All posts by Tony Daltorio

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Big Oil Bets Big on Big Data to Increase Revenues and Cut Costs

President Trump is not the only one using the words “mission accomplished”. On April 13, the International Energy Agency (IEA) said that OPEC could use those words in its battle to reduce the global glut of oil that had been a problem since 2015.

The IEA said oil stockpiles had dropped dramatically over the past year and could dip below five-year average levels in the coming months. Lowering inventories to that level was a main target for OPEC and Russia when the two countries began to curb output in 2017 to balance an oversupplied market and bolster oil prices.

Falling inventory levels and rising geopolitical tensions in the Middle East combined to push oil to its biggest weekly advance, in the week ended April 13, in eight months – up nearly 8% – and it is still trading at the highest level since late 2014.

But that isn’t the big news in the oil industry. Instead, the real news is the effect that Big Data is having on transforming the entire oil industry.

Big Data, Big Results

The oil industry is finally starting to adopt the latest innovations in information technology. And it certainly needed to change. In late 2014, MIT Sloane Management Review and Deloitte scored the oil and gas sector’s “digital maturity” at only a 4.68 out of 10.

Techniques such as advanced data analytics – used by tech titans like Amazon and others to disrupt any number of consumer-related businesses, are now being applied to the energy industry. The end result should be similarly dramatic.

The opportunities being opened up by adoption of these techniques include analysis of rocks to target oil well placement more precisely in oil-bearing areas, oil reservoir models and seismic analysis to allow production to be maximized through the lifetime of an oil field, and automation along with predictive maintenance that can make oil field operations more efficient and cheaper while also enhancing worker safety.

There is the hardware side of this technological innovation too. For example, the Chevron Tengiz oil field in Kazakhstan, that will start production in 2022, will have about one million sensors collecting data! The cost of these types of sensors is falling while their sophistication is rising allowing for more and more data to be collected in all aspects of an oil field operation.

But the real difference today is the rise of cloud computing. This makes it possible to store and analyze data at a relatively low cost. That is important to an industry that generates huge volumes of data, (think temperature and pressure readings and video footage as well). And the amount of data is rising almost exponentially. Bill Brain, CIO at Chevron, told the Financial Times the volume of data the company handles has been doubling every 12 to 18 months.

But the problem up to now has been that oil companies have done very little deep analyses of the all the data they have. Most of it went unused. But now with cloud computing, the data can be collected and correlated in one central location.

The IEA estimates that oil production costs will be cut 10% to 20% by the adoption of digital technologies, although I believe the cost savings will be even greater. For instance, BP worked with a Silicon Valley start-up on an optimization model that was able to raise output in its 180 well pilot project by 20%.

Either way, the likely result of all this innovation in the oil industry will be even more oil being produced cheaply. Currently, companies are recovering only about 8% to 10% of the oil in place in many U.S. shale wells. So if adoption of new technologies could raise that rate by even a few percentage points, the results would be dramatic. The end result would be even more downside pressure on the oil price than caused by the advent of the shale revolution here in the U.S.

While this may not be good news for oil price bulls, the adoption of new technologies by the oil industry is great news for the companies that provide the technology – the oil service companies.

Oil Technology Investments

The number one company here is the world’s largest oil field services firm, Schlumberger (NYSE: SLB), which was founded in 1926. A sign of the change in its business since then is the fact that today it has a software technology innovation center that sits at the heart of Silicon Valley.

In 2017, Schlumberger launched a new software system called Delfi, which makes it possible to bring together and coordinate the way oil wells are designed, drilled and brought onstream into production. This allows Schlumberger’s clients to maximize output from an entire oilfield. The company also has worked with Nvidia in adapting its technology for viewing and analyzing seismic data.

The company’s hope is that, by the end of 2018, oil companies around the world will be using its new technologies “on a regular basis”. Schlumberger’s executive vice-president for technology, Ashok Belani, said to the Financial Times that adoption of this technology will cut production costs by 40% in U.S. shale fields within the next decade!

The next company is Halliburton (NYSE: HAL), which is the world’s number two oil field services provider. Like Schlumberger, it is also working with Nvidia on adapting technology for viewing and analyzing seismic data.

Last August, Halliburton announced a major partnership with Microsoft to ‘transform the oil industry in radical ways’. The goal is to digitize the entire upstream oil industry and improve exploration results through the application of deep learning and augmented reality to reserve estimates, modeling and simulations.

The two firms are collaborating in areas including machine learning, augmented reality and user interactions. Halliburton will use Microsoft’s HoloLens, Surface, Azure and its Internet of Things solutions.

Finally, there is Baker Hughes (NYSE: BHGE), which is currently 62.5% owned by General Electric. I expect GE to spin this off in the not-too-distant future.

The company also has a partnership (announced in 2017) with Nvidia, but this one involves using artificial intelligence (AI) to help extract and process oil and gas more efficiently. It believes that it is just scratching the surface of what AI can do for the industry.

It also has a California technology center that it shares with the software operations arm of GE. Baker Hughes uses GE’s innovative industrial software program, Predix, in oil and gas applications.

Schlumberger’s stock is up 4% year-to-date, but is still down over 10% over the past year. Halliburton’s stock is also up about 4% both year-to-date and over the past 12 months. Baker Hughes’ stock is also up nearly 4% year-to-date, but is down a whopping 21% over the last 52 weeks.

With the oil industry finally moving toward digitization, these stocks should have a brighter future ahead of them.

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.
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Source: Investors Alley 

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Two Stocks to Buy Benefiting from Trump’s Tax Reform Law

With this year’s tax filing deadline date just past, it’s a good as time as any to take a look at a few special situations whose stock prices were hit because of recent changes in tax policies.

The first company I want to tell you about is one that has become a real life example of the law of unintended consequences…

Congress changed the way American corporations are taxed on their overseas earnings. Previously, firms were taxed at the 35% rate. But most companies avoided that by booking their income overseas and then keeping the money there.

So Congress came up with GILTI (Global Intangible Low-Taxed Income), which was set at 10.5%. Its main target was the tech and pharma companies that transferred their trademarks and patents overseas to avoid paying tax on them.

Kansas City Southern

But this new tax intended to tax overseas income earned by U.S. technology and pharmaceutical firms and their trademarks and patents has hit closer to home with the railroad company Kansas City Southern (NYSE: KSU), which has a substantial business in Mexico.

Even though its main assets are railcars (and not intellectual property) and it already pays a 30% tax in Mexico, it will also be hit by GILTI. That’s because of the way the new tax interacts with the treatment of foreign tax credits that are supposed to prevent two countries from taxing the same income. When companies figure out the credits they receive for paying taxes overseas, the law typically requires them to assign some of their domestic expenses to foreign jurisdictions.

The result for some firms like KSU is that, for U.S. tax purposes, their foreign income and foreign taxes look smaller than they actually are. This actually shrinks their tax credits and may force them to pay the GILTI tax on top of their foreign tax bills. In particular, it hits companies with operations in high-tax countries like Mexico, Germany and Japan.

