The Great Disruptors

THE GREAT DISRUPTORS

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This industry is BEGGING to be disrupted

This industry is BEGGING to be disrupted

Hey, kid.

You're 17 years old. 

Your brain is still developing. 

But you’ve got a big decision to make, RIGHT NOW.

Either you have to get a job... 

(yuck)

OR...

You can party for the next four years. 

Do you want to have the time of your life... get drunk on weekdays... AND learn things that will make you boatloads of money for the rest of your life?

Of course you do!

Sign here if you want go to college.

And don’t worry... it’s free! **

**FINE PRINT: Actually… you’ll have to borrow an obscene amount of money and start paying it back—with interest—when you’re 22. But you're a kid, so 22 seems like decades away. Plus, you'll be making SO much money with your college degree, it won't matter. Seriously, take the money and party for four years.

  • Every spring, millions of American high school kids are faced with this choice.

It sounds like a no-brainer.

And it used to be a no-brainer...

Because college used to cost a reasonable amount of money.

As recently as 1980, you could get a four-year bachelor’s degree at a public school for less than $10,000, on average.

These days it’ll cost you at least $40,000… or upward of $140,000 for a private school... or well over $250,000 for a top school.

Unless a kid has rich parents or a full ride scholarship, he must borrow a ton of money to pay for the privilege of attending college.

A few weeks ago, I wrote about how America’s broken healthcare industry was bankrupting families. From the letters you wrote me back, you’re clearly sick and tired of health insurance costs going up...and up... and up.

Well, the cost of college has jumped WAY more than the cost healthcare.

The cost of a four-year degree has shot up 15X in the past 40 years, as you can see here:

If car prices jumped as much as tuition, a base model Toyota Corolla would cost $90,000 today.

As costs have zoomed higher, kids are burying themselves under bigger and bigger piles of debt.

Student loan balances have snowballed over 400% in the past 15 years. Last month, they hit $1.5 trillion:

If student debt were a stock, every Wall Street analyst would be screaming “bubble.”

And get this… Americans now owe more for student debt than they owe for credit cards and auto loans... combined!

In fact, the average kid takes out $35,000 in debt… a 75% jump in 10 years.

That’s a deep hole to dig out of before you’re legally allowed to drink beer.

And student loans are the only type of debt you can’t escape, no matter what.

Declaring bankruptcy can wipe away your mortgage, your credit card debt, and even stop IRS wage garnishments. But it won’t take a penny off your student loans.

Turn 65 and haven’t paid off your student loans? They’ll raid your Social Security check each month.

  • What do America’s two most broken industries—healthcare and college—have in common?

The government’s dirty fingerprints are all over both.

As you may know, the Federal government practically owns the student loan market.

More than 94% of all student loans come directly from the US government. And the small 6% slice that doesn’t come from the government is still fully guaranteed by the government.

If you’ve applied for a mortgage lately, you know it’s a painful process. You fill out stacks of paperwork… pay steep fees… and hand over a full accounting of your family’s finances.

But thanks to Uncle Sam, trillions of dollars in student loans get handed out to 17-year-old kids like candy on Halloween.

This free money has warped the whole system and pushed college costs far beyond all reason.

Think about it this way… when banks were handing out no-money-down mortgages in the early 2000s to anyone with a pulse, what happened to house prices?

They SOARED.

Well, colleges know Uncle Sam is bankrolling students, so they hike fees year after year.

A recent New York Fed study found for every new dollar of federal student aid, colleges hike tuition by 65 cents.

  • I wish I could tell you the whole college system is about to get sledgehammered by disruption...

But unfortunately, college has been America’s most “undisruptible” industry.

The vast majority of high school grads still go to college.

Once hailed as potential disruptors, for-profit colleges haven’t made a dent.

You’ve probably seen commercials for The University of Phoenix. It grew rapidly into one of the biggest and most famous for-profit colleges in the US. But enrollment has plunged lately. And the stock of its parent company, Apollo Education Group (APOL), crashed 80%

Other for-profit educators like Corinthian Colleges and Indiana’s ITT Tech went bankrupt a few years back and their stocks were “de-listed.”

Despite the crazy cost, college is still worth it for many folks today. If you want to be a professional, like an architect, a lawyer, or a CPA, you pretty much have to go to college.

On the other hand, if you plan to study archaeology or interpretive dance, college is almost definitely not worth it.

  • There are some early, promising signs that college is changing...

Have you heard of Coursera?

It’s a website where students can enroll in courses from many of the world’s top colleges—like Stanford, Yale, and Princeton.

Want to learn how financial markets work from an Ivy League school like Yale? You can enroll for just 50 bucks/month.

In the past few years, over 40 million Americans took an online course. I’ve taken classes on public speaking from online learning platform Udemy. They cost ten bucks each and were excellent.

The world’s fourth-largest company Google (GOOG) now offers professional certificates on Coursera. You can get a “cloud computing” certificate in two months. Google has given financial aid to 10,000 students taking the course.

  • Here’s my prediction for how the disruption will play out.

It’s only a matter of time before Coursera and other online disruptors start offering real college degree courses.

What happens when you can get a bona fide online college degree—one that confers the exact same benefits of an in-person college degree—for a couple of thousand dollars?

The number of kids going to traditional college will crater. And schools will be forced to slash their tuition costs.

Many top American colleges are already making this shift. You can get a degree from Ivy League school University of Pennsylvania over the internet now.

The best part? Online tuition costs roughly half what you’d pay versus sitting in a lecture hall... even though the course material is identical.

Look, we’re barely in the first inning of disrupting education. Who knows, maybe in a few years the likes of Google and Amazon will open up their own colleges. You’ll get trained by Google for free. And when you finish, Google will charge companies to recruit you.

  • As disruption investors, we must always ask “what will the world look like in five years?

Early signs are mounting that some traditional colleges are in trouble.

After rising every decade since 1890… the number of US colleges has fallen over the past 10 years.

And the number of kids going to college has declined for seven consecutive years.

Top schools like Yale, Harvard, and Stanford will always attract elite kids and command huge tuitions.

But online disruptors could put many of the 4,000 “middle-of-the-road” US colleges out of business.

Did you go to college? Was it worth it? Do you want your kid going to college? Tell me at Stephen@RiskHedge.com.

Stephen McBride
Editor, Disruption Investor

Stephen McBride is editor of the popular investment advisory Disruption Investor. Stephen and his team hunt for disruptive stocks that are changing the world and making investors wealthy in the process. Go here to discover Stephen’s top “disruptor” stock pick and to try a risk-free subscription.

Reader Mailbag

Disruption Investor subscriber Chris asks:

I recently joined Disruption investor and just finished reading all four reports that came with it. Do I understand that the monthly letter will contain new stock recommendations? I assume you will also offer updates on these stocks as things change? Thanks very much, I am very excited to be involved in Disruption Investor.

Hi Chris, thanks for writing in. Yes–each monthly issue of Disruption Investor has a new disruptive recommendation. And we review the whole portfolio every month. Great to have you on board!

Disruption Investor subscriber Karl asks about disrupting Facebook:

Stephen, I have subscribed to DI. I read an article on Facebook about how they have the trust of their base. My question is who will replace Facebook? What does your research team see as a good alternative to advertising on Facebook?

Karl, welcome aboard. As you may know, Google and Facebook practically control the online ad market. For every $100 that’s spent on digital ads, Facebook and Google take roughly $60. Look to online shopping giant Amazon to challenge this duopoly. Its ad business is growing 40% a year. And I’ve mentioned in the past, The Trade Desk is a good way to make money from the digital ad trend.

If You Think 2019 Has Been Crazy, Just Wait…

If You Think 2019 Has Been Crazy, Just Wait…

The reports of my death are greatly exaggerated.

Legend has it author Mark Twain said this famous line.

When he was out of the country, a rumor spread that Twain was dead. He put it to rest with this clever statement.

I’m telling you this because rumor of a different (but equally wrong) death is floating around markets right now.

Believe it or not, many people think the initial public offering (IPO) market is dead.

If you’ve been reading my essays, you know I specialize in IPOs...

And I don’t want to spoil the punchline, but...

I love that this rumor has taken hold.

I love that the average guy thinks IPOs are dead.

Because it means hunting for big IPO profits is “contrarian.”

And the biggest profits usually flow into the pockets of investors who can think independently of the crowd.

I can tell you with 100% certainty that not only is the IPO market alive and well...

2020 is shaping up to be the “Year of the IPO.”

If you can see past the phony headlines, you can set yourself up to collect big profits in the months ahead.

Let me show you...

  • 2019 has been a good year for IPOs.

118 private companies have gone public, and that number grows by the day.

Why would anyone think the IPO market is toast? Well, as you likely know, a handful of big, hyped-up IPOs have flopped.

I’m sure you heard about Uber (UBER). The ride sharing company went public in May at a staggering $82 billion valuation. It was ridiculously overvalued.

Not surprisingly, its stock fell straight off a cliff:

Uber plunged 36% since it went public just five months ago.

Lyft (LYFT) has fared even worse. It’s plummeted 48% since its highly publicized IPO in April.

Peloton (PTON) and SmileDirectClub (SDC) also suffered poor IPOs, which I warned RiskHedge readers was likely.

And don’t get me started on WeWork, which failed to even get its IPO out the door.

  • Mainstream financial TV loves going on and on about failed big IPOs.

I get it. It’s like an accident on the side of the highway. Everyone slows down to see the carnage.

But just like a car crash, failed IPOs are nothing more than a distraction.

A distraction from great moneymaking opportunities.

You probably know about Beyond Meat (BYND) by now, which got its fifteen minutes of fame earlier this year when it soared 859% in less than three months.

But when’s the last time you heard CNBC talk about CrowdStrike (CRWD)?

CrowdStrike is a cybersecurity technology company that went public in June. Cybersecurity isn’t a sexy business. So, its IPO didn’t get much press.

But it should have. CrowdStrike’s share price has tripled two months after going public.

Shockwave Medical’s (SWAV) explosive IPO has also been overlooked. Shockwave is a medical services device company that went public in March. Its share priced zoomed more than 300% during its first three months.

  • Keep in mind, the S&P 500 is up 8% over the past year…

Even if you’d bought just one of these big winners, you’d be blowing the average investor out of the water.

Of course, anyone can “cherry pick” a few big gains to prove a point. So let me give you the full picture...

Since October 2017, 21 IPOs are still up at least 100%. I emphasize still because markets have been a little shaky lately. But not nearly shaky enough to erase all those triple-digit IPO gains.

The best of this bunch delivered returns of 1,393%, 535%, 433%, and 315%.

And you didn’t have to do anything special to grab these gains. You didn’t have to be a venture capitalist, a Wall Street insider, or be a “high-roller” client of Goldman Sachs.

If you had a brokerage account, these profits were available to you. All you had to do was buy these stocks shortly after their IPO day.

  • Still, some folks think Uber or WeWork “killed” the IPO market…

These folks are wrong.

Eight companies have gone public since WeWork shelved its failed IPO a few weeks ago.

Three more are set to go public later this week.

And that’s just a taste of what’s to come. According to Renaissance Capital, 31 companies have filed or updated paperwork to go public in the last 90 days.

And let’s not forget…

Airbnb just announced its plan to go public in 2020. Airbnb is one of the world’s most disruptive companies. It was most recently valued at $35 billion—making it the fourth biggest US “unicorn!”

  • A unicorn is a private company worth at least $1 billion…

They’re called unicorns because they used to be rare. But that’s no longer the case.

According to CB Insights, there are now 402 unicorns. Together they’re worth more than $1.3 trillion.

Many of these companies are eying the public markets and planning their IPOs.

And what most people don’t realize is most of today’s unicorns aren’t startups.

Instead, they’re mature businesses.

If you read my September 29 essay, you know why that’s important.

The average age of a company going public these days is 12 years. In 1999, the median age of a company at IPO was just four years.

The median IPO generates sales of $174 million today. That’s 15 times more revenue than the typical company at IPO in 1999 was doing.

In other words, unlike in 1999, many of today’s IPOs are ready for the “big leagues.”

  • As I mentioned, 2020 is shaping up to be the “Year of the IPO”…

Big Four accounting firm Ernst and Young (E&Y) sees a stampede of IPOs on the horizon.

It wrote in a recent report that it expects “a flood of IPOs to come to the market.”

E&Y also expects “global IPO activity to pick up” as we enter the “traditional peak IPO season.”

I hope I’ve made it clear a lot of money will be up for grabs in IPOs in the next couple years.

As I mentioned, 21 IPOs have handed investors a quick double or better in the last two years.

In the next two years, as the IPO market really gets rolling, I wouldn’t be surprised if we get 40–50 new opportunities to double our money or better.

Justin Spittler
Hanoi, Vietnam

PS: Here are two upcoming IPOs on my watchlist:

Procore—a company that provides construction management software—is set to go public before the end of the year or in early 2020.

GitLab, which operates a platform for developers to create, review, and deploy code, is also set to go next year.

I'll update you as these stories unfold.

Roundup - 20191011

Marijuana stocks had one heck of a run.

The North American Marijuana Index, which tracks the performance of Canadian and US marijuana stocks, jumped more than 900% from February 2016 to January 2018!

Cannabis was the hottest market on the planet. Everyone wanted to invest in it.

So, Wall Street did what it always does. It gave the people what they wanted.

Four new cannabis exchange traded funds (ETFs) were launched between April and July. The timing couldn’t have been worse...

Below you can see the North American Marijuana Index peaked earlier this year... and has plunged 50% since March.

In other words, Wall Street rolled out these ETFs after the marijuana stock bubble had already popped!

Investors who bought them have paid the price. The ETFs have dropped 44%... 28%... 30% and 35%—all in less than six months!

Those are staggering declines, but they aren’t surprising. There’s an old saying on Wall Street: “When the ducks are quacking, feed them.” It describes Wall Street’s tendency to push “hot” stocks and products on novice investors. Doesn’t matter if it’s in their best interest or not (it’s usually not).

As for what cannabis stocks do next, check out what Disruption Investor editor Stephen McBride recently wrote right here.

IPO Monitor

If you read last week’s RoundUp, you heard the big news…

Airbnb confirmed its plan to go public next year.

Airbnb is the largest “home sharing” company. You can use it to rent a room in an apartment…an entire villa…and everything in between. But Airbnb doesn’t own this real estate. Its users do. It’s simply a marketplace, and an incredible one at that.

Venture capitalists (VCs) have taken notice of this revolutionary company. Airbnb was most recently valued at $35 billion, making it the fourth-biggest US “unicorn.”

Here’s our IPO expert Justin Spittler:

I’m extremely familiar with Airbnb. I travel at least six months a year, and I practically live in Airbnbs. They’re the closet thing I have to a “home.”

But I’m not just a huge fan of the service. Airbnb is a truly world-class business. It’s turned the hotel industry on its head by offering unique and cheaper options for travelers.

It’s also one of the fastest-growing businesses on the planet. It’s grown at a compound annual growth rate of 153% per year since 2009. Next year, Airbnb will have more rooms than the entire hotel industry!

To top it off, the company is already profitable. That’s huge. Many companies going public today don’t even have a roadmap to profitability.

Still, Airbnb isn’t a “screaming buy”…not yet at least. More from Justin…

It’s too early to know if Airbnb is a “Day 1 Buy.”

We don’t know the terms of its offering yet, namely its valuation once it goes public. That’s critical.

After all, investing isn’t just about what stocks you buy. The price you pay is just as important, if not more important.

I’ll be keeping a close eye on Airbnb, and I’ll let RiskHedge readers know my thoughts when more details are released.

In Case You Missed It…

On October 8, Justin Spittler discussed the only kind of stocks you should ever chase. Click here to learn more about this special crop of stocks, and why it pays to buy them after they’re already up big.

On October 10, Disruption Investor editor Stephen McBride updated readers on the big moneymaking boom that 99 in 100 investors are totally ignoring. Read it here.

The boom nobody believes in

The boom nobody believes in

Bill Brame edited Star Trek films before he took up “house flipping.”

During the housing boom, Bill was often “turning around” 14 houses at once… with three crews of renovators working full time.

In 2004 he paid $400,000 for a house in Hollywood, California. A year later he flipped it for $1.2 million.

Back then flipping houses was the most profitable side-job in America. Buy a house… fit it with a new kitchen… sell it for a big mark-up... repeat.

In 2006, one in every ten homes was bought to flip!

  • As you know, this craziness blew up in 2008.

The housing market melted down, and the average home lost over a quarter of its value.

Flippers went bankrupt when they got stuck owning rapidly depreciating homes no one wanted to buy.

Many ordinary Americans, who never intended to speculate on housing, were financially devastated too.

Some lost hundreds of thousands of dollars. Others lost their jobs or their businesses.

This all shocked millions of folks who believed the lie that US housing was a slam-dunk, can't-lose investment.

The housing crash was hands down the most financially disruptive event of the century. It scorched one thing into the minds of Americans: “I’ll NEVER get burned like that again.”

Housing is what I call a "hot stove" investment. It burned a whole generation of investors... and they’ll be damned if they ever touch that stove again.

  • Which is too bad, because housing stocks are one of the best money-making opportunities out there today.

As regular RiskHedge readers know, housing stocks are booming.

In February, I told you why buying homebuilder stocks was a near lock to make you money in 2019. I recommended buying homebuilder NVR Inc. (NVR).

If you bought NVR back in February, you’re sitting on a 45% gain. Meanwhile, the S&P 500 is up around 10%, as you can see here.

Readers who got in early have already made a bunch of money. But if you're not yet riding the trend with us, it’s not too late.

My research suggests this boom has years to run. Today I’ll show you another way to profit from it.

  • Let me tell you about my talk with Barry...

I picked up the phone and called housing expert Barry Habib.

If you don’t know Barry, he’s the founder and CEO of leading real estate advisor MBS Highway. Barry is an “insider’s, insider.” He spends his days talking to the biggest players in the US housing market. In short, he knows what’s really going on in housing.

Here’s what Barry told me…

“Stephen, you’ve been proven right on housing, and I think you’re about to be proven even more right. The most important driver of home prices is supply and demand. And right now, there is a chronic undersupply of homes in America."

As I said, the 2008 bust turned a lot of folks off from investing in housing. It shattered the confidence of homebuilders, too.

Census Bureau data shows an average of 1.5 million homes were built each year since 1959. Yet since 2009, just 900,000 homes have been built per year. In fact, less homes were built in the past decade than in any decade since the 50s!

We have a serious housing shortage in America today. It would take less than six months to sell every existing home on the market, as you can see here:

  • Barry says a tidal wave of homebuyers is about to flood the market…

 “On average, folks buy their first home at age 33. Guess what the median age of millennials is right now? 34.”

Today’s young adults, as you probably know, are called “millennials.” They’re the biggest generation in US history—bigger even than baby boomers.

There are a lot of rumors out there about millennials. They’re famous for living in their parents’ basements, delaying marriage, and earning less money than their parents did.

But as I explained back in June, millennials are finally growing up and buying houses. According to the National Association of Realtors, one in three homebuyers today is a millennial.

Barry emphasized we’ve only seen the tip of the iceberg so far:

“Stephen, the housing market is like a rollercoaster train car. When the first few train cars go over the bump, it’s kind of slow, right? The real momentum kicks in when more and more cars go over the hump.

… In the past year or two, the first wave of young homebuyers came into the market. But every year for the next decade, tens of millions of millennials will hit home-buying age.”

In other words, a whole generation of homebuyers will soon flood the market. At a time when there is a massive shortage of homes in America!

Remember, the most important driver of home prices is supply and demand. Today, supply is tight. And with record numbers of house hunters entering the market, it all but guarantees the housing boom will continue and likely accelerate.

  • This setup can only lead to one thing…

Homebuilders HAVE to build more houses.

As I mentioned, builders have been super cautious over the past decade. Who can blame them? Many saw their friends and competitors go out of business when the market crashed.

But with the housing boom showing no signs of slowing, they’re finally getting to work.

This past month new home “starts” jumped to their highest level since June 2007.

And the number of building permits granted shot up to its highest level since May 2007.

This is all great news for my favorite homebuilder NVR. I expect it’ll continue marching higher.

But I’m going to give you a different idea to profit from this thriving market.

  • Before I tell you what it is... let me warn you...

It’s not sexy.

It’s not disruptive.

To tell you the truth, it’s boring.

But sometimes boring stocks make great investments.

Vulcan Materials (VMC) and Martin Marietta Materials (MLM) sell concrete and gravel that goes into housing foundations… roads… and sidewalks.

Not exactly the next Amazon or Netflix, right?

But as you can see here, these boring stocks have ripped over the past 12 months.

  • These stocks may be dull...

But their revenues are hitting all-time highs as homebuilders construct new neighborhoods.

I’ll say it again: The American housing boom has years to run. The best time to buy housing stocks was earlier this year when I first wrote about it. The second best time is right now!

If you’re not invested in this trend yet, now’s the time to put your money to work in any of the three “hot stove” stocks I mentioned that most folks won’t touch.

Do you enjoy the RiskHedge Report? If so, please pass it along to anyone who’s interested in the markets and in disruption.

Talk to you next week,

Stephen McBride
Editor — Disruption Investor

Stephen McBride is editor of the popular investment advisory Disruption Investor. Stephen and his team hunt for disruptive stocks that are changing the world and making investors wealthy in the process. Go here to discover Stephen's top "disruptor" stock pick and to try a risk-free subscription.

Reader Mailbag

You sent in dozens of letters in response to my article about disrupting America’s most broken industry. Here are a few:

Stephen, you are right, healthcare is so opaque. I can’t even tell MY patients how much something will cost them. No idea, other than "way more than you want to spend.” (I’m an ER doc.)

And yes, I would get an x-ray or a flu shot at Wal-Mart, absolutely.

—Pete

I am a retired doctor. I was in private practice for almost 30 years. I think the current healthcare system is a disgrace. There is absolutely no transparency, and the billing of services in most cases either borders on fraud or is outright fraud. Hospital billing and many physicians play a game to code services only to maximize reimbursement.

Glad someone is trying to disrupt this industry. It is badly in need of change.

Regards,

—Steven, MD

Hi Stephen: I'm a paid up subscriber and love your work. Congratulations. Finally, someone is going to disrupt the healthcare industry. I worked in corporate America for years and had great insurance. Then I ventured out on my own and am now on a pre-Obamacare high-deductible plan. I pay $1,200 monthly for a family of five, and my max-out-of-pocket is around $30k per year... It is truly a catastrophic plan in more than one sense of the word! YOU BET I'll be going to Wal-Mart for healthcare, or anyone else for that matter who busts up this anti-competitive system!

Keep up the good work.

—Frederick

Stephen, I am Canadian, and we have public-tax-funded hospital and doctor expenses, but private health insurance covers prescriptions, glasses, and teeth. I work in this industry as a plan sponsor consultant and see first-hand that it’s broken the same way you describe the US health insurers. So yes, disruption of health care is coming now. And will be hugely pushed back by the pharma industry worldwide, and doctors and hospitals in the US.

Thanks,

—Hugh

Hell yes! have had shots at CVS and Walgreens. Originally hospitals were a place to go to die. With infections and incompetence, that still applies, plus they charge you a fortune for things that really cost very little. Stay clear of hospital interactions.

—Ralph

Yes! I would absolutely go to Walmart-Health for a flu shot.

—Leslie

I would use Walmart-Health in a heartbeat.

—Liz

Fascinating perspective on Walmart as a healthcare disruptor. I believe it. We get our flu shots at CVS and vision care at Walmart or Target. Already invested in CVS and WMT.  

—John

The Only Stocks You Should Ever Chase

The Only Stocks You Should Ever Chase

Never chase a stock.

Whether you’re new to investing, or you’ve been buying stocks for years, you’ve probably come across this advice.

According to this advice, only rookies “chase” stocks. They fall in love with a stock that has already risen a lot... overpay for it... then end up regretting it.

True pros do the opposite. They’re patient. They lie in wait... wait for a stock to “come to them”... then buy on a “dip.”

Having been a professional investor for almost a decade, and having studied almost every kind of investing strategy you can imagine, I can confirm “don’t chase stocks” is sound advice 95% of the time.

But there’s a special kind of stock you absolutely should chase.

In fact, you’re better off buying these special stocks after a 20% or 30% pop than buying after a big selloff.

I know it sounds crazy. It goes against everything most investors have been taught.

But this unconventional approach works on these special stocks. I have mountains of data to prove it.

I’ll share some of that data with you in a minute. Let’s get on the same page first.

  • I’m talking about initial public offerings (IPOs)…

An IPO is when a company offers shares to the public for the first time.

If you’ve been reading my letters, you know I specialize in the IPO market for a simple reason: IPOs are some of the most explosive stocks on the planet.

It’s not uncommon for a stock to double just months after going public.

I’m going to share one of my tricks for bagging these big, quick returns.

  • I’ve analyzed nearly four decades worth of IPO data…

I’ve examined the returns of more than 8,000 IPOs to figure out why some soar a lot more than others.

Some patterns come up again and again. For example, the best performing IPOs tend to be for small, fast-growing, under-the-radar companies.

But one of the most important factors is first day performance. In short, IPOs that explode out of the gate are far more likely to continue marching higher for months, and sometimes years.

Consider software company HubSpot (HUBS)—a software company that went public in October 2014.

It spiked 32% on its first day of trading.

From there, it took on a life of its own. It nearly doubled in value over the next 14 months.

Five years later, it traded 731% above its IPO price!

You could have made a fortune “chasing” Inspire Medical Systems (INSP)—a medical devices company.

Inspire went public in May 2018. It jumped 53% on its first day of trading!

Investors who acted on this “buy signal” made out like bandits. INSP tripled in value over the next 15 months.

Anaplan (PLAN)—an enterprise software company—followed a similar pattern and got off to a hot start. It surged 87% on its first day of trading... then kept right on soaring.

You could have pocketed 181% in just nine months. And all you had to do was buy PLAN on the day of its IPO.

Investors who follow the “don’t chase stocks” rule missed out on all these big profits.

On the other hand... you could have tripled your money on Inspire Medical by simply buying its stock the day of its strong IPO showing.

  • IPOs that “storm out of the gate” often enjoy a valuable benefit that adds to their momentum...

Successful IPOs often get millions of dollars’ worth of free advertising!

Look at Shake Shack (SHAK).

Shake Shack went public back in January 2015. Its shares exploded 135% on the first day of trading.

Now, some analysts will say this is a bad thing. They’ll say Shake Shack’s advisors underpriced its IPO... that they left a lot of money on the table.

But this “underpricing” was the best thing ever to happen to Shake Shack.

The company wasn’t well-known before it went public. It had just 63 US locations. Unless you lived near a big city, chances are you never tasted a Shack Burger.

But after its stunningly successful IPO, Shake Shack became the talk of the town. For weeks it was one of the biggest stories on CNBC. It got a ton of airtime.

And CNBC wasn’t just showing charts of the company’s stock price. They were showing footage of its juicy burgers, with folks lined up outside the restaurant to buy them.

It was like a free, multi-week TV commercial!

  • Beyond Meat (BYND), maker of fake plant-based “meat,” played out the same way…

Like Shake Shack, Beyond Meat didn’t have much of a following before it went public.

That all changed with its IPO.

Beyond Meat spiked 170% on its first day of trading.

And as regular readers know, that was only the beginning. Beyond Meat went on to gain 859% in under three months... ranking it among the greatest IPOs of all time.

Naturally, Beyond Meat became the talk of the investing world. For months, CNBC talked about it every day. The already red-hot stock got even hotter. It was like pouring jet fuel on a bonfire.

The company would’ve had to spend tens if not hundreds of millions of dollars to buy that kind of exposure.

Instead, Beyond Meat’s story was beamed into Americans’ living rooms for free... all thanks to its successful IPO.

  • A strong opening day indicates pent up demand for a stock…

Remember, before IPO day, a company is private. Only founders, early investors, and venture capitalists typically own it.

On IPO day, it becomes fair game for everyone to buy. A strong opening suggests that investors have been itching to buy the stock. Which, as I’ve been saying, bodes well for more gains.

Keep in mind, since 2000, the average opening day return for an IPO is 14%.

For context, that’s more than the S&P 500 returns in a typical year.

In other words, a big gain on IPO day isn’t a warning sign. It’s normal!

  • Why do IPOs behave this way?

One reason is that an explosive first day attracts momentum traders to the stock.

Momentum traders love to buy stocks that are zooming higher with a full head of steam.

So when a stock has a big IPO, it’s like throwing chum into shark infested waters.

Another reason is, unlike stocks that’ve been around for a while, IPOs carry no “baggage.”

Remember, IPOs are new stocks. They have no price history. Which means they have no stock chart. For you chartists reading this, an IPO has no “resistance levels” to hold it back.

There are no prior earnings reports or analyst estimates to fret over. Everything is new. An IPO is working with a clean slate.

When one really gathers momentum, there’s nothing but blue sky above. Which is why you’ll often see an IPO fly much higher, much faster, than an ordinary stock.

  • Okay Justin, what do I do with this information?

Don’t be turned off if a private company you’ve been eyeing goes public and storms out of the gate before you can buy it.

It might “feel” like you missed out because shares are now more expensive. But feelings have no place in investing. The data clearly shows that a great first day is a buying signal.

And because IPOs move fast, don’t hesitate to take profits on ones that go parabolic. If you achieve a quick double or triple, it’s usually smart to sell some shares and lock in the profits.

Have you ever “chased” a stock that had a strong IPO? If so, tell us how it went here: jspittler@riskhedge.com.

Justin Spittler
Hanoi, Vietnam

Roundup - 20191004

Jeff Bezos didn’t become the world’s richest man by accident.  

He built Amazon (AMZN), arguably the world’s most dominant company.

Amazon’s success boils down to two things. It provides the best service. And it offers lower prices than anyone else.

Using this one-two punch, Amazon buried traditional bookstores... then traditional retailers... and is now going after the giant $1.5 trillion grocery market.

Most businessmen would be content by now.

But Bezos has his sights on conquering his biggest challenge yet: healthcare.  

You can see below that the US healthcare market is colossal... more than twice the size of the US grocery market:

Healthcare isn’t just a huge market. As Stephen McBride wrote about last week, it’s a broken market.

Obamacare was supposed to fix it. It was supposed to make healthcare more affordable. But health insurance premiums have surged 150% since 2009.

In other words, healthcare is ripe for disruption.

Last year, Amazon formed a partnership with JPMorgan Chase and Berkshire Hathaway to offer employees medical insurance. It also purchased PillPack—an online pharmacy—for $753 million in 2018.

And just last month, Bezos launched Amazon Care, a virtual “primary care” clinic.

Amazon Care isn’t available to the masses yet. It’s in the “pilot” stage. Only Amazon employees in the Seattle area can use it.

But make no mistake. Amazon aims to bring this service to the masses. With any luck, it’ll be one of many big disruptions coming for the broken US healthcare system.

IPO Monitor

So much for the WeWork IPO.

As regular RiskHedge readers know, WeWork is the world’s largest co-working company and was one of tech’s most hyped private companies.

WeWork was supposed to go public last month. But it botched the execution so badly that it had to can the whole thing.

First the company couldn’t drum up investor interest at its insane $47 billion valuation. So it reportedly slashed its valuation all the way down to $15 billion... and it still couldn’t find many takers.

So, the company’s board did what it should have done long ago. It pushed out Adam Neumann, the company’s reckless CEO.

Less than a week later, WeWork shelved its IPO indefinitely.

In short, WeWork is a complete disaster.

But another giant company is stepping into the IPO spotlight. Yesterday, Airbnb confirmed its intention to go public in 2020.

Airbnb is one of the most disruptive companies on the planet. Most recently valued at $35 billion, it’s the fourth-largest “unicorn.”

And, unlike WeWork and many other recent IPO flops, it is profitable and has a sound business model. We’ll be watching this one carefully.

In case you missed it...

On October 1, Senior Analyst Justin Spittler explained why today’s market is nothing like the late 1990s dot.com silliness. Be sure to check out Justin’s thoughts if you’re worried about today’s market looking “bubbly.” Read his essay here.  

On October 3, RiskHedge Chief Investment Officer Chris Wood updated us on what’s about to be hottest investment trend on earth: 5G. Click here to read more.

5G is here, and it’s incredible…

5G is here, and it’s incredible…

Stephen’s Note: Today I’m stepping aside so RiskHedge CIO Chris Wood can give you an important update on what’s soon to be the hottest investment trend on earth: 5G.

Below you’ll discover where blisteringly fast 5G cell networks have already come online in America... when the first 5G Apple iPhone will come out... and Chris shares his top stocks to profit from the 5G “awakening.”

*  *  *  *  *  *  *  *

An unusual race recently took place at MetLife Stadium in New Jersey.

Former NFL star Keyshawn Johnson lined up at the 40 yard line...

While an average guy named Ricky stood in the endzone.

Keyshawn’s challenge was to run 40 yards faster than Ricky could download an episode of HBO’s Hard Knocks to his smartphone.

Ricky won. He downloaded the hour-long show in 3.6 seconds.

Keyshawn never had a chance. Because Ricky was using Verizon’s blazing, blistering, jaw-droppingly fast new cell network called 5G.

  • If you feel like you’ve been waiting forever for 5G to make its debut, you’re not alone...

We’ve been hearing about 5G for a long time. Many readers have asked me: What’s taking so long?

Progress may feel slow because 5G phones aren’t mainstream yet.

But 5G is actually coming online much faster than analysts predicted just two years ago. The next year or so will be a very, very exciting time to own the right 5G stocks.

In a minute, I’ll give you a few of my top 5G stock picks.

First, let me get you up to speed on all the exciting things happening in 5G.

  • NFL stadiums, of all places, have turned into 5G testing grounds.

Verizon has launched its new 5G network in 13 NFL stadiums.

AT&T brought its new 5G network to AT&T Stadium, where the Dallas Cowboys play.

The point is to make games more fun for fans.

At AT&T Stadium for example, fans can participate in augmented reality (AR) experiences that were impossible before 5G.

AR, if you’re not familiar, overlays digital imagery on real life.

If you have a Samsung Galaxy S10 5G smartphone for example, point the camera towards Cowboy stadium as you walk in. You’ll see 36-foot tall digital versions of Dallas Cowboy players yelling chants to hype you up.

Once you’re in the stadium, you can do a touchdown dance, and digital Dallas Cowboys will dance with you.

Or you can pose for a picture with the digital Cowboys, like this: 


Source: att.com

You can even dodge AR defensive robots on the field as you try to score a touchdown in a new mobile game.

These AR experiences require massive amounts of data to move extremely fast.

None of it is possible without 5G.

  • The city of Chicago has turned into a 5G testing ground, too.

Verizon launched its 5G network in parts of the city back in April.

It was the first commercial launch of 5G in the world.

A man named Danny Winget travelled around the city testing the network.

The download speeds he reported were incredible… 10 times faster than the fastest 4G connections.

When fully deployed, the networks should reach peak speeds of 100X faster than 4G.

  • Patrick Holland, editor at CNET, recently tested AT&T’s 5G network at the Shape conference in Los Angeles.

Holland downloaded seven one-hour episodes of Blue Planet in under 17 seconds.

It took me the same amount of time to download just the first episode... and I was logged into my home high-speed broadband internet connection!

But 5G isn’t just about virtually instant download speeds.

Soon it will let you:

✔ Attend a meeting in New York as a hologram from the comfort of your home;

✔ Get around safely in a self-driving car—even if you drank a little too much wine on date night;

✔ For you surgeons reading this, you’ll be able to operate on patients hundreds of miles away over a wireless network using robots.

  • This future is not far off.

In fact, the early stages of the 5G “awakening” are happening right now.

The average guy doesn’t know it yet, because you don’t see 5G phones on the street yet.

But look at all the quiet progress that’s been made in the last few months...

All of the big four wireless carriers in the US—Verizon, AT&T, T-Mobile, and Sprint—have launched 5G in certain parts of the country.

Verizon has rolled out 5G to parts of 11 US cities. T-Mobile’s in six cities, Sprint’s in nine, and AT&T is in parts of 21 cities.

Many more rollouts are planned for next year.

Meanwhile, the first 5G phones have hit the US market.

There’s the Samsung Galaxy S10 5G, the LG V50 ThinQ 5G, and the Motorola Moto Z4 and Z3 5G.

Plus, Apple recently paid $1 billion to acquire “the majority” of Intel’s smartphone modem business.

The acquisition means Apple is well on its way to producing its own 5G smartphone modems.

Industry insiders expect the company to launch its first 5G iPhone next year.

5G is coming online outside the US, too.

Deutsche Telecom and Vodafone are deploying 5G in parts of Europe. And China’s state-owned carriers expect to have 5G up and running in 50 cities by the end of this year.

  • What does all this mean for you?

Well, it means faster phone speeds and a lot of exciting new technologies that will make your life easier.

But it also means much more than that…

It means this is an incredible time to invest.

There’s a mountain of cash up for grabs as 5G continues to rollout.

To make money in 5G, look into:

✔ Wireless service providers like Verizon (VZ) and AT&T (T)

✔ Smartphone and tablet makers like Apple (AAPL) and Samsung (SSNLF)

✔ Network gear makers like Ericsson (ERIC) and Nokia (NOK)

✔ Chipmakers like Qualcomm (QCOM) and Skyworks Solutions (SWKS)

Or, if you’re comfortable taking a bit more risk for potentially massive profits, look at smaller disruptive companies that are making 5G possible.

My favorite “subsector” is companies that manufacture tiny components needed for all 5G phones called “RF Filters.”

We’re going to need hundreds of billions more RF filters as 5G rolls out... and the small companies that have the best technology on the market stand to make a killing.

