All posts by Tony Daltorio

Sell These Drug Retailers About to Get Amazoned

July 12, 2018 Tony Daltorio

There has been no company like Amazon.com (Nasdaq: AMZN) ever with the ability to affect entire industries just by announcing its entry.

The most recent example of this was in late June when Amazon announced a roughly $1 billion acquisition of PillPack, a mail-order pharmacy that packages pills into daily portions before shipping them to patients in 49 states.

PillPack was backed by several well-known investors including Silicon Valley venture capital firms Accel and Menlo Ventures. Its target market is people with chronic illnesses or multiple conditions who take several different tablets every day, rather than people who take a single medication or use prescription drugs only occasionally.

Amazon already captures more than $4 out of every $10 spent online in the U.S. So in response to its PillPack announcement, about $14 billion magically disappeared from the stock market valuations of the biggest players in the U.S. drug distribution and retailing. Shares in those six companies – Walgreens Boots Alliance (Nasdaq: WBA), CVS Health (NYSE:CVS), Express Scripts Holding (Nasdaq: ESRX), Cardinal Health (NYSE: CAH), McKesson (NYSE: MCK) and AmerisourceBergen (NYSE: ABC) had already been depressed last year when Amazon hinted that it was coming into their territory. Proof positive trimmed their values by as much as 10%.

Already the fear of Amazon’s entry into the sector had started a frenzy of consolidation in the sector including CVS agreeing to acquire health insurer Aetna for $69 billion in December, and in March Cigna, a rival health insurer, agreed to pay $67 billion for the aforementioned Express Scripts, a pharmacy benefits manager that also delivers medication by mail.

Amazon’s Long Game

There is one characteristic I’ve always liked about Jeff Bezos and Amazon – its planning for the long-term. This is so unlike most U.S. companies that are focused on the very short-term.

The PillPack purchase looks like a crucial part of a strategy that Amazon has been slowly building brick by brick, and likely just one step of many in the sector it has long eyed.

Its interest goes back to 1999 when it bought a minority stake in Drugstore.com, but never fully integrated it into its core retail offering. Walgreens later bought the website and eventually shut it down in 2016. More recently, Amazon has pursued pharmacy licenses in several US states, held meetings with healthcare industry executives and made several senior hires from insurers and pharmacy benefits managers. And of course, it also recently joined with JPMorgan Chase and Berkshire Hathaway to create a not-for-profit healthcare company that aims to reduce bills for their employees and “potentially all Americans”.

In buying PillPack, Amazon is sticking with the same game plan it is following in the grocery business and its Whole Foods purchase. That is, acquire a company with an existing footprint in a market rather than trying to build a brand new business within its existing retail network. With this purchase, Amazon buys regulatory permits and contracts with health insurers.

While mail order deliveries represent a small proportion of the overall prescription market, it is seen as a source of growth due to demographics – an aging U.S. population will require higher levels of medical care in coming years.

The acquisition should create another competitive advantage for Amazon over others in the space thanks to its extensive logistics network and loyal customer base to its Prime subscription (with 100 million subscribers) delivery service. Amazon may bundle its prescriptions with other products where people make regular, frequent purchases, such as groceries. That could help attract even more Prime subscribers, who spend more and order more frequently from Amazon than non-Prime customers.

But it will not be an easy road for Amazon. That’s because the trend in the pharmacy business is going in the opposite direction of other retail businesses. Last year, about 88% of prescriptions filled were collected at brick-and-mortar pharmacies. That compares to 82% in 2009, according to Goldman Sachs.

As to why this is happening, it’s simple. . .existing mail-order pharmacies stink. For example, with Express Scripts it can take eight days to have a prescription filled and up to two weeks for a new prescription to be filled. Obviously, Amazon is hoping its strength in logistics will shorten those times greatly.

But its logistics won’t help with another problem – about 30% of prescriptions result in a “pharmacy callback”. That is when the medicine prescribed to a patient is not covered by their insurance and the pharmacy then has to contact the doctor’s office to see if a cheaper alternative is acceptable. Perhaps that is why Amazon is pursuing the insurance angle with JPMorgan and Berkshire Hathaway.

Investment Implications

This move into the drugstore space looks to be another win for Amazon. And a loss for the drug distributors and especially the retail drugstores. After all, Amazon is already undercutting them on the prices for non-prescription medicines.

According to Jeffries Group, median prices for over-the-counter, private-brand medicine sold by Walgreens Boots Alliance and CVS Health were about 20% higher than Basic Care, the over-the-counter drug line sold exclusively by Amazon. Amazon began selling the Basic Care line last August with roughly 35 products and has since expanded its range to 65 medicines including mild painkillers, cold and flu medication, sleeping aids and other medication commonly found in the pharmacy aisle. Many of these meds are available through Amazon Prime.

Take all of these moves by Amazon into the distribution of medicines and you have one more reason to sell the drug retailers or, if you’re an aggressive trader, short them.

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Blockchain

3 Companies Profiting from New Ways to Use Blockchain Technology

July 9, 2018 Tony Daltorio

Many investors continue to think of blockchain as merely the technology that Bitcoin is based on. But it is rapidly becoming a lot more than that. . . . .

In this next article in my series on blockchain technology, I look at the ever-expanding uses some of the leading companies in the world are finding for the use of blockchain. Here is just a small sample I want to bring to your attention, emphasizing the practicality of blockchain in all sorts of businesses.

Fixing the Opioid Epidemic

One novel use for blockchain technology is being undertaken by Intel (Nasdaq: INTC) and the pharmaceutical industry – tackling the opioid epidemic.

Intel’s idea is to use blockchain to pinpoint where drugs “leak” out of the drug supply chain. The test began this spring when Johnson & Johnson and McKesson among others entered simulated data into new digital ledgers. The experiment will see how easy it is to track drugs as they travel from the manufacturer all the way to a patient’s home.

The effort would include using sensors and scanners to ensure that information is entered accurately. After a pharmacy issues a drug and scans it, the record will immediately appear on the blockchain. Each bottle, and even each pill, would be traceable all the way through the supply chain. And any ‘missing’ drugs could then be investigated.

The hope is the tests will lead to a live pilot project and possibly even a limited deployment by year-end. The ultimate goal is for all drug-related companies and their suppliers worldwide to be on an online ledger that can’t be erased. Then government agencies such as the FDA (Food and Drug Administration) could potentially plug into the blockchain and provide oversight.

It is hoped blockchain technology will also help detect “double doctoring”, where an addicted patient takes out more than one prescription from multiple doctors. There is already software that sift through prescription records from 45 states that detects potential opioid abusers that cross state lines to get their prescriptions filled.

Insurance Industry Adopting Blockchain

In my last article on Blockchain, I told you how the world’s largest container shipping company, Moeller Maersk (OTC: AMKBY), was adopting blockchain to modernize global supply chains.

Maersk is also using blockchain to help decide how its ships will be insured if they are sailing through war zones. It has teamed up with the consultancy Ernst & Young, insurers XL Catlin and MS Amlin and the insurance broker Willis Towers Watson to create a system that Maersk hopes will lead to more efficient insurance policies that are more tailored to what it needs.

