All posts by Tony Daltorio

Buy These 3 Growth Stocks to Beat a “Non-Diversified” Index

Stocks have been on a rollercoaster ride since early October when Fed Chairman Powell told the market that neutral interest rate levels were a “long way away” from the current rate. And while Mr. Powell reversed course last week, the damage had already been done to a market weary of tariffs and shaken by ever starker housing numbers.

Outsized Impact of a Few Stocks

More and more the so-called FAANG stocks, Facebook (NYSE: FB)Amazon (Nasdaq: AMZN)Apple (Nasdaq: AAPL)Netflix (Nasdaq: NFLX) and Google (Nasdaq: GOOGL, GOOG) have an outsized impact on the overall market. At one point last week these behemoths had lost over $1 trillion in market value from their recent highs.

The FAANG stocks now make up a massive percentage of the Nasdaq Composite Index. Even after the recent sell off, they are still over 35% of the index. And if we add in Microsoft (Nasdaq: MSFT) we get to well over 45% of the Nasdaq Index being represented by just 6 stocks.

And it is not just the Nasdaq that is overly impacted by these few stocks. As of July of this year, these six stocks represented an unbelievable 98% of the returns of the S&P 500. At that time the S&P was up 4.4%.

Investing in a market index is meant to give your portfolio diversification over a range of stocks. The Nasdaq is known to be technology focused and is often called a tech index, while the S&P is a broad index meant to represent a wide range of companies. But the shear size of the FAANG stocks and Microsoft have made these indexes much less diverse.

The overrepresentation of these six stocks is a major issue for investors who hope to diversify their investments by way of the indexes. There is a false sense of diversification, and as we saw in October, the impact of scandals at Facebook, projected slowing iPhone sales, and increased competition in streaming video, had major impacts on the overall markets due to just a few stocks.

If you want true diversification in your growth portfolio it is necessary to find individual stocks with good growth prospects. The following are three stocks that I believe should outperform the non-diversified indexes moving forward.

Vericel Corporation (Nasdaq: VCEL)

Vericel is capitalizing on two strong trends. An aging population and the trend for improved health through exercise. Both trends have the side effect of deteriorating or damaging the cartilage in our knees.  MACI, the company’s cartilage replacement technology, removes a small amount of tissue from the patient, and then grows new cartilage which is then implanted in the patient.

The process has two major advantages over previous solutions. Since the tissue is the patient’s to begin with there is less chance of rejection of the new cells. And, because of this, there is less need to provide immunosuppressive therapy necessary when a foreign solution is placed in the body. In clinical tests MACI has also shown improved recovery time over the incumbent solution.

In addition to the cartilage replacement market, Vericel provides a product that helps severe burn victims who need to regenerate damaged skin. As with the cartilage solution, Epicel takes a small part of the patient’s skin that it then uses to grow additional skin.

Both products have proven superior to the current solutions on the market, and sales of both products have begun to takeoff, making now a great time to pick up the stock.

While the company is not yet profitable, in its most recent earnings release on November 6th, it grew revenue 58% year-over-year. MACI revenue grew 66% and Epicel 36%. The company also raised estimates with the earnings release, and is expected to grow earnings 82% next year.

In addition to the great earnings report, which lifted the stock, CEO Nick Colangelo has said the company plans to expand the MACI product beyond knee cartilage to ankles, shoulders and hips. The expansion will grow the company’s addressable market at a time when the product is already in high growth mode. This is another catalyst that argues for entering the stock sooner rather than later.

pdvWireless (Nasdaq: PDVW)

pdvWireless is a provider of secure private networks to utilities, municipal transportation, railroads, airlines and other enterprise and industrial critical communications. The networks provide narrowband communication capabilities for critical communications often in areas where normal communications networks are not available.

I’m bringing PDVW to your attention now because the private communication networks provided to these specialized users are poised to undergo a major shift from narrowband to broadband. There are two catalysts driving this change.

First, there is an increasing need for broadband as the number of connected devices to these networks is expected to increase substantially. Rob Schwartz, president and COO of PDVW says, “Utilities often operate in places where there isn’t ideal coverage, or for specific use cases, and with the exponential growth in connected devices, this creates the need for broadband private LTE.”

Second, the frequency used for these networks, 900 MHz, is expected to undergo a major FCC regulatory overhaul very shortly. This will put in place the regulatory structure necessary to expand the narrowband services to broadband. If successful, the new regulatory scheme should lead to a boom in the transformation of these networks, which in turn should drive the stock of pdvWireless higher.

In its latest earnings release CEO Morgan O’Brien stated that he believes the new regulatory structure is imminent based on the fact that the FCC has frozen applications in the spectrum, a common practice when new regulations are about to be announced. And, there have been positive comments from both the FCC Commissioner and the head of the President’s Economic Council, that seem to imply the new regulations will favor the pdvWireless position on expanding spectrum use.

With earnings projected to grow close to 26% next year, a positive regulatory ruling, combined with pent up demand, should propel pdvWireless higher.

Ceragon Networks (Nasdaq: CRNT)

Ceragon is a leading provider of wireless backhaul for the communications sector. Ceragon’s customers include major carriers AT&T (NYSE: T), Sprint (NYSE: S) and T-Mobile (Nasdaq: TMUS) in the U.S., Deutsche Telekom (OTCMKTS: DTEGY) in Germany, Reliance Jio and Bharti Airtel in India, and Telcel in Mexico.

Ceragon provides extra capacity, or backhaul, to these providers by way of both fiber optics and wireless solutions. The backhaul market is expected to grow at 13% annually over the next four years.

Ceragon is being driven by two catalysts. One, the continued build out of infrastructure in emerging markets, and two, the coming build out of the 5G network.

Ceragon makes almost one-third of its revenue from India. The Indian market is growing at 16% year-over-year and has one of the highest smartphone growth rates in the world. Ceragon will continue to benefit from this growth providing wireless backhaul to Indian telcos.

Ceragon should also benefit from the global rollout of 5G. 5G requires a denser network and more point-to-point communication than the current 4G network. This densification will require the support of backhaul services like those provided by Ceragon as the networks come online.

Ceragon’s backhaul technology platform is believed to be one of the fastest among its competitors, which should give it an additional advantage as the 5G networks are built out.

In its latest quarter Ceragon grew sales 72% quarter-over-quarter, and the company is expected to grow earnings 34% this year. The combination of growing emerging markets along with the coming 5G build out makes Ceragon a growth story to invest in now.

Vericel, pdvWireless, and Ceragon all offer an alternative way to diversify your growth portfolio in what has become a non-diversified index world.

Buffett just went all-in on THIS new asset. Will you?
Buffett could see this new asset run 2,524% in 2018. And he's not the only one... Mark Cuban says "it's the most exciting thing I've ever seen." Mark Zuckerberg threw down $19 billion to get a piece... Bill Gates wagered $26 billion trying to control it...
What is it?
It's not gold, crypto or any mainstream investment. But these mega-billionaires have bet the farm it's about to be the most valuable asset on Earth. Wall Street and the financial media have no clue what's about to happen...And if you act fast, you could earn as much as 2,524% before the year is up.
Click here to find out what it is.

Source: Investors Alley 

Buy These 2 Artificial Intelligence Leaders in Pharma

Despite the recent announcement from drug giant Pfizer that it was raising prices by an average of 5% on about 10% of its drugs on January 15, the warning signs for the industry’s profitability are becoming more frequent.

The latest drug pricing proposal from Senator Bernie Sanders had some similarities to one from the Trump Administration. Down the road, that may lead to a compromise and one of the few areas Democrats and Republicans can agree on – restraining the steady rise in drug prices. And it’s easy to see why – in 2016, total U.S. prescription drug expenditures were estimated at $450 billion!

Big Pharma’s Dilemma

This leaves the large pharmaceutical companies in a dilemma. One the one side is the government trying to restrain prices while on the other side is the hard, cold fact that research and development of new drugs is growing more costly with the returns on this R&D shrinking every year.