Talk to you soon,

Chris Wood

Chief Investment Officer – RiskHedge
Editor – Project 5X

The Second Coming of Pets.com

The Second Coming of Pets.com

Who remembers Pets.com?

It launched one of the world’s first online pet stores.

It never did sell many dog collars or cat treats...

But its witty branding made it a cultural phenomenon in America.

Maybe you remember its goofy mascot from the late 1990s:


Source: dayintechhistory.com

This dog sock puppet appeared on Good Morning America...

He floated down the streets of New York City during the 1999 Thanksgiving Day Parade...

He even got on TV during Super Bowl XXXIV. 

  • You might have less fond memories of Pets.com if you had owned its stock...

Pets.com is the poster child of the late ‘90s dot-com bubble.

The company went public, or “IPO’d”, in November 2000.

Normally, it takes a company many years to build up to an IPO.

Normally, before you IPO, you have to build a business, find customers, prove your business model, generate significant sales, and maybe even turn a small profit.

The late 1990s were anything but normal.

Pets.com wasn’t even two years old when it went public. The ink on its business plan had barely dried. 

The whole company sold less than $6 million worth of pet supplies total before filing for its IPO.

Today, a single PetSmart store brings in around $4.3 million per year, on average.  

But this was the late ‘90s. Who needs a real business when you have “.com” in your company name?

Pets.com raised $82 million in its IPO.

Needless to say, all that cash went up in smoke.

Its stock plummeted from $14 to just $0.22 in nine months.

On January 1, 2002, the company closed its doors and laid off hundreds of employees.

  • I’m sharing this history with you because IPOs are getting hot once again…

More than 75 companies have gone public this year.  

Together, these companies have raised more than $31 billion. That’s the most since 1999, when IPOs raised $58 billion.  

This has some people nervous.

Just last week, CNBC’s Jim Cramer called the IPO market a “travesty of a mockery of a sham.” 

Others have described the current IPO market as “euphoric” or a “bubble.” Some are even calling for a repeat of the dot-com crash.

I get it... it’s human nature to be scared of what’s burned you before.

But this whole line of thinking is wrong. Avoiding IPOs today is one of the worst decisions you can make as an investor.

  • Have you heard of Chewy.com (CHWY)?

It runs the largest online pet store in the US today.

Chewy has sold more than $4.2 billion in pet supplies in the last year alone.

That’s more than 700 times more revenue than Pets.com earned ahead of its IPO.

And Chewy is growing sales at an impressive 68% per year.

Chewy has achieved everything Pets.com set out do. It’s basically the second coming of Pets.com, with one very important difference:

It’s a real, viable, growing business!

Chewy IPO’d in June. Enthusiasm for the stock has been lukewarm at best. After jumping on day 1, it has fallen 24% overall.

  • Does that sound “euphoric” or “bubbly” to you?

In 1999, the median age of a company at IPO was just four years.

If you bought into an IPO back then, you were likely rolling the dice on a startup.

Today, the average company at IPO year is 12 years old. That eight years makes a huge difference...

The median IPO generates sales of $174 million today. In 1999, that number was just $12.1 million.

So, companies going public today are doing 15X times as much in sales.

And, in 1999, the average first-day return for an IPO was 71%.

The total opposite is happening today. Today’s market is skeptical of IPOs. It is punishing companies that go public at too high a valuation.

If you follow my work, you know the long list of disruptive businesses that have bombed after going public. Uber (UBER)...Lyft (LYFT)...Slack (WORK) are obvious examples. But Smile Direct Club (SDC) and Peloton (PTON) flopped more recently…which shouldn’t surprise regular readers.

  • If the IPO market were anywhere near a bubble, this would not be happening.

If euphoria was in the air, investors would be piling into these stocks.

Keep in mind, in the late ‘90s, some people quit their day jobs to trade IPOS!

476 companies went public in 1999... compared to just 75 this year.

And remember, most of those ‘99 IPOs were for laughably bad businesses like Pets.com. It would be a stretch to even call many of them “businesses.”

Keep all this in mind the next time you hear someone call IPOs a bubble.

  • Of course, not every company that’s gone public recently has gotten clobbered…

The right IPOs have been incredible investments.

For example:

Okta (OKTA)—a promising IT company—surged 528% in barely two years.

Anaplan (PLAN)—a cloud-based software company—spiked 169% in just 10 months. 

Smartsheet (SMAR)—a company offering a unique work collaboration platform—also had an explosive IPO. It returned 209% in a little over a year.

Unfortunately, most investors will never hear about these companies.

The financial media would rather go on and on making bogus bubble comparisons to 1999.

They’d rather talk about Uber over... and over... and over again than tell you about these opportunities.

That’s okay... it leaves more opportunity for us!

Have you enjoyed big profits in any recent IPOs? If not, what’s stopping you?

Tell me at jspittler@riskhedge.com

Talk to you next week.

Justin Spittler
Hanoi, Vietnam

P.S. Speaking of hidden opportunities, RiskHedge’s Chief Investment Officer Chris Wood believes he’s uncovered a true “hidden gem” disruptor stock. This tiny company is at the forefront of today’s biggest technological breakthrough... and not 1 in 10,000 investors has even heard of it!

According to Chris, this $7.50 Nasdaq stock could easily surge 500% or more, starting now. And he’s named the stock on this page right here, ticker and all, free to RiskHedge readers. It won’t be available much longer, so if you’re interested, please go here to access it right now.

Disrupting America’s most broken industry

Disrupting America’s most broken industry

Was Obamacare good for the average American family?

Before you answer, look at this chart...

It shows the stock performance of UnitedHealth (UNH), America’s biggest health insurance company, since 2010:

Now here’s Anthem (ANTM), America’s second-largest health insurer:

And here’s Cigna (CI), America’s third-largest health insurance stock:

Since March 2010, the S&P 500 has gained 154%.

These three rocketed 589%, 286%, and 332%.

Talk about a boom!

  • Obamacare was the greatest thing ever to happen to health insurance stocks...

In 2009—the year before Obamacare—UnitedHealth turned a $3.8 billion profit.

This year it’s on track to rake in $13.5 billion.

You might expect to see a 3.5x surge in profits in a cutting edge tech stock...

But in a tired old industry like health insurance?

Since 2009, UnitedHealth’s profits have ballooned roughly as much as Google’s!

  • So... did Obamacare help the little guy like it was supposed to?

There’s no question Obamacare propelled health insurance stocks to their best decade in history.

And the profit boom enjoyed by health insurers came straight from families’ pockets.

Keep in mind, health insurance premiums were already rising before Obamacare. From 1999 to 2009, they climbed 125%.

Then from 2009 through today, premiums got another 150% more expensive.

Roughly one in every five dollars spent in the US today goes toward healthcare. In fact, Americans now spend more on healthcare than anything except housing.

Are you familiar with the "crowdfunding website GoFundMe? It allows people to raise money for all kinds of things.

Sadly, every one in three dollars raised on GoFundMe goes toward medical bills today. In total, $650 million was raised to pay medical bills in 2018.

Despite paying through our teeth for insurance, only one in six folks are happy with their health coverage, according to Gallup poll.

In short, healthcare—and health insurance in particular—is America’s most broken industry.

  • What makes an industry ripe for disruption?

My team and I set out to figure out what makes an industry “disruptable.”

We created RiskHedge’s disruption grading system.

In short, it measures the price you pay for something, and compares it to what you get.

Too big a gap means an industry is ripe for disruption.

Take cable TV. From 1998 to 2013, the price of cable TV more than doubled. Yet TV didn’t change all that much.

You still watched the news on NBC or Fox…

Maybe you tuned in to see 60 Minutes… Survivor… or Who Wants to Be a Millionaire…

And caught the game on ESPN or CBS.

Yet cable companies like Comcast (CMCSA) kept hiking prices year after year.

When prices surge without much improvement in quality, it attracts disruptors like a moth to a flame.

Of course, Netflix (NFLX) came along and wiped the floor with cable companies.

Over 35 million Americans have dumped cable TV in the past five years. Meanwhile, Netflix now has more subscribers than the largest five cable companies combined!

  • Healthcare is the mother of all disruptable industries.

RiskHedge’s disruption grading system ranks industries on a scale… from vulnerable, to stable.

The higher an industry’s score, the more likely it will be turned on its head.

Before Netflix knocked cable companies off their perch, they had a disruption score of 131.

Prior to disruptor Uber (UBER) sinking the taxi industry, taxis had a score of 230.

And get this… today healthcare has a disruption score of 450!

Healthcare is practically BEGGING to be disrupted.

As I said, healthcare premiums have shot up 275% since 2000. While there have been major breakthroughs like gene testing and 3D-printed body parts, they have little to do with the cost of delivering healthcare.

Believe it or not, America’s largest retailer, Walmart (WMT), is my top choice to disrupt healthcare.

  • “Walmart Health” opened its first location next to Walmart's retail store in Dallas, Georgia this past week.

Walmart Health is essentially a mini-hospital.

You can now walk in and get basic medical services like a doctor’s checkup…  your teeth cleaned… an X-ray… a hearing test… and vaccines.

And here’s the kicker… Walmart is charging between 30–50% less for these services than hospitals do.

Walmart Health aims to “unbundle” the healthcare industry.

All types of medical services are lumped into health insurance today. We pay giant premiums that cover everything from major surgery like a hip replacement, right down to something that should be routine, simple, and cheap—like a flu shot.

With everything “bundled” under one insurance policy, nobody really knows what anything costs. Say you get a blood test at the hospital. Do you know if its going to cost you $300... $1,000... or $3,000?

Chances are you don’t. Chances are you have no clue how much you owe until you get a bill in the mail.

Name another industry that works that like that. Name another industry where the pricing is so arbitrary and opaque.

I expect Walmart Health and similar services to crack the healthcare “bundle” wide open.

Soon most folks will get their basic services at a local health clinic—like a Walmart Health. These local clinics won’t have ties to large hospital networks and insurance companies. And they will cost a fraction of what routine healthcare costs today.

Walmart is a Jedi-master at slashing unnecessary costs. For example, in 2006, it launched a line of generic prescription drugs, each costing $4. Today, it runs one of the biggest pharmacies in the US with $35 billion in sales last year.

  • Disrupting healthcare is a mammoth task.

Insurance companies, many hospitals, and the government all have a vested interest in keeping the current system alive.

As I mentioned, health insurers are making record profits. So too are hospitals like HCA Holdings (HCA), which runs America’s largest chain of hospitals. HCA’s profits jumped 70% last year to a record $3.8 billion.

The current healthcare system has powerful friends. Expect the disruption of healthcare to meet serious resistance.

But I suspect the “great healthcare” boom is winding down.

Here’s a chart of America’s three largest health insurers over the past year.

After an incredible run over the past decade, they’ve plunged 16%, 19% and 28% in the past year:

Pretty ugly trend, right?

Would you get a flu shot or an X-Ray at a Walmart Health clinic? Tell me at Stephen@RiskHedge.com.

Stephen McBride
Editor, Disruption Investor

Stephen McBride is editor of the popular investment advisory Disruption Investor. Stephen and his team hunt for disruptive stocks that are changing the world and making investors wealthy in the process. Go here to discover Stephen’s top “disruptor” stock pick and to try a risk-free subscription.

Reader Mailbag

We received a ton of responses to my letter about the disruption of real estate agents. Here are a few:

Stephen, I had to write you to let you know that your letter was an amazing coincidence.

You ask if I would ever use a real estate agent to sell my home and my answer is an absolute NO! We have sold three houses in the past eight years and not one was sold with the help of a realtor.

–Terry

I did buy my most recent house directly without the use of a realtor on either side. It was a $1.4M deal, so we avoided a fair amount of fees.

–Chris

I used Redfin when I bought my current house. There’s no hand-holding while you’re shopping. If you want to get in to see a property, they pay regular real estate salespeople a token amount to let you in. Redfin didn’t get involved until we were ready to make an offer. They handled the offer and negotiation and handed me back 1/2 the agent fees because of their skinny model.

An added plus: When Wells Fargo “lost” our mortgage application and threatened to screw up the closing, Redfin not only got it fixed but got Wells Fargo to waive over $1,000 in bank fees.

–Roger

Absolutely, I would sell the house online. The real estate agent does little to earn the 3–6% return on their time.

–John

I have sold two houses privately without using an agent. I think it depends on the market and the area you are selling in. I sold both of my places in less than three weeks, but the market was pretty active for the type of house and both were in good areas. My son also sold his privately as well in about a month.

–Brian

Stephen, we bought our current condo using Zillow and contacting the owner directly. Bought it during the first visit. It worked out very well.

–Jack

The last five property deals have been realtor-less on my side. All deals went smoothly without any hitches whatsoever. I have offered to have them help me buy or sell at a lesser percentage and they have refused every time. So as far as I'm concerned, they are cutting their own throats.

–Tim

In 1995, I bought 85 acres of bare land from a developer and did the transaction without an agent. In 2002, I resold this land to another developer for a fat profit and no agent. I saved many thousands of dollars with DIY real estate transactions. It's not always easy to find a buyer/seller that will go along with such a thing, but it's well worth a try.

–Don

Stephen, we sold a home in VT, FL, and PA WITHOUT real estate agents. Saved tons of cash and they sold quickly. No way would it have been worth real estate agents, and we got fair market value on all thanks to extensive online research and realistic expectations.

–Keith

Another great article—Thanks. We'll be in a position to sell our house soon and are planning on doing it "for sale by owner." Zillow will make that much more practical than it was in the past, but we'll still have an uphill battle and plan on pricing the house under market. I hadn't heard of Opendoor, but now will be contacting them first.

–Ross

Stephen, so funny you are sending this message on buying and selling homes. My wife and I recently sold our condo, and I really considered listing with Redfin. I think we could have paid about half in fees. But in the end, we went with a realtor—it’s just a bit too new still I feel. I was thinking about you, though, and looked at Redfin as a potential industry disruptor.

–Jason

Why I Watch This Master Investor Like a Hawk

Why I Watch This Master Investor Like a Hawk

"Follow the smart money."

We’ve all heard this saying.

If means if you want to make big money in the markets, do the following:

Identify the smartest professional investors... buy the stocks they buy... and you’ll get rich too.

Just who are these genius investors who you can piggyback to riches?

Some folks might mimic super “value” investor Warren Buffett. Others might follow a master trader like Paul Tudor Jones.

When it comes to early stage stocks and IPOs... one investor beats all others, hands down.

I watch his every move like a hawk.

I guarantee you know this investor’s name. But I can almost guarantee you don’t think of him as a great investor.

  • Because the world’s greatest IPO investor isn’t a person...

It’s Google (GOOG), the $835 billion tech company.

I realize that might seem like a typo.

After all, when most folks think Google, they think “search engine.”

Google dominates in search. Every day, its website handles 3.8 billion searches. To put that into perspective, roughly 7.5 billion people live on this planet. 

But Google is so much more than a search engine.

It also runs one of the world’s most popular email services—Gmail.

It owns YouTube—the world’s #1 video platform and the second most-visited website (after google.com).

And it owns Android—the #1 smartphone operating system.

And as regular RiskHedge readers know, it owns the world’s leading self-driving car company, Waymo.

If you’d bought Google stock when it went public in 2004, you’d be up more than 2,000%.

But I’m not recommending you buy Google stock. Instead, I want to share a far more lucrative idea...

  • On August 12, 2015, Google changed forever.

That day, Google’s founders Larry Page and Sergey Brin announced the creation of “Alphabet.”

Alphabet is a holding company, which means it owns other companies. Berkshire Hathaway (BRK-B)—Warren Buffet’s company—is the world’s best-known holding company.

Alphabet is the parent company of Google. Technically, there’s no such thing as “Google stock” anymore. Its proper name is Alphabet stock, although no one calls it that.

Here’s why this matters to you...

Alphabet owns 14 companies. A few of these are “venture capital” investment shops that invest in small, private, disruptive businesses.

GV, formerly called “Google Ventures,” invests in early-stage private projects.

Capital G invests in later-stage private companies.  

Alphabet also owns Gradient Ventures—an investment fund focused on artificial intelligence (AI).

And it has a secret research and development lab called “X” that specializes in “moonshots”... or bets that can deliver astronomical returns.

Through its different entities, Alphabet has become an investing powerhouse.

In 2017 alone, it invested in 103 deals...making it by far the most prolific “corporate” investor.

Alphabet’s portfolio includes everything from robotic startups to companies trying to “cure death.”

  • By buying Alphabet stock, you can own a tiny sliver of these disruptive businesses...

This is why some analysts call Alphabet the “world’s greatest technology ETF.”

But that’s an understatement. ETFs, as you might know, typically let you buy a basket of publicly traded stocks.

Remember, Alphabet invests in early-stage projects and moonshots. These companies are private. Everyday investors can’t buy them yet.

These are the companies I watch like a hawk. Many will go public—or IPO—eventually. And Google-backed IPOs often hand investors huge gains...

Here’s a sampling of some Google-backed companies that’ve gone public recently:

Zscaler (ZS)—a cloud-computing company that Google Capital invested in back in 2015—went public in March 2018.

Google made a killing on it... but so did smart individual investors.

You could have made 244% by simply buying Zscaler the day it started trading.

CrowdStrike (CRWD)—a security software company—also pulled off an incredible IPO. CRWD went public this June. Its share price skyrocketed 82% within two months after its IPO:

DocuSign (DOCU)—another Google-backed software company—also had a great IPO. Its shares skyrocketed 83% within four months after the company’s IPO.

Keep in mind, Alphabet’s shares have climbed 51% over the last three years. That’s a solid return. But you could’ve made far more money in far less time by buying certain Alphabet-backed IPOs.

  • Of course, most investors missed out on these big profits...

That’s because these weren’t well-known IPOs.

Before these companies went public, less than 1 in 1,000 investors knew about them. Even now, maybe only 1 in 100 investors has heard of them.

If you’ve been reading my work, you know small, lesser-known IPOs are most likely to hand you big, quick profits.

You could have seen these opportunities coming from a mile away by simply studying Alphabet’s portfolio.

This is why I stalk Alphabet’s every move.

Alphabet is arguably the world’s most forward-thinking company. I’d put its “crystal ball” up against any other investor or company on the planet, including Warren Buffett.

If Alphabet invests in a company, it’s a powerful “stamp of approval.” And a hell of an endorsement.

In fact, Google’s backing is a key reason why I like Cloudflare (NET). I told you about this cloud-computing IPO last week.

On its September 13 IPO, it blasted to a 20% one-day gain. And it’s been climbing ever since. Cloudflare has now gained another 16% since its IPO.

I see it continuing to head higher from here.  

Justin Spittler
Hanoi, Vietnam

PS: Did you know the “alpha” in Alphabet is for the investing term alpha? Alpha, in a nutshell, refers to the extra profits you can make by picking individual investments that beat the market’s returns.

Wave goodbye to your delivery guy

Wave goodbye to your delivery guy

When my daughter was born, Greg stopped by my house almost every day for two weeks.

He dropped off her crib, stroller, and all the other baby “gear” my wife and I ordered online.

As you might guess, Greg is my UPS delivery guy.

He pulls up to my driveway in a big brown truck... hops out wearing a brown uniform... and places a brown box or two on my stoop.

I’ve known Greg for years now. He’s a friend. He always stops to chat and ask how my daughter is doing. I even gave him a key to my gate.

  • Sadly, Greg’s days of delivering to my house regularly are numbered...

Amazon (AMZN) kicked off the internet shopping boom in the 90s when it started shipping books. These days, you can click a button and get almost anything delivered to your door. Amazon sold $164 billion worth of stuff on its website this year.

If there were a stock market hall of fame, Amazon would be first in line. It has handed early investors 90,000% gains, as you can see here.

But Amazon didn’t disrupt shopping alone. Baby gear can’t ship itself.

America’s two largest delivery companies—UPS (UPS) and FedEx (FDX)—got all that “stuff” from sellers to buyers.

It won’t surprise you to learn the online shopping boom has been wonderful for their businesses. Their revenues have almost tripled since 2000, to a combined $140 billion.

So surely their stocks have handed out big gains. Right?

Nope.

UPS and FedEx stocks have flatlined for years, as you can see here:

  • Let me show you an important picture...


Source: Washingtonstatewire.com

Those are cargo planes with “Prime Air” written on the side.

They’re AMAZON cargo planes.

No company in the world spends more on shipping than Amazon.

It spent $27 billion to ship stuff last year!

And it’s one of UPS’s largest customers, making up roughly 10% of its sales.

But over the past couple of years, Amazon has been working on a project that should terrify UPS and FedEx...

It has quietly blanketed America with its own delivery web.

Today, Amazon operates almost 400 distribution warehouses in the US alone. And these are no run-of-the-mill post offices.

Many span millions of square feet. Inside, swarms of “Pegasus” robots whizz around carrying stacks of items.

And did you know Amazon has built up a 20,000 strong fleet of delivery vans?

It also owns 60 cargo planes like the ones you see above.

  • Amazon’s growing “logistics wing” now ships 1 in every 5 deliveries in the US.

And 60% of Amazon parcels are now delivered by Amazon drivers.

As I mentioned, UPS only gets around 10% of its sales from Amazon. While FedEx counts on Amazon for less than 2% of its business.

So many folks conclude Amazon’s creation of its own delivery service won’t hurt these companies too much.

These folks don’t know their Amazon history.             

Back in 2000, Amazon was on its way to dominating online shopping. As its website exploded in popularity, so too did its need for computing power.

So it started renting giant warehouses and packing them full of supercomputers. Its stated intention was to “supplement” its internal need for computing power.

Today that has morphed into Amazon Web Services (AWS)—the world’s largest cloud computing business. Which, in short, involves selling computing power to other companies.

If you’ve been reading RiskHedge, you know giant companies like Uber (UBER) and Netflix (NFLX) run on Amazon’s cloud services.

Last year, AWS raked in $26 billion. And get this… it made up 60% of Amazon’s profits!

  • So it caught my eye when Amazon recently said its growing delivery arm will “supplement” existing delivery methods...

Sure, Amazon will first take care of its own delivery needs.

But I’ll bet anything that Amazon will soon start selling its delivery services to others—just like it did with its cloud business.

In fact, Amazon now calls UPS and FedEx competitors in its annual report.

Amazon recently launched its new “Shipping with Amazon” service. In short, Amazon’s drivers will now pick up packages from “third-party sellers” who sell stuff on Amazon. It will then deliver that stuff to buyers, cutting out the need for delivery services like FedEx or UPS.

What are the chances Amazon opens up “Shipping with Amazon” to everyone in a year or two?

For my money, it’s a dead certainty.

  • Can UPS and FedEx survive?

It’s bad enough that the most disruptive company in history is invading UPS and FedEx’s turf.

It’s even worse that many of America’s most powerful companies are following suit.

The world’s largest retailer, Walmart (WMT), now runs over 6,000 of its own delivery trucks. It has spent over $2.5 billion on its “logistics wing” in the past two years.

Home improvement superstore Home Depot (HD) is investing billions into delivering its own products, too.

UPS and FedEx have a big problem: They are the ultimate “middlemen.”

As RiskHedge readers know, middlemen can always be cut out.

As I mentioned last week, disruption has wrecked middlemen jobs like stockbrokers and travel agents.

Realtors are next in line.

Now disruption is coming for delivery guys, too.

Don’t be surprised if your UPS guy begins stopping by a lot less...

And delivery guys from Amazon, Walmart, and Home Depot start stopping by a lot more.

Does your delivery driver know Amazon is getting into his business? Ask him and then tell me at stephen@riskhedge.com.

Stephen McBride
Editor, Disruption Investor

Stephen McBride is editor of the popular investment advisory Disruption Investor. Stephen and his team hunt for disruptive stocks that are changing the world and making investors wealthy in the process. Go here to discover Stephen’s top “disruptor” stock pick and to try a risk-free subscription.

Reader Mailbag

We received a ton of responses to last week’s letter about the disruption of real estate agents. Here are a few:

Stephen, I had to write you to let you know that your letter was an amazing coincidence.

You ask if I would ever use a real estate agent to sell my home and my answer is an absolute NO! We have sold three houses in the past eight years and not one was sold with the help of a realtor.

–Terry

I did buy my most recent house directly without the use of a realtor on either side. It was a $1.4M deal, so we avoided a fair amount of fees.

–Chris

­I used Redfin when I bought my current house. There’s no hand-holding while you’re shopping. If you want to get in to see a property, they pay regular real estate salespeople a token amount to let you in. Redfin didn’t get involved until we were ready to make an offer. They handled the offer and negotiation and handed me back 1/2 the agent fees because of their skinny model.

An added plus: When Wells Fargo “lost” our mortgage application and threatened to screw up the closing, Redfin not only got it fixed but got Wells Fargo to waive over $1,000 in bank fees.

–Roger

Absolutely, I would sell the house online. The real estate agent does little to earn the 3–6% return on their time.

–John

I have sold two houses privately without using an agent. I think it depends on the market and the area you are selling in. I sold both of my places in less than three weeks, but the market was pretty active for the type of house and both were in good areas. My son also sold his privately as well in about a month.

–Brian

I have sold two houses privately without using an agent. I think it depends on the market and the area you are selling in. I sold both of my places in less than 3 weeks but the market was pretty active for the type of house and were in good areas. My son also sold his privately as well in about a month.

–George

Stephen, we bought our current condo using Zillow and contacting the owner directly. Bought it during the first visit. It worked out very well.

–Jack

The last five property deals have been realtor-less on my side. All deals went smoothly without any hitches whatsoever. I have offered to have them help me buy or sell at a lesser percentage and they have refused every time. So as far as I'm concerned, they are cutting their own throats.

–Tim

In 1995, I bought 85 acres of bare land from a developer and did the transaction without an agent. In 2002, I resold this land to another developer for a fat profit and no agent. I saved many thousands of dollars with DIY real estate transactions. It's not always easy to find a buyer/seller that will go along with such a thing, but it's well worth a try.

–Don

Stephen, we sold a home in VT, FL, and PA WITHOUT real estate agents. Saved tons of cash and they sold quickly. No way would it have been worth real estate agents, and we got fair market value on all thanks to extensive online research and realistic expectations.

–Keith

Another great article—Thanks. We'll be in a position to sell our house soon and are planning on doing it "for sale by owner." Zillow will make that much more practical than it was in the past, but we'll still have an uphill battle and plan on pricing the house under market. I hadn't heard of Opendoor, but now will be contacting them first.

–Ross

Stephen, so funny you are sending this message on buying and selling homes. My wife and I recently sold our condo, and I really considered listing with Redfin. I think we could have paid about half in fees. But in the end, we went with a realtor—it’s just a bit too new still I feel. I was thinking about you, though, and looked at Redfin as a potential industry disruptor.

–Jason

Put This Hated Stock on Your Shopping List

Put This Hated Stock on Your Shopping List

Circle November 6 on your calendar.

That day, one of America’s most controversial stocks will likely get crushed.

If history’s any indication, it could easily plunge 10% or even 15%.

Rumors will fly that the company is going out of business.

But if you know what’s coming, you have nothing to worry about.

You could even capitalize on the fear.

In fact, I wouldn’t be surprised if November 6 turns out to be the year’s best “blood in the streets” opportunity to buy a beaten down stock ahead of a big bounce.

  • I’m talking about Uber…

As you surely know, Uber (UBER) is the world’s biggest ride-sharing company. It has revolutionized how people get around, and is one of most disruptive and fastest-growing companies ever. Its revenue exploded from zero to $11.3 billion in a decade.

Uber was private for most of its life. That changed four months ago when it pulled off the fourth-largest IPO in world history, behind only Alibaba, Softbank, and Facebook.

The excitement around Uber’s mega IPO was like nothing we’ve seen in years.

But if you’ve been reading my work, you know that’s a bad sign.

Giant, overhyped IPOs rarely live up to expectations.

  • Sure enough, Uber’s IPO was a total flop...

It plunged 7% on its first day of trading, and has yet to find solid footing.

Uber has nosedived 26% since its May IPO, as you can see here:

Uber has struggled for a few reasons. But its most pressing problem is it IPO’d at an absurd valuation.

It sold a whopping $8.1 billion worth of stock at a colossal $82 billion valuation.

That put Uber’s market cap at more than double Ford’s (F) and nearly 50% more than General Motors’ (GM).

It never had a chance to live up to those impossibly high expectations.

Unfortunately for investors in Uber, things are about to get worse before they get better.

  • Uber’s “lock-up” ends on November 6th…

“Lock-up” is an important concept that can make you a lot of money if you understand it... and cost you a lot of money if you don’t.

In most IPOs, many major shareholders are not allowed to sell their shares right away. In order to keep trading orderly, early investors like venture capitalists, founders, and employees are legally prohibited from selling their stock. The shares are “locked up.”

Typically, shares stay locked-up for either 90 or 180 days. We call this the “lock-up period.”

Once it ends, these shareholders are free to sell. And that’s exactly what many do...  

Which is why many stocks tank on lock-up expiration day.

Consider social media company Twitter (TWTR). On May 6, 2014, its lock-up period ended. For the first time, nearly 500 million TWTR shares could be sold.

Heading into this day, Twitter had already been struggling. It had slipped 29% since its public debut.  

You might think insiders and early investors would hang on to their shares and hope for a rebound.

But the exact opposite happened. They dumped their shares on the market.

Twitter plunged 18% that day!

I could fill a book with examples of stocks that tanked on expiration day. Zillow (ZG), which operates an online real estate marketplace, plummeted 13% the day its lock-up period ended. Groupon (GRPN) – an online coupon company – suffered an 8% plunge when its lock-up period ended.

  • I never buy a stock leading up to its lock-up expiration…

Instead, I look to buy stocks right after the lock-up period ends.

Consider Facebook (FB)…

Facebook, as everyone knows, is the world’s #1 social media company.

It IPO’ed in May 2012, raising $18.4 billion. It went public at a monumental $104 billion valuation.

Facebook’s IPO was the talk of the investing world. I remember watching it on television at work.

But like Uber, Facebook was overhyped, overvalued, and stumbled out of the gate.

  • Facebook slipped 4% on its IPO day…

Five months later, the stock was limping along at 54% below its IPO price

Then, Facebook’s first lock-up period ended on October 31, 2012.

All told, about 230 million shares were unlocked. The stock fell 4% that day.

Things weren’t looking good.

But it would have been the perfect time to start building a position in Facebook stock.

You could have bought shares at a 44% discount to their IPO price that day.

Exactly one year later, you could have sold those shares for $50.21. That’s a 137% gain in just twelve months!

As you can see below, if you hung on until today, you’d be sitting on a nearly 800% profit:

  • Here’s why this spells opportunity for you...

Uber has a lot in common with Facebook.

Both went public at huge valuations. Both struggled out the gate. Both faced concerns about whether they could generate consistent profits.

Facebook proved naysayers wrong. Today it’s the world’s fifth-biggest publicly traded company.

Now, I’m not saying Uber is the next Facebook. Uber may never turn a profit, as my colleague Stephen McBride explained here. I have no interest in buying Uber and holding it for the long term.

But I am interested in flipping it for a quick profit.

Sentiment toward Uber is in the toilet. Everyone hates the stock.

When’s the last time you read a positive thing about Uber?

Well, it often pays to buy stocks everyone hates. Because frankly, the crowd is usually wrong.

So here’s my suggestion.

November 6th is shaping up to be Uber’s “moment of maximum hate.”

Most locked-up shareholders will disgustedly sell their shares and swallow their losses the first chance they get.

I wouldn’t be surprised if Uber plummets another 25% by then.

If you can “hold your nose” and buy Uber stock after the washout on November 7th, you’ll position yourself for what I expect to be a sharp rebound.

Based on my experience in lock-up stocks, a quick profit of 30% to 40% could be in the cards.

Justin Spittler
Chiang Mai, Thailand

PS: Did you follow last week’s biggest IPOs?

Cloudflare (NET)—a cloud computing stock I like—spiked 20% on its first day of trading. That’s a big jump, and it’s a good sign. Big jumps on IPO day suggest pent-up demand for the stock. I see NET heading higher in the coming months.

Smile Direct Club (SDC)—a company that’s disrupting dentistry—also went public last week. It plunged 28% on the day of its IPO. If you read my essay last week, you knew this was likely. Smile Direct is a great company, but it went public at too high a valuation.

The stock now needs time to shake off investor disappointment. Wait for it to “carve out a bottom” before buying shares.

Round Up - 20190913

Chart of the Day

WeWork is making headlines for all the wrong reasons.

If you haven’t heard of WeWork, let us explain its bizarre business model. The company leases office buildings from their owners. It transforms the spaces into hip work environments then turns around and re-leases them to freelancers or other folks who need a place to work.

WeWork is supposed to have its initial public offering (IPO) this month. But that may not happen…

Because no one wants to invest in it.

Two weeks ago, we mentioned that WeWork was seeking to go public at a $47 billion valuation. Last weekend, it was reported that the company was slashing this to between $20 and $30 billion. Now there’s talk that it could go public at a $15 billion valuation.

Below you can see how WeWork’s valuation grew with each private funding round...

... but is now set to tank 68% from its latest private valuation of $47 billion.

This “shrinkage” is virtually unprecedented. Normally, companies see big jumps in their valuation when they IPO. One of WeWork’s biggest backers is now trying to talk it out of IPO’ing.

While this is terrible news for WeWork’s current investors, it could be a blessing in disguise for the rest of us...

This debacle will likely “cool off” the whole IPO market. It will force other private companies to go public at lower valuations than they otherwise would have. If that happens, everyday investors will come out winners. They’ll get the opportunity to buy into IPOs for lower prices and capture more upside.

IPO Monitor

Keep an eye on Datadog’s (DDOG) IPO.

Datadog is a promising enterprise software company. Its clients include Twitter, Airbnb, WeWork, and Samsung. Mark Zuckerberg, CEO of Facebook, is a big backer. Sales are growing at an impressive annual rate of 97%. And there’s no reason to expect a drop-off in growth. Its industry—the global “DevOps market”—is set to more than triple over the next four years.

According to RiskHedge’s Senior IPO analyst Justin Spittler:

Datadog is seeking a $6.6 billion valuation. That’s a bit higher than I like to see. BUT—the company is only offering 7.5% of its shares in its IPO. That’s well below normal, and it’s a good sign that current investors are keeping so much of the company for themselves.

I could easily see DDOG storming out of the gate.

Datadog plans to IPO this Thursday, September 19.

In case you missed it...

On September 10, RiskHedge Senior Editor Justin Spittler explained why you should avoid hyped-up IPOs like Uber, and instead focus on IPOs of smaller, lesser-known companies. He also explained why investors can look forward to a massive backlog of small, exciting companies set to go public in the next year or two. Read more here.

On September 12, Disruption Investor Editor Stephen McBride compared disruption to a heat-seeking missile that hunts down “middlemen.” Disruption has rendered travel agents and stockbrokers practically obsolete. According to Stephen, real estate agents may be next. Read why here

Real estate agents better watch their backs…

Real estate agents better watch their backs…

Remember booking vacations before the internet?

What a pain.

It was near impossible to get cheap fares…

The only way to find out which airline flew where was to pick up the phone and call it…

And choosing the perfect hotel involved a lot of flicking through glossy brochures.

The “Do It Yourself” approach was a huge hassle. It was a heck of a lot easier to hire a knowledgeable travel agent.

  • Then online disruptors like Expedia (EXPE) and Priceline (BKNG) came along...

In a way, these companies created the world’s greatest travel brochures.

With a few clicks, you could compare any flight or hotel in the world.

For the first time ever, you could find all the special deals and hidden gems only travel agents knew about.

Since 2000, more than half the travel agencies in America have shut their doors. Meanwhile Priceline made investors rich. Its stock shot up 25,000% in the past two decades:

Expedia has surged “just” 900% since 2005.

  • Think of disruption as a heat-seeking missile...

But instead of blowing up “bad guys”, it hunts down “middlemen” like travel agents.

And stockbrokers.

I’m sure you remember having to call up a broker every time you wanted to buy or sell stocks.

Research from Columbia Business School shows brokers charged $49/trade on average back in 1975!

Stockbrokers were the world’s best-paid middlemen. Today they’re dying off.

These days, most folks never talk to a broker. There’s no need to, when you can trade a stock for $5 or less on E*TRADE, Schwab, or a dozen other platforms.

Since 2012, E*TRADE stock has shot up 450%, and Schwab has more than doubled.

  • But middlemen still dominate one mammoth-sized market...

Roughly $900 billion worth of real estate changes hands every year in America.

For many folks, buying a home is the biggest decision of their lives.

What is the neighborhood like?

Are the schools good?

How far is the drive to work?

Before the internet, we had to get the answers from a real estate agent.

But just like booking vacations and buying stocks, you can now “do it yourself” on the internet.

Websites like Zillow (ZG) and Trulia make it easy—and free—to research any house or neighborhood.

In fact, more than half of Americans now find their homes online, according to the National Association of Realtors (NAR).

  • BUT... closing the deal is a whole different story...

The same NAR report found 9 in 10 buyers hire a real estate agent to craft and submit an offer.

A Zillow study found less than a third of sellers who don’t use an agent end up closing a deal.

In other words, buyers and sellers can get to the “one-yard line” without much help.

But deals rarely get done unless an agent is acting as middleman.

And if you’ve ever bought or sold a house, you know real estate agents take a fat slice for themselves.

The seller typically has to fork over 3% of the closing price to each of the buying and selling agents.

If the same agent is working for both sides, they get 6%. They earn a $30,000 check for closing a $500,000 deal!

Now look, a great real estate agent should not be taken for granted. They arrange open homes… negotiate you a better price… guide you through the legal process.

