Margaret Samuel looks at four stocks that employ four disruptive technologies: online learning, 3D printing, cryptocurrency and GPS technology.
As a rule, the word “disruption” has negative connotations. But not all forms of disruption are harmful. For example, digital disruption describes the change that happens when new digital technologies, models, capabilities and services affect and change the value of an industry’s existing goods and services. These new factors change or disrupt the status quo, forcing consumers and businesses to re-evaluate and possibly change their demand and supply of current goods and services. Some benefits of digital disruption are increased customer satisfaction, enhanced company growth, and improved evolving workplaces.
“Digital disruption is a necessary part of innovation and modernization,” says Chad Larson, portfolio manager. “We are in the middle, not end, of a historic transformation of society through digitization. There are still endless industries that will face disruption and many new huge companies will be born.”
This article showcases four stocks that employ four disruptive technologies: online learning, 3D printing, cryptocurrency and GPS technology.
With increased prominence thanks to the worldwide pandemic, online learning facilitates a cost-effective, convenient way to earn a degree or certification. The field has grown fast and furiously, so much so it now threatens the traditional college and university learning model.
Strategic Education, Inc. (NASDAQ—STRA.O) is an education services company with a market capitalization of $1.37 billion. The company is focused on providing access to quality education through campus-based and online post-secondary education offerings, as well as through programs to develop job-ready skills for high-demand markets. It operates through three segments: US Higher Education segment, Alternative Learning segment and Australia/New Zealand segment.
STRA.O trades at a forward P/E of 11.1 and has an attractive PEG Ratio of 0.74. With a price to book ratio of 0.81 it has a hallmark of a value stock, and its dividend yield is a healthy 4.54 per cent. However, its ROE is a modest 2.31 per cent and third-quarter earnings have fallen 50 per cent compared to those in 2020. In addition, the fact that its payout ratio is about 153 per cent suggests this may not be sustainable and that its ability to pay this dividend, including its profitability, should be monitored closely. Nonetheless, the company currently provides an opportunity for investors to participate in the online learning branch of digital disruption while being paid a dividend.
3D printing looks like something out of a science fiction movie or TV show, but it’s here right now and gaining traction. Currently, 3D printing mainly supports established manufacturing processes, but if the technology becomes better developed and cheaper, we could see households having their 3D printers creating items instead of ordering them through retailers. 3D printers are becoming increasingly sophisticated, and 2022 could be the year we see their stocks rise. In particular, the pandemic disrupted supply chains, elevating the utility of on-site manufacturing options for key parts. In recent years, more than 40 manufacturers of metal 3D printers have emerged. However, many of the pure-play 3D printing stocks supplying 3D printing products and services still have limited free cash flow and do not pay dividends.
With operations in 170 countries, 250,000 channel partners and 27,000 patents, HP Inc. (NYSE—HPQ) may not be a pure-play 3D printing company, but it does provide investors with exposure to this technology, primarily through its Printing segment. This segment includes commercial printing, which encompasses 3D printing and generates $4.4 billion of revenue. HP Inc.’s other two segments are Personal Systems and Corporate Investments segments. HP Inc. provides solutions and services to individual consumers, small- and medium-sized businesses (SMBs) and large enterprises, including customers in the government, health and education sectors. As such, investors benefit from a diversified source of revenue.
HP Inc. generated a solid $63 billion of revenue in its fiscal 2021 year which is an increase of 12.1% from 2020. Free cash flow was $4.2 billion in the year and having paid dividends and repurchased shares, it returned $7.2 billion to shareholders. Having paid dividends of 77.52 cents per share in fiscal 2021, its dividend yield is about 2.06%. Although not a table-pounding cheap stock, having a PEG ratio of 4.53, its forward P/E is 8.47 and its dividend appears to be comfortably sustainable with a payout ratio of 14.54%.
On September 11, 2018, the metal jet presentation by HP Inc.’s President, 3D Printing Business, Stephen Nigro, asserted that HP’s 3D printing is “driving the next digital industrial revolution”. Then on June 12, 2019, HP opened the doors to its new 3D Printing and Digital Manufacturing Center of Excellence in Barcelona, Spain, declaring that it was “one of the world’s largest and most advanced research and development facilities for the next-generation technologies powering the Fourth Industrial Revolution”. On December 18, 2021, HP will hold a 3D Printing Question and Answer webcast at the UBS Global TMT (technology, media and telecom)Virtual Conference. By purchasing HP Inc. stock, investors can plant roots in the digital disruptor tree, 3D printing, while benefiting from the bench strength of a global leader and while receiving a currently sustainable dividend.