So the net effect for companies like Kansas City Southern from the new tax law is practically nil, receiving almost no net boost. Nevertheless, I do like the company because of its large exposure to Mexico (it owns one of two large regional railroads in the country) and its 50% ownership in the Panama Canal Railway Company.

Record financial results have driven the stock higher in recent months despite fears over whether NAFTA negotiations between Canada, Mexico and the Trump Administration will end with a positive result. The stock is up 25% over the past year and 6% year-to-date. Here is a breakdown of its latest results (fourth quarter) by segment:

  • The Industrial & Consumer Products segment generated revenues of $147.1 million, up 8% year over year. While business volumes improved 10%, revenues per carload fell 1% year over year.
  • The Chemical & Petroleum segment had revenues of $137.7 million, up 24% year over year. Volumes improved 12% year over year. Revenues per carload rose 11% from the prior-year quarter.
  • The revenues at the Agriculture & Minerals segment were $121.7 million, down 1% year over year. Business volumes declined 9%, but revenues per carload were up 9% both on a year-over-year basis.
  • The revenues at the Energy segment were $69.8 million, up 15% year over year. Particularly impressive performance was the amount of frac sand the company hauled. Volumes increased 3% year over year and revenues per carload rose 11%.
  • Intermodal revenues were $97.4 million, up 5% year over year. Volumes improved by 7% and revenues per carload decreased 2% in the quarter.
  • Revenues at the Automotive segment came in at $60.6 million, up 15% year over year. Volumes improved 5% and revenues per carload increased 9%.

Other revenues totaled $26.1 million, up 16% year over year.

Bottom line… it is a solid company whose stock looks like a good buy anytime NAFTA headlines send it lower.

Tax Ruling Hits MLPs or Does It?

In March, there was also a ruling from the Federal Energy Regulatory Commission (FERC) that had tax implications. It closed a loophole that allowed some master limited partnerships (MLPs) with pipelines to be eligible for a tax recovery payment even though they paid no taxes.

Virtually all MLPs said the FERC ruling would have little impact on their cash flow. The only actual MLPs affected were those with substantial interstate oil and gas pipelines such as Enbridge Energy Partners, Williams Partners and Spectra Energy Partners.

The mass sell-off occurred even though U.S. energy production is reaching record highs. With the sector’s newly-found focus on good corporate governance and with yields approaching 10% in some cases, MLPs are worthy of renewed interest from you. With the fear over this FERC ruling did was simply to lower the valuations of the sector to levels that in the past turned out to be good buying opportunities.

After the ruling, the Alerian MLP index was trading at an 8% discount to the S&P 500 on the basis of price to projected funds from operations over the following year, according to FactSet. The only two other times in the past 10 years that saw a similar discount occurred in November 2008 and February 2016. What followed were rallies of 50% and 60% respectively in the index over the subsequent six month period.

If you’re looking for a specific MLP, I suggest you check out articles from my colleague, Tim Plaehn, who has lots of expertise in the sector. For broad exposure – since I believe the whole sector is so beaten-down – there are a number of exchange traded funds that fit the bill. The largest of these is the Alps Alerian MLP ETF (NYSE: AMLP), which has 27 stocks in it and is down over 23% in the past 52 weeks and more than 10% year-to-date, putting it in a bargain price range.

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.
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3 Stocks for Profits from People Playing Video Games All Day

The definition of sports is changing. For those people who have never known a world without the internet, sports can mean something quite different than for us a wee bit older. For those people, sports are just as likely to be played sitting in a comfy chair with headphones, a keyboard and a mouse.

Welcome to the brave new world of e-sports!

This new realm for sports still requires quick thinking, lightning reflexes and dedication to the sport. And like traditional sports, these athletes are playing for substantial money. Here is a list of the top 10 purses for e-sports in 2017:

 

The e-Sports Market

According to PricewaterhouseCooper (PwC), the global e-sports market was worth $327 million in 2016. One reason for its smallish size compared to say the NFL is that e-sports is a collection of different game titles across different game genres, with different intellectual property holders that, to date, have not bargained together for TV (and streaming) rights and sponsorship deals.

But now e-sports is moving into the ‘major league’ of sports. They will be added as a medal event in the 2022 Asian Games. That’s not surprising considering that South Korea is the hot spot for these sports, with other Asian countries also joining in. The backers of e-sports are pushing too for it to be added as an official event in future Olympics too.

Any future Olympics boost will only add to the growth already occurring. PwC estimates that the e-sports market will expand at a compound annual growth rate (CAGR) of 21.7% through 2021 into an $874 million market. Other forecasts are even more bullish. For example, the Dutch research firm Newzoo says e-sports will be a $1.6 billion industry by 2021.

Whatever forecast you believe, the bottom line is that the e-sports industry is growing in leaps and bounds. Especially in certain countries… here are the projected growth rates for the three top e-sports countries – South Korea, China and the United States – according to PwC…

China is set to be the fastest grower with a 26.3% CAGR, with its industry set to hit $182 million in 2021. The growth there is being spearheaded by its two tech titans – Tencent Holdings (OTC: TCEHY) and Alibaba Group (NYSE: BABA). Tencent, which is a major games developer, agreed last May with the city of Wuhu to transform it into an e-sports hub, with a dedicated stadium to host international tournaments and with an e-sports university to train the next generation of players.

The next-fastest growth is forecast to come from the U.S. with a CAGR of 22.6% though 2021, while South Korea is expanded to expand at a 13.9 rate though 2021.

Eyeballs = Revenues

I believe these projected growth rates may even be conservative. The reason is because e-sports is becoming a major spectator sport.

Goldman Sachs estimates that the global monthly audience for e-sports will reach 385 million by 2022. That’s more than the NFL, folks.

That will give Amazon another boost, as if it needed it. It got into the ‘game’ early when it bought Twitch, a very popular live streaming platform for gamers, for $970 million in 2014.

Others have followed Amazon. BAMTech, Major League Baseball’s streaming company, is a subsidiary of Disney. In 2016, it agreed to pay video game developer Riot Games (owned by Tencent) $300 million over six years for the “exclusive rights to stream and monetize” League of Legends tournaments.

These viewer eyeballs will turn into revenues for the industry. You see, there are three main areas where e-sports can produce revenues. First is direct payments from live streaming services – some live tournaments have tens of millions of viewers. Last year, there were 11.1 billion e-sports videos streamed in China and 2.7 billion in North America, where about one-third of gamers reside.

The next source of revenue is the sale of content rights to broadcasters. Finally, advertising revenues, which today come largely from the gaming industry. But it isn’t hard to imagine a whole raft of companies looking to get their message in front of millions of viewers.

Goldman Sachs analyst Christopher Merwin said in a note to clients, “We expect sponsorship will be one of the largest revenue opportunities for e-sports.” He pointed to the fact that nearly 80% of the viewers are between the ages of 10 and 35, which is a very coveted demographic for advertisers.