But in 2019, charging a 6% fee for connecting buyers and sellers is highway robbery.

It’s no wonder real estate agents raked in $55 billion in fees in 2018!

Research from the NAR shows the average agent closes seven deals and earns $50,300 per year.

That’s a pretty sweet gig. Sell one house every other month and you make an okay living in many parts of the country.

  • Why can realtors still charge such sky-highs fees?

There are no rules against buying or selling a house without an agent.

In fact, online platforms like Zillow have made it easier than ever to list your own home on the market.

But direct sales haven’t caught on. You see, real estate agents will sometimes skip showing your house to a buyer if the listing doesn't offer a full 5–6% commission.

In fact, a 2015 study found that homes offering a commission of less than 1.5% to the buyers' agents took 12% longer to sell. And they were less likely to sell at all.

In other words, some agents blacklist sellers who don’t “play ball.”

  • But a crop of disruptors are starting to crack  realtors’ monopoly.

Ever hear of Opendoor? It’s a $3.8 billion Silicon Valley “start-up” that will buy your house.

It uses a combination of software and a team of 50 human evaluators to assess a home’s value.

Type your address into Opendoor’s website, submit a few of photos, and it will make you an offer within a couple of days.

No open houses, negotiation, or waiting months for the buyer to come up with the money.

In fact, the average closing time from the first offer is less than 20 days!

In the first six months of the year, the company bought and sold over 15,000 homes in 20 US cities. It plans to expand to more than 50 cities by the end of 2020.

Zillow is getting into the house-flipping business, too. In the first six months of the year, it’s snapped up close to 3,000 homes.

Online buyers are making real inroads in some big markets. In Phoenix, online buyers including Opendoor bought about 5% of houses for sale last year.

For now, these firms are charging realtor-like fees in the range of 6–8%. But there’s no question they’ll slash their fees as they expand.

Think about it… online buyers can automate much of the work of real estate agents.

Over time, this will cut the costs of selling homes. And that will pass some of those savings onto homebuyers and sellers.

  • Online homebuyers are part of what I call “America Online 2.0”

Recent figures from Pew Research show more than 310 million Americans used the internet in 2018. Last year, they spent half a trillion dollars online.

But did you know 90% of spending still happens offline?

In other words, almost everyone is online... but most of the money isn’t.

Over the next decade, internet companies will claim a far larger share of our spending.

And real estate is ripe for disruption...

The first crop of online firms, like Zillow and Trulia, gave us access to information.

But the next-phase companies like Opendoor will actually buy your home.

It’s still early days in the disruption of real estate. No clear winner has emerged.

But mark my words: the days of paying realtors 6% to sell your home will soon be a thing of the past.

Would you skip using a realtor and buy or sell a house yourself? Tell me at stephen@riskhedge.com.

Stephen McBride
Editor, Disruption Investor

Stephen McBride is editor of the popular investment advisory Disruption Investor. Stephen and his team hunt for disruptive stocks that are changing the world and making investors wealthy in the process. Go here to discover Stephen’s top “disruptor” stock pick and to try a risk-free subscription.

Reader Mailbag

In response to last week’s letter about marijuana stocks RiskHedge reader Dave asks:

“Stephen, thanks for another great article.

I understand and agree with the assertion that Cannabis planting and harvesting in a legal market is likely to be as profitable as other agricultural commodities.

However, you did not address other value added lines of business around Cannabis which could generate higher returns, such as pharmaceuticals or cigarette production. How do you see these other lines of business contributing to the returns of Cannabis stocks?”

Dave, you’re right. In the boardroom of every tobacco, alcohol, pharma, and packaged food company, execs are likely discussing how to capitalize on the red-hot cannabis trend.

We’re likely to see everything from cannabis-infused vodka to CBD cough-drops. I’m sure this will boost industry-wide revenue. But I don’t see it giving a meaningful boost to the bottom line of cannabis producers. No matter how many different “end uses” there are, it’s almost impossible to sell commodities like cannabis for big markups.

How to Profit When All Hell Breaks Loose

How to Profit When All Hell Breaks Loose

Ethan Brown’s life changed forever on April 22, 2019.

That day, he submitted a 224-page document to the Security Exchange Commission’s (SEC) website.

The document divulged sensitive information about the company he spent 10 years building.

It revealed how quickly his company was growing… how much money it was making... and an analysis of the threats that might one day put Ethan’s company out of business.

Up to that point, this information was confidential. It was a closely guarded secret.

If you took the time to read this document, you’d have uncovered one of the best investing opportunities to come along in years.

I know because I read the whole thing... all 224 pages.

This was a huge moment for Ethan.

He stood to make a fortune… or suffer the biggest financial loss of his life.

  • Judgement Day” came just 10 days later…

On May 2, Ethan took his company public.

That morning, he would find out if he made the right choice. Under the white-hot spotlight of the public markets, he would learn what his company was really worth.

At 9:30 am, the opening bell of the New York Stock Exchange rang.

All hell broke loose.

Investors went nuts to buy the newly trading stock in Ethan’s company. Shares opened the day up 84%.

Over the next six-and-a-half hours, shares of Ethan’s company traded hands 23,118,966 times. Shares closed the day 43% higher than where they opened, and 163% higher than where they were initially priced just 10 days earlier.

Most stocks don’t rise that much in five years. Forget about one day.

But the party was just getting started.

  • Eighty-four days later, one share of Ethan’s company was worth $239.71…

That’s an 859% explosion from its initial public offering (IPO) price of $25. An IPO is when a company offers shares to the public for the first time.

This is the story of Beyond Meat (BYND)—an innovative company that makes plant-based meat that not only tastes like real meat... it “bleeds” like real meat when you cut into it.

Ten years of hard work brought Beyond Meat to this point. But the filing of that 224-page document, called an “S-1/A,” signaled its move up to the big leagues of publicly traded stocks.

Every company that IPOs must submit one of these. As I mentioned, this document lays out what a company’s all about.

An S-1/A also sets the terms for an IPO. It reveals the size of the offering—i.e. how many shares the company will offer and at what price.

In this case, Beyond Meat’s offered $241 million. It went public at a $1.5 billion valuation. Less than three months later, it was worth more than $13 billion.

Beyond Meat achieved one of the most successful initial public offerings (IPOs) ever. Few people saw it coming. Unless you’re a hardcore vegetarian, you’d likely never heard of Beyond Meat before its IPO.

Today, it’s practically a household name. A 9X return in under three months will grab investors’ attention.

  • Ethan made a killing off Beyond Meat’s IPO…

So did early investors who bought into the company while it was still private.

But this wasn’t some roped-off, insider-only investing opportunity.

The chance to make big, quick profits was sitting there, open to anyone with a brokerage account.

Many everyday investors made out like bandits on Beyond Meat. One of my colleagues doubled their money on the stock in just a few weeks.

But you could have blown away those returns by simply buying BYND the minute it started trading.

A $10,000 investment ballooned into more than $52,110 in just 12 weeks!

  • Believe it or not, wildly profitable IPOs like Beyond Meat are not all that rare…

Guardant Health (GH), which specializes in cancer diagnostics, soared 490% just eight months after its October 2018 IPO.

Software company MongoDB (MDB) spiked 470% after its November 2017 IPO.

Cybersecurity company Zscaler (ZS) gained 460% after going public in March 2018. And ShockWave Medical (SWAV), which sells medical systems used to treat cardiovascular disease, returned 300% in three months.

I’d bet 99 out of 100 investors have never heard of these companies. And yet they quietly made small, quick fortunes for investors who understood how to play them.

  • It’s nearly impossible to get returns like this anywhere else…

Sure, you could trade options.

But buying options is too risky for most folks. One false move and you lose everything.

IPO investing is much simpler. It allows you to bag uncommon profits with common stocks.

Unfortunately, most investors aren’t tipped off to the best IPOs until its too late. They only hear about the mega IPOs.

Which is a shame... because those rarely deliver.

Uber (UBER), Lyft (LYFT), and Slack (WORK) are the latest examples of mega IPOs that flopped.

Each of these IPOs got 10X more airtime than all of the hugely successful IPOs I mentioned above, combined.

And yet, you would have gotten your “face ripped off” investing in them.

UBER has plunged 32% since its May 9 IPO. LYFT plummeted 36% since its March 29 IPO. And WORK has dropped 26% since June 20.

Please understand, when it comes to IPOs, the media is your worst enemy.

Over and over again, they hype up giant, popular IPOs like Uber. Over and over again, these giant, popular IPOs flop. And over and over again, the media totally ignores the IPOs of smaller, lesser-known companies that go on to hand out big profits.

It’s no wonder profitable IPOs fly under the radar of most investors.

If you didn’t take advantage of these recent IPOs, it’s not too late. There are plenty more revving their engines on the runway, preparing for takeoff.

  • The backlog of “unicorns” is massive...

A unicorn is a private company worth $1 billion or more that does not yet trade on the stock market. Think of them as future IPOs.

They’re called unicorns because they used to be rare. Not anymore. According to CB Insights, there are 393 “unicorns” worldwide. Nearly half of those are US companies. Together, these companies are worth more than $1.2 trillion!

This “future IPO” list is my bible. I check it every day, and I’ve done “deep dive” research on many unicorn companies.

There are around 50 “gems” on that list that I can’t wait to buy when they go public.

  • Two promising unicorns will IPO later this week…

SmileDirectClub (SDC) is set to IPO this Thursday. SmileDirectClub sells invisible teeth liners, but you don’t need to visit a dentist or orthodontist first. You simply visit one of its locations or make a mold of your teeth at home.

Its treatment costs just $1,895. That less than 1/3 of what typical braces cost.

SmileDirectClub’s sales are growing at an incredible 190% year over year. And there’s still plenty of opportunity ahead. Hundreds of millions of people worldwide have crooked teeth. Less than 1% receive treatment each year.

The one big knock on SmileDirectClub is its IPO valuation. The company is set to go public at a valuation of almost $8 billion. That’s a bit rich for my taste. And, according to my database of IPO returns, IPOs that big don’t often explode out of the gate like Beyond Meat did. So, I’ll be watching this one for a pullback.

Cloudflare (NET)—another exciting unicorn—will IPO on Friday. Cloudflare is a web performance and security company. It serves nearly 10% of all global internet requests.

Like SmileDirectClub, Cloudflare is rapidly growing. Its sales have grown 50% per year since 2016.

I could see Cloudflare stock getting off to a very strong start. Several recent IPOs similar to Cloudflare have performed great. CrowdStrike (CRWD)—a cloud computing company—spiked 200% after its June IPO. Fastly (FSLY)—an internet security company—has jumped 120% since it went public in May.

I’ll update you on SmileDirectClub and Cloudflare following their IPOs.

Did you make a killing on Beyond Meat, Roku, or another hot IPO? Tell me about it at justin@riskhedge.com.

Justin Spittler
New York, New York

Hunting for Unicorns with Justin Spittler

Hunting for Unicorns with Justin Spittler

Stephen’s note: I’ve got something special for you today. Instead of my regular weekly note, I’m sharing a conversation I recently had with RiskHedge Senior Editor Justin Spittler. Justin specializes in a speculative stock sector that routinely produces big, quick profits. Read on to discover more about this unique but misunderstood corner of the markets...

* * * * * * *

Stephen: Justin, nice call on the Match Group (MTCH) a few weeks back. Some happy readers wrote in asking to hear more from you after it jumped 24%.

You’ve worked mostly behind the scenes at RiskHedge for a while. Tell readers what you do... and tell them why our publisher Dan calls you the “unicorn hunter.”

Justin: Well, a “unicorn” is a young, private company worth $1 billion or more that does not yet trade on the stock market. They’re called unicorns because they used to be rare.

These days they’re more common. So far, 48 unicorns have gone public, or “IPO’d,” this year. Another 400 are still in the “pipeline,” according to CB Insights. Many of these companies will go public over the next year or two, meaning huge profits are up for grabs for investors who know how to play IPOs.

It’s an exciting time. There’s never, ever been an IPO pipeline like this.

Stephen: For readers who don’t know, can you explain exactly what an IPO is?

Justin: An IPO is when a stock starts trading on the market for the first time. It’s the first opportunity most investors have to buy into a company. Before a company goes public it’s in the hands of private investors, like venture capitalists. The IPO opens the floodgates for 99% of investors to get their hands on the stock.

Stephen: Why specialize in IPOs?

Justin: It’s one of a few areas where individual investors can make a lot of money, often very quickly. Get into the right IPO at the right time, and a doubling, tripling, or quadrupling of your money is a real possibility. I’ll give you some recent examples: Guardant Health (GH), which specializes in cancer diagnostics, soared 490% in just eight months after its IPO. Software company MongoDB (MDB) spiked 470% in under two years. Cybersecurity company Zscaler (ZS) gained 460% in 16 months. And ShockWave Medical (SWAV) returned 300% in three months.

Then, there’s Roku (ROKU) and Beyond Meat (BYND), two better known companies. Roku, a company cashing in on the “cable-cutting” craze, soared 915% in under two years. Beyond Meat, a company that makes plant-based “meat,” leapt 859% in less than three months!

Readers should know these examples aren’t rare, nor are they “cherry picked”. By my numbers, 41 IPOs have returned at least 100% in the last two years alone.

Stephen: You mentioned it’s possible to make a lot of money from “the right IPOs.” Tell me what they look like.

Justin: Sure. First off, it’s important to know there are plenty of dud IPOs. I want to be clear that the IPO market is no place for amateurs or part-time investors. Investors who blindly buy a “hot” IPO risk getting their pockets vacuumed out.

I say that because the biggest, loudest, most hyped-up IPOs—the ones everyone knows about—tend to be suckers’ bets. If your barber or your cab driver bring up an IPO in casual conversation, odds are it’s going to be a flop.

Stephen: Uber comes to mind...

Justin: Exactly. Uber (UBER) was a household name and a massive company when it went public in May. Long before its IPO, it had already raised more than $24 billion in seven funding rounds. By the time it went public, early investors in the company had already made a killing. Cyclist Lance Armstrong netted about $20 million off a $100,000 private investment in Uber.

By the time Uber IPO’d it was worth $82 billion! That’s far, far bigger than traditional car companies like Ford, General Motors, and Tesla. Naturally, there was a ton of excitement around Uber’s IPO. But it didn’t live up to the hype. Uber shares plunged 7% on their first day of trading, and they’ve yet to find solid ground. Uber is down 26% since its IPO.

Lyft (LYFT), Uber’s biggest rival, suffered a disappointing IPO, too. Lyft went public in March at a valuation of $24 billion. It was one of the most anticipated IPOs ever.

But, like Uber, it failed to deliver. Lyft’s stock has plummeted 34%.

Stephen: How about WeWork?

Justin: Everyone’s talking about the We Company (the parent company of WeWork), which is set to go public this month.

To say I have low expectations is putting it mildly. The We Company is one of the worst IPOs I’ve ever seen. And I’ve analyzed the returns of more than 8,000 IPOs, so that’s saying something.

For readers who don’t know, WeWork’s main business model is to lease out office buildings, then re-lease the individual offices to freelancers or other folks who need a place to work.

I spent a week at the WeWork office in Mexico City. It was nice... free coffee in the morning, free beer on tap in the afternoons. People bring their dogs to work.

But as a business, it’s a dumpster fire. Strip away the novelty and it’s just a cash-incinerating real estate company masquerading as an innovative tech company. And yet, the We Company was most recently valued at $47 billion. My research suggests it’s fair value is $10 billion, max.

Plus, WeWork is probably the most talked- and written-about IPO since Facebook’s 2012 blockbuster. It is pretty much the exact opposite of what you want to see in a lucrative IPO.

Stephen: Elaborate on that.

Justin: Think back to the wildly successful IPOs I mentioned earlier—Guardant Health, MongoDB, Zscaler, ShockWave Medical. Notice they are not household names. I doubt even 0.1% of the people reading this have even heard of these stocks, even though all four have soared 400%+ since going public.

Even Beyond Meat was virtually unknown before its IPO. Today, most investors know the company’s story. Achieving 859% gains in two months will put you on the map.

Generally, you want to seek out IPOs that aren’t well known, whose products and services aren’t famous yet. Often, the truly lucrative IPOs are virtually anonymous when they go public. They achieve fame later as investors who bought near the IPO get rich and the story starts to get out.

Stephen: You also study who is invested in a private company before it IPOs.

Justin: Yes, this is absolutely crucial. Remember, an IPO isn’t the first time anyone is allowed to invest in a company. It’s just the first time you, as a public investor, are allowed to invest in the company. Founders, venture capitalists, and others have likely been invested in the company for some time.

The right IPO strategy lets you invest alongside the venture capitalists. Venture capital is probably the single most lucrative investing strategy there is. Venture capitalists often achieve returns of 10,000 to 1 or even 100,000 to 1. Investing in IPOs the right way lets you piggyback on some of those crazy returns.

Stephen: So who you’re investing alongside is as important as what you’re investing in.

Justin: Yes... without naming names, there are venture capitalists you want to invest alongside, and others you want to avoid.

I should add there’s one telling datapoint I’ll look at before almost anything else. I look at how much money a company has raised prior to IPO’ing. Companies that have raised billions of dollars rarely deliver monster gains in the months following their IPOs. You might say they’ve already been “milked dry” by private investors.

See, the right private companies have a tremendous amount of “potential energy” pent up. When a company is private, hardly anyone can buy it, so there’s nowhere for this energy to go.

It’s like a pressure cooker. The day its stock goes public is like a pressure release, and its stock can shoot off like a geyser. It’s why the best IPOs can often rocket 50% or more in a week... and 2X, 3X, or 4X in a matter of months.

Raising a ton of money before an IPO pokes holes in this “pressure cooker.” Remember I said Uber raised $24 billion ahead of going public? Roku raised just $209 million, less than 1/100th of that. Beyond Meat raised only $122 million.

Again, their stocks have leapt 915% and 859% since they IPO’d, both in under two years.

Stephen: Is hunting for IPOs a “bull market only” strategy? Does it work when markets are struggling?

Justin: A lot of people think that. I understand why it’s the conventional wisdom. But it’s wrong.

A unique thing about IPOs is they have a “mind of their own.” As readers probably know, most stocks tend to go with the trend. It’s hard to find rising stocks in a falling market.

IPOs often buck the trend.

Visa (V), for example, went public in March 2008. At the time, it was the largest US IPO ever.

The timing couldn’t have been worse. Just five days earlier, JPMorgan (JPM) offered to buy the troubled investment bank Bear Stearns for $2 per share.

They were the darkest days of the financial crisis, and the markets were in a full-blown meltdown. The S&P 500 had fallen 17% in five months leading up to Visa’s IPO. It went on to plunge another 48% over the next 12 months.

And yet, Visa jumped 28% on its first day of trading. Less than two months later, its share price had doubled. Stephen, this was during the worst financial crisis since the Great Depression!

Today, Visa trades at $178. That’s good for a 16-bagger.

More recently, several IPOs have performed great despite choppy markets. Tilray (TLRY), a cannabis company, returned 1,665% between July and September 2018. Zscaler, which I mentioned earlier, surged 193% in five months. Keep in mind, the S&P 500 ended last year down 4%.

Stephen: So, you aren’t just “flipping” IPOs. You hunt for long-term winners.

Justin: Yes, you’re not going to make 5,000% or 10,000% gains within a few months, though. It usually takes years for an IPO to achieve those life-changing returns.

But as I’ve emphasized, IPOs are a speculative area of the markets. It’s like the roped-off, high-stakes poker table in the back of the casino. Only pros should sit down. 19 out of 20 investors have no business speculating in IPOs.

Stephen: Anything else readers should know?

Justin: My job is to take the risk in IPOs, understand it, control it, and reduce it. If you can do that, you eliminate most of the downside and you’re left with a huge upside.

For example, say I buy an IPO and it doubles in four months—which isn’t all that rare. I’ll often sell half my position to recoup my whole initial investment. Then, I let the other half “ride.”

By taking a “free ride,” you pocket a quick double and remove all your risk. Then, if the stock goes on to achieve a 10X profit like Google (GOOG) did after its IPO, or a 20X profit in four years like Shopify (SHOP) did, you stand to collect very large profits with zero risk.

Stephen: Where can readers hear more from you?

Justin: I’ll be writing the new Tuesday edition of the RiskHedge Report. Readers can expect it to land in their inbox around 5 pm EST every Tuesday.

I’ll analyze companies that have IPO’d recently. I’ll take readers “in the room” and tell them about hot upcoming IPOs. And of course, I’ll tell readers which big, hot IPOs to avoid, like WeWork.

Stephen: And your weekly letter is free, right?

Justin: Yes. In short, it will be similar to your Thursday edition of the RiskHedge Report, but better.

Stephen: [Laughs]. We’ll see about that. Look forward to reading it.

Stephen’s Note: Have you ever invested in an IPO? If so, tell me about it at stephen@riskhedge.com.

Stephen McBride
Editor, Disruption Investor

Should you buy pot stocks?

Should you buy pot stocks?

In 1936, William Randolph Hearst was facing total wipeout.

The newspaper mogul had invested millions of dollars in mills that turned wood pulp into paper…

But a new, different kind of paper made from hemp was disrupting the market.

Hemp paper was cheaper… and could be grown much quicker.

To shut down this threat, Hearst used his newspapers to demonize hemp’s byproduct—marijuana.

He ran a smear campaign calling marijuana a “vicious racket with its arms around your children.”

It worked. The Federal Bureau of Narcotics outlawed hemp in 1937.

  • For much the past century marijuana was a “Schedule 1 narcotic,” which put it in the same category as dangerous drugs like heroin.

The business of growing, processing, and selling marijuana was conducted in the shadows, illegally.

But as you probably know, the laws are changing.

In 1996 California was the first US state to let folks use marijuana for medical uses. Now a dozen US states have completely opened up the market for marijuana.

Adults in Vermont, Colorado, Massachusetts, Washington, Oregon, and a half dozen other states are free to smoke it for pleasure. I spend a lot of time in Vermont. Hemp stores are sprouting up everywhere.

Even if you live where marijuana is still illegal, you’ve likely heard a lot about “pot stocks.”

Internet marketers have seized the opportunity to promote the heck out of this exciting new industry. If you’re anything like me, ads promising to make you a “pot stock millionaire” follow you around the web.

Longtime RiskHedge readers are asking why I never talk about marijuana stocks.

At a glance, they seem like a disruption investor’s dream...

After all, it’s a multi-billion-dollar market opening up after 100 years in the shadows. It’s forecast to grow at breakneck speed. And big companies are plowing huge sums of money in.

This should spell big opportunity for investors, right?

WRONG.

  • I won’t put a penny into marijuana stocks.

Before I tell you why, look at the crazy gains marijuana stocks have produced.

Canadian marijuana grower Tilray (TLRY) shot up 400% in less than three months last year, as you can see here:

It briefly hit a $20 billion valuation–roughly the same as American Airlines (AAL).

But get this… Tilray only brought in $43 million in revenue in 2018. American Airlines raked in $45 billion!

Dozens of other tiny marijuana stocks, with barely any sales, soared 10x… 20x… even 30x in just a few months.

  • The pot stock boom is mostly empty hype.

To understand why, you must look past the stock performance and into the actual business of selling marijuana.

The fact is, most marijuana companies stand little chance of ever making significant profits. Sure, it’s new and exciting. But marijuana is a tough business... and it’s going to get much, much tougher as the market matures.

You see, now that it’s becoming legal, there’s nothing special about marijuana. Like corn or wheat, it’s a crop.

Selling marijuana was lucrative because it was illegal. To grow it and sell it, you risked getting locked in jail. You risked getting beat up by rival drug dealers. You risked encountering DEA agents and their snarling, drug-sniffing German Shepherds.

Most people won’t break the law. For decades, only people who were okay being labeled as criminals went into the marijuana business.

Today, there are over 9,000 marijuana “growers” across the US. That’s more breweries than there are in America!

And although only 11 states have legalized marijuana so far, more than 5,000 marijuana stores have opened up shop.

Care to guess how many Walmart (WMT) stores are in the US?

About 4,750.

Do you see 5,000 specialty broccoli stores? Or 5,000 carrot stores? No, vegetables sit on grocery shelves and sell for $0.99. Farmers and grocers are lucky to squeeze out a penny or two of profit.

This price compression is marijuana’s future.

  • Many pot fans will take issue with this statement...

Marijuana is a commodity. It’s all roughly the same, no matter where or how it’s grown.

Pot enthusiasts will argue this point. They’ll insist there are dozens of different strains that all make you feel a different way when you consume it. They’ll point out that while the THC in weed makes you feel high, CBD does not.

They’ll emphasize that CBD seems to have important medicinal properties and could one day be a key ingredient in many new drugs. They’ll say marijuana has dozens of uses other than getting you high.

I’m sure all this is true. But it’s mostly irrelevant for investors.

Half a dozen different kinds of apples sit on the shelf of every grocery store. Granny Smith, red delicious, fuji, gala, yellow apples. You can turn apples into apple sauce, apple cider, apple juice, apple pie.

The apple is a versatile fruit. Yet, selling apples is far from lucrative.

  • Oregon was one of the first states to legalize marijuana back in 2015...

At first there were only a handful of growers, so they could charge exorbitant prices.

But according to a state government report, marijuana prices have been cut in half over the past three years.

What happened? In short, new companies flooded the market. The same report estimated there is enough pot in the state to last for six-and-a-half years!

Few things can devastate an industry like rapid price compression. Many pot stocks are already falling apart.

Tilray and Canopy Growth (CGC) are the two biggest public marijuana producers. Revenues for both companies doubled last year. Yet as marijuana prices tumbled, both companies posted record losses!

After much hype, investors have sprinted out the exits. Tilray has plunged 90% in the past year as you can see here:

While Canopy Growth has cratered 50% since April;

  • To be clear, parts of the marijuana business will boom over the next couple of years.

Cannabis shops will continue popping up all over the place. I’m sure big American companies will continue to invest billions in the sector. And I’m sure a handful of pot stocks will defy the odds and go on to achieve big gains.

But make no mistake: the whole marijuana industry is staring down the barrel of price compression.

Pot stocks are no place for disruption investors to put their money.

Have you been burned by pot stocks? Tell me at Stephen@riskhedge.com.

Stephen McBride
Editor, Disruption Investor

Stephen McBride is editor of the popular investment advisory Disruption Investor. Stephen and his team hunt for disruptive stocks that are changing the world and making investors wealthy in the process. Go here to discover Stephen’s top “disruptor” stock pick and to try a risk-free subscription.

Reader Mailbag

Following last week’s letter about using stop losses in your portfolio, RiskHedge reader Tor asks “when to get back in:”

“Stephen, thanks for the very interesting comments. One question, when you get stopped out, when do you get back in again?

Selling is only half of the challenge the way I see it. Best regards, Tor”

Tor, thanks for your question.

Sometimes you’ll love stop losses. For example, limiting your loss to 20% on a stock that goes on to crater 70% could be considered a “win.” Other times you will hate them. It never feels good to you sell a stock you like, only to see it bounce back.

In my second scenario, you’ll often want to buy straight back into the stock. This is usually a highly emotional decision. Speaking from experience, it’s usually a mistake. Typically, I’ll wait two to three months before buying back into a stock that was stopped out. This “cooling off” period takes emotion out of the equation, which is what following a disciplined stop-loss strategy is all about.

What to do if you’re scared

What to do if you’re scared

“Stephen, I’m thinking of selling all my stocks, what are your thoughts?”

A RiskHedge reader asked me last week if it’s time to head for the exits.

There’s a lot of fear in the markets right now. Folks are nervous. Maybe you’re nervous.

The past two weeks have been rough for the stock market. Last Monday the S&P 500 suffered its worst day of the year. And stocks have now dipped 4% since hitting record highs in late July.

If you watch any financial TV, you’ve surely heard this blamed on a troubling economic signal triggered last week called the “inverted yield curve.”

  • What the heck is an inverted yield curve… and why does it matter to you?

If you’ve applied for a mortgage, you know the two most popular options are a 15-year mortgage or a 30-year mortgage.

The interest rate you’ll pay on a 15-year mortgage is lower than what you’d pay on a 30-year one.

Which makes sense, right? With the 30-year mortgage, you’re borrowing the bank’s money for twice as long. So you must pay a higher rate.

It’s the same with the interest rates the US Government pays on its bonds. 99.9% of the time, the longer out a bond goes, the higher rate it pays. A ten year bond almost always pays higher interest than a two year bond.

But last Wednesday, the interest rate on the 10-year US bond sunk below the interest rate on a 2-year bond.

This “upside-down” situation is what investors call an inverted yield curve.

  • And it’s typically a reliable sign that something is “off” with the US economy...

It’s rare for the yield curve to invert. It’s only happened nine times in the last 50 years.

It last happened in January 2006. Roughly two years later, we entered the 2008 financial crisis. US stocks cratered 57% in 08-09.

More bad news: Every time the yield curve has inverted in the last 50 years, a recession has eventually followed.

Recessions are bad for stocks. Since the 1920s, US stocks have sunk into a “bear market” ten times. Eight of the ten have come inside a recession­.

  • This sounds pretty bad, Stephen…

It’s important to know the yield curve inversion typically warns of a recession years in advance. From the time the yield curve first inverts, a recession hits 20 months later, on average.

Twenty months is a long time. In 20 months, America may have a new president. The 2020 Olympics will have come and gone. Your kids will be two grades older.

And in the 20 months after the yield curve inverts, stocks usually perform well... and sometimes they perform GREAT.

The last time the yield curve inverted in 2006, the S&P crept up 22% before the onset of the financial crisis.

The time before that, in 1998, stocks soared 55% before peaking. And the Nasdaq jumped a crazy 210% to form the infamous dot-com bubble.

Not only is there a long lag between this signal flashing red and stocks topping out. You could say a yield curve inversion is a BUY signal for stocks, at least in the short term.

  • Although the yield curve inversion is a reliable signal, it’s at odds with the “real” economy...

Look at these stock charts of five “everyday” American companies.

If the economy is on shaky ground, these companies should be struggling.

After 20 straight quarters of rising sales, America’s largest retailer, Walmart (WMT), recently hit all-time highs.

Fast-food giant McDonalds (MCD) is looking better than ever.

If we’re in an economic danger zone, why are tens of millions of folks paying $6 for luxury coffee at Starbucks (SBUX)?

Credit card giant Visa (V) keeps zooming higher.

And new highs in Home Depot (HD) suggest more Americans are renovating their homes than ever before.

If the economy is about to hit the rocks, why are these stocks hitting all-time highs?

If a meltdown is coming, somebody forgot to tell the hundreds of millions of Americans who shop at these places.

  • Here’s what I’m doing with my money right now.

Many investors assume they only have two choices now that the yield curve has inverted:

Sell all their stocks and park the cash in their bank accounts…

Or hang on and hope the next recession doesn’t wipe them out.

This “all or nothing” mentality is a rookie mistake.

There is a better way.

Don’t panic. PREPARE.

Prepare by committing to disciplined risk management with each stock you own. Any investor can do this by using “stops.”

As you may know, a “stop” is a predetermined price at which you’ll sell a stock. Say you buy a stock at $100, and put a 20% stop on it. If the stock falls to $80, you sell immediately. No questions asked, and no second guessing the decision.

Used correctly, stops keep any losses small while allowing your winners to ride.

That way, if US markets continue to perform well for one year... two years... three years...or more... your nest egg will keep growing.

And if markets turn down tomorrow, your stops act like a “circuit breaker” for your portfolio. They’ll get you out before a stock loses too much ground.

  • Let me be clear: The yield curve inversion is a “red flag” to take seriously.

It’s one of the most reliable indicators of a recession there is. It’s definitely not a good thing. It would be irresponsible to ignore it.

But as I said, 20 months is a long time. The average person has about 35 working years, or 420 months, to build wealth through investing.

Twenty months represents around 5% of your investing life.                                

Are you willing to squander 5% of your investing life?

To park your money on the sidelines until a potential recession comes and goes?

With scary headlines swirling, that might “feel” like the safe, prudent thing to do.

But the data is clear. For the next twenty months or so, we’re in an environment where it has historically been good or great to own stocks.

Think carefully before you waste it.

What’s your gut feel about the markets right now? Tell me at stephen@riskhedge.com.

Stephen McBride
Editor, Disruption Investor

Stephen McBride is editor of the popular investment advisory Disruption Investor. Stephen and his team hunt for disruptive stocks that are changing the world and making investors wealthy in the process. Go here to discover Stephen’s top “disruptor” stock pick and to try a risk-free subscription.

Reader Mailbag

Disruption Investor subscriber Maik is wondering what to do after the sharp drop in stocks:

“Hi Stephen, now that the markets are turning a little crazy about the US-China trade war, do you think it's time to sell, or do you recommend buying our most promising stocks for a cheaper price?”

Maik, thanks for your question.

I hope today’s letter answered your question about staying in or getting out of the market.

On the trade war… fears of it really hurting the US economy and stock market are overblown. As I’ve said before, the trade-war threatens specific companies and sectors. But it’s not a huge threat to the overall market.

As I mentioned a couple of weeks ago, China bought almost 60% of all the computer chips America produced last year. So this trade dispute is a major problem for chip companies.

On the other hand, a tiny 4.3% of the S&P 500’s overall revenue comes from China. Avoiding companies that get a big chunk of revenue from China is something I focus on in Disruption Investor.

Dark days are closing in on Apple

Dark days are closing in on Apple

What’s the most successful product in history?

Chances are pretty good you’re holding one in your hand right now...

Apple (AAPL) has sold roughly a TRILLION dollars’ worth of iPhones since 2007.

If the iPhone were a company, it would rank #30 on the Fortune 500 list of the world’s biggest businesses.

Since the iPhone debuted in 2007, Apple’s sales have jumped 10X...

It became the first public company to ever achieve a trillion dollar valuation...

And its stock has soared 700%, as you can see here:

  • Did you know that Apple once almost went bankrupt?

The mid-90s were a boom time for many tech stocks. Not Apple.

Back then, it mostly sold computers, and its “Mac” brand made up less than 5% of the market. In fact, competitors like Dell were outselling it 10-to-1.

Apple was in serious trouble. It had laid off a third of its employees and was about 90 days from going broke. Its market valuation shrunk to just $2 billion—about 1/500th of what it’s worth today.

Then came the iPod.

As you surely remember, the iPod was a small, sleek music player that held tens of thousands of songs. In the early 2000s, this seemed like magic.

Folks bought iPods by the truckload. You couldn’t enter a gym or walk a city street without seeing one attached to every other person’s hip.

Apple went on to sell over 400 million iPods. It transformed the company from a struggling computer maker into a $100 billion powerhouse.

  • Apple is what I call a “BIG IDEA” disruptor...

The iPod and the iPhone were BIG IDEAS that changed the world. They weren’t just new products. They were whole new categories of products.

Apple is different from many other disruptors I follow. Take Amazon (AMZN) for example. If you read RiskHedge regularly, you know it operates dozens of businesses. We all know about Amazon’s online store… but it also has a booming “cloud” business… owns Whole Foods grocery chain… and even runs an advertising business.

Google (GOOG) has its core search engine business... but also its self-driving car arm Waymo, and its dominant online video platform YouTube.

Apple, on the other hand, has made its fortunes through hitting grand slams on a couple of BIG IDEAS. For the last twelve years, most of Apple’s growth has come from its last big idea: the iPhone. For much of that time, the iPhone has made up roughly two-thirds of Apple’s sales.

Problem is, the iPhone trend is out of gas. As I explained recently, iPhone sales have been shrinking since 2015. Last year, Apple sold 14 million fewer phones than it did three years ago.

For years, Apple masked this troubling decline by hiking iPhone prices. For years, it worked. Even though iPhone unit sales were falling, iPhone revenue kept growing.

But now revenue is plunging, too. Revenue dropped 12% last quarter—the third straight quarter of falling iPhone sales.

  • It’s important to understand this isn’t a blip...

iPhone sales aren’t falling because folks are switching to rival phones. They’re falling because almost everyone already has a smartphone.

When Apple launched the first iPhone, only 120 million people even owned a cell phone. Today, over 5 billion people own a smartphone, according to research firm IDC. Keep in mind, there are only 7.7 billion people on earth.

In short, Apple gave smartphones to the masses. The masses now have all the smartphones they need.

Apple investors should be asking: “Now what?”

  • Apple is the world’s #1 seller of watches...

With its “Apple Watch,” Apple now sells more watches than any other watchmaker on earth. More than Timex... more than Rolex... more than all the Swiss watchmakers combined.

Its “wearables” revenues—which includes the Apple Watch—soared 48% last quarter.

Sounds great, right?

Problem is, wearables make up less than 10% of Apple’s revenue. The Apple Watch isn’t a big enough idea to move the needle.

Here’s how crucial iPhone sales are to Apple. Last quarter, every Apple business segment besides the iPhone grew. It didn’t matter. Apple’s profits still slipped 13%.

Apple is a “big idea” business that hasn’t come up with a new big idea for a decade. Its last hit was the iPad, which it launched in 2010. Today the iPad makes up less than 9% of Apple’s sales.

  • Apple reminds me of Sony (SNE).

In the 1980s and 90s, Sony was the king of making stuff we all wanted.

Who didn’t have a Sony Walkman?

And millions of 90s kids begged Santa for a PlayStation video game console. Time Magazine ranks the original PlayStation as the #1 bestselling product of all-time.

Sony was the Apple of its time... a vaunted inventor of megahit products. Its stock soared 500% in the 90s as it dominated TVs, video games, and portable music players.

But then Sony ran out of big new ideas. Meanwhile its Walkman was disrupted by Apple’s iPod. And the PlayStation lost much of the video game market to Microsoft’s Xbox and others.

