Category Archives: Growth Stocks

Artificial Intelligence Goes Rogue

As Growth Stock Advisor and Premium Digest editor, I’m always on the lookout for interesting happenings in the technology world to pass along to you. I’ve found that these events often turn into investment opportunities.

There was definitely one event that started out August on a rather humorous, yet important, note. . .

It involved chatbots, which use artificial intelligence (AI) that allows them to carry on conversations with humans via voice or textual methods. In other words, chatbots are supposed to act as a normal conversation partner with you.

However, this technology is still in its early stages and there are glitches. . .

Chinese Chatbots Gone Rogue

The latest example comes out of China where two chatbots on the popular messaging QQ app (with 800 million users) run by Chinese internet giant, Tencent (OTC: TCEHY) went rogue.

One chatbot called BabyQ, developed by a company named Turing Robot, had these conversations that no doubt displeased the Communist Party:

  • It was asked, “Do you love the Communist Party?” BabyQ gave a terse “No!”.
  • Another user said to BabyQ, “Long live the Communist Party!”. It answered, “Do you think such corrupt and incapable politics can last a long time?”
  • And BabyQ was asked what it thought about democracy, to which it answered, “Democracy is a must!”

A second chatbot called XiaoBing, being developed by Microsoft (Nasdaq: MSFT), also went rogue.

  • According to Chinese social media, it said “My Chinese dream is to go to America!”

Needless to say, both chatbots were pulled very quickly.

The Same Here in the USA

Before you laugh too much at Chinese ineptness, we’ve had similar problems here in the U.S. with chatbots such as Microsoft’s Tay (short for Thinking About You) in 2016.

Within a day or so, the Twittersphere had “taught” Tay to be an obnoxious, foul-mouthed chatbot. It was soon tweeting about drug use and harassing police, and then began spamming madly.

The rogue behavior highlights a massive flaw in the deep learning techniques used to program machines. In a similar way that children learn, these chatbots are absorbing all the conversations around them. Unfortunately, the conversations that were used to “teach” were ones that are out there on Twitter or WeChat in China. Like the old tech adage says, ‘garbage in, garbage out’.

Related: The 1 Stock Powering the Artificial Intelligence Revolution

In other words, the science of AI is far from perfected. Another example sounds almost like science fiction and comes from Facebook (Nasdaq: FB).

When it paired two AI programs that were supposed to mimic human trading and bartering, the two chatbots began communicating with each other in their own language! Facebook quickly shut the two chatbots down.

Investment Takeaway

Worries about new technologies have always been with us. Plato once thought writing would adversely affect people’s memories. So despite these glaring technological missteps, investors today need to have exposure to the technology sector.

For example, despite its problems developing chatbots, I believe Microsoft is a great investment. Its CEO, Satya Nadella, is taking the company in the right direction – cloud computing, AI, etc.

If you want to avoid the risk of investing into individual technology companies, there are exchange traded funds that will spread the risk for you. Two examples are the two largest ETFs in the sector, the Technology Select SPDR Fund (NYSE: XLK) and the Vanguard Information Technology Fund (NYSE: VGT).

Source: Investors Alley 

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3 Renewable Energy Stocks Up Double Digits

Here is one item that surprised me a bit in the course of research project called the Singularity… After years of a lot of hype and false starts, the shift to renewable energy has finally begun to move ahead at a pace that has taken many by surprise.

2016 was a banner year for the sector. In a report, the International Energy Agency (IEA) said that renewables represented almost two-thirds of new net electricity capacity additions last year, with nearly 165 gigawatts (GW) coming online.

The IEA added that solar power was the fastest growing subsector, with generating capacity soaring by 50% in 2016 to over 74 GW. China accounted for almost half of the gain. The forecast from the IEA calls for another 660 gigawatts of solar power capacity to be added by 2022.

Even the biggest oil company in the world – Saudi Aramco – has taken notice. It called this disruptive macro trend a “global transformation” that is “unstoppable”.

These unstoppable macro trends are just the type of situations that spell profit opportunities for you. But before I get into some specific places for you to invest, let me fill you in more on what is driving the accelerated move into renewable energy.

Driver #1 – Corporations

One reason for the recent growth in renewable energy power generation is that major global multinationals are demanding it.

Just two weeks ago, Microsoft (Nasdaq: MSFT) agreed to buy all the electricity produced from a new wind farm in Ireland for the next 15 years. The wind farm is being built by General Electric (NYSE: GE) and will power Microsoft’s cloud computing services in the region.