This is just one of dozens of blockchain initiatives going right now in the insurance industry. The major insurance companies, including Axa, Allianz and AIG, are experimenting on how best to use blockchain. For example, one possible use of blockchain would be to store details of the possessions that policy holders want to insure.

The main benefit of blockchain adoption here would be to increase the efficiency of the insurance firms, making them more cost-efficient. That efficiency could take several forms. First, all parties to an insurance contract — from the insurer to the broker and the policyholder — will be able to see all of the documents in the same place, with changes being verified by all parties. That can save a lot of the time-consuming data re-entry that goes on across the insurance industry, and cut down on the risk of mistakes or misunderstandings in a contract. Blockchain could speed up the claims process too, especially if it is a straightforward claim.

Insurance is normally an industry very slow to change. But blockchain could be a real game changer for this staid industry.

Diamonds, Jewelry and Blockchain

This next industry that is adopting blockchain may be a surprise to you – it is the diamond industry. It is desperately in need of this, with such a murky supply chain that may include fakes, synthetic diamonds and so-called conflict diamonds getting into the mix.

The diamond mining giant De Beers said in May that it had successfully tracked its first diamonds all the way from its mines to jewelry retailers using its Tracr blockchain technology that it plans to roll out to the whole diamond industry later this year.

Tracr gives each diamond a unique ID that stores stones characteristics such as weight, color and clarity. To support the process, the system will also be using stone photos and planned outcome images. Its blockchain technology allows De Beers to show transactions to all participants, while keeping their identities and the values hidden. It is meant to give buyers confidence that the diamonds they are genuine and don’t come from conflict zones.

IBM (NYSE: IBM) is working on something similar (called TrustChain) for jewelry in general, following the supply chain from the mines to the jewelry store and that is based on its proprietary blockchain technology.

Supply chain verification for the jewelry industry is becoming increasingly essential because consumers are demanding transparency in the jewelry they buy. They want to be sure the diamond or precious metal in the jewelry was not mined by exploited labor and in a sustainable way. Research has found consumers are willing to pay more for such proof.

The goal is that, by next year, consumers will be able to pull a smartphone, scan a QR code on the diamond and see a visual of the entire supply chain right on their smartphone.

Blockchain Investment

I hope this look at some of the rapidly uses for blockchain brings home the point that it is a technology worth investing into. The only problem is that the highest-quality efforts in blockchain are just small parts of very large companies. Although IBM is probably the best play if you’re looking for an individual stock to invest into.

If you’re looking for a broader approach, there are a number of blockchain-centered ETFs to choose from. The best of these is the Reality Shares Nasdaq NexGen Economy ETF (Nasdaq: BLCN), which is down 7% year-to-date. Among its top 10 holdings are: IBM and Intel as well as Square, Microsoft and AMD.

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Growth Stocks

How the Blockchain Will Lower the Cost of Imported Goods

June 27, 2018 Tony Daltorio

In last week’s article, I told you that some of the world’s leading firms that are making blockchain technologies a part of their everyday business operations, benefiting both the companies and consumers. And how, using current technology, it is difficult to trace every item through every step of a supply chain that is often very lengthy and complex, involving multiple parties and multiple jurisdictions.

Let me give you a brief glimpse at shipping a product. The very long paper trail begins when a cargo owner books space on a ship to move goods. Documents need to be filled in and approved before cargo can enter or leave a port. A single shipment may require hundreds of pages that need to be physically delivered to dozens of different agencies, banks, customs bureaus, etc.

And make no mistake – shipping is the very core of global trade…

The cost and size of the world’s trading ecosystems continue to grow exponentially. More than $4 trillion in goods, including 80% of consumer goods, are carried by the ocean shipping industry. Just about every item in your home today arrived there via a vast network that transports everything from food and medicine to apparel and electronics from around the world. Total trade represents 60% of the world’s GDP, and yet global supply chains are clogged with inefficiencies and heavily reliant on complex paper-based systems that I described above.

However, distributed ledger technology is changing the equation. For example, even Brexit Britain is looking at how the technology makes Brexit a smoother process.

You see, certificates of origin, typically provided by chambers of commerce, are needed to prove where goods were made for customs purposes. If the U.K. after Brexit is no longer in a customs union with the EU, it will be subject to complex “rules of origin” and companies will need to show which part of which product was made where in order to benefit from preferential trade deals.

The number of certificates of origin needed will likely rise sharply after Brexit. Such documents, and the many other requirements for exporting goods, could be digitized and shared through a blockchain. A standardized process could simplify and make it easier to check many parts of the supply chain including customs declarations, bills of lading [certifications of ship loads] and letters of credit. Shipments entered in a blockchain will remain there forever and can be tracked via a QR code.

Even if Britain does not go down this path, there are companies are the forefront of using blockchain to track shipments around the world.

IBM and Maersk Partner

One company leading the way in practical applications of blockchain technology is IBM (NYSE: IBM). It is teaming up with the world’s largest container shipping company A.P. Moller-Maersk (OTC: AMKBY) to help make companies’ supply chain more efficient and safer through the use of blockchain. The joint venture – 51% owned by Maersk and 49% by IBM – also hopes to automate and digitize the filing of paperwork for shipping cargoes.

The goal is to use distributed ledger technology to create an unchangeable record of transactions along a supply chain that can be shared in real time with whichever companies are necessary. The technology would allow companies at different stages of the supply chain to see the information they need about each transaction in one flow of information.

The two companies began testing the system as early as 2016 and ran a pilot program in 2017, which involved major businesses such as DowDuPont, the ports of Houston and Rotterdam, and the US and Dutch customs authorities. Other companies that are very interested in this new platform include the likes of General Motors and Procter & Gamble, as well as the port operator in Singapore, PSA International and the port operator based in the Netherlands, APM Terminals. The new venture may begin full operations later in 2018 and, on its first day, it will be tracking 18% of containerized sea trade.

A Revolution in Shipping

While there are competing platforms being developed, this is a real opportunity for IBM and Maersk since it is estimated that businesses spend up to 20% of the cost to transport their goods on processing documents and administration. The cost savings, of up to 15% says IBM, for companies should show up on their financial statements within two years.

The adoption of blockchain technology in shipping will reshape the the industry as it has not been since the move to standard containers in the 1960s. But to make it work, dozens of shipping lines and thousands of related businesses around the world — including manufacturers, banks, insurers, brokers and port authorities — will have to agree to standards and work out a protocol that can integrate all the new systems onto one vast platform.

When this eventually does happen, documentation that takes days will eventually be done in minutes, much of it without the need for human input. And the cost of moving goods across the world would likely drop dramatically, adding fresh impetus to the globalization that President Trump is fighting so hard against.

The adoption of blockchain in trade would do so much more too. The World Economic Forum estimated that just improving communications and border administration using blockchain could generate an additional $1 trillion in global trade. IBM and Maersk believe global trade volumes would rise by 15% when blockchain becomes the norm in the industry.