On average, it takes about 12 years of research and development and an expenditure of $2.6 billion to move an experimental new drug from the laboratory to the market. Yet, their business is to find new drugs to treat patients.

Keep in mind that the most recent data from the CDC shows that 48.9% of Americans have a chronic condition that requires them taking at least one prescription drug within the last 30 days. I have to take three meds daily and I’m sure you, or someone in your immediate family, has a need for a prescription medicine.

A study centered on the 12 biggest pharmaceutical firms from Deliotte highlighted the recent negative R&D trend for these companies. Here are a few of the highlights of that study:

  • R&D returns have declined to 3.2%, down from 10.1% in 2010
  • Projected peak sales per asset decreased by more than half between 2010 and 2016
  • The uptick in costs and sales per asset in 2017 was due to the drop in the number of assets in late-stage pipelines—from 189 in 2016 down to 159 in 2017.

So what can these companies do to turn their fortunes around?

One solution lies in emerging technologies such as robotics, big data and artificial intelligence (AI). Both drug companies and the technology giants are investing billions of dollars into AI, hoping it will make the drug discovery process both faster and cheaper.

AI and Pharma Research

In February 2018, Eric Horvitz – director of Microsoft Research Labs told the annual meeting of the American Association of the Advancement for Science – “I believe that AI is a sleeping giant for healthcare in general.” He said Microsoft was investing in AI for drug design and pharmacology, which studies how drugs act in the body, and called the technology a “tremendous opportunity.”

And Microsoft is far from alone in its AI bet. The Toronto-based biotech company BenchSci says more than 16 pharma firms and over 60 startups were using AI for drug discovery.

The biggest bottlenecks in drug development usually occur in the very early stages of research. That involves the the time needed in going from identifying a potential disease target (often a protein within the body) to testing whether a company’s drug candidate can hit that target. The most ambitious AI efforts aim to compress that process — which can take four to six years — into just one year.

2018 has been a banner year, with a huge jump in investment from big pharma, often in conjunction with health tech groups, into using AI. The research firm Deep Knowledge Analytics says at least 15 firms have integrated AI into their drug discovery process.

The major pharma firms are taking varied approaches – some are partnering with health tech groups, some are keeping everything in-house, and some are following both paths.

Some the major pharma firms involved include: GlaxoSmithKline with ExscientiaAstraZeneca and Sanofi with Berg Health and Merck with Numerate. Some companies though are working with AI in-house. Positive developments here include Pfizer using AI to mine patient data — stored anonymously in electronic medical records — for signs of a rare form of heart failure. And Novartis hopes a drug partially developed using AI will be registered within the next 36 months.

I believe using AI in drug discovery will be quite commonplace by the middle of the next decade. So what companies will be leading the way? Let me give you a couple of the top candidates among the major pharmaceutical companies.

Two Companies Leading the Way

GlaxoSmithKline (NYSE: GSK) is probably the most active of all pharmaceutical companies in applying artificial intelligence to drug discovery. It even created an in-house artificial intelligence unit called the “In silico Drug Discovery Unit.”

GSK has partnered with startups including Exscientia and Insilico Medicine.The partnership with Excscientia, announced in July 2017, has a goal of discovering novel small molecules for up to 10 disease-related targets across several therapeutic areas. The partnership with Insilico, announced in August 2017, is to identify novel biological targets and pathways.

The company is also part of the Accelerating Therapeutics for Opportunities in Medicine (ATOM) Consortium, which aims to leverage artificial intelligence to go from drug target to patient-ready therapy in less than a year. GSK gave ATOM some very useful ‘big data’ – chemical and in vitro biological data for more than two million compounds it has screened.

Other notable efforts in the AI space from GSK include the announcement in May 2018 of a partnership with Cloud Pharmaceuticals to use AI for the design of novel small molecule drugs. And the company is also working with Googleon applying AI to drug discovery. Researchers from the two firms have already developed a machine learning algorithm to identify protein crystals.

Another of my favorites in the sector with regard to the use of AI is the Swiss drug giant, Roche Holding Ltd. (OTC: RHHBY). This company’s stock, in the form of an ADR that trades well over 1.2 million shares a day, has been a slow and steady climber. It is very near its 52-week high despite a terrible stock market background.

In June 2017, Genentech (a Roche subsidiary) announced a collaboration with the precision medicine firm GNS Healthcare focused on cancer therapy. The companies aim to use machine learning to convert high volumes of cancer patient data into computer models that can be used to identify novel targets for cancer therapy. Among the investors into GNS Healthcare are Amgen and Celgene.

Back in December 2014, Roche acquired Bina Technologies, a biotech company targeting the personalized medicine sector by providing a platform for large-scale genome sequencing. In its description of services, Bina Technologies has machine learning experts as part of its team.

Finally, Roche is another of the handful of pharmaceutical partners for the aforementioned Boston-based Berg Health, a company focused on applying AI in for the discovery and development of drugs, as well as diagnostics and healthcare applications.

High attrition rates among drug candidates are one of the main reasons for expensive drug prices, as pharma companies look to offset the cost of failed projects against the very few successful ones. Improving productivity though AI holds out hope that the attrition rate will drop, lowering drug prices.

Buffett just went all-in on THIS new asset. Will you?
Buffett could see this new asset run 2,524% in 2018. And he's not the only one... Mark Cuban says "it's the most exciting thing I've ever seen." Mark Zuckerberg threw down $19 billion to get a piece... Bill Gates wagered $26 billion trying to control it...
What is it?
It's not gold, crypto or any mainstream investment. But these mega-billionaires have bet the farm it's about to be the most valuable asset on Earth. Wall Street and the financial media have no clue what's about to happen...And if you act fast, you could earn as much as 2,524% before the year is up.
Click here to find out what it is.

Source: Investors Alley 

Buy These 2 Retailers That Can’t Be Amazoned

Despite the recent Grinch of a market, retail sales this holiday season are expected to rise almost 5% over last year. A report on holiday spending by PWC says 84% of consumers will spend the same or more than they did last year, with individuals expected to spend $1,250 on average.

The largest increases in spending are coming from high earning millennials (those making over $70K are expected to ramp holiday spending to over $2K) on the holiday and consumers in metropolitan areas, while those predicted to spend the least are those living in small towns and individuals with incomes under $25K.

The Haves and the Have Nots

PWCs numbers, though focused on the 2018 holiday season, mirror a major shift that has been developing in the retail sector for several years now. In 2015, then Hershey CEO John Bilbrey, told investors that “consumer bifurcation” was an important driver in the company’s strategy.

Hershey was facing a market in which low-income consumers wanted discounted products, and high-end consumers wanted higher priced, and at least perceived higher quality, specialty items. The middle class, its traditional go-to market, was disappearing.

Since 1971 the percent of U.S. aggregate income held by the middle class has declined every year while the size of the pie for upper-income earners has steadily increased. In 2015 the share of aggregate income received by the middle-class dropped below 50% for the first time.

The income inequality trend is not only a U.S. issue either. The World Economic Forum has called the widening income disparity “one of the key challenges of our time.” Economists from the Paris School of Economics and Cal-Berkley say the top 1% of earners in China have seen their income rise from 6% of total income in 1978 to 12% in 2017.

Leaving the causes of the rising disparity aside, retailers are left with a choice. Move up the value chain and serve what Deloitte calls the “Premier” market, move down and serve the “Price-Based” market, or undertake the onerous task of serving both.

Blue Ocean, Red Ocean

A recent darling of the corporate strategy intelligentsia is a book by W. Chan Kim and Renee Mauborgne titled Blue Ocean Strategy. The main concept of the book is that as a business you should not compete in a red ocean where there are multiple competitors selling similar products, but in a blue ocean in which you can set your products or services apart from others.

It’s a sound and seemingly logical idea. What company in their right mind would want to enter a market and compete on price because your products are basically commodity items. I can’t think of one single company that would say that’s a good idea. Oh wait, there is that one company I saw in the news recently that has grown so large it needs a “H2”, or second headquarters. Maybe you’ve heard of them as well, I believe they’re named after a large rainforest located mainly in Brazil.

