All posts by Tony Daltorio

Buy These 3 Stocks for the Only Thing Trump and Pelosi Can Agree On

Whether you watched the State of the Union address by President Trump last week or not, you, like me, probably have no illusions that the two parties will accomplish much together in the foreseeable future. One area where they reportedly have common ground is infrastructure repair and maintenance. The numbers certainly argue for a new spending bill, but the need for common sense spending, and what Washington actually does with our tax dollars, don’t necessarily line up these days.

The American Society of Civil Engineers (ASCE) compiles an extensive report on the state of the infrastructure in the U.S., looking at roads, bridges, waterways, schools, airports, and a variety of other key infrastructure indicators. The news is not good, and hasn’t been for years. The total amount of infrastructure is massive, and much of it has not gotten needed attention for repair and maintenance. ASCE issues a “report card” every four years for the overall infrastructure, and as of 2017 the grade was a D+. It was the same in 2013.

The report details crumbling roads and bridges, inadequate school facilities, and airports and air traffic control systems that have failed to keep pace with an increasing number of aircraft and air travellers across the U.S. Dams are ever closer to failing, and our ports, which handle approximately 26% of all goods flowing through the U.S. economy, need deeper channels to handle larger ships, and new equipment landside to load and offload these new larger vessels.

So, if I look at infrastructure companies, ones that provide the material and logistics to build new roads, bridges and airports, I might expect to find a graveyard of broken stocks. But that’s simply not the case. Why?

Three factors are driving infrastructure spend, which, according to the companies selling the cement and asphalt, is getting increasingly stronger. First, we actually do have an infrastructure bill in place in the U.S already. The Fixing America’s Surface Transportation (FAST) Act was signed into law by President Obama in December 2015, and provides for over $305 billion of dedicated funding for U.S. infrastructure. The five year budget, running through 2020, is still being spent and driving business for infrastructure companies.

Second, a strong economy the last few years, as measured by unemployment numbers and jobs created, has meant more money for state coffers. State Departments of Transportation across the U.S. are starting to pick up the slack from federal funding and fix their infrastructure themselves. It appears this funding is in the early stages, with many states recently engaging in large long term projects.

And third, the companies I look at below, are working in states where the population is growing. This means more building as residents move in, more tax revenue, and then more infrastructure building. According to the latest U.S. census numbers the highest growth states include the Carolinas at 9 and 10, Texas at 8, Colorado at 7, and Florida at 5. Not surprisingly, these states represent the backyard of the infrastructure companies doing well. Let’s not hold you in suspense any longer, and get to the companies.

Martin Marietta Materials (NYSE: MLM)

Maybe my mention of Martin Marietta stirs your memory of the aerospace and electronics company it once was. When Martin Marietta merged with Lockheed in 1995, the companies formed Lockheed Martin (NYSE: LMT). But the new aerospace and defense company had no need for a provider of cement and concrete, and spun off Martin Marietta Materials the following year.

Today, Martin Marietta provides aggregates and heavy building materials. They sell the material necessary to build roads, sidewalks and the foundations of homes and commercial buildings. And they’re doing a good job of it. The company has taken advantage of a strong economy in the U.S. and grown earnings an average of 31% the past 5 years.

Operating in growing states such as Texas, North Carolina, Georgia and Florida, Martin Marietta is seeing an acceleration in public contracts let by the Departments of Transportation in these states. The company has made a focus on demographic trends a mainstay of their business strategy, and they are following the time tested tactic of going where the money is.

As CEO C. Howard Nye, who has been CEO since 2010 recently stated, “In fact, many of our most attractive areas, while growing, are still well below mid-cycle shipment levels. Further, it remains difficult to see an end to this recovery when the long-awaited arrival of increased infrastructure activity has only recently begun in earnest.” It doesn’t get much rosier than that.

Not only is the company seeing an uptick in business, they are raising prices at the same time. This is one of the reasons to get in the stock now. As Mr. Nye puts it, “Our optimism is further bolstered by favorable pricing trends, typically an indicator of underlying market strength.” Martin Marietta is projected to grow earnings per share next year 16.5%.

Finally, the company should benefit from unfavorable weather which adversely impacted the Carolinas last year in the form of Hurricane Florence. Causing an estimated $18 billion in damage to the Carolinas, the region will have to go through a long period of rebuilding damaged infrastructure. This rebuilding process generally takes several years, and results in an increased demand for the products Martin Marietta provides.

Vulcan Materials (NYSE: VMC)

A second supplier of building materials which should benefit from the same tailwinds as MLM, is Vulcan Materials. Echoing comments from Martin Marietta, Vulcan Materials CEO, J. Thomas Hill noted about their third quarter, which was marred by the inclement weather mentioned above, “Highway construction demand is strengthening across the country, but much more so in our markets. We’re now seeing the conversion of public funding in the shipments, and this showed up in 10% growth in our quarterly aggregates shipments and a 6% increase on a same-store basis.”

Supporting my thesis here, Mr. Hill added, “Prices continue to escalate. With improved flow-throughs, all of which is supported by growing demand.” And Vulcan isn’t content with just growing organically, they’re making acquisitions, something I like in an expanding market.

In 2018 the company bought Aggregates USA, a materials provider with operations in Georgia, South Carolina, and Florida. As Mr. Hill points out, the acquisition “adds to our product offering, expands our distribution network and service areas, and will help us better serve our customers.” Any merger kinks should be worked out by now, one year later.

Vulcan has grown earnings per share almost 49% per year on average the past 5 years, and is projected to grow earnings at a 24% clip next year. The company currently trades at a PE of 32, but that should drop to around 21 if earnings come in as projected.

NV5 Holdings (Nasdaq: NVEE)

If you’re looking for a smaller company, that has exposure to U.S. infrastructure, but has exposure to growth from infrastructure projects globally, look no further than NV5 Holdings. The company provides a wide array of technical services related to building projects, including providing water and electricity to buildings, and providing logistics services for waste water management.

NV5 is an innovative company looking for new ways to provide value to its customers at lower cost. You know I like companies that not only develop technology, but apply new technology and develop business models using emerging tech. A great example of this is the drone survey business, a quickly growing sector for construction, as well as safety and inspections.

COO Alexander Hockman, describes the new way in which NV5 is using drones to attack business problems. “Our drone survey service is providing a differentiating technology and was used to collect survey data on over 300 acres of the Brooklyn Navy Yard. Using conventional techniques, the task would have taken several weeks but was completed in approximately four hours using our drone-based photogrammetry technology.”

NV5, like Vulcan, is also acquiring companies and adding additional services to its lineup. The company recently acquired CHI Engineering, which gives it access to a client base of over 80% of the 140 Liquified Natural Gas (LNG) facilities in the U.S.