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

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

Related: 5 Growth Stocks to Ride the Semiconductor Supercycle

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

The build-out of leagues is already attracting sponsors, as I hinted at before. Both Intel and HP are lead sponsors for the Overwatch League. And Geico and Nissan are among the sponsors of the North American League of Legends league while Coca-Cola sponsored the finals for the league.

e-Sports Investments

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

At the top of my buy list is the aforementioned Activision Blizzard, which also has a live streaming channel called Major League Gaming, which it acquired in 2016 for $46 million. It currently has many popular franchises including Call of Duty, Destiny, Skylanders, World of Warcraft, Candy Crush and, of course, Overwatch.

Management believes the release of new titles, its expanding mobile pipeline and increasing initiatives in advertising and e-sports will drive growth. In-game net bookings are anticipated to show a double-digit percentage growth in 2018. The release of World of Warcraft’s Battle for Azeroth this summer should also boost growth this year as will Destiny 2. Activision also anticipates Overwatch League to be profitable this year. The company also plans to ramp up ad business by rolling out more video-based ad products.

For 2018, Activision expects GAAP revenues of $7.35 billion and earnings per share of $1.78. On a non-GAAP basis, revenues and earnings are expected to be $7.35 billion and $2.45 per share. Its stock, up about 30% over the past year, should enjoy another good year in 2018.

Next on the list is a rival of Activision, Take Two Interactive Software (Nasdaq: TTWO), which is best known for its Grand Theft Auto, Red Dead and NBA 2K franchises.

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

Take Two is also expanding rapidly into mobile games. It strengthened this area of the company with its acquisition of Barcelona-based Social Point for $250 million in 2017. Social Point is one of the most prolific mobile game developers.

Take Two’s for fiscal 2018 centered on strength in its franchises like Grand Theft Auto, NBA 2K and WWE 2K, which should boost the top line in the fiscal year. GAAP net revenues are likely to be in the range of $1.80–$1.85 billion, above the earlier projection of $1.74–$1.84 billion. The company forecasts earnings per share in the range of $1.40–$1.60, well above the 55–80 cents projected earlier. Once again, that should keep the stock, up about 66% over the past year, moving forward.

Finally is a bit of a dark horse since it has yet to really move into e-sports, Japan’s Nintendo (OTC: NTDOY). The company has already enjoyed a major change in fortunes thanks to its launch of the record-breaking Switch console, causing its stock to nearly double.

 

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

Growth Stocks

How to Profit from Solving the World’s Water Shortage

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 reside 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% of that 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.

The U.S. media tends to ignore events in the rest of the world, but there is a scary situation developing in South Africa’s second-largest city, Cape Town, with its four million residents.

Countdown to Day Zero

Cape Town is best known as a tourist haven and the center of South Africa’s wine industry. But now population growth and a record drought in the region have combined to push the city to the brink – to being very close to ‘Day Zero’ when its water reservoirs run dry.

Historically, despite the arid climate, Cape Town’s Table Mountain had trapped onshore breezes coming from warm ocean waters, creating rain locally that powered rivers and filled underground aquifers. But that has not happened the past two years thanks to unusually low rainfall – only 153.5mm (about 6 inches) of rainfall was recorded at Cape Town’s airport in 2017. That compared to more than 500mm in 2014. Climatologists say that another year of drought cannot be ruled out.

Of course, people acting stupid are to blame also. The well-to-do suburbs with water-hungry lawns and swimming pools are not conserving water despite pleas from local government officials. City officials asked residents to consume only 50 liters (about 13 gallons) a day of water, which is less than one-sixth what a typical American family uses.

And it’s not like city officials were sitting on their hands doing nothing… they were proactive. Over the last 20 years, the city made strides in reducing water use from its six major reservoirs, which hold up to 230 billion gallons of water. Per capita consumption declined, the city reduced leaks from water pipes, it forced large users to pay more, and generally promoted water efficiency. Cape Town even won several international water management awards. And currently, they are building their first water desalination plants.

But those efforts have not been enough. In 2014, its six dams were full. But then came three straight years of drought—the worst in more than a century. Now, according to data from NASA satellites, the reservoirs stand at 26% of capacity, with the single largest reservoir (it provides half the city’s water) in the worst shape. City officials plan to cut off the taps when the reservoirs hit 13.5%, which is known as ‘Day Zero’.

Residents of Cape Town are finding out the truth contained in this quote from Benjamin Franklin: “When the well is dry, we know the worth of water.”

Other Major Cities at Risk Too

Up until now, a shutdown of such a major metropolitan city would have been unthinkable. But as over-development, population growth and climate change have changed the balance between water supply and demand, urban centers all over the world may face the threat of severe water shortages.

In other words, other of humankind’s major cities are also at risk of severe water shortages.

Already, many of the 21 million residents of Mexico City only have running water part of the day, while one in five get just a few hours from their taps each week. Several major cities in India don’t have enough as poorer regions cut off the water flowing downstream to the ‘rich’ cities. Water managers in Melbourne, Australia, reported last summer that they could run out of water in about a decade. And Jakarta is actually running so dry that the city is literally sinking as residents suck up groundwater from below the surface.

In 2015, Sao Paolo Brazil faced a crisis similar to Cape Town with only 20 days’ worth of water left in its reservoirs. They were so low that pipes drew in mud instead of water, emergency water trucks were looted and homes only had access to water for a few hours twice a week. Only last-minute rains salvaged the situation there.

In Barcelona, Spain in 2008 tankers full of fresh water from France had to be imported into the city.

The bottom line is that 14 of the world’s 20 megacities are now experiencing water scarcity. And as many as 4 billion people (half of which are located in India and China) are living in areas where there is water stress for at least one month a year, according to a 2016 study in the journal Science Advances.

The Water Investment Opportunity

The current water crisis is driven both by climate and poor water infrastructure. In Jakarta Indonesia, for instance, water management is very poor with unsanitary water, lots of leaky pipes, heavy metals pollution and an inadequate number of pipes.

Even from an economic perspective, water is critical. As Pictet fund manager Arnaud Bisschop told Bloomberg, “There is a 100% correlation between water availability and GDP growth. If there’s no water, there’s no growth.”

That means there needs to be trillions of dollars spent on water and water infrastructure projects around the world in the coming decades. Even here in the U.S., estimates are than a trillion dollars needs to be spent over the next two decades to upgrade our deteriorating water infrastructure.

Water is emerging as an investment class. So much so that the CEO of the French water services firm Suez (OTC: SZEVY), Jean-Louis Chaussade, says it will be more valuable than oil someday. Even if that doesn’t happen, water should be a must-own part of your portfolio.

So how can you invest in water? The broadest way is through an exchange traded fund. There are five such ETFs that are available to you. The one I like the most is the former Guggenheim S&P Global Water Index ETF, which is now controlled by Invesco and is called the PowerShares S&P Global Water Index Portfolio (NYSE: CGW).

This is nicely balanced geographically with about 43% in the U.S. and the rest overseas. However, Wall Street is apparently still unaware of the water problem because this fund gained only 11.5% over the past year.