Sony would go on to make a PlayStation 2... a PlayStation 3... a PlayStation 4. The PlayStation 5 is rumored to be coming in 2021.

Remind you of anything?

Apple is on its 10th version of the iPhone.

Sony faded and its stock has gone nowhere for two decades, as you can see here:

  • The post-iPhone era won’t be kind to Apple’s stock.

To be clear, I’m not predicting Apple will go bust. It has $180 billion cash in the bank and is on track to earn $56 billion in profits this year. It can continue coasting on its past innovations for years.

But you must understand that Apple was the world’s largest and most successful company of the past decade. It is still the second biggest public company today. When the bar is sky high, and you’re competing with big-leaguers like Amazon and Google and Samsung, coasting isn’t good enough.

If iPhone revenue keeps dropping by roughly 10%/year, my calculations show its other businesses will have to grow by at least 15% just to keep profits stable.

Unless Apple can pull off another iPod/iPhone/iPad megahit, its best days are gone.

Do you think Apple can create another megahit product? Tell me at stephen@riskhedge.com.

Stephen McBride
Editor, Disruption Investor

Stephen McBride is editor of the popular investment advisory Disruption Investor. Stephen and his team hunt for disruptive stocks that are changing the world and making investors wealthy in the process. Go here to discover Stephen’s top “disruptor” stock pick and to try a risk-free subscription.

Reader Mailbag

RiskHedge subscriber Gary asks a question about Disney pulling its content off Netflix:

“Stephen, Thank you for a unique and valuable letter.

Perhaps I missed it, but I did not see any data regarding how much revenue Disney would be forgoing by pulling their media from third-party streaming services, like Netflix. Thank you very much. Please keep up the great work.”

Gary, thanks for your kind comments and excellent question.

A couple months back Disney’s CFO Christine McCarthy gave us some color on how much the company will forgo in licensing revenue.

Disney estimates earnings will take a $150 million hit this year as it yanks its content off Netflix and other platforms. You can expect that number to climb by another $250 million or so over the next couple years as it stops licensing content to third parties.

For Disney, $150 million is a drop in the ocean. Keep in mind, it raked in $12.5 billion in profits last year. Most importantly, Disney+ is going to rejuvenate its whole business, as I explained in Disruption Investor.

The disruption turning teenagers into millionaires

The disruption turning teenagers into millionaires

For golfers it doesn’t get much bigger than The Masters.

Roughly 40,000 fans travel to Augusta, Georgia each year to watch the three-day tournament that’s like the Super Bowl of golf.

A record 11 million viewers tuned in to watch Tiger Woods win his fifth Masters title in April…

Tiger collected $2 million in prize money—one of the biggest pots in golf.

  • Another major “sporting” event took place two weeks ago…

Roughly 25,000 fans packed into the world’s largest tennis stadium in Queens, New York to watch 100 “athletes” compete for title of world’s best. Millions more watched online.

But they weren’t there to see tennis stars like Serena Williams or Roger Federer. These crowds gathered to watch kids play video games.

As you may know, professional video gaming—also called “e-sports”—is getting wildly popular.

For example, 57 million people recently tuned in to watch the final round of a professional video game tournament. That’s four times more than the 2019 NBA finals!

A 16-year-old kid from Pennsylvania won the tournament... and walked away with a first-place prize of $3 million.

  • Let me repeat that… a 16-year-old video gamer won $1 million more than Tiger Woods got for his Masters victory.

Video game competitions now pay out more in prize money than golf’s most prestigious tournaments!

A lot of folks think e-sports is a silly fad. That it’s not a “real” sport. But the reality is massive sums of cash are pouring into this booming industry.

According to digital research firm Newzoo, e-sports will generate $1.1 billion in revenue this year.

There are now American video gaming leagues modeled after the NBA and NFL. Instead of the Philadelphia Eagles, professional gaming has the Philadelphia Fusion.

Like the NFL, e-sports has millions of hardcore fans who will happily fork over $100 or more for a ticket to watch a big game live.

And get this… the average salary in one American professional e-sports league is $320,000!

  • With all this money sloshing around, you’d expect gaming stocks to be zooming higher...

But America’s two largest gaming companies—Electronic Arts (EA) and Activision Blizzard (ATVI)—have been dead money for the past two years, as you can see here:

And these companies’ earnings aren’t pretty. Electronic Arts’ (EA) revenue fell 4% last year, while Activision Blizzard’s profits have flatlined in the past couple years.

You’re likely wondering why there’s a gaping hole between the booming e-sports business and stuck-in-the-mud video game stocks.

It all comes back to disruption.

You’ll often come across a red-hot industry that “ticks all the boxes” of a great investment. It’s growing fast… money is pouring in… it’s changing the world.

Yet the companies don’t make nearly as much money as they should.

Usually, it’s because they’re competing away the profits.

  • Video gaming is a lot like the airline industry.

Almost three million passengers fly in and out of American airports every day—a 150% increase in the past 30 years.

And America’s four big airlines raked in $142 billion in revenue last year.

Yet they turned less than $10 billion into profits.

Despite decades of rising air travel, US airlines haven’t cashed in. In fact, they’ve lost more money than they’ve made over the past two decades.

Where did all the profits go?

They were competed away through “price wars.” There’s very little difference between flying American Airlines, Delta, or United. So they must compete on price. Airlines are always trying to undercut each other on airfares.

Similarly, over the past couple years video game makers have been sacrificing profits to “win” customers.

For example, Fortnite—the world’s most popular game–is free to play. Today many video game makers offer games for free to attract as many players as possible.

This fierce competition is destroying profits. Profit margins for America’s three big video game companies have plunged 19% in the past couple years.

  • But there is a way to profit from the e-sports boom.

I mentioned how a 16-year-old kid walked away with 3 million bucks after winning an e-sports tournament.

You might be surprised to learn that’s a drop in the ocean compared to what popular e-sports “streamers” earn.

Video gaming has a massive audience of engaged fans. According to Newzoo, the ranks of e-sports fans will swell to over 450 million this year­.

It turns out most of these folks love watching others play video games on the internet.

For example, British gamer Daniel Middleton plays on-camera for his more than 20 million YouTube subscribers… and he raked in $18.5 million last year, according to Forbes.

In fact, YouTube is minting a whole new class of gaming millionaires. Half of the top 10 “earners” on YouTube are gamers. Between them they raked in more than $50 million in 2018.

  • In total, 50 billion hours of gaming content was watched on YouTube in the last 12 months.

And 200 million people watch gaming every day on YouTube.

As you may know, YouTube earns money from running ads on its videos. Advertisers pay it based on the number of views the video gets. It then hands the creator a small slice of the fee.

If YouTube is paying $50 million to creators, you can bet it’s pocketing hundreds of millions of dollars, easily.

E-sports is among the most viewed content on YouTube, which means it’s a huge source of revenue for the company. As millions of folks continue watching professional gamers on YouTube, the company can sit back and watch the money roll in.

Through its domination of online search, Google has grown rich and powerful. It’s the 4th largest company in the world… and has handed investors 2,100% gains since its IPO.

Back in 2006 Google snapped up YouTube for a bargain basement price of $1.65 billion. As I discussed a couple months back, YouTube could easily be a $150 billion company on its own today.

Roughly two billion people use YouTube every month. That’s larger than Facebook’s (FB) celebrated user count.

While Google doesn’t break down YouTube’s earnings, the millions of dollars it pays out indicate it’s raking in tons of cash.

I recommended buying Google at $1,070/share a couple months back.

Today it sells for around $1,200/share, and the stock recently had its best day since 2015 when it announced stellar earnings.

I see it hitting $2,000 in the next couple of years.

Stephen McBride
Editor, Disruption Investor

Stephen McBride is editor of the popular investment advisory Disruption Investor. Stephen and his team hunt for disruptive stocks that are changing the world and making investors wealthy in the process. Go here to discover Stephen’s top “disruptor” stock pick and to try a risk-free subscription.

Reader Mailbag

RiskHedge reader Calvin asks about making money from Fifth-Generation Wireless Technology (5G):

“So many people are talking about 5G. They all seem to give us the impression they know the right companies to invest in. My question is… are there only one or two companies leading the way, or multiple ways to make money from 5G?

Calvin, thanks for your question.

The way to think about 5G is the money-making opportunities will come in “waves.”

First, the 5G network has to be built. Hundreds of thousands of cell towers need to go up, equipment must be installed on the towers… and millions of miles of fiber optic cables have to be laid. So right now, you want to own companies leading the 5G rollout. In my premium service Disruption Investor, we own two stocks helping America get 5G ready.

Exposing a stock market “hall of famer”

Exposing a stock market “hall of famer”

It’s official... it’s the beginning of the end for Netflix (NFLX).

As you may have heard, the online video company made a troubling announcement...

This quarter for the first time ever, it lost American subscribers. Hundreds of thousands of them.

The stock plunged more than 11% on the news.

If you’ve been reading the RiskHedge Report, you know I’ve been “sounding the alarm” on Netflix’s troubled business since last July when its stock was trading above $400.

It has fallen to $325 today.

If you own Netflix stock... or you’re tempted to go “bargain buying” here... please don’t.

There’s nothing but pain ahead for Netflix. Its stock is likely headed to $225... and dropping below $100 is a real possibility.

  • Netflix is a stock market “hall of famer”...

Since 2009, its business has grown, and grown, and grown. It has added roughly 140 million paying subscribers, and now it has more American subscribers than the top three cable companies... combined!                                           

This relentless growth pushed Netflix stock to 8,500%+ gains since 2009.

But as I’ve been warning, Netflix’s string of growth is over. These latest results confirm it.

Not only did it lose American subscribers last quarter. It added only 2.7 million subscribers worldwide... less than half the number it added in the same quarter last year.

In his investor letter, CEO Reed Hastings explained the results: “Q2’s content slate drove less growth in paid ads than we anticipated.”

  • Hastings just admitted Netflix is in big trouble.

Reading between the lines, he’s saying: “We didn’t make enough good shows and movies... so we didn’t get enough new subscribers to sign up.”

That should terrify Netflix investors. As I’ve explained, Netflix achieved its incredible success by being the “first mover” in streaming. It disrupted how people watch TV.

For years, Netflix had no real competitors. This allowed it to practically monopolize all the best shows and movies. Although content producers like Disney and NBC Universal had a big cable presence, they had no streaming services. So, there was no downside to licensing their content out to Netflix to make a little extra money. That’s exactly what they did.

That world is gone forever. You see, Netflix’s most popular shows aren’t “homemade.” According to The Wall Street Journal, the most watched show on Netflix is The Office.

Netflix does not own The Office. NBC Universal owns The Office.

NBC Universal is launching its own streaming service and pulling The Office off Netflix for good by the end of next year.

Another wildly popular show on Netflix is Friends. Friends is owned by Warner Media, which is now owned by AT&T.

Friends will be pulled off Netflix for good in 2020.

Losing Friends and The Office will hurt. But it’s only the tip of the iceberg. According to analytics firm Jumpshot, more than half of Netflix’s 50 most popular shows are owned by companies planning to launch their own streaming services.

In other words, Netflix is going to lose more and more of its most popular shows.

  • This couldn’t come at a worse time.

As I’ve explained, the streaming game has changed forever.

We’re going from a world where Netflix enjoyed zero competition, to a world where the biggest, most powerful media companies on earth will directly compete with it.

  • Disney (DIS), the 14th largest public company in America, launches its Disney+ streaming service this November.
  • AT&T (T), the 16th largest American public company, launches its streaming service later this year. AT&T owns HBO, the most successful premium TV network.
  • Comcast (CMCSA), the 26th largest American public company, owns NBC Universal. It launches a streaming service in April 2020.

Disney, as subscribers to my premium service Disruption Investor know, owns by far the greatest library of movie and TV brands ever assembled. Its latest hit, Avengers Endgame, smashed the all-time box office record, bringing in $2.8 billion. Avengers Endgame is the latest in a dominant run of Disney hits. In each of the past 3 years, the top three earning movies were all Disney.

Avengers Endgame broke the box-office record formerly held by Avatar—which Disney also owns after acquiring 20th Century Fox earlier this year. That acquisition gave Disney majority control of Hulu, the second most popular streaming service after Netflix.

In short, Netflix management has been preparing for this. The company is on track to spend $15 billion developing original shows and films this year. That’s a 69% jump from the $8.9 billion it spent in 2017.

It’s done a pretty good job of producing stuff people want to watch. Its TV series Stranger Things won a couple of Golden Globes. Political drama House of Cards, The Crown, and Orange is the New Black were hits.

This was good enough to attract and keep viewers when there were few other streaming choices. But soon, Netflix will be just one of half a dozen streamers competing for subscriptions.

  • For a stock that still trades at a ridiculously expensive valuation, that’s a big problem...            

Netflix is valued at $139 billion today, roughly the same as sportswear giant Nike (NKE). Yet last year Nike’s profits were more than triple Netflix’s.

So how do they have the same value? Netflix stock trades at 140-times earnings, while Nike trades for 35-times earnings.

Investors have been willing to pay up to own Netflix because of its relentless growth. The thinking goes: “Netflix will continue adding millions of subscribers every quarter for years. Revenue will skyrocket and its stock will “grow into its valuation.”

For a long time, things played out this way. Netflix has achieved an 85-bagger since 2009, after all.

But things are different now. Now, Netflix is just one of many streamers. Subscriber growth is bound to slow dramatically as Netflix faces real competition in streaming for the first time.

Over the past five years, Netflix stock has traded at an average of 215-times earnings. Today, as I mentioned, it trades for 140-times.

As growth slows, let’s say investors are still willing to pay a generous 90-times earnings to own Netflix stock. That isn’t cheap by any stretch of the imagination. It’s still nearly five times as expensive as the average S&P 500 stock.

Yet, based on my 2019 earnings projections, it would drop Netflix stock down to $225—33% below today’s price.

And if investors punish Netflix’s slowing growth even worse?

If Netflix’s valuation falls to 40x earnings—still twice as expensive as the average stock—it’s now a $100 stock. Or 70% below today’s price.

Netflix’s recent performance shows the market’s growing skepticism of it. Over the past year Netflix lags the S&P by 10%, as you can see here:

Despite all this, Netflix stock is down only about 22% from its highs.

If you own Netflix, this is a gift from the market gods. They’re giving you a chance to get it out before things get ugly.

  • Before you go, in my last letter I mentioned the US stock market hit an all-time high...

I asked: Does this make you want to buy stocks? Or does it make you want to avoid buying stocks?

The thought of buying stocks at their highest prices in history scares a lot of folks. Many investors think it’s a sign of a coming market crash.

But the data shows the exact opposite. All-time highs usually lead to more all-time highs!

Last week, the Dow Jones achieved its 1,220th all-time high since 1928. On average, the market climbs 7.8% in the year following a new all-time high.

Stephen McBride
Editor, Disruption Investor

Stephen McBride writes the popular investment advisory Disruption Investor. Stephen and his team hunt for disruptive stocks that are changing the world and making investors wealthy in the process. Go here to discover Stephen’s top “disruptor” stock pick and to try a risk-free subscription.

Reader Mailbag

Disruption Investor subscriber Bob asks about Google’s self-driving offshoot Waymo:

“Stephen, do you have an estimate as to how much of the $125 billion potential value of Waymo is already reflected in Google’s market cap?

Also, Google’s revenue was $150 billion last year. Will it not take a lot from Waymo to move the needle?

Bob, thanks for your question. Not only does the market give Google zero credit for Waymo, oddly enough, I think the market punishes Google for owning Waymo.

As I’ve mentioned, Google pumped roughly $15 billion into Waymo over the past decade, without a dime of profit to show for it. Had it not invested this money into Waymo, its profits would have grown much faster. This likely would have pleased Wall Street and pushed the stock higher.

Instead, Google is smartly playing the long game by investing billions into self-driving technology that will change the world. I agree it will take some time for Waymo to move the needle on Google’s revenue. But when investors wake up and realize the world’s leading self-driving car company is tucked inside Google, we could see a frenzy to buy Google stock.

So, even though it will take some time for Waymo to meaningfully contribute to Google’s revenue, we could see it boost Google’s stock price much sooner.

This “weird” company sells love for $2.99

This “weird” company sells love for $2.99

Editor’s Note: Stephen McBride is on the road this week, so we’re handing today’s issue over to RiskHedge Senior Analyst Justin Spittler. In it, you’ll read about an explosive trend you’ve likely never considered... and you’ll learn about the disruptive company that’s driving this trend forward as its stock soars to new highs.

*  *  *  *  *  *  *

How much would you pay to find true love?

How does $2.99 sound?

Millions of Americans happily pay at least $2.99 a month to find love...

And millions more pay up to $40.

These love seekers subscribe to online dating services, which have exploded in popularity.

As you surely know, online dating is when two people connect over the internet before meeting in person.

As you might not know, early investors have made a small fortune off of online dating... and my analysis shows we’re still in the early innings.

It all started in 1995 when Match.com went live. Two years later, JDate—an online dating service for Jewish people—launched. Followed by eHarmony in 2000.

These services didn’t achieve success overnight. It took years for them to go mainstream. For a long time, most people thought online dating was weird. It carried a stigma.

That’s all behind us now…

  • According to a 2018 study, more than half of all single Americans have used an online dating service…

More than 25 million folks will use one this month. That’s a 5.3% jump from last year.

If you’re in your in thirties and single like me, chances are you’ve tried out online dating.

My sister met her husband on eHarmony in 2010. Two years later, they tied the knot. They now have two children.

One of my best friends met his fiancée on Bumble—another popular dating app.

Online dating isn’t “weird” anymore. It’s perfectly normal. In fact, it’s now more common for couples to meet online than through mutual friends.

According to Quartz, 39% of straight US couples who met in 2017 did so online. For same-sex couples, it was more than 60%!

  • The online dating industry was worth $6.5 billion two years ago…

By the end of next year, it will hit $12 billion.

By 2040, eHarmony projects that 70% of relationships will begin online.

Meeting your soulmate online will be as common as ordering a pair of shoes off Amazon… or hailing an Uber on your iPhone.

There’s an important driver behind online dating you should understand.

Today’s young Americans aren’t following in their parents’ footsteps.

They’re getting married and having kids much later in life.

As you can see below, the percent of young Americans who are single has shot above 50% for the first time since at least the 1980s.

This is great for the online dating industry. It means millions more potential customers.

  • The Match Group (MTCH) dominates in online dating...

As I mentioned, it invented online dating when it launched Match.com in 1995.

Since then, it’s built out a portfolio of 45 dating services. This includes Match.com, Plenty of Fish, Hinge, and Tinder.

No other company can compete with its product lineup.

According to the company, 60% of people who met their significant other online did so on a Match Group product.

But the Match Group didn’t just pioneer online dating...

More recently, it disrupted online dating with its smartphone application called Tinder.

  • Tinder is the world’s most popular dating app…  

4.7 million people use it. In the past two years alone, Tinder’s user base has more than doubled.

In fact, in the first half of 2019, Tinder was the second-highest-earning non-game app in the world. It beat out much larger, more recognizable apps like Netflix and YouTube.

The beauty of Tinder is its simplicity.

It’s a breeze to set up. You don’t have to answer hard questions like “what do you look for in a mate.”

You don’t have to share lots of personal information. All you need to do is upload a few photos.

In short, Tinder “cuts to the chase.” After you’ve uploaded pictures, it shows you profiles of other people you might like.

If you aren’t interested in a person, you “swipe left.” If you are interested, you “swipe right.”

If you both swipe right on each other, you “match.” At that point, you’re free to message each other.

  • Tinder users swipe 1.4 million times every minute…

That’s more than 1.7 billion swipes per day.

About 15 million of those swipes turn into matches.

Helping people find love is a great business. The Match Group makes money by selling subscriptions and ads. Its subscriptions range from $2.99 to $40 per month.

And unlike many fast-growing tech stocks, Match Group is solidly profitable. Last year it booked a profit of nearly $500 million. That’s more than double its 2016 profit.

  • The Match Group is one of this year’s top-performing stocks…

Its stock price has marched up 77%... beating the S&P 500 by 4–1.

It’s outperformed better-known high-fliers like Netflix, Facebook, Apple, and Google, as you can see here:

I expect Match Group stock to continue marching higher for a simple reason.

It has set its sights on global domination of the matchmaking market... and it’s going to succeed.

According to TechCrunch, there are around 600 million young, single people with access to the internet in the world. And two-thirds of them have never tried a dating app. Match Group is going to change that.

Although it has an iron grip on the US online dating market, its global reach is even more impressive. Its products are available in more than 190 countries and 42 different languages.

The Match Group is now focusing on other countries like India, Japan, and South Korea as key growth markets.

It’s spending more on marketing in these countries than anywhere else, and it’s paying off big time.

Tinder’s international user base has grown 23% over the past year. That’s twice as fast as its American user base grew.

Tinder is now the most downloaded dating app in India and South Korea. In Japan, it’s the fourth most popular. Pairs—another Match Group dating app—holds the #1 spot in Japan.

Over 1.5 billion people live in these countries. If Match Group can continue to replicate the success it had in the US in these giant markets, I see its stock easily doubling within two years.

Justin Spittler
Senior Analyst, RiskHedge

The $125 billion stock market secret

The $125 billion stock market secret

What’s the biggest public company in the world?

Amazon (AMZN) and Apple (AAPL) are #2 and #3.

But with a $1.04-trillion valuation, Microsoft (MSFT) is king.

Its stock has shot up 480% in the past decade...

And an incredible 138,000% since it IPO’d in 1986!

Microsoft achieved this by creating one of the best-selling products ever: Microsoft Windows.

This will probably shock most Mac fans out there...

But roughly 19 in every 20 computers sold in the past three decades run on Windows.

Windows, as you likely know, is the operating system that made computers useful to the average person.

An operating system is like the “brain” of your computer. It “talks” to the keyboard, monitor, mouse, etc.—and tells them what to do.

  • The race to build an “operating system” for cars is heating up...

Every carmaker on earth is ploughing billions into self-driving cars.

For example, General Motors (GM) has raised over $4 billion to fund its driverless car development. And German powerhouse Volkswagen (VOW) invested almost $2 billion in Ford’s (F) self-driving division earlier this year.

But when it comes to driverless cars, traditional carmakers are way out of their depth.

Think about it… General Motors and Ford know how to do one thing really well: mass produce cars.

Developing self-driving cars is all about teaching a computer to drive better than a human. It’s a totally different challenge that carmakers are just not very good at.

As we’ve talked about, self-driving cars must reliably detect and interpret everything around them.

They’re already great at recognizing obvious things like stop signs, pedestrian crossings, and red lights. When it comes to “invisible” hazards like black ice, the tech has a ways to go.

The breakthrough making driverless cars possible is a centralized computer “brain” that learns from every mile driven. It then talks to the engine, brakes, headlights, and windshield wipers and tells them what to do. Just like Microsoft Windows tells your mouse and keyboard what to do.

  • Nissan (NSANY)… Mitsubishi (MSBHY)… and Renault (RNO) have all but admitted they’ve failed at self-driving cars.

These are three of the world’s biggest carmakers…

They’ve spent billions of dollars trying to develop their own driverless systems.

Yet a couple weeks back they signed a licensing deal with self-driving leader Waymo to use its technology in their cars.

As regular RiskHedge readers know, Waymo is Google’s (GOOG) self-driving car subsidiary. And it’s absolutely dominating the race to develop self-driving car technology.

Waymo cars have clocked over 12 million miles on the roads of Arizona and California.

That’s more than all other companies combined.

The thing is, Waymo hasn’t built an actual driverless car. And it probably never will.

Instead it orders vehicles from Fiat Chrysler (FCA)… then fits them with its self-driving hardware and operating system.

  • Soon every carmaker will be begging Waymo for help...

As I said, auto companies are great at building cars. But to crack the driverless code, you need a whole different set of skills.

It’s similar to the problems faced by computer makers like IBM (IBM).

IBM built great computers. In 1993, it was the largest company on earth. Had you bought its stock in late 1993 and held on through today, you’d be sitting on a 880% gain.

Making 8X your money is a solid profit. But if you’d owned Microsoft, you would’ve 50X’ed your money as it soared 5,420%.

Waymo is developing the “Microsoft Windows” of cars. Whether you buy a Ford… a Chevy… or a Nissan… they’ll all be running on its operating system.

This is a genius move by Waymo. As you may know, making cars is a terrible business. Carmakers are lucky to eke out a couple pennies of profit for every dollar in sales. For example, for every $30,000 car Ford sells, it costs $29,000 to make, sell, and market the car.

  • Meanwhile, Waymo can license out its “operating system” for huge profits.

I estimate it can license out its technology to automakers for, say, $2,500/car. There are 275 million cars in America alone.

Do you see how HUGE Waymo’s money-making opportunity is?

And it goes far beyond cars. Waymo is also developing technology to operate driverless trucks. I expect it’ll eventually license that tech to the likes of UPS (UPS) and FedEx (FDX), which each own hundreds of thousands of delivery trucks.

  • This just might be the most important chart in all of disruption investing...

I’ve shared this with you before. Please look it over again, because it’s so darn important.

As you’ll see below, Waymo cars have driven more driverless miles than all competitors combined:

As you can see, Uber (UBER), Tesla (TSLA), GM, and others are also working to build self-driving cars.

But they lag at least 2–3 years behind Waymo.

Take GM’s self-driving unit, Cruise, for example. Recent data shows its operating system failed every 3,000 miles or so. “Failure” means a human driver had to take control of the steering wheel.

Waymo beat this milestone more than three years ago.

Waymo’s nearly perfect safety record is why it’s the only company to be granted permission to operate fully driverless cars in California.

And Waymo is the ONLY company on the planet with a fully-functional self-driving taxi service. As we’ve talked about before, it’s fully driverless robo-cars are taxiing folks around Phoenix, Arizona every day.

  • How much is a computer that can drive better than any human worth?

$50 billion… $100 billion… $500 billion... a trillion?

Investment Bank UBS estimated the self-driving car market will be worth $1.2 trillion by 2030.

Consulting firm McKinsey says revenues from driverless taxis could reach $1.6 trillion/year in 2030.

Whatever you think it’s worth, please know this...

The stock market is completely ignoring this opportunity.

If Waymo were a standalone company, it would be the hottest stock on Wall Street.

It’d easily be worth $125 billion—which is more than Starbucks (SBUX), Nike (NKE), and American Express (AXP) are each worth.

But because Waymo is tucked away inside Google—the world’s 4th-biggest public company—investors ignore it.

Within a couple years, Waymo will be raking in billions of dollars from licensing its technology to carmakers.

Not to mention its huge opportunity as it expands its robocar ride-sharing service. Within three years, that should rake in roughly another $10 billion a year.

I recommended buying Google at $1,070/share a couple of months back. Today it’s selling for $1,147/share. I see it hitting $2,000 in the next couple of years.

That’s it for today. Before you go, let me ask you a question...

As you may have seen, the US stock market hit an all-time high last week.

Does this make you want to buy stocks? Or, does it make you want to avoid buying stocks?

Next week I’ll share some data that might change your opinion.

Stephen McBride
Editor, Disruption Investor

Stephen McBride is editor of the popular investment advisory Disruption Investor. Stephen and his team hunt for disruptive stocks that are changing the world and making investors wealthy in the process. Go here to discover Stephen’s top “disruptor” stock pick and to try a risk-free subscription.

Reader Mailbag

Brittany asks about my latest Netflix (NFLX) article on Forbes that over 3.3 million investors stopped by to read:

“Don't you see all of the new streaming services as shooting themselves in the foot by severing ties with Netflix? The benefit Netflix offered them was revenue coming in without much hassle. The consumer was able to watch what they liked from multiple sources all in one place.”

Brittany, thanks for your reply.

You’re right, Netflix bringing lots of different content all under one roof was a great deal for subscribers. But it was a terrible deal for Disney and other content creators in the long run.

As background, Disney content essentially MADE Netflix. Disney signed a deal with Netflix at the end of 2012 that licensed all its best content to Netflix. Everything from Star Wars to Marvel to all its kids’ content went on Netflix.

It was similar to how book stores initially outsourced their online sales to Amazon. At first, it was nice to offload responsibility and make some extra money from selling books online. But as you know, it led to Amazon putting most bookstores out of business.

Disney isn’t making that mistake. Its Disney+ service will be a huge hit when it launches in November.

The company disrupting your mouth

The company disrupting your mouth

One of my most painful memories as a kid was having my braces tightened.

The orthodontist would grip his pliers, clamp down on the metal wire cemented to my teeth, and crank.

I’m happy to have straight teeth today... but man did those things hurt.

And they were embarrassing too. Especially during those young teen years when self-confidence is fragile. There was just no good way to hide a mouthful of metal...

  • Ever notice you don’t see metal braces all that much anymore?

Align Technology (ALGN) answered the prayers of millions of teenagers by creating “invisible” braces.

Instead of shiny metal brackets cemented to your teeth, Align’s Invisaligns looks like this. It sold over 80 million pairs last year.


Source: Align Technology

Invisalign was a godsend for people with crooked teeth. Not only could they fix your smile with far less pain and embarrassment. They made early investors rich!

In the past decade, Align’s revenue has soared 530% to $1.97 billion. In the same time its stock has soared 3,400%, as you can see here.

  • Are dentists just cruel?

Modern metal braces have been around since the 1970s. You might wonder, why did it take 40+ years to invent plastic ones?

The answer is we didn’t have the technology. Align disrupted orthodontics with 3D printing.

In short, a dentist can now scan your mouth, create a digital “map” of your teeth, then 3D “print” a customized mold.

3D printers “print” objects similar to how an inkjet prints on paper. You might remember the Super Bowl-level hype in 3D printing stocks a couple of years ago.

As I explained last year, promoters claimed that every American would soon have a 3D printer, just like we have paper printers today.

Investors ate it up and plowed billions into 3D printing stocks. 3D Systems (DDD), the largest 3D printing company, exploded to a 900% gain in two years.

But back then, these printers could make only flimsy plastic trinkets with little use. When investors realized they were duped by overhype, 3D Systems plunged 92%.

The 3D printing sector still hasn’t recovered. After five years being stuck in the mud, most investors think the opportunity to profit from 3D printing stocks is long gone.

  • Little do they know the real money-making opportunity is ahead of us...

3D printers have come a long way in the last five years. Today they make important products for some of the world’s largest companies.

For example, defense contractor Boeing (BA) now 3D prints thousands of titanium parts for its 787 Dreamliner. They’ve helped shaved $3 million off the cost of each plane.

And General Motors (GM) teamed up with 3D-printing software leader Autodesk (ADSK). Together they created a 3D-printed car seat bracket. It’s 20% stronger and 40% lighter than the old seat bracket. And it’s made from only one part instead of eight, as you can see here.

3D-printed parts are often lighter, more efficient, less expensive, and more precise than anything humans could create before. Plus they’re totally customizable. This is allowing companies to reinvent how many things are made.

For example, 3D printing is disrupting dentures.

No two human mouths are identical. So, like braces, dentures require total customization.

Anyone who has dentures will tell you having them fitted is a real pain. It usually involves a half dozen trips to the dentist and lots of mouth x-rays. You also have to get multiple impressions of your teeth, which feels like biting into a tray of mud.

With 3D-printed dentures, you only need one visit to the dentist. And biting into mud is no longer required. A dentist simply takes a digital scan of your mouth, then sends the “blueprint” off to a lab that 3D prints a customized pair of dentures.

  • 3D printers are getting faster...

One reason 3D printing was a disappointment was because it was slow. It couldn’t produce things fast enough to compete with conventional assembly lines.

Desktop Metal, a private company valued at $1.5 billion, is changing that. Its giant 3D metal printers can create certain objects 100X faster than many other 3D printers.

In fact, a study from Desktop Metal found its machines can make 546 complex parts in a single day. General Electric’s (GE) 3D printers can only make a dozen!

Desktop Metal is also “printing” with stainless steel, aluminum, and other metals at assembly-line speeds. This is key. A major drawback of early 3D printers is they could only print in fragile materials like plastic.

  • 3D printing is following the “script” of many disruptive trends...

Disruptive companies set out to accomplish things that have never been done before. If they succeed they can make investors rich. But along the way, they’re prone to hype and wild exaggeration.

It’s not unusual for investors to get carried away with dreams of riches. Their imaginations run wild and they bid disruptive stocks up to the moon. Eventually reality sets in. A correction or crash always follows.

Often, the best time to invest in these disruptions is after the cycle of hype has run its course. Smart investors can come in and pick up great disruptive stocks at a 90% discount.

3D printing is right around this sweet spot today. According to leading industry research firm Wohlers, the 3D printing industry grew by 33% to $9.98 billion last year.

The largest 3D printer company, 3D Systems, achieved record revenues in 2018.

And according to the latest IDC forecast, spending on 3D printing will hit $23 billion in 2022—up from $14 billion this year.

In other words, the industry is in the early stages of a quiet boom. Yet, 3D printing stocks are still at depression levels.

As I explained, Autodesk makes 3D-printing software. It counts many big, important companies like Airbus (EADSY) and General Motors as happy customers.

Autodesk has jumped 23% since I last wrote about it. It’s still a great “buy.”

I also have my eye on a handful of disruptive private companies in 3D printing.

Companies like Desktop Metal, Carbon, and Shapeways are achieving breakthroughs that will take 3D printing to the next level.

All three are still private, so you can’t buy their stocks today. Watch for them to “IPO” in the next year or two.

That’s it for this week. What other under-the-radar disruptions have big money-making potential? Tell me your thoughts at Stephen@riskhedge.com.

Stephen McBride
Editor – Disruption Investor

Stephen McBride is editor of the popular investment advisory Disruption Investor. Stephen and his team hunt for disruptive stocks that are changing the world and making investors wealthy in the process. Go here to discover Stephen’s top “disruptor” stock pick and to try a risk-free subscription.

Reader Mailbag

RiskHedge reader Bob replied to the question I asked last week about “average” companies being disrupted:

“Stephen, as to which mediocre company will be disrupted next, it may well be the competitors of Planet Fitness (PLNT).

Planet Fitness currently has ~1700 centers with a goal to increase to ~4,000. Note that their cheap monthly fees put them at the bottom analogous to Dollar General (DG), rather than in the middle or at the top. PLNT is a triple since end of June 2017.

I always look forward to anything in my inbox with your name on it.”

Bob, thanks for your thoughtful reply.

In the past couple of years big gym chains have spread like wildfire. Small local businesses simply can’t compete with their bargain basement prices. So you may be right—Planet Fitness will dominate other low-cost gyms.

One area I don’t see it disrupting are CrossFit gyms. Most of these gyms charge $100+ a month, and business is booming. In the past 12 months, 2,500 new affiliates registered with CrossFit. And there are now more CrossFit gyms than Domino’s Pizza stores!

How to collect safe profits on the “rewiring” of US real estate

How to collect safe profits on the “rewiring” of US real estate

Stephen’s note: Happy 4th of July from the whole team here at RiskHedge. Because markets are closed tomorrow, we’re doing something a little different. Below you’ll find an essay from RiskHedge Senior Analyst Justin Spittler. In it, he explains a unique way to profit from a disruptive megatrend that’s just getting underway...

We’ll be back to our regular schedule next week. Enjoy your weekend.

*  *  *  *  *  *  *

On a recent trip to my hometown of Omaha, Nebraska, I swung by the shopping mall I used to go to as a kid.

As was the case in many towns during the ‘90s, this mall served as a sort of “town square.” It was usually bustling with shoppers. The food court was full of families, the arcade full of kids. As a teenager in Omaha, you had two choices when taking a girl out on a date: go to the movies, or go to the mall. And the movie theater was right next to the mall.

I was shocked to see what the mall looks like today. Here’s a picture:

That says “Czech & Slovak Museum and Gift Store.”

This used to be prime real estate. It commanded high rent. Big time companies like Macy’s used to occupy this space.

  • Those businesses are long gone, and the mall has fallen on hard times...

Everyone knows online shopping revolutionized how we buy clothing, electronics, and other merchandise.

Many malls across the country have closed their doors because people simply don’t shop at malls like they once did. Instead they buy things online. After a few days, the things show up at their doorstep.

The media nicknamed this phenomenon the “Retail Apocalypse.” And its led to a radical “rewiring” of American real estate.

  • Amazon (AMZN) alone ships 5 billion packages a year...

That’s more than 13 million packages per day.

To ensure these packages make it to their destination, a whole new network of infrastructure was built out. Industrial warehouses and distribution centers form the heart of this network. These facilities store, process, and ship the packages you order online.

You might drive by an industrial warehouse on your way to work. They’re generally non-descript cement buildings, located off highways. They can stretch over a quarter mile long. And they usually have dozens of trucks docked outside.

Without these centers, online shopping would be impossible. And the stocks of companies that operate them have been great investments. Just look at the returns you could have made…   

Terreno Realty (TRNO) – a company that owns a portfolio of warehouses – has surged 187% since the start of 2014.

First Industrial Realty (FR), another warehouse operator, is up 111%. Prologis (PLD) is up 117%. And Duke Realty (DRE) is up 105%. The S&P 500 rose just 67% over the same period

  • If you missed out on this run, it’s not too late...

There’s a second real estate transformation happening now… thanks to the boom in online grocery shopping.

In just the last five years, online grocery sales have tripled. By 2023, the market is expected to quadruple again.

It’s easy to see why. Visiting the grocery store is a chore. The typical American family spends over a hundred hours a year shopping for groceries. A lot of that time is spent in the car and waiting in the checkout line.

Online shopping eliminates all that. It leaves you with more time to spend with your family, friends, and doing things you like.