NV5 has extensive business globally, and importantly operates over a range of sectors within the building industry. The company is currently working on projects in Abu Dhabi, Cypress, Macau, Hong Kong, China and Taiwan. And, customers range from municipalities, to transportation hubs, to multinational hospitality companies.

NV5 has grown earnings an average of 34% over the past 5 years, and is projected to grow earnings over 80% this year. The company has a very small amount of debt, and trades at a PE of just over 26.

New infrastructure bill in the U.S. or not, federal funds are flowing and states are ponying up to fix their crumbling infrastructure. And, even with growth slowing internationally, new building projects are still being captured by innovative companies. Take a look at Martin Marietta, Vulcan Materials, or NV5, they may be just the foundation your portfolio needs.

Source: Investors Alley

3 Leading Renewable Energy Stocks

I want to follow up on my renewable energy article from Monday with another look at the renewable energy sector. And later I will fill you in on three renewable energy stocks leading the way that hail from Europe.

First though, let’s look at some of the raw numbers on renewable energy investment worldwide.

Clean energy investment globally actually declined 8% in 2018, according to Bloomberg New Energy Finance, to reach $332.1 billion, because of two factors – a Chinese crackdown on solar subsidies and the falling cost of wind and solar projects.

This latest data from BloombergNEF, considered to be the most definitive account of clean energy spending worldwide, shows that the biggest drop came in China, where renewable energy investment fell by a third after a new government policy slashed subsidies for solar projects beginning in June.

However, this is a case where a cursory glance at the raw numbers does not give a valid picture of what is going on in the renewable energy space. Actual additions globally of new wind and solar projects still increased year on year despite the decline in investment, because the costs of solar and wind energy projects have seen steep falls.

Angus McCrone, chief editor of BNEF, explained: “It’s not really a slowdown at all. Every year investment in clean energy has to run faster to stand still, because of the reduction in costs.” Renewable energy investment will fall again in 2019, he predicts, even though the amount of new capacity added will increase slightly because the reduction in costs will continue.

Costs Continue to Fall

There is no doubt that the costs of renewables — led by solar and wind power — are now materially cheaper than they ever have been. These costs have fallen to the point at which the International Energy Agency, in its latest short term outlook, sees prices falling to between $20 and $50 per megawatt hour. That means wind and solar can compete with other fuels, even if some of the costs of providing back up to cover the intermittency of renewable supplies are included. In a growing number of markets, neither subsidies nor protected market shares will be necessary.

Even here in the U.S., the cost of new wind and solar power generation has fallen below the cost of running existing coal-fired plants in many parts of the country. New estimates published in November by the investment bank Lazard show that it can often be profitable for U.S. utilities to shut working coal plants and replace their output with wind and solar power.

According to Lazard, the all-in cost of electricity from a new wind farm in the U.S. is $29-$56 per megawatt hour (MWh) before any subsidies — such as the federal Production Tax Credit, which is being phased out by 2024. The marginal cost of operating a coal plant is $27-$45 per MWh.

So there are times and places where building a wind farm, even without any subsidy, would make sense. Add in the PTC, which can cut the cost of wind power to as little as $14 per MWh, and the case becomes even stronger. This turns into a win-win situation, with higher returns for the utility companies and lower bills for their customers.

Here in the U.S., the outlook for wind power is brighter than that for solar power at the moment because of tariffs placed on solar panels by the Trump Administration.

Installations of new solar power capacity in the U.S. slowed in the third quarter of 2018 to the weakest rate since 2015. The projects most affected were the large utility-scale projects, which are much more sensitive to the cost of solar panels.

These tariffs came into effect last February at an initial rate of 30% with the intent of protecting domestic panel manufacturers. But the Solar Energy Industries Association, which represents developers and installers as well as manufacturers, said the tariffs had put a brake on investment and had cost more than 20,000 jobs.

It is this apparent anti-renewable energy sentiment from the Trump Administration that has me looking to Europe for the best-performing companies and stocks in the sector. I particularly like the wind power-related companies in Europe. Here are just three of them…

Three European Wind Power Stocks You Can Buy Here in the U.S.

Europe is home to some of the world’s best wind turbine companies, which is good news since the prospects for the wind business remain sound. Installations worldwide are expected to reach 72 gigawatts per year by 2025 – a 5% compound annual growth rate. My two favorite are:

Vestas Wind Systems (OTC: VWDRY) and Siemens Gamesa Renewable Energy (OTC: GCTAY). Vestas’ stock here in the U.S. is much more liquid than Gamesa’s, but both companies are doing very well.

Gamesa was an independent Spanish wind company that combined its wind assets with Germany’s industrial powerhouse Siemens to form a top-notch company.

In its recently reported quarter, results were much better than expected, sending the stock soaring from a beaten-down low (there were doubters as to the wisdom of the merger). Revenue increased in the quarter by 6% year-on-year, to 2.26 billion euros, driven by the offshore wind business and by its services business. Wind turbine volume increased by 7%, to 2,129 megawatts of energy, due to the strong contribution by the offshore segment, which sold 609 megawatts (+76% year-on-year).

Net profit amounted to 18 million euros, contrasting with the 35 million euro loss reported in the same period of the previous fiscal year.

Siemens Gamesa logged orders worth 11.5 billion euros in the last twelve months (+3% year-on-year), driven particularly by a 28% increase in onshore orders (6.8 billion euros). Order intake in the first quarter amounted to 2.5 billion euros, with solid performance by onshore wind turbines (1.8 billion euros, +7% year-on-year).

The order book stands at 23 billion euros (+8% year-on-year), of which 15.7 billion euros worth are orders to be filled after the 2019 fiscal year. This lends greater visibility to its future growth and covers 92% of the revenue target for the current year. The offshore wind business is projected to attain 27% annual growth, from 2 gigawatts of installations in 2018 to 12 gigawatts in 2025.

Vestas will announce earnings on February 7th, but it has already pre-announced good news. Based on preliminary reporting, Vestas upgraded its expectations for 2018 free cash flow to approximately 400 million euros. That compares to its prior expectation of a minimum of 100 million euros.

The company said the marked improvement was primarily driven by a strong order intake and indeed the company’s order book is at a record high, with over 10 gigawatts of orders in 2018. One example of a major order it won here in the U.S. was announced in December to supply 100 of its V120-2.2 megawatt turbines for a wind project.

Another major wind power-related company is Denmark’s Orsted A/S (OTC: DNNGY), which has transformed itself from a hydrocarbon energy company into a renewable energy company.

It last earnings report, in November, blew away analysts estimates (pardon the pun) with a 31% rise in earnings from offshore wind generation. And the company raised its guidance for 2019.

