-shing, CK Hutchinson Holdings (CKHUY)

Source: Shutterstock

Li Ka-shing: CK Hutchinson Holdings (CKHUY)

If Leonardo del Vecchio is a mystery to most American investors, Hong Kong billionaire Li Ka-shing is an enigma rolled inside of a mystery. Li Ka-shing left school at 16 to support his family. All these years later — the man’s 90 — he’s worth an estimated $27.8 billion and still going strong.

Reading about the various businesses that are part of this multinational conglomerate isn’t something you can do in one sitting. CK Hutchinson Holdings (OTCMKTS:CKHUY) controls companies that operate in telecom, infrastructure, energy, healthcare and many other fields. It employs more than 300,000 people in over 50 countries around the world.

Conglomerates might be on the way out, but don’t tell that to Li Ka-shing and the people working at CK Hutchinson or one of its subsidiaries. Financially, it’s doing just fine. In 2017, CK Hutchinson had $53.2 billion in revenue with $4.5 billion in net income.

It might not be very well known on this side of the pond, but over in Asia it’s a household name.

Stocks to Buy: Larry Page, Alphabet (GOOGL)

Source: Shutterstock

Larry Page: Alphabet (GOOG, GOOGL)

It’s hard to imagine being worth $50.5 billion at 45 years of age and the eighth wealthiest billionaire but that’s exactly where Google co-founder Larry Page sits at the moment.

In contrast, Warren Buffett didn’t become a billionaire until he was 55.

Depending on how Alphabet (NASDAQ:GOOGL, NASDAQ:GOOG) stock performs in 2019, Page could go even higher.

When Page isn’t counting his billions, he’s busy being the CEO of the entire Google network of companies and experiments. That’s not exactly a 9-to-5 job.

Everybody knows about Google’s formidable market share in online advertising — 37% at the end of 2018 — but it is the company’s other bets that hold the most potential.

Take Waymo, for example. It’s the company’s big bet on autonomous driving technology. Analysts believe Waymo could be worth $250 billion to the company, or 34% of its current market cap. That’s up significantly from previous estimates that were half that amount.

A lot has to happen for this to be correct, but if you’re looking fto ride a billionaire’s coattails, Alphabet is one of the best stocks in my opinion.

Stocks to Buy: Bernard Arnault, LVMH, (LVMUY)

Source: Mathieu Lebreton via Flickr

Bernard Arnault: LVMH, (LVMUY)

I’ve never owned LVMH (OTCMKTS:LVMUY), the luxury goods holding company of French billionaire Bernard Arnault, but I probably should because Arnault is in a league of his own when it comes to running a business.

Starting out in the family business, Arnault took a big leap of faith in 1984, acquiring Boussac, a textile company that owned several apparel businesses including Christian Dior. He then went on to make so many acquisitions in fashion, retail, drinks, watches and other industries, it would make your head spin.

His latest example of risk-taking: LVMH has acquired Belmond — the London-based owner of the Orient Express train service as well as luxury hotels in 24 countries — for $3.2 billion.

Skeptics of the deal suggest that it’s one thing to own luxury brands. It’s another to own luxury hospitality. If there’s a businessperson on this planet that can make this work, Arnault is definitely the person to do it.

Stocks to Buy: Warren Buffett, Berkshire Hathaway (BRK.A,BRK.B)

Source: Shutterstock

Warren Buffett: Berkshire Hathaway (BRK.A, BRK.B)

What Bernard Arnault is to luxury goods, Warren Buffett is to insurance. Berkshire Hathaway (NYSE:BRK.A,NYSE:BRK.B) wouldn’t be the company it is today if it wasn’t for the Oracle of Omaha recognizing the beauty of the insurance company float.

Buffett realized that he could use an insurance company’s float — the difference between the premiums collected and the paid out claims — to invest in stocks and other businesses. It’s essentially an interest-free loan by the insurance company’s shareholders.

The downside of float is that you eventually have to repay the money in the form of claims payments. When there are major events like floods or hurricanes, the payouts often far exceed the premiums leading to an underwriting loss.

So, not only was Buffett smart to realize the float’s usefulness beyond the insurance business, he was wise enough to know he needed really smart people running these insurance companies to limit the underwriting losses over the long haul.

In fact, Berkshire Hathaway’s insurance operations are so well run that its float hasn’t cost the company a cent. It was actually paid $2 billion a year between 2002 and 2016 to invest $92 billion in insurance float.

I consider Berkshire Hathaway the world’s cheapest mutual fund. Pay no annual fees but get lots of positive returns. What’s not to like?