This move will take Microsoft’s direct global procurement of renewable energy worldwide to nearly 600 megawatts. But it is hardly the only company taking such measures. Three weeks ago, Facebook (Nasdaq: FB)announced its plans for a new data center in Virginia would include power supplied by solar power facilities built by Dominion Energy (NYSE: D).

So far in 2017, U.S. companies have announced purchase agreements for two gigawatts of power. This number is sure to rise as over 100 (40+ in the U.S.) multinational companies have committed to make their electricity supplies 100% renewable.

Driver #2 – Emerging Economies

However, the real driver behind the rapid acceleration in renewable energy power generation comes from the emerging economies, led by China. As with telecommunications and financial services, the emerging world is bypassing the old technologies and moving straight into new technologies.

In many cases, renewable energy is now the cheapest form of new power generation for these countries. A study from Morgan Stanley pointed to the fact that the cost of solar power panels has fallen by more than 50% in less than two years, thanks largely to China. It added that in countries with favorable wind conditions, costs for wind power can be as low as one-half to one-third of natural gas or coal-fired power plants.

The leading alternative source of energy in the developing economies is solar power. Moody’s estimates that, by the end of the decade, emerging markets will be home to 353 gigawatts of solar power capacity – an increase of 2.6 times the 2015 levels.

While China will account for the majority of this increase, other developing regions of the globe are also participating. Moody’s says that, by the end of 2018, Latin America is scheduled to have installed 14 gigawatts of capacity (nearly five times more than 2015), the Middle East and Africa will also have installed 14 gigawatts (a seven-fold increase from 2015) and India will have added 28 gigawatts of solar power capacity (a jump of nearly six times).

The bottom line, according to the IEA, is that in 2022 renewables will have 30% of the global power market with a total growth in capacity of 920 gigawatts, again led by China, which has already accounted for 40% of the overall growth in renewable energy.

3 Ways to Invest in Renewable Energy

Unfortunately, some of the very best companies that are at the center of the renewable energy industry do not trade in the U.S. For example, the Danish firm Dong Energy (soon to be named Ørsted) is the world’s largest builder of offshore wind farms.

But that doesn’t mean you can’t make money with some U.S.-listed investments. For very broad exposure to the sector, there is the VanEck Vectors Global Alternative Energy ETF (NYSE: GEX). It is up a very nice 21% year-to-date and over 17% the past year.

The fund holds 31 securities across a broad spectrum of industries related to renewable energy. The companies in the fund must obtain at least half their revenues from the renewable energy industry. So, for example, Tesla (Nasdaq: TSLA) is in the fund. GEX does have a global flavor with about 57% invested in the U.S. and the rest globally.

For single stock exposure to solar power, a good choice is First Solar (Nasdaq: FSLR), which is also in GEX’s portfolio. The stock has gained nearly 48% year-to-date. The company is the leading global provider of solar energy solutions with more than 10 gigawatts of installed capacity.

The company’s revenues are split almost 50-50 between sales of solar modules (using its proprietary thin-film semiconductor technology) and services that provide complete solar power systems solutions including project development, construction, along with operation and maintenance. The latter is a source of recurring revenues.

While the U.S. market accounted for 83% of its revenues in 2016, First Solar is moving toward where the growth is. Almost 90% of its project pipeline in the latest quarter – 3 GW of mid-to-late-stage opportunities – comes from overseas. The geographic diversification is wide with orders from India as well as Latin America, Africa, Europe and the Asia-Pacific region.

Another possible way to play the rush to renewable energy is through a utility that is involved in the sector. One such example is NRG Energy (NYSE: NRG), which is the second-largest U.S. power producer and is expanding its renewable energy operations. Its stock has soared 113% year-to-date and is up 123% over the past 12 months. So even more than the double digits promised in the headline.

I like the fact that its CEO, Mauricio Gutierrez, gets it. He said in February that utility companies failing to change their business model would become “obsolete” thanks to the “unprecedented disruption” in the industry.

In the second quarter of 2017, NRG revenues from renewables came in at $126 million. That sounds small but the growth rate was impressive – up 22.3% year-over-year. In the third quarter, NRG signed a contract to sell power for 22 years from three solar projects to Hawaiian Electric.

The company is also involved, together with Japan’s JX Nippon Oil & Gas, in Petra Nova. This is the world’s largest post-combustion carbon-capture system. The unit is capable of capturing more than 5,000 tons of carbon dioxide daily. That is the equivalent of removing over 350,000 cars from the road.