Orsted also said its green energy generation had increased substantially, with renewables now accounting for 71% of its heat and power output, up from 60% in the year ago period. It recently expanded its reach into onshore wind in the U.S. with the purchase of Lincoln Clean Energy and it also bought a U.S. offshore wind developer, Deepwater Wind.

Most of these stocks have done well, despite 2018 being a very poor year for stocks. The returns over the past year for these three companies’ ADRs are: Siemens Gamesa – 1%, Vestas – 25% and Orsted – 25%. The only laggard has been Gamesa, but it is up 35% over the past three months.

I expect the outperformance from these stocks to continue in 2019.

3 Renewable Energy Stocks in a World Demanding More Electricity

With much of the U.S having just gone through what has been described by some media outlets as the coldest temperatures EVER in the Midwest, let’s talk about something on everyone’s mind, air conditioning. No, I’m not crazy. The World Economic Forum, in the midst of this major cold snap in the U.S., just published a piece on one of the predicted major drivers of energy demand growth in coming years. Yes, it’s air conditioning.

Of course, air conditioning itself isn’t suddenly en vogue when it wasn’t before. It’s a byproduct of economic growth and a rising global standard of living. While 90% of homes in the U.S. and Japan have air conditioning, that number drops to a staggering 8% for people who live in some of the hottest regions of the world. The number of air conditioners, driven mainly by populations in China, India, and Indonesia, is expected to increase over 250% in the next 30 years, to something around 5.6 billion.

And, that demand for space cooling, is expected to be one of the major drivers of electricity demand moving forward. An International Energy Agency (IEA) report predicts that peak electricity demand in India, which is currently comprised of 10% air conditioning demand, has air conditioning becoming 45% of peak demand in 2050. As the report states, “Growing demand for air conditioners is one of the most critical blind spots in today’s energy debates.”

Now, my use of the predicted rise in demand for air conditioning, in the midst of a major cold snap in the U.S., is somewhat tongue in cheek. But, the global rise in energy demand, which the IEA puts at between 30 and 40% by 2040, is real. And, the need to address this rising demand, be it for air conditioners, data centers, increased usage of electronic devices, or simply a rise in the standard of living, has companies and governments turning to renewable energy to solve some of the problem.

The result, the renewable energy market is growing. Driven by both this rising demand, and fairly recent advances in technology, which have renewable energy sources rapidly approaching the cost of old school fossil fuels. Companies are increasingly profitable and projecting long-term growth in this area. Here are a few of the names I like, and recommend you take a look at, in the renewable energy sector.

NextEra Energy (NYSE: NEE)

When you think of NextEra it’s highly unlikely you think of renewable energy. Most investors who know NextEra recognize them as the owner of Florida Power and Light (FPL) and one of the largest regulated utilities in the U.S. But they are much more than your average utility company.

NextEra Energy Resources, the renewable energy arm of NextEra, counts solar, wind, natural gas, and nuclear properties among its holdings. The company is rapidly moving forward on the renewable energy front, and CEO James Robo believes the cost of solar and wind generated energy will be the same as that of power generated by coal, and oil and gas fired power generation units very soon.

Robo has said that combining new energy production technology in wind and solar, combined with new technology being developed in power storage, will drive prices of renewables to the point that they will “…be massively disruptive to the nation’s generation fleet and create significant opportunities for renewable growth well into the next decade.”

NextEra has done a great job of moving from a staid electrical utility to quickly becoming the face of renewable energy on a large scale, while at the same time maintaining profitability for its shareholders.

Robo points out that by NextEra executing well on its business operations, “…FPL’s typical residential bill is more than 30% below the national average, the lowest of all 54 electric providers in the State of Florida and nearly 10% below the level it was in 2006.” And, this has been achieved, while bringing record amounts of renewable energy online in both 2017 and 2018. One of the main reasons I like the company here.

Since 2005 NextEra has delivered compounded annual growth in earnings of over 8.5%. It is expected to grow earnings this year 18.5% and pays a dividend just over 2.5%. The company’s profit margins are just over 50%, and it has a PE of just over 13.5. The company looks well positioned among the major utilities to continue expanding profitably into the renewable energy space for years to come.

Renewable Energy Group (Nasdaq: REGI)

Renewable Energy Group is focused on turning your fast food remains, specifically the oil used to cook that food, into energy and profits. Using its proprietary BioSynfining technology, in the first 9 months of 2018, REGI prevented 2.9 million metric tons of carbon dioxide from release into the atmosphere. That is akin to removing 600,000 cars from U.S. highways for one year.

Renewable Energy has 14 refineries that turn vegetable oil, greases and sugars into biomass-based diesel fuel. One reason I like the company is the possibility of a new joint venture with Phillips 66 (NYSE: PSX) in which the two companies will build a large west coast biodiesel refining facility. California is one of REGI’s major customer states, and a new facility, currently planned for Washington state, alongside a Phillips 66 facility, would add valuable capacity to the Renewable Energy biodiesel offering.

Demand for biodiesel has risen 30% over the past two years, and REGI has been increasing production numbers to keep pace. They produced 11% more biodiesel in the first nine months of 2018 than 2017, and have increased production by 16% in the third quarter of 2018 alone.

REGI is also operating in a favorable regulatory environment. Despite tweets from the Commander-in-Chief negatively referencing global warming, that may have you thinking otherwise, the EPA is set to release updated regulations on biomass-diesel that would increase demand for the product. As Renewable Energy CEO Randolph Howard states, the new rules should “…ensure meaningful growth in both the biomass-based diesel and advanced biofuels category.”

In addition to these rules, and one of the reasons the company should be bought now, is a pending long term extension of the Biofuel Tax Credit (BTC). Howard says, “We’re pleased that participants across the various industries associated with biomass-based diesel remain united in the desire for a long-term extension of the BTC. This support is broad-based from feedstock suppliers, including farmers and ranchers, to producers, to blenders and, ultimately, to the end users represented largely by the trucking industry.”

REGI is projected to grow earnings 15% annually over the next five years, and has profit margins just north of 19%. Renewable Energy is well positioned as the major player in an industry that is seeing increasing demand, favorable tax and regulatory treatment, and a growing desire on the part of major players in the space to be seen as environmentally friendly. The company should continue to be the top player in biodiesel for the foreseeable future.

TPI Composites (Nasdaq: TPIC)

With origins in building sailboats, TPI Composites is a manufacturer of composite wind blades for wind power generation. The company has manufacturing facilities in the U.S., four cities in China, Denmark, India, Mexico and Turkey. The wind power generation business is projected to reach $100 billion by 2025, with much of that growth coming from China, where TPI has a strong footprint.

2018 was an investment and transitioning year for the company, as they invested in a large number of start-up blade lines and moved a large amount of production to larger blades. The company is on track to complete, and begin reaping the benefits of, this investment in 2019. This is one reason I believe now is a good time to buy TPIC.

