When a Trend Shifts Like This, You Can Get Rich

Keith Fitz-Gerald Jan 14, 2015
25 

Did you see the investing opportunity in the Golden Globe Awards last Sunday?

Not many investors did. It was easy to miss.

It wasn’t the dazzling fashion on the red carpet or the celebrities congratulating each other. What really struck me was a huge signal for money-making in our Technology trend.

Technology is easily our fastest-moving “Unstoppable Trend” – and the one with the most “sub-trends” and offshoots. We’re already doing great on one of those: Human Augmentation. Our target there is tiny Ekso Bionics Holdings Inc. (NYSE:EKSO), which quickly doubled and is still up more than 40% since I released my first report on it – with much more upside ahead.

But what I saw Sunday was a very pronounced shift in a Technology sub-trend that is going to be one of the biggest opportunities of the next 5-10 years. Billions of dollars are getting sucked out of one industry and into a new one.

Sadly, though, most investors are going to make two mistakes:

  1. They’ll try to hold onto the past (and previous winners) rather than acknowledge the shift; or,
  2. If they do recognize it, they’ll plow their money into choices where the potential upside is limited because it’s already “baked in,” as the expression goes.

Do this instead…

Invest in the Age of Original Content

In contrast to years past, the biggest winners were NOT the major networks or even the actors themselves but players like Amazon and Netflix, both of whom provide something called “original content.”

Original content is entertainment that’s produced and aired exclusively by entertainment giants (Netflix’s “House of Cards” is one example and “Orange Is The New Black” is another).

Ostensibly entertainment, it’s really a powerful marketing mechanism intended to get customers to rationalize paying their cable or Netflix bills for yet another month.

This stuff isn’t cheap. In fact, Netflix invested a staggering $100 million in creating the first season of “House of Cards” and another $90 million just for the 10-episode miniseries “Marco Polo.” Ultimately, we’re talking about billions of dollars here.

What’s interesting about this is that original content is not just “worth it” for the producers. It’s also incredibly valuable for sites that don’t charge their users anything, like Google or YouTube. That’s because original content draws a larger, more devoted audience which, in turn, helps these sites monetize the users they have.

Netflix and Amazon are leading the way at the moment, but smaller players are already charging hard right behind them including Hulu, Vimeo, and Vevo. Even YouTube (which is now owned by Google), recently said they’re going to start dedicating more resources to their own content creation – and the last time they did that was with a $200 million investment in 2012.

These guys are all investing more and more into creating their own content – and it’s not just winning them Hollywood awards. It’s winning them subscribers and revenue and a big piece of the market share from traditional providers like Comcast.

Just consider: Original content was already proving itself to be a bonanza for Netflix by the end of Q1/2013, when it was reported that the company had won over an additional 2 million paying subscribers, yielding enough revenue to pay back the cost of creating “House of Cards” in just three months.

In Q1/2014, “House of Cards” brought in another 4 million subscribers. And in July 2014, on the heels of a triumphant earnings report that showed a 24% increase in revenue year-over-year, Amazon announced it would double down on original content investing, to the tune of $100 million for that quarter alone.

I think this data – along with the recognition of artistic success at the Golden Globe Awards – signals a changing of the guard. The new model for entertainment is original content.

The Wrong Way to Invest

Now a lot of folks are going to see this shift and say, “Great, I’m going to buy Amazon or Netflix.”

Don’t make that mistake.

Both of these companies have glorious recent pasts, with Netflix Inc. (NasdaqGS:NFLX) more than doubling in value from April 2013-March 2014 while Amazon.com Inc. (NasdaqGS:AMZN) surged 44% in the last three months of 2013 alone. But after delivering very impressive growth in the last two years, they now suffer from lofty expectations that could cause the stocks to plummet even if they continue to report modest growth year-over-year, as is likely to be the case.

I would not touch Amazon – it’s too expensive, and competition from Google and Microsoft – just to name two companies – is eating into their business. Equally worrisome, the company has shown no signs of overcoming the problem of its razor-thin profit margin, as it reported an operating loss of $126 million in Q2/2014 and an alarming $544 million for Q3/2014.