Its top five positions are all well-known names: American Water Works (NYSE: AWK), Xylem (NYSE: XYL), Danaher (NYSE: DHR), Veolia Environnement SA (OTC: VEOEY) and Pentair PLC (NYSE: PNR). One of these stocks is my top water recommendation and is available to subscribers of my Growth Stock Advisor newsletter. It is up more than 10% since the November 29 recommendation date despite the turbulent stock market we’ve had in 2018. And I expect much more upside in the years ahead due to the water situation globally.

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 

Uncategorized

The Hidden Beneficiary of the Electric Car Revolution

Ask the average investor the biggest beneficiary of the move around the world toward electric vehicles and the likely answer will be Tesla (Nasdaq: TSLA). I only wish I could press a very loud buzzer informing them they are wrong. Tesla is just one ‘horse’ in a very crowded field of automakers.

I know that you know better, or else you wouldn’t be reading this right now. Surging demand for the technology metals that I bring to your attention promises to overturn the balance of power between mining companies and their customers. So says the billionaire mining entrepreneur and legend Robert Friedland that I introduced to you in the very first issue of Growth Stock Confidential.

I am total agreement with Friedland… electric vehicles are an extremely good long-term growth story for both the technology and industrial metals.

However, that doesn’t mean there still aren’t overlooked winners, hiding in plain sight that will be among the beneficiaries of the electric car revolution. Here’s a clue from an Elon Musk quote, “Our lithium-ion batteries should be called nickel-graphite.”

Yes, the industrial metal nickel is poised to be a big winner in the electric car revolution. Most people think nickel is just used in the making of stainless steel. But there is one particular form of nickel (more on that later) though that is crucial to the lithium-ion batteries that power electric cars.

Related: 3 Electric Car Winners That Don’t Sell Electric Cars… Or Batteries Either

And while stainless steel still accounts for 85% of nickel consumption and batteries only 3%, demand from battery makers for nickel this year has soared 44% this year. Demand from battery makers is where nickel’s future growth will come from.

Nickel and Electric Cars

Nickel has been a terrible investment for the past few years, as it has been weighed down by excess mine supplies and bulging inventories. Nickel collapsed from its high in 2007 of $51,600 a ton to around $8,000 a ton in 2015. Just look at this 15-year chart.

This is all about to change and in a major way, thanks to electric vehicles. We are already seeing hints of this as in early November nickel had rallied to a two-year high.

The excitement is building for nickel among metals industry insiders. In fact, the biggest buzz at this year’s annual LME (London Metal Exchange) week in London in early October was surrounding stodgy nickel. It emerging as one of the favored ways to play the electric vehicle supply chain. The expectation is that nickel-manganese-cobalt batteries may gain a lot of market share because of their ability to allow motorists to drive further on a single charge.

Among the topics at the conference was a very conservative forecast for the number of electric vehicles on the road by 2025 is 14.2 million from the consultancy Wood Mackenzie. In 2016, there were 2.4 million electric vehicles on the road.

If this happens, Wood Mackenzie forecasts that demand from the auto industry will rise from 40,000 metric tons in 2016 to 220,000 tons in 2025. The global nickel market is only 2.1 million tons in size. And when you consider other components needed by electric cars outside of the battery, the Wood Mackenzie figure climbs to 275,000 tons – 12% of global supply.

This is an eye-opening in the light of the fact that nickel inventories are finally shrinking. Most of that is due to high demand coming from China. Estimates are that demand there is up 3.8% to 1.1 million tons through the first 10 months of 2017.

Analysts at the investment bank UBS say that there will be a 71,000 ton deficit this year, while others say the nickel deficit is as high as 150,000 tons. Whatever the correct amount of the deficit is, one thing is certain – it is eating into the amount of inventory overhang.

Mining companies will just be able to crank up the amount of nickel they mine, so it’s no problem, right? That’s what some Wall Street analysts say that really don’t know what they’re talking about.

Nickel Sulphate

You see, the majority of nickel production coming onstream through 2025 is of the low-quality variety – ferronickel or nickel pig iron. Both of which cannot supply the much-needed nickel sulphate for electric car batteries.

Nickel sulphate is produced by dissolving pure high-grade nickel metal, called Class 1, in sulphuric acid. That is why nickel sulphate prices this year have traded at a premium of up to 35% over the LME price of nickel.

To bring home the point about the importance of nickel sulphate, I turned to one of the many contacts I have in the technology metals industry, Simon Moores. He founded Benchmark Mineral Intelligence in the U.K. a few years as a source of information on the technology metals markets. He and his firm have quickly become the source for such information for Bloomberg, CNBC, and all the other financial media outlets.

When I asked him about the importance of nickel sulfate, Simon wanted me to pass this on to you:

“Nickel sulphate is the second largest input into a cathode after lithium and is set to become even more important with the advent of high nickel lower cobalt containing chemistries. While nickel is mined in the millions of tonnes, only 75,000 tonnes of nickel chemical was consumed in batteries in 2016. The industry will need to restructure to produce anywhere from four to five times this in the next seven years to meet lithium ion battery demand. We expect 2018 to be the year major nickel metal suppliers start enacting this battery pivot to their business models.”

Other experts are pretty much in agreement in agreement with Simon…

The chief economist at commodities trading firm Trafigura, Saad Rahim, told Bloomberg that demand for nickel sulfate will soar 50% to 3 million metric tons by 2030. Portfolio member Glencore is largely in agreement – it forecast a need to boost nickel output by 1.2 million tons by 2030 in order to meet demand. That is more than half of current global production.

And keep in mind that most of this increase in nickel output needs to be of the high-quality ore.

That demand for higher-grade ores is already being reflected in the marketplace. The spread between high-grade and low-grade iron ore has widened to more than $20 a ton this year, from only $5 to $8 a ton 18 months ago.

The consultancy McKinsey was quoted in the Financial Times as saying, “The global nickel industry may enter a period of change driven by a shift in end-use demand and the emergence of two distant markets.”

Since only about half the world’s nickel is suitable for batteries, we need to stock to that part of the nickel market with our investment selection. And we want to stick with the major players, not some speculative exploration company.

That leaves us with the two largest nickel miners in the world – Russia’s Norilsk Nickel (OTC: NILSY) and Brazil’s Vale SA (NYSE: VALE). You may recall that Vale got into nickel in a big way when it purchased Canada’s Inco in 2006 for C$19 billion.

Vale SA – the Broad Picture

While there are political and geopolitical concerns with both countries, I’m opting for the slightly safer choice and going with Vale. In addition to being a powerhouse in nickel, Vale is the world’s largest producer of iron ore, most of which is of the highest quality.

But like its Brazilian peers, Vale was a company in a lot of trouble, not only because of falling commodity prices, but also because of direct interference in its operations from the prior Dilma Rousseff (who was impeached) government.

The first step out of the wilderness was taken by Vale in March when it named 63-year old Fabio Schvartsman as its new CEO. He is a commodities industry veteran, having run companies for four decades, with the latest being Brazilian paper giant Klabin.