Management is already seeing an above projection interest in its new lines, and CEO Steve Lockard addressed the transition year in their latest conference call stating, “While we’ve had some execution challenges and delays relating to both start-ups and transitions this year, we’re getting better with our customer support at both start-ups and transitions making them happen faster and therefore, less costly.”

It appears the company has learned from this process and is projecting more incremental changes to its products moving forward. This should reduce cost, while still improving the efficiency of its blades. Management also believes the size of current blades is close to the maximum size practicable, and that future blades will be more modular in nature, which should point to increasing profit margins at TPIC.

TPI Composites has averaged 49% earnings growth the past 5 years and is projected to grow earnings 35% annually over the next 5 years. And with this growth profile, the company trades at a PE multiple of only 11. I would like to see a higher profit margin than the current 2%, but I believe the end of the transition period in 2018, along with a move to more modular products, will address that issue.

The demand for renewable energy is rising. Whether in the form of a large utility like NextEra, a biodiesel play like Renewable Energy, or a global wind energy company like TPI Composites, you should take advantage of this rising tide, and place a renewable energy stock in your portfolio.

Source: Investors Alley

3 Virtual Reality Stocks Taking Off With Commercial Applications

Each year I read about the promise of virtual reality / augmented reality (VR/AR) and how this is THE year for the technology to take hold. Most of these predictions center around either gaming or the ability to watch live sporting events in a VR/AR environment. In other words, you can sit at home on your couch, but also be courtside at a Lakers game, and at halftime you can play Fortnite in a VR environment with friends around the world.

And, while I believe the technology, as well as the supporting marketing, infrastructure, and necessary consumer buy-in, will eventually converge and become a major industry, as they say, the key is in the timing. 5G will be a major boon to this industry, and as the new network technology rolls out in the next few years, VR/AR will be one of the major beneficiaries.

When most investors think of VR/AR the first thing that comes to mind is Facebook (Nasdaq: FB) and its Oculus Rift, or newer Oculus Go. Or, Lenovo (NYSE: LNVGY) the world’s largest AR headset maker. But, there is another ecosystem of VR/AR that is flying largely under the mainstream investment community radar with its focus on gaming.

Industry 4.0, shorthand for the connectivity and digitization of manufacturing, which includes increased use of digital tools for manufacturing, training, and marketing, is one area where VR/AR is making an impact. Another is the use of VR/AR to enhance capabilities in high pressure, high stakes professions, such as doctors, pilots, and soldiers. And in yet one more part of this ecosystem, are VR/AR capabilities to enhance safety and security for consumers. An example being the use of VR/AR in autonomous vehicles.

Each of these fast growing areas are already being aided by VR/AR technology to either enhance current systems, provide institutional memory and training for an increasingly nomadic workforce (see my previous article on the gig economy), or to increase the safety of the public and our military. These are a few of the companies that are employing a VR/AR solution today, and not waiting for next year.

Elbit Systems (Nasdaq: ESLT)

Elbit Systems is an Israeli based aerospace and defense company which has been working on an AR cockpit for both commercial and military use. Elbit, known for its HUD (head-up display), which can display flight information to the pilot without the need to look down, purchased Universal Avionics last year. Universal brought a flight management system (FMS) to the merger.

Late last year, Elbit introduced a new product, combining the HUD with the functionality to operate the FMS. This was truly science fiction type technology only a few years ago. The fully functional product can be both retrofitted to older aircraft, without a complete rewiring of the aircraft, as well as built into new aircraft.

Using the system, a pilot can program and change their flight path, select or change a runway, and select and update waypoints, all with just their eyes. The system is also integrated with technology mounted on the outside of the aircraft, which allows for a virtual projection of terrain onto the cockpit window. This makes for a safer and more accurate depiction of reality in bad weather or low altitude flying.

Elbit is using AR not only in the air, but on the ground as well. One of the dangers faced by tactical spotter teams, forward observers that locate and identify military targets, is that an enemy will be able to see and counter their moves when they use a laser to “paint” a target. Using a combination of AR and other technologies, late in 2018 Elbit introduced the HattoriX system, which provides an AR overlay providing command and control capabilities (C2). This allows the forward spotter team to identify a target and feed coordinates to the necessary team delivering a payload on the target, without endangering the forward team by using a laser to paint the target.

Both of these technologies, the HUD VR cockpit, and the ground based forward spotter HattoriX system, make the jobs of their users safer and more efficient. They provide great examples of using VR technology in combination with platforms that are already in place. And, give an idea of what an acceleration in VR use is capable of. I fully expect Elbit to introduce more and more VR based products, and believe now is the time to buy the stock.

Elbit is a solid company expected to grow earnings next year over 14%, with a long term 5 year projection of an average 11% earnings growth per year. And, the company currently pays a 1.42% dividend.

Lumentum (Nasdaq: LITE)

Lumentum has three main areas of business. First, their photonic division works to move the growing amount of data generated each day more efficiently over networks. Second, they produce lasers which are used in precision manufacturing to make sure parts are manufactured to exacting specifications.

And third, and the area I’m interested in today, is a 3D sensing technology that can be placed in mobile devices and autonomous vehicles to provide a virtual reality picture. Lumentum is the largest supplier of 3D laser sensors globally.

These 3D diode lasers produced by Lumentum are more accurate and reliable than radar and camera based technologies, which still play a role in producing a 360 degree picture around an autonomous vehicle. As I’ve pointed out in a few different articles over the past month, a regulatory structure is of paramount importance to the autonomous vehicle market. To enact this structure, vehicles must have extremely reliable and accurate instrumentation with the ability to measure and predict the movement of objects around the car.

Related: Buy These 3 Driverless Car Stocks

In mobile applications, 3D sensors are used for facial recognition, robotic sensing, and IoT (Internet of Things) applications, to name a few. Lumentum provides not only the lasers to perform 3D sensing, but a complete turnkey solution which can be placed in any manufacturer’s mobile device. With a likely expansion into most, if not all future smartphones, robotics, the IoT, and autonomous vehicles, Lumentum may be on the cusp of an earnings explosion. Lumentum occupies a great position at the convergence of emerging 5G networks, with smartphones and the IoT.

Lumentum currently has a PE of 7.88 and is projected to grow earnings in the coming year at over 21%. And, with cash on hand of almost $12 a share, the company has the necessary capital to build out production in an expanding market. Lumentum was caught up in the issues with Apple (Nasdaq: AAPL) last quarter, which resulted in a drop in the stock. But, I believe slowing iPhone sales could accelerate an expansion in its customer base, which would be in addition to the customer base expansion from autonomous vehicles, IoT, and robotics. This pullback could represent a great buying opportunity in the stock.


