Prof. Paul Mampilly s. The Company Leading the. $19 Trillion Revolution

Transcription

1 Paul Mampilly s Prof The Company Leading the $19 Trillion Revolution

2 The Company Leading the $19 Trillion Revolution By Paul Mampilly, Editor of Profits Unlimited MOORE S law holds that computing power doubles every two years. And that s what we ve had for over 50 years now: Computers becoming smaller, more powerful and cheaper. Computers have come a long way in those 50-plus years. In 1959, IBM introduced its 7090 mainframe computer. The 7090 was impressive for its time. You could even use it from a remote terminal. The downside? It still filled a room, cost between $4 and $5 million in today s dollars and was incredibly slow. By the 1960s, we were beginning to experiment with transistors. However, the big change came when we moved to computer chips. By packing circuits together, a chip multiplied the power of old computers. And you could pack them tightly so tightly that computers that once filled a room, now fit on a desk. Moore s Law and computer chips made people incredibly rich. Just imagine buying into Intel, Apple or Microsoft when the computer chip revolution became available in the stock market. If you bought at Microsoft at its IPO price and put $1,000 into it, you d have $838,833 today. The keys to making all this money are getting in early on a new trend and buying companies that are going to benefit the most. Right now, an incredible new trend is unfolding. People who are working on it call it the Internet of Things. (You may have seen it referred to as Internet 2.0 or the Second Industrial Revolution.) The Internet of Things is the intertwined network of objects embedded with sensors, analytics software and electronics. In this report, I m sharing the company that s going to get us in on the Internet of Things revolution. 1

3 Unlocking the Internet of Things The key to the Internet of Things is something called MEMS, or microelectronic mechanical systems. MEMS are smart sensors. MEMS are the critical element for the Internet of Things to work. Also known as smart sensors, MEMS are micro-versions of computer chips. They are tiny. Many of them can fit on the tip of your finger. For example, these smart sensors are going into pipes to measure how much water is flowing through them. They re in roads, so we know how much and what kind of traffic is going on a highway. They can collect information in a smartphone because they are designed to capture data with incredible precision. MEMS can handle huge amounts of data in a fraction of a second. MEMS can be adapted for particular environments... heat, cold, water or air. They calibrate themselves for unusual situations so that the data they collect is relevant. Industry research shows that MEMS growth is going to explode over the next few years. Market Reports Hub estimates MEMS are going to be a $57.77 billion market by 2022, and that the growth rate will soar to 18.1% per year. That s an incredible rate of growth. And it s the kind of growth you want to get in early. Because smart sensors will be everywhere, we want to buy into a company that s focused on putting their smart sensors in machines and devices. Intel became a stock market winner not because it had the best technology, but because it went into billions of personal computers. So we want our smart sensors to go into something that s going to sell by the billions and millions. We also want to make sure that the smart sensors are unique, so that they can t be replaced easily. In other words, you don t want to own a commodity sensor company. You want a company that has differentiated technology, one that is absolutely critical to have in machines and devices. And what machine is it absolutely necessary to have sensors in? Pretty simple: your car. 22 Billion and Growing In 2020, analysts estimate that there will be over 110 million cars sold. And these cars are now equipped with smart sensors in the engines to communicate things like engine temperature, levels of oil, water and air pressure, on the outside of cars to tell the driver if a car is in his blind spot, or to automatically brake the car if something juts out in front of it. Currently, every car has about 60 to 100 smart sensors on board. However, cars are becoming smarter which means they have more smart sensors generating more data about everything. As a result, the number of sensors is projected to reach as many as 200 smart sensors per car. When you do the math, you realize that the automotive industry by itself is going to need 22 billion sensors. Twentytwo billion is big. Mega big. Mega big is good when you re buying into a trend early. That s because you get to benefit from those big profits. Another area where more and more smart sensors will be imbedded is in your home. For example, Nest is 2

