Think about the most innovative companies of the past few years: Tesla (TSLA), Twitter (TWTR), First Solar (FSLR), 3D Systems (DDD)… One thing these companies have in common, aside from a unique technology or business model, is a stock that has rocketed higher and higher, creating wealth for those who got in early. If you feel that these companies are trading a little too high now (and many of them are), you may wish to look instead for plays on companies that haven’t hit the steepest point on the growth curve yet.
Such are the companies we have identified today. In some cases, their innovative products are not necessarily world-changing, but they are likely to be industry-changing. They also have a good story, as the story is a necessary part of what draws the public’s interest, and the public’s interest is, in turn, a necessary part of what drives stocks higher. We begin with a company that’s been around for a while, a true industry heavy that is finally starting to lighten-up a bit.
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Western Digital (WDC)
Western Digital has been the industry leader in hard drive manufacturing for years, and last year they began selling hard drives filled with helium. One might ask, “Were hard drives really so heavy to begin with?” But it isn’t weight that Western Digital is concerned with—it’s drag. Regular air slows the spinning of hard drives and increases the temperature. For this reason, slippery helium is highly advantageous. Hitachi Global Storage Technologies spent years trying to figure out how to keep helium inside a hard drive without it leaking, and they finally succeeded just in time for Western Digital to acquire them.
Western digital’s new helium hard-drives have a capacity of 6 terabytes. That is more, for purposes of comparison, than NASA originally allocated for data on the Hubble Telescope. If that seems like a surfeit of storage space, consider how quickly storage space is used up if you are using your hard drive to store movies, and consider that the next generation of high definition will require at least 4 times the space, and possibly as much as 16 times the space of the current generation.
For now, helium hard-drives are mostly being used in big data centers, but as the price drops and the demand grows, expect them to be making their way soon enough to a PC near you.
Chart courtesy of stockcharts.com
LG Display (LPL)
Speaking of the next generation of high-definition television, called Ultra-HD, the televisions themselves are already here, and while they have arrived slightly ahead of Ultra-HD transmission, a new disk format, or much of a demand, it is better to be too early to a party than too late. You can conceivably play this technology by betting on Sony (SNE), but Sony is an $18 billion company that is more diverse than many mutual funds, so your dollars will get spread around quite a bit.
You’ll get more bang for your buck with LG Display, which creates Ultra-HD panels for its parent company LG Electronics.
With years of experience making liquid crystal displays, LG Display has been the driving force behind the rapid (far more rapid than predicted) price drop in Ultra-HD televisions, and the price points they are talking about hitting in the next few months are so low as to leave no real advantage to buying a television without at resolution of at least 4K, which is twice as many vertical and twice as many horizontal lines as HD. It is due in large part to LG Display that Ultra-HD’s success is now all but guaranteed, and with the company’s end-of 2014 P/E ratio of 9.98, there seems to be no good reason not to get a piece of this one.
Chart courtesy of stockcharts.com
Clovis Oncology (CLVS)
Last week, the stock of a smallish biotech company, Intercept Pharmaceuticals (ICPT) jumped from $73 per share to $445 per share in a single day. That has caused the market to focus, as it periodically does, on the potential for huge gains in such companies.
One such company is Clovis Oncology, which focuses intently on anti-cancer medicines. Clovis has three extremely promising drugs in its pipeline, CO-1686, a non-small-cell lung cancer drug in phase I/II trials, Rucaparib, ovarian cancer drug in phase II trials and Lucitanib, a breast and lung cancer drug in phase II trials.
As a contrarian by nature I prefer to find my own way in the market rather to follow in anyone’s footsteps, but this is one case where the chorus of people naming Clovis as the market’s “most likely to be the next ICPT” does nothing to change the fact that Clovis looks very likely to be the market’s next ICPT.
In June, unexpected good news from one of Clovis’s trials sent CLVS stock from $36.53 per share to $74.59 per share in a single day, and it currently trades at roughly that same price. It could be the very next breath of news that next causes CLVS to double in value again.
Chart courtesy of stockcharts.com
NVIDIA (NVDA)
As I have disclosed before, I am long NVIDIA and have no intention of altering the size of my position. A partner of Intel (INTC) this pioneer in 3D processing has been trading blows for years with Intel’s arch-rival AMD, but as AMD has been stumbling recently, the future looks quite a bit brighter for both Intel and NVIDIA. NVIDIA has also been quietly repositioning itself over the past few years to break into the console gaming market.
Its revenue grew only 7% in 2013, but the fact that it grew at all demonstrates that NVIDIA is successfully growing beyond its traditional PC business.
Where the company is truly looking ahead, however, is in its mobile chip unit. NVIDIA’s mobile chip, the Tegra, doesn’t have great market share yet, but it may grow to be in great demand should smartphone makers decide to make a real push to dominate gaming.
On paper, they already dominate gaming, but this has been done with virtually no effort on their part, and is nothing like what they could achieve if they were to add powerful 3D-graphics capabilities to their phones.
The day is coming when consumers will demand that they do, and when that day comes, NVIDIA is likely to have an insurmountable lead over its rival AMD in the mobile arena.
Chart courtesy of stockcharts.com
SolarCity (SCTY)
That which produces energy produces an income stream, or so reasoned Elon Musk when he founded SolarCity. Musk’s management of SolarCity has differentiated it from other Solar Power companies primarily in that he has marketed and distributed SolarCity’s product in much the same way as a financial instrument—selling the revenue first, and the panels second.
SolarCity doesn’t pitch its product to municipalities and then beg for federal grants to make it competitive, and thus it largely avoids the ire occasionally aimed at other solar power companies. Instead, it markets to large residential and commercial property owners and builders, specializing in rooftop solar, which it also installs for other companies, providing a value-added service.
SolarCity’s real innovation, however, is financial. The near absolute certainty that the sun will continue to shine has allowed Musk to create a fascinating multi-tiered leveraging process, which in turn allows the company to grow rapidly.
SolarCity is famous for installing solar panels at virtually no cost to the property owner, making its money by taking a share of the income that flows in from the sale of the power generated. “But that’s just a lease” critics have charged. Well, sure it is, and based on that, SolarCity will be offering $200 million in short-term debt, which will be secured with its leased assets.
The one thing Elon Musk never fails to do is outsmart his critics, and SolarCity has done it again.
Chart courtesy of stockcharts.com
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