Amazon (Nasdaq: AMZN) has made a living out of dominating the red ocean. The company now commands approximately 50% of retail business conducted online in the U.S. and 5% of ALL retail transactions in the U.S. According to Morgan Stanley, the company will surpass Walmart in 2018 as the country’s number one apparel retailer.

To be fair, the red ocean of price-based retail is not all Amazon. There are other stalwart competitors there such as Walmart (NYSE: WMT)Target (NYSE: TGT), and Dollar General (NYSE: DG). Those companies have had decent performance numbers, because as the middle class has disappeared not only have the ranks of the upper-income grown, but the lower-income market has grown as well.

Deloitte puts the 5 year growth of the price-based market at 37%. But recent bankruptcies at Toys ‘R Us and Sears, and the closing of thousands of other retail stores in 2017 and ‘18, appear to indicate that the winners are becoming fewer and fewer.

With the low end dominated by Amazon and a handful of large retailers, I believe we should focus our search for growth companies in the Premier, or luxury, markets.

Buffett just went all-in on THIS new asset. Will you?
Buffett could see this new asset run 2,524% in 2018. And he's not the only one... Mark Cuban says "it's the most exciting thing I've ever seen." Mark Zuckerberg threw down $19 billion to get a piece... Bill Gates wagered $26 billion trying to control it...
What is it?
It's not gold, crypto or any mainstream investment. But these mega-billionaires have bet the farm it's about to be the most valuable asset on Earth. Wall Street and the financial media have no clue what's about to happen...And if you act fast, you could earn as much as 2,524% before the year is up.
Click here to find out what it is.

Buy This Marijuana Stock to Tap Into Legal Pot’s Next Growth Phase

Now that the bloom is off the cryptocurrency rose, investors looking for the latest hot sector have descended upon the pot stock space. Marijuana-related companies look likely to have raised $8 billion from investors in 2018.

And that’s understandable – estimates are that it could be a $150 billion sector within a decade. The growth in the marijuana sector has been greatly aided by recent developments – the legalization of pot by Canada in mid-October and the Democrats winning control of the U.S. House of Representatives. The latter makes it more likely the U.S. will legalize cannabis nationally. Already, a number of states have legalized marijuana, with Michigan being the latest.

From just a $5 billion market in 2015, the legal cannabis industry in North America is expected, in the most conservative estimates, to top $20 billion by 2020. North America is pretty much the global legal pot market at the moment since about 90% of global legal revenues currently come from the U.S. and Canada.

Here though is the most exciting part of the growth story of the legal pot market…

Marijuana-Infused Drinks Coming

Cannabis sales are only a small fraction of alcohol sales, but that is likely to change when major beverage companies enter the market and start replacing alcohol content with cannabis content.

And there is a similar story that looks to be unfolding in the non-alcoholic beverage market also. That growth story is why some of the world’s leading beverage companies have shown interest in the sector.

Some drinks companies are seriously looking at adding CBD (cannabidiol) – the non-psychoactive part of marijuana – into drinks aimed at the mass market. These drinks containing cannabidiol and focused on pain management could become big business. Analysts at Cannacord Genuity estimate that sales of drinks infused with CBD could make up 20% of the edibles market and will reach $600 million in sales in the U.S. by 2022.

Or as a recent Bloomberg article put it, pot has “moved from the black market to the stock market and now appears to be on its way to the supermarket.”

Coca-Cola (NYSE: KO) said it is looking at the possibility of infusing CBD into “functional wellness beverages around the world.” Coke is no doubt looking to broaden the reach of cannabis-infused beverages into functional wellness categories, enabling the company to potentially one day be a major player in the non-recreational cannabis-infused beverage category.

Other drinks companies in the alcoholic beverages space have or are contemplating jumping into the pot sector.

In August, Molson Coors Brewing (NYSE: TAP) jumped in by starting a joint venture with Hexo Corp (OTC: HYYWF)to develop non-alcoholic, cannabis-infused beverages for the Canadian market.

And Diageo (NYSE: DE), the drinks conglomerate behind Johnny Walker whiskey and Guinness beer, has also been exploring investment opportunities in the cannabis sector in recent months. It is thought that Diageo, the world’s biggest alcohol company, has had serious discussions with at least three major Canadian marijuana companies.

The maker of Corona beer and Modelo Especial, Constellation Brands (NYSE: STZ) has taken a giant leap into the sector when it invested just under $4 billion into the Canadian cannabis group Canopy Growth (NYSE: CGC), lifting its stake to 38%. Underlining the company’s bullish projections for cannabis, Constellation CEO Rob Sands acknowledged that the industry could represent “one of the most significant global growth opportunities for the next decade”.

Tread Carefully

However, you must still tread carefully when it comes to investing in the cannabis sector. After all, these companies are still money losers.

Let’s look at three of North America’s largest cannabis companies – Tilray (Nasdaq: TLRY)Aurora Cannabis (NYSE: ACB) and Canopy Growth (NYSE: CGC).

In their latest earnings reports, revenues soared by 85%, 260%, and 33% respectively. But Tilray had a net loss of $18.7 million; Aurora had an operating loss of $112 million; and Canopy Growth had a net loss of $330.6 million.

In other words, these companies have costs that are rising faster than revenue. While some marijuana companies are starting to see the size of their losses slow, not one is profitable, and it could still take some time before they start making money.

Another worrisome item is the fact that the cost-per-gram is falling in Ontario (Canada’s most populous province) as the provincial government is buying product in bulk and at their set prices. (Canada’s cannabis companies can’t sell directly to retailers.) Tilray’s average per-gram price fell to $6.21 from $7.53.

It will still be months too before Canada’s pot companies produce enough to meet the strong demand. Until then, they’ll be spending big money on developing larger greenhouses. For instance, in August, Aurora announced it was starting production on a 1.2 million-square-foot facility, which will take months to build.

Cannabis Investments

These problems are why I do not like a broad play on the industry such as you would get through the ETFMG Alternative Harvest ETF (NYSE: MJ). Instead, I prefer to look for individual opportunities.

One company that is definitely on my list is CannTrust Holdings (OTC: CNTTF), which will be listing soon on the NYSE. It is in active discussions with a number of firms in the beverage, food and cosmetics industries and expects to announce a deal within the next two months.

This strategy is in contrast to that of Canopy Growth, which is tying itself to Constellation Brands. The chairman of CannTrust, Eric Paul, told Bloomberg “Ideally, it would be great to have a bunch of brand partners. We’d like to find the best partner for every one of those verticals [beverages, food, etc.]”

I was impressed too with its third results. Here are some of the highlights:

  • Record revenues of $12.6 million, a 105% increase from the comparable prior year period
  • Operations for the quarter resulted in positive EBITDA and positive net income
  • Active patients increased to more than 50,000, a 61% increase from the comparable prior year period
  • Entered into supply agreements with 9 Canadian provinces to supply recreational cannabis across Canada
  • Made its first shipment of cannabis oil to Denmark – the only cannabis oil accepted in Denmark
  • Partnered with Australia’s Gold Coast University Hospital on a six-month study designed to evaluate the efficacy of CannTrust CBD capsules in slowing the progression of Amyotrophic Lateral Sclerosis (ALS) progression
  • Partnered with McMaster University on medicinal cannabis research for chronic pain and for designing more effective, safer treatment protocols in public health policies

And despite a 20% move up after the earnings announcement, CannTrust stock sells at a much cheaper valuation than its peers.

There is also another cannabis-related company I like a lot that I have recommended to my Growth Stock Confidential subscribers. It is a more conservative way to approach the sector through a REIT that pays regular dividends.

Stay tuned for more on the sector in upcoming articles and special reports.