Stocks to Buy: Jeff Bezos, Amazon (AMZN)

Source: Shutterstock

Jeff Bezos: Amazon (AMZN)

Jeff Bezos tops the list of the world’s wealthiest people. Even if he gives away half of his estimated wealth of $125 billion to his wife Mackenzie as part of any divorce settlement the couple might agree to, Bezos would still be the fifth-wealthiest person on the planet.

That is a staggering amount of wealth.

The founder of Amazon (NASDAQ:AMZN) has seen his personal wealth mushroom in recent years as the company’s continued to prosper and free cash flow’s accelerated.

Consider this. In 2008, Bezos’ estimated net worth was $8.2 billion. The company’s free cash flow that year was $1.4 billion. In 2017, it was $8.4 billion. That might not seem like a lot until you consider that Amazon’s capital expenditures were only $333 million in 2008 compared to $5.4 billion in 2017.

Bezos and any other Amazon shareholder who held the entire period got much wealthier indeed.

Between online retail, Whole Foods, advertising and many other Amazon initiatives, he could become the world’s first trillionaire. Divorce shouldn’t slow him down.

As of this writing Will Ashworth did not hold a position in any of the aforementioned securities.

Source: Investor Place

Technology

Amazon Stock Will Hit $10,000 Sooner Than You Think

This time last year, I predicted that Amazon’s (NASDAQ:AMZN) business would continue to grow at a rapid pace, pushing AMZN stock all the way to $10,000.

Of course, I wasn’t suggesting it would happen immediately. Rather, it might take as long as 7.5 years to get there, which would still result in an annualized return of 33% for Jeff Bezos and company.

“In my estimation, if it took 7.5 years to get to $1,000 from $100, I see AMZN stock getting to $10,000 somewhere between January 2023 and January 2025.“

In September, the markets went into full-on bear mode, knocking the S&P 500 for a 14% loss, making it the worst quarter for the index since 2008, and in the process, putting it into negative territory (-7%) in 2018. Talk about a reversal of fortune.

How did AMZN stock fare in the fourth quarter? It lost 25% to close well down from its 52-week high of $2,050.50. No matter. Early in 2019, Amazon’s managed to regain some of those losses — it’s up 7.8% year-to-date through the Jan. 9 close.

Like a young child taking learning to walk, step by step, Amazon will get back on the path to $10,000. In fact, it needs only a couple of its big initiatives to be successful to reach the lofty goal sooner rather than later.

Here are two of them:

Amazon’s Push Into Advertising

When investors name-drop companies in online advertising, two names come to mind: Facebook (NASDAQ:FB) and Google, part of Alphabet (NASDAQ:GOOGL, NASDAQ:GOOG).

Facebook and Google account for 58% of the U.S. online advertising market. Together, the two firms generated approximately $61 billion in ad revenue in 2018. Way down in third place with 7%market share of U.S. digital ad spending is Amazon — but it’s coming on like a house on fire. Forecasts suggest that Amazon ad revenues could hit $38 billion annually by 2023.

While Amazon has little chance of catching the duopoly that is Facebook and Google, it stands a good chance of becoming a strong third wheel.

“My understanding from speaking with people in the industry is that Amazon’s retail, subscription-based and advertising revenues are fairly fluid,” said Pivotal Research senior analyst Brian Wieser. “Amazon will optimize revenue streams and profitability based on what it sees from consumers.”

So while Facebook and Google are heavily dependent on advertising, Amazon has stuff like Amazon Web Services (AWS) — $5.1 billion in operating income in the first nine months of its latest fiscal year — that are highly profitable to lean on while building some of its other businesses such as advertising.

Jeff Bezos has become a master allocator of capital, stoking the fires that need stoking, and in the process, making Amazon extremely nimble and able to act on its best ideas.

Amazon Go

The cashier-less convenience store concept Amazon began rolling out in 2018 is going to revolutionize the industry. Amazon, which expects to open 3,000 stores by the end of 2021, could generate as much as $4.5 billion in annual sales from these stores in three years’ time. According to RBC Capital Markets, the average Amazon Go store does $1.5 million in annual sales.

Not bad for a store concept that doesn’t need any front-of-store personnel.

“Amazon Go stores could be a game changer for physical retail experience. Its in-store technology enables shoppers to have a very efficient and pleasant shopping experience,” RBC analyst Mark Mahaney wrote in a note to clients. “While not a significant financial contributor yet, we believe the overall opportunity is huge.”

Darn straight.

The convenience store industry hasn’t changed in 25 years. Those aren’t my words — they’re Alimentation Couche-Tard (OTCMKTS:ANCUF) CEO Brian Hannasch’s.

“The experience of buying fuel and of buying items in our stores has largely been unchanged since card readers were introduced 25 years ago,” Hannasch said in a November story in ConvenienceStore News. 