Change in the shipping industry is inevitable and is coming quickly. IBM and Maersk should be two of the main beneficiaries. Next week, I will bring you more companies developing practical uses for blockchain technology.

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Cryptocurrency

Buy This Blockchain Keeping Our Food Safe

June 20, 2018 Tony Daltorio

So far in 2018, cryptocurrencies, such as bitcoin, have been nothing more than a way to lose a lot of money. But that doesn’t mean that the technology behind bitcoin – blockchain – should be the ‘baby’ that is thrown out with the ‘bath water’.

That is why I want to bring you a series of articles, of which this is the first, where I show you some of the leading firms that are making blockchain technologies a part of their everyday business operations, benefiting both the companies and consumers.

A 2017 survey from Juniper Research of 400 executives, managers and tech staff found that almost 60% of large corporations are considering using blockchain. Corporate spending on blockchain software is expected to reach $2.1 billion this year, up from $945 million in 2017, according to the research firm International Data Corp (IDC).

IDC added that distribution, retail and manufacturing are among the industries due to ramp up blockchain spending in 2018. This coincides with what I’ve noticed – that companies are looking to apply ledger technology to aid in the streamlining of their supply chains.

Using current technology, it is difficult to trace every item through every step of a supply chain that often very lengthy and complex, involving multiple parties and multiple jurisdictions. But distributed ledger technology changes the equation.

As to why, let me again give you a very brief explanation of what happens, courtesy of the Wall Street Journal:

“A blockchain ledger allows participants to add blocks of information after each party runs algorithms to evaluate a proposed transaction. If the parties agree that the transaction looks valid — identifying information matches the blockchain’s history and follows the rules created by the participants — then it will be approved, time-stamped and added to the chain. The data, encrypted and unchangeable, is always up-to-date on all participants’ systems.”

Using Blockchain in the Food Supply Chain

One area that certainly needs technology that will trace an item through every step of the supply chain is food. There have been health scares related to food in almost every country on Earth.

So it is comforting to see that one of the largest food retailers in the U.S. – Walmart (NYSE: WMT) – is beginning to adopt blockchain technology in its food supply chain. Since 2016, Walmart has been working with IBM (NYSE: IBM) to develop software that uses blockchain to track products through its supply chain.

The company was among the early adopters of blockchain, with its operations in China. It deployed blockchain to ensure the place of origin and quality of pork in China, a country that has been plagued by food-safety scandals.

In December, Walmart teamed up with IBM and Tsinghua University in China to create a blockchain food safety alliance. The goal is to create a standards-based way of collecting data about the origin, safety and authenticity of food, using blockchain technology to track food items in real time through the supply chain.

Walmart believes blockchain can increase accountability and transparency among its multiple suppliers and middlemen. When something goes wrong, the point in the supply chain — and the participant that is at fault — can immediately be identified and verified. Blockchain also allows all the parties to see the extent of any damage to goods. For instance, if there was a case of tampering, it is likely that the specific warehouse where the tampering occurred could be pinpointed and any recall can be restricted to products that passed through there.

Walmart’s U.S. Food-Safety Blockchain

The company has also begun to use blockchain technology here in the U.S. to trace food products through its supply chain. A blockchain will manage supply-chain data for about 30 products this year, after Walmart ran a major test of the technology in conjunction with IBM for several months in its mango supply chain between the U.S., Mexico and some South American countries.

After a mango is picked from a tree, it makes many stops before getting to your local Walmart. In fact, 16 farms, two packing houses, three brokers, two import warehouses and one processing facility were involved with the test. They all used a mobile app from Walmart to send details such as harvest dates, locations and images of their fruit to the retailer’s blockchain. The company says this process is simpler and more secure than the array of barcodes, scanners, paper forms, etc. that it used previously.

And Walmart found that using blockchain can reduce tracking times dramatically. . .it takes only about two seconds to trace a package of mangoes at any point from the farm to the store. Previously, it could take days or even weeks to work through the paper chain.

This could prove to be a life saver in the event of tainted food sickening people. With the speed and accuracy of Walmart’s blockchain, health officials could immediately be directed to the point of the contamination. And Walmart will save money since stores will only have to pull the mangoes off shelves from one location and not all mangoes.

I believe adoption of this technology can only help Walmart in its battle against others in the grocery business, including Amazon, and improve its profitability.

What Walmart is doing is only one example of blockchain being adapted for use by major corporations.

Energy

Two Stocks to Buy and One to Sell with Oil Prices Climbing Again

June 18, 2018 Tony Daltorio

President Trump is at it again… on June 13, he again blamed OPEC for the rising price of oil. In a tweet he said, “Oil prices are too high, OPEC is at it again. Not good!”. This follows a similar tweet on April 20 when President Trump said “oil prices are artificially Very High” due to the supply curbs by OPEC and its allies.

Trump’s tweet comes ahead of a meeting next week of oil ministers from OPEC and Russia who are under pressure from the U.S. to raise output by at least one million barrels of oil a day, after more than a year of enacting production cuts.

So is OPEC to blame? Yes and no. There are other factors at play here such as a robust global economy that has driven up demand for oil. For example, if you look at just China and India, they have imported 962,000 barrels per day more in the first five months of 2018 than in the same period last year.

But the real problem is on the supply side, with President’s Trump’s imposition of new sanctions on Iran exacerbating an already bad situation. Let me explain…

Oil Supply Constraints

I found it interesting that well-known hedge fund manager Pierre Andurand responded to President Trump’s tweet saying an oil price spike is coming because the number of countries with excess production capacity are few. “OPEC has the lowest spare capacity ever right now. There is going to be a real issue. Prices will be above $150 in less than 2 years. Eventually higher prices will bring more supply. But right now [there is] too little supply coming over the next few years despite US supply growth,” he tweeted.

Andurand is someone to listen to in the oil market… he has returned to his investors a cumulative 560% since 2008. But is he just talking his ‘book’? Last year, he began accumulating positions betting on a return to $100 a barrel oil.

Unfortunately, for us consumers of oil Andurand is largely correct…

First, supply and demand right now in the oil market are roughly in balance at about 100 million barrels a day. BUT the so-called shock absorbers that would cushion any interruption in supply or spike in demand are at dangerously low levels.

Commercial stocks in the world’s major economies currently stand at 2.8 billion barrels, composed of crude (1.1 billion barrels), other liquids (300 million barrels) and refined products (1.4 billion barrels). The level of these inventories is already 27 million barrels below the five-year average, according to the International Energy Agency.

Then you must consider that the vast majority of inventories are held for operational reasons to ensure the uninterrupted flow of oil from wellhead to final customers. Global oil consumption has increased by more than 6 million barrels per day over the past five years, so other things being equal, the oil industry will want to hold more inventories for operational reasons. That leaves only a small percentage, generally less than 15%, actually available to act as a shock absorber.

For the last four decades, the oil industry’s second line of defense has been the existence of significant volumes of spare production capacity. But today, nearly all spare production capacity is held by Saudi Arabia, with smaller volumes held by Russia, Kuwait and the United Arab Emirates. The other oil producers have no spare capacity.