Buffett just went all-in on THIS new asset. Will you?
Buffett could see this new asset run 2,524% in 2018. And he's not the only one... Mark Cuban says "it's the most exciting thing I've ever seen." Mark Zuckerberg threw down $19 billion to get a piece... Bill Gates wagered $26 billion trying to control it...
What is it?
It's not gold, crypto or any mainstream investment. But these mega-billionaires have bet the farm it's about to be the most valuable asset on Earth. Wall Street and the financial media have no clue what's about to happen...And if you act fast, you could earn as much as 2,524% before the year is up.
Click here to find out what it is.

Two Stocks to Add to Your Artificial Intelligence (AI) Watch List

The Turing Test, which is considered one of the best ways to identify artificial intelligence (AI), requires that a human being is unable to distinguish a computer from another human being when asking both of them the same questions. It’s a great academic exercise, but not especially helpful in determining which company in the AI area you should invest in.

When it comes to predicting the size of the the “AI market” we find projections for market size in 2025 from well-respected firms ranging anywhere from $37 billion to $1.2 trillion. A large part of the deviation in estimates is due to the lack of clarity in defining AI, and how the technology will benefit companies able to employ AI in their business models.

As Eliezer Yudkowsky, an American writer who has warned on the danger of AI laments, “By far, the greatest danger of AI is that people conclude too early that they understand it.” So here we stand. We don’t know exactly what AI is, we have difficulty defining the market, and we don’t know what the future capabilities of the technology look like.

A Forbes article earlier this month by Kathleen Walch, was actually titled Artificial Intelligence is Not a Technology. Ms. Walch, an AI expert, considers AI to be a “journey” with technology spun off along the way.

While we may have many questions about what AI is, we do know that the two leading countries in terms of AI research are China and the U.S. China has published more research papers on AI, and the government announced last year the country would become, “a principal world center of artificial intelligence innovation.” But, some question the quality of China’s research and most believe the U.S. has a slight lead in the technology.

We also know that many companies are attacking big problems using the current state of AI, and that the technology will have a major impact on our everyday lives. For example, Deere (NYSE: DE) recently bought a company called Blue River Technology. The company uses robots and AI to fertilize, water, and harvest crops. The result is the use of less fertilizer, less water, and better yielding crops. In this way, AI is already being used to prevent pollution, conserve water, and feed more people.

As investors we should also know that one form of AI, machine learning, is already being used by many of the largest companies on Wall Street. Andrew Ng, Stanford professor and founding lead of Google Brain defines machine learning as “the science of getting computers to act without being explicitly programmed.”

Let’s go a just a little further down the machine learning rabbit hole in order to understand where companies plug into the machine learning ecosystem. Machine learning can be broken down into two stages. First, there is the “training” of the computer. This involves providing patterns, e.g. videos, pictures, and any other of a wide variety of data, to the computer and asking it what the pattern is. The computer is allowed to get the answer wrong over and over, until eventually getting it right. In this way the computer “learns” what information presented in a specific manner means to humans.

The second stage is “inference”. In this stage the computer takes what it has learned in the training stage and “infers” an answer based on the learning that has taken place. Inferring involves massive amounts of data and must often be done in a split second.

Think of the inference stage in a driverless car. While traveling 55 MPH, surrounded by other cars, a driverless car “sees” a child’s ball roll into the road ahead. The car must simultaneously recognize the fact that it is a child’s ball, determine there is a high probability a child may follow the ball into the street, communicate with the other driverless cars around it what it sees, and then decide whether the best course of action is to brake, change lanes, or take some other evasive action.

Clearly the inference must be fast and correct. One company working to insure inferences are arrived at in a timely manner is:

Xilinx (Nasdaq: XLNX)

Xilinx is known today as the field programmable gate array (FPGA) company. They compete with companies like NVIDIA (Nasdaq: NVDA) that make graphics processing units (GPU). Demand for NVIDIA’s GPUs, driven by video gaming, data centers, cryptocoin mining, and AI, has driven the company’s stock up over 788% from the beginning of 2016 to highs reached earlier this year.

While FPGAs and GPUs both process data, FPGAs are generally faster and use less power, but GPUs are cheaper. When comparing the two options, chiefly cost constraints, in both crypto coin mining and video gaming platforms, has historically GPUs the technology of choice, and in the process powered NVIDIA’s stock skyward.

GPUs are also favored for the “training” stage of machine learning, because speed is not a vital component of training as it is for inference.

But, I believe that growth in the inference market, as a variety of technologies come online in the next few years e.g. 5G, IoT, and driverless automobiles, will concurrently drive sales of Xilinx FPGAs. XLNX grew earnings in its latest reported quarter by 25.37% year-over-year, and is expected to grow full year earnings 16.08%.

The company also recently introduced of a new technology, which is one reason I believe now is a good time to get into the stock. The new chip from Xilinx, which combines FPGA, GPU and CPU capabilities on one chip, may be its ace in the hole.

In October Xilinx CEO Victor Peng introduced a new chip aimed squarely at the inference market. The Adaptive Compute Acceleration Platform (ACAP) chip is code named Everest, and according to Xilinx the chip can “infer” 2x-8x faster than Nvidia’s GPUs, and do so with 4x less energy. The Everest chip is featured in the company’s Versal line of products, short for “versatile” and “universal”.

Mr. Peng took over the CEO position at Xilinx in January after joining the company in 2008 and most recently served as Chief Operating Officer. With the launch of the new more powerful technology, Mr. Peng is already attempting to leap ahead of the competition by changing the company’s branding.

“…we have to say no, we’re not the FPGA company. With ACAP, at the moment nobody even knows what that is – but they will understand over time.” The combination of rising demand for their FPGA product with an aggressive move to expand the new ACAP technology, should put Xilinx in the sweet spot of a coming machine learning boom.

Alteryx (NYSE: AYX)

While Xilinx makes the hardware necessary for the inference stage, Alteryx uses machine learning to provide the end user with the ability to gather the inference and make it actionable. Alteryx is a “self-service data analytics” company. They provide data processing and presentation software allowing companies to turn data into human consumable presentations and graphs which can be used to make business management decisions.

The Alteryx solution allows customers to combine data from a variety of sources, e.g. warehouse data, combined with customer data, combined with purchasing data, to present a holistic and repeatable picture of business health. The software, which includes various aspects of machine learning, provides insights without the user having to use or know computer code. Easily combining data from a variety of databases, and being able to present a coherent representation of that data, is a major boon to large corporations.

In its recently reported Q3 earnings, CEO Dean Stoecker reported the company grew revenue 59% year-over-year. But, more importantly, sustained net revenue retention, a measure of customers staying with the company and purchasing additional services, was 131%. The company has also grown earnings by over 46% year-over-year as of its latest quarterly report. Analysts are projecting a 5 year average earnings growth rate of 8% going forward.

This marked the eighth consecutive quarter the customer retention number was over 130%. This is important as it shows me that Alteryx is not just good at marketing, but actually has a product that customers want and are using more and more of. Having been able to continuously obtain new customers, while increasingly monetizing current customers, is one of the reasons I believe the stock is a buy here.

Another thing I like about the company’s growth is that they are diversifying their customer base both across industries and across geographies. Their clients now include Cowen and Company, J.Crew, Cisco Systems, McDonald’s and Textron, as well as AkzoNobel Sourcing in the Netherlands, Anheuser in Belgium, and Oxford University Press in the U.K.

As CEO Stoecker stated in the latest earnings call, using Alteryx allows customers to realize “significant time savings and reduced expenses…” An economic slowdown could actually increase demand for the company’s services as cost cutting comes back into vogue.

While Xilinx and Alteryx are already benefiting from the AI revolution, both companies appear poised to accelerate their growth. Whether it be through the introduction of new technology, or the ability to grow and retain their customer base, as the AI technology “journey” progresses to the next stage these companies should be highly considered for your AI portfolio allocation.

Buffett just went all-in on THIS new asset. Will you?
Buffett could see this new asset run 2,524% in 2018. And he's not the only one... Mark Cuban says "it's the most exciting thing I've ever seen." Mark Zuckerberg threw down $19 billion to get a piece... Bill Gates wagered $26 billion trying to control it...
What is it?
It's not gold, crypto or any mainstream investment. But these mega-billionaires have bet the farm it's about to be the most valuable asset on Earth. Wall Street and the financial media have no clue what's about to happen...And if you act fast, you could earn as much as 2,524% before the year is up.
Click here to find out what it is.