  • This might surprise you…

But the US lags behind many other countries in online grocery shopping. Last year, groceries accounted for just 1.6% of total US online sales. In China, they accounted for 3.8%. In Japan and South Korea, they accounted for 7.1% and 8.3% of total online sales.

You don’t see this often. Normally, the US is a leader in tech trends. In this case, it has some catching up to do.

There’s every reason to believe online grocery shopping will catch on soon in the US. The Food Marketing Institute and Nielsen predict 70% of consumers will try buying groceries online within the next four to six years. This should push grocery sales to 3.5% of total online sales by 2023.

  • We’re not necessarily headed for a “Grocery Store Apocalypse”...

But much like retail did, the industry will evolve. Grocery stores will shrink because there will be fewer people walking up and down the aisles. They’ll store more food and beverage offsite.

As you can imagine, regular warehouses aren’t adequate for storing and processing groceries. Unlike most of the things you might buy on Amazon, groceries go bad. A grocer can’t place a frozen chicken or a bunch of broccoli in a box and mail it to you. They have to keep the food fresh.

Cold storage warehouses store frozen and fresh food before it reaches a supermarket.

About 96% of frozen food stops by one these warehouses before reaching the grocery store.

Cold storage warehouses are specialized facilities. They aren’t cheap or easy to build. They require extensive piping, large HVAC systems, and a whole lot of refrigeration. So, it’s unlikely Amazon, Wal-Mart, or any other online grocer will build their own. Instead, they’ll leave cold storage to the pros.

  • I like Americold Realty Trust (COLD)…

Americold is a leader in cold storage. It owns and operates 156 warehouses and about 928 million cubic feet of temperature-controlled storage.             

The company has been around for decades. But it went public back in January 2018… and it’s been on a tear since then, as you can see here:  

Americold’s stock has rocketed 112% since its IPO. I expect it to climb much higher as online groceries catch on. 

About 82% of Americold’s sales come from the United States. And Americold commands a 23% market share in the US. Lineage Logistics is the only bigger player in the space, and it’s private. You can’t buy its stock.

Americold serves some of the biggest players in the food and beverage space. I’m talking Walmart, Kroger, Trader Joe’s, and Beyond Meat.

Finally, Americold pays a 2.5% dividend. The S&P 500, for perspective, yields 1.9%.

Americold is a unique and safe way to capitalize on the emerging online grocery market. But it also offers plenty of upside. I wouldn’t be surprised if its stock doubles over the next two to three years as online groceries take off.

Justin Spittler
Senior Analyst, RiskHedge

How Bernard got into the rich guy club

How Bernard got into the rich guy club

There are 2,208 billionaires on earth, according to Forbes.

But only 3 are rich enough to qualify as “centi-billionaires”—worth $100 billion or more.

Amazon (AMZN) CEO Jeff Bezos is #1.

Microsoft founder (MSFT) Bill Gates is #2.

#3 will probably surprise you.

It’s not super-investor Warren Buffett. It’s not Facebook (FB) CEO Mark Zuckerberg.

It’s not a hedge fund manager... a banker...or a Russian oligarch.

  • The third richest person on earth is a French guy who sells women’s purses...

This past week, Bernard Arnault’s personal fortune grew to $100.4 billion.

If you don’t know the name, Arnault is CEO of luxury empire LVMH (LVMUY)—best known as the parent company of Louis Vuitton. He also owns $80 billion fashion giant Christian Dior (CHDRY).

Gates and Bezos made their fortunes “the regular way”—by developing game-changing products that hundreds of millions of people use every day. Eight in every 10 computers run on Microsoft’s software. Over 100 million Americans subscribe to Amazon’s Prime delivery service.

Arnault got rich in a whole different way. He built super luxury brands like Louis Vuitton, Givenchy, Hublot, and Dom Perignon.

A prestigious brand is a powerful thing. A no-name handbag from Target might cost $100 tops. But women line up around the block to hand over $5,000 for a Louis Vuitton.

LVMH’s business is booming. Profits have surged 89% in the past three years, and its stock has shot up 180% since 2016 vaulting Arnault into the centi-billionaire club.

  • Gucci is booming too...

Like Louis Vuitton, Gucci is a super luxury brand. If you want a pair of Gucci sneakers, prepare to drop a thousand bucks at least.

It might sound ludacris to spend the equivalent of a small mortgage payment on shoes, but Gucci’s are flying off the shelves. Sales at its parent company, Kering (PPRUY), jumped 50% in 2018.

Kering’s stock is on fire. It’s surged 285% in the past three years, as you can see on this chart. That’s double the gains of Amazon and Microsoft over the same period.

  • But what about the “death of retail?”

By now you know all about how online disruptors like Amazon are putting regular stores out of business.

According to leading retail research firm Nielsen, more than 21,000 stores have shut their doors in the past five years.

Yet online disruption hasn’t hurt luxury sellers one bit. Super luxury companies have proven totally immune to the internet wrecking ball. In fact, a 2018 study from “Big 4” accounting firm Deloitte found sales for luxury retailers soared 81% in the past five years!

Instead, it’s the middle-of-the-road retailers that are getting crushed.

Toys “R” Us… Sears… Bon-Ton… Borders… Circuit City… and RadioShack are all bankrupt.

Meanwhile, many other middling retailers are barely clinging to life. Macy’s (M), J.C. Penney (JCP), Dillard’s (DDS), and Nordstrom (JWN) still have a pulse, but they’re fading fast, as you can see here:

  • These disrupted stores made one mistake there’s no coming back from...

They tried to be everything to everyone.

The “department store” business model used to work okay. Open a big store... sell everything from blouses to outdoor grills to video games. As long as the store was located in a place with enough people coming through—like a city or a shopping mall—it could do good business.

Those days are long gone. Internet shopping has blown up unspecialized, “middle of the road” stores.

  • Meanwhile, low-end discount stores are doing just fine...

According to Deloitte, discount store sales have surged 40% in the past five years.

Dollar General (DG), for example, is America’s largest dollar chain. You could have doubled your money on its stock in the past two years:

Dollar General is now the largest US retail chain by store count. It operates almost 16,000 stores—more than McDonalds… Starbucks… or Walmart.

Revenue has shot up 145% in the past decade. And it’s not just low-income folks shopping there. According to JP Morgan, households earning between $50,000 and $75,000/year are Dollar General’s fastest-growing customers.

  • The hollowing out of the “middle” is a disruptive theme rippling across many industries...

Where will it strike next?

Regular RiskHedge readers know self-driving cars will gut the auto industry like a fish. In fact, it’s already begun. The stock of America’s largest car maker, General Motors (GM), has been dead money for five years. Rival Ford (F) has plunged 42%.

Super luxury carmakers are doing just fine though. Sportscar maker Ferrari’s (RACE) stock has surged 190% since going public in 2015!

So what should a disruption investor do with this information?

Steer clear of “average” stocks. Avoid mediocre, conventional, or “good enough” businesses.

For better or worse, the middle is dying as its lunch is eaten from above and below.

What mediocre company will be disrupted next? Tell me your thoughts at stephen@riskhedge.com.

Stephen McBride
Editor – Disruption Investor

Stephen McBride is editor of the popular investment advisory Disruption Investor. Stephen and his team hunt for disruptive stocks that are changing the world and making investors wealthy in the process. Go here to discover Stephen’s top “disruptor” stock pick and to try a risk-free subscription.

Reader Mailbag

RiskHedge reader Tom asks about US computer chip stocks:

Do you think American chip manufacturers will bounce back when the trade war sorts itself out?

Thanks for your question, Tom.

As I mentioned a couple of weeks ago, China bought almost 60% of all the computer chips America produced last year. The big question for these stocks is how the tensions between the US and China get resolved. If a trade deal is signed, chip stocks could hit all-time highs.

Thinking longer term, disputes around chip technology could linger for years to come. That will likely put a leash on how far these stocks can run up.

The boom nobody cares about

The boom nobody cares about

The US housing market is BOOMING.

This past month the number of Americans looking to buy a new house spiked to a three-year high...

Mortgage applications jumped 40%...

And Quicken Loans, the US’s largest mortgage lender, had its best month in 30- ears.

“The phone is ringing off the hook” CEO Jay Farner said in a recent interview.

  • This won’t come as a surprise to regular RiskHedge readers...

In February I explained why buying homebuilder stocks was a near lock to make you money in 2019. Specifically, I recommended buying homebuilder NVR Inc. (NVR).

If you bought NVR in February, nice call. You’re sitting on a 30% gain. Meanwhile the S&P 500 has barely budged, gaining 5%.

If you didn’t buy NVR yet, it’s not too late. This boom has lots of room to run... and my research shows NVR should continue to climb a lot higher.

Longtime readers will remember my housing call wasn’t popular. US housing, as we all know, crashed in 2008 and almost wrecked the global financial system. Many people lost hundreds of thousands of dollars. Some lost their jobs, their houses, their businesses.

The housing crash was perhaps the most financially disruptive event of the century. It caused a whole generation of folks to swear off housing as an investment.

I understand why no one wants to hear about housing. But you should want to hear about housing, because the evidence is overwhelming—it can make you money right now!  

As a refresher, 2018 was a terrible year for housing. Mortgage rates rose significantly for the first time in five years, which made it more expensive to buy a home. Home sales plunged. Lots of analysts warned of another 2008-style real estate meltdown.

This all led to the slaughter of US homebuilding stocks. 2018 was their worst year since the 2008 financial crisis! The US Home Construction ETF (ITB) plunged 32%, as you can see here:

  • But most everyone failed to realize one thing...

Housing affordability is a primary driver of home prices. And housing is still very affordable for most Americans.   

The National Association of Realtors affordability index takes three key metrics—home prices, mortgage rates, and wages—and boils them down into a single number.

This number tells us if average folks can afford a home. When affordability drops too low, the average American simply can't afford to buy. That often forewarns a housing bust.

Here’s the index going back to 1992:

You can see affordability is well above the 30-year average, as shown by the red line.

This is key because every housing bust in the past 50 years happened when affordability was below 120. We’re nowhere near that level today... which tells us the risk of a “bust” is virtually zero.

  • There’s a big, silly myth going around about housing...

Have you heard this “fact?”

Today’s generation of young adults, known as “millennials,” don’t want to own houses like their parents did. Instead they’ll rent for life. This lack of young buyers, the story goes, will put a cap on house prices.

This is nonsense. The data shows it isn’t just false… the total opposite is happening.

Census Bureau figures show the number of households in America just hit an all-time high at 122 million.

At the same time, the number of Americans who own their own home has jumped in the past three years. That’s significant as the rate had been plunging for over a decade.

As for the number of folks renting rather than owning a house, the number has plunged for three years in a row.

In other words, folks are buying houses faster than any time in the past 30 years.

Millennials are waiting longer than their parents to have kids. But once they have kids, they’re buying houses... just like every generation of middle-class Americans before them did.

Pew Research data shows the average age of a first-time home buyer is 31. This year the average millennial will turn... 31!

  • The outlook for housing gets even better...

There’s a shortage of homes in America.

After the 2008 housing bust, tens of millions of vacant homes were for sale. That’s no longer the case. It would take only six months to sell every existing home on the market today, as you can see here:

The seeds of this shortage were sown in 2008. In the boom leading up to the bust, US homebuilders built record numbers of houses. Four million new houses went up in 2004 and 2005 alone—more than any other two year period in US history!

As you know, the market turned south in 2006, demand collapsed, and US homebuilders lost their shirts. America’s largest homebuilder, D.R. Horton (DHI), tanked 86%.

The housing bust seared one thing into homebuilder’s minds: don’t overbuild EVER again.

So for the past decade they’ve been conservative. Census Bureau data shows an average of 1.5 million homes were built each year since 1959. Yet since 2009 just 900,000 homes have been built per year.

  • Now is a great time to buy NVR...

As I’ve explained, NVR is unlike any other US homebuilder. In short, most homebuilders buy raw land then build houses on it. NVR never buys raw land. It only buys developed land, which removes a lot of risk. This unique approach helps it avoid the riskiest part of the housing business.

When I recommended NVR back in February, it was trading at just 13-times earnings—its cheapest level since 2009. Because the stock has jumped 30% since, it’s no longer a “steal.” But it’s still a great buy, and it’s still dirt cheap.

NVR achieved excellent profit growth of 40% last year, and its stock has been on a tear since the start of the year, as you can see here.

Do you own any homebuilders—or other housing stocks? Tell me at stephen@riskhedge.com.

Stephen McBride
Editor – Disruption Investor

Stephen McBride is editor of the popular investment advisory Disruption Investor. Stephen and his team hunt for disruptive stocks that are changing the world and making investors wealthy in the process. Go here to discover Stephen's top "disruptor" stock pick and to try a risk-free subscription.

Reader Mailbag

Disruption Investor subscriber Terry asks about disruptor stock Alteryx (AYX):

“Stephen,

I have been following your newsletter for some time. Based on your recommendation I bought Alteryx and am currently up over 50%.

Is this still a good disruption investment? Are you likely to revisit AYX in the future?”

Terry, happy to hear we made some money together. Alteryx has skyrocketed in the past couple of months. The stock is up over 90% since I wrote about it back in December. Funny story: I wrote that letter in the maternity hospital just before my daughter was born...

Because the stock has shot up so fast, I wouldn’t be surprised to see it pull back 15–20% from here. Having said that, it remains a great long-term buy. Revenue jumped 51% from last year, and there’s no reason to think growth will slow anytime soon.

Why I’m buying Google on the government crackdown

Why I’m buying Google on the government crackdown

Imagine how much money you’d make if half of all people on the planet were your customers...

There are about 7.5 billion people on earth.

On an average day, 3.8 billion internet searches are performed.

92% of those searches—or 3.5 billion—flow through Google (GOOG).

That’s the equivalent of more than half the adult human population passing through Google’s website... every single day!

No other company commands that level of attention.

Not today, not ever.

Thirty times more people stop by Google.com every day than watched the 2019 Super Bowl.

And 1.9 billion people visit YouTube.com every month, which Google owns.

YouTube.com is the second most viewed website on earth.

Number one is Google.com.

Through its domination of online search, Google has grown rich and powerful. It’s the 4th largest company in the world… and has handed investors 1,900% gains since its IPO.

  • Some important people think Google has grown TOO powerful...

As you might have heard, the US Government recently announced it will launch an investigation into “big tech.”

In short, the government is looking into whether Amazon (AMZN), Google, and Facebook (FB) are too powerful and should be broken up.

These are the 3rd … 4th … and 6th largest companies on earth. Combined, they are worth over $2 trillion. They’ve produced gains of 470%, 175%, and 95% over the past five years.

All three stocks tanked when news of the potential government crackdown hit. In recent weeks Google has dropped 20%, Amazon 15%, and Facebook 18%. 

Even if you don’t own these stocks, you should care where they’re headed. Because where they go, the market is likely to follow.

Google, Amazon, and Facebook are colossal companies. Together they make up almost 10% of the S&P 500.

The S&P 500 tracks 500 of America’s biggest public companies. These three tech giants are worth as much as the smallest 193 companies in the S&P!

A smaller stock like Campbell Soup (CPB) could triple—and it wouldn’t move the needle as much as if Amazon rises just 1%.

  • What I’m about to say might surprise you…

But investors are worrying for nothing.

There is little chance the government will break up big American tech firms.

In fact, the total opposite is about to happen.

Washington and big tech are set to become best friends.

I know... this is the total opposite of what you hear on CNBC, CNN, or Fox News.

Let me explain why they’re wrong.

  • It all comes down to the US-China “Trade War.”

“Trade War” is an inaccurate way to describe it. What’s really happening is a “Tech War.”

Last week we discussed how the US government cut off the supply of microchips to Chinese phone maker ZTE, forcing it to shut down.

And if you’ve been reading RiskHedge, you know about the US Government’s blacklisting of Huawei.

Huawei, a giant Chinese tech company, is the world leader in 5G—the new superfast cell-network our phones and computers will soon run on.

President Trump says “The race to 5G is a race America must win.”

In 2018, Singapore-based chipmaker Broadcom (AVGO) tried to acquire American 5G leader Quallcomm (QCOM).

The US government shut the deal down, fearing it would help China gain the “know-how” to make Qualcomm’s cutting-edge 5G chips.

  • The White House sees China’s technological rise as a great threat to America…

President Trump recently invited big tech CEOs to the White House to talk “bold ideas for how we can ensure American dominancein industries of the future.

The meeting centered on how these firms and the government can work together to achieve American dominance in tech. They focused on disruptive areas like artificial Intelligence (AI)… 5G… and advanced manufacturing.

Does that sound like the government wants to break up big tech?

Not long ago, Facebook CEO Zuckerberg stood in front of Congress and warned that breaking up America’s big tech companies would help China.

He’s right. Google, for example, is the undisputed world leader in self-driving cars. It achieved this by investing billions of dollars into developing self-driving tech since 2009.

As regular RiskHedge readers know, this money came from the huge profits generated by Google’s core search and advertising businesses. It has consistently plowed a big chunk of those profits into developing breakthrough technologies. Google is also a world-leader in the crucial areas of artificial intelligence and quantum computing.

In short, Google is America’s greatest tech “incubator.” Breaking it up would ruin that.

  • The US government has a history of breaking up firms it deems “too big”...

It broke up Standard Oil in 1911... AT&T in 1982... and went after Microsoft in the 1990s.

But there’s too much at stake here. MIT forecasts self-driving cars alone are set to unleash $7 trillion in new wealth in the next decade.

Imagine if a Chinese company claims the lion’s share of that?

It would help China surpass the US as the world’s largest economy—a title America has held since 1871.

No matter what you think of President Trump, we can all agree he doesn’t want China closing in on the US while he’s President. He’ll do everything he can to make sure that doesn’t happen.

Which means we should expect more cooperation between Washington and big tech.

  • Okay Stephen, how does this make us money?

As I mentioned, big tech stocks have plunged on worries the US government will break them up.

Big tech will probably get a slap on the wrist. And they’ll have to pay some big fines.

But these companies won’t be broken up as long as we’re in a tech race with China.

After its recent 20% drop, Google (GOOG) is selling at its cheapest valuation since late 2016.

I’ve suggested buying Google several times in this letter. If you’ve been waiting to buy in at lower prices, now’s your chance.

You’ll likely have to wait out some choppiness in the stock price as this “break up big tech” story passes.

But I’m confident that’s all it is—a story.

The US government and big tech need each other.

Do you own any Chinese tech stocks? Tell me at stephen@riskhedge.com.

Stephen McBride
Editor – Disruption Investor

Stephen McBride is editor of the popular investment advisory Disruption Investor. Stephen and his team hunt for disruptive stocks that are changing the world and making investors wealthy in the process. Go here to discover Stephen's top "disruptor" stock pick and to try a risk-free subscription.

Reader Mailbag

RiskHedge Reader Bob L. asks:

Where is the economy going? It’s been a long time since we had a recession and usually during a recession, most stocks drop—even strong ones. How does this fit into your disruption investing strategy?

Thanks for your question, Bob. You can find my full take on preparing for recessions and crashes here. In general, many investors spend too much time worrying over when the next recession or crash will hit, which can blind them to big opportunities to make money now.

Don’t get me wrong—you must have a plan in place for these situations. You should separate your stocks into two groups: ones you’ll hold no matter what, and “fair weather” stocks you plan to sell when markets get stormy. Then you’ll need to follow through on the plan.

If you feel nervous or unsure you’ve prepared correctly, check out my friend Robert Ross’ research. He specializes in safe income, and he’s one of the smartest guys I know at picking stocks that thrive in good and bad times. Robert is holding a safe-income summit that you’re welcome to attend for free. If you’re interested, go here to reserve your spot.

Will America play its trump card in the trade war?

Will America play its trump card in the trade war?

What do an iPhone and Nike sneakers have in common?

Both are made by iconic American companies...

But both are made in China.

American goods used to be made in the good old US of A…

Then cheap labor transformed China into the “world’s factory.”

Today we get 80% of our air-conditioners… 70% of TVs… and 60% of shoes from China.

But there’s one disruptive area that America still dominates…

One that could produce huge stock market profits... OR huge losses... depending on how America’s trade war with China shakes out.

  • Computer chip manufacturing is one of the last great “made in the USA” industries.

As regular RiskHedge readers know, computer chips serve as the “brains” of electronics like your phone and laptop.

These days, chips are no longer just in computers and phones. They’re part of everyday life.

Not long ago there was only a handful of chips inside the average car. Remember when you had to crank a knob by hand to roll your car window up?

Thanks to computer chips, that’s all changed. There are 1,500 computer chips packed into a Tesla Model 3 electric car, according to investment bank UBS.

  • Total spending on chips has surged 15x over the past decade...

American companies control over half of this colossal $469 billion market.

Companies like Intel (INTC)… Qualcomm (QCOM)… and Nvidia (NVDA) dominate in computer chips.

As the use of computer chips has exploded, so too have their revenues.

Since 2009 Intel’s revenue has more than doubled. While Nvidia’s has surged 240%... and Qualcomm’s has jumped 120%.

According to the Semiconductor Industry Association (SIA), computer chips are the US’ third largest export.

No country has been able to challenge America’s superiority in computer chips. The reason is their complexity. Computer chips are one of the most complicated and costly things on earth to develop.

It took American companies decades and hundreds of billions of dollars to master chipmaking. It will likely take another decade, at least, for any other company to catch up.

  • Despite their stranglehold on the market, US chipmakers have a big vulnerability…

According to SIA, they get over 80% of their revenues from other countries.

Worse, more than half comes from China.

China is by far the world’s largest buyer of computer chips. According to “Big 4” accounting firm PWC, it bought almost 60% of all the computer chips America produced last year!

China spent $260 billion on computer chips in 2018. It now spends more on buying chips than it does on oil... which is astounding when you consider it’s also the world’s #1 buyer of oil.

It’s scary how reliant many American chipmakers are on China...

Radio-frequency firm Skyworks Solutions (SWKS) gets 84% of its revenues from China

Chinese companies account for close to two-thirds of 5G leader Qualcomm’s sales.

And graphics chip leader Nvidia (NVDA) gets 44% of its sales from China.

Doing business in China has been great for these companies. It’s been a main source of their tremendous sales growth over the past decade.

But with the “trade war” between the US and China getting worse, worried investors are dumping their stocks, as you can see here:

  • But... this is a MUCH bigger problem for China than for the US.

In short, China’s largest and most important companies have a hopeless dependency on US chips.

As I mentioned last week, smartphone giant Huawei spent $20 billion on US chips alone last year. Almost every phone it makes runs on American chips.

China needs US chips, and the US Government knows it. That’s why Trump is using it to twist China’s arm in trade tasks...

Last summer, the US ordered a ban on chip sales to phone maker ZTE (ZTCOY).

Without access to US chips, ZTE had to shut down production.

When I say “shut down,” I mean literally. Its factories had to stop making phones.

ZTE, which employs over 75,000 people, was dead in the water without US chips.

Its stock plunged 55% in weeks. ZTE was on the verge of going out of business until the White House lifted the ban a couple weeks later.

As you might know, China has its own versions of many big American companies.

Baidu (BIDU) is China’s Google. Alibaba (BABA) is China’s Amazon. China Mobile (CHL) is China’s AT&T.

All three are massive buyers of US chips. The US Government knows it can suffocate them by cutting off supply. Look at how their stocks have crashed lately as trade talks have fallen apart.

  • Chip stocks will continue to fluctuate wildly as long as the trade war drags on.

When a US-China trade deal looked to be headed in the right direction late last year, the US chip ETF (SOXX) shot up 48%.

But since talks fell apart in late April, it’s plunged more than 15%.

With such a huge chunk of their businesses linked to China, little will change until a deal gets signed.

Until then, I’m being cautious with American chip stocks and avoiding the Chinese companies dependent on them altogether.

Why invest in a company that could be crippled at a whim of a politician?

On the other hand... there’s hope this may help the US and China arrive at an agreement sooner than later.

China NEEDS American computer chips. There’s no way around it. The optimistic take is that it has little choice but to “play ball” with America to get trade flowing more freely again.

That’s all for this week.

Are you worried about the recent selloff in the markets? Tell me at stephen@riskhedge.com.

Stephen McBride
Editor – Disruption Investor

Stephen McBride is editor of the popular investment advisory Disruption Investor. Stephen and his team hunt for disruptive stocks that are changing the world and making investors wealthy in the process. Go here to discover Stephen's top "disruptor" stock pick and to try a risk-free subscription.

Reader Mailbag

Disruption Investor subscriber C.W. has a question about plant-based meat company Beyond Meat (BYND). Its stock has shot up 320% since its IPO on May 2.

Stephen, is it too late to get onto the "Impossible Burger" bandwagon? I believe there will be a big shift away from eating animals.

C.W, thanks for your question and for being a Disruption Investor subscriber.

As I mentioned, Beyond Meat’s stock has been on fire. I haven’t done much work on it, but it’s easily one of the most expensive stocks I’ve ever seen.

Right now, it trades for an outrageous 55-times sales. For perspective, Amazon (AMZN), a stock that many consider “overvalued,” sells for 3.7-times sales.

Keep in mind, the food business is notoriously unprofitable. Profit margins are typically in the low single-digits. So it’s unlikely the company will be raking in cash anytime soon.

It’s hard to justify buying any stock for 55-times sales, let alone one that’s in a bad business.

Most importantly, you should know I’m a carnivore. I’ll stick with my real ground beef patty for now!

Two big updates on the 5G rollout in America

Two big updates on the 5G rollout in America

It’s always great to talk with RiskHedge readers face-to-face…

I met a handful of you at the Strategic Investment Conference in Dallas a couple weeks ago.

Although RiskHedge readers tend to be serious investors, most don’t invest for a living.

I met an airplane pilot… a doctor… an aerospace engineer.

And almost everyone asked me the same question:

“What’s going on with 5G?”

Today, I’ll tell you about two big new developments in 5G—and what they mean for your investments.

For a refresher on why 5G is a huge moneymaking opportunity, see here and here.

In short, 5G will supercharge America’s wireless networks. It will give us internet speeds 1,000x faster than today’s.

This will open up a whole new world of disruption.

Think of 5G as a “tool” that will enable tomorrow’s disruptive businesses.

For example, how many of the following do you use?

  • Music streaming services like Spotify
  • YouTube’s video streaming
  • Ride-hailing from Uber
  • Amazon’s online store

The last wireless upgrade—4G—is the driving force behind them all.

4G arrived in the early 2010s and brought us much faster speeds. With that came the ability to do things like watch movies, stream music, or shop from anywhere on your phone.

4G allowed disruptors like Google (GOOG), Amazon (AMZN), and Netflix (NFLX) to flourish. From 2010 to today, their stocks grew 325%, 1,350%, and 3,825%.

5G will be MUCH bigger than 4G.

4G was an upgrade. 5G is a total overhaul. It’s going to enable transformative disruptions like self-driving cars and remote surgery.

  • Quietly, 5G is driving one of the biggest disruptions of 2019...

As you may have heard, the US Government recently banned Chinese telecom giant Huawei from doing business in the US.

I warned you back in February this was likely to happen.

My prediction ruffled some feathers. Huawei reps even contacted me to insist I was wrong!

Huawei is the world’s second-largest phone maker, behind only Samsung. It stands accused of placing secret “backdoors” in its equipment. If true, these backdoors allow the Chinese government to spy on Americans who use Huawei’s gear.

Huawei is a private company. It has no publicly-traded stock. But its ban rocked markets all the same...

You see, Huawei buys a ton of parts from American companies. It bought $20 billion worth of computer chips from US companies last year, according to investment bank Evercore.

US chipmaker Qorvo (QRVO) gets 13% of its revenue from Huawei...

Radio-frequency firm Skyworks Solutions (SWKS) counts Huawei as its third-largest customer...

And facial recognition company Lumentum (LITE) gets almost 20% of its sales from Huawei.

As you can see in this chart, all three stocks tanked on the news.

  • While the Huawei ban is terrible for companies that sell to it, it’s GREAT for companies that compete with it in 5G...

Huawei is the world’s largest maker of 5G infrastructure.

It had secured $100 billion worth of 5G contracts—more than five times any of its rivals.

But with Huawei all but banned from the Western world, those contracts have been torn up.

As explained awhile back, only two other companies can step up to fill the void:

Nokia (NOK) and Ericsson (ERIC).

You can see in this chart that both stocks jumped when Huawei’s ban was confirmed... and they’ve continued to march higher.

For reasons I explain in my premium service Disruption Investor, buying Ericsson stock is the best way to play this.

  • On another note... how much do you pay for cell phone service?

The average American pays over $80/month to their cell carrier, according to research from Doxo.

If you live in America, I can almost guarantee you use one of four carriers: AT&T (T)… Verizon (VZ)… T-Mobile (TMUS)… or Sprint (S).

These four have the US cell market on lockdown. They own 98% of the $260 billion/year market.

The US government has always been leery of letting phone companies grow too powerful. If too much power concentrates with too few companies, they can take advantage of customers.

When the old AT&T got too big back in the 70s, the government broke it up into seven smaller companies.

The government has also blocked several phone company mergers. In 2011, it shot down AT&T’s attempt to buy T-Mobile.

  • So, many investors were caught off guard when the US government all but approved a merger between Sprint and T-Mobile...

Sprint and T-Mobile are America’s third- and fourth-largest cell companies.

Together, they’ll form a new “supercarrier” with 136 million customers—making it a close third to Verizon with its 155 million customers.

The stocks of all four US cell companies jumped higher on the news. Sprint shot up 25% in a single day.

With this merger, three companies will effectively control the whole US cell market.

Why would the US government allow this?

It all comes back to 5G...

The US government, and the Trump administration in particular, have been adamant that the US be first in 5G. In April Trump said: “The race to 5G is a race America must win.

A 2019, GSM Association report estimates US cell companies will have to spend $100 billion over the next two years to get America 5G ready.

In short, T-Mobile and Sprint didn’t have the cash to build their own 5G networks. So they’re joining forces to build one giant network.

According to one estimate, the merger will boost the number of 5G markets Sprint and T-Mobile can serve by 8x.

  • Think of 5G like gravity…

As we all learned back in school, gravity is an invisible force that pulls objects toward each other.

The earth’s gravity keeps your feet planted on the ground… and makes apples fall from trees.

Like gravity, 5G is a hidden force affecting everything right now.

It’s a key reason why the US government blacklisted Huawei…

It’s why the government made the unusual move to greenlight the Sprint / T-Mobile merger.

And keep in mind, the 5G buildout is still only in first gear. 5G will cause massive disruption as it comes online in the next couple years.

Do you know anyone who has a 5G connection or a new 5G phone yet? Tell me at Stephen@riskhedge.com.

Stephen McBride
Chief Analyst, RiskHedge

Reader Mailbag

RiskHedge reader Scott asks how disruptor stocks will perform when the economy hits the rocks:

Stephen, thanks for sharing your thoughts and observations on the market, especially with disruptors.

How do you see disruptors like Disney (DIS) and Qualcomm (QCOM) doing in the next recession?

Thanks for taking my question, Scott.

Scott, thanks for your kind comment and question.

In short, there is no way to know how individual stocks will perform in the short term if the economy tanks.

You see, when the economy tanks, people get scared. When people get scared, they’re prone to making bad decisions. One bad decision investors make over and over again is indiscriminately selling stocks when they get spooked. This can temporarily suppress the stock prices of both good and bad businesses.

We have no control over how emotional investors will react when markets get choppy. But we do have control over the quality of businesses we buy. We want to own disruptive stocks whose businesses keep humming along no matter what. As I explained here, true disruptors keep increasing sales and profits no matter what’s happening in the markets.

Invest in these disruptors, and you need not worry about short-term swings in stock prices.

The end of the bank

The end of the bank

Notorious stickup man Willy Sutton was once asked: “why rob banks?”

“Because that’s where the money is...” he said.

For pretty much all of America’s history, banks have held a monopoly on all things money.

Need a place to deposit your weekly paycheck?

Better get a bank account.

Want to borrow money?

Go talk to a banker.

Want to pay a bill... write a check... wire money... or get a credit card?

Banks are happy to help. For a fee of course.

  • Thanks to their privileged monopoly position, well-run banks have grown very, very rich...

JPMorgan (JPM), America’s largest bank, has grown profits by 2,000%+ in the last 30 years.

Bank of America (BAC), the second-largest American bank, has seen its profits surge 4,700%.

JP Morgan and Bank of America are the 10th and 13th biggest public companies not just in the US, but on earth.

And as we all know, bankers enjoy some of the biggest salaries around. In 2017 the top five US bank CEOs earned a combined $100 million.

  • But quietly, for the first time ever, banks’ grip on money is slipping away...

Did you know that since 2008, 15,000 bank branches have shut their doors?

By now most Americans know how Amazon (AMZN) has changed shopping forever...

By selling stuff online for cheap, it shut down whole shopping malls and put big stores like Toys R’ Us, Radio Shack, and The Bon Ton out of business.

But what many investors don’t know is a similar revolution is happening in banking.

In many ways, banking is following the same script as retail... only 10 years later.

  • I haven’t stepped foot in a bank in years...

To deposit a check, I snap a picture of it with my phone. The money lands in my account within seconds.

Foot traffic into branches has fallen close to 50% in the past decade. It’s expected to fall another third in the next five years, according to financial research firm CACI.

Just like Amazon disrupted tired old retailers, hungry competitors are picking off businesses that banks used to dominate.

Take money lending for example—a business banks had owned for centuries.

Last year more than half of all mortgages were issued by “non-bank” lenders. That’s up from just 9% in 2009.

In fact, six of the top ten mortgage lenders in the US today are non-banks.

Quicken Loans is both America’s largest mortgage lender and the fastest growing firm in the industry. 

Quicken does not operate branches. Instead it evaluates borrowers using online applications. And it connects with its customers online and by phone.

Quicken is owned by Intuit (INTU)—a powerhouse “autopilot stock” I’ve liked for a long time. Its stock chart is a thing of beauty:

  • The “wealth management” business is slipping away from big banks too...

Swiss bank UBS (UBS) and Wall Street’s Morgan Stanley (MS) are the two largest wealth managers in the world.

They both get roughly half their revenue from managing clients’ money.

But online “robo-advisors” are invading this lucrative business.

Robo-advisors are online platforms that give you automated, computer-driven financial planning services.

They’re typically far cheaper than getting financial advice from a bank.

A robo-advisor might charge 0.25%–0.5% of your assets annually. Wealth manager fees typically start at 1–1.5% of your assets and can go as high as 3%.

Vanguard set up its robo-advisor service in 2018. US investors have already entrusted it with $130 billion. And it’s growing by 10–15% per year.

Vanguard operates completely online. It avoids all the costs and hassle of running physical branches. This allows it to offer the same services as a bank, but for far cheaper.

  • A bank’s physical presence used to be a great asset...

It was how they attracted new customers. Remember when you used to get a free toaster for opening a savings account? Once folks walked in the door, banks could “upsell” expensive banking services.

These days, maintaining marble floors and fancy lobbies is mostly just a waste of money.

Sure, very high net worth individuals may still care about these things. But most Americans just want a fast and convenient way to manage their money.

According to a 2014 Wall Street Journal study, it costs a bank roughly $4 every time you make a transaction in one of its branches.

But the average online transaction costs the bank just 17 cents!

In other words, costs drop 95% when you bank on the internet.

The average bank branch in the US costs roughly $2–4 million to set up. It costs another $200,000–400,000/year to operate, according Mercator Advisory Group.

US bank Wells Fargo (WFC) operates roughly 8,000 branches in America. It costs between $1.6–3.2 billion/year to keep them up and running!

  • The five largest publicly-traded US banks are worth $1.1 TRILLION in market capitalization.

Disruption in banking is still in the early innings. The average guy has no clue this is happening. That’ll change as big name banks that can’t adapt start to die off.

And keep in mind, the $1.1 trillion in wealth won’t vanish. Instead it will change hands. Hundreds of billions will be up for grabs as disruptor stocks shake up banking, just like they did to shopping.

This is a huge moneymaking trend we’ll be covering for a long, long time.

If you’re interested in investing in this trend alongside me, check out a Founder’s subscription to my new research advisory, Disruption Investor. One of my top buys is a big disruptor that in many ways is becoming the “Amazon of Banking.”

Fair warning: tonight is your last chance to claim your Founder’s deal. It gets you in for just $49, instead of the $199 that non-Founders will pay.

The doors shut in just a few hours, so you’ll have to act now if you’re interested. Go here to lock in your Founder’s spot.

Have a great holiday weekend!

Stephen McBride
Editor, Disruption Investor

Reader Mailbag

“Well, you did it again—this time on Uber!

Callin' em as ya see 'em.

It has come to a point where I enjoy your writing. I can’t remember the last time I told someone that. Maybe the early years in 2000 when I was making a killing on oil and gold! You've called it right so many times lately, I can’t remember when you were wrong.

Keep callin' em, I’ll keep readin'. Maybe I’ll make some more money or just not lose money! Can’t sit at the table and play without preserving capital!”
       —RiskHedge reader, Michael S.

Michael, thanks for the nice note. As you alluded to, Uber (UBER) had an unpleasant IPO, dropping as much as 20% in its first two days. It’s clawed back some losses, but for reasons I explained here, I’ll want no part in owning Uber stock.

Why is RiskHedge changing?

Why is RiskHedge changing?

Hello from downtown Dallas, Texas.

My team and I are on the road all week at a gathering of investment professionals. We’ve spent the past couple days chatting with insiders and taking notes. So today we’re doing something a little different...

Instead of the usual weekly essay, below you’ll find an interview between me and RiskHedge Editor-in-Chief Dan Steinhart. In it, we give you a “behind the scenes” look at an exciting change taking place at RiskHedge, and what it means for you.