The convenience store business might not be as sexy as Whole Foods, but it’s got the potential to engage Amazon Prime customers wherever they live.

The stores themselves might generate $4 billion in sales, but it’s the free advertising Amazon gets to attract more Prime members that’s the real key to Amazon Go’s ultimate success.

Everything Amazon does revolves around Prime. 

The Bottom Line on AMZN Stock

Nothing Amazon does surprises me anymore. It’s got a great business model and is using technology to innovate old-school industries like grocery, convenience stores, healthcare — the list goes on. I could actually see Amazon stock hit $10,000 within five years, two-and-half years sooner than I suggested last January. However, it’s got to nail at least one of these initiatives to have a chance.

As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.

Technology

Google Blindsided Amazon on This One, Increasingly Important Front

Source: Shutterstock

Credit has to be given where it’s due … Amazon.com (NASDAQ:AMZN) has largely defined the current era of smart speakers. Although voice-activated assistants have been offered on some smartphones and newer computers, Amazon’s stand alone Echo has raised the bar to an impressively high level. Some Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) investors were expecting Google to take — and keep — that lead.

Nevertheless, current and prospective owners of GOOGL stock have good reason to cheer. Even without knowing exactly how or why its smart speakers are going to be leveraged into sales or profit growth, Alphabet just made a huge dent in Amazon’s dominance within the AI assistant market.

And it happened at a crucial time.

GOOGL Is Catching Up

Technically speaking, Apple (NASDAQ:AAPL) got there first.

Apple unveiled Siri as an app in 2010, and then began integrating it into the iPhone, with the 4s, the following year. But, Siri wasn’t seen as the basis for a standalone device until well after other tech giants began making them. Neither was Cortana, from Microsoft (NASDAQ:MSFT), when it debuted in 2014. At the time, it was only meant to be a means of manipulating an OS’s features with greater ease.

Amazon saw the full potential of an artificial intelligence powered platform early on, however, launching the Alexa-powered Echo in mid-2014. It would be another two years until Google Home would launch, leveraging its Google Voice Search and then Google Now platforms into a competitive smart speaker.

That two-year gap allowed Amazon to develop a wide lead in this fast-growing market. During the third quarter of 2017, sales of the Amazon Echo accounted for nearly 75% of the global smart-speaker market. Google accounted for only a little less than one-fourth of smart-speaker sales.

Much has changed in the meantime. During the third quarter of last year, Amazon was the brand name behind just a tad under 32% of smart-speaker sales, while Google’s piece of the market wasn’t far behind at nearly 30%. Alibaba (NYSE:BABA) and Xiaomi, impressively enough, accounted for a fair amount of the remainder. Neither had an AI-powered digital assistant on the market a year earlier.

Installed User Base Is Still the Key

GOOGL shareholders don’t need to take a full victory lap just yet.

Although Google Home is now selling almost as well as Amazon’s Echo, Amazon’s unchecked early dominance means most of the smart-speakers still in use today are previous versions of the Echo. As of the middle of last year, industry research outfit CIRP believes 70% of smart speakers in use in the United States are powered by Amazon’s Alexa, with Google making up another 24%. Apple, late to the party, serves roughly 6% of the United States’ smart-speaker market.

The data is fuzzier when looking at the global numbers, though undoubtedly Xiaomi and Alibaba lower the relative size of both Amazon’s and Alphabet’s smart-speaker market share.

Nevertheless, to the extent it matters, GOOGL is making inroads at Amazon’s expense.

And that’s the core of the question at hand … to what extent does it matter?

Hardware sales count to be sure, but device sales aren’t apt to be viewed as the endgame for any of these organizations. The goal is to place a device in as many living rooms or bedrooms as possible that can readily connect those consumers with a data-gathering algorithm. That data, of course, will eventually be used to build a profile of said user and ultimately be used as a means of selling that individual or family more goods or services.

Bottom Line for GOOGL Stock

Turning consumer-specific information into revenue is anything but an exact science, to be fair.

Most companies understand that data is valuable, perhaps without even fully understanding how it may be effectively leveraged. Certainly repeat purchases are a flag to Amazon or Google that a consumer uses a given quantity of a consumable. But, it’s very likely that consumers are going to make repeat purchases on their own without any nudging from the company behind their hardware. The real power of information is driving revenue that may not have otherwise been driven. That’s the underlying importance of smart speakers.

To that end, the next philosophical question investors should be asking is which of these two companies can best monetize what is mostly arbitrary data?

It matters. Voicebot.ai expects that by 2022, voice-driven e-commerce will reach an annualized pace of $40 billion. That, however, may still only scratch the surface of what smart-speakers are capable of facilitating.

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