PTC is on the cutting edge of helping industrial companies convert to digital. With an array of offerings in AR, 3D printing, IoT, and industry 4.0, the company is moving large industrial giants into the future.

Using their Vuforia virtual reality platform the company provides the tools and software to record a manufacturing or business process. The software then creates an AR view of that process that can be used to teach new employees, provide the best training possible around the world, or have established experts within or outside the company review and improve the process without ever entering the manufacturing facility.

“We delivered another strong [quarter of] growth with AR bookings growth,” stated Jim Heppelmann, PTC CEO in its latest conference call last week. “Another strong quarter with AR bookings growth of over 75% versus Q1 of 2018. The main use cases for AR in the industrial world are service and maintenance work instructions, factory operator Instructions, and virtual product demonstrations. While it’s still early, AR commercial adoption within the industrial market is broadening.”

Unlike in the gaming world, where VR is still largely a gimmick, in the industrial world real products are being used by massive companies to drive productivity growth. PTC is well positioned, and now is a great time to get in on this burgeoning trend.  PTC’s customers include John Deere (NYSE: DE), British based BAE Systems (NYSE: BAE), Sinotruk (OTCMKTS: SHKLY) automotive in China, and Sony (NYSE: SNE) in Japan. The addressable market for PTC products is basically any company that manufactures or sells products, or provides a service which can be demonstrated via AR.

PTC stock pulled back slightly last week when Mr. Heppelmann said they were seeing some softness globally, but not enough to lower 2019 estimates. This pullback offers a better entry into the stock, which is expecting over 50% earnings growth in the upcoming year, and is projected to grow earnings over the next 5 years at an average 36%.

Growth in the AR/VR market is already taking place. Whether it is in aerospace and defense with Elbit, in safety and security with Lumenum, or in manufacturing with PTC, you can take advantage of the growth in this market today by adding these names to your portfolio.

Source: Investors Alley

These Three Autonomous Vehicle Stocks are Racing Ahead

Recent incidents involving autonomous vehicle crashes, have made industry participants assume a lower profile. While these setbacks may slow progress in the sector, it does not mean the companies involved are taking their foot off the gas pedal in developing technology to move autonomous vehicles forward.

Any advanced technology industry will encounter growing pains, and as I said in my latest report, this space is just getting interesting. Allied Market Research puts the global autonomous vehicle market at $54 billion this year and $556 billion in 2026, growing at 40% per year. Even if these numbers are off by 25%, we’re still looking at a rapidly growing market.

And while the regulatory issues are real, there is growing economic pressure to solve the regulatory puzzle. Over 68% of freight travels on U.S. roads for an extended period of time. And with the trucking industry unable to fill driver positions, even with increasing pay and benefits, the American Trucking Association reports delays and costs are rising.

This lack of drivers, combined with an explosion in delivery of everything conceivable that consumers may purchase, as we recently looked at in our piece on the sharing economy, is placing growing pressure on regulators to formulate solutions to the autonomous vehicle problem. Trusting these issues will be resolved, let’s take a look at a few companies that are forging ahead in the autonomous vehicle space.

NXP Semiconductors (Nasdaq: NXPI)

Netherlands based NXP Semiconductors is the world’s largest supplier of automotive semiconductors, and will have a major role to play as cars and trucks move to autonomy. One of the things I like about NXP is the fact that it is already deeply embedded in the auto industry. This gives the company insight into customer needs as autonomous vehicles move through the Levels of Autonomy I detailed in my previous article.

NXP is aggressively expanding its relevance in autonomous vehicles, both through internal development of products as well as through acquisitions. Late last year the company acquired OmniPHY, a pioneer in high-speed automotive Ethernet IP. Through the acquisition, NXP is ensuring it can maintain the speed and number of connections necessary as vehicles become increasingly autonomous.

As Ian Riches, Executive Director of Strategy Analytics Global Automotive Practice puts it, “One of the vexing questions of the Autonomous Age is how to move data around the car as fast as possible. Cameras and displays will ramp the number of high-speed links in the car to 150 million by 2020 and by 2030 autonomous car systems will aggressively drive that number to 1.1 billion high-speed links.”

By purchasing OmniPHY, NXP is enhancing its capability to capture the entire value chain in the connected automobile. Controlling connectivity points is a major strategic competitive advantage, and allows NXP to work not only with automakers, but with other equipment and sensor companies, cementing NXP as a vital player in the autonomous vehicle ecosystem.

From a valuation perspective, NXP trades at a 13 PE ratio, and pays just over a 1% dividend. The company has grown earnings per share an average of 62% over the past 5 years, and currently has profit margins of over 28%. NXP shares have never fully recovered from a failed merger attempt with Qualcomm (Nasdaq: QCOM) in 2018 after a prolonged, almost 2 year courtship. The deal fell through and many NXP stock owners, who had been in the stock only for the merger, abandoned ship. The stock appears to have bottomed around $70, and now trades close to $80, well off the pre-merger prices in the $120s.

A combination of value and strategic market positioning makes NXP a buy at these levels. The company has ensured its relevance in the autonomous vehicle market and should reap the benefits as this market matures.

Magna International (NYSE: MGA)

Magna International is a Canadian company that wants to ensure the autonomous vehicle is not only safe and secure, but retains the style and design each automotive manufacturer has heavily invested in. As Magna explains, it does not want the autonomous car to look like a science experiment with vehicle sensors, such as LIDAR, mounted obtrusively all over the car.

Using what it terms MAX4, Magna has developed a self-driving system that can enable up to Level 4 autonomous capabilities, while at the same time disguising the fact that the automobile is anything different than what the manufacturer has on the showroom floor today. The MAX4 system can be mounted on an automobile, such as a Jeep Grand Cherokee, with the LiDAR, radar, and ultrasonic sensors all contained within the bumpers and other currently existing cavities of the car.

While I’m not a huge fan of the company, the Tesla (Nasdaq: TSLA) business model does demonstrate consumers want not only the latest technology, they want functionality wrapped in design. And they will pay premium prices for this combination. Magna ensures that each automaker can retain and enhance vehicle look and design, without concern that the sensor requirements of the autonomous vehicle impinge on their branded look.

And, Magna is not only offering the ability to retain design, the company is also forward thinking in addressing the changing needs, and look and feel, of the interior of future autonomous vehicles. The company recently released its flexible seat configuration design for autonomous vehicles.

The seating system allows for three variations in seating patterns that are fully automatic, with seats moving electrically along tracks mounted in the vehicle floor. Consumers have the option of a “campfire” seating arrangement with all seats facing the middle of the vehicle, a “cargo” configuration where seats move to the front of the car to provide a large cargo area in back, and a seating configuration with electronically insulated sound barriers which allows for private phone conversations in a ride sharing environment. Magna is closer to the ride share business than other companies, with a $200 million private investment in sharing economy company Lyft (Nasdaq: LYFT, pre-IPO).