Add it up and OPEC’s spare capacity currently amounts to less than 2 million barrels per day, according to the U.S. Energy Information Administration. That is not good when you consider that in its latest oil market update, the International Energy Agency (IEA) said that it is possible that exports from Venezuela and Iran could decline by as much as 1.5 million barrels per day or about 30% of their current output by the end of 2019. Iran sanctions may take nearly a million barrels a day off the market and with the sorry state of Venezuela, oil production there may totally collapse.

To compensate for that lost output, Saudi Arabia and the others could boost production by somewhat over 1 million barrels per day, according to the IEA. But if that happens, OPEC spare capacity will be reduced to less than 1 million barrels per day – the lowest level since 2004!

And even though US production from its shale fields is on the rise, keep in mind that most U.S. refineries cannot handle that type of light sweet crude and run on the heavier crude such as from Saudi Arabia. And pipeline constraints mean much of that shale oil cannot reach the marketplace.

Oil Price Rise Investments

So how can you profit from this, or at least, make enough money to offset what will surely be rising gasoline prices?

Keep in mind that many oil producers are generating more free cash at current prices than they did at $100 per barrel before the market crashed four years ago. This is because of deep cost cuts during the downturn, with average operating expenses per barrel down by a third and development costs halved thanks to cost-cutting since 2014. That means most oil majors can now cover dividends and capital expenditure at prices around $50 per barrel, meaning that, at anything above that level, they are very profitable.

Of the larger oil companies, my favorite is Norway’s Equinor ASA (NYSE: EQNR), which recently changed its name from Statoil to emphasize its long-term move pivot away from oil and toward alternative energy.

But for now, the company is enjoying the benefits of higher oil prices it is earning (earnings per share were up 24% in 2017) from its rich North Sea oil holdings, including the massive Johan Sverdrup oil field. It’s stock up an impressive 26% year-to-date.

More Reading: Buy This Commodity Set to Become More Precious Than Oil

In its latest earnings report, the company lifted its adjusted net earnings to $1.47 billion, from $1.11 billion in the same period last year. Analysts had, on average, expected $1.61 billion. Cash flow from operations increased by 20% to $7.1 billion.

Here in the U.S. I like ConocoPhillips (NYSE: COP), which is also up 26% year-to-date. This should continue as the company expects compound annual growth rate (CAGR) of production through 2022 of 22%. Not surprising when you consider that the bulk of the acreage it holds in the Eagle Ford shake and Bakken shale are rich in oil. Another plus is that on February 1, ConocoPhillips entered into a deal with AnadarkoPetroleum to buy a 22% stake in the Western North Slope of Alaska. The company will also acquire the stake of Anadarko in the Alpine pipeline. Once the deal concludes, ConocoPhillips’ cash flow will rise from incremental production increases.

But for every winner, there is a loser. And the biggest loser, if oil prices continue to rise, is the airline industry. Overall, the International Air Transport Association says it expects net income of $33.8 billion for global airlines this year, down 12% from its December forecast.

Jet fuel represents a third of airlines’ expenses and industry executives predict costs will be passed on to consumers via higher fares. If I had to pick one loser among the airlines, it would be American Airlines (Nasdaq: AAL), which has added fuel costs to its other problems (overcapacity, etc.)

American lowered its profit outlook for 2018 due to an expected $2.3 billion rise in fuel costs this year. It unfortunately had listened to the short-term Wall Street focus… why waste money hedging – everyone ‘knows’ oil is headed lower, raise your profits by not hedging. Its stock is down 22% over the past three months.

Look for even more winners and losers if the oil price continues its ascent.

Technology

Sell Wall Street’s Favorite FANG Stock Before it Implodes!

June 14, 2018 Tony Daltorio

For millennia now humans have known that a leopard cannot change its spots and a tiger cannot change its stripes. The same holds true when it comes to corporate behavior. . .Facebook (Nasdaq: FB) just can’t stop giving away your personal data for profit. Not surprising considering its corporate culture was laid down by Mark Zuckerberg, whose past was a preview to the present.

Even at Harvard, Zuckerberg was in the middle of a privacy scandal when he developed a “hot or not” app. Zuckerberg was called before Harvard’s administrative body in 2003 to face allegations he had violated other students’ privacy and made unauthorized use of photos. He agreed to take down “Facemash” and thereby avoided penalties that could have forced him to leave Harvard. If you’re interested, here’s a link to the 2003 story in the school newspaper, The Crimson: Facemash Creator Survives Ad Board.

Jump ahead to 2004 and you have this instant message he sent to a friend: “THEY ‘trust me’…dumb f***s,” after boasting that he had personal data, including photos, e-mails and addresses, of some 4,000 of his social network’s users. He offered to share whatever information his friend wanted to see.

That willful disregard for people’s data and privacy continues at Facebook with even more scandals. Here are the details. . . . .

Facebook Follies Continue

Facebook is under fire again for another instance of sharing personal data of users with more than 60 device-makers that had permission to make Facebook-branded apps. The users, of course, had no knowledge of this and did not give permission to use their data.

Many of these multiple data-sharing partnerships with dozens of device makers, such as Samsung, go back as far as 2010. These firms were given access to detailed data about Facebook users and all their friends including information on their work history, personal relationships and religious affiliations.

These deals (because they continued onward) seem to be in direct violation of Facebook’s 2011 agreement with the Federal Trade Commission in which it promised not to share users’ personal data with outside partners. But what makes this worse in the government’s eyes is the fact that four of these firms were Chinese and included Huawei Technologies that U.S. intelligence consider to be a security risk.

The worst thing though about this latest Facebook scandal about its poor stewardship of people’s personal information is that it seems that it never learns from its own mistakes. . .it doesn’t change its stripes/spots.

As usual, when give the chance to be open and transparent, Facebook goes down the path of obfuscation. When the Cambridge Analytica story broke, Facebook did a lot of verbal gymnastics while pointing the finger at Cambridge, ignoring that it had left a whole series of data ‘barn’ doors wide open.

And that continues today. . .Facebook’s response to the data-sharing partnerships focused on the past. . .these relationships were set up years ago, blah, blah. But it does not explain why it did not end or even revise these data-sharing partnerships with smartphone manufacturers.

The company’s latest response to criticism tells me Facebook still isn’t interested in having the public understand exactly what it does. And it’s definitely not interested in becoming more transparent and holding itself accountable. For me, that makes Facebook rather repugnant and not a stock I would ever one. Instead, I would rather own a company that values privacy more highly – Apple (Nasdaq: AAPL).

Apple Goes After Facebook

In fact, Apple seems to be going after Facebook lately.

At the Apple developer conference, Apple unveiled iPhone, iPad and MAC software updates that will limit Facebook’s data collection. Apple’s default Safari browser will show a pop-up window asking users for permission before loading share buttons from social networks like Facebook and Twitter. This will give the user the power to decide whether to share web browser data with Facebook and others.