In late June, the first phase of a restructuring plan to reduce government influence was put into place. As part of that process, the plan is to list Vale on Brazil’s Novo Mercado, which has higher corporate governance requirements.

But most importantly, Schvartsman is tackling the company’s debt problem. Vale’s debt hit a peak of $25 billion – a lot for a company with a market capitalization of less than $60 billion. He is targeting a halving of Vale’s current debt of about $21.1 billion to less than $10 billion in order to become a “results-orientated” company. Net debt at the end of the third quarter of 2017 came in at $21.066 million, down 18.9% year-over-year.

Schvartsman is also ‘running the slide rule’ over all projects. For example, he is looking for a partner to invest in one of the world’s biggest nickel mines, which is located on the remote South Pacific island of New Caledonia. Discussions are underway with a number of possible Chinese partners that are in the battery industry. If he doesn’t fund a partner, Schvartsman will shutter the mine.

Vale SA – the Numbers

Now let me show you a closer at Vale’s numbers.

The majority of its business – about 75% – is centered around iron ore. Vale operates two world-class integrated systems (the Northern System and the Southern System) in Brazil for mining and distributing iron ore, which consists of mines, railroads, port and terminal facilities.

But roughly 20% (and growing) of Vale’s business consists of non-ferrous metals like nickel and copper (it is Brazil’s biggest producer). It is also the country’s sole producer of potash and the world’s third largest producer of kaolin (a clay industrial mineral).

The remaining 5% or so are scattered around assets like coal. In a presentation to shareholders in November, Vale said it will unload $1.5 billion worth of non-core assets from 2018 to 2020.

The rally in metals prices in 2017 (iron ore is soaring again in China) gave a huge boost to the efforts of Schvartsman to turn the company around. Just look at Vale’s latest results…

I fully expect these positives will continue to boost the company’s results in the quarters ahead. And once you add in the promise of an electric vehicle future for nickel, Vale should make a nice addition to any wealth creation portfolio.

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 

Technology

FAANG Stocks: Two to Dump Now and Two to Buy

In what was a very poor April Fool’s joke, the stock market took a tumble on Monday, closing below its 200-day moving average for the first time since June 2016. U.S. stocks had their worst start to an April in many decades as measured by the S&P index. The 2.2% plunge was exceeded by only the 2.5% dive in 1929 when the index only consisted of 90 stocks. This drop followed the worst three month period for global stocks in more than two years.

This selloff was once again led by technology stocks – the Nasdaq 100 index lost 2.9% – as more reasons to sell tech outweighed expected stellar earnings reports (average gains of 22%) later this month. The so-called FAANG stocks extended their recent fall. On Monday, they lost $78.7 billion in market value, bringing the total decline in value to $397 billion just from March 12.

The reasons behind the tech selloff were many and included: the continuing worries over regulation of social media, thanks to Facebook; a stupid April Fool tweet from Tesla’s Elon Musk joking about bankruptcy; tweets from President Trump continuing his rants about Amazon; further tweets from the President threatening the future of NAFTA, reigniting the market’s worries about a global trade war; and finally a report that Apple may use chips of its own design in Macs rather than Intel’s chips.

Hopefully, the political worries coming from the White House will eventually fade: if so, then that means the main long-term worry surrounds the social media stocks and in particular, Facebook.

The Anti-Social Network

There are now clever articles being written calling Facebook the anti-social network. And with good reason.

A June 2016 internal memo written by Facebook vice-president and long-time employee Andrew Bosworth entitled “The Ugly” was an eye-opener. It said that the company must pursue its aim of connecting people using “questionable” means even if it costs lives. In other words, anything and everything Facebook does in pursuit of growth was “justified”. What hubris!

Bosworth said this justified “questionable contact importing practices” where users give up their friends’ data, and implied that the privacy policy language was meant to deceive with “the subtle language that helps people stay searchable by friends”. He also suggested Facebook was prepared to use even more “questionable” practices in order to break in to the Chinese market.

This is what happens when only dollars matter. As the author of The Facebook Effect, David Kirkpatrick, told the Financial Times, “They simply allowed an advertising based system to get out of control. “You could use the word greed if you wanted to be uncharitable. They clearly prioritized growing profits over cautionary controls [over users’ privacy].”

The Consequences

As a result of these Facebook failures, lawmakers and regulators in both Europe and the U.S., where Facebook signed a privacy deal with the Federal Trade Commission in 2011, are now scrutinizing the problems posed by data-hungry businesses. The question is how to regulate these fast-changing technologies without ruining their business model.

The underlying problem is that Facebook’s business model, like Google’s, is based on constant commercial surveillance. These companies have massive amounts of personal data on users… in effect, they have a psychological profile on each user. Think about how Google is a ‘data miner’ too. When you search using Google or use Google’s Chrome browser, all that data goes to Google so it can target ads to you. In effect, like Facebook it has a profile on you based on your searches and location.

Related: Facebook, We Have a Problem

Beginning in May, Europe’s GPDR (General Data Protection Regulation) will limit how companies store, process and share personal data. The consent to collect and use personal data will have to be specific and unambiguous, not buried inside many pages of legalese and a user must consent every time. This law alone caused Google to warn its shareholders the reforms could “cause us to change our business practices”. The EU I believe will also pass an e-privacy directive, which if passed, would likely have an impact on both firms’ business, because it would significantly restrict the tracking of users’ behavior online.

Go With Microsoft and Apple Instead

As for the investment implications of all this, I would steer clear of both Alphabet and Facebook as well as other social media stocks even though I suspect Congress will punt on imposing regulation on them. Instead of investing into these companies, I would opt for other blue chip technology companies – Microsoft (Nasdaq: MSFT) and Apple (Nasdaq: AAPL).

Of course, Apple also collects data on its customers, perhaps even more than Facebook. But it has a much better track record of respecting its customers’ privacy than Facebook. Apple has imposed some voluntary restrictions on itself. For example, it makes location data anonymous (unless you’re using the “Find My iPhone” feature) and generally employs “differential privacy” — a cryptography-based practice of obtaining usage and preference data without linking it to specific users.

And there are more differences between the two pairs of companies. Neither Google nor Facebook will make the same commitment as Microsoft that no ads will be targeted based on a user’s email and chat contents. Nor will they make it as easy as Apple and Microsoft make to shut off ad personalization. That’s because their business model won’t work without vast data collection and then ad targeting.

To put it bluntly, the business models of Microsoft and Apple are quite different from Google and Facebook and not reliant on ads. Apple is a hardware company that also sells content and software on commission or subscription basis. And Microsoft, with its cloud, software licensing and subscription businesses, is even less likely to be interested in your data since it no longer has a mobile platform to speak of.

These are the companies to buy on any market weakness, while Facebook and Alphabet should be sold on any rallies.

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 

Uncategorized

Getting Light Speed Returns from One of the Best Technology Sectors

One of the best technology sectors right now has nothing to do with Apple, Google, or Facebook. It’s in the area of photonics. In simplest terms, photonics is the science of light.