4 a smart thermostat that learns your heating and cooling preferences and adjusts automatically to account for them. It also learns your daily routine so that it can turn on and turn off your heating and cooling systems so that you re not wasting energy when you re not home. Clearly, as cars and home appliances show, smart sensors are going to be everywhere. And we want to profit on that. If you want to find the perfect smart-sensor company, one whose stock is going to soar higher because its products are going to be used in huge amounts, look for a company whose smart sensors are used in cars, in lights and electric outlets, in homes and in city infrastructure, and in factories and workplaces. In other words, you want it to look like this: As I mentioned earlier, we also want a smart-sensor company that has differentiated unique technology technology that s critical for what customers use it for. In other words, we want to see a company that s innovating constantly and creating new products that its customers want to use. This combination smart sensors that are going to be used in high volume, and differentiated, unique technology is why you want to buy STMicroElectronics (NYSE: STM). The image you see above... that s where STMicroelectronics sensors are being used today. Notice that these are all high-volume markets... cars, houses, etc. I ll tell you about some of the new, innovative products STM has introduced just this year... and that are going to make its sales surge in the future. First, let s get some details about STM. 3

5 The Start of a Fresh Uptrend STMicroelectronics is a global smart-sensor company with headquarters in Geneva, Switzerland. STM has 43,200 employees around the world. Of these employees, nearly 20% are in research and development which is crucial. We need our smart-sensor company to have differentiated, unique products. And the only way to do that is to invest in research and development. As you can see by the number of people STM has in R&D, this is a huge priority for the company. In 2015, STM generated $6.9 billion in revenue. Of this revenue, 40% came from sales to the automotive industry. The remainder was spread evenly between spending on smart homes, smart cities and industrial machines. This is exactly the kind of high-volume exposure we re looking for. Now, you need to understand that STM s smart sensors are a cyclical business. By cyclical, I mean that its products go through periods when there s more demand, and periods when there is less demand. Cyclical businesses go through long ups. Catch the stock of cyclical business at the beginning of the up cycle, and you can make five or even 10 times your money. STM s smart sensors are at the beginning of the Internet of Things cycle (innovation, acceptance, saturation). It s introducing new products that are going to make its sales surge. For example, STM recently announced the new LSM303AGR smart sensor that enhances deadreckoning accuracy in automotive navigation. STM also just introduced its newest generation of microcontrollers for smart cars...the SPC58 Microcontroller line. These microcontrollers help cars optimize performance, lower power consumption and increase reliability and security. On May 16, 2016, STM announced silicon-carbide technology that lets automobile owners travel longer distances and recharge cars more quickly. And this is just a sample of what STM has up its sleeve. STM is a well-capitalized company. As of April 2016, it has $1.7 billion in the bank. It pays a current dividend of $0.24 per share, with a current yield of 4.4%. Remember that STM is at the bottom of the cycle, so you can expect the dividend to go up as its sales and profits rise. A 900% Windfall I can tell you from 20 years of being an investor in cyclical companies that this is the exact setup for getting in at the bottom of a cycle and setting yourself up to make five or 10 times your money. Just remember that at its peak in 2011, STM stock traded at over $11 a share. If STM surpasses this, you could make over 100% from its current price. However, I believe that s too conservative. The Internet of Things cycle is going to be a massive cycle that is going to challenge the all-time share price seen in STM in That price peak was associated with the last massive cycle that came from all the spending infrastructure for the Internet. Meanwhile, the Internet of Things trend is estimated to be worth $30 trillion. So, this cycle is even bigger than the one that we experienced in Back then, STM peaked at $54. From its recent share price of about $5.40, you ll have made 900%. Personally, I believe STM will surpass its 2000 share price peak of $54. 4

6 STMicroelectronics (NYSE:STM) is the stock to buy to get in on the mega-massive Internet of Things trend. It pays a dividend of $0.24 per share annually (4.4% at the current price), which will go higher as STM s sales rise. At the very least, I expect STM to go up 100% over the next 12 to 36 months. However, I believe that is the bare minimum. The Internet of Things is a massive trend like the original Internet trend that happened in If that s right, then I believe that STM is going to challenge its all-time share price of $54 which would be gains of about 900%. Regards, Paul Mampilly Editor, Profits Unlimited P.S. The stock listed in this report will not be included as part of the Profits Unlimited portfolio. I will not be providing follow-ups or additional guidance on this equity. It is a suggestion only, not a specific recommendation. The report provides a foundation for further independent research. 5

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