To give you some sense of the importance of this move, let me explain how the web works. Let’s say your at website Z, saw a story you liked and wanted to share it. Those website icons that allow to share that story are also part of Facebook’s massive data-harvesting system. When websites have those icons, they send information about people’s web activity back to Facebook, which uses the information to fill out the personal digital dossiers they have on billions of people in order to improve how it tailors the advertisements Facebook sells. Many Facebook users aren’t aware that it collects data about non-Facebook websites that people visit, even if they don’t click on any of those “like” or “share” buttons. This data harvesting unfortunately is standard internet practice.

Apple also showed off a new system that makes it more difficult to gather information about its users as they browse across the web. When people visit sites, the characteristics of their device can be used by advertisers to create a “fingerprint” to track them. Safari will share only a “simplified” profile to thwart this tracking. Last year, Apple also launched its ‘Intelligent Tracking System’ that made its more difficult for advertisers to follow users around the web.

Another step in its privacy ‘war’ with Facebook occurred earlier this year when Apple added a new privacy panel to its operating systems. That panel explained in plain language why, how, and what data is collected from Apple devices and by specific applications.

Add up all these measures and we’re talking about throwing a major wrench into the data gathering and harvesting for big profits machine that is Facebook today!

There a lot of reasons for liking Apple’s stock, but these moves regarding privacy is just one more in reason to own it.

Uncategorized

Buy These 3 Electric Vehicle Stocks in the World’s Biggest Market for Them

June 11, 2018 Tony Daltorio

Please don’t tell President Trump about this article – I don’t want to be the subject of an angry tweet from him!

But the future of transportation lies in China, whether we’re talking about conventional fossil-fuel vehicles or electric vehicles. Let me explain. . . . .

China is the world’s biggest automobile market, both in terms of supply and demand, having surpassed the U.S. almost a decade ago, in 2009. In 2017, China produced about 25 million passenger cars and four million commercial vehicles. It is the global driver of the demand side too with expected demand in 2020 to hit nearly 35 million vehicles.

Estimates are that, by 2020, there will be 200 million vehicles on China’s roads. That is less than one vehicle for every five people. In the U.S., there were 829 vehicles per 1,000 people in 2015. And many of these vehicles will be electric.

China already is the world’s largest electric vehicle market too. But before I tell you about that, let me first talk about the global future for electric vehicles.

The Electric Future for Automobiles

According to a report from the International Energy Agency (IEA) released on May 30, the global fleet of electric vehicles will likely more than triple to 13 million by the end of the decade from just 3.7 million in 2017. The IEA went on to say electric vehicle sales may soar 24% annually through 2030.

If that occurs, the IEA estimates that will lower demand for oil by 2.57 million barrels per day in 2030. There is a similar estimate from Bloomberg New Energy Finance (BNEF) that says electric vehicle adoption will lower oil demand in 2030 by 2.23 million barrels per day and by 7.3 million barrels a day by 2040.

And not surprisingly, electric vehicles are expected to account for just over a quarter of vehicles sold in China by 2030, up from 2.2 percent last year, according to the IEA’s estimates. More than half of global electric vehicle sales in 2017 were in China, followed by the U.S. The pace of sales has continued into 2018. . .for example, in April, almost 72,000 electric passenger cars were sold, up 136% from a year earlier and almost four times as many as were sold in the U.S.

The crucial point for the electric vehicle market will be when the growth in sales of electric vehicles accounts for all of the growth in the global vehicle market. Obviously, we are nowhere near that point at the moment.

But an indication as to when that will happen can be gleaned from looking at projections from BNEF. Their 2017 outlook said the crucial date would be sometime in 2026, but the 2018 outlook moved that date up by three years to 2023.

And the reason was China. . . . .

China’s Electric Future

China’s electric market is strongly supported by both the government and the citizenry. The government wants to have the country be the leaders in this new transportation technology while cutting its dependence on foreign oil imports. The average Chinese person likes electric vehicles because it will help alleviate the country’s massive pollution problem – it will be nice to walk around a major city like Beijing without having to wear a mask to keep out the air pollution.

Bloomberg New Energy Finance believes these policies will mean that sales of conventional automobiles in China will peak in 2020, two years ahead of the rest of the world. And their forecast for electric vehicles sales in China is something to think about for a minute. . .BNEF says of all the electric vehicles (including hybrids) between now and 2040, one out of every three will be sold in China!

That would not surprise me since China is already the most competitive electric vehicle market in the world with about 30 companies (including joint ventures) selling EVs in China currently, more than double the number here in the U.S.

Electric Vehicle Investments

So how can you play this boom in electric vehicles in China?

First, do NOT buy any of the three ETFs focused on electric vehicles: Global X Autonomous & Electric Vehicles ETF (DRIV), Innovation Shares NextGen Vehicles & Technology ETF (EKAR) and Kraneshares Electric Vehicles & Future Mobility ETF (KARS). All of these ETFs are loaded mainly with U.S. firms that have little exposure to the Chinese vehicle market.

Instead, if you have even a slight tolerance for higher risk, I would rather own the current leaders in China in the sector. Both companies trade here in the U.S. in the over-the-counter market, but with a high degree of liquidity (lots of shares trade every day).

The first is the company that Warren Buffett invested $230 million into in 2008. That translates today to an 8.25% ownership stake in BYD (OTC: BYDYY). Since then, his investment has grown about fivefold. Buffett is likely to make even more from his investment because BYD is sitting in an enviable position being both the world’s largest electric maker and biggest producer of electric car batteries.

While Tesla investors are breathlessly awaiting the company’s Gigafactory to crank up annual production of batteries to one gigawatt, BYD passed that mark about four years ago. BYD is bringing online an additional four gigawatts of battery-making capacity that makes its annual battery output 12 times larger than Tesla’s!

BYD will also benefit from those quotas for electric cars in the country. If companies don’t meet the requirements, they will be forced to buy credits from automakers that do. And preeminent among these will be BYD. Some estimates are that the company will earn over $2 billion from the sale of credits in just the first three years.

BYD’s stock is cheap at the moment, having fallen about 20% year-to-date (it’s still up 17% over the past year) because of stiff Chinese competition such as from the next company.

Another quality Chinese vehicle company is Geely Automobile Holdings (OTC: GELYY), which is also down 13% year-to-date, but is up 66% over the past year.

Geely has learned a lot about manufacturing quality automobiles from its sister company – the Swedish car company, Volvo. Both companies have the same mainland China parent.

Geely said it will increase the proportion of new energy vehicles it sells in 2018 by adding new energy versions of “most of its major models”. It also plans to launch more SUVs. And importantly, its target is that, by 2020, 90% of its vehicles will be electric.

Finally, how about the old American standard, General Motors (NYSE: GM)?

The company is delivering a million cars a year in China, its largest market. Its is setting records with sales of its Buick, Cadillac and Baojun brands. But GM knows the future in China is electric. . . . .