I want you to think about it for a moment – think about how, since almost the birth of humankind, light and optics have been there. From primitive people’s fires to whale oil lamps to the electric light bulb to lasers – humankind’s progression has been marked by advancements in the harnessing of light.

Fleshing out the definition a bit, photonics is the technology of generating and harnessing light and other forms of radiant energy whose unit is the photon. Photonics involves cutting edge uses of lasers, optics, fiber optics, and electro-optical devices in a wide range of applications.

Photonics has taken its place alongside electronics as a critical and rapidly growing technology of the 21st century. The global photonics market is forecast to be a $720 billion market by 2020, growing at a compound annual growth rate of 35%.

Welcome to the Photonics Century

Photonics-based applications are today used in a wide range of industries from industrial automation to medical diagnostics to scientific research.

Lasers in particular are displacing conventional technologies because they can do many jobs faster, better and more economically. Finding ways to make products more efficiently is an absolute must for today’s manufacturers. That’s why I strongly believe photonics and lasers are a must own sector for you and all my other readers.

One sector where photonics has become crucial is communications. Coherent light beams (lasers) have a high bandwidth and can carry far more information than radio or microwave frequencies. Fiber optics allow light carrying data to be piped through cables, replacing old copper cables: an absolute necessity in today’s world of big data, cloud computing and video streaming.

Another way photonics has entered our everyday lives is solid state lighting. Light-emitting diodes (LEDs) are a high performance, low-cost, green alternative to incandescent light bulbs.

Then there is LiDAR (laser radar systems), which is used in the aerospace industry and is crucial for the future success of autonomous vehicles, those self-driving cars that are frequently in the news these days.

Photonics technology has become ubiquitous.

Photonics has also become a key component in many manufacturing processes. Think laser welding, drilling and cutting as well as all the precision measurements needed by manufacturers that is provided by lasers.

Lasers Evolution

That leads directly to my recommendation – IPG Photonics (Nasdaq: IPGP), a leading developer and manufacturer of high-performance fiber & diode lasers and amplifiers for a vast range of industries and applications. Its products are used in industries such as materials processing, communications, medical and biotechnology, science and entertainment. IPG Photonics has been in the Growth Stock Advisor portfolio since late last summer and it’s up nearly 60% for us and a wide path in front of it.

The evolution of lasers in manufacturing is a journey of over half a century. Its ready adoption by manufacturers is largely due to the fact that lasers convert common sources of energy into concentrated, directed beams of energy. To do this, a laser must have an energy source, a way of coupling that energy into the laser cavity, and a method of delivering the resulting laser beam to the workpiece.

The new fiber lasers developed by IPG are vastly superior to the old legacy industrial lasers in every facet of the process:

  • Energy Source: Instead of using energy sources like lamps or even chemical reactions, fiber lasers use long-lived semiconductor diode lasers that efficiently convert electricity into light. Not only is the energy conversion efficiency raised, but frequent servicing and sometimes environmentally-unfriendly consumables are eliminated.
  • Energy Coupling: Conventional laser optical cavities have bulky air or gas-filled spaces. Large cavities are necessary due to the inefficiency of gas lasing or the need to insert bulk optical elements within the cavity. Fiber lasers are very compact because they convert semiconductor diode energy into useful laser beams within a fiber no thicker than a human hair.
  • Laser Beam Delivery: Legacy lasers utilize complex optics to extract the laser beam and deliver it to the workpiece. External steering optics are often needed to deflect the laser output onto its target. In contrast, flexible optical fiber provides a built-in, ideal beam delivery system.
  • Mass Production Possible: Both key fiber laser elements – semiconductor diodes and optical fiber – can easily be mass produced. Quite a contrast from legacy lasers with their bulky hermetic laser cavities, their need for precision optical alignments and ultra-flat optical surfaces.

The change is, as the company says, akin to the replacement of vacuum tubes by transistors.

IPG offers, I believe, the best-in-class laser-based systems for high-precision welding, cutting, marking, drilling, cladding, and other processing of metal, ceramic, semiconductor and thin films for customers in automotive, aerospace, railway, energy, electronics, consumer and other industries.

Its range of laser products includes ytterbium, erbium, thulium as well as Raman and hybrid fiber-crystal lasers. All wattage ranges are there too: low (1 to 99 watts), medium (100 to 999 watts) and high (1,000+ watts) output power lasers in wavelengths from 0.3 to 4.5 microns. The lasers can be continuous wave (CW), quasi-continuous wave (QCW) or pulsed. The pulsed lasers are available in nanosecond, picosecond and femtosecond ranges.

Among the well-known companies using IPG products are: Boeing (NYSE: BA), Lockheed Martin (NYSE: LMT), KLA-Tencor (Nasdaq: KLAC), Toyota Motor (NYSE: TM), BMW AG (OTC: BMWYY) and Mitsubishi Electric (OTC: MIELY).

Additionally, the company recently purchased Innovative Laser Technologies (ILT). This firm has a proven track record producing leading-edge systems for medical device manufacturers, one of the fastest growing markets for fine welding and cutting applications. This will greatly aid IPG in its effort to penetrate the market for medical device applications.

Last May, IPG bought Menara Networks, which is an innovator in optical transmission modules and systems. This allows IPG to offer more integrated solutions for the telecommunications industry. In the first quarter of 2017, sales of its telecom products soared by 221% thanks to Menara.

IPG Growing Rapidly

Although both North American and European sales grew 20% in the quarter year-over-year fully 64% of IPG Photonics revenues come from the Asia-Pacific region, with another 25% coming from Europe, including Russia. Only 10.5% of its revenues come from North America.

China continues to be a driver of growth with year over year sales growth of 47% for the region and representing nearly 44% of total sales for the firm.

IPG Photonics Corporation reported Q4 2017 adjusted earnings of $1.86 per share beating the top end of estimates by $0.06. The figure was better than the guided range of $1.55-$1.80.

Management expects sales to come in a range of $330 to $355 million for the first quarter. Earnings are estimated for $1.62 to $1.87.

IPG’s Laser-Bright Future

Thanks to innovative product portfolio – last summer IPG unveiled the first 120 kilowatt industrial fiber laser – and large patent portfolio, I expect IPG Photonics to continue to outpace the other companies in the laser systems and components sector.

Another huge advantage over the competition is its vertically integrated business model, which allows it to control each and every part of its business from research and development to sales to after sales service. In this type of business, I want the company to continue to innovate.

So a purchase like that of OptiGrate, which help IPG develop new ultra-fast pulsed lasers, is what I want to see. I like the fact that IPG is moving into new end markets connected to 3D printing, defense electronics and micro-materials processing in addition to the aforementioned communications and medical sectors. This will only add to the momentum from trends such as the miniaturization of electronics and the move of the global auto industry toward the widespread adoption of fiber lasers.