Magna currently trades with a PE of 7 and pays just over 2.5% in dividends each year. The company has averaged 14% earnings growth over the past 5 years, and is projected to grow earnings 13% this year. As with NXP, a pullback in the stock in 2018 is providing an excellent entry price at these levels. Magna’s innovative designs and technology should provide earnings expansion as the company outfits the car of the future.

Aptiv (NYSE: APTV)

Finally, I would like to revisit a portfolio holding of the Growth Stock Advisor service, Aptiv. Aptiv is an Ireland based company that was spun out of Delphi Technologies (NYSE: DLPH), formerly Delphi Automotive, in late 2017.

Delphi Technologies is now the “powertrain” part of the business providing propulsion, combustion and electronic solutions. This is the old industrial commodity side of the business, and the stock has performed abysmally since the spinoff of Aptiv.

Aptiv is, as former Delphi Automotive, and now Aptiv CEO Kevin Clark stated, focused on “active safety, autonomous driving, enhanced user experiences, and connectivity”. Aptiv provides the sensors, connectivity, and most importantly deep industry and product expertise, which is so important to establishing credibility and trust from automotive manufacturers moving into the autonomous vehicle space.

As I detailed in my latest report on autonomous vehicles, there are hurdles to full autonomy, one of which is working out the legal liability issues that arise from a fully autonomous vehicle. But, Aptiv is making the incremental improvements that ensure the autonomous vehicle will be ready when the regulatory issues are resolved.

After getting the lowdown at CES on the Aptiv fleet of Lyft cars that is ferrying passengers around Las Vegas, Extreme Tech put the Aptiv advancements over last year this way, “For example, implementing RTK (Real-Time Kinematic GPS augmentation) has allowed the cars to locate themselves within 2.5 cm (instead of 10 cm). That makes the difference between not knowing and knowing whether a pedestrian is standing on the edge of the curb or in the crosswalk.” Advancements like these are crucial to the developing regulatory framework, and to putting fleets of autonomous vehicles on every road, not just in test environments like that taking place in Las Vegas.

Aptiv is continually advancing technology, and with deep roots in the automotive industry, it is one of the purest autonomous vehicle plays available to investors. The company has a forward PE of 13, and is expected to grow earnings this year 31%.

Each of these companies offers a great way to play advancements in the autonomous vehicle industry as it matures in the coming years. Whether through the brains and connectivity of NXP, the technology and design of Magna, or the autonomous integration provided by Aptiv, it’s hard to go wrong with these top players in the space.

Source: Investors Alley

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

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

Two Dividend Paying Stocks Profiting from Insuring Against High Drug Costs

The science of medicine, as well as pharmaceutical companies, is moving more and more toward personalized medicine. That is, specialized cell and gene therapies designed to attack a patient’s unique condition.

Curing a patient of once-fatal diseases will save our healthcare system an enormous amount of money… but only over the long-term. These treatments require enormous upfront outlays. Keep in mind that, in some cases, only one treatment is required to cure the patient.

And therein lies the problem – how can these ultra-expensive medicines be funded? One option is under serious consideration by several European drug companies – a “reinsurance model” in which a third party underwrites the catastrophic case of someone having one of these terrible conditions.

Pharma and Reinsurance

This solution seems to solve the problem. First, pharmaceutical companies will get paid for providing the life-saving treatment.

And for the reinsurance industry, which backstops insurance companies, helping healthcare systems and governments smooth out the costs of such treatments could provide an additional revenue source.

The industry could use an additional revenue source as reinsurers face increasing competition from rival sources of risk capital (private equity, etc.). Reinsurers could make financing for personalized treatments easier by pooling the costs of these treatments provided by different drug companies and also across countries.

The reinsurance industry already provides a backstop to employer health insurance plans, and has signaled a strong willingness to expand into the medical sector. In response to the Ebola crisis in West Africa, the World Bank in 2017 teamed with reinsurers to provide coverage against future pandemics, so outbreaks could be tackled quickly.

The world’s largest reinsurance companies include Berkshire Hathaway (NYSE: BRK.A & BRK.B) as well as the long-established European giants – Swiss Re (OTC: SSREY)Hannover Re (OTC: HVRRY) and Munich Re (OTC: MURGY).

The drug companies that are the most interested in teaming with reinsurance firms are the European drug giants. Let me explain…

Novartis – the Pioneer

Leading the way here is the Swiss drug company Novartis (NYSE: NVS), which is also innovating in another promising area of medicine – digital therapeutics. I told you about this in the September 26 edition of The Market Cap.

The reason for Novartis interest in reinsurance is quite straightforward as explained by CEO Vas Narasimhan to the Financial Times: “Given that we’ll have five gene therapies in the clinic next year (2019) and we plan to continue to have a steady pace of gene therapies, we acknowledge we need to work with the system to come up with new solutions.”

Novartis has become a pioneer of “outcome-based pricing” models, through its blood cancer Car-T medicine Kymriah: 90% of children treated with the drug have not relapsed. It has offered to waive the $475,000 price tag for pediatric use in the U.S. if remission is not achieved within 30 days of treatment.

The company has also developed a gene therapy treatment for spinal muscular atrophy, a rare genetic condition that often kills sufferers before the age of two. Clinical trials suggest that, four years after a single treatment in the first few months of life, children are progressing normally.

The 10-year costs, if borne by healthcare systems, of treating such ultra-rare diseases range from $2 million to $5 million, according to economic analysis presented by Novartis at a recent investor day. So the need for unique solutions, like working with reinsurance companies, is obvious.

Novartis Is Not Alone

Novartis’ suggested reinsurance model is actually not a novel strategy in the healthcare industry. Its fellow Swiss drug giant Roche Holdings (OTC: RHHBY) has been working with the aforementioned reinsurance company Swiss Re to provide cancer treatments in China since 2012.

According to a 2010 agreement, Roche provides healthcare data to Swiss Re to help the latter tailor its insurance policies, and in return Swiss Re re-insures five Chinese insurers, thus circumventing Chinese laws banning foreign firms from selling insurance in the country.

And actually, Roche has been active in China since 2007 working with insurance firms and healthcare networks to develop policies that will cover cancer treatments and next-generation diagnostics. The country’s overall public health system is still that of a developing economy, making what Roche and Swiss Re are doing an absolute necessity.

With more than 4.2 million people diagnosed with the disease every year, cancer is a major public health problem and one of the leading causes of death in China. Most cancer patients in China have to pay for their treatment out of their own pocket, in spite of the government’s efforts to expand healthcare coverage. For some cancer medicines, a full treatment course can cost ten times the average Chinese worker’s annual income!