Source: Investors Alley 

Two Smartphone Makers Nipping at Apple’s Heels

Here is something that may startle you and it’s a subject I will cover in a future issue of Growth Stock Advisor for my subscribers:

A research paper by Professor Hendrik Bessembinder, published in the September edition of the Journal of Financial Economics, posed this question “Do Stocks Outperform Treasury Bills?”. The end result was some rather worrying conclusions for equity investors.

He studied stock returns from 1926 through 2016 and found that out of the universe of 25,967 U.S. stocks in the study, just five companies account for 10% of the total wealth creation over the 90 years, and just over 4% of the companies account for all of the wealth created!

In other words, you need to find the winners over the long-term to be a successful investor.

Apple Stock Selloff

Up until now one of those long-term winners had to be Apple (Nasdaq: AAPL). But some are beginning to question that assumption for the world’s most valuable company.

That can be seen in its recent price action taking it out of the exclusive trillion dollar valuation club. Apple shares, prior to last week, were in the longest weekly streak since November 2012 and had its biggest two-day drop since January 2013. The drop was fanned by twin pieces of negative news…

First, the Nikkei Asian Review reported the company had asked contractors Foxconn and Pegatron to halt plans to ramp up production of the new XR model. That report came just days after Apple gave a disappointing outlook for the upcoming holiday season and, most importantly for me, Apple said it would stop reporting unit sales for iPhones, iPads and Macs. That fanned concerns that demand for the company’s smartphones may have peaked.

 Production Slowdown

Let me tell you first about what the Nikkei reported about Apple cutting its production of the new iPhone XR. This relatively ‘cheap’ iPhone model only hit the shelves in October.

Foxconn had prepared nearly 60 assembly lines for Apple’s XR model, but was recently using only about45 production lines as Apple told it not to manufacture as many XRs as previously planned. That means Foxconn would produce around 100,000 fewer units daily to reflect the new demand outlook. The new production figure is down 20% to 25% from the original optimistic outlook.

Fellow Taiwanese manufacturer Pegatron faces a similar situation, suspending plans to ramp up production and awaiting further instructions from Apple. Apple also had asked smaller iPhone assembler Wistron to stand by for rush orders, but supply chain sources told the Nikkei the company will now receive no orders for the iPhone XR this holiday season.

Apple had great expectations that the iPhone XR would jump-start shipments this year. This lower-cost model debuted alongside the iPhone XS and top-of-the-line XS Max. But now, Apple instead is requesting more of the older iPhone 8 and iPhone 8 Plus models, which are up to 20% cheaper than the XR’s starting price of $749. Apple previously planned 20 million units for the older iPhone models this quarter, but raised that figure by 25% to 25 million units.

The moves to add orders for year-old iPhone models, while suspending extra production for the latest product, may be pointing to Apple’s lack of innovation regarding phones.

Adding to the news coming out of Asia was news from Apple supplier, Lumentum Holdings pointing to slowing iPhone sales. Although Lumentum did not identify Apple per se, it is best known as a major supplier of 3D sensors that power the facial recognition technology on Apple’s latest iPhones.

The company’s CEO Alan Lowe said, “We recently received a request from one of our largest industrial and consumer customers for laser diodes for 3D sensing to materially reduce shipments to them during our fiscal second quarter for previously placed orders that were originally scheduled for delivery during the quarter.”

For me though, there is an even bigger red flag waving…

Apple Becoming Opaque

In a stunning move, the world’s most valuable company said it will no longer tell investors and analysts how many iPhones, iPads or Macs it sells each quarter. Its finance chief Luca Maestri insisted that a “unit of sale is less relevant today than it was in the past”. Apple will now only disclose its dollar revenues and cost of sales for each device category every quarter instead of detailing the number of units shipped down to the nearest thousand.

Maestri told analysts: “I can reassure you that it is our objective to grow unit sales for every product category that we have.” I suspect though that he was shoveling some manure there. The smartphone market seems to have peaked globally. Apple has only managed to maintain its revenue growth by increasing prices, first with the $1,000 iPhone X and then again in September with the $1,100 iPhone XS Max.

The most recent figures show the success of this strategy. The average selling price of an iPhone increased from $618 a year ago to $793 in the latest quarter. That drove Apple’s iPhone revenues up by 29%, even though unit volumes were flat compared to the same period a year ago. Data from the research firm IDC showed that Apple’s combined iPhone shipments grew a mere 1.37% in the first nine months of 2018.

Apple’s Emerging Problem

Getting back to the company’s weak forward guidance, CEO Tim Cook blamed a handful of emerging markets, including Turkey, India, Brazil and Russia, for its weaker outlook on holiday sales. Sales in India were flat year on year while Brazil fell.

The bottom line is that Apple’s phones are just too darn expensive for most consumers in the emerging world. And even where pricing is less of an obstacle – in China – Apple faces other challenges.

Apple shareholders are well aware that China is Apple’s second-biggest market after the U.S. And it has been a major source of growth for Apple in recent years. China itself is responsible for 13% of overall revenues, with the Greater China region accounting for 18% of Apple’s revenues. However, that figure is down from 20% just a quarter ago.

I don’t think the trade war is the culprit, yet. The answer lies in changing consumer tastes in China.

Apple is starting to struggle in China as domestic brands including Huawei and Xiaomi gain in popularity. Huawei Technologies has passed Apple’s spot as the second-largest seller of smartphones share for two straight quarters this year, including the latest quarter.

This looks to be a long-term trend change as, especially in China’s largest cities, the mystique of foreign brands is fading. Chinese consumers are getting more sophisticated and the better local brands are becoming more popular.

In a recent annual survey of China’s favorite brands, Apple dropped out of the top 10 with a fall from fifth to eleventh. And one of its main rivals in China – the aforementioned Huawei – jumped from twelfth to fourth.

Apple’s decision though to not disclose unit volumes is disquieting and likely due to the fact that the company faces the possibility of its first annual decline in sales volume next year and wants the investing public to focus elsewhere.

That’s a warning sign that Apple is no longer the elite stock it once was.

Buffett just went all-in on THIS new asset. Will you?
Buffett could see this new asset run 2,524% in 2018. And he's not the only one... Mark Cuban says "it's the most exciting thing I've ever seen." Mark Zuckerberg threw down $19 billion to get a piece... Bill Gates wagered $26 billion trying to control it...
What is it?
It's not gold, crypto or any mainstream investment. But these mega-billionaires have bet the farm it's about to be the most valuable asset on Earth. Wall Street and the financial media have no clue what's about to happen...And if you act fast, you could earn as much as 2,524% before the year is up.
Click here to find out what it is.

Source: Investors Alley 

Buy These 2 Dividend Stocks When the Market’s Unsettled

The latest chapter in the current stock market story centered around Apple. The company announced it would no longer report how many units it sells of its iPhone. While many are speculating why Apple is doing this, I believe it’s because they want to make less transparent the loss of market share in the emerging markets, where competitors like China’s Huawei are gaining share rapidly.

This episode made me think back to when I was still a licensed investment professional and would sit down with clients to discuss their financial situation. Sadly, I found a very common mistake, which I’m sure is still true today…

 A lack of diversification.

Usually, clients would have way too much money in one sector – U.S. technology companies. That’s all well and good until the market hits a weak patch. Then, as we saw most recently, the heaviest losses occur in technology – the sector that had the biggest gains.

I suggested that clients move a little of money invested in technology stocks into what could be called ‘sleep well at night’ stocks. That is, quality conservative stocks, but that have a growth component. I would like to look for steady-as-you-go firms, but those that have some ‘trigger’ that will push the company into a faster growth mode from its past growth trajectory.

Just so you are clear on what exactly I mean, let me give you two examples from the consumer staples sector of two rock-solid companies – one domestic and one foreign – that are in the midst of a makeover that will lead to faster growth.