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 

Technology

Facebook, We Have a Problem

2018 was supposed to be the year that Mark Zuckerberg said he would “fix Facebook”. But it’s only three months into the new year and his task looks a lot tougher after the company went through one of the worst periods in its history in recent days with $75 billion wiped off its market value.

To be honest, I don’t know which is worse. . .the fact that an analytics firm used by Donald Trump’s presidential campaign improperly received data about 50 million users of the social network Facebook (Nasdaq: FB) or how poorly senior executives of the company handled the situation.

Natasha Lamb, managing partner at the impact investing firm Arjuna Capital, described what Facebook faces succinctly “[The revelations are] fundamentally troubling from the investor perspective, not only because the company has been so recalcitrant in its response. There are material risks here in terms of regulator risk, revenue risk and brand risk. There are also risks to our democracy.”

Facebook Folly Fallout

The fallout is just beginning as some high-profile people have begun to publicly withdraw from Facebook. Elon Musk deleted the Facebook pages of his companies Tesla and SpaceX and several major firms ‘temporarily’ paused their advertising on the social media site.

In addition, two class action lawsuits have already been initiated against Facebook. But that will pale in comparison to the legal woes it will face from governments on both sides of the Atlantic.

Here in the U.S., the Federal Trade Commission is looking into whether Facebook violated a 2011 privacy settlement, while the attorneys-general in both New York and Massachusetts have opened investigations.

If Facebook is found to have violated the FTC settlement, it would be costly for the company. It could face fines of $40,000 per affected user if it violated its 2011 consent agreement with the FTC, in which it was ordered to be more upfront with users about how their data were being shared. If found guilty, we are talking about over a trillion dollars in fines, folks.

The 2011 order followed complaints from the Electronic Privacy Information Center (Epic) and other consumer groups that Facebook user data were being shared with developers even though the company’s privacy settings said only friends would see the information. Interestingly, the president of Epic – Marc Rotenberg – said the recent revelations were “a clear violation” of the consent order and that the FTC should reopen its investigation (it subsequently has).

This only adds to the possible monetary penalties Facebook may face in the future. In May, the European Union will introduce stricter data protection rules that will put Facebook at risk of fines of up to 4% of global sales for violations. The EU is also considering an e-privacy directive, which if passed, would likely have an impact on Facebook’s business (targeted advertising) because it would significantly restrict the tracking of users’ behavior online.

Stay Away

So what does all of this mean for Facebook as an investment?

I know that most of the pundits on CNBC and elsewhere are telling you to buy it since it’s now ‘cheap’. And indeed the recent plunge has Facebook stock selling at the cheapest valuation since its IPO in 2012. Its one-year forward price-to-earnings ratio has fallen to just 18 times, its lowest ever as a public company and only slightly higher than that for the S&P 500 index.

But what these pundits are doing is “talking their book”. In other words, they already own it and are trying to entice others to buy Facebook.

I would stay far away. Even before its recent woes, Facebook was fighting against a poor public image – it wasn’t nicknamed ‘Fakebook’ randomly. And as Brian Wieser of Pivotal Research said in a recent note to clients, “Facebook is exhibiting signs of systematic mismanagement.”

And while this recent episode will lower trust among Facebook users, the company has already been losing the trust of advertisers. For example, in August 2016, it revealed that its metric for the average time users spent watching videos was overinflated by 60% to 80%.

However, Facebook’s problems should not stop you from investing in other technology stocks outside the social media sector. As editor of Growth Stock Advisor, I continued to be excited about technology sectors including robotics, photonics, semiconductors and ‘new energy’.

Earnings per share for the companies in the information technology sector of the S&P 500 grew 17% in 2017 over the previous year and are expected to rise 16% this year, according to FactSet. And among the larger names, there are quality companies like Microsoft, Intel and Amazon. These stocks are up 5.8%, 6.5% and 29% respectively year-to-date. So why bother with the problem child, Facebook?

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 

Technology

5 Stocks to Buy in the AI Race Between the U.S. and China

While President Trump fights the battle to save jobs in old-line industries such as steel, he may be losing the war for the future (despite the imposition of direct tariffs on China). The United States has always been predominant in new technologies, such as artificial intelligence (AI). But now China is rapidly closing the gap.

Think about some examples of U.S. prowess in AI: DeepBlue, which defeated chess grandmaster Garry Kasparov, was developed by IBM (NYSE: IBM), as was Watson, which defeated champion Jeopardy players in 2011. The robot Stanley, which demonstrated the feasibility of driverless cars in 2005, was developed at Stanford University in the heart of Silicon Valley. And don’t forget that one reason for U.S. dominance has been Darpa (Defense Advanced Research Projects Agency), the U.S. military research funding agency, whose backing was behind many of the most prominent research papers in AI.
However, one recent example highlighted how China has come to the fore in AI.

In January, companies from all over the world subjected their artificial intelligence systems to questions from the Stanford Question Answering Dataset, which assess reading comprehension. The winning AI systems came in at a few percentage points above the average human score of 82.3%. The two winning companies (in a virtual tie) were Microsoft (Nasdaq: MSFT) and Alibaba (NYSE: BABA).

China Tech Giants and AI

Yes, the Chinese e-commerce giant is rapidly becoming a powerhouse in artificial intelligence.

The evidence can even be seen in its latest Singles Day event, the world’s biggest shopping day. Alibaba used AI to generate 400 million customized banner advertisements in the month leading up to the shopping day. It also used chatbots, to answer 3.5 million simple questions a day over the pre-sale period, such as “Where’s my package?”

And on its Taobao e-commerce platform, users can search by image using deep learning, a technique designed to emulate the way a human brain works, to find a matching or similar item. This enables shoppers, for example, to find a dress worn by a celebrity to order it… an ability that does not exist on Amazon today.
Fellow Chinese tech titans

Baidu (Nasdaq: BIDU) and Tencent (OTC: TCEHY) are also making a big push into AI. Baidu is working on developing autonomous vehicles and unveiled its Apollo 2.0 autonomous driving platform at the recent CES trade show in Las Vegas.

Examples of what Tencent is doing include using AI to detect diseases like lung cancer an early stage and having its FineArt AI program easily defeat China’s human Go (a board game). But the Chinese push into AI is broader than these three companies.

One key reason behind China’s rapid growth in AI is sheer numbers. You see, the machine-learning techniques behind the current AI boom are extremely data hungry. To recognize human faces, translate languages, make medical diagnoses, pilot autonomous vehicles, and numerous other tasks requires huge quantities of “training data”, which is the fuel for machine learning algorithms that we generate every time we go online or use our smartphones.

With a population larger than the U.S. and Europe combined (and limited privacy laws), Chinese companies like Alibaba, Tencent and Baidu have a huge advantage over U.S. firms in terms of access to all sorts of data.

China Closing Fast

If you want to get an idea of how fast China is closing the AI gap with the U.S. just look at the recent annual meeting for the Association for the Advancement of AI. The first meeting in 1980 was an all-U.S. affair. But at the February 2018 meeting, China submitted about a quarter more papers than the U.S. (1242 to 934). And more importantly, it lagged the U.S. in papers accepted by just three.