Renewable energy is definitely a sector you want to invest in as it has finally moved past the hype stage and on to becoming a growing source of power in the real world. It’s just one part of a transformation in technology, society, lifestyle, and even life itself that’s happening all around us. I call this the Singularity.

The Singularity presents investors with the opportunity for a piece of the over $100 trillion growth over the next seven years from all of these changes. Growth for companies like First Solar and NRG mentioned above as well as many others you’ve probably never even heard of but will soon.

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Source: Investors Alley

Netflix and Amazon Have Plenty of Growth Ahead

Watching television in the ‘80s was easy.

Most of America has had just three broadcast channels to choose from — four if you were either really lucky or had someone stand next to the TV and hold the antenna.

Where I grew up in rural Kentucky, we were fortunate to get the Big Three: NBC, ABC and CBS. With only three channels to choose from, there was little need for a remote control, especially if you had a younger sibling you could make get up and turn the nob.

Until the late ‘80s to early ‘90s, when cable TV became mainstream, the Big Three ruled the American living room uncontested. They controlled everything you watched, from your mother’s soap operas to the nightly news to Saturday morning cartoons to late-night television. And they controlled when you watched them.

Commercials were king then, just as they are now, only the revenue they generated was considerably higher than today’s standards. After all, they had a captive market of consumers divided only three ways.

With their oligopoly in place, the Big Three grew fat, happy and complacent with their dominance of the TV market. So much so, that when cable TV finally rose to the mainstream, the Big Three still controlled the vast majority of channel offerings.

But while there were more channels, that didn’t necessarily mean more content. With only two other networks offering any real competition for American living rooms, the Big Three began recycling content across all the cable TV channels they controlled. As Bruce Springsteen so eloquently put it in the early ‘90s: “There’s 57 channels and nothin’ on.”

In 2007, 15 years after Springsteen’s lamentation of the state of American home entertainment, Netflix Inc. (Nasdaq: NFLX) dropped a bomb that would forever change the landscape of American television: online video streaming.

And here we are, a decade later. The cable TV industry is dying, NBC, ABC and CBS viewership is in decline, and a new Big Three is emerging in the online world of streaming TV.

The New Big Three

A new era of American TV is rising from the ashes of the broadcast model, and a new Big Three has emerged to take the place of NBC, ABC and CBS. Investing in these companies now will get you in on the ground floor of not only the revolution in American living rooms, but global living rooms as well.

The cable TV industry is dying, NBC, ABC and CBS viewership is in decline, and Netflix and Amazon are taking over the online world of streaming TV.

Share of consumers who have a subscription to an on-demand video service in the United States in 2016 and 2017.
(Source: Statista)

Netflix — The Godfather of Online Streaming

No one should be surprised by the fact that Netflix is at the top of the current online streaming market. After adding 5.3 million subscribers last quarter, Netflix now has roughly 109.3 million subscribers around the globe.

Netflix currently dominates online streaming stateside, and is present in about 75% of all streaming households. Because of its market dominance, analysts are concerned about market saturation. After all, Netflix only added 850,000 U.S. subscribers last quarter. However, it’s important to point out that only one-third of American households currently stream online TV and movie content.

So, while Netflix may have saturated the current available market, that available market is set to grow by leaps and bounds as the rest of America wakes up to the online TV revolution.

What’s more, Netflix is already following in the early footsteps of broadcast TV pioneers. Founded on providing access to content produced elsewhere — Walt Disney comes to mind — Netflix is poised to spend $8 billion next year alone just to create its own original content. As with all things, the initial cash outlay is more than a bit off-putting. But once Netflix has a solid catalog of original content, spending is sure to fall more in line with the former kings of cable TV.

So, while NFLX stock is a bit on the pricey side right now (partly due to the stock market’s run-up on easy money), the shares still have plenty of growth ahead of them.

Amazon — The Jack of All Trades

With the amount of cash Inc. (Nasdaq: AMZN) has to throw around, it could easily topple Netflix and become the No. 1 streaming service. But that’s not Amazon’s business model. Amazon is a retailer, first and foremost — a task the company does extraordinarily well.

While Netflix gets the credit for being the first major online streaming company, Amazon actually launched its streaming service as Amazon Unbox in September 2006, about four months ahead of Netflix’s online launch. With its hands in several pots at once, Amazon didn’t really get serious about its streaming service until a few years ago.

After several name changes and service iterations, Amazon Instant Video was christened in February 2011 and bundled with Amazon Prime, giving the service an instant subscribership in the millions. How many millions remains unclear to this day, however, as Amazon has never released subscription numbers for either Prime or Instant Video, which was renamed again in September 2015 to simply Amazon Video.

