The pandemic forced many companies to shake things up. But perhaps because of these challenges, some of the most basic, “boring” companies on our radar have been making some of the most interesting changes!
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It’s a classic thought experiment. “Which came first: the chicken or the egg?”
Clearly, the egg came first; that’s where chickens come from! But, wait. Who laid the egg?…
There’s a similar conundrum found in our work. In business and investing, we like to look for strong companies—ones that spend wisely, save well, and try to build an enterprise that can remain durable across changes in the economy. Often, these companies must have a strong balance sheet (i.e., more cash than debt) in order to grow to the size of an industry leader.
Clients, in the early stages of the pandemic, we invested in some companies leading their industries. Our original investing thesis was that even if the virus took its toll and a worst-case scenario occurred, people would still need the staples.
People would still need groceries.
People would still buy meat.
People would still order prescriptions.
While we were sure these everyday items would be impacted by pandemic life, we also believed they would likely survive—in one form or another.
Now many of these market leaders have been able to use the resources of a market leader to continue to evolve and transform organically. They may seem like “boring” companies on the surface, but in times of challenge, they are acting like growth stocks: many have been the first-movers among their peers, making plans that could shift their whole industries.
And believe it or not, we bought some of these companies as bargains. So which came first?
It’s fun being us. Clients, we are always looking for opportunities. Are you seeing anything that we should be watching? Let us know. And when you want to know more about what this all means for your portfolio, call or write.
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Life in the 21st century can be grand, huh? We’ve got a few things in our research efforts that are proving quite exciting.
Maybe you’re seeing some of the connections, too?
Of all the news, of all the opportunities available, we’re seeing some common threads—ones that may very well be investable.
Specifically, regarding our tech, our platforms, our power: we’re excited about the potential for faster, more efficient connectivity that could drive future growth in the uses we enjoy from our devices… and then ones we can’t yet imagine!
No recommendations, no guarantees, but… it’s interesting.
New tech is one part of this story. We’re welcoming the latest generation of OLED TVs, smartphone screens that flex and fold, and a form of lighting even more efficient than LED. One company dominates the patents and research and royalties for this stuff.
The second bright spot we’re watching: there’s a social media company (that is not in political trouble and not headed by a controversial billionaire). Per Marketscope Research, its earnings are expected to double each year for the next three. No guarantees, of course.
Another dot: certain sector-leading companies are trading at a discount to the market average valuation. In fields from biopharma to grocery stores, from retail health to food processing, their recent dividends indicate yield between 2 and 3%. Further, it costs $10 billion to build a new semiconductor foundry, and the leading provider of custom chip manufacturing has more than 50% of this growing and vital market. It’s not nothing.
Keep in mind it’s going to take a lot of copper—more than we’ve ever mined before—to build out the next energy revolution. It will include solar and batteries and electric vehicles, and stock in two large miners is still trading well below the levels they reached ten years ago.
Clients, we spend more time and thought than ever before in reading and thinking and researching, trying to sort out investable opportunities to grow wealth in this unfolding future.
We’ll have hits and misses and ups and downs; investing can be volatile. But it sure is fun to try to spot these brightest constellations in the investment universe.
Want to talk about this or anything else? Write or call, any time.
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Recent news in the investment industry touched close to home in Nebraska. Charles Schwab is to buy TDAmeritrade, and move the headquarters to Texas. How many of the 2250 jobs will be left in Nebraska is uncertain. A lot of things will change.
The first shares of stock I ever bought were at the discount brokerage firm Joe Ricketts founded. At the time, the place had fewer than twenty employees. It was in a second floor walkup office in a second-rate building in downtown Omaha. The lobby had a most amazing gizmo: a little Quotron machine. You could punch in a stock symbol, and it would show you the current price.
Those prices were not in dollars and cents, but dollars and fractions. XYZ might be selling at 27 ½ , ABC at 9 ¼.
Before personal computers, before the internet, stock quotes were something you got out of the newspaper or called your broker for. The afternoon paper had noon prices; the morning paper had the previous day’s closing prices.
But in the Ameritrade lobby, a dozen patrons stood in an endless loop of a line, waiting for a turn at the Quotron. They punched the symbols in, looked at the prices (some wrote them down), then went to the back of the line to wait for another turn. Daytrading took more patience then.
Later, the firm pioneered getting information to the people by making stock quotes available from any touch-tone phone. (Kids, ask your grandparents what I’m talking about.) Then the internet made a lot more things possible.
It is not for me to judge the takeover transaction; it evidently makes sense to the people who are making the decisions. We will do our best to help affected employees, of course. We will always remember the typically American story of innovation and success that Ameritrade represents.
Clients, if you would like to talk about this or anything else, please email us or call.
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.
One of our key tasks on your behalf is the search for bargains. Seeking the best bargains is one of our fundamental investment principles.
When we spot an idea, product or trend that is likely to become more prevalent or profitable in the future, we end up trying to figure out whether that knowledge can be effectively put into client portfolios. In other words, is it investable?
To invest is to put money into something in which you have a reasonable expectation of a return. This is different than speculating, which involves a high risk of large losses or large gains. Last and least, there are many ways to simply flush money down the toilet.
