I’ve noticed a troubling trend when I talk with folks about the market, and it looks like it has gone from occasional griping to a full-blown zeitgeist.
It is this sense of complacency and defeat. No one is happy about what is happening on the macro scale, and in the process they are abandoning everything.
Here is how it normally pans out: A conversation about a trend or some breaking news drifts to talk of weak economic growth, then weak demand, on to sky-high share prices, then nothing. It just dies.
It used to be that these conversations would then become truly engaging, solely because after all the talk of adverse conditions, there would be a, “but, what do you think of…”
Something useful and interesting would come of it all.
There would be a mention of promising deals, accelerating sales, a new product coming to market from a small company, or perhaps a changing catalyst in a sector.
That just doesn’t seem to be the case anymore, or at least doesn’t happen nearly as often.
All climate, no ideas or conclusion on how to act. Small talk about the weather is more productive.
I’m certainly not immune to it, and we certainly don’t need a hot new idea every day. However we should never, ever let ourselves remain indecisive or apathetic.
It is such a flimsy cliché, but there is always something in the market that deserves, or even demands, our attention.
There is always a sector or subsector out there that is emerging from a nascent, nebulous state into explosive revenue and sales growth.
If a new report predicting a compound annual growth rate over 60% and a $13.8 billion market by 2020 doesn’t knock us out of this collective slide into indecisiveness, I can’t imagine what else will.
Here is how to take that headline and turn it into a statement that helps, and all it takes is a couple minutes of very simple research and thought.
Due Diligence
Now as we all know, inevitably due to painful experiences early on as investors, assuming that there is little variability between companies involved with explosive sector growth is a terrible idea.
Taking a top down look at investment prospects requires us to carefully evaluate the situation to make sure we aren’t going to get blindsided, then consider which companies have the upper hand.
Just look at anyone who chose to invest in highly leveraged domestic oil producers. They’re failing, while other companies have the capacity to ride it out, capture market share, buy land and mineral rights for cheap later, and thrive when oil prices climb.
So with that cautionary tale, let’s get back to that 60% CAGR and $13.8 billion by 2020 headline.
These figures came from a new Future Markets Insight report on the wireless charging market.
2015 is becoming a banner year for wireless charging. We know that revenue from wireless charging transmitters and receivers was roughly $750 million last year.
60% CAGR is a whole lot, so let’s consider the situation for wireless charging.
We know these chargers will replace existing chargers as people have to swap out phones every several years. Batteries aren’t even designed to last through normal use for over two or three years.
Samsung already went all in with the flagship Galaxy S6, and phone and tablet manufacturers are adopting wireless charging compatibility as a baseline option for all new models if they haven’t already.
Now, about that price. Last year, 1.2 billion smartphones were sold, so getting to a $13.8 billion total isn’t much of a stretch.
If the $13.8 billion market for wireless charging products existed today, it would account for $11.50 per phone.
You can’t even get a five-watt Apple power adapter for under $19.00 in the company’s online store, and that’s with no cable. This cost per phone to accommodate the wireless charging market is feasible.
I know this is back-of-the-napkin stuff, but you’d be surprised how often headlines fail such due diligence.
So we can take the figures with a pinch of salt, but we’re on pretty stable ground for the potential growth and market size for the timeline presented.
Finding a Diamond in the Rough
Now we need to start digging around to see what kind of companies will have distinct advantages as this growth evolves.
Just under 70% of wireless charging demand will come from consumer electronics, so we should stick to a focus on mobile devices such as phones, tablets, and wearables like watches.
As is common with a new market, there are several standards competing for dominance through three trade groups.
Two of these trade groups, A4WP and PMA, are in the process of merging together. This leaves the Qi standard on its own, and the combination of lopsided manufacturer backing and adoption strongly suggests we limit ourselves to the merging formats.
While there are different methods of transmitting power, there are two basic types. One is extremely short range and uses charging mats, and the newer type transmits power to devices at longer ranges in a similar fashion to WiFi Internet routers.
With the limited versatility and adoption of the mats that have been on the market for a couple years, the superiority of the long range (up to 15 feet) of the new chargers gives a distinct advantage.
Now we have a workable list of companies to choose from. Anything under 10 is very manageable, and we’ve made it through the basic early stages of finding an investment with massive growth potential in an otherwise anemic, sideways market.
We’re at the point where we can dig into some quarterly statements and financials, look closer at proprietary tech and products, consider developments/ partnerships/ deals and find a play that is right for us.
All it took was a headline, a bit of time poking around online, some napkin math, current events in the sector, a cursory evaluation of the tech, and a bit of consideration of adoption. Now we’re onto something.
And this is all it takes for the vast majority of “top down” investment ideas.
The next time you feel stuck in a rut, with slow macro growth and sky-high share prices on your mind and no way around, give this a shot. Only good things can come of it.