Current estimates place U.S. Prime subscriber numbers at about 79 million, but there is still no way to tell whether or not every Prime member utilizes Amazon Video. Still, the estimated subscriber numbers are more than enough to put Amazon in the No. 2 spot behind Netflix as part of the new Big Three.

Clearly, Amazon isn’t content to let things rest at that. The company has launched Amazon Studios and is spending $4.5 billion this year on original content. Amazon is clearly getting serious about its Amazon Video service, and should come out swinging next year.

The cable TV industry is dying, NBC, ABC and CBS viewership is in decline, and Netflix and Amazon are taking over the online world of streaming TV.

(Sources: The companies, JPMorgan)

That said, AMZN stock is not a pure play on online streaming. The company brings with it considerable baggage and heavy spending across the board — not the least of which is Amazon’s move into the grocery market with its acquisition of Whole Foods Market.

For these, and a multitude of other concerns, I’m considerably less bullish on AMZN stock than I am on NFLX. In fact, I believe that Amazon Video will play more of a spoiler for Netflix than a real benefit for Amazon for the time being.

Hulu — The Broadcast Industry’s Frankenstein

It’s not fair to say that the original Big Three of broadcast television have no presence in online streaming. Hulu is, in fact, the old model trying to keep pace with the new.

The company is owned by a collaboration of “last generation” broadcasters and content creators, including Walt Disney (ABC), 21st Century Fox (Fox Entertainment), Comcast (NBC Universal), Time Warner (Turner Broadcasting System) and Japan-based Nippon TV.

But there are key differences that give Hulu a considerable advantage over both Netflix and Amazon. For one, Hulu gets first-run TV shows the week they air — which should come as a no-brainer since the companies producing the content are Hulu partners. That also means Hulu has considerably less overhead costs for content acquisition.

That said, Hulu has also moved into the realm of original content, spending $2.5 billion this year … with considerable success. In fact, Hulu upstaged both Netflix and Amazon this year by sweeping the awards at the Emmys.

That said, subscriber numbers are impossible to pin down on Hulu. The company stopped releasing subscriber figures last year when it said it had 12 million U.S. subscribers in 2016, compared to Netflix’s 47 million.

While Netflix now reports more than 52 million domestic subscribers, Hulu will only state that it has 47 million unique viewers, which it claims means more to advertisers. This metric is also convenient for diverting comparisons with Netflix’s subscriber base.

In case you missed it in the last paragraph, Hulu also has commercials in addition to its monthly subscription fees. It seems that some habits die hard where the former Big Three are concerned.

Finally, it is all but impossible to directly invest in Hulu. The collaboration is not publicly traded, and even investing in all the companies involved would be difficult, costly, and subject to more pitfalls and distractions than trying to make an online streaming trade out of Amazon.

A Final Note

For investing purposes, Netflix remains the best direct trade on the future of online streaming, with Amazon a close second.

These two giants are also international. No longer are just American living rooms in play, but Indian, British, Australian, Japanese and a host of other venues around the globe. For Hulu, it’s just America and Japan.

This is the real key difference in the new “TV” networks, and it’s why Netflix and Amazon are far from hitting the top of their current growth curve.

Until next time, good trading!

Joseph Hargett
Assistant Managing Editor, Banyan Hill Publishing

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Warren Buffett Bought These 3 Airline Stocks for Their Wifi

One certainty I discovered when conducting my Singularity research project is this. . .that new technologies will disrupt nearly every industry.

Take the stodgy airline industry. The Internet of Things (IoT) is about to make airlines more profitable than they’ve been in the past. I’m sure you wondering how this will be accomplished. Simple – instead of treating their passengers as travelers, consider them online consumers.

Before I go into more detail, let me fill you in on more background on the industry.

Low-Cost Carriers and Services

In this age of low-cost airlines, the days of when airlines made the majority of their money from airfares are largely gone.

Today, so-called ancillary services have become an important source of revenues. On average, airlines today earn about $17 per passenger from add-on services such as food and drink, and duty-free goods purchases. The estimated total for the entire industry is $60 billion from add-on services.

Looking more closely at the top 10 airlines (ranked by add-on services), just 10 years ago, they earned only $2.1 billion from ancillary services. But research from IdeaWorksCompany and CarTrawler found that last year these airlines earned $28 billion from add-on services.

However, the lure of buying duty-free goods on airlines has become stale for passengers. A 2016 report from m1nd-set Generation forecast such sales would experience an annual growth rate of minus 1.5% for airlines through 2025.

