These high-tech issues offer high-yield potential
Dear Mr. Berko:
Could you mention three or four companies that have discovered new high-tech products that will make an important difference in the companies’ future revenues and earnings? I would like to invest $16,000 in a joint growth account with my wife. We can afford to be aggressive and we are definitely long-term (five to eight years) investors. So would you recommend five or six companies that have discovered new technologies?
E.P., Springfield, Ill.
Forget the companies that are developing new technologies. In most instances, the companies that develop technologies are unable to exploit them commercially. Pablo Picasso commented that “mediocre artists borrow, great artists steal.” And almost invariably the manufacturer and/or the user of a new technology will profit more, by orders of magnitude, than the inventor.
Consider Borg Warner Inc. (BWA-$49.75). DualTronic is BWA’s wet-clutch and control system technology. This technology allows a conventional gearbox to operate as a fully automatic transmission while delivering the high performance and superb fuel economy of a manual. This system, now on the Volkswagen Golf and Audi, may grow to 22 percent of the European market in 10 years. And BWA’s variable cam timing (VCT) concept, which controls the air flow in and out of an engine, also is revolutionary. This unique system allows the camshaft (using its own torque) to be dynamically phased relative to the crankshaft. VCT is being launched on a new family of General Motors V-6 engines this year. This technology will improve fuel consumption and significantly reduce engine wear and tear. I believe BWA could trade in the $90 range by 2008 or 2009.
BJ’s Wholesale Club Inc. (BJ-$28.30) is the 1,812th-largest company in the world, just smaller than India’s Oriental Bank of Commerce and just larger than China’s Sinopec-Yangzi Chemical Co. BJ has just begun to use radio frequency identification, a generic term for technologies that use radio waves to identify items. Warehouse-format retailers are the initial users of this format. And because BJ has only three distribution centers and 130 stores, it should be quite simple to upgrade the company’s distribution system to RFID. Some suits on the Street think this could increase BJ’s net profits by 25 percent to 28 percent in the next couple years by reducing required floor space and improving inventory management, product tracking and employee efficiency. I think BJ shares can double by 2008 or 2009.
Plug Power Inc. (PLUG-$5.66) produces and sells its proton exchange membrane fuel cell (GenCore) as backup power for the telecommunications, broadband and utility markets, which require an uninterruptible power supply. A 5-kilowatt system costs $15,000 and has a 10-year life. A traditional 5-kilowatt system using lead acid batteries costs $18,000 and has to be replaced every three years. PLUG will shortly market fuel cells for forklifts, auxiliary power on huge trucks and marine equipment. And in the next two to three years, PLUG is expected to sell generation plants for home or residential use. This speculative stock could trade into the high $20s by 2008 or 2009.
UnitedHealth Group Inc. (UNH-$96.85) recently invested close to $3 billion to perfect a health savings account (HSA) “smart card” that puts its competitors to shame. In fact, this is the first time that a medical ID card has been connected to a financial transaction that uses existing credit card machines. The HSA “smart card” provides information about the plan holder’s co-payments, eligibility for various services, plan specifics and the account balance. When swiped, the card debits the patient’s health savings account, deposits to the doctor’s bank account and debits the policyholder’s bank account, all in real time and without generating any paperwork. Now that HSAs are taking off, UNH is the only company with the four pieces in place: it can offer the HSA plan, serve as the plan administrator, act as custodian and offer an HSA debit card. UNH’s shares could double in four to five years.
Meanwhile, Medtronic Inc. (MDT-$52.19) will soon complete its development of a wireless system for real-time monitoring of congestive heart failure, a muscular problem in which an enlarged heart loses its pumping ability and fluid backs up into the lungs. I think MDT will be worth $110 by 2009.
Cisco Systems Inc. (CSCO-$19.09) is exploiting the adoption of voice over Internet protocol because costs are three to five times less just in security and switching equipment. CSCO has 35 percent of the VoIP equipment market. A key driver here is that most telecommunications equipment is much older than prudence allows and is extremely costly to maintain. CSCO could be a $40 stock in five years.
Martek Biosciences Corp. (MATK-$40.85) manufactures and sells products from microscopic algae that provide nutritional supplements for foods (vitamin D in milk, calcium in orange juice), offer cardiovascular benefits and decrease the risk of dementia and other diseases. MATK has enough power to move its share price near the $110 level by 2008 or 2009.
Please address your financial questions to Malcolm Berko, P.O. Box 1416, Boca Raton, Fla. 33429 or e-mail him at firstname.lastname@example.org.