Coke and Coffee

The first company is no other than Coca-Cola (NYSE: KO). I believe its new CEO, James Quincey, has just begun a change in Coke that is larger than what McDonald’s CEO Steve Easterbrook did to the change the fortunes at the ‘Golden Arches’.

First, Coke pulled off a $5.1 billion deal to buy the Costa Coffee chain from Britain’s Whitbread. The transaction represents a full-fledged leap into the global coffee market, where it has little presence currently. “Hot beverages is one of the few remaining segments of the total beverage landscape where Coca-Cola does not have a global brand,” said James Quincey, president and CEO of Coke. “Costa gives us access to this market through a strong coffee platform.”

This move continues Coke’s process of diversifying away from the fizzy and sugary drinks that made the company famous. These type of drinks have declined in popularity among increasingly health-conscious consumers. The deal is all part of the company’s effort to reposition itself as a “total beverage company”.

According to Euromonitor, the global coffee industry is valued at more than $80 billion, and has been expanding at an annual rate of more than 5%. Here in the United States – the world’s biggest coffee market – most of the growth is coming from a resurgence in the café culture among millennials aged 18 to 34.

According to a recent survey conducted by the National Coffee Association, 15% of millennials had their last cup of coffee in a café and 32% had an espresso-based drink the day before the survey, the highest share for any age group. These are the type of consumers Coke is trying to reach through its purchase of Costa.

As Mr. Quincey points out, coffee is among the “strongest growing [beverage] categories in the world” and the company was missing out on this macro trend. As the chart below shows, the potential for growth of coffee beverages versus soft drinks is high.

And consider that Costa has recently begun its push into China, where it pitches its drinks to Chinese consumers as a luxury treat. It still has only 460 shops there, so the potential for growth is enormous. Starbucks has 600 shops in Shanghai alone. Costa did not have the financial firepower for a big push into China, but now with Coke’s financial muscle, it does.

Coke and Pot

And there’s more to the transformation of Coke than coffee… it may go to pot too.

Coke says it is looking at the possibility of infusing CBD into “functional wellness beverages around the world.” The company is no doubt looking to broaden the reach of cannabis-infused beverages into functional wellness categories, enabling the company to potentially one day ‘own’ the non-recreational cannabis-infused beverage category.

I have no doubt that drinks containing cannabidiol (CBD), a non-psychoactive marijuana ingredient focused on pain management, could become a very big business for Coke.

Related: Buy These 3 Stocks to Profit From Marijuana Legalization

Cannabis research firm Brightfield Group, recently raised its projections for the CBD industry, finding it could reach $22 billion in market size by 2022. If Coke is able to capture just 10% of that projected market size, it would bring in $2.2 billion in revenue by 2022.

Even before the company-altering changes, Coca-Cola is already coming alive. In the latest quarter, it produced a 6% rise in organic sales, helped by bottled water and lower sugar alternatives to the soft drink. Latin America led the way, up 19%, while Europe, the Middle East and Africa rose 9%. North America was slower, up 2%.

Make Up for Losses With L’Oreal

The second company in the consumer sector comes from Europe and is best known for its cosmetics, France’s L’Oreal (OTC: LRLCY). And here the main story is Asia and China.

Its stock surged more than 7% after its recent earnings report thanks to Asian demand for its high-end beauty products showing no sign of waning, despite the trade war. Sales in the Asia-Pacific region soared 25.8%. This demand pushed third-quarter sales to the highest quarterly growth rate in a decade!

The acceleration in growth in the third quarter was led by the company’s luxury division, home to brands such as Lancôme, Yves Saint Laurent and Giorgio Armani, which grew by 15.6%. Its active cosmetics division lifted revenue by 13.1%, driven by demand for so-called dermo-cosmetics, products that focus on skin health.

Its travel retail and e-commerce divisions are also achieving rapid growth. L’Oréal said that travel retail gained 29.9% during the quarter, while e-commerce was up 38.3% and now represents almost a tenth of total sales. E-commerce is accelerating thanks to the success of L’Oréal’s luxury brands on sites such as Alibaba’s Tmall platform in China.

I fully expect L’Oreal to continue to perform well because Asia’s enthusiasm for skincare and makeup is unlikely to fade. Even if an economic slowdown hits, sales of low-ticket luxury items will hold up better than more costly items. And Chinese per capita spending on makeup is still just a small fraction of the U.S. figure, so there is ample scope for growth there.

Neither company will go up 25% a year, as do tech stocks when they’re hot. But they will allow to sleep well at night and give you a decent total return. That’s why I do own both companies.

Buffett just went all-in on THIS new asset. Will you?
Buffett could see this new asset run 2,524% in 2018. And he's not the only one... Mark Cuban says "it's the most exciting thing I've ever seen." Mark Zuckerberg threw down $19 billion to get a piece... Bill Gates wagered $26 billion trying to control it...
What is it?
It's not gold, crypto or any mainstream investment. But these mega-billionaires have bet the farm it's about to be the most valuable asset on Earth. Wall Street and the financial media have no clue what's about to happen...And if you act fast, you could earn as much as 2,524% before the year is up.
Click here to find out what it is.

Source: Investors Alley 

Keep Your Eyes on This Potential IPO

If you ask some of the analysts on Wall Street what company is winning the race to build a successful autonomous vehicle, you will usually get an answer that focuses on a technology company. Names like Waymo, the autonomous vehicle division of Alphabet (Nasdaq: GOOG) or Wall Street darling Tesla (Nasdaq: TSLA).

Yet to me, the race is far from over. Among the many self-driving projects under way by technology companies, start-ups and the traditional automakers, none have launched fully as public services. This means assessing who is ‘ahead’ in developing self-driving cars is next to impossible.

Or as GM president Dan Ammann said recently to the Financial Times, “We see this as the race to the starting line.” In other words, the real race hasn’t even started.

It’s a Crowded Field

That is a correct assessment since nearly every major global automaker is working on autonomous vehicles. That is evident by looking at the automotive calendar over the next five years that is filled with prospective launch dates for self-driving vehicles.

GM has announced it plans to launch a service in 2019, while Toyota wants to have robo-taxis ready by the Tokyo Olympic Games in 2020. Ford plans a service by 2021 and Renault by 2022. Volvo pledges that a third of its cars sold will contain autonomous technology by 2025. Waymo, which has racked up more than 9 million test miles — far more than any other company in the sector — has already begun a trial service for potential customers.

The one trait most common in these efforts is that it requires immense amounts of cash. That has led to a host of partnerships. Here are just a few of them…

The aforementioned Waymo, has partnered with Fiat Chrysler. Ford is partnering with a start-up in Pittsburgh named Argo AI, another start-up company, Aurora, founded by former Waymo director Chris Urmson, is working with Volkswagen, Hyundai and the Chinese electric vehicle firm Byton. Other carmakers have chosen to develop their own technologies… these companies include Toyota, RenaultNissan, Daimler and Tesla.

But even the guys going alone are forging some partnerships. In early October, Toyota announced a deal with the Japanese tech giant Softbank to create a range of services using self-driving vehicles. These services range from food and goods delivery to medical check-ups, as the Japanese carmaker looks to deepen its links with technology groups to adapt to the era of autonomous driving.

This partnership will combine Toyota’s self-driving technology with SoftBank’s platform for the internet of things. The $17 million joint venture, called Monet Technologies, will provide mobility services and envisions using autonomous vehicles developed by Toyota.
GM Is Cruising

General Motors (NYSE: GM) seems to have bolstered its claim to be the leading carmaker developing self-driving systems after Hondainvested $750 million into its Cruise division, with the promise of a total of $2.75 billion over 12 years.

The reason I say that is that Honda had spent two years talking to Waymo and checking out the technology that most on Wall Street seem to think will be the winner in the space. And as recently as April, the deal looked to be done. Yet, Honda walked away from Waymo and went with GM’s Cruise, which strikes me as very significant.