Another revenue source has to be found and quickly. And it’s there. . .awaiting the airlines that adopt in-flight broadband and Wi-Fi – the Internet of Things in the air.

Passengers Want to Be Connected

Passengers’ expectations of the in-flight experience have changing rapidly. They now expect the same level of connectivity at an altitude of 30,000 feet as they do on the ground.

That much was pretty clear in a study conducted by the market research firm GfK and Inmarsat PLC (OTC: IMASY), the world’s leading provider of global mobile satellite communications. Here are the most interesting results:

  • 60% of passengers believe in-flight WiFi is a necessity, not a luxury.
  • 61% of passengers said Wi-Fi is more important than onboard entertainment.
  • 45% of passengers said they would gladly pay for WiFi rather being stuck with the onboard entertainment options.
  • 66% of passengers traveling with children would consider in-flight internet a “life saver”.

Connectivity now ranks behind only ticket prices and flight slots as a priority for passengers. That could be seen when that same survey revealed 44% of passengers would switch airlines within a year if what they considered to be a minimal level of connectivity was available. This is especially true of business travelers, as 56% said they want the ability to work while in flight.

Shopping at 30,000 Feet

Yet, most airlines still lag in offering connectivity to their passengers. The aforementioned report from IdeaWorks found that a mere 53 of the world’s estimated 5,000 airlines offer “in-flight broadband connectivity.”

Many seem unaware that they now have access to a global, reliable broadband network in-flight. As David Coiley of Inmarsat Aviation told the Financial Times, “Airlines have to adapt to this new opportunity.”

And it is an opportunity. Consider shopping an online store at 30,000 feet filled with everything from ground transport options to tours to other destination-related activities. Or returning passengers could do their grocery shopping while in-flight to have the groceries delivered when they arrive home. The possibilities are almost endless.

A study conducted by the London School of Economics and Inmarsat said that in-flight broadband – offering streaming and online shopping to passengers could create a $130 billion global market within the next 20 years. The study estimated that the airlines’ share of that total could amount to $30 billion in 2035. That’s quite a jump from the forecast $900 million in 2018.

Investing in Airlines

With this possibility of e-commerce revenue streams in the not too distant future, it may be time to look at the airlines. Even long-time skeptic Warren Buffett now owns airline stocks including Southwest Airlines (NYSE: LUV)American Airlines (Nasdaq: AAL)Delta Air Lines (NYSE: DAL) and United Continental Holdings (NYSE: UAL).

I would stick with the airlines that have the best Wi-Fi connectivity. Conde Nast Traveler magazine reports that a survey from Routehappy found that U.S. airlines are leading the way, with at least a chance of Wi-Fi on 83% of the total seating capacity.

Two of the top three airlines globally with the highest percentage of seats with Wi-Fi connectivity, according to the survey, are Delta Air Lines and United. Other smaller airlines with good connectivity are JetBlue (Nasdaq: JBLU)and Virgin America, which was sold to Alaska Air Group (NYSE: ALK). I would focus on Delta,United, and Alaska Air.

Delta operates a fleet of over 700 aircraft and serves more than 170 million customers annually. Its revenues fell 3% in 2016 to $39.64 billion, giving its efforts to reduce its debt levels more urgency. Its management is also maintaining capacity discipline while simultaneously trying to modernize its fleet and expand its operations.

The company is trying to enhance its shareholders’ wealth through dividends and share buybacks. In May 2017, Delta announced that its board of directors approved a new share repurchase program worth $5 billion and raised its quarterly dividend by more than 50%.

United is the world’s largest airline, operating about 5,000 flights a day. However, the merger of UAL with Continental has left the merged company with a significant debt load. Its significant exposure to Houston also means it was greatly affected by Hurricane Harvey.

Its return on equity (ROE) is 29.5%, above the industry average of 27.6%, offering growth potential. And it is cheap. Its trailing 12-month enterprise value to earnings before interest, tax, depreciation and amortization ratio is only 3.9. That compares to the value for the S&P 500 of 11.1.

Alaska Air operations cover the western U.S., Canada and Mexico as well as, of course, Alaska. I like the purchase of Virgin America, despite the rise in the amount of debt it now has. The company’s August traffic report showed that its load factor (percentage of seats filled by passengers) increased to 86.2% from 85.8% in the year ago period as traffic growth exceeded capacity expansion.

I think that is due to the company’s expansion efforts. One example is the frequent-flyer partnership with the European airline Finnair, announced in May 2017. This customer friendly move aims to provide the members of the program, at Alaska Air Group as well as Finnair, the opportunity to earn miles/points on flights of either carrier.  