Talk to you soon,

Stephen McBride
Chief Analyst, RiskHedge

*  *  *  *  *  *  *  *  *  *

Dan Steinhart: Stephen, most readers won’t know this, but we’re coming up on the one-year anniversary of your first RiskHedge Report issue.

Stephen McBride: Yes, I actually wrote it from a coffee shop in Vermont last June. When I hit the send button I had no idea what to expect. A couple people read it and we got two notes of feedback. And one of them was from my mom [laughs].

DS: But folks passed the letter around and readership grew pretty quickly. Over 30,000 investors now read you every week. Why do you think it’s grown so fast?

SM: One thing I like about disruption is most smart investors just “get” the importance of it. They see the world changing faster than ever, and they know the old ways of investing no longer cut it. Not when S&P 500 stocks are dropping like flies, and smaller disruptive companies are rising to replace them, in some cases practically overnight.

DS: You’re saying disruption touches everything.

SM: It touches everything in the markets, yes. Disruption isn’t a niche like energy stocks or corporate bonds. If you aren’t interested in those things, you can choose to ignore them and still earn strong investment returns elsewhere.

But these days, you can’t ignore disruption and expect to do well investing. If you fail to understand the disruptive changes taking place, you’ll be left behind. You’ll end up owning stocks that might seem “safe” to the average guy... but that are actually in great danger of losing 50% of their value or more. And you’ll miss out on great opportunities to earn big, safe profits. Bigger than ordinary stocks can bring you.

DS: You’ve met and talked to a lot of readers. Is there a “typical” RiskHedge reader?

SM: Not really. I just met a reader here in Dallas who is an airplane pilot. But our readers come from all walks of life—doctors, teachers, lawyers, entrepreneurs, CEOs, investment professionals, accountants, retired folks.

If there’s a common thread, it’s that RiskHedge readers are planners. If you’re reading this letter, you’re likely a financially responsible person. You likely spend a good deal of time thinking about your family’s financial future. You’re not the type of person who would leave something so important up to chance.

DS: So you mentioned RiskHedge has really taken off...

SM: Yes, it’s been great. And we’re at the point now where readers are asking me for more and more. Much more than I can provide in a once-a-week, free letter.

RiskHedge reader Peter recently wrote me:

“Stephen, I read your article on Xilinx from December 2018. Very clear and well written. The stock has now reached the initial $130 target. Are you going to update your article soon?”

As readers may remember, I recommended 5G chip maker Xilinx (XLNX) back in December. The stock is up 35% since then. But as Peter said, we haven’t had a chance to revisit Xilinx. Should you take profits, or keep riding it higher?

Frankly, it felt wrong to dedicate a whole second issue to Xilinx when there are so many other important disruptive trends readers need to know about.

DS: As we talk, I’m scrolling through dozens of notes from subscribers asking you to create a portfolio of disruptive stocks. They want clear buy instructions and clear sell instructions, so they know when to lock in profits. They want ongoing guidance.

SM: That’s exactly why I’ve created Disruption Investor.

DS: For folks who don’t know, Disruption Investor is your new premium investing service. Tell us about it.

SM: In Disruption Investor I hunt for stocks that are changing the world. Ones that, according to my research, are primed to hand us big profits as they disrupt whole industries.

DS: We should be clear that you’ll focus on safe, larger disruptive stocks—not small startups.

Right. I won’t be recommending tiny “early-stage disruptor” stocks. That’s my colleague Chris Wood’s expertise. My Disruption Investor team and I hunt for established, safe disruptors.

DS: Give us some examples.

SM: Subscribers can expect the kinds of disruptor stocks I’ve been writing about in the RiskHedge Report. In the last couple months, we’ve collected 115% profits on advertising disruptor The Trade Desk (TTD)... 30% on TV disruptor Disney (DIS)... 83% profits in data disruptor Alteryx...  and 30% in 5G disruptor Qualcomm (QCOM), to name a few.

And keep in mind, that’s with the limited resources of a free, once-a-week letter. Which, as I’m sure readers realize, only allows us to go so “deep.”

DS: Now’s a good time to address what many readers are probably thinking. Your weekly RiskHedge Report has been free, and many people don’t like when something goes from free to not free...

SM: You and I have spent hours talking about how to best address this. I think we came up with something that should make everyone happy.

We’ve decided to give current RiskHedge readers a very special opportunity to claim a “Founder’s Subscription” to Disruption Investor. What this means is they’ll pay just $49 for a whole year—far less than the $199 others will pay.

Our goal with this Founder’s arrangement is to offer a deal that’s so attractive it’s a no-brainer. Given that a Founder’s subscription will cost less than 15 cents a day, I think we achieved that.

Also, I want to be clear that my weekly RiskHedge Report will remain free. I’ll continue to send it to readers every Thursday afternoon.

The big change is Disruption Investor will now be home for all my stock recommendations.

DS: Can you talk about your first Disruption Investor stock recommendation?

SM: Readers should go here to get the full details, but here’s the gist. As you know I’m no fan of Netflix (NFLX) stock. I warned about its problems before it crashed 42% last year. It’s since bounced back, but I still wouldn’t touch it.

My first Disruption Investor recommendation is a little-known company that has Netflix by the throat. Its profits are surging, and it’s rapidly stealing market share from a much, much bigger rival. My research shows its set to hand us big gains of 200%, 300% or more over time.

DS: Readers can review your case for this stock—which you’re calling Netflix’s Worst Nightmare—right here. Anything else they should know?

SM: Just that I really appreciate all the support over the past year, and I’m excited to take this next step. Also, we’re only ever offering Founder’s Subscriptions this one time, and the window to claim one won’t be open long. So anyone who’s interested should go here now to review all the details.

The dumbest thing you can do with your money in 2019

The dumbest thing you can do with your money in 2019

When was the last time you took a cab?

I mean a real yellow taxicab, with a light on the roof and a fare meter running.

I don’t even own a car, and I haven’t climbed into a cab in years.

That’s not because I never go anywhere. I travel all the time for research.

Instead of taking cabs, I “Uber” everywhere.

  • You surely know all about Uber by now... 

Its technology allows anyone with a smartphone to drive their own personal vehicle like a taxi.

900,000 people drive for Uber today. Passengers took five billion Uber rides last year. 

Uber isn’t in the business of owning cars. It doesn’t employ drivers. Instead its “app” connects drivers with people who want a ride.

Uber sets the price of the ride and facilitates the transaction. The driver keeps most of the fare, and Uber takes a 20% cut on average.

“Ubering” is so popular it has become a verb. For now the company is private and doesn’t trade on the stock market. But don’t confuse private with small. Recent estimates value Uber at up to $100 billion.

That puts Uber among America’s largest companies. It’s bigger than coffee giant Starbucks (SBUX) and America’s #1 defense contractor Lockheed Martin (LMT)!

  • Uber’s upcoming IPO is set to be the most hyped financial event of 2019...

After years of anticipation, Uber has filed documents to go public. No date has been set, but the IPO is expected in the next few weeks. It will trade under the ticker UBER.

Uber’s IPO is set to be a COLOSSAL event. It’ll be one of the biggest IPOs since Facebook (FB) went public in 2012. Soon you will be hearing about this everywhere. There’s a good chance they’re talking about Uber on CNBC right now.

An IPO, as you may know, is when a company first sells shares in the public markets. It marks the first time individual investors can buy the stock.

IPOs carry a special allure. Investors dream of “getting in on the ground floor” and riding the stock to 20x–30x profits.

As a RiskHedge reader, you know collecting profits of 20x or better is possible if you identify disruptive stocks early on.

Uber is certainly disruptive. But as I’ll show you, it’s a HORRIBLE investment.

  • Uber burns more cash than any company I’ve ever seen.

It is dangerously unprofitable.

Its IPO documents show it lost $1 billion on $3 billion in sales in just the past three months.                                                    

Now some might say: "Stephen, it's no big deal that Uber makes no money. Amazon made little profit for its first couple of years and it’s been an incredible investment. Its stock has soared 100,000% since its IPO. I want to get in on the ground floor of Uber like many did with Amazon!"

It’s true that early investors in Amazon (AMZN) got rich. It’s also true that Amazon lost money in its first seven years of business. From 1996 to 2002, it burned through around $3 billion.

The thing is… Uber has lost more money in the past nine months than Amazon did in its first seven years!

And Uber isn’t a “new” company. You can forgive young startups for sacrificing profits for growth. Uber has been around for a decade and is still nowhere near profitability.

  • Another popular argument for buying Uber stock goes like this:

Uber will be among the biggest IPOs since Facebook… and Facebook’s stock has shot up 450% since 2012!”

Facebook, as we’ve discussed, is one of the most efficient cash-generating machines America has ever seen.

It makes money selling online ads, which is an extremely profitable business.

At its peak, Facebook was turning $0.50 on every dollar of sales into pure profit. That is off-the-charts incredible. It’s nearly unheard of for a company as big as Facebook.

Uber’s margins are off the charts too. But they’re off-the-charts awful. Uber loses 25 cents on every dollar it brings in. In fact, research from Recode shows Uber loses an average of $1.20 on every ride.

Uber’s problem is the fares it charges aren’t nearly enough to cover its expenses. Roughly 80% of a fare goes toward paying drivers and related expenses.

In other words, almost all its revenue goes right back out the door before it can even pay overhead costs like rent or salaries for its 16,000 employees.

  • As far as I can tell, Uber will never make money.

Money-losing firms often aim to achieve profitability through “scale.”

This means a company keeps growing and growing and selling more and more stuff, until eventually its revenue surpasses expenses.

This worked for Facebook. In its first few years, Facebook actually lost money. By 2009, it was selling enough ads to earn a profit.

It cost Facebook a ton of money to build out its online ad platform. But once it was up and running, it barely cost anything to sell each additional ad. As it sold more and more ads, costs stayed flat and income soared.

Uber’s business model does not afford this luxury. Very few of its costs are “fixed.” Every ride costs it money. As I said, it’s losing roughly $1.20 on every trip.

More trips won’t solve this because costs rise just as fast as revenue.

Uber is trapped in a money-losing spiral it can’t escape.

  • And even if Uber were a decent business, which it is not...

Most of the upside is long gone. Early private investors have claimed it all.

For example, former cyclist Lance Armstrong is an early investor in Uber. He invested $100,000 around 2009 when the company was valued at less than $4 million.

Since then Uber has surged 25,000x in value! If Armstrong held onto his whole $100,000 stake, it’d be worth roughly $2.5 billion today.

As I said, the allure of buying a company when it goes public is getting in on the ground floor.” You buy when a promising company is small and 20x gains (or better) are on the table.

But Uber is already HUGE. As I mentioned, it’s worth $100 billion. It’s already among America’s 100 largest companies.

Uber’s IPO is no ground-floor opportunity. Uber is a giant, overvalued, money-losing enterprise that early investors have already milked dry.

  • To be clear, I love using Uber’s service...

Uber has improved life for millions.

Drivers can make a decent living driving for Uber full time. Hustlers can earn some extra cash on the side by driving part time. Passengers get a cheaper, cleaner, and an overall more pleasant experience than riding in a cab.

It’s a win-win for drivers and customers.

But it’s a LOSE for investors.

Do you know anyone excited to buy the Uber IPO? Tell me about it at Stephen@riskhedge.com.

Stephen McBride
Chief Analyst, RiskHedge

Reader Mailbag

RiskHedge reader Ron writes about my recommendation of Disney (DIS) stock:

“Stephen, Nice call on Disney a few months back. I made me some $ because I listened to you. Thanks!”

Ron, glad to hear you bought Disney before it surged higher on the “big reveal” of Disney+. The stock hit another all-time high on Monday and is up roughly 25% since the start of 2019.

As I mentioned in last week’s note, I expect Disney to head much higher over the next few years. Keep in mind, its stock has shot up a lot in the past couple of weeks, so I wouldn’t be surprised to see it take a breather here.

Disney reports earnings next Wednesday. If the numbers disappoint, it could be a good opportunity to buy in or add to your position at better prices.

The surefire way to make millions in America

The surefire way to make millions in America

Where will you be tomorrow at 6 pm?

If you have kids under the age of 15 like I do, there’s a good chance you’ll be sitting in a movie theater.

Even if you don’t have kids, you’ve likely seen TV commercials for the spectacle that is Avengers Endgame.

America sure loves its superhero movies. Tomorrow’s premiere is set to be the biggest moneymaker yet. Some projections have Avengers Endgame topping $1 billion on opening weekend, which no movie has ever achieved. Overall, it should surpass $2 billion in ticket sales.

A dollar doesn’t go as far as it used to, but two billion dollars is still a lot of money. Netflix (NFLX) doesn’t collect two billion dollars in a whole month, let alone on a single movie!

So who’s milking this cash cow?

In the heist of the decade, Disney (DIS) acquired Marvel Entertainment for $4 billion in 2009.

Since then Marvel superhero movies have collected more than $17 billion.

  • As profitable as this weekend will be, it’s only the second most exciting thing to happen with Disney this month...

Look at this leap Disney’s stock took on April 12:

That’s a 12% one-day gain.

Big, safe stocks like Disney don’t often jump 5% in a day, let alone 12%. Disney isn’t a small, medium, or even large company. It is a GIANT company. It’s the 18th-biggest publicly traded American company—bigger than Coca Cola, McDonald’s, and Wells Fargo.

  • Disney’s leap happened on its “big reveal”...

It announced details of its new streaming service, Disney+, which will compete with Netflix.

If you’ve been reading the RiskHedge Report, you know this has been a long time coming. I’ve been pounding the table to buy Disney stock for this very reason since last July.

My thesis was simple. Netflix pioneered “streaming” where you watch shows through the internet rather than on cable TV. For years it was the only streaming game in town. Early investors rode this first-mover advantage to 10,000% gains from 2008 to July of last year.

But nothing lasts forever. Disruptive companies go through cycles. Netflix is now what I call a “disruptor in decline.”

You can review my full reasoning here. In short, big media giants like Disney were asleep when Netflix introduced streaming. It took years, but Disney has finally gathered itself and is fighting back.

(But Disney is not Netflix's worst nightmare. There’s a little-known company that has Netflix by the throat. Not 1 in 100 investors know about this stock. Click here to learn more.)

  • Unfortunately for Netflix, it’s not a fair fight.

As we’ve discussed, Disney is far and away the king of producing movies and TV shows people want to watch.

It owns Marvel, which is the most profitable movie franchise in history.

It owns Star Wars, which is the second most profitable movie franchise in history.

It owns Pixar Animation Studios, which continues to pump out moneymaking sequels to hits like Monsters, Inc., The Incredibles, Finding Nemo, and Toy Story.

It owns National Geographic, The Simpsons... not to mention all the traditional characters like Mickey Mouse and Donald Duck.

For Netflix, going up against Disney in a content war is just not a fair fight. It’s like a little league team taking on the New York Yankees.

To start, Disney+ will have 7,500 television shows and 500 movies, including practically every film your children and grandchildren will want to watch.

And Disney’s entire 2019 film slate will stream only on Disney+. It won’t be on Netflix.

So folks who miss Avengers Endgame in theaters will have to subscribe to Disney+ to stream it at home.

The same goes for upcoming Disney hits Toy Story 4 and Frozen 2.

(There's a company that controls a precious resource that is the lifeblood of streaming businesses like Netflix. Without this resource, even Disney is dead in the water. For this reason, this stock is set to DOUBLE every 2 ½ years. Learn more here.)

  • How much would you pay to make your kids happy?

How about $6.99/month?

That’s all Disney+ will cost.

That’s less than half the cost of Netflix’s most popular plan.

Can you imagine how many parents will sign up?

At seven bucks a month, what family with kids under 12 won’t subscribe?

  • Disney has mastered the art of producing profitable blockbusters...

Since 2012, 11 of the 16 highest-grossing movies in the world have been Disney productions.

Six of these 11 were Marvel movies.

Disney has never lost money on a Marvel movie, or even come close. Every superhero flick it produces is a sure bet to make hundreds of millions at a minimum.

You won’t be surprised to learn that six more Marvel movies are in the works.

  • Back in November I put a $170/share price target on Disney...

We’re already halfway there. I see it reaching $170 within 12 months. Within 3–5 years, it could easily double from today’s price of $135.

Streaming gives Disney a whole new way to monetize its movies and TV shows. Disney estimates Disney+ will have between 60–90 million paying subscribers by 2024.

That works out to 12 million new subscribers a year for the next five years. That’s easily achievable. In fact, I predict Disney will beat it. Netflix has added an average of 20 million subscribers a year since 2014. Disney has far better content and costs half as much.

The case for Disney gets even better when you consider that it owns America’s #1 sports network, ESPN. It also owns a controlling stake in the fastest-growing streaming service, Hulu.

My research suggests it can attract another 90 million paying subscribers with these services, too.

Altogether, Disney should be collecting around $16 billion/yr. from streaming by 2024—up from zero today.

Another great thing about streaming is it allows Disney to cut out middlemen and retain more profit. Research from S&P Global Market Intelligence shows Disney collects roughly $7.50/month per ESPN subscriber today. Yet tens of millions of Americans pay cable companies at least fifty bucks to get ESPN in a bundle.

By cutting out the cable company, Disney can keep more money and slash the price of accessing ESPN.

As much as I like Disney, my team and I are studying a different stock that we’re calling the “Netflix Killer” around the office. It’s smaller and less well-known than Disney, with far more upside. Learn more here.

It’s part of a special project we’ve been working on behind the scenes for months.

Stephen McBride
Chief Analyst, RiskHedge

Reader Mailbag

RiskHedge reader Alex has a question about my recommendation of Google’s stock.

“First off, your weekly emails are pure gold!

The research is thorough and this piece on Waymo just confirmed how great your emails are.

I have been recommending Google as a stock to buy and hold until you're old enough to give it to your kids or grandkids. That being said, I was wondering if you shouldn't be recommending GOOGL instead of GOOG?

Thanks for everything and have a great weekend!”

Alex, thanks for your question. I’m glad you’re enjoying the letter.

There’s one difference between Google’s Class C shares (GOOG) and its Class A shares (GOOGL). Its Class A shares have voting rights, and its Class C shares do not.

For this reason, GOOGL trades at a slight premium to GOOG. But the two move in tandem. Since April 2014, the correlation between GOOG and GOOGL has been 0.99. 1.0 is a perfect correlation. So for individual investors, there’s no real difference between the two classes.

When a law is a lie

When a law is a lie

Stephen’s note: Today we’re doing something a little different. Instead of our usual weekly essay, RiskHedge CIO Chris Wood is stepping up to explain a foundational key to disruption investing. It relates to an important idea most folks are roughly familiar with but not 1 in 100 truly understand.

*   *   *   *   *

There’s a big lie about disruption going around.

Folks aren’t spreading it intentionally...

Many smart investors I talk to genuinely believe it to be the truth.

As a RiskHedge reader, you’re in the top 1% at understanding disruption and the money-making opportunities it can create.

But if you accept this widespread lie, you’ll likely make the wrong decisions when investing in 5G and other disruptive trends.

In today’s issue, I’ll explain the real truth and why it matters to you.

  • As you likely know, your smartphone is more powerful than an early 90s supercomputer.

And keep in mind, all a supercomputer does is crunch numbers.

Your smartphone can do the job of a whole collection of gadgets.

It’s a phone, camera, camcorder, Walkman, watch, wallet, radio, global map, TV, VCR, and computer all in one.

We have “Moore’s law” to thank for this.

Named after Intel founder Gordon Moore, it observes that computing power doubles roughly every two years.

This has led to exponential growth in computing power.

As you may know, exponential growth “snowballs” over time. It builds momentum and eventually leads to vertical gains, as you can see here:

For the past few decades, computing power has more or less followed this path.

  • The driving force behind Moore’s law is this:

It holds that the number of transistors that can fit on a computer chip doubles about every two years.

Transistors allow computers to compute. The more transistors you cram onto a chip, the more computing power it has.

Again, for the past 50 years, this has more or less held true. Back in 1965, only 64 transistors fit on the world’s most complex computer chip.

More than 10 billion transistors can fit on today’s chips.

Moore’s law is responsible for many of the giant stock market gains in the past few decades. Leaps in computing power enabled big disruptors like Apple, Microsoft, and Amazon to achieve huge gains like 50,800%, 159,900%, and 111,560%.

And along the way, the companies that make the computer chips have gotten rich, too.

Taiwan Semiconductor, Micron Technology, and Intel achieved gains of 1,014%, 3,256%, and 35,050%.

Conventional wisdom is that Moore’s law will continue to snowball. As progress gets faster and faster, you can understand why many folks think we’re headed for a tech utopia.

  • It’s a great story. But it’s not quite true.

Moore’s law isn’t really a law.

Gravity is a law. Moore’s law is an observation and a forecast.

As I mentioned, since 1965, it has held true.

But here’s the key...

Within the next few years, Moore’s law will break down.

You see, although today’s transistors are microscopic, they still take up physical space.

There’s a limit to how small you can make anything that occupies physical space.

We are now approaching that limit with transistors. So the progress predicted by Moore’s law must slow.

In fact, Moore’s law is already slowing down. Many technologists predict it will totally breakdown between 2022–2025.

Does that mean progress will stop?

Not a chance.

New technologies will pick up where Moore’s law leaves off. There are three exciting computing technologies in development you should know about.

  • 3D computing hits the market later this year.

What does a city do when it runs short on land?

It builds skyscrapers.

By building “up,” you can create real estate with the footprint of a one-story building, but one that holds 100X more people.

Something similar is just getting underway in computing.

You see, the “guts” of computers have always been two dimensional. Flat computer chips sit on a flat motherboard. Nothing moves in 3D. There’s no “up” or “down” inside a computer chip.

That’s now changing. In December, Intel (INTC) introduced its new 3D chip technology. It plans to begin selling it later this year.

Tech reporters are touting it as “how Intel will beat Moore’s law.”

Chips stacked in 3D are far superior to ones placed side by side. Not only can you fit multiples of transistors in the same footprint. You can better integrate all the chip’s functions.

This shortens the distance information needs to travel. And it creates many more pathways for information to flow.

The result will be much more speed and power packed into a small space. Eventually, 3D chips could be 1,000 times faster than existing ones.

  • DNA computing is a bit further off... but its potential is mind-boggling.

DNA, as you know, carries the instructions that enable life.

As incredible as it sounds, DNA can be used for computing. In 1994, a computer scientist at the University of Southern California used DNA to solve a well-known mathematical problem.

One pound of DNA has the capacity to store more information than all the computers ever built.

A thumbnail size DNA computer could theoretically be more powerful than today’s supercomputers.

I won’t get deep into the science here. DNA computing is still very early stage. But several companies, including Microsoft (MSFT), are working to push the technology forward.

  • Quantum computing could be the ultimate disruption.

The science behind quantum computing will bend your mind.

To understand its potential, all you really need to know is this:

The basic unit of conventional computation is the bit.

The more bits a computer has, the more calculations it can perform at once, and the more powerful it is.

With quantum computing, the basic unit of computation is called a quantum bit—or qubit.

Bits behave linearly. To get a 20-bit computer, you might add 2+2+2+2+2+2+2+2+2+2.

Quibits are different. Every quibit doubles computing power.

So, a ten quibit computer could do 2x2x2x2x2x2x2x2x2x2 calculations at once, or 1,024.

A 100 qubit quantum computer could perform over 1,000 billion billion billion simultaneous calculations.

Those numbers are too big for humans to comprehend.

In theory, a small quantum computer could exceed the power of a regular computer the size of the Milky Way galaxy.

With enough computing firepower, a quantum computer could solve any problem.

If we ever achieve far-out goals like controlling the weather, colonizing Mars, or reversing human aging, quantum computing will likely be the driving force.

  • There are no pure-play quantum computing stocks...

They’re all private or have been scooped up by larger companies.

Many of the big tech players are developing quantum computing technology. Microsoft, IBM, Google (GOOG), and Intel are a few.

Google looks to be in the lead.

In March 2018, it unveiled its Bristlecone quantum processor, which the company thinks could achieve “quantum supremacy.”

Quantum supremacy is the “tipping point” for quantum computing. It’s the point when a quantum computer can beat a regular one in a useful task.

So far, scientists haven’t been able to crack this. But once quantum supremacy is reached, progress should take off very quickly.

This is yet another great reason to consider investing in Google—in addition to the others my colleague Stephen McBride has pointed out here and here.

Chris Wood

Chris Wood is editor of Project 5X, RiskHedge’s premium research service dedicated to uncovering small disruptor stocks with 500% upside or better. Project 5X is currently closed to new members. If you’d like to be alerted the next time memberships are available, please write us at support@riskhedge.com.

Reader Mailbag

Last week’s issue on disruption in groceries prompted record feedback. Most readers made it clear they will not be ordering most of their groceries online. Here are some of the notes we received.

Nope. I want to examine carefully (in advance) anything I am going to eat. Even if it is in a box or can. I want to examine the container and read the label before I buy.

Except for investment-related newsletters, I have never bought anything online. Trust me on this part—my wife makes up for it with her online purchases.
      
—RiskHedge reader Michael T.

We do not buy groceries online because we have to be home to receive the delivery. Produce can freeze or spoil in the heat. And I like to check the quality of produce before buying. We live in Canada, and the US has better distribution.
       —RiskHedge reader Zena K.

Thank you for the newsletter. I won’t buy groceries online for several reasons:

1.  I believe it's more expensive.
2.  I don't believe I can use coupons online.
3.  I enjoy shopping at the grocery store. It allows me to spontaneously plan a meal, especially if something is on sale
4.  I like seeing the new products introduced at the store. Seeing them on a flat computer screen isn’t the same.
5.  If I were to shop online, I would have to be there to accept the delivery. Otherwise they’ll be left rotting on my doorstep
6.  I hate when companies ship in Styrofoam coolers. It’s bad for the environment and bad for my wallet (somebody has to pay for the expensive packaging).

       —RiskHedge reader Paul B.

I once ordered groceries online from Thrive. The matzo crackers were crushed due to extremely poor packing. I never complained about it, but I also never ordered from Thrive again.

I would never order fresh produce online. I prefer ripe fruits and veggies, not the flavorless stuff that is picked unripe and gassed. So I tend to shop where produce is from local sources. Also, I pick through the vegetable bins looking for the best specimens. Sometimes I decide not to buy an item on my list because it doesn’t look so good that week.
       —RiskHedge reader Jana H.

Stephen, I enjoyed reading your take on grocery business. Couple comments:

1. I have ordered online, but I still prefer picking up my fresh items.
2. Online ordering lets me choose items at my convenience rather than store hours.

Also, while you mention Kroger as a single brand, the company is actually comprised of several brands across different regions in this country. When I travel, I can go to any of their brands and access my loyalty benefits and still count on consistency and quality.

Could you explore Kroger's national impact total alongside Walmart? I live in the metro Atlanta. We have several tech-based online grocery shopping options.
       —RiskHedge reader Chris C.

Millions of old people socialize at stores. Stores allow us to get some post-dated foods for 40% off. I like having pizza and chili at Costco with my grandchildren.

I manage my finances online. That’s what the internet is for. Don’t take away our shopping fun.
       —RiskHedge reader John P.

Two gorillas are fighting to disrupt your fridge

Two gorillas are fighting to disrupt your fridge

In 1996 the founder of bookstore Borders had a unique idea.

What if, instead of having to shop at the grocery store...

You could pick out food online and have it delivered to your house?

He founded online grocer Webvan, which promised to drop your groceries on your front porch within 30 minutes of ordering.

By 1999 business was booming. Management decided to take advantage of investors' silliness during the dot-com bubble and list Webvan on the stock market.

The stock debuted at $15 on a Friday morning. That afternoon it closed at $24.88–good for a 65% gain in one day.

  • But it didn’t take long for investors to sober up...

Somehow they had forgotten that selling groceries is a ferociously competitive business.

On average, grocers make less than two cents profit on every dollar of revenue.

This is why Webvan lost money on every delivery.

It cost far more to deliver the groceries than Webvan could possibly sell them for. The math just didn’t work.

Investors sprinted for the exits, crashing the stock down to $0.06/share.

Webvan shut its doors for good in 2001 and donated all its remaining food to a food bank.

  • For 25 years, every attempt to disrupt the colossal $1.5 trillion/year US grocery market has failed.

Americans spend more money on groceries than anything besides housing.

But almost none of it happens on the internet.

You can see on this chart that a tiny 2% sliver of total grocery sales in America happens online.

Now consider this: 55% of books are bought online today…

While 30% of electronics purchases take place on the internet.

Amazon’s (AMZN) disruption of retail is one of the stories of the century. As you know, it has driven once-iconic stores like Sears and J.C. Penney to the brink.

And according to leading retail research firm Nielsen, more than 21,000 stores have shut their doors in the past five years.

Along the way early Amazon shareholders have gotten rich on 116,000% gains.

And founder Jeff Bezos has accumulated untold wealth. He’s not only the richest guy in the world—he’s the richest person in modern history.

  • Bezos owes his fortune to the disruption of the giant US retail market...

But did you know that the American grocery market is 3x bigger than ALL of the online retail market? In other words, we spend 3-times more money on groceries than we do buying stuff over the internet.

Yet there’s been virtually no disruption in groceries over the last 60 years.

Most suburban Americans still drive to the grocery store.

We still push a cart up and down the aisles.

We still place our items on a conveyor belt at the register.

It’s pretty much the same as it was in the 1960s.

  • But my research shows the monster grocery market is finally about to be turned on its head...

Until recently, even mighty Amazon has been stumped by groceries.

It rolled out a grocery delivery service Amazon Fresh back in 2007.

Since then Fresh has lost money every year.

After a decade of failing to turn a profit, Amazon folded Fresh in most US cities in 2018.

In 2017 it set down a new path. As you may remember, that’s when Amazon bought the Whole Foods supermarket chain for $13.7 billion.

Whole Foods is the largest natural and organic grocery chain in America. It operates roughly 470 stores around the country.

Acquiring Whole Foods is Amazon’s first step into physical grocery stores.

In the next two years it plans to open 3,000 “Amazon Go” stores in the US, according to Bloomberg.

Amazon Go stores are Amazon’s “checkout-free” stores. They completely remove the time-consuming checkout process.

You walk in… scan your phone to verify who you are… pick up what you want… and walk out.

  • By the end of 2019, Amazon will have a grocery store within 20 miles of 70% of the American population...

This solves the biggest problem with online groceries… delivering fresh produce to skeptical customers.

In a 2019 eMarketer survey, 90% of shoppers said they’d buy groceries online from their current grocery store.

Just 4% said they’d buy from an “online only” grocer.

In other words, people are open to having their groceries delivered…

But they don’t want to have milk and meat shipped to them from some warehouse 50 miles away.

They want to buy groceries from companies with a local physical presence that they trust.

  • America’s biggest grocer is moving online too...

Walmart (WMT) sells roughly one-fifth of all groceries in America.

With 5,300 stores in the US alone, it already has a store within 10 miles of 90% of American households.

Roughly 95% of Walmart’s sales happen in its physical stores. But over the past three years it has plowed $20 billion into efforts to step up its online presence.

That’s helped propel it to become the third-largest online retailer in America… behind only Amazon and eBay.

By the end of this year, same-day grocery delivery from Walmart will be available to 60% of US households.

That’s 195 million people who can choose to have their weekly shopping delivered to their doorsteps.

  • As I mentioned, just 2% of the $1.5-trillion grocery market is online today.

As Walmart and Amazon go all-in, this should jump to around 20%.

That’s 10x growth... and it’s coming much faster than you might expect.

By the end of this year, more than 80% of Americans will have access to online groceries.

My team is doing a special research project to identify who will win these grocery wars.

I’ll have more to say about that soon.

For now, please know this:

  • Many smaller grocery chains are in big trouble.

A study from consulting firm Oliver Wyman found that if just 8% of the grocery market moves online, one-third of all grocery stores will shut their doors.

You see, small grocers tend to be fragile because they survive on razor-thin margins.

The average net profit margin for grocery stores is just 1.9%. As I mentioned earlier, they make less than $0.02 in profit for every dollar of sales.

With such slim margins, even a small dip in sales can ruin their business.

Amazon and Walmart are two of the biggest, most powerful companies on earth. They’re like a couple of 800-pound gorillas marching in on small grocers’ territory.

There are 11 publicly traded grocery stocks in America:

A tidal wave of disruption is about to hit all of them.

Some will end up like Borders, RadioShack, and Toys R Us: bankrupt and in retail heaven.

We're in the early stages of a big shift in the way people buy groceries.

Remember: groceries are the largest consumer market in America…

And the least amount of spending occurs online.

It’s shaping up to be a disruptor’s dream.

I’ll have a lot more to say about this in the coming weeks.

Have you ever ordered groceries online? If not, why not? Tell me at Stephen@RiskHedge.com.

Stephen McBride
Chief Analyst, RiskHedge

Reader Mailbag

In response to my article on US housing stocks, RiskHedge reader Travis gives us some insight into the Texas home market.

Stephen, I appreciate your weekly RiskHedge emails.

I'm in Austin, Texas. Many homes in my neighborhood never reach the market. They often sell prior to being listed. If they are listed, they usually sell within a few weeks.

Travis, thanks for your reply. When we talked about US housing in early February, many folks were nervous a crash might be around the corner. But as I explained in my letter, the housing market is healthier than most realize.

We got confirmation of this recently. Fresh data show that new home sales are hitting new yearly highs. In February, I recommended we play this by buying homebuilder NVR Inc. (NVR). It’s up 11% since my recommendation, and I expect it to go much higher this year.

Our rare chance to buy the #1 self-driving car stock for practically nothing

Our rare chance to buy the #1 self-driving car stock for practically nothing

Are you invested in self-driving cars yet?

If not, I hope you’ll read this issue carefully.

Because I’m going to show you a unique opportunity to own a crucial piece of this blossoming megatrend...

And it isn’t some risky stock with unproven technology.

It’s a dominant, profitable company that owns the “crown jewel” of the self-driving universe.

And because of a rare situation in the markets, you can buy it today for practically nothing.

  • Self-driving cars aren’t mainstream yet, but they will be very soon...

As you read this, fully robotic self-driving cars are cruising around the suburbs of Phoenix, Arizona. The flat, wide roads and sunny skies there make for ideal driving conditions.

These robocars, as regular RiskHedge readers know, are operated by Google’s subsidiary (GOOG) called “Waymo.”

Waymo’s Arizona robocar service already has hundreds of paying customers. And it’s in testing in another 25 US cities.

  • In the race to perfect self-driving cars, there’s Waymo... then a thousand-mile chasm... and then everyone else.

I’ve shared the following chart with you before because it’s so darn important. It shows Waymo cars have driven more driverless miles than all competitors combined:

This is key because its self-driving cars run on one centralized computer “brain” that learns from every mile driven.

Waymo has run laps around its competitors for several reasons. But its biggest advantage is this: Waymo’s technology can “see” better than anything else out there.

As we discussed recently, true self-driving cars must be able to reliably detect and interpret everything around them.

Waymo has invested billions—likely far more than any of its competitors—to develop this ability. Its biggest breakthrough is the creation of cutting-edge LIDAR, which stands for Light Detection and Ranging.

In short, LIDAR sensors measure distance with laser pulses.

Tiny sensors that resemble a lawn sprinkler are affixed to the roof and front grill of the car.

These sensors then send out roughly 160,000 pulses per second in all directions. These pulses can detect the smallest detail, like a leaf blowing in the wind.

You might call LIDAR Waymo’s “crown jewel.” Insiders agree it’s hands-down the best LIDAR sensor available today.

In fact, this tech is so important that competitor Uber allegedly tried to steal it by hiring away a key Waymo engineer in 2016.

  • Having closely guarded its LIDAR secret technology for years… Waymo is now preparing to sell it to the world.

Early last month, Waymo announced it would start selling its cutting-edge sensors to other companies in non-automotive industries.

LIDAR has dozens of uses. For example, waste management companies are beginning to use it to collect trash and sweep sidewalks.

Grocery giant Walmart (WMT) uses a LIDAR robot to stock the shelves.

And John Deere (DE) equips some of its tractors with LIDAR so they can navigate through crop fields.

In all, LIDAR sales topped $1.7 billion last year. Research from BIS Research estimates it will hit $5.8 billion in four years.

  • This decision is a big deal for Google’s stock...

As regular RiskHedge readers know, Google has quietly pumped billions of dollars into Waymo since 2009.

Google keeps its total investment in Waymo a secret. But my independent research suggests it has invested well over $5 billion. In 2018, Waymo ordered 62,000 Chrysler Pacific minivans, which cost $2.79 billion alone.

With this move, Google is sending a clear signal:

It’s finally “flipping the switch” to start harvesting profits from Waymo.

  • Google is what I call a disruption “incubator” ...

As we’ve discussed, Google has formed a dozen or so disruptive offshoots separate from its core business of internet search.

Waymo is one. Another you likely know well is YouTube. YouTube.com is the second most viewed website on earth, behind only google.com.

In the past three years Google has pumped close to $15 billion into its disruptive offshoots. They all lose money. Together they’ve been a huge drag on Google’s profit. In 2018, they produced a $3.4 billion loss.

  • Google’s “disruption incubation” program is a genius long-term move...

Google was one of the first big American companies to invest in self-driving car research way back in 2009. Now, ten years later, it’s finally about to start reaping the rewards.

But here’s the key that most investors overlook: Ten years is a long time to keep sinking cash into a money-losing program. Especially for a publicly traded company like Google.