Honda’s tie-up with Cruise brings three very important things to the company. The first is validation for the company’s technology from another automaker. The second is that during the public announcement, GM CEO Mary Barra praised Honda’s “geographic reach”. That told me that GM’s Cruise plans to leverage its new shareholder’s international presence to also launch in markets far away from Detroit, such as Japan.

Finally, and perhaps most important is money. After Honda invests the entire $2.75 billion, GM will have $9 billion to scale up its autonomous vehicle effort without further using GM’s funds.

This agreement with Honda followed on the heels of SoftBank’s $2.25 billion injection into Cruise in May. This funding will be split into two parts, with $900 million provided at the closing of the transaction. The remaining $1.35 billion will be injected once the autonomous cars are ready for commercial deployment.

Softbank was impressed with the progress Cruise has made. At the time the deal was announced, Michael Ronen, managing partner at SoftBank Investment Advisers, said GM Cruise’s combination of developing its own software and hardware gave the company a “unique competitive advantage”.

How to Play It

With such a crowded field and so many possible winners, you may be wondering how best to play this.

At the moment, I would opt to go where both Softbank and Honda have gone – with GM and its Cruise subsidiary. Honda’s investment values Cruise at $14.6 billion, up from $11.5 billion when SoftBank made its initial wager earlier this year. Cruise’s worth has been on the rise since GM acquired the company about two years ago for $581 million in cash. Adding in bonuses and other payments to key employees, the deal was said to have cost the company closer to $1 billion.

Of course, you can’t buy Cruise yet. But I believe GM will eventually spin off Cruise in order to realize its value for GM shareholders. Cruise is already worth about a third of GM’s market capitalization and it will climb even higher.

Earlier this year, GM did meet with investment bankers to look at long-term future options, such as issuing a tracking stock to list shares in Cruise or to eventually sell stock to the public. No decision was made at the time as GM was still evaluating its future options. But a spinoff of Cruise may become reality within a year or two. That makes GM a buy.

 

Buffett just went all-in on THIS new asset. Will you?
Buffett could see this new asset run 2,524% in 2018. And he's not the only one... Mark Cuban says "it's the most exciting thing I've ever seen." Mark Zuckerberg threw down $19 billion to get a piece... Bill Gates wagered $26 billion trying to control it...
What is it?
It's not gold, crypto or any mainstream investment. But these mega-billionaires have bet the farm it's about to be the most valuable asset on Earth. Wall Street and the financial media have no clue what's about to happen...And if you act fast, you could earn as much as 2,524% before the year is up.
Click here to find out what it is.

Buy These 3 Stocks to Profit From Marijuana Legalization

For many years, both the large beverage companies and the large tobacco companies have been in search of growth. That’s because, in both cases, their main products – tobacco, alcohol and sugary drinks – have been deemed to be unhealthy and therefore fewer consumers are using their products.

But now there is a FOMO (fear of missing out) phenomena going on in those sectors, all thanks to the legalization of marijuana. Canada will legalize recreational cannabis use today, October 17. More than a dozen countries have legalized pot for medical purposes, including Germany and Australia, and several others are evaluating decriminalization.

Here in the U.S., pot has been legalized in more than half of the 50 states, despite cannabis still being illegal under federal law. Nine states, including California, Colorado and Massachusetts, as well as Washington D.C., have approved recreational marijuana use.

The Marijuana Market – a Big Pot

The trend toward legalization is opening a very big market. Analysts at ArcView as well as BDS Analytics expect spending on cannabis globally to reach $32 billion in 2022 from just $9.5 billion in 2017 and about $11 billion this year.

What caught my interest was a recent report from analysts at Cannacord Genuity estimated that sales of drinks infused with THC or CBD, will make up 20% of the edibles market and will reach $600 million in sales in the U.S. by 2022. In Colorado, which became the first state to legalize recreational marijuana in 2014, sales of cannabis drinks almost doubled in 2017 and are up an additional 18% in the first half of this year, according to Flowhub, which tracks marijuana sales data.

This points to the vast opportunities in using various parts of the cannabis plant. There are a myriad number of different flavors, aromas and psychological effects offered by different parts of the plants. In fact, those in the industry say that the chemical which produces feelings of euphoria is only one of more than 100 cannabinoids or active compounds in the plant. Other cannabinoids offer mellower effects ranging from mild relaxation to reduction of inflammation.

Some of the drinks companies, in particular, are very excited about adding CBD (cannabidiol) – the non-psychoactive part of marijuana – into drinks aimed at the mass market. These drinks containing cannabidiol and focused on pain management, could become big business.

Coke Says It’s the Real Thing

While Pepsi has no such plans, Coca-Cola (NYSE: KO) said it was looking at the possibility of infusing CBD into “functional wellness beverages around the world.”

The interest of Coke is a major validation for the rapidly growing cannabis industry. As a Bloomberg article said, pot has moved from the black market to the stock market and now appears to be on its way to the supermarket.”

Coke is no doubt looking to broaden the reach of cannabis-infused beverages into functional wellness categories, enabling the company to potentially one day ‘own’ the non-recreational cannabis-infused beverage category”.

Other drinks companies, known for alcoholic beverages, are also jumping into the pot sector. Managements at these firms believe that millennials may swap out their wine or craft beer for some pot-infused water and other similar drinks instead.

The maker of Corona beer and Modelo Especial, Constellation Brands (NYSE: STZ) really got the ball rolling in August on the recent marijuana madness when it invested just under $4 billion into the Canadian cannabis group Canopy Growth (NYSE: CGC), lifting its stake to 38%.

Also in August, Molson Coors Brewing (NYSE: TAP) also jumped in by starting a joint venture with Hydropothecary (OTC: HYYDF) to develop non-alcoholic, cannabis-infused beverages for the Canadian market. Hydropthecary is to soon change its name to HEXO Corporation.

And Diageo (NYSE:DE), the drinks conglomerate behind Johnny Walker whiskey and Guinness beer, has also been exploring investment opportunities in the cannabis sector in recent weeks. It is thought that Diageo, the world’s biggest alcohol company, has had serious discussions with at least three major Canadian marijuana companies, but will wait until marijuana is officially legal in Canada to finalize any deals.

Big Tobacco Moves In Too

Finally, we have Big Tobacco moving into the marijuana space also. The biggest U.S. cigarette company, Altria Group (NYSE: MO) is reportedly in talks to buy a stake in Aphria (OTC: APHQF).

The only surprise here is that Altria waited so long to make a move into the cannabis industry. Legalization of pot for recreational use will come sooner or later here in the U.S. And what industry is more skilled at navigating the morass of regulation and lobbying in Washington D.C. than a tobacco company like Altria?

When and if the deal is consummated, it will be major news. After all, Altria has only done one deal worth over $100 million in the last decade!

The upshot of all these deals in the cannabis sector is that the same companies that dominate the consumer vices sector now will still be major players in the future offerings of pot-infused products to the consumer.

Should You Let Your Portfolio Go to Pot?

This will inject some life into these companies and their stocks. But the real serious money will be made by investors that own the right companies in the marijuana sector.

Picking the right companies though is no easy task. That’s because there’s usually a land rush with everyone piling in, which is where we are at the moment. After that happens, there is a long period of separating the winners from the losers. The final result is you get a few respectable players, with all the rest being rubbish that shouldn’t be touched with a 10-foot pole.

So which one of these pot companies look okay to invest into today?

You have to include the largest player in the sector, Canopy Growth, which bought rival Hiku Brands a few months ago. And it just recently said it was buying pot research firm Ebbu so that it can grow “better” pot.

The company has also been working on cannabis drinks for the past couple of years in an area of its Ontario campus known as the Section 56 Exemption lab. It’s trying to sort out how much of it to put into beverages, how long it will take for effects to be felt, and how long they take to wear off.

But with Constellation Brands owning 38% of the company, I question how much life is left in the stock for the rest of the shareholders. Although a takeover is a possibility.

A better choice is Canada’s second-biggest marijuana company, Aurora Cannabis (OTC: ACBFF), which is the company Coke is believed to talking to about a deal. Its $2 billion deal to take over rival MedReLeaf in May was the largest deal in the sector at the time.