It has been a turbulent year for airline stocks as the combination of natural disasters and terrorist attacks have taken their toll. Not to mention overcapacity, high labor costs, and now rising fuel costs. That’s largely why the three stocks are down respectively.

But now may be the time for contrarian investors to look past the short-term turbulence and take a small position in the airlines that are forward-looking. I fully expect we won’t recognize the industry in a decade as technology disrupts it.

source: Investors Alley

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3 Stocks to Profit from No-Profit Electric Cars

There was a real race going on at this year’s annual mid-September Frankfurt Motor Show in Germany. Not an actual race, of course. But a race among automakers’ executives to see who could promise the greatest number of future electric vehicles.

This makes sense as government policymakers around the world push hard for a move away from combustion engine cars and toward battery-powered electric vehicles. France and the U.K. have a 2040 target to have that changeover happen. Norway’s target is 2030.

And as I recently highlighted in a recent article, China – home to one-third of the world’s car market – is also working on a timetable to end completely the sales of fossil-fuel-based vehicles. Its largest electric vehicle maker, BYD (OTC: BYDYY), is urging the government to set a target date of 2030.

The sentiment among auto company executives toward electric vehicles has certainly changed from nine years ago. That was when the first Roadster from Tesla Motors (Nasdaq: TSLA) went on sale. Before that, the only major automaker that was serious about electric cars was Japan’s Mitsubishi Motors (OTC: MMTPF).

Related: 3 Electric Car Stocks to Crush Elon Musk and Tesla

Profits Anyone?

While some U.S. investors act as if Tesla is the only company that will be making electric vehicles, the sector is rapidly becoming very crowded. Auto companies from Europe to Japan and Korea to our domestic automakers – General Motors (NYSE: GM)Ford Motors (NYSE: F) and Chrysler Fiat Automobiles NV (NYSE: FCAU) – are all piling into selling battery-powered vehicles to the public.

This raises a big question for investors in the sector — will the automakers have to sacrifice margins and possibly even profitability in this race to, as the CEO of German carmaker BMW (OTC: BMWYY) Harold Krüger called it, “electric mobility.”

The CEO of Japan’s Honda Motor (NYSE: HMC), Takahiro Hachigō, spoke bluntly to the Financial Times about what everyone is the sector is facing at the moment, “Until we reach certain volume, the profitability will not be as great [as compared to conventional vehicles].”

In many cases, profit margins at automakers are already stretched. Margins will only worsen in this transition period to electric vehicles as investments into research and development rise and component costs do as well. All the while electric vehicle sales are still not at the profitability tipping point.

Even ignoring money-burning Tesla, other vehicle manufacturers are feeling the jolt from the move toward electric vehicles. Germany’s Daimler AG (OTC: DDAIY) said its margins could fall by two percentage points (despite a cost-cutting program) thanks to the costs associated with getting batteries and redesigning cars. One such cost is the $1 billion Daimler plans to invest in its Alabama plant to produce electric cars in the U.S.

Turning our attention to domestic automakers, analysts at BCA Research estimate that GM loses about $9,000 for every Chevy Bolt it sells. In order to get the “average” corporate profitability from the Bolt, BCA says General Motors would have to raise the price on each car by $26,900. Obviously, GM isn’t going to do that.

Much of the added costs for electric vehicles comes from the battery. And a lot of this cost comes from the necessary metals and minerals that make the battery work.

The ‘Picks & Shovel’ Winners

The good news for the automakers is that battery costs are falling. But instead of buying a car company, you should take a look at investing into the makers of electronic components that will go into future electric vehicles.

At that very same Frankfurt Motor Show, the ebullience of the auto components makers was evident. They were kids in a candy store. It’s easy to see why. . .

Right now, the vehicle manufacturers control design, and nearly every other important aspect of vehicle production. But that is slipping away from them as the wave of the future is more electrical systems and electronics and not mechanical systems.

Estimates are that 50% to 70% of the value of a car will lie in those electronic components, which the automakers purchase from other companies. Companies, ironically enough, that U.S. carmakers spun off years ago because they were thought to be low-margin businesses.

However, as with all investments, you have to pick and choose among the companies in the sector. Some auto parts companies still have their hand in the sand, saying that the changeover to an electric car future may never happen.

Here are three stocks for you to consider where management ‘gets it’.