As you may know, most investors are obsessively focused on quarterly results. For forty quarters in a row, Google’s commitment to developing self-driving car tech has hurt its financial results. Which has led to the opportunity we have today...

  • Google trades at 25-times earnings—near its lowest valuation since 2015.

If you read last week’s RiskHedge Report, this number might sound familiar.

It’s the same valuation that seller of “basics” Proctor & Gamble (PG) trades for.

As a reminder, P&G is not growing at all.

Google’s sales, on the other hand, have exploded 530% over the past decade.

25-times earnings is a good price for just Google’s extremely profitable core business of internet search. 92 of every 100 internet searches flow through Google.

  • Buying Google at today’s price of $1,215 is like getting Waymo (and YouTube) for free...

Markets are completely overlooking this. Keep in mind, Waymo is transforming from a business that burns billions into one that makes billions.

As I mentioned, Waymo’s LIDAR is the best on the market. My calculations show within three years, it could easily make $2.5 billion a year selling its LIDAR systems alone.

And that’s nothing compared to the huge opportunity is has as it expands its robocar ride-sharing service. Within three years, that should rake in roughly another $10 billion a year.

I recommended buying Google at $1,070/share a couple of months back. Today it’s selling for $1,215/share. I see it hitting $2,000 in the next couple of years.

Are you buying Google? Tell me at stephen@riskhedge.com.

Stephen McBride
Chief Analyst, RiskHedge

Reader Mailbag

RiskHedge reader Philip noticed my recommendation of uranium heavyweight Cameco (CCJ) was mentioned on CNBC.

Stephen,

Your Cameco suggestion got some TV time today on CNBC. The option guys see some unusual activity in the Cameco calls. And they like it.

Thanks for your work.

Philip, thanks for writing in. Uranium doesn’t usually get much play on financial TV. But I expect that will change as April 14 draws closer...

The US Commerce Department recently launched a “Section 232” investigation into whether uranium imports are a national security threat. As a reminder, the US imported 98% of the uranium used in nuclear power plants last year. Around 50% of that came from “hostile” places like Russia and Kazakhstan. Given nuclear energy powers 1 in every 5 American homes, this is a risky position for the US to be in.

The results of the investigation are due to be released on April 14. Once the findings are out, I’ll let you know what they mean for Cameco, our top uranium play.

The dangerous side of “safe” stocks

The dangerous side of “safe” stocks

One of the most important things money can buy is safety.

Would you rather pay $600,000 for a home in a safe neighborhood…

Or $250,000 for an identical home in a more dangerous area?

Even though it might mean stretching your finances and borrowing a ton of money, most American families would choose to live in a safer area.

The financial sacrifice is worth it because feeling unsafe is miserable. It ruins your ability to concentrate. It preoccupies you and stresses you out.

It’s hard to be an effective person when you’re worried your kids aren’t safe.

So we buy cars that win safety awards. We install expensive security systems. We pay the military billions to safeguard the country.

  • And while you might not realize it, there’s a good chance you pay through the nose to keep your money safe, too…

The thought of losing 20% of your nest egg in the market can be scary. For many folks it’s just as gut-wrenching as the thought of a stranger breaking into your house at night.

So investors often pay giant premiums for stocks they believe to be “safe.”

You probably know that fast-growing stocks in exciting industries often command high prices.

But boring, slow-growing stocks are often expensive, too—if they’re perceived as safe.                           

Take Procter & Gamble (PG). It’s a 200-year-old company that’s grown into the 15th largest publicly traded company on earth by selling basic essentials.

Its brands include Gillette razors… Tide laundry detergent… Crest toothpaste… Dawn dish soap, and Bounty paper towels.

No matter what happens in the markets, we’ll always brush our teeth, wash our clothes, and clean the dishes.

Selling necessities is a rock-solid business. From 1982­–­2012, Procter & Gamble grew its sales 28 out of 30 years. This consistency is why P&G has long been considered one of the safest stocks on earth.

  • But you must pay dearly to own P&G stock…

P&G trades for roughly 25X its profits. That’s very expensive for a business that’s seen profits drop 20% over the past decade. For reference, the average S&P 500 company trades for 21X profits.

If you own P&G stock, you’re not paying for growth. You’re not paying for a shot at big profits. You’re paying a steep price for one thing: safety.

For decades, P&G stock has held up its end of the deal.

For example, when the S&P 500 cratered 30% from the Summer of 2007 through the end of 2009, P&G held strong, losing just 1.5%.

  • But regular RiskHedge readers know we’re living in the age of disruption…

As you surely know, online giant Amazon has put dozens of companies out of business in the last few years. Through selling stuff online for low prices, it has disrupted iconic brands like Toys R Us, Sears, Circuit City, and RadioShack into bankruptcy.

In 2000, online sales totaled $27 billion. This year that figure will jump above $550 billion—good for a 20X leap in less than two decades. By claiming a big chunk of this growth, Amazon has propelled its stock over 100,000% since it IPO’ed in 1997.

You can see Amazon’s incredible gains on this chart.

  • While everyone’s been focused on Amazon’s takeover of retail, it has been preparing an even more disruptive assault on “safe” businesses…

Over the past three years, Amazon has launched more than 100 of what it calls “private label” brands.

They are Amazon’s own products, sold under different names.

For example: Its “Presto!” brand sells toilet paper and paper towels. And “Basic Care” sells cough and flu medicine.

Amazon now sells its own diapers… dish soap… laundry detergent… baby wipes… and around 5,000 more everyday items.

There’s not a whole lot of difference between most “essential” items. Crest toothpaste is roughly the same as Aim, which is roughly the same as Colgate. And do you really care if the batteries in your TV remote are Duracell or Energizer… or a “private label” Amazon brand?

Findings from research firm Jumpshot show Amazon already controls 97% of the online battery market. And 94% of online kitchen and dining product purchases happened on Amazon last year.

The key is Americans are buying more and more essentials online. The fastest-growing category on Amazon is food staples—like breakfast cereals. Personal care products like soap and toothpaste are a close second.

Amazon raked in roughly $7.5 billion through selling its private label products last year. Research from investment firm SunTrust suggests this will climb to $25 billion by 2022.

  • Amazon has a “trojan horse” into 100 million American homes…

Over 100 million Americans pay $119/year for Prime membership. Prime is Amazon’s subscription service that gets you free delivery.

Prime members tend to buy a lot of stuff on Amazon. According to leading research firm eMarketer, Prime members spend 5X more than regular customers on Amazon. And one in every two Prime members buys something from Amazon at least once a week!

As part of Prime, Amazon offers a program called “Subscribe & Save.” In short, it lets you create an automatic subscription to thousands of products.

You simply ask Amazon to send you laundry detergent monthly… and a container of it will show up on your front porch at the same time every month.

Amazon has spent billions developing these so-called “frictionless” services. The idea is to make it so quick, easy, convenient, and cheap to get basics through Amazon, you’ll rarely bother going to stores anymore.

  • Amazon’s subscription service has been around for a couple of years. What’s different now is it’s begun to heavily promote its own basic products

Instead of ones made by other companies like P&G.

Log onto Amazon and see for yourself. It now features its own private label products prominently at the top in almost every category.

And if you order by voice—through Amazon’s Alexa device—Amazon automatically sends you Amazon brand products.

Make no mistake… Amazon is marching in on the territory of formerly safe stocks like Procter & Gamble.

My research suggests it will gradually suck the life out of these companies as more and more “essential” purchases move online.

  • I’m not just picking on P&G…

As the 15th largest publicly traded company on earth, it has the most to lose.

But its “safe” peers face the same big problem.

Unilever (UN), which owns household brands like Axe deodorant and Dove skin care, has seen its sales sink below 2001 levels.

Nestle (NSRGY) sells popular products like Poland Springs water and Nescafe coffee. Its business has flatlined since 2005.

All three of these stocks trade for higher than 20x profits.

Their businesses are not growing…

Their stocks are expensive…

And the most disruptive force on the planet—Amazon—is invading their turf.

Does that sound like a safe place to put your money?

That’s it for this week.

Have you tried Subscribe & Save from Amazon? Tell me at Stephen@RiskHedge.com.

Stephen McBride
Chief Analyst, RiskHedge

Reader Mailbag

RiskHedge reader Ethan has a question about my 5G “landlord” essay.

Hi Stephen,

I'm a subscriber and work in Silicon Valley as a software engineer. I have two questions about Crown Castle (CCI):

1) There seems to be a lot of local opposition to small cell deployments. Do you think it will impact growth?

2) SBA Communications (SBAC) got out of the small cell business back in 2015. Do you know why they made the move? And do you think that reason would be a valid argument to NOT invest in CCI?

Ethan, thanks for your questions.

As I explained a few weeks back, the US government is determined to beat China in the race to develop 5G. Certain state and local governments have slowed down 5G deployment by tangling it up in red tape. But the FCC’s recent passage of its 5G “FAST” has cleared up most of this interference.

SBA sold their small cell business because they weren’t making money on it. As I mentioned, it was taking some local governments 800 days just to process applications for small cell towers. But since the FAST plan took effect, small cell towers are going up 6x faster than before.

This little stock drinks from a firehose of government money

This little stock drinks from a firehose of government money

Brett Velicovich had one job:

Hunt down the most dangerous terrorists in the world.                                       

At the age of twenty-five, he regularly decided whether men lived or died.

In the span of four months, his team killed 14 of the FBI’s 20 most wanted terrorists.

But Brett and his team weren’t out hunting bad guys on foot.

In fact, they never spent much time on a battlefield at all…

  • Brett spearheaded an elite US military drone targeting team.

Drones are unmanned planes that a pilot controls remotely.

You’ve likely seen kids playing with toy drones at the local park…

US military drones are different animals. They can glide through the sky at 300 miles/hour…. carry 4,000 lbs. of bombs… and cost up to $17 million apiece.

From a safe room in Creech Air Force Base, Nevada, pilots like Brett use drones to hunt terrorists 7,500 miles away in Afghanistan.

As I’ll explain, American military power relies on drones these days...

In fact, the US Air Force now employs more drone pilots than actual pilots!

And one little company makes the “brains” of these important machines.

It’s growing faster than any military stock I’ve ever seen.

And it’s set to soar as it wins billions of dollars in defense contracts over the next few years.

  • Do you know how much money the US government paid its top four defense contractors last year?

It paid Lockheed Martin (LMT)… Boeing (BA)… Raytheon (RTN)… and Northrop Grumman (NOC) a staggering $118.1 billion.

For perspective, that’s roughly what internet giant Google (GOOG)—the world’s fourth-largest publicly traded company—raked in last year.

And the companies drinking from this firehose of government money have been great investments.

This chart shows the top four US defense stocks vs. the S&P 500 since 2013:

You can see that shareholders have made a killing on the back of all those defense dollars.

The US government, as you may know, is the world’s biggest spender. This year it’ll shell out a record $4.7 trillion.

While this is nauseating for those of us who pay taxes, it’s a wonderful thing for companies that sell products and services to the government.

These days one of the surest ways to get rich is to figure out how to tap into the never-ending flow of government cash.

Lockheed Martin and Boeing have figured it out. As the two largest military contractors, they’ll collect $72 billion from the US government this year alone.

As you saw above, both have crushed the S&P 500 for many years. But I’m not recommending you buy either today.

Instead, I’m recommending a little company 1/70th the size of Boeing that’s shaping the future of warfare.

  • Mercury Systems (MRCY) makes US military grade computer chips…

Its chips power ALL the American military’s largest and most deadly drones.

They also enable other cutting-edge equipment like Patriot missiles, F-16 fighter jets, and the Navy’s “track and destroy” combat system.

As I explained a while back, computer chips are the “brains” of electronic devices.

Mercury’s state-of-the-art chips give drones a God-like view of the terrain below. They allow the drones to process what its cameras see in real time.

This helps them to pinpoint the location of suspects, track multiple vehicles, and make absolutely sure they’ve homed in on the right target before launching a deadly attack.

  • As I mentioned, the American military relies on drones these days.

It controls a fleet of 11,000 of drones… compared to just a handful 20 years ago.

In fact, drones make up over half of Department of Defense aircraft today.

Spending on drones is growing faster than any other military program and will hit a record $9.5 billion this year.

Drones are part of the rapidly growing “defense electronics” market. Leading aerospace research firm Renaissance Strategic Advisors estimates this market will grow to $117 billion in just three years.

Mercury Systems is growing into a dominant player in defense electronics. Yet it’s worth just $2.9 billion—too small for inclusion in the S&P 500.

This combination—small firms disrupting large markets—is exactly what we look for at RiskHedge. These are the kinds of stocks that could double or triple quickly and still have lots of room to grow.

Mercury is on pace to earn $500 million in sales this year. Even if it grows sales 10x, it would still control less than 5% of its target market.

  • Roughly 95% of Mercury’s sales come from the US government.

And it stands to collect billions more as it wins military contracts in the coming years.

Earlier I mentioned that defense companies that sell to the US government have been great stocks to own.

Well, in the past five years, Mercury’s performance has crushed all those big defense stocks.

You can see how Mercury has outperformed them by 2x, 3x, 4x on this chart:

It has achieved these gains by growing sales 163% in the past three years.

That’s 6.5x faster than Lockheed Martin… and 8x faster than Boeing.

As I said, it’s the fastest-growing military stock I’ve ever seen.

Mercury Systems has been on a tear since the start of the year, soaring 24%.

Because it has climbed so quickly, I wouldn’t be surprised if it takes a short-term breather soon.

But as military spending on drones and other cutting-edge equipment explodes over the coming years… I see Mercury’s stock climbing much higher.

Stephen McBride
Chief Analyst, RiskHedge

Reader Mailbag

RiskHedge reader Lorenzo asks about investing in 5G infrastructure stocks:

Stephen,

First of all I really want to thank you for your weekly letter, I find it very helpful.

Is it bad if I invest in both Nokia (NOK) and Ericsson (ERIC) or should I choose one? Is one superior to the other?

Lorenzo, thanks for your question.

As I mentioned a couple of weeks ago, with Huawei out of the picture, Nokia and Ericsson are the only companies that can build the infrastructure needed to upgrade networks to 5G.

As of 2018, Ericsson had a 27% market share of the mobile infrastructure market. Nokia was slightly behind at 23%.

If you dig into both companies, you’ll find they’re quite similar. Their sales growth margins are all right around the same levels. Their stocks have moved in tandem over the past six months, too. Because there’s not a clear winner between them, it’s reasonable to take a small stake in both.

This stock is America’s 5G “landlord” ... and it pays a 3.8% dividend

This stock is America’s 5G “landlord” ... and it pays a 3.8% dividend

In 1957 America was at war.

Its enemy, the Soviet Union, had just achieved something scary…

The Soviets had successfully fired the first ever ballistic missile... capable of hitting targets from 4,000 miles away.

They didn’t use it to fire a nuclear weapon…

But instead to launch the first ever satellite into space.

This was the first big strike in what’s now known as the “Space Race.”

During the Cold War, both sides believed control of space was crucial.

So the US government declared its space program a “national priority.”

It poured in billions of dollars… cleared regulatory roadblocks… and did whatever it took to help America beat the Soviets into space.

America unofficially “won” the space race in 1969 when the crew of Apollo 11 stepped onto the moon.

  • I’m telling you this because the US government recently stamped national priority on a new game-changing technology…

Longtime RiskHedge readers know I call the upgrade to “5G” the most disruptive event of the decade.

As a reminder… 5G is the new lightning-fast network our phones will soon run on.

And 5G is a BIG DEAL.

It’s not a small improvement over current 4G networks. It’s a HUGE leap that will enable world-changing disruptions like self-driving cars and next-generation military equipment.

Last time we talked about 5G, I told you about a little company called Xilinx (XLNX).

In short, it makes the computer chips inside the new cell towers that are needed for 5G. Its stock has gained 35% since I wrote about it.

Today I want to tell you about another 5G stock that could easily double within two to three years.

  • The Trump White House recently labeled 5G a national security priority for America...

You see, China and the US are neck and neck in the race to develop their 5G networks.

In fact, so far China has outspent the US by $25 billion in 5G, according to “Big 4” accounting firm Deloitte.

This has US officials worried that America is falling behind. The US National Security Council has warned if China is first in 5G it “will win economically and militarily.”

  • But government red tape is choking America’s 5G rollout.

As I’ve mentioned, 5G needs hundreds of thousands of new cell towers. But they’ll be tiny compared to the 100+ foot tall cell towers you’re used to seeing.

A 5G signal can only carry about half a mile. So, instead of placing one giant cell tower every few miles, we’ll need to place small ones every couple thousand feet.

These small towers are about the size of a trash can… and soon there’ll be one on almost every street corner.

AT&T (T) says 5G will need 300,000 new cell towers.

Keep in mind, there are only roughly 220,000 cell towers in the US today.

As you can imagine, building thousands of cell towers across America is a big, complex project.

Every state, city, and local government has its own ideas for where these towers should go, how much they should be taxed, and how they should be regulated.

And many are taking their sweet time to decide on these matters.

For example: It took California over 800 days just to process an application for a small cell tower from AT&T!

And FCC figures show it takes an average of 18 months to get a new cell tower approved.

Along with huge delays, some governments are charging big fees to build towers.

For example, the city of San Jose charged AT&T $2,700 last April for a single tower.

And in some areas of New York, companies must fork over five thousand bucks a year to the government in order to operate a tower.

  • Thankfully, the Federal Communications Commission (FCC) recently fast-tracked the 5G buildout…

The FCC is the government agency that regulates our wireless networks.

Think of it as America’s internet overlord. It controls the airwaves that allow you to surf the internet and make calls.

In September the FCC released its 5G FAST Plan… which Chairman Ajit Pai said is designed to “facilitate America’s superiority in 5G.”

The plan has swept aside many of the obstacles that were impeding 5G.

For example, once a company applies to build a 5G tower, governments must now respond within 90 days.

The FCC has also capped the fees governments can charge at $270 per tower.

According to the FCC, its plan will slash the cost of building 5G towers by 50% on average… and cut approval time by over a year.

And earlier this month we got some great news: Its plan is working!

According to FCC Commissioner Brendan Carr, 5G towers are now going up six times faster than before the FAST plan.

  • This has cleared the way for one company to make heaps of cash from the 5G rollout.                                                    

Keep in mind, big cell companies like AT&T, Verizon (V), and T-Mobile (TMUS) must spend tens of billions of dollars on 5G towers.

But cell providers don’t typically own towers. Instead, they rent space on towers built and owned by companies like Crown Castle (CCI).

In short, Crown Castle builds cell towers across America. It then leases space on its towers to wireless carriers who install their own antennas.

When it comes to the small cell towers that will power 5G, Crown Castle is lapping its competitors.

Rivals like American Tower Corp (AMT) or SBA Communications (SBAC) don’t own any small towers.

Crown Castle operates over 65,000 of them—more than any other company in America.

  • Crown Castle recently signed multi-billion-dollar contracts with America’s four largest cell providers to build 5G towers.

And this is only the beginning.

Crown Castle built 7,000 small towers in 2018… and it’ll put up 15,000 more this year.

By the end of 2019 Crown Castle will have roughly 80,000 towers. By 2025 my research shows the number of towers soaring to 240,000.

Crown Castle will collect rent on each tower from the likes of Verizon and AT&T.

Because of its build-and-lease business model, owning CCI’s stock is a low-risk way to profit from the 5G rollout. It pays a 3.79% dividend yield—close to double the S&P 500 average.

I’m looking for its stock price to double within two to three years as 5G comes online in America.

Do you own any 5G related stocks? Tell me at stephen@riskhedge.com.

Stephen McBride
Chief Analyst, RiskHedge

Reader Mailbag

RiskHedge reader Tim has a question about disruptor stock Akoustis Technologies (AKTS). As a reminder, Akoustis makes the small filters that go inside our phones.

Stephen,

Thanks for your RiskHedge articles. They are very insightful, and I love your disruptive approach.

I have a question about Akoustis. How will they be affected by the US ban on Huawei?

Tim, thanks for your question. The US blacklisting Huawei is unlikely to have any effect on Akoustis.

As the world’s second largest smartphone maker, Huawei was a potential customer for Akoustis. But Akoustis had given no indications it was set to do a deal with the Chinese giant.

On the other hand, Akoustis is lining up many of the world’s biggest businesses like Samsung (SSUN.F) Apple (AAPL), and Qualcomm (QCOM) as customers.

How the Green New Deal could hand you 300% profits

How the Green New Deal could hand you 300% profits

Have you heard of Alexandria Ocasio-Cortez?

At 29 years old, she’s the youngest Congressperson in history.

She’s a founding member of the Democratic Socialists of America… and she makes Obama look like a right winger.

“AOC,” as she’s often called, is quite a sensation among young left-leaning folks. 2.4 million fans follow her on Twitter.

You might think of AOC as the Democrat version of Trump. She has rallied support by championing ideas that sound great to a certain type of person. Like giving free money to those “unwilling to work.”

  • Those are her words, not mine…

In a now-redacted factsheet, AOC promised to provide “economic security for all who are unable or unwilling to work.”

The document caused so much blowback that AOC’s team pulled it down from the internet.

Like any Socialist, AOC is full of “ideas.” Most of them involve taking money from one group of people and giving it to another.

She’s calling for a 70% top tax rate, for example. And free college.

But I want to set politics aside to tell you about her silliest idea of all.

Although she doesn’t know it—this idea will lead to a big boom in a beaten down stock…

One that soared 3,000% the last time it was launched into a bull market.

  • AOC’s big idea is called the Green New Deal.

Named after FDR’s “New Deal” from the 1930s, the Green New Deal aims to have America running on 100% clean energy by 2030.

AOC has called climate change “her World War II.” She wants to eliminate dirty energy like coal, oil, and gas that pollute the air.

Her plan calls for every house… apartment… office… factory… car… and train in the entire country to be powered by renewable sources like solar and wind.

Sounds pretty good, right? A clean environment is important for all of us. I certainly want my young daughter to grow up breathing clean air.

But there’s one BIG problem with AOC’s plan.

  • It excludes the cleanest energy source of all.

According to AOC "there is no place for nuclear power” in America’s future.

Many folks think nuclear power is dirty and dangerous. They associate it with big smokestacks and nuclear bombs.

These folks could not be more wrong. Nuclear is the best source of renewable, clean energy we have.

It doesn’t cause any pollution. The steam drifting out of nuclear plants is as harmless as the steam from your shower.

In fact the International Panel on Climate Change found nuclear power produces LESS air pollution than solar, wind, or hydro.

It is also the safest energy source on the planet, according to the World Health Organization.

  • The Green New Deal simply can’t succeed without nuclear...

There are 99 nuclear reactors in the US. They generate twice as much clean energy as every solar panel, wind turbine, and other clean energy source combined.

Excluding nuclear, clean energy sources like solar and wind make up 17% of America’s energy needs.

Getting that to 100% by 2030 without nuclear is impossible.

For one, it would cost trillions upon trillions of dollars.

Also, we need energy sources that are dependable and “always on.” This is a major problem for solar and wind.

Solar power is interrupted by darkness and clouds. Wind turbines only work when the wind blows.

That’s why solar generates power only 25% of the time… and wind 35% of the time.

  • But above all else, we already have a cheap and dependable source of clean energy.

As you likely know, nuclear power plants use uranium as fuel to produce electricity.

But the uranium sector has collapsed since 2011.

It began with the freak accident in Fukushima, Japan. First, the most powerful earthquake in Japan’s history caused a reactor to shut down. Then a tsunami disabled the emergency generators.

This caused a disastrous nuclear meltdown that contaminated a large area and killed and injured many people.

Japan shut down all but two of its reactors after the Fukushima disaster. Many other countries followed suit.

Germany moved to phase out nuclear power completely. And plans to build four new reactors in America were shelved.

  • Uranium demand plunged… and from 2011-17 its price cratered 86%.

This led to the vast majority of uranium companies shutting their doors.

In 2011 there were 585 uranium companies. Just 40 remain operational today.

And most of the survivors have seen their stocks plunge 90% or worse.

Last year uranium production in the US dropped to its lowest level since the 1950s… because virtually no producer can make money at today’s depressed prices.

  • It’s a total bloodbath. But as I’ve explained, the uranium market is poised to surge higher…

You can review my whole case for uranium here.

In short, nuclear use around the world is growing.

57 new reactors are currently being built. And uranium demand is expected to rise 23% by 2025.

Yet uranium stocks are priced as if nuclear energy is being phased out altogether.

Despite what the Green New Deal says, it’s not. I guarantee nuclear power will be a big part of America’s and the world’s clean energy future.

  • Cameco (CCJ) is the world’s largest uranium producer…

It’s hands-down my favorite uranium stock. In fact, it’s one of my top picks for 2019, period.

I recommended Cameco to you in August.

It has climbed 10% since then. And it’s up 30% in the past year.

Cameco produces around 15% of the world’s uranium. It operates two of the highest-quality uranium mines in the world. Both are located in Canada’s Athabasca Basin. The quality of the uranium there is 100x better than the global average.

This allows Cameco to produce uranium for less than its peers. Most companies mine it for $50–$60/lb. Cameco does it for around $35/lb.

A key thing to know about uranium stocks is they move in massive cycles. The “up” part of the cycle can produce some of the biggest gains you’ll ever see.

For example when the uranium price ran from $10/lb to $136/lb between 2000–2007, Cameco shot up over 3,000%.

Over the next few years as reality dawns on the markets, we have a great shot to triple our money or better in Cameco. And given that it rocketed 30x in the last uranium bull market, it could easily go a lot higher.

That’s it for today. What do you think of the Green New Deal? Tell me at stephen@riskhedge.com.

Stephen McBride
Chief Analyst, RiskHedge

Reader Mailbag

RiskHedge reader Cason has a question about the stocks I cover in the RiskHedge Report:

I've been a subscriber for a few months and I wanted to say thank you! I appreciate you putting your money where your mouth is.

Do you plan on giving advice on how/when to exit the picks that you give? I know that it is of equal importance to sell at the right time as it is to buy.

Thank you for the awesome letter.

Cason

Thanks for writing in Cason. I don’t track my ideas in an official “portfolio” in this letter. But I’ll often follow up on my favorite ideas in a future issue, like I have recently with Disney (DIS) and 5G. And I’ll often let you know when my opinion on a stock changes, as I did last week when I mentioned I sold The Trade Desk (TTD) for a 120% gain.

Since you asked, you may be glad to know I’m developing a new letter where I’ll keep a portfolio and tell you exactly when to buy and sell the stocks I recommend. I’ll have more details for you in early spring.

How to be an “investing god”

How to be an “investing god”

Have you seen the hit movie The Big Short?

It tells the true story of a few clever investing pros who made a killing during the financial crisis.

They figured out early on that the US housing market was a house of cards… and placed bets to profit from its collapse.

When it all came crashing down in 2007/8, they walked away with more than a billion dollars profit.

The guys who pulled it off are revered as living legends… financial heroes… investing gods.

You might wonder: why?

Sure, a billion dollar profit is impressive.

But dozens of Wall Street guys make billions on trades every year.

Movies will never be made about them. You’ll never know their names.

  • The guys who pulled off The Big Short will go down in financial folklore for a different reason…

They made big profits during a bear market—while almost everyone else was losing money.

Have you heard the popular saying, “Everyone’s a genius in a bull market?”

It implies that even a rookie who lacks financial knowledge can profit when stocks are rising.

But when stocks stagnate or fall most investors struggle to preserve what they have, let alone make money.

In today’s issue, I’m going to show you how to make money this year no matter where markets go.

I’ll explain the two key principals I personally used to generate a 120% profit during stormy markets.

If you’re at all skeptical of where the market is headed this year… or if you’re uncomfortable staking your financial future on the hope that markets will rise… this issue is for you.

  • 2018 was a difficult year for many investors…

As I write, the S&P 500 trades for 2,789.

Its high from exactly one year ago, to the day, is 2,789.

A whole year and not a penny of profit to show for it.

But if you check your retirement account balance often, you know it hasn’t been a smooth ride.

Markets climbed most of 2018… then collapsed in the fall.                               

From late September to Christmas Eve, the S&P 500 plunged 19.8%. The Nasdaq suffered its worst December ever, while the S&P had its worst December since 1931.

Here’s how the stock market roller coaster of the last year looks on a chart:

  • Meanwhile, a little company called The Trade Desk (TTD) was quietly chugging along…

This name may sound familiar to longtime RiskHedge readers. The Trade Desk is one of the first “disruptor” stocks I alerted you to in this letter last June.

As regular RiskHedge readers know, disruptors are companies that create, transform, and disrupt whole industries. They often hand early investors gains of 3x, 4x, 5x, or better.

The Trade Desk is a little company that’s disrupting the giant online advertising industry. The online ad industry, as you may know, is extremely lucrative. It’s a fast-growing $80 billion pot of gold with very high margins.

But powerful companies Google (GOOG) and Facebook (FB) hog most of the profits.

Through their domination of the online ad game, they’ve grown into the 4th and 7th largest publicly traded companies on earth.

Facebook gets 98% of its revenue from selling online ads. Google gets 87% of its revenue from selling online ads.

Hold that thought and recall the ugly S&P 500 chart I just showed you…

Now look at how TTD performed during the same period:

Notice two important things:

One, TTD has gained 120% since I alerted you to it eight months ago.

Keep in mind, this was while the average investor was losing money in the market.

Two, see those circled parts where the stock jumped?

They mark the times when TTD announced quarterly financial results to the market.

From left to right, earnings grew 84%... 3%... 98%... and… 143%.

The latest one, on Feb 21, launched TTD stock to a 31% gain in one day.

  • TTD has the hallmark of a true disruptor:

Its profit engine keeps humming no matter what’s going on in the markets.

In fact, over the past eight quarters, TTD has grown earnings at an average clip of 88%.

That is off-the-charts incredible. The average S&P 500 company has grown earnings at a rate less than 8% over this period.

Even mighty Amazon (AMZN) could only muster average earnings growth of 58% in that time.

Thanks to its unstoppable growth, TTD stock powered right through last year’s rough markets.

Much like disruptors did during 2008.

As I’m sure you know, the 2008 financial crisis tore most of America’s companies to shreds.

The average S&P 500 company’s earnings collapsed by a disastrous 77%.

But disruptors held strong. From 2007–2009 online travel disruptor Priceline’s (BKNG) earnings surged 249%. Amazon’s shot up 89%.

This drove their stocks to gains of 393% and 241% from ’07-’09—one of the most difficult stretches in US stock market history.

  • There’s a second key principal driving TTD’s profitable run…

TTD is a small company disrupting a HUGE market.

Last year, its sales totaled $477 million.

Yet it is taking on the $725 billion global advertising industry.

TTD’s sales could soar 1,500% and it would still own less than 1% of its target market.

Which means its stock could double quickly—as it has in the past eight months—and still have plenty of room to triple or quadruple again.

Earlier I mentioned that Google and Facebook dominate online advertising. But their grip is slipping as TTD pries customers away.

Last year four of the world’s largest 10 advertisers boosted their spending with The Trade Desk by over 100%.

Meanwhile, big advertising spenders like Procter & Gamble (PG) are pulling hundreds of millions of dollars from Google and Facebook.

At $8 billion, TTD is still tiny compared to the monstrous companies it’s disrupting.

Facebook is more than 50X its size.

Google is almost 100X its size!

Which means, TTD can keep growing… and growing… and growing… through up and down markets... for years.

  • Although TTD’s future looks bright, I no longer own the stock…

I sold my shares last Friday when the stock jumped 31% on earnings.

TTD should continue to perform well as it siphons off more business from Google and Facebook. But it’s no longer an early-stage, “under the radar” play.

The company has more than doubled in size since I first wrote about it.

If you’re interested in what I’m buying now I recently took a stake in an early-stage disruptor stock recommended by my colleague Chris Wood.

The stock is named on this page, for free, no strings attached.

It’s our way of getting the word out about Project 5X.

Project 5X is our research service that hunts for early-stage disruptors with 500% or better upside.

As you may have heard, we had closed Project 5X down to new members late last month.

Today we’ve opened it back up.

75 new memberships are available on a first come first served basis.

We have to strictly cap it at 75, because the stocks in Project 5X are often tiny and move fast.

Chris’ January pick jumped 37% in the four trading days after he recommended it.

So you can see why too large a membership base could skew prices.

If you’re interested in becoming a member of Project 5X, go here to get the details.

Even if you’re not interested in becoming a member, you can discover the early-stage disruptor I recently bought, for free, on this page until our 75 membership spots are filled.

Talk to you next week,

Stephen McBride
Chief Analyst, RiskHedge

How communist spies lost $100 billion

How communist spies lost $100 billion

I’d like you to meet the most disruptive force on earth.

With one pen stroke it can ruin a business, crash a stock, and wipe out shareholders.

Last April it shocked the world when it banned Chinese phone maker ZTE (ZTCOY) from doing business in America.

ZTE stock plunged 55% in two weeks and never recovered, as you can see here:

Any day now, this force is set to shake the stock market again… 

And this time two “forgotten” stocks stand to hand investors big gains in the fallout.

  • As ZTE shareholders found out the hard way, the most disruptive force on earth is the US government.

In 2017 American officials discovered that ZTE was selling phones to US enemies like North Korea.

The US government told ZTE to stop. It refused… so lawmakers banned ZTE from doing any business in America.

ZTE had been manufacturing roughly 25% of its phone parts in the US. So the ban crippled its business overnight and sent shares plunging to a 55% wipeout in two weeks.

  • Now President Trump is getting ready to bring down a much larger and more important firm...

As you may have heard, Chinese phone maker Huawei stands accused of putting secret “backdoors” into its phones.

If true, these backdoors allow Huawei to spy on Americans who use Huawei phones.

Although Huawei is officially a private company, it is widely known to be an arm of the Chinese Communist government.

The US and China have been squabbling over this for a while. But the situation has reached its boiling point.

Within the next couple of days, President Trump is widely expected to sign an executive order outlawing Huawei products in America.

Keep in mind, Huawei isn’t some rinky-dink company. It sells more phones than Apple (AAPL) and generates as much revenue as Microsoft (MSFT).

  • But most importantly, Huawei is the world’s largest maker of 5G infrastructure.

If you’ve been reading RiskHedge, you know why this is crucial.

5G is the new lightning-fast cell network our phones will soon run on. And the “Great Upgrade” to 5G is one of the largest infrastructure projects in history.

Giant corporations like AT&T (T), Verizon (V), and T-Mobile (TMUS) must spend hundreds of billions of dollars to upgrade their networks to 5G.

Until recently, Huawei was first in line to receive much of this windfall.

It had secured $100 billion worth of 5G contracts—over five-times more than any of its rivals.

  • But with Trump expected to ban Huawei, almost all of Huawei’s 5G infrastructure contracts have been cancelled.

AT&T cancelled its 5G deal with Huawei last year.

UK based Vodafone cancelled its 5G contract with Huawei this year.

The governments of Japan, Australia, and New Zealand have stepped in to ban their cell companies from working with Huawei on 5G.

Of course, all the 5G infrastructure still needs to be built…

  • With the world’s #1 supplier blacklisted, billions of dollars are set to flow to Nokia (NOK) and Ericsson (ERIC).

You might call these two “forgotten” stocks.

Not all that long ago they dominated the cell phone market.

According to leading research firm Gartner, Nokia alone controlled 50% of the phone market in 2007.

Today it controls less than 1%.

And Ericsson shut down its phone business years ago.

They both totally missed the smartphone revolution. Their stocks have gone nowhere over the past decade, as you can see here:

  • But Nokia and Ericsson are two of the world’s only makers of 5G equipment.

According to IHS Markit, Nokia and Ericsson control 50% of the 5G infrastructure market.

And here’s the key: There are only four major makers of 5G equipment and infrastructure in the world:

Ericsson… Nokia… Huawei… and ZTE.

As I mentioned, Huawei and ZTE are essentially banned from the Western world.

Which means phone companies have little choice: They must work with Ericsson and Nokia to get 5G up and running.

  • Both Nokia and Ericsson recently won multi-billion dollar 5G infrastructure contracts from Verizon and AT&T—the two largest US phone companies.

And 3rd place T-Mobile has agreed to pay Nokia and Ericsson $3.5 billion each to build its 5G networks.

In short, Nokia and Ericsson have been handed the giant 5G infrastructure market on a silver platter.

When Nokia reported earnings two weeks ago, its network equipment sales shot above $6 billion for the first time in five years.

Meanwhile Ericsson’s 5G-related revenue jumped 10% last quarter.

The market is beginning to recognize both companies will be big winners from the 5G buildout.

After a decade of being stuck in the mud, Ericsson’s stock has surged 50% in the past year. Nokia stock has climbed 20%.

As the 5G rollout kicks into high gear, both stocks are low-risk, money making opportunities.

For example, Nokia sold around $20 billion worth of network equipment last year. My research shows this should jump above $50 billion in the next two years as 5G ramps up.

So no matter what happens with the stock market, a tidal wave of money is about to flow into Nokia and Ericsson.

That’s all for this week. Are you planning to buy a 5G smartphone when the first one comes out later this year? Tell me at stephen@riskhedge.com.

Stephen McBride
Chief Analyst, RiskHedge

Reader Mailbag

RiskHedge reader Ken has a question about buying disruptive companies.

Stephen,

I love your RiskHedge Report and have bought several of your recommendations.

I’m a "senior citizen" in my 60s. While I certainly see the benefits of investing in disruptive companies, I'm wondering if they are appropriate for someone my age?

Thanks, Ken.

Ken, thank you for your question.

First off, you should limit your investment in any one stock to a maximum of 5% of your portfolio. This ensures your portfolio won’t take too big a loss if something goes wrong with one stock.

Having said that, truly disruptive companies perform well in all types of markets.