In addition to cannabis-infused drinks, Aurora is working on the medical aspects of marijuana. The company does do clinical trials, but they are much smaller than those conducted by the pharma giants. Nonetheless, Aurora hopes it can succeed in patenting forms of cannabis that are consistently high in some specific cannabinoids and low in others. Or as Cam Battley of Aurora told the Financial Times, “What you really need to do is master the agricultural science and supercharge the plant.”

The company is also building high-tech facilities, known as “Aurora Sky” farms, to automate the growing and harvesting process as far as possible and to regulate the plants’ environment, protecting them from pests. Its biggest farm at the moment is 1.2 million square feet.

Another company I would consider is CannTrust Holdings (OTC: CNTTF), which will be listing soon also on a major U.S. stock exchange. It is in active discussions with a number of firms in the beverage, food and cosmetics industries and expects to announce a deal within the next two months.

That strategy is in contrast to that of Canopy Growth. The chairman of CannTrust, Eric Paul, told Bloomberg “Ideally, it would be great to have a bunch of brand partners. We’d like to find the best partner for every one of those verticals [beverages, food, etc.]”

And the company’s stock has not reached the sky-high valuations of its peers. It has a price to 2019 sales ratio of just 6.17 compared to 89.53 for Tilray, according to data compiled by Bloomberg. And its market cap of less than $1 billion is dwarfed by Tilray’s $14.66 billion. That leaves a lot of room for capital gains here.

Stay tuned as I bring you more insights in this sector in the near future.

Buffett just went all-in on THIS new asset. Will you?
Buffett could see this new asset run 2,524% in 2018. And he's not the only one... Mark Cuban says "it's the most exciting thing I've ever seen." Mark Zuckerberg threw down $19 billion to get a piece... Bill Gates wagered $26 billion trying to control it...
What is it?
It's not gold, crypto or any mainstream investment. But these mega-billionaires have bet the farm it's about to be the most valuable asset on Earth. Wall Street and the financial media have no clue what's about to happen...And if you act fast, you could earn as much as 2,524% before the year is up.
Click here to find out what it is.

Source: Investors Alley 

2 Electricity Stocks Powering the World’s Smartphones and More

It’s the dirty little secret of the digital world we live in… technology is an electricity hog.

Demand for computing power globally from internet-connected devices, emails, high-resolution video streaming, surveillance cameras, the new generation of smart TVs and other devices is increasing 20% a year, according to Swedish researcher Anders Andrae.

Dire Power Consumption Forecast

In an update to his 2016 peer-reviewed study, Andrae found that without dramatic increases in efficiency, the communications industry could use 20% of all electricity and emit up to 5.5% of the world’s carbon emissions by 2025. This would be more than any single country except for the U.S., China and India.

A similar study from U.S. researchers forecast that information and communications technology could create up to 3.5% of global emissions by 2020 – surpassing the aviation and shipping industries – and up to 14% by 2040, which is about the same proportion as the U.S. currently. And Greenpeace found that if the global IT industry were a country, only China and the United States would contribute more to climate change.

The U.S. researchers said power consumption could triple in the next five years as one billion people in the developing come online and the internet of things (IoT) expands in developed countries. Cisco Systems believes internet traffic worldwide will nearly triple over the next five years.

Most of this demand for electricity will come from power-hungry server farms that store digital data from billions of smartphones, tablets and internet-connected devices, which is growing exponentially.

In his research, Andrae said “The situation is alarming. “We have a tsunami of data approaching. Everything which can be is being digitalized. It is a perfect storm. 5G [the fifth generation of mobile technology] is coming, IP [internet protocol] traffic is much higher than estimated, and all cars and machines, robots and artificial intelligence are being digitalized, producing huge amounts of data which is stored in data centers.”

Related: Energy Stocks Adopting New Technologies

Data Centers = Electricity Hogs

When people speak of the cloud in technology, it seems like an almost mythical place where we store data, stream entertainment and send emails. But the cloud is a very real place…

Hundreds of data centers around the world are the factories of this digital age that run all of our digital services. And the number is expanding rapidly – there is about $20 billion spent annually globally on their construction.

The largest of these data centers can cover in excess of a million square feet and consume as much power as a city of a million people!

Whatever we do with data requires electricity and lots of it. The processors in the biggest data centers hum with as much energy as can be delivered by a large power station, 1,000 megawatts or more. And it can take just as much energy to keep the servers and surrounding buildings from overheating.

Every keystroke you make adds to the use of energy. Google estimates that a typical search requires as much energy as illuminating a 60-watt light bulb for 17 seconds. That doesn’t seem like a lot until you begin to think about how many searches you might make in a year and multiply that by the number of internet users (over 3 billion) around the world.

Streaming, of course, is really data-heavy and therefore a big power consumer. Cisco Systems forecasts that video will make up 82% of internet traffic by 2021, up from 73% in 2016. Already, about a third of internet traffic in North America is dedicated to streaming Netflix services alone.

The Push Toward Renewable Energy

What fascinated me is the fact that most of the data titans are moving toward powering their data centers with renewable energy.

One example of this occurred in February when cloud giant Switch (NYSE: SWCH), which runs three of the world’s top 10 data centers, announced plans for a solar-powered hub in central Nevada that will be the largest anywhere outside of China.

Of course, renewable energy – wind and solar power – is a lot more prevalent outside the U.S. That’s why both Google and Microsoft have recently built hubs in Finland and Facebook has done so in Denmark and Sweden. Google last year also signed a deal to buy all the energy from the Netherlands’ largest solar energy park, to power one of its four European data centers.

With this trend toward using renewable energy by the giants of the industry for their data centers, it makes the renewable energy providers, which are currently very out of favor on Wall Street an interesting contrarian play.

Two Utility Stocks to Play This Trend

Let’s now look at two utilities that provide renewable energy…

The first is NextEra Energy (NYSE: NEE), whose stock is up 17% over the past year and 10.5% so far in 2018.

It is one of the largest rate-regulated utilities in the U.S. and along with NextEra Energy Resources and other affiliated entities is the world’s largest generator of renewable energy from the wind and sun. It has been ranked number one in the electric and gas utilities industry in Fortune’s 2018 list of “World’s Most Admired Companies”.

The company continues to work on its strategy of making a long-term investment in clean energy assets. Consistent with this strategy, the company announced plans to add nearly 10,100-16,500 megawatts (MW) of alternate power generation assets across the U.S. over 2017-2020 time frame.

In the second quarter of 2018, Energy Resources added 1,082 MW of new renewable projects to its backlog and 535 MW of re-powering projects were also adjoined to the backlog in the second quarter. The company also entered the battery storage market that will further help in the development of renewable power generation assets. The company at present has a backlog of 120 MW of battery storage projects.

In Europe, my favorite utility stock (I own it) is Verbund AG (OTC: OEZVY), which is Austria’s leading electricity company and one of the largest producers of hydropower electricity in Europe. Its stock has done very well, rising 105% year-to-date and 123% over the past year. But if you buy the ADR, be careful – it is thinly traded here in the U.S.

Hydroelectric power plays a major role in Austria’s electricity supply. In Austria, nearly 65% of electricity generation comes via hydropower, and more than half of this comes from Verbund hydropower plants. The company’s Danube River power plants alone can cover the electricity needs of nearly all private households in Austria.

Verbund is also big into energy storage. Renewable energy sources such as water, sun and wind are being used to an ever greater extent in Europe, which creates challenges for the European energy system. Depending on the amount of sunshine and wind, their share of the total electricity production fluctuates greatly. In order to optimally use the electricity generated from renewable energy, they are supported by Verbund’s pumped storage power plants. The pumped storage systems act either as electricity storage or as electricity generators, depending on what is needed. The company continues to expand the network of pumped storage power plants to increase the buffering function on the energy system, storing electricity for later use.

Both utilities – one here in the U.S. and one in Europe – should allow you to participate profitably in the energy production of the future.

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