This approach for Roche has been very successful in China. In 2015, it started a partnership with the Shenzhen Reimbursement Authority and the leading Chinese insurance company Ping An. Shenzhen became the first city in China where all four of our targeted cancer therapies approved in the country – MabThera/Rituxan, Avastin, Herceptin and Tarceva – were reimbursed by Chinese insurance firms. Based on this success, Roche is expanding the model to include additional cities across China.

This just goes to show how creative approaches can improve access to healthcare, even in China. So now, Roche is adapting the model and rolling it out in countries around the world.

Two Winners

I absolutely love companies that think outside the box as these two drug companies. That alone makes them investment-worthy. Then add in the fact that both stocks are actually up in the past year – Novartis is up about 3% and Roche about 1% and with both yielding roughly 3.5% in very safe dividends – and you have two stocks to weather any sort of further market downturn.

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Buy These 3 Growth Stocks in a Sector Shielded From a Downturn

I’ll be the first to admit, when I went looking for stocks that would not be impacted by the trade war between the U.S. and China, or a flip-flopping interest rate policy, I did not think I would end up in the for-profit education sector. I viewed the sector as plagued by shaky financials and remember clearly the bubble and relatively recent collapse of many stocks in the for-profit education space.

The U.S. government’s policy of an “education for everyone” brought out bad actors in the sector who were more than willing to take advantage of the government’s largesse, and enroll students that had very little chance of paying back their educational debt. The resultant shakeout, when the government realized what was happening and pulled back on the lending reigns, left the most aggressive companies, like Corinthian Colleges and ITT, bankrupt.

So why look at these companies now? I found two catalysts as I began to research the companies. First, in the U.S., a more friendly government is in place after what I view as the correct crackdown of the previous administration. And second, the shakeout in the industry appears almost complete with several of the remaining companies touting solid financials and solid growth prospects due to economic and demographic changes.

In the U.S., Education Secretary Betsy DeVos has begun what NPR calls a “regulatory reset on Obama-era for-profit regulations”. One of the most onerous rules on the for-profit institutions in the U.S. is known as the “gainful employment” rule.

The rule in essence requires a for-profit institution to prove the students they enroll can be gainfully employed following graduation. The gainful employment policy is set to expire July 1, 2019, and Secretary DeVos has clearly indicated the Department of Education will not seek to extend the policy. This policy shift should benefit the for-profit education companies.

The companies I believe you should look at, which I list below, also have solid financials in place and are expected to grow substantially. There are two factors driving this growth. First, the companies are increasingly relying on technology, such as artificial intelligence, to educate more people using fewer and more efficient resources. And second, the move to a gig-economy means workers need more education throughout their career than they did even a few years ago. And, in countries like China, the gig-economy, combined with a move away from agriculture, is fueling rapid growth.

Karl McDonnell, CEO of Strategic Education (Nasdaq: STRA) (in early 2018 Strayer Education merged with Capella Education to form Strategic Education) recently said Strategic is, “using technologies like artificial intelligence and predictive analytics today to teach vastly more students with fewer humans and yet, better outcomes.” As this technology gets better, the efficiency should continue to drive cost out of the business model.

A few months ago Forbes reported that by 2020 fully half of U.S. employees will be engaged in freelance work. A McKinsey study examining the same issue, says that also by 2020, the U.S. will need 1.5 million more college educated workers than are available. And it’s not just a U.S. problem, as France is projected to have a shortfall of 2.2 million college educated workers with the European Union expected to have major shortfall issues due to both education and complicated hiring laws.

It’s my view that the for-profit educational institutions, with expertise in distance learning and educating adults who need to upgrade skills, will benefit from this changing job landscape and skills gap.

Here are a few of the companies I believe you should look at for your portfolio.

Grand Canyon Education (Nasdaq: LOPE)

The first thing to strike me about Grand Canyon is the positively sloping operating and profit margins the company has posted. In one year profit margins have risen to 23.6% in the latest reported quarter from 19.3%.

Grand Canyon is also very interesting because of a recent change in its business model. The company split off the “school” into a nonprofit and now Grand Canyon gives investors a services company that provides technology, counseling and a variety of other services to the school.

The services company receives 60% of the tuition from the nonprofit, and importantly can offer the services it provides to other institutions. This should allow the company to grow beyond the confines of being tied to one institution and provide substantially more market to address.

Grand Canyon is projected to grow earnings this year almost 27% and is projected to have a 17% growth rate over the next five years. The company has only a .05 debt to equity ratio and trading around $120 has a book value of almost $24 per share.

New Oriental Education & Technology Group (NYSE: EDU)

The for-profit education market is booming in China. In 2016 40% of the Chinese population was engaged in farming. In the U.S. and Germany, that number is 2% and 10% respectively. As China’s agriculture sector becomes more efficient, a major government initiative, it is projected that 250 million Chinese will leave agriculture and move to jobs requiring a higher education skill set.

As the education market grows in China for-profit institutions are also taking share from public schools. Revenue from 2012 through 2020 for private educational institutions is expected to grow at a compound annual growth rate of approximately 12%. New Oriental Education is poised to take advantage of these favorable demographics and growing market.

In October the company reported a 49% year-over-year revenue increase and a 13% year-over-year increase in student enrollments. The company has no long term debt and expects to increase earnings next year by over 34%.

What is impressive about the company is that it is both expanding rapidly, opening 18 new facilities last quarter, and is also earnings positive during this growth period. As CFO Stephen Yang described in the company’s latest earnings call, New Oriental uses a low cost promotional experiential course offering in the summer to bring in new students and then moves, as of the latest quarter, over 54% of those promotional students into full course offerings.

The stock has pulled back this year after becoming somewhat overheated and now trades at a PE of 36. But, based on the projected earnings growth, the forward PE is projected to be cut in half to just over 18.

Chegg, Inc. (Nasdaq: CHGG)

Chegg focuses on homework help, online tutoring, and scholarships and internship matching. The company is expanding rapidly, and is expected to grow earnings next year over 25%.

The company has been steadily increasing margins with gross margins coming in at just over 74% last quarter. The company appears to be on the cusp of profitability, and is just moving into a more efficient operating model through technology implementations.

CEO Dan Rosensweig discussed the company’s move to a chat-based platform, which allows fewer employees to service more students, in their last earnings call. Rosensweig stated, “With over 40% of college students requiring remediation in Math, English, or both, these are key subjects where we are starting to leverage A.I. and machine learning to expand our product offerings and provide greater support to a broader range of students.”