So CEO Mary Barra has set a goal that, by 2025, GM will offer a range of electrification technology in nearly all its models in China. GM plans to have 10 new-energy vehicles and annual sales of 150,000 units by 2020 in China across its Chevrolet, Buick and Cadillac brands. GM’s 2025 target is for 500,000 units.

To meet the new Chinese standards (and avoid paying companies like BYD), GM will rely more on vehicles like its E100, which it sells under the Baojun brand. It is ramping up production of this compact electric vehicle that it launched in July in conjunction with local partners.

And GM looks to be one of the leaders in autonomous vehicles worldwide too. It got a major vote of confidence from Softbank’s (OTC: SFTBY) $100 billion fund, which said it would invest $2.25 billion into GM’s self-driving car unit, Cruise Holdings. The investment values Cruise at $11.5 billion and will give Softbank a 19.6% stake in Cruise.

The SoftBank 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 to be deployed commercially. GM has said it will launch a commercial ride-hailing service in 2019 using the Cruise technology, and is viewed as having an edge over many of its rivals.

The founder of Softbank, Masayoshi Son, is no fool and I feel his investment into GM instead of say Tesla speaks volumes.

Uncategorized

You Won’t Believe Which Tech Giants Amazon’s Set to Destroy

June 6, 2018 Tony Daltorio

Amazon (Nasdaq: AMZN) and Apple (Nasdaq: AAPL) are perhaps the world’s two best-known companies. The two firms have been dominant, sweeping aside much of their competition.

But what happens when these companies decide to enter the space that is thought to be dominated by the likes of Alphabet (Nasdaq: GOOG), Facebook (Nasdaq: FB) and Tesla (Nasdaq: TSLA)? As the late, great sports broadcaster Keith Jackson would say, “Whoa, Nellie!”

Things are about to get real interesting…

Amazon Goes Big Into Advertising

Amazon has entered just about every sector there is, so why not advertising too? It is taking its most aggressive step yet into self-serve programmatic digital ads by testing a new display ad offering that takes aim squarely at the multi-billion dollar ad revenue stream of Google and Facebook. Google brought in $95 billion from all ads last year, and UBS estimates its display ad network alone will reach $38 billion in revenue this year. Facebook took in $40 billion from ads in 2017.

Amazon’s tool permits merchants that sell on its marketplace to purchase ad spots that will follow customers around the web (the ads will appear on other websites and apps) to try and lure them back to Amazon to make purchases. Amazon is inviting a few select merchants to try the new ad system, beginning in May.

It plans to spend the next year aggressively expanding the infrastructure that it hopes will get more brands buying ad space on its websites and through its ad platform. To do so, Amazon will work with ad-tech companies, agencies and media firms to create platforms that will make buying Amazon ads as easy as using an online shopping cart.

The company has already been using its ads business to boost revenue, helping it get a bigger slice of transactions on its site. Its ad business generated $1.7 billion in revenues last year, according to the research firm EMarketer.

However, the ability to programmatically buy ads on Amazon should be a game changer. EMarketer had forecast that, in 2018, Amazon would generate $3.7 billion in ad revenue worldwide. But in the first quarter of 2018, Amazon already reported more than $2 billion in its ad business: that more than doubled year on year. Its CFO, Brian Olsavsky, said in the first quarter conference call “Advertising continues to be a bright spot from a product standpoint and also a financial one.” Olsavsky added that advertising was a “strong contributor to profitability”.

This aggressive move into the ad space is a smart one for Amazon. First, it is more profitable than just selling things online. Especially since many people actually come to Amazon with the intention of shopping, which is unlike Google and Facebook, where people just do browsing usually.

Second, the digital ad business is big and getting bigger. By 2021, advertising on websites and mobile devices will account for half of all ad spending in the United States, capturing a greater market share than television, radio, newspapers and billboards combined, according to an estimate from EMarketer.

And while most on Wall Street do not see Amazon as a threat to Google and Facebook, I do. First, never underestimate Jeff Bezos. I believe Amazon’s ad business will pull in $10 billion in revenues this year. That is almost half the size of its cloud business, Amazon Web Services.

Second, Amazon comes from a position of strength, with more than 40% of the e-commerce business in the U.S. Both Google and Facebook are bit players there, which gives Amazon a distinct advantage because it has more data on what consumers buy than any other platform. That should drive more business toward Amazon and away from Google and Facebook.

Now, let me fill you in on some interesting happenings at Apple, which is also taking aim at fellow technology giants.

Apple and Autonomous Driving

Some on Wall Street are disappointed that Apple has toned down its ambitions with regard to self-driving vehicles, called ‘Project Titan’.

I am not… it’s not easy building cars… just ask Elon Musk and Tesla.

Instead, Apple is focusing on providing software to vehicle makers to give riders an ‘Apple experience’. It is working currently with a subsidiary of the German automaker Volkswagen (Italdesign, a unit of Lamborghini)to transform about two dozen T6 Transporter vans into electric self-driving shuttles.

That’s not all Apple is doing. It was revealed last month that Apple now has the second-biggest fleet (55) of autonomous vehicles that is being tested on California roads. Apple’s testing fleet has expanded rapidly in recent months. After first receiving a permit to test just three autonomous vehicles in April 2017, the number of vehicles jumped to 27 in January. It has more than doubled since then to 55 vehicles. That leaves Apple second only to General Motors’ Cruise, which has 110 cars testing on California’s roads.

The Wall Street critics say so what… it is still far below the overall fleet of Google’s Waymo and Uber. But as usual, they are missing the big picture. Apple’s autonomous driving program is another addition to its rapidly growing services business, which is moving Apple away from its reliance on sales of iPhones.

Apple’s software and services segment which includes the App Store, Apple Care, Apple Pay, iTunes and cloud services has been a particular growth point for Apple in recent years. CEO Tim Cook knows his firm is too dependent on hardware. In January 2017, he said that he hoped to double revenue from the services segment ($7.17 billion at the time) by 2020. In its latest quarter, Apple reported a 31% year-over-year increase in the segment’s revenue to $9.2 billion.

I’m in agreement with a recent note from Morgan Stanley that said Wall Street is undervaluing Apple’s services business that includes healthcare, augmented reality and original content too. It predicted the company’s services business will represent 67% of Apple’s sale growth over the next five years.

Apple had been leaving money on the table in recent years by failing to capitalize on the rapidly-growing subscription economy. So what better way to play catch-up than a self-driving software play that it can sell to any number of automakers?

And while it is far too early to declare the winners in the race for autonomous driving technologies, I would not count out Apple. It, like Amazon, has an uncanny knack for coming out on top.

Growth Stocks, Technology

Is This What Will Save Apple?

June 5, 2018 Tony Daltorio

Apple’s annual developers conference kicks off on June 4. Apple watchers always keep a close eye on the conference for a sense of the company’s priorities for the next year. In the past, Apple has used the conference to roll out new products for developers to build augmented reality applications, medical research apps and more.

So what can we expect this year?