Although it does not yet dominate everyday commerce, a third technology of the future, cryptocurrency, built on the infrastructure of the blockchain, offers the potential for greater security levels compared to traditional payment mechanisms. Security is something that both consumers and businesses highly value in these days of rising cybercrime and data breaches. Digital wallets could potentially disrupt traditional banking and even online payment services, the latter of which has already displaced traditional bill-paying methods.
Mastercard Incorporated (NYSE—MA), with 2020 revenue of $15.3 billion, and that is projected to have increased in 2021, is a technology stock in the global payments industry that offers crypto services and enables consumers, financial institutions, merchants, governments, digital partners, businesses and other organizations worldwide, to use electronic forms of payment instead of cash and cheques. Mastercard’s family of brands including Mastercard®, Maestro® and Cirrus® help make payments easy and efficient both domestically and cross-border. Other payment services that Mastercard provides include automated clearing house (ACH) transactions, cyber and intelligence products, information and analytics services, consulting, loyalty and reward programs, processing and open banking.
Mastercard’s evolution of services added crypto services in 2021. Indeed, in its November 10, 2021, Investment Community Meeting presentation, Mastercard asserted that it was building solutions to support the crypto economy. This is part of Mastercard’s drive to grow payments by increasing consumer purchases, capturing new payment flows and participating in payments innovation. Mastercard recently revealed a new deal in its crypto segment by acquiring CipherTrace, a cryptocurrency intelligence company, to ensure the security of digital payments.
Mastercard’s net income in fiscal 2020 was $6.4 billion and is expected to be higher in 2021. In 2020, Mastercard repurchased $4.5 billion worth of shares and paid $1.6 billion of dividends. At $1.60 per share in 2020, this was a dividend yield of 0.45 per cent which has since increased to 0.61 per cent in 2021 when, on November 30, 2021, Mastercard announced a quarterly dividend of $0.49 per share. Although this is a relatively low dividend yield, Mastercard has increased its dividends for seven years and with a payout ratio of about 26.6 per cent, it can be considered to be comfortably sustainable.
Ajay Bhalla, Mastercard’s president of cyber and intelligence solutions, last month asserted that part of Mastercard’s strategy is to launch solutions “that bring trust and transparency to digital currencies.” In addition to its financial strength, this goal may be considered a good reason for investors to purchase shares in Mastercard and to establish roots in the cryptocurrency branch of digital disruption.
A fourth technology likely to transform the way we live and work in the future is GPS technology. Satellite-based positioning is everywhere. A decade ago, satellite-based positioning navigation systems were becoming widespread in our cars. Today, they are everywhere: in our pockets, our toys, our smart devices, our infrastructure and our factories.
Far from fading away, global navigation satellite system (GNSS) technology relentlessly continues to reinvent itself and the myriad applications it enables.
A few years from now, we’re likely to find GNSS technology in all sorts of unexpected places, making life safer, more convenient, or simply, more fun. Using advanced virtual reality technology, holoride, operating in Munich, is redefining passenger experiences in motorized transport by weaving them into interactive adventures in which they become the hero of their own journey.
First, receivers are becoming more sophisticated. In addition to tracking more satellites to improve performance in challenging environments, they enhance performance when signals are weak, be it due to poor antenna placement, RF-interference, or reduced sky view.
In addition, receivers are becoming smaller and more power-efficient.
However, one downside of the tremendous success that GNSS technology has had is that it has become a target for bad actors, from amateur thieves to military organizations. GNSS receivers can be jammed, potentially making tracked devices, assets, or vehicles disappear from online dashboards for long enough to hide some form of illicit behaviour.
Or they can be spoofed by feeding them fake satellite signals to make them appear to be at one location while, in fact, they are somewhere else completely. This allows anyone from Pokémon Go players to Uber drivers to professional fishermen to bend the rules or sidestep regulation to their own profit.
Following the advances made in increasing positioning accuracy and reducing the time it takes GNSS receivers to establish a position fix, security has become the next frontier in GPS.
The cornerstone of GNSS security is the receiver, which can use a marker added to a navigation message to verify the source of the signal and to determine whether the signal information has been forged or tampered with.
Margaret Samuel, MBA, LL.B., CFA is President, CEO and portfolio manager of Enriched Investing Incorporated. She can be reached at firstname.lastname@example.org.
This is an edited version of an article that was originally published for subscribers in the December, 2021, Second Report of The MoneyLetter. You can profit from the award-winning advice subscribers receive regularly in The MoneyLetter.
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The MoneyLetter •3/10/22 •