Netflix remains a viable bet, but with a P/E ratio of 85 it’s also expensive. And because of its phenomenal earlier growth, there’s enormous pressure on Netflix to keep delivering, the same phenomenon that dragged down Apple stock in 2013. Just consider: Netflix has lost 35% of its market cap in selloffs since September, despite a quarterly earnings report that showed the company bringing in 980,000 more customers, and earnings that were in line with consensus expectations.

The Better Way to Play Original Content

The true winner hasn’t yet emerged from a fluid field of contenders, but it’s going to look something like the direct distribution model we saw with “The Interview.” Β That’s not an endorsement of Sony, by the way, as it stumbled upon that style of release completely by accident. In fact, I believe the company is a compelling short for reasons beyond its movie business.

To me, the far more successful play is to make a “picks and shovels” move right now. Like the store owners who sold shovels to scrappy miners and made bank, savvy investors want to align with tiny emerging tech companies that help move the media itself.

Two of my favorites right now include Brightcove Inc. (NasdaqGS:BCOV) and Limelight Networks Inc. (NasdaqGS:LLNW).

Based in Boston, MA, Brightcove is a $250 million company that offers cloud-based solutions for other companies to distribute and publish digital media. It turned profitable for the first time in Q3/2013 – and it’s beaten analysts’ expectations twice in the four quarters since, sending the stock bouncing 14% and 18% in the aftermaths of Q2/2014 and Q3/2014 respectively.

Limelight Networks is a content delivery network company based in Tempe, AZ. The company has seen a flurry of positive earnings estimate revisions, and its 19% uptick in stock price over the last two months indicates that some investors are starting to notice its potential.

While Brightcove is priced around $7.70 per share and Limelight is trading at around $2.80, I believe each could quickly rise to above $8 and $3 respectively.

If a bigger play is more your style, consider SanDisk Corp. (NasdaqGS:SNDK). The company is a global leader in flash memory storage solutions, and is building the large-scale data environment and chipsets going to be used on the devices that display the billions of dollars’ worth of original content you can expect to see flooding the entertainment industry.

Sandisk is currently down more than 15% since early January as investors react to corporate guidance forecasting weaker sales of flash memory storage chips. This blip in sales is mainly a response to weaker smartphone sales, which were unexpectedly poor for the last quarter as Apple and Samsung struggled.

Longer-term though, SanDisk is ideally positioned as Cisco’s prediction of 50 billion interconnected smart devices by the year 2020 comes closer to reality.

I’ll be back later in the week with news on a major market signal that’s already causing justified alarm – but for the wrong reasons.

Until then,

Keith

25 Responses to When a Trend Shifts Like This, You Can Get Rich

  1. Sherwood Baxley says:

    Thank you Keith for your outstanding work.
    Usually I find out, much too late, to make any money about the companies that you mentioned in your email.
    Please keep us (your subscribers) on the cutting edge of new developments so we can make a good profit.
    I see you on TV from time to time.
    I am waiting to hear from you.
    Sherwood Baxley

    • Keith says:

      Hello Sherwood and thanks for the kind words! Not only do I appreciate you reading along, but watching, too.

      The publication process can be tricky; we’re pretty good at getting stuff out quickly but I’ll see what we can do to get even faster. In the meantime, you may want to check out the Money Map Report which is not so time sensitive yet has helped hundreds of thousands of folks achieve some really terrific returns. Of course, there are a few stinkers in there, too but that comes with the territory every now and again.

      Best regards and thanks for being part of the Family, Keith πŸ™‚

  2. JB says:

    Both Bright Cove and Limelight have negative earnings and there charts are trending down. Do you have a stock that has the reverse?

    • Keith says:

      Hello JB.

      I know…I wish I could do something about that but three things come into play: 1) the companies are young and that means they are relatively capital intensive which often means negative earnings in the early going so this is not atypical; 2) the markets are bumpy right now in general so the charts may appear uglier than normal especially when it comes to companies just making their mark; and 3) these are speculative recommendations consistent with newly emerging technology which means by the time the charts are working in the other direction, it may be too late to make your move.