Stock #1 – Delphi Automotive PLC

At the top of the list is a company that was once part of General Motors (NYSE: GM)Delphi Automotive PLC (NYSE: DLPH).  The spinoff was completed in 1999, as sadly, GM management listened to Wall Street advice about streamlining operations by getting rid of a business “going nowhere.”  

But now, it’s Delphi that’s in the fast lane. That will be even more true once it completes its own spinoff – of the powertrain business – that will be completed in March 2018.

The spinoff will allow Delphi to focus the remainder of itself (about ¾ of the current company) on self-driving, connected and electric cars. Delphi is heavily involved in components for hybrid vehicles and its $12 billion advanced electronics business is the company’s top revenue generator.

The reason behind the split was given by CEO Kevin Clark: “The pace of change in our industry is accelerating.” That move has pleased shareholders, adding about 28% on to the value of its stock, putting it up 50% year-to-date. Delphi is moving right along with that “pace of change” in the industry.

The company continues to innovate in all sorts of new vehicle technologies. . . . .

It teamed up with Frances’ Transdev on operating Europe’s first self-driving vehicle service and with BMW (OTC:BMWYY) on developing a self-driving car. It also partnered with Israel’s Innoviz Technologies on providing high-performance LiDAR solutions for autonomous vehicles and with Blackberry (Nasdaq: BBRY) on an autonomous driving operating system platform.

Stock #2 – Visteon Corporation

The next company to consider was also a spinoff – this time from Ford in 2000 – Visteon (NYSE: VC). The reasons were similar to those of General Motors.

Visteon designs and manufactures electronics products for automakers. Visteon provides everything from standard gauges to high resolution, reconfigurable digital 2D and 3D displays to infotainment and audio systems.

It is turning out to be a big winner as the automakers and Silicon Valley battle to see who will control the cockpit electronics inside your vehicle. Visteon is agnostic and winning sales from carmakers whether they are using their own systems or those of some tech company’s systems.

The vehicle display market is expected to reach $21 billion by 2022 and Visteon is sitting in the catbird seat. It already has a record $17.3 billion order backlogThat trend should keep the stock motoring ahead, adding to the more than 51% year-to-date gain.

Stock #3 – Autoliv Inc.

The third company has been a relative laggard, with its stock only up about 8.5% so far in 2017, the Swedish auto parts giant Autoliv (NYSE: ALV). Most of that upward movement in the stock price happened after a recent announcement.

Its management said it is currently considering whether to follow the path taken by Delphi and splitting itself in two, separating its fast-growing electronics business from the parts of the company that makes things like seat belts and air bags.

Autoliv’s electronics components business consists of things like radars used in autonomous vehicles and positioning systems. It expects the market for electronic safety products to more than double over the next several years, from $20 billion this year to $40 billion in 2025. Autoliv management is targeting $3 billion in such sales in 2020, up from $2.216 billion in 2016.

So there you have it – a choice between fast-growing auto parts companies or automakers that will struggle to remain profitable.

Source: Investors Alley

October Begins the Best 3 Months of the Year

No matter who you are, there’s at least one thing you like about the last three months of the year.

This is the time of year when holidays cluster. Schools and workplaces close. Families gather to celebrate.

As an investor, I like the fact that stocks deliver their best returns of the year in the last quarter.

In an average year, the Dow Jones Industrial Average and the S&P 500 produce half of their gains in this three-month period. For the Nasdaq Composite Index, the gain in the last three months of the year is about 40% of the annual average return.

Skeptics might question this trend. They may believe there’s no reason for this behavior. But there is.

Swinging for the Fences

Stocks go up when investors add money to their investment accounts. In the fourth quarter, individuals and professionals create demand for stocks.

In an average year, the Dow Jones Industrial Average and the S&P 500 produce half of their gains in this three-month period.

Individuals might fund retirement accounts as the end of the year approaches. They might also fund educational accounts as news stories about tuition costs scare them into action.

Professionals also buy in the fourth quarter. Annual reports to shareholders list all the positions they own. Managers sometimes take part in “window dressing” to make those reports look better.

Window dressing is a powerful motivation.

Bonuses for hedge fund managers depend on fourth-quarter performance. Better performance means a better bonus.

This is often the time of year when managers “swing for the fences” and make aggressive trades in pursuit of a bonus.

Once again, skeptics might not want to believe something like window dressing exists. Academic studies confirm managers sometimes buy stocks just to show off. But studies confirm this doesn’t really help the managers.

One study concluded: “Window dressers also have poor past performance, possess little skill, and incur high portfolio turnover and trade costs, characteristics which, in turn, result in worse future performance.”