I think there will be a lot of news surrounding the true growth area of Apple’s business – the company’s software and services segment. There may be a new version of the software that runs the iPhone and iPad (iOS 12?). And a new version of the operating system for MAC is also likely as well as new software for the Apple Watch and Apple TV. Hopefully, there will be an upgrade to Siri’s intelligence – it is so much ‘dumber’ than Alexa right now.

Apple’s Growth Driver – Services

While most on Wall Street are focused on iPhone sales, I’m much more interested in Apple’s “Services” business which has become the company’s second-largest source of revenues. Businesses such as the App Store, Apple Music and iCloud storage brought in more than $9 billion last quarter, a 31% year-on-year gain. CEO Tim Cook has set a target for the business of $50 billion in annual revenues by the end of 2020.

Unlike the volatility surrounding iPhone sales, Apple’s services business has been a model of consistency, averaging a year-on-year growth rate since 2006 of 23%. It is interesting to note that according to Gene Munster – the former Apple analyst turned tech investor through Loup Ventures – that if Apple’s services businesses were valued like other SaaS (software as a service) companies, it would have a valuation of about $380 billion!

The reason why revenues at Apple’s services business has doubled in four years is straightforward – it has an installed base of more than 1.3 billion devices worldwide, up from one billion devices at the end of 2015. Tim Cook said, “With that kind of change in the installed base, with the services we have now and others that we are working on, I think this is just a huge opportunity for us.”

And it is, as Apple joins in on the fast-growing ‘subscription economy’. Subscriptions are a big part of the services business predictability. The number of paid subscriptions to Apple’s own services, including Music, as well as third-party apps that charge through the App Store (such as Netflix and Spotify), has grown to 270 million. That total has soared by 100 million in the last year alone!. Apple gets a cut of subscriptions sold through its App Store.

The Future for Apple’s Services Business

Some on Wall Street believe the current growth spurt in services will not last much longer, as growth in the installed base flattens out.

I disagree… I think Apple has more “tricks up its sleeve.” In other words, more levers to pull to grow in services. One of these is ‘Project Titan’…

Wall Street may be disappointed that Apple has toned down its ambitions with regard to self-driving vehicles (Project Titan). I am not… it’s not easy building cars from scratch… just ask Elon Musk and Tesla about that.

Instead, Apple is focusing on providing software to vehicle makers – it is currently working with Volkswagen – to give riders an ‘Apple experience’. Apple also now has the second-biggest fleet (55) of autonomous vehicles that is being tested on California roads. Apple’s fleet has expanded quickly over recent months. After first receiving a permit to test just three autonomous vehicles in April 2017, the number of vehicles jumped to 27 in January. It has more than doubled since then to 55 vehicles. That leaves Apple second only to General Motors’ Cruise, which has 110 cars testing on California’s roads.

I find myself in agreement with a recent note to clients from Morgan Stanley that said Wall Street is undervaluing Apple’s services business that includes healthcare, augmented reality and original content too. It called services Apple’s “primary growth engine”, predicting the company’s services business will represent 67% of Apple’s sale growth over the next five years.

Morgan Stanley added that “We don’t see services growth slowing anytime soon.” And they’re right – it won’t be the iPhone that pushes the company through the $1 trillion valuation, it will Apple’s fast-growing services business.

Plan B Investing: Mark Zuckerberg’s Secret Plan to Make 2,524%

Famed Facebook founder and CEO Mark Zuckerberg has been in the hot seat over privacy issues. First the U.S. Congress and now European regulators.

He’s been telling them anything they want to hear because he’s already got Plan B in place and it’s promising to be even bigger than Facebook.

He’s already put $19 billion into and has been joined by some of America’s wealthiest people including Warren Buffett, Bill Gates, Michael Dell, and Mark Cuban.

Just what is Plan B?

It’s not gold, crypto or any mainstream investment but it’s set to be the most valuable asset on Earth. And if you act fast, you could earn as much as 2,524% before the year is up.

Growth Stocks

Buy This Commodity Set to Become More Precious Than Oil

May 31, 2018 Tony Daltorio

Opportunities to grow your wealth do not always occur in the technology sector, although it seems that way at times. Sometimes it is the most common and mundane parts of your life that will present a fabulous way to grow the value of your portfolio.

One such example is something you and I take for granted every day here in the United States… water. You just turn on the tap and it’s there. But that’s not true elsewhere in the world and may not be true even here in the U.S. in the future.

I’m reminded of one of my favorite classic poems (published in 1798) – the Rime of the Ancient Mariner by the English poet Samuel Taylor Coleridge. The best-known verse from the poem is: “Water, water, everywhere, Nor any drop to drink.”

Water is seemingly everywhere, covering about 70% of our planet. Yet, fresh water is extremely scarce – accounting for a mere 3% of the world’s supply. Of that amount, the vast majority is either locked up in glaciers or resides in inaccessible subterranean pockets.

And the fresh water that is accessible is not evenly distributed around the planet. For example, there is plenty of water in Siberia. But few people live there.

Of the amount of fresh water that is available, roughly 70% goes to agriculture to feed the world’s population. The enormous amount of water needed to grow the crops and livestock needed to feed and clothe the world’s growing population is creating a dire global situation.

Global Water Stress

According to the United Nations, more than 1.6 billion people are currently living in places where sustainable water use has already reached its limits. The U.N. believes that, by 2025, two-thirds of the world’s population will live in water-stressed regions.

The World Economic Forum labeled the scarcity of fresh water as the most serious problem globally at the moment in terms of economic, security and environmental risks. And the U.S. Office of the Director of National Intelligence now ranks water scarcity as a major threat to national security alongside terrorism.

And it looks set to get even worse…

Global water consumption is forecast to rise by 85% by 2035, according to a forecast by the International Energy Agency. This could translate to 40% of the world population living with water scarcity by 2035.

Another forecast, from the International Food Policy Research Institute, predicts a 40% gap between water demand and water supplies over the next 15 years.

Water and Health

Let me give you some insight into the severity of the problem currently. In human terms, severe water stress currently affects approximately three billion people worldwide. Consider these very distressing facts courtesy of The Water Project.org regarding water and health:

About 1 in 9 people around the globe do not have access to clean, safe water.
50% of the world’s hospital beds are filled with people suffering from water-related disease.
Every minute around the world, a child dies from some water-related disease.

In April 2017, the World Health Organization (WHO) came out with a startling report. The WHO Director, Dr. Maria Neira, was very blunt about the findings: “Today, almost two billion people use a source of drinking water contaminated with feces, putting them at risk of cholera, dysentery, typhoid and polio.”

She went on, “Contaminated drinking is estimated to cause more than 500,000 diarrheal deaths each year and is a major factor in several neglected tropical diseases including intestinal worms, schistosomiasis (parasitic worms that can attack body organs) and trachoma (bacterial infection of the eye).”

Here is just one such example… residents can’t afford wastewater sanitation facilities, so they just let the sewage flow freely into their backyards from their mobile homes. Human waste lies uncovered in soil, with children playing nearby.

The country in question here? Sadly, it is the United States. These conditions do exist in very rural sections of five southern Gulf states like Alabama, affecting more than 12 million Americans.