      Best regards and thanks for being part of the Family, Keith πŸ™‚

      • TOM says:

        There is something you can do. Buy the ETF SKYY which holds 40 companies heavily involved wtih the cloud. Brightcove is the number one holding. By buying SKYY, you may not make as much on the upside, but you can certainly limit your risk to the downside. I bought 1000 shares on 9/28/11 & I am up 68.43% since then. I don’t know about you, but I will take 23% per gains everytime.

  3. Dolores Jordan says:

    I have never invested in the stock market and am completely illiterate as to where to start. Some say I should hire a broker and I am wondering if this is the way to go. Please advise as I would like to start with about $2,000.00. Thank you.

    • Keith says:

      Hello Delores and welcome.

      You are beginning a wonderful journey that can be extraordinarily exciting and profitable over time. I am thrilled and honored that you have chosen to make me a part of that.

      Rather than hire a broker right away, I’d actually like you to read “the Money Map Method” – an investing primer I wrote a few years back first. That way you’ll have a good idea about what YOU want to accomplish when it’s time to make that first purchase – either through a broker or on your own. Not all brokers take that into account believe it or not.

      You can get a copy by contacting our customer service team — but it is reserved for members of my Money Map Report.

      Please keep me posted as I would love to hear about your progress.

      Thanks for sharing, best regards, and thanks for being part of the Total Wealth Family, Keith πŸ™‚

  4. HELEN says:

    Hello Keith and Happy New Year
    As I do not have a lot of cash available to buy SNDK , could I get around playing with Options?
    Any good suggestions ??
    thanks
    Helen (Toronto)

  5. Etelka Kovacs says:

    Thx. For great Infoes. I’m a fan.

    • Keith says:

      Hello Helen.

      You live in a terrific city that I enjoy every time I’m there – stay warm!

      As for options, that’s a question I can’t answer unfortunately because I don’t know your individual circumstances and it would be inappropriate for me to do so.

      That said, options can be a great alternative for investors in your situation if the risks are properly understood. In particular, LEAPs options. To learn more, check out The Characteristics and Risks of Standardized Options from the CBOE, a booklet every investor must read before buying or selling options. And, consider a copy of the Money Map Options Primer, too. Both are great resources that can help you decide.

      Best regards and thanks for being part of the Family, Keith πŸ™‚

    • Keith says:

      Thank you so much Etelka for both the kind words and for being part of the Family, Keith πŸ™‚

  6. Dennis says:

    Greetings!
    Only to say ‘thank you, Kieth’. Some how I feel a realgood conversaion here within what you are saying, and for this I say ‘thanks’. You get to the meat within, and cover the potatoes and even provide desert at times. Great! Kieth, I wonder about the short term, giddy-up plays where perhaps a short term investment now can jump within days, weeks maximum play time? Have you any of this insight? For example, sometimes I feel the need to get in on a topic you provide in debth, and then I don’t because of the ‘one year or more’ play time for the growth or correction time. So, without tying up funds long term, even perhaps only once in a while? I am all ears!
    Cheers!

    • Keith says:

      Thanks very much for the kind words Dennis. I particularly appreciate the fact that you characterize my writing as a “conversation” because that’s very much how I intend it!

      As for shorter term plays, you may have read my mind. I’ve been asked a lot recently about developing a short term momentum based trading service and am doing just that based on some of the most interesting research I’ve uncovered. It’s tentatively called the High Velocity Trader and it’s going to launch in the next few weeks so please keep your eyes peeled.

      Of course, I’ll also be including shorter term plays here, too because so many people are asking.

      Best regards and thanks for being part of the Family, Keith πŸ™‚

  7. Mike VanBaren says:

    Nice advice. Love your straight forward writing style. Thanks

  8. Raymond says:

    Original content, I get it. But, hasn’t it always been about original content? What struck me during the Globes was the introduction of Amazon producers. That was interesting. Seems there were only two dominate players that night Amazon and Sony (Classic?) (not sure) So, will Amazon pick up content from just about anyone if it’s worth showing? Good for the little guys, I guess.