Employing a business model with a mix of human interaction provided by tutors, combined with a growing reliance on increasingly efficient technology, increases Chegg’s total addressable market as it expands its service offerings.

With a rapidly increasing market, due to the changing way people work and the increasing industrialization of growing economies, for-profit education companies like Grand Canyon, New Oriental and Chegg deserve a closer look. These companies have made it through the recent for-profit education shakeout and are rapidly earning their way back to a spot in your portfolio.

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Pay No Commissions When Loading Up on These 3 Stocks

I like to get a sense of what is going on in global markets to help me guide you through a path to profits.

And there is one item that caught my eye that I’m sure isn’t being reported by media outlets, such as CNBC. That is, after powering ahead of global rivals for much of the summer, the U.S. stock market has been struggling to continue outperforming since the peak in late September. The chart below illustrates that point.

Other markets, which have been beaten down, are starting to outperform. For example, in November, the Hang Seng index in Hong Kong soared by 6.1%. Such a rebound is not surprising when you consider the battering it took because of the U.S.-China trade war.

The recent relative outperformance of some foreign markets had me thinking again about those foreign stocks you can buy in the U.S. in the form of an ADR (American Depository Receipt) and how you can buy some of these through the Robinhood brokerage firm for zero commission!

Robinhood Revisited

Robinhood is still growing rapidly. It added about 3 million accounts over the past year, bringing its total number of customers to 5 million, which is more than twice the big three incumbent discount brokerage firms combined. And it remains the only venue that offers trading on stocks, options and cryptocurrencies all in one place.

I first told you about it adding ADRs back in September. At that time, Robinhood announced it was adding about 250 ADRs from Japan, China, Germany, the U.K. and elsewhere. ADRs of companies from France will be added in the coming months. A quick definition of ADRs is that they are stocks of foreign companies that trade and settle in the U.S. market in dollars, allowing investors to avoid having to transact in a foreign currency.

Robinhood co-founder and CEO Vlad Teney told CNBC at the time, “We looked at what customers were searching for and not getting. It [adding ADRs] allows customers to get some exposure outside of the U.S.”

The company found its users wanted access to global stocks by looking at its own search data. Robinhood’s staff has access to what people are typing into the app’s search and looking to trade. Names such as Nintendo, Adidas, BMW and Heineken continued to pop up. The company used similar reasoning in February when it decided to add cryptocurrency trading after users repeatedly searched for bitcoin.

As someone that owns a good number of foreign stocks personally, this was fantastic news. This move made investing in overseas blue chip stocks easy, safe, and cost-efficient. While there are hundreds of quality foreign companies to choose from on Robinhood’s platform, let me briefly highlight for you three of them…


If you have children, you no doubt have heard of the Japanese gaming company Nintendo (OTC: NTDOY). It is doing well and recently announced its best quarterly results in eight years! It reported operating profits of ¥30.9 billion ($27.2 million) for the July to September quarter, up 30% on the same period a year earlier.

Its recent success has been due in large part to the popularity of its Switch console. Nintendo said that over the April to September half it had sold 5.07 million units of the Switch console, adding that it would maintain its full-year sales target of 20 million units by the end of the financial year ending March 31, 2019.

And despite a visibly slower pipeline of blockbuster titles this year, sales of Switch games reached 42 million in the April to September period, almost double what was sold in the first half of the company’s previous fiscal year. And its next blockbuster – Super Smash Bros Ultimate – is only being released on December 7. Despite this, the highest ranked title in Amazon’s list of the best-selling games of 2018 is Super Smash Bros. That suggests there have been a lot of pre-orders and that means it could be a record-breaking hit.

With the games industry tilting towards the huge Asian market – UBS expects gaming revenues in Asia to grow 9.5% annually to $200 billion in 2030 – Nintendo seems well-positioned.


One company that many U.S. investors have never heard of is South Africa’s Naspers (OTC: NSPNY). Yet, it is perhaps the savviest venture capital investor in the world. It is best known for taking a major stake in China’s tech giant Tencent (OTC: TCEHY) back in 2001 for a mere $31 million. That stake grew in value to $175 billion earlier this year!

If there is one thing I love as an investor, it is buying something on the cheap. And Naspers is that. The entire current valuation of Naspers is valued at about $25 billion less than just its stake in Tencent! And all its other investments in technology companies around the emerging world are valued at nothing – you’re getting them all for free!

It comes down to the same old Wall Street bugaboo – its analysts are either too lazy or not smart enough to understand Naspers business. Its business is very successful, posting a 39% rise in half-year earnings. The earnings of $1.7 billion in the six months ended in September were driven by Naspers’ classifieds business becoming profitable as well as Tencent generating stronger profits. The company touts a 22% internal rate of return on non-Tencent investments since 2008, including a stake in Flipkart of India which was sold to Walmart earlier this year.

Africa’s largest company has begun to tackle the steep discount in its share price to its net asset value. As part of tackling the discount, this year Naspers announced plans to spin off its African pay-TV arm and it did raise $10 billion from selling off some of its Tencent shares, reducing its stake to 31%.

I look forward to its spinoff of its very successful pay-TV arm Multichoice, which is Africa’s Netflix and more. Its services include sports broadcasting and South Africa’s Dstv, reaches 13.5 million households on the continent and generated profits of 6.1 billion rand ($409 million) during its latest fiscal year.


For more conservative investors, there is the world’s largest food and beverage company, Switzerland’s Nestlé (OOTC: NSRGY), which was founded as a baby food manufacturer in the 1860s. Today, Nestlé’s four priority markets are coffee, bottled water, pet food and baby food.

I suspect that someday the company will be making some large divestitures. One of these will likely be its frozen foods business, which controls a 29.6% share of the U.S. market. Another may be its consumer nutrition and consumer healthcare division.

Already, Nestlé has said it plans to spin off or sell its skin health business. In the latest streamlining measure by CEO Mark Schneider, Nestlé said it had decided the future of Nestlé Skin Health, which analysts said could be worth as much as 7 billion Swiss francs ($7 billion), laid “increasingly outside the group’s strategic scope”.

The division had sales of 2.7 billion Swiss francs last year and makes prescription items, anti-wrinkle creams and other consumer healthcare products. Nestle said it would “explore strategic options” for the business, which could include a sale, spin-off or even a stock market listing. Possible buyers could include consumer or pharmaceutical groups.

Nestlé said that the planned sale or spin-off would “sharpen its focus” on food, drinks and “nutritional health products”, led by its top brands including KitKat chocolate bars, Perrier bottled water and Purina pet food. The decision to abandon the skin health business I believe reduces still further the strategic case for Nestlé selling its 23% stake in the French cosmetics giant, L’Oreal (OTC: LRLCY).

There you go – three high-quality foreign stocks you can buy for zero commission at Robinhood.

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