For example, without debating the merits, medical and other uses of marijuana seem increasingly likely to proliferate. But we believe the political risks inherent in federal government policy are so high that it is speculating at best—not investing.
When we look at specific marijuana securities, most of the buzz is about penny stocks. These, in turn, look to us to be more in the “down the toilet” category than either an investment or a speculation. So we have concluded that the proliferation of marijuana is not investable.
Another facet of investability has to do with price. A trend that everyone seems to be talking about is likely already reflected in the price of investments, leaving little room for gains. “What everyone knows usually isn’t worth knowing,” as the saying goes.
By 1999, everyone knew the internet was going to change how we live and work. The internet did indeed transform life in many ways. But related investments were trading at extremely high valuations, resulting in losses to investors in subsequent years.
We are selective—one might say picky—about the things in which we choose to invest. Our standard of investability is high. We sometimes talk to people who are enthusiastic about an idea that sounds exciting, but is not investable. No matter how good an idea is, if we cannot get it into your portfolio on an efficient basis, it is not investable.
Clients, for examples of things we believe are investable, look at your statements (or positions in LPL AccountView). If you wish to discuss this or anything else, please email us or call.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results.
The opinions expressed in this material do not necessarily reflect the views of LPL Financial.
All investing, including stocks involves risk including loss of principal. No strategy assures success or protects against loss.
In April 1981, Adam Oborne debuted the very first portable computer. His company was the fastest growing in Silicon Valley. You can see how popular the idea of portable computing got by visiting any coffee shop any day of the week. Laptops, tablets and smart phones are all descendants of the Osborne 1.
Yet Osborne Computer declared bankruptcy thirty months later, and disappeared completely by 1986. This is fairly common in the history of commerce, the story of the pioneer that did not survive.
Portable computing as a concept was separate and distinct from its first manifestation, the Osborne 1 computer. This is a key to understanding subsequent manias based on pioneering technologies or concepts.
We humans are a creative, inventive species. There always seems to be an exciting concept or something new that will really change things. Steamships, railroads, petroleum, airplanes, automobiles, telephones, radio, television, cell phones…something new is always on the horizon. These things have created new ways of doing things and reshaped our lives and society.
But with each of these revolutionary ideas, there was a difference between the successful path of the idea, and what happened to the first manifestations or demonstrations of that idea.
The Osborne 1 computer was a twenty-four pound beast with no battery, a three inch screen, and now-laughable technical specifications. The concept of portable computing was worthwhile, revolutionary, and eventually changed the way we live and work. But the first manifestation did not even turn out to be sustainable or successful.
Just as the key uses of the internet took time to emerge and evolve, the most important uses of any new idea probably do not exist yet. In the internet boom of the late 1990’s and early 2000, some investors made the mistake of confusing the powerful concept with its initial manifestations. It did not end well for them.
There are powerful ideas circulating today based on revolutionary concepts. They may eventually reshape our lives, institutions, and society. When you come across one of these intriguing situations, please remember the lesson of the Osborne 1. Clients, if you would like to discuss this or anything else in more detail, please email us or call.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
Clients know we’ve been investing in different facets of the auto business for years. It is a vital industry. People need to go places, after all—to school, work, and play. The more we research, the more interesting the future becomes.
Here are some of the surprising things we have learned:
Going a mile in an electric vehicle, or a hybrid in electric mode, costs only three cents. Gasoline takes a dime. The seven cent difference adds up to $175 billion dollars annually in the US. 1
The idea of ‘autonomous vehicles’ or self-driving cars seems fantastic today. Rapid advances in radar, other forms of sensors, artificial intelligence, and communications are making the technology a reality. We will see it, at least in some form, in some places, in the not-too-distant future.
Engineers project that autonomous vehicles will experience a 90%-to-95% reduction in accidents compared to human-driven vehicles. We thought about what this could mean, and ran the numbers. Across the whole country, this means thirty thousand fewer traffic fatalities per year. Two million injuries would be avoided. In economic terms, $135 billion in property and human damage would be prevented every year, if the accident rate were reduced 90%.2
In a related development, the cost of solar electricity is falling about 10% per year3. This makes sense, because solar power is a technology and the price of technology tends to fall year by year. So the cost advantage of electric propulsion may grow even larger.
With these compelling economic factors, it is easy to forget that the price of electric vehicles is not yet low enough to be competitive with internal combustion engines. But as a client reminded us recently, “Wide screen televisions used to cost $12,000, too.” As volumes go up, prices will come down. We know how this works.
The benefits we’ve cited above amount to thousands of dollars per year, per household. This doesn’t count the time we might gain from not having to drive, or the significant health advantages from reduced vehicle emissions.
The prospects for a healthier, wealthier society are exciting. Change usually creates winners and losers. You know we will be studying these issues intensely and watching closely. Please call if you have questions or comments about how this may affect you.
1Calculated from US Department of Transportation figures
2National Transportation Safety Board statistics
3Farmer, J. Doyne & Lafond, Francois. How predictable is technological progress? Research Policy, 2016. Volume 45, Issue 3.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results.
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