    I like the other plays but need to understand the picture. BCOV cloud based storage and access? (the ultimate ubiquitous marquee)??. Then what about SNDK? How does that work, loaded memory cards, visiting sites to download? (obviously technically challenged) and LLNW, not sure. Do like the name (“Limelight”) though. But, is it easy to use?? Will check it out. Love the price points too.

    Thanks

    • Keith says:

      Hi Raymond.

      I’m glad the analysis resonates with you. I think the shift is very graphic – pun absolutely intended.

      As for the analysis, think of it this way…the plays I mentioned are like the shop keepers selling picks and shovels to the gold rush miners. Most will ultimately make money hand over fist even if the “shovels” aren’t necessarily used up the mountain to mine gold. Most miners, in fact, never got rich.

      I’ll have an update in the weeks ahead talking about how this stuff actually works…it’s pretty cool technology!

      Best regards and thanks for being part of the Family, Keith πŸ™‚

  9. Phil says:

    Keith, what’s in store for EKSO? It’s down quite a bit from the recent high and has been languishing. Unfortunately, I got in near the high. What’s your one-year target?

    • Keith says:

      Hello Phil and thanks for sharing.

      I believe EKSO doubles by the end of the year then begins to accelerate dramatically as product acceptance and revenues grow accordingly. Remember, the company is still very much early days so it’s still off the radar for most investors. Ironically, that’s exactly what we want because it allows them to get their growing pains out in a relatively low pressure environment. The company will hit the big leagues soon enough.

      Best regards and thanks for being part of the Family, Keith πŸ™‚

  10. Florence Davidson says:

    After reading you for years, I feel bold enough for a question. Nice old ladies get shy. I am into the market with never an adviser but with no Hetty Green sort of confidence (in same sect as she).. The question regards overreliance on ” “never lose money”, which has me holding on for 2- 5 years to loss-making big commodity companies and financials, estimating they will be back in another two or three years. Losses would be several tens of thousands if I sell now, or perhaps half that whenever I give up. And, about that much cash will be realized to put into your recommendations at either time. Which is better? Your guess? Or is it time to hire advice on each dog? I am 87, and thank you for all I have made for my 9 grandchildren, with your help. Just writing this has me deciding to use stops.

    • Keith says:

      Dear Ms. Davidson,

      Thank you so much for the kind words and for sharing your experience. I am humbled to have played a small role in your life and to have helped your grandchildren build a better future. I appreciate the fact that you have asked very much.

      If it’s okay with you, I want to give your question some thought. It’s vitally important on many levels and you are not alone in your situation. So please stay tuned for an upcoming column and what I hope will be some helpful perspective.

      Best regards and thank you for being part of the Family, Keith πŸ™‚

  11. Hillard Welch says:

    EKSO – I must be missing something since you keep touting this stock and I
    thought I bought on your first recommendation. My cost still exceeds the current
    market price.

    • Keith says:

      Thanks for your email. Please note my comments above. The markets are down across the board right now for reasons that are totally unrelated to EKSO’s business model which, in fact, continues to reflect growing sales and increasing usage. If you are concerned about that for reasons related to risk management, timing or anything else, I would submit that perhaps EKSO is not an appropriate investment. Patience is part of the game, especially when it comes to early stage companies like EKSO.

      Best regards and thanks for being part of the Family, Keith πŸ™‚

  12. Aharon says:

    Folks. Anyone who bought EKSO right away when Keith first wrote and followed his ongoing advice should have doubled the money, SOLD half and now be sitting with a free trade on the other half that should still be up like 30% or so.

    I waited a couple days and watched the rally, not wanting to chase. NOW that EKSO has retraced in a long and CORRECTIVE pattern for a while, it looks ripe to base and break out from its declining tops line and start a new uptrend, IF the markets and awhile pull ahead, especially small Caps and the IWM index.

    People need to seriously learn technical analysis and POSITION sizing and have a plan. My plan with EKSO is that I’m looking to buy VERY soon. Like this week. Small position size relative to whole portfolio. Like no more than 1% !!!!!!

  13. har says:

    Love your stuff, thanksl
    Could I get a copy of ‘Money map options primer’?

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