There are a few reasons behind this rise to prominence in AI by China. The first is backing from the central government, which has a specific target for becoming an AI leader within a decade.

The second reason is that China is overtaking the U.S. in terms of AI start-up funding. Technology research firm CB Insights says that in 2017, 48% of the record global investment ($15.2 billion) into AI start-ups went to China. That is a huge jump from just 11.3% in 2016.

And forget about the old thought about China just being copycats… that hasn’t applied in decades. China has beaten the U.S. in AI-related intellectual property as well. Chinese patent publications with the terms “artificial intelligence” or “deep learning” in the title or abstract surged from 549 in 2016 to 1,293 in 2017. This compares with just 135 and 231, respectively, in the U.S., according to CB Insights.

It’s not a straightforward victory for China though. In terms of the volume of individual deals, the country still accounts for only 9% of the total, while the U.S. leads still in both the total number of AI startups and total funding overall. The bottom line is that China is ahead when it comes to the dollar value of AI startup funding, which CB Insights says shows the country is “aggressively executing a thoroughly-designed vision for AI.”

Investment Implications

China has a vision because it realizes how important AI will be in the future. The former chief scientist for Baidu, Andrew NG, said in 2017 that AI is the “new electricity”, and that “just as electricity transformed many industries roughly 100 years ago, AI will also now change nearly every major industry”. I totally agree. Now the question remains whether the U.S. or China will be the main ‘generator’ of an AI future.

A good way for you to ‘hedge’ on that outcome is to first own the well-known AI leaders in the U.S. – the aforementioned Microsoft as well as other companies that have been snapping up AI start-ups, Apple (Nasdaq: AAPL) and Alphabet (Nasdaq: GOOG). Since 2012, Google has bought 14 AI start-ups while Apple has acquired 13 AI start-ups.

But then you must also own the leaders in China as well. While many AI companies trade only in mainland China, the so-called BAT stocks (Baidu, Alibaba, Tencent) are easily available to you here in U.S. 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.

Source: Investors Alley 

Energy

Sell These 3 Utility Stocks Being Squeezed at Both Ends

It strikes me, at times, how little humankind has changed over the centuries. The ancient Greeks waited for answers to the most pertinent questions of their day from the Oracle at Delphi – a high priestess that supposedly spoke to the god Apollo.

Today, Wall Street also waits for word from on high as to the future course of markets from the Federal Reserve. The new Chairman (or is it Oracle) Jay Powell will explain to the public why the Fed deemed it is necessary to raise the federal funds interest rates by a quarter percentage point again, to the range of 1.50% to 1.75%.

Market pundits will attempt to interpret exactly what the Fed’s future plans are by looking at the so-called dot plots to see if three or four interest rate hikes (including this one in March) are in Wall Street’s future. That ‘analysis’ will lead to classic, almost Pavlovian, response by some market participants to immediately sell some sectors in response to future higher rates.

One type of stock that will be sold is the so-called dividend aristocrats. The reasoning is straightforward… in the three years through 2017, the average yield on the dividend aristocrats index was 0.4% higher than 10-year Treasury yields, according to Bloomberg data. Now, the average dividend aristocrat offers a yield of 2.3% versus the more than 2.8% yield on the 10-year Treasury.

Utilities: Bond Proxies

One sector that has consistently paid higher dividends has been utilities. These companies make much of their income from regulated assets which means that their earnings and dividend payments are steadier and more reliable. That makes their shares behave more like bonds. In other words, they are bond proxies.

But now that ability to attract investors with higher dividends  is under pressure thanks to the Fed raising rates, making government bonds more competitive among income-seeking investors. In a Pavlovian-type response, JPMorgan in February came out with a list of 50 bond proxies that they put on an avoid list for investors. More than half of the list consisted of utility firms.

However, the current harsh reality is that U.S. utilities’ finances are under pressure from both higher rates and the effects of the recently-passed tax law. The sub-sector most under pressure is the power sector. Let me explain…

Power Sector Punishment

First of all, these companies are in a no-growth environment. U.S. demand for electricity is stagnating: total power consumption was slightly lower last year than in 2010, according to the Energy Information Administration. There has also been a major shift in utilities’ fuel mix. Since 2010, the proportion of U.S. electricity generated by coal-fired plants has dropped from 45% to 30%, while the proportion from natural gas rose from 24% to 32% and the proportion from renewables rose from 4% to 10%.

But the U.S. power sector has been doing fine because two of its crucial inputs were dirt cheap: natural gas and money (thanks to near zero interest rates). The utilities need money to constantly upkeep and upgrade their power infrastructure. But now the Fed’s policy change is changing that dynamic and raising their costs.

Rising rates aren’t good news for the utilities sector because many of the companies are heavily indebted. The utilities in the S&P 500 have debt with an average maturity of 14.5 years, according to JPMorgan. And while only 19% of their debt matures by 2020, over time, rising interest rates will put upward pressure on their costs. In their regulated businesses, the utilities should be able to recover much of their increased costs from their customers. But the more companies try to raise rates, the higher the risk that they will get push back from various states’ regulators.

The power companies’ problems are being compounded by the recent changes in the tax laws. As you can imagine, the changes are very complex and will affect different companies in different ways.

However, one common effect is that it will squeeze utilities’ cash flows. The corporate tax rate has been cut from 35% to 21%. But it is believed that states’ regulators will insist that customers benefit from that reduction with lower bills. Eventually, the power companies may be able to recoup the lost income. But in the short run this loss of revenue means that cash flows will be squeezed. This may even result in some utilities’ credit ratings being cut.

Some Companies Will Cope

Management at some utility firms are already taking action in order to alleviate this expected loss in their cash flow. They have decided to issue more stock (diluting existing shareholders) and cut back on capital expenditures.

One of the largest utilities, Duke Energy (NYSE: DUK), announced in February that it planned to raise $2 billion from selling shares this year and would also cut its five-year capital spending plan by $1 billion. Its CEO, Lynn Good, said the share sale was needed “to maintain the strength of our balance sheet”.

Another large utility, First Energy (NYSE: FE), announced in January a $2.5 billion investment in common and convertible preferred shares (again diluting existing investors), from a number of institutional investors including Elliott Management and GIC. The funds would be used to pay off debt, contribute to its pension fund, and to “strengthen the company’s investment-grade balance sheet”.

These type of actions should help secure these companies’ future. But it will hold back their stock performance over the short- to intermediate-term, as well as the performance of a broad utilities’ ETF such as the Utilities Select Sector SPDR Fund (NYSE: XLU), which is down 4.62% year-to-date.

For now, I would avoid the entire utility sector. But if you have a high risk tolerance, you may want to consider the ProShares Ultra Short Utilities ETF (NYSE: SDP). This ETF seeks a return that is double the inverse of the return on the Dow Jones U.S. Utilities Index. This ETF is up more than 7% year-to-date.

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Source: Investors Alley