I want you to take a look at a chart and keep a couple things in mind.
Look at the strong correlation that is in place most of the time. Outside of a couple transitory divergences, they’re very similar.
That isn’t a fluke. These companies have been moving in tandem 75% of the time because the exact same news has been driving price changes for them.
Finally, keep in mind that one is up just 1.35% for the year, while the other is up 20.75%.
The primary line (black and red) is the universally-known Apple, Inc. (NASDAQ: AAPL)
As for that blue line, it is the far smaller ($18 billion vs over $625 billion) and obscure Avago Technologies, Ltd. (NASDAQ: AVGO).
The giant tech company, which has seen a surge in iPhone 6 sales this year, saw paltry stock price gains that were crushed by one of its established suppliers whenever positive iPhone sales news was released.
The point I’m trying to make is that there is a way to pull in higher profits for just about any trend or idea out there if you’re willing to dig deeper.
Unfortunately, it isn’t always going to be as easy as vetting a list of Apple suppliers for strong companies. Then there are trends that are more nebulous, or where the profit potential disappears into giant conglomerate balance sheets.
Today I wanted to highlight three interesting ways my colleagues have found strong profit potential, though the way to do it was obscure. I think you’ll agree that they are pretty impressive.
Tesla, Without the Hype
First up is a workaround for another one of the biggest names in the markets.
Tesla Motors, and Elon Musk in particular, are seen as paragons of disruption, and of the electric car movement.
However, buying directly into a Tesla is a risky venture, to say the least.
The company has shed $5.32 per share over the last year, and the shares are often seeing downward pressure from quarterly results that don’t match the near-insane expectations foisted on the company.
However, electric car sales are seeing explosive growth, which is expected to continue for many years to come.
Without any other pure-play electric car manufacturer, the trend — at the surface — appears to only be available to those willing to stomach high-risk and potentially wait years for sales to catch up to Tesla’s valuation.
Here comes the workaround. Electric cars, along with virtually any cutting-edge, power-hungry electronics you can think of, extensively use lithium ion batteries.
That is why Musk decided to build a massive factory out in the desert with a potential capacity that vastly outweighs what Tesla builds into its vehicles.
Plus, Tesla has reached out to other major car manufacturers and secured agreements with them to share patents and build demand.
Money is pouring into lithium from big investors too, like a $183.3 million stake by Fidelity, $188.7 million from Janus Capital, and $221.2 million from Vanguard.
Effectively, the lithium approach has diverse customers, sectors, and guaranteed demand growth, creating an unequaled way to capitalize on mobile tech and electric car demand growth without buying a single tech company or Tesla share.
Keith Kohl goes into far greater detail on how this play works, if you’re interested.
Google’s New Best Friend
Back in February 2014, one of the most widely opposed — and ultimately doomed — merger proposals was announced by Comcast and Time Warner.
The very same month, Google announced it “invited cities in nine metro areas around the U.S. — 34 cities altogether — to work with us to explore what it would take to bring them Google Fiber.”
The rollout of the giganet flew in the face of what Comcast and Time Warner are known for, and what puts them at the top of the list of worst companies in the U.S.A. every year.
Time magazine even claimed that Google wasn’t even trying to build a true Internet service provider business. Instead, it was just hoping to shame the major cable operators into improving their services. Surely, there is no conflict of interest there…
If you ask me, Google is willing to make money disrupting the cable company status quo while making them look like the antiquated misers they truly are.
Google (or Alphabet Inc., if you will) is sitting on so much cash, it might as well. Otherwise, it’d chase more moonshot start-ups or let the cash sit on the sidelines.
For the cities that have Google Fiber already, Internet access that is nearly eight times faster than the nearest competitor for downloads, and 52 times faster for uploads, is being offered at a lower cost than anything Comcast or Time Warner will accept.
ISPs are taking note, and companies are scrambling to respond not only to this, but also efforts by cities to circumvent them and just build their own ultra-high-speed Internet infrastructure.
Earlier this year, Chattanooga won a lawsuit against Comcast and others when they tried to keep the city from building its own high-speed network. The companies then took another blow when the FCC overturned state restrictions they supported to prevent the network from expanding beyond city limits.
Capitalizing on Google’s move by buying shares of the Internet giant is pointless. The company, at over $500 billion, isn’t going to see share prices budge by rolling out next-gen connections city-by-city.
At the same time, investing in the widely-hated cable companies that are scrambling to prevent Google and others from eating their lunches is a fundamentally bad idea.
However, Nick Hodge found a way to directly profit from this trend. These large companies will build the network, but they do not do the “last mile.”
Smaller companies take care of connecting customers to the new networks, and one stands out from the rest with a proprietary technique that costs just 20% of what its competitors charge.
It trades with a tiny $28 million market cap, and is expected to generate at least that much in sales this year alone.
Gold Profits, Regardless of Gold Prices
Unfortunately, I cannot go into the same detail as before for the final impressive way to capitalize on a trend.
Doing so would mean I’d be scooping Jimmy Mengel’s latest research, and I’m unwilling to risk bodily harm for it.
However, I am willing to tell you three things:
- It handles $4 million of gold every day, but doesn’t mine a single ounce.
- It sees revenue gains when gold goes up, yet doesn’t see share price drops when gold drops.
- It has a huge 8.9% yield, steadily climbing profits, and a massive head start in China and its massive gold market.
Sorry to be coy, you’ll have to wait for Jimmy to publish. It is worth the wait. It is pretty ingenious and I wish I thought of it first, if only for some bragging rights around the office.
Keep your eyes out for more info from him in the next couple days.