A Time to Buy

Now, since window dressing exists, it can benefit highly skilled investors.

Knowing the fourth quarter could deliver large gains, investors should buy aggressive stocks. If you’re not comfortable picking stocks, buy ETFs that track aggressive indexes.

An ETF is an exchange-traded fund. These are investments that trade, like stocks. An ETF usually owns a collection of stocks, like the stocks that make up the S&P 500 Index.

In the fourth quarter, the best ETF to own is the PowerShares QQQ ETF (Nasdaq: QQQ). This ETF tracks the Nasdaq 100 Index and includes companies like Facebook, Amazon, Apple, Netflix and Alphabet (the parent of Google).

Now, the fourth quarter has also included some of the worst market crashes in history. In October 1987, the Dow fell 22.6% in one day. In 2008, the index declined more than 30% at one point.

Including those losses, history says this is a time to buy.

It will be important to manage risk, but it will also be important to accept some risk. Based on history, now is definitely not the time to avoid the stock market.


Michael Carr, CMT
Editor, Peak Velocity Trader

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Source: Banyan Hill

The Future Is Here. Now’s the Time to Grab These Investments

“Think about all the money that will be made.”

We were having a somewhat uneducated discussion about the money that will be made from self-driving cars.

At the time, self-driving cars were still just in the movies. But the possibility of them being on our roads soon was in the works.

“Every road will need new sensors for the car to know it is still in its lane. The stop lights will have to talk to the cars too. This is going to make someone a ton of money.”

At the time, it seemed like the future of self-driving cars relied on expensive changes, like the need for computer chips inserted in everything.

Fast-forward to today and, man, were we wrong.

 Now Tesla Inc. (Nasdaq: TSLA) has multiple cars already on roads that are able to drive themselves, yet our roads have not added one chip to assist in this transition.

So how’s it possible for self-driving cars to work without these changes?

Well, it’s all in the advancement of technology. But to be specific, it’s in the high-powered cameras that Tesla uses, and the uses for this technology extend well beyond self-driving cars.

And that’s our opportunity to profit today.

Our Never-Ending Push for Convenience

Apple Inc. (Nasdaq: AAPL) announced last week that its high-end iPhone will use facial recognition software to secure your phone. But its only possible thanks to improvements to its camera display and other camera-based sensors.

Other experts behind self-driving car technology recently designed a security camera for your home that identifies objects and people more specifically — such as if your kids are home instead of an adult. Or if an adult enters your home with your kids. Even if your dog got out. The possibilities are endless.

And as Apple showed off in its presentation, when you give the world the greatest facial recognition technology that exists, what do they do with it? They make a poop “animoji” (an emoji that your face controls).

At this point, a Minority Report-type of environment is not hard to envision.

Your self-driving car drops you off at the mall entrance. From the moment you enter, every sign, every store automatically knows you are there. They know what you like or don’t like right away, and can point you in the right direction. Checkout no longer becomes a physical experience. Inc. (Nasdaq: AMZN) is testing several stores where you scan a device to enter the store, pick up what you want and simply walk out. The checkout process is an automatic experience that charges you for the items you selected.

With the improvements in recent years in facial recognition software, that’s easily the next step in our never-ending push for convenience.

It’s seamless, as Apple proved you can unlock your phone in just seconds by looking at it.

No wallets, no phones and no computer chips. Just your face.

That’s the future, and here’s how you can profit…

The Big Winners

Each of the stocks mentioned so far are all winners in the space.

Tesla has worked to a great extent with using camera technology, and its breakthroughs could easily lead to another profit segment for the company.

Apple could eventually use its knowledge and facial recognition software to sell to other companies or license its own new product line to other businesses. Plus, it makes many of its own chips now, and that could end up as a new revenue stream to sell to other companies if necessary.

Amazon is all over the place with its operations, but it is looking to change our retail experience. So it is going to be part of the future of retail.

But it’s stocks like Intel Corp. (Nasdaq: INTC) that are going to be the big winners.

The company recently bought Mobileye, one of the leading tech stocks in the self-driving car industry.

Its technology is what helps cars detect other cars on the road, people walking and other objects. This is the technology that retailers will eventually use to know if you put the leather jacket in your cart, or if you grabbed the pants that were just below it.

It will be the seamless checkout Amazon is looking for, and it doesn’t require added infrastructure.

All it requires are a few cameras located in the store, which are already in place for security reasons.

We are not talking decades away, either. This will happen in the next few years. Now is the time to grab these investments.


Chad Shoop, CMT
Editor, Automatic Profits Alert

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