One example is occurring in Lowndes County, Alabama, where some people were infected with helminths. These are intestinal worms such as hookworm. Other tropical diseases can be found in this afflicted Gulf Coast region of the U.S. One of these is the infectious disease called chigas, which is spread by triatomine beetles (also known as “kissing bugs”). This disease mimics many of the symptoms of coronary heart diseases, so it often goes undiagnosed.

Water Wars

These numbers are eye-opening and show the importance of water to our health and well-being and our very existence.

Famed international and commodities investor Jim Rogers said in an interview with marketing agency Sinclair & Co., “Water is the single most important determination of civilization.” And he’s right. History shows that without water, no civilization – no matter how advanced – can survive for long.

Water’s importance hasn’t been lost on those that would take advantage of the situation either. The mainstream media has missed the fact that we may have already seen our first ‘water war’. It was conducted in the Middle East by ISIS.

At the height of its power, it controlled large swaths of land around water sources, such as the upper areas of the Tigris and Euphrates Rivers. The Arab region contains less than 7% of the world’s water reserves and less than 1% of the flowing water. Rain there does not exceed 2% of the global average.

And in India in 2016, members of the Jat caste sabotaged a canal that brings precious water to Delhi. The city is one of the world’s largest extended urban areas. The sabotage did not end until the caste got what they wanted from the Indian politicians.

Water More Valuable Than Oil

Access to fresh, clean water is now a major investment opportunity of the 21^st century. Water is currently a $600 billion market that is poised to grow to $1 trillion in a few short years — by 2020. It’s easy to see why…

The CEO of French utility Suez SA (OTC: SZEVY), Jean-Louis Chaussade, says water will become more valuable than oilas rising demand from people, industries and agriculture pressures existing supplies.

Companies worldwide are well aware of the problem they and the planet are facing. To that end, companies are investing in water-related projects at record levels. In 2016, companies invested $23.4 billion in projects to secure their water supplies, according to the environmental impact charity CDP.

The list of companies is like a who’s who of the corporate world and include the likes of Nestle’s, Danone, Kimberley Clark and Colgate-Palmolive. These firms seem to taking to heart a quote from Benjamin Franklin: “When the well is dry, we know the worth of water.” Thankfully, they are acting before the ‘well’ is actually dry.

That $23.4 billion is just the tip of the iceberg. According to the consultancy McKinsey, between now and 2030, there will need to be $7.5 trillion worth of investments needed in the sector to keep pace with the projected increased demand for fresh water.

It’s Water Infrastructure Problem Too

The problem isn’t just a water scarcity problem, but also an infrastructure problem. Globally, the problem is massive, with the World Bank estimating infrastructure spending needs to triple to $114 billion annually. And that is not counting the operating and maintenance costs.

Back here at home, the 2017 report card from the American Society of Civil Engineers (ASCE) gave our wastewater infrastructure a grade of D+ and our drinking water infrastructure a grade of D. These are not grades you would be happy with if your child received these in school.

This is not surprising when you consider that some water systems are more like sieves. Estimates are that leaky water pipes cost America about one trillion gallons of water annually.

The ASCE estimates our country needs $105 billion in wastewater funding now. The EPA says $271 billion will be needed over the next 25 years on wastewater spending. On the drinking water side, the American Water Works Association believes upgrades to our country’s creaking water infrastructure may require an astonishing one trillion dollars!

Overall, the ASCE says there is a more than $2 trillion funding gap between the projected current funding and the $4.59 trillion needed to get U.S. infrastructure up to an overall B grade by 2025.

That is music to the ears of our selection for investing in water – Xylem (NYSE: XYL).

Best Global Water Investment – Xylem

This water technology company was spun off from ITT Corporation in 2011 and included all of ITT’s water businesses. Its corporate mantra is “Let’s Solve Water” and does so through the creation of innovative solutions using ‘smart’ technology.

Xylem’s reach is truly global, generating revenues ($4.5 billion in 2016) in over 150 countries. The U.S. accounted for 46% of revenues, Western Europe for another 27% of revenues, the fast-growing emerging market segment now accounts for 20% of revenues and the rest of the world filled in the remaining 7%. In China, the company experienced a 19% rise in orders last year.

The company garners its business from several sources. Here is the breakdown of where the revenues came from in the 2016 fiscal year: public utilities – 47%, industrial firms – 37%, commercial buildings – 11%, residential buildings – 5%.

Xylem: a Closer Look

Following the acquisition of Sensus in 2016, Xylem now operates in three segments: water infrastructure (49% of 2016 revenue), applied water (31% of 2016 revenue) and Sensus (20% of 2016 revenue).

The Water Infrastructure segment includes the company’s business surrounding the sourcing, collection, treatment, and transportation of water. The primary customers in this segment are public utilities and large industrial companies. These customers use Xylem products including industrial pumps, filtration and treatment equipment, and infrastructure control systems.

This part of Xylem does a lot business in developing countries. Here are just two examples:

It is heavily involved in the world’s largest water reclamation and reuse installation, located in Kuwait.
In Shanghai, a water treatment plant is disinfecting the water using ultra-violet light technology from the company’s Wedeco unit. A similar system has also been installed in New York and Chicago.

Xylem also provides membrane-based desalination technology and components and has done so since 1975. And for more than 24 years, the company has provided pre-treatment systems to improve the performance of reverse-osmosis membranes.

The Applied Water segment involves the Xylem’s products and services sold to residential, commercial, industrial, and agricultural end-users. Some of the products in this segment include pumps, valves, heat exchangers, hydro turbines, and dispensing equipment systems. Its Applied Water business focuses more on the distribution of water to households and businesses.

The third segment of Xylem’s business is Sensus. It represents the company’s largest foray into the smart technology market. Sensus is all about technology and includes a variety of smart meters, cloud-based analytics software, remote monitoring and data management systems, and smart lighting.

Tucked into this business is another 2016 acquisition – the Singapore-based water analytics company Visenti. This firm provides a suite of advanced products and services to enable smart management of water networks.

The logic of the Sensus and Visenti acquisitions is impeccable. Xylem’s smart platform can quickly identify the leaks in a water utility’s creaking water system. Then Xylem can offer its services (pipe fusion, etc.) to fix whatever the problem is.

Xylem: a Look Ahead

In the third quarter of 2017, organic top-line performance improved 5% year-over-year. This was largely driven by very robust demand from public utilities as well as stronger industrial end-market demand; although residential and commercial end-markets also did well.

I expect this number to improve further as the company’s analytics and Sensus business really get rolling. The company itself anticipates organic revenue growth of around 5% by 2020 based on the benefits of the Sensus and Visenti purchases.

Xylem should generate revenues of $4.7 billion for all of 2017. That will be year-over-year upside of about 25%, thanks to the acquisitions. Earnings per share should be around $2.40 a share.

With all the world’s water problems, I see an extended period of robust growth for Xylem, which is so uniquely positioned to meet many of the world’s water woes. Therefore, I recommend you purchase Xylem at a price up to $75 a share.

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