And if their stocks do slip in a market sell-off, they often bounce back strong.

Take the collapse in US stocks late last year, for example. Many disruptors we’ve talked about in this letter like data-refiner Alteryx (AYX), cyber company (OKTA), and online ad disruptor The Trade Desk (TTD) initially fell a bit along with the rest of the market.

But all three have shot right back up to hit all-time highs, even though the S&P 500 remains down 6%.

How we’ll collect 4.1% disruption-proof dividends

How we’ll collect 4.1% disruption-proof dividends

Last summer on a Friday in late June, 33,000 Americans lost their jobs.

That was the day Toys “R” Us shut its doors for good.

The company had been selling toys since 1948…

It once ran a 110,000 square-foot store in NYC’s Times Square, one of the most valuable pieces of land in the country…

And for decades, kids screamed to go to Toys “R” Us on Christmases, birthdays, and weekends.

  • Then the great white shark of retail came along…

Internet juggernaut Amazon (AMZN) essentially put Toys “R” Us out of business.

As you surely know, Amazon sells stuff online for cheap. Cheaper, usually, than what you’ll pay in a store.

Jeff Bezos founded Amazon 24 years ago. Since then it has contributed to putting Bon-Ton, Borders, Circuit City, RadioShack, and hundreds of other store chains out of business.

Many other retailers are barely clinging to life. Macy’s (M), JCPenney (JCP), and GameStop (GME) still have a pulse, but they’re fading fast. Since 2014 their stocks have plunged 53%, 77%, and 68%.

According to leading research firm Nielsen, store closings in the US hit an all-time high last year.

With all this destruction, many investors assume there are only two types of retailers:

Those that Amazon has already put out of business…                            

And those that Amazon will soon put out of business.

  • What I’m about to say will surprise those folks…

There’s a third type of retailer that Amazon can never disrupt.

One innovative company has figured out how to tap into these Amazon-proof businesses.

It has rewarded stockholders with twice the gains of Amazon in the past year…

It pays a big and growing dividend…

And super-investor Warren Buffet quietly bought 10% of the company in 2017.

  • STORE Capital (STOR) forms partnerships with businesses that are immune to Amazon’s disruption.

I’m talking about businesses like daycare centers, vet clinics, hair salons, dental practices, gyms, and restaurants.

In other words, businesses that you must visit in person.

Want a new TV? Order one on Amazon and it’ll be on your porch tomorrow.

But if you need a cavity fixed, or your dog groomed, or a babysitter to watch your kid, Amazon can’t help you.

You wouldn’t know it from watching the news, but these small- and medium-sized businesses are thriving while many others struggle to keep the doors open.

  • STORE is a unique real estate play…

It is a Real Estate Investment Trust (REIT). REITs earn rental income from properties they own. Then they hand most of the profits to investors in the form of dividends.

STORE is unlike any REIT out there. Most REITs specialize in a certain type of real estate. For example, a residential REIT might own condos or apartment buildings.

STORE handpicks businesses that are shielded from the disruptive force of online retail. In short, it buys land and buildings from these “undisputable” businesses, then leases it back to them.

The arrangement is a win-win. Many smaller shops have a lot of money tied up in real estate. STORE helps them turn that value into cash they can invest in their growing businesses.

  • STORE is worth around $7 billion and is going after a $3 trillion market.

As regular RiskHedge readers know, we often look to invest in smaller firms going after large markets. These are the kinds of stocks that could double or triple quickly and still have lots of room to grow.

STORE is going after a HUGE market. Mid-sized businesses employ one in every four American workers. STORE could triple its market share and it would still own less than 1% of its target market in the US.

STORE owns properties used by 421 tenants operating in 103 different industries in 49 US states. 75% of its tenants collect over $50 million in revenue a year.

According to company filings, the businesses it works with are growing profits at roughly 15% a year.

  • Super-investor Warren Buffett holds a big chunk of STORE… and it’s the only real estate stock he owns.

As I mentioned, Warren Buffett owns 10% of the company.

Buffett has built his $85 billion fortune by owning great businesses for the long haul.

For example he first bought $1 billion worth of Coca-Cola (KO) shares over 30 years ago and says he’d “never sell a share.”

Buffett’s big stake in STOR tells you all you need to know about how strong its business model is.

  • Last quarter, STOR reported record earnings of $137 million, good for a 69% jump from a year earlier.

It pays a 4.1% dividend—more than double the S&P 500 average.

And over the past five years STORE has raised its dividend 32%.

As it continues to partner with “undisputable” businesses, I see its dividend growing in the neighborhood of 7–8% per year.

Today, for every STORE share you own you’ll get a $1.32 cash payment each year. If it continues to hike its dividend as I expect, you’ll get an automatic raise each year.

That’s it for this week. Are you buying STORE? Tell me at stephen@riskhedge.com.

Stephen McBride
Chief Analyst, RiskHedge

Reader Mailbag

RiskHedge reader Arianne has a question about which stocks to buy right now.

Hi Stephen.

I don't have a lot of money, I'm living on a high school teacher's salary–so I'd like to invest wisely. I don't have thousands of dollars to throw around.

Where would you recommend investing right now?

Thank you, Arianne

Arianne, thanks for your question.

I can’t give individual investing advice, but I’ll give you two pointers that should help you invest wisely.

First, you should limit your investment in any one stock to a maximum of 5% of your portfolio. So, if you have $2,000 to invest, don’t buy more than $100 of any one stock.

This ensures your portfolio won’t get crippled if something goes wrong with one stock.

Second, think about investing in ETFs. As you may know, ETFs hold a basket of stocks. Owning an ETF is a cost-effective way to “spread your bets” so you don’t have too much of your portfolio riding on any one stock.

For example, if you like cybersecurity stocks, take a look at the Prime Cyber Security (HACK) ETF.

How to safely profit from the mother of all disruptions

How to safely profit from the mother of all disruptions

What has been the most financially disruptive event of this century?

Many Americans would answer this question with a number:

2008.

No more need be said… we all know exactly what “2008” means.

It was a year filled with trauma, stress, and anxiety.

During the 2008 financial crisis, more than eight million Americans lost their homes.

Another 10 million lost their jobs.

And the S&P 500 cratered 56%.

As you know the source of all this was a collapse in US housing.

Between 2006 and 2009 the average home lost over a quarter of its value.

This shocked millions of folks who believed the lie that US housing was a slam-dunk, can’t-lose investment. 

The fallout scarred a whole generation of Americans.

  • So when housing stocks began to slip early last year, investors couldn’t sprint for the exit fast enough…

Did you see the bloodbath in US homebuilding stocks last year?

They were obliterated, having their worst year since 2008.

The US Home Construction ETF (ITB) cratered 32%, as you can see here:

This was no run-of-the-mill correction.

In 2018, homebuilder stocks plunged as much as they had during the first 12 months of the 2008 housing collapse!

It was pure panic.

But I’m going to explain why it’s a big moneymaking opportunity for us.

We’re going to buy a company that’s earning record profits… while trading at its cheapest valuation since the depths of the housing crisis in 2009.

It’s the kind of safe but lucrative opportunity you only find in the wake of massive disruption.

  • In 2018 homebuilders were peppered by a flurry of not-so-good news…

Mortgage rates spiked to their highest level since 2011.

Trump’s new tax law removed some of the tax incentives for owning a home.

And after hitting a 10-year high in November 2017, home sales fell.

But one key fact trumps all this negative news:

US homes are still very affordable.

To measure affordability, let’s look at the National Association of Realtors affordability index.

It takes three key metrics—home prices, mortgage rates, and wages—and boils them down into a single number.

This number represents how affordable housing is for the average American.

Here’s the index going back to 1992:

You can see affordability has dipped from generational highs in the past few years.

But it’s still well above the 50-year average as shown by the red line.

Over the past half century, the affordability index has averaged 127.

Today it’s at 145. Outside of the past six years, that’s the highest reading since 1971!

You see, every housing bust in the past 50 years has happened when affordability was below 120.

Put another way… there’s no evidence that investors should be fleeing homebuilder stocks.

The huge selloff is not justified.

Look, the 2008 housing bust was the mother of all disruptions. Investors lost their shirts in homebuilding stocks.

Had you invested $10,000 in homebuilder ETF ITB in 2006, you’d be left with just $1,300 in 2009.

That’s a painful memory. I understand why investors are skittish.

But the fact is the risk of a housing bust today is virtually zero.

Yet many homebuilder stocks are trading at crisis prices!

  • We’re picking through the rubble to buy America’s top homebuilder: NVR, Inc. (NVR).

First, you should know that NVR achieved all-time record earnings in January...

Yet its stock is trading at just 13-times earnings… its cheapest level since 2009.

That’s a combination you rarely see outside of a crisis.

Under the hood, NVR is an exceptional company with a unique business model.

You see, most homebuilders buy raw land then build houses on it.

This is risky. The company must first pay up-front to own the land. Then it will plow money into developing the land… and then finally into building the houses.               

This can take a long, long time. Most homebuilders must pump in vast sums of money for years before they see even a penny of return.

Even worse, they hold the land on their books the entire time.

Imagine buying land in 2004 when the housing market was booming?

You would have paid through the nose.

And by the time you finished developing it years later, the market had tanked.

  • NVR never buys raw land. It only buys developed land.

This is unique among homebuilders. It means NVR avoids the riskiest part of the business.

It’s why NVR was the only homebuilder to turn a profit every year from 2006 to 2011.

Think about that… even in the worst housing downturn ever, NVR still managed to turn a profit.

Today NVR is far more profitable than its rivals. Its net profit margin is almost double the industry average. Meaning for every dollar of sales, NVR shareholders see twice as much profit.

This all makes NVR a very safe investment. And because it plunged 43% last year, there’s plenty of upside.

I see NVR climbing 50% in the next 12 to 18 months as it makes a run back to its recent highs.

Are homes selling fast in your neighborhood? Tell me at Stephen@riskhedge.com.

Stephen McBride
Chief Analyst, RiskHedge

Reader Mailbag

New RiskHedge reader Bill has a question about quantum computing:

I’m a new subscriber and I’ve already made a little on your most recent recommendations.

I really like the idea of finding disruptor stocks to invest in.

One technology I think has huge potential is quantum computing, which could completely disrupt everything from the internet to healthcare. Which companies are the best investments in this space? Google… IBM?

Thanks, Bill

Bill, thanks for your question. I’m glad to hear you’re making money on disruptor stocks.

As you alluded to, Google, IBM and a handful of startups are working to create the most powerful computers the world has ever seen.

In fact, you can’t compare computers today with quantum computers. They run on totally different principals.

I often say, it’s like jumping from the candle to the lightbulb.

Experts in quantum computing tell me the technology is still in its infancy. I wouldn’t be surprised if we don’t see true quantum computing for at least 20 years.

So while it’s an exciting trend that’s worth keeping an eye on, no company will be making money in quantum computing anytime soon.

Meet the invisible watchdog who’s keeping you safe

Meet the invisible watchdog who’s keeping you safe

Today I’m going to tell you about the most important little company you’ve never heard of. 

Not 1 in 500 investors know its name.

But you likely use its services every day.

Huge clients like Major League Baseball and the US government happily pay it many millions of dollars.

And my research shows its stock could double in as little as 12 months.

Let me explain…

  • Picture Cowboys Stadium in Dallas, Texas.

On football gamedays, some 100,000 people cram in to watch the Cowboys play. 

As you would expect, security is hectic.                         

In the span of a couple of hours, the guards who man the gates must size up 100,000 eager fans as they pour in. 

They must let in the law-abiding ticket holders… and keep out the drunks, scalpers, violent fans, people carrying weapons or drugs, and other troublemakers. 

  • Now multiply this chaos by 100…

And you’ll begin to understand the cybersecurity nightmare America’s largest online companies deal with all day, every day.  

Take Adobe (ADBE) for example. I’m sure you’ve used its PDF software.

Like all software companies, Adobe used to sell its software on CDs.

As regular RiskHedge readers know, “the cloud” changed that.  

Now you access its software over the internet—no installation required.

This has been fantastic for Adobe’s business and its shareholders.

Since switching to the cloud in 2012, its stock has surged 740%.

  • But it also opened up a gigantic security risk. 

Millions of users now access Adobe’s software over the internet every day.

Millions of people… coming and going on its networks… every day.

That means millions of new potential security holes.

A hackers dream.

And keep in mind, practically everything is on the cloud these days.

I’m typing this on Microsoft Word… through the cloud.

When you watch Netflix (NFLX)... you’re using the cloud.

When you file your taxes later this year through TurboTax… you’ll be using the cloud.

Can you even imagine the billions of vulnerable connections out there every minute of every day?

  • A company called Okta (OKTA) has pioneered the solution.

Ever book a flight through JetBlue (JBLU)…

Or sign into the Major League Baseball website…

Or check your credit score on Experian (EXPGY)?

Chances are Okta has kept your data safe.

Okta’s unique “Identity Cloud” acts as an invisible blanket that protects users from being hacked. 

Okta works silently behind the scenes. You won’t know it’s there.

But many big American companies like Adobe, MGM Resorts (MGM), and Western Union (WU) rely on Okta to keep users safe.

The US government trusts Okta, too. The State Department and Justice Department pay it to safeguard their networks. 

And if you’ve logged into the US Social Security or Medicare website in the last couple of months, you’ve been protected by Okta.                                                   

  • Okta provides US military-grade cybersecurity everywhere, on any device.

In a nutshell, Okta verifies that the people accessing a network are who they say they are. And that they have permission to be there.

This is different from traditional cybersecurity, which often relies on firewalls.

A firewall, as you may know, is a digital barrier meant to keep out unwanted intruders.

Firewalls are effective at ringfencing a given online area—like your home network or a university’s network.

As long as you stay within the confines of the firewall, it can protect you and your data. 

But remember, “clouds” consist of millions and millions of connections. It’s hard to wall off a cloud. Okta protects users where traditional firewalls fall short.

  • Okta’s business is booming…

Sales have exploded 150% in the past two years. Since it went public in 2017, its quarterly year-over-year sales growth has never slipped below 57%.

One of Okta’s big moneymakers is helping companies keep employees secure.

For example, if an employee works from a coffee shop, or an airport, or from home, Okta’s software ensures the connection is secure.

This is a HUGE security risk. According to Verizon, 8 out of 10 data breaches come from hackers getting into the network through employee accounts.

Another thing I like to see: Okta’s customers spend more and more money with it every year.

For every dollar a customer spent with Okta in 2017, it spent $1.21 in 2018.

This puts its dollar “retention rate” at a world-class 121%... crushing even Apple’s (AAPL) 92% retention rate.

  • I love the cybersecurity business right now…

As I’ve said before: No cost is too high when it comes to protecting your customers’ data.

Recently we discussed how Facebook’s (FB) business was essentially ruined by a data breach.

Its stock plunged 17% on the day of the news. It marked the biggest single-day wipeout of shareholder value in US stock market history.

Even with its stock jumping 11% this morning on strong earnings, it’s still down 24% in the past six months.

Back in November, hotel company Marriott (MAR) revealed its network was compromised. Hackers stole personal data for 500 million of its customers.

The stock plunged 18% in the following month. Marriott now faces a $155 million fine.

Any wise CEO will pay whatever it takes to keep his company’s networks secure. It’s an easy choice...

You either pay millions now for top-notch cybersecurity… or you skimp and end up paying hundreds of millions, or billions, later to clean up a disaster.

Okta’s security services are essential to some of America’s biggest, richest companies. It’s exactly the kind of business I want to invest in.

  • Okta is an “autopilot stock.”

If you’ve been reading RiskHedge you know why autopilot stocks are ideal investments. In short, they collect heaps of recurring cash by selling subscriptions.

94% of Okta’s sales come from selling subscriptions to its services, giving it a constant and predictable stream of cash.

This helped to insulate Okta from the recent market selloff. While most stocks are still down 10%–20%, Okta is scraping up against its highs. Investors take comfort in the steady flow of cash that autopilot stocks like Okta can generate.

  • Okta is on track to rake in around $400 million this year.

My research suggests it will grow earnings at roughly 35% per year for the next three to five years. If it can achieve this rapid growth in the next 12 months, its stock could easily double.

I encourage you to take a small position in Okta today. Note that it has surged about 50% from its December lows.

Anytime a small stock shoots up so much so quickly, a pullback could be around the corner. So keep your position size small for now.

That’s it for this week. Have you ever been hacked? Tell me about it at stephen@riskhedge.com

Stephen McBride
Chief Analyst, RiskHedge

Reader Mailbag

RiskHedge reader Johnathan has a comment about network tower companies as they relate to 5G.

I recently signed up for your letter and find it very interesting.

I’m an ex-money manager and used to follow the network tower stocks like American Tower (AMT) and SBA Communications (SBAC).

With 5G’s short signal I believe there has to be many more tower locations built. I think this is an interesting way of playing 5G.

Johnathan, thanks for your comment. I agree with you.

During the rollout of 4G, these tower companies handed investors up to 10 times their money. For example, between 2008 and 2015, SBA Communications (SBAC) shot up roughly 1,000%.

Given 5G’s fragile signal, hundreds of thousands of new cell towers will need to be built across America. So the tower companies you mentioned should do great business in the coming years.

A company that’s already raking in millions from 5G is chipmaker Xilinx (XLNX). I recommended the stock in early December, and it’s shot up about 25% since.

The brilliant guy who tricked an emperor

The brilliant guy who tricked an emperor

[Stephen’s note: Last night’s American Disruption Summit was a huge success. A big thanks to the thousands of investors who tuned in from around the world. If you missed it, you can watch the replay for a short time right here.

In today’s RiskHedge Report, I’m handing the reins to RiskHedge Chief Investment Officer Chris Wood. Below, he explains the secret behind why he’s seeing more “disruptor” stocks with huge upside today than at any time in his 15-year investing career...]

*   *   *   *   *  

Have you heard the story of the brilliant guy who invented chess?

Legend has it he took the game to the emperor of what is now India.

The emperor was so impressed, he told the inventor to name his reward.

All the inventor wanted was some rice to feed his family… so he made what sounded like a humble request.

He asked for one grain of rice for the first square of the chess board, two for the second square, four for the next, and so on, for all 64 squares.

The emperor agreed. It seemed like a small price to pay for a brilliant invention.

After 10 squares, the emperor had given the inventor just 1,000 grains of rice.

That’s about half an ounce... less than I’d put in a bowl of New Orleans gumbo.

After 20 squares, the emperor had given out about 1 million grains.

Which is 35 pounds or so—enough to serve 140 adults.

After 30 squares, the inventor was entitled to about 1 billion grains.

After 32 squares—the first half of the chessboard—the total was up to about 4.3 billion.

It dawned on the emperor where this was headed.

On the second half of the chessboard, growth really takes off.

After 40 squares, the inventor would get over 1 trillion grains.

After 50 you’re over 1 quadrillion

And at square 64, you’re at about 18.4 quintillion grains of rice.

That’s an impossibly huge number, enough to cover all of India in a meter-thick layer of rice.

All that rice would be worth about $1.96 trillion in today’s money.

The Awesome Force That Sneaks Up on You

The brilliant futurist Ray Kurzweil coined the term “the second half of the chessboard” in 1999.

He used it to illustrate the incredible, almost unbelievable power of exponential growth.

At last night’s American Disruption Summit, super investor Mark Yusko made a great observation.

He said humans tend to be pretty good at linear math, like 2 + 2 + 2 = 6.

But we’re bad at understanding exponential math. Most folks don’t really “get” what it means when something doubles 64 times. They don’t understand the true magnitude of exponential growth.

It’s happening right under our noses, though…

You see, technology has been improving exponentially for more than 50 years.

Have you heard of Moore’s Law?

Named after Intel founder Gordon Moore, it observes that computing power doubles roughly every 18 months.

Moore’s Law has held true for more than half a century.

For the past 57 years, computing power has doubled about every 18 months.

That’s 38 doublings.

Which means, we’re now living on the second half of the chessboard.

A funny thing about exponential growth is it sneaks up on you.

In the early stages, you barely notice four grains of rice doubling to eight… or 32 grains doubling to 64.

Likewise, a computer built in 1991 wasn’t much more powerful than one built in 1990.

But over time, the gains quietly accumulate. When you get to “the second half of the chessboard,” where we are now, progress hits a ramp and goes vertical.

Growth accelerates at warp speed… much faster than most folks believe is possible.

Here’s how exponential growth looks on a chart:

And it’s not just computing power that’s growing exponentially.

In 1968, you could buy one transistor for $1.

Today, you can buy 10 billion transistors for $1. And they’re better, smaller, and faster than ever.

This is why the smartphone in your pocket is millions of times more powerful than the computers NASA used to send men to the moon in 1969.

But you can buy 24,000 new iPhones for the price of just one of those NASA computers.

     
-

Disruptor Stock

Noun. [dis-ruhpt-or stok]

A small stock that creates or transforms a whole industry. Has an unfair advantage over its competition. Known for making early investors profits of 1,000%+.

Click here to get the name of the $6 Disruptor Stock revealed to all American Disruption Summit attendees

-
     

Exponential growth is in biology, too.

The Human Genome Project took more than 10 years and about $3 billion to map the first human genome.

Today, we can map a person’s DNA in one day for about $1,000.

Soon, it will take minutes and cost only $100.

How to Get Rich from Exponential Growth

You might be thinking: That’s great Chris, but how do we make money from this?

Take a look at the stock chart of DNA-mapper Illumina (ILMN) just below. This company is the driving force behind the plunge in DNA mapping costs:

It has handed early investors 20,000%+ gains and counting.

Notice its chart looks a lot like the exponential growth chart above.

Illumina stock achieved small gains in the early stages. Thanks to exponential growth, these gains would go on to snowball into life-changing profits.

Or consider Cisco (CSCO), which piggybacked on one of the most disruptive trends in history—the internet.

It provided networking tools that made the internet rollout possible.

And it rewarded early investors with exponential gains that turned every $1,000 invested into almost a million dollars.

Note the exponential pattern.

In just the last few years, humans have invented computers that think… built cars that drive themselves… developed cures for some cancers… and figured out how to produce energy efficiently without burning a trace of fossil fuel.

Just imagine what’s coming next as we zoom up the vertical part of the curve.

We’re living in a truly unique time. Exponential progress has opened a whole new world of investment opportunities for us.

Hands down, I see more opportunities to make big gains in exponentially growing stocks today than at any time in my 15-year investing career.

If you missed it, I shared one such stock—ticker and all—at last night’s American Disruption Summit.

It trades for $6 on the Nasdaq.

And as I said on camera, I see it gaining 500% in the next 2 ½ years.

You can get the full story by watching the replay for free, right here, while it’s still available.

Chris Wood
Chief Investment Officer, RiskHedge

PS: Have you heard about Project 5X? It’s my new research service where I hunt for exponentially growing “disruptor” stocks with the potential to hand you 500% profits at a minimum. Go here to find out more. Please hurry if you’re interested—your 29% Charter Member discount expires soon.

The end of Apple

The end of Apple

“Oh man, that’s almost a month’s rent for me…”

Here I am sitting in a cab in New York City.

I’m headed uptown to Columbia University where we’re holding the first-ever American Disruption Summit.

You can register to watch for free here… more on that in a minute.

The driver and I are talking about the absurd price tag of the latest Apple (AAPL) iPhone.

He’s shocked when I tell him the cheapest model is $1,149.

Who can afford that?” he asks.

  • In today’s letter I’m going to show you why Apple stock is a terrible investment.

Apple has had an incredible decade.

Since the iPhone debuted in 2007 its sales have jumped 10X.

Its stock has appreciated over 700%. And up until November it was the world’s largest publicly traded company.

But two weeks ago, Apple management issued a rare warning that shocked investors.

For the first time since 2002 it slashed its earnings forecast. The stock cratered 10% for its worst day in six years.

This capped off a horrible few months that saw Apple stock crash roughly 35% since its November peak.

The plunge erased $446 billion in shareholder value… the biggest wipeout of wealth in a single stock ever.

  • Apple has a dirty secret…

From looking at its sales numbers, you wouldn’t know anything is wrong.

Apple’s revenue has marched up since 2001, as you can see here.

By the looks of the chart, Apple’s business is perfectly healthy. But there’s a secret hidden behind these headline numbers.

Although Apple’s revenue has grown… it is selling less iPhones every year.

In fact, iPhone unit sales peaked way back in 2015. Last year Apple sold 14 million fewer phones than it did three years ago.

  • Apple has kept revenue growth alive solely by raising iPhone prices...

In 2010 you could buy a brand new iPhone 4 for 199 bucks.

In 2014 the newly released iPhone 6 cost 299 bucks.

As I mentioned, the cheapest model of the latest iPhone X costs $1,149!

That’s more expensive than many laptop computers. It’s a 500% hike from what Apple charged eight years ago.

  • It’s an iron law of disruption that technology gets cheaper over time...

Not all that long ago, a flat-screen high-definition TV was a luxury. Even a small one cost thousands of dollars.

Today you can get a 55-inch one from Best Buy for $500.

In 1984, Motorola sold the first cell phone for $4,000.

According to research firm IDC, the average price for a smartphone today is $320.

Cell phone prices have come down roughly 92%...

But Apple has hiked its smartphone prices by 500%!

Frankly, it’s remarkable that Apple has managed to pull this off.

  • But let me tell you… Apple is a disruptor in decline.

It comes down to the lifecycle of disruptive businesses.

Twelve years ago only 120 million people owned a cell phone. Today over 5 billion people own a smartphone, according to IDC.

Apple was the driving force behind this explosion. As the dominant player in a rapidly growing market, it grew into the most profitable publicly traded company in history.

As I mentioned, iPhone sales growth stalled out in 2015. This would’ve been the end of the line for most businesses.

But Apple did a masterful job of extending its prime through price hikes. Its prestigious brand and army of die-hard fans allowed it to charge prices that seemed crazy just a few years ago.

But now iPhone price hikes have gone about as far as they can go.

  • After all… what’s the most you would pay for a smartphone?

$1,500?

$2,000?

You might wonder… how bad, exactly, is the decline in iPhone sales?

It’s so bad that Apple now keeps it a secret.

In November, Apple announced it would stop disclosing iPhone unit sales.

This is a very important piece of information. Investors deserve to know it. Yet Apple now keeps it secret…

  • Keep in mind, the iPhone is Apple’s crown jewel.

It generates two-thirds of Apple’s overall sales.

Let that sink in…

A publicly traded company that makes most of its money from selling phones is no longer telling investors how many phones it sells!

And its other business lines can’t pick up the slack for falling iPhone sales.

Twenty percent of Apple’s revenue comes from iPads and computers. Those segments are also stagnant.

Which means 86% of Apple’s business is going nowhere.

Could Apple go the other way and slash iPhone prices?

I ran the numbers. If Apple cut prices back to 2016 levels, it would have to sell 41 million additional phones just to match 2018’s revenue.

  • We’ve seen the fall of a cell phone giant before…

Before Apple, Nokia (NOK) was king of cell phones.

In 2007 the front-cover headline of a major business magazine read:

“Nokia: One billion customers—can anyone catch the cell phone king?”

The iPhone debuted in 2007. Here’s Nokia’s stock chart since then:

  • Before I sign off, an important announcement…

Next Wednesday I’m taking part in the first-ever American Disruption Summit.

It’s going to be a fun and profitable night for all attendees. Just for showing up, you’ll get the name and ticker of a small $5 “disruptor” stock that has 500%+ upside in the next two and a half years.

We’re broadcasting from New York City, but you can watch online for free. Go here to reserve your seat.

As a RiskHedge reader, you already know how important disruption is to your investing results. At the American Disruption Summit, we’re gathering together world-class disruption experts to tell us where they’re putting their money in 2019.

Hope to see you there. You can reserve your seat right here.

And if you can’t make the premiere, no worries—a replay will be available to all who register.

Stephen McBride
Chief Analyst, RiskHedge

Reader Mailbag

RiskHedge reader Chris has a question about my projection for uranium prices:

“Stephen,

I don't disagree with your argument that uranium prices will move higher, but the timing and extent of the move may not be what you expect.

The reason prices have rebounded is that several of the major producers have cut production. When the uranium price gets into the low $40s, that production likely will be brought back on line.”

Thanks for your note, Chris. As I mentioned in my last article, the catalyst for much higher uranium prices will be the tidal wave of demand from nuclear power plants in the next 2–3 years. From talking to industry insiders, I can tell you many producers are holding out for about $70/lb. uranium.

As for the price of uranium itself, remember it rarely stops at a “rational” price. A shortage leads to surging prices, and momentum often carries the price well past “equilibrium.” That’s the norm not just in uranium, but for most commodities.

“Druck” the bloodhound is buying disruptors. Are you?

“Druck” the bloodhound is buying disruptors. Are you?

Has billionaire Stan Druckenmiller been reading RiskHedge?

“Druck,” if you don’t know him, might be the greatest investor alive today.

He’s low-key and rarely gives interviews. But his track record is astonishing…

Druck strung together 30 straight profitable years from 1980 to 2010.

During that time he earned returns of 30% per year.

If you took $10,000 and compounded it at 30% per year for 30 years… you’d amass a $26.2 million fortune.

And Druck has never had a losing year… ever!

He made money in 2001 during the dot-com crash. And reportedly made $260 million in 2008, while most investors were losing their shirts.

  • In a rare interview with Bloomberg, Druck was asked what he’s investing in today...

He said:

We are long the disruptors and short the disrupted… it has worked beautifully.”

Regular RiskHedge readers know all about disruptor stocks.

Disruptors are not ordinary stocks. They don’t come in and compete with industry leaders. They destroy them.

They steamroll the competition… and often hand investors big gains of 3x, 4x, 5x, or better.

  • Take a company like Adobe Systems (ADBE), whose “PDF” software transformed American offices…

Remember Xerox (XRX)? It makes those big, clunky paper copiers.

Believe it or not, Xerox was once a mighty tech giant. 30 years ago it was America’s 20th largest company.

Today its stock chart is a sad reminder of what it’s like to get steamrolled by a disruptor.

Xerox stock peaked at $168/share in the late 1990s. Today it trades for just $21/share… a wipeout of 87%, as you can see on this chart:

Canon (CAJ), one of the world’s biggest manufacturers of printers, is a victim of Adobe’s disruption too. In the past decade printer sales have plunged 30%, and Canon’s stock has been cut in half since 2007.

Meanwhile, Adobe stock has surged 600% since 2010. That’s four and a half times better than the S&P 500.

And if you’d bought Adobe when it was an “early stage” disruptor in the late 1990s, you’d be sitting on profits of over 20,000%.

  • Today, Druck is plowing billions into a disruptive trend we’ve talked about before…

“The cloud.”

As I explained recently, the cloud gives businesses cheap access to powerful supercomputers.

Druckenmiller has invested over $1 billion in cloud businesses including Microsoft (MSFT)… Amazon (AMZN)… and ServiceNow (NOW).

In fact according to SEC filings, 52% of his stock holdings are in cloud companies.

In the chart below, you can see how cloud disruptors have crushed the S&P 500 over the last five years.

  • Druck isn’t the only legend buying disruptors…

Have you seen the movie The Big Short?

It tells the story of a few investors who made a killing by betting on the US housing collapse in 2007-8.                                               

Steve Eisman, who was played by Steve Carrell, was a mastermind behind the trade. His fund made about $1 billion from the housing collapse.

In a recent interview, Eisman was asked “what are the biggest opportunities you see today?”

He said “the disruptor vs. disruptee theme. [It] will last for a long time and there’s lots of way to play that...”

  • Druck and Eisman are what I call “bloodhound investors...”

As you may know, many investors got rich by specializing in one strategy.

Warren Buffett buys undervalued businesses and holds them forever.

Carl Icahn is an “activist” investor. He buys big chunks of companies and influences CEOs to make changes.

Neither Druck nor Eisman specialize. Instead, they seek out moneymaking opportunities like bloodhounds.

Druck has famously made big money across all assets: stocks… bonds… currencies.

Eisman made his fortune during the worst market crash since the Great Depression.

You could say they’re agnostic in what they buy.

It’s like when bank robber Willie Sutton was asked why he robbed banks? He answered “because that’s where the money is.”

Go where the money is.

In a recent interview Druckenmiller said “We’re in the most economically disruptive period since the 1880s.”

Clearly, these guys know the big money today is in disruptor stocks.

I like to see two of the world’s smartest money managers on our side, buying disruptors along with us.

That’s all for today. Be sure to check out next week’s issue. I’ll be making an important announcement…

Plus I’ll make the case for why one of the world’s largest companies—whose stock you almost certainly own—is in big trouble.

Write me at stephen@riskhedge.com with any questions or comments.

Stephen McBride
Chief Analyst, RiskHedge

Reader Mailbag

In response to my article about Waymo’s self-driving cars, RiskHedge reader Syd asks:

“Stephen, great article on Waymo & self-driving cars, thank you.

Which Google shares do you recommend, Class A (GOOGL) or Class C (GOOG)? What's the difference, other than a small difference in price?”

Syd, the difference is Class C shares (GOOG) have no voting rights, while Class A shares (GOOGL) have one vote each.

For this reason, GOOGL trades at a slight premium to GOOG. But the two move in tandem. For example, since the stock split in April 2014, the correlation between GOOG and GOOGL has been 0.9988. 1.0 is a perfect correlation. So you can go ahead and buy either one.

RiskHedge reader Jim has some good thoughts on self-driving cars.

“I read the RiskHedge report on AI and self-driving cars. I probably wouldn't climb in one today, but in a few years, I'm not sure I'd have a problem with it.

I realize that self-driving cars have a lot more sensors and computational power than the average vehicle. I love the driver-assist package in my wife's 2014 Jeep Cherokee. I don't think I'll ever own anything without adaptive cruise control again. Really helps for those "not so good" drivers who pass you then pull in front and slow down.

Nice thing about self-driving cars is the millions of senior drivers who should no longer be driving can stay more independent. As someone nearing 65, I know I'll be there one day. If the self-drivers aren't there, I hope I have the sense to give up my car, as my grandmother did... first stopping driving at night, then giving up her license at around 89. She lived several more years and despite living in a country village, never missed her car.”

Jim, I completely agree. Elderly folks who can’t drive will be the first big winners when self-driving cars rollout. They’ll no longer have to take public transport to get groceries or visit family.

This is why Waymo is smart partnering with city councils to fill the gaps in their public transport systems. And bringing people to buy their groceries at Walmart.

On the face of it, self-driving cars seem like a young person’s thing. But in a few years, Americans of all ages will be riding in them.

What to do with your money in a bear market

What to do with your money in a bear market

“Sell everything, I can’t take anymore!”

My stockbroker friend got a phone call from a hysterical client on Christmas Eve.

She was panicking over all the money she had lost in the market… and was demanding to sell her whole portfolio of stocks.

December, as you surely know, was horrendous for U.S. markets.

The S&P fell 10% for its worst December since 1931 during the Great Depression.

In fact, it was the S&P’s worst month overall since February 2009.

  • From 2009 to 2017, U.S. stocks posted a gain every single year…

That nine-year winning streak is now over. On Monday the S&P closed out 2018 with a 6% loss.

All this bad news has many investors freaking out that a dreaded “bear market” in stocks has arrived.

If we are in a bear market, there’s likely more downside from here. In the 10 bear markets since the 1920s, stocks fell an average of 32% from their highs.

Meanwhile the S&P has already fallen 17% since peaking in September 2018.

So if we’re in for an “average” bear market, stocks should continue falling.

  • Of course, markets often defy averages… 

And I’ve heard from a lot of readers who are nervous stocks are headed for a full-blown crash.

So in the rest of today’s letter, we’re going to look at how “disruptor” stocks perform in a worst-case scenario…

Like when U.S. markets cratered 57% during the 2008 financial crisis.

  • As regular RiskHedge readers know, “disruptors” are stocks that create, transform, and disrupt whole industries.

“Disruptors” are not ordinary stocks. They don’t come in and compete with industry leaders. They destroy them.

Buy a disruptor early on, before it becomes a household name, and you’ll often stand to make profits of 1,000% or greater.

Take online travel disruptor Priceline (BKNG) for example.

Remember when you had to talk to a travel agent to book a vacation?

Now you can book a whole trip from your computer in under ten minutes.

Priceline was the main driving force behind this disruption.

Its online booking platform dominates the $240 billion global travel services industry. Close to half of all vacations booked online today are booked through Priceline’s network of websites.

  • Early investors in Priceline stock earned profits up to 14,000%...

Back in 2007, just before the financial crisis, Priceline was still a small firm with just $140 million in sales.

In the next two years—2008 and 2009—its earnings surged 249%.

Let me repeat that…

During the darkest days of the worst financial crisis since the Great Depression, Priceline’s business didn’t just hold up...

It grew faster than ever.

And its stock price soared 144% from 2008–2009. You can see from this chart it crushed the S&P 500.

  • Priceline wasn’t the only disruptor that sailed through the 2008 crisis…

A few months ago we talked about a super-profitable business called the cloud. 

In short, the cloud gives businesses cheap access to powerful supercomputers.

Salesforce.com (CRM) pioneered this business two decades ago. Today over 150,000 clients pay Salesforce a monthly fee to use its customer relationship tools. Investors who got into Salesforce stock early booked profits up to 1,750%.

Like Priceline, Salesforce’s profit and revenue growth powered right through 2008 and 2009.

During this period the average S&P 500 company’s earnings tanked by -77%.

Salesforce’s earnings, meanwhile, more than doubled.

Look at the chart below. You’ll see that after markets bottomed in 2009, Salesforce stock rocketed six times higher than the S&P by the end of 2010.

  • The financial crisis was barely a speed