Weekly Issue: As we get ready to enter 2018, more signs of disruption lie ahead
As we have said before, Amazon is the poster child for thematic investing given the sheer number of our investment theme tailwinds it is current riding, and that has made the company a force when it comes to disrupting industries. Several weeks ago, I shared the chatter that Amazon is looking to gain entry into the pharmaceutical market and it is now reportedly meeting with generic drug makers, which would enhance its position in our Aging of the Population investing theme.
This is not exactly brand new territory for Amazon, given its 1999 investment in drugstore.com, which was scooped up in 2011 by Walgreen Boots Alliance (WBA) in 2011 and shut down in 2016. The question we’re pondering here at Tematica is whether Amazon’s potential interest in pharmaceuticals was one of the catalysts that prompted CVS to go after Aetna? Given the potential impact, it does make sense that CVS would look to preserve its business by tying up its 9,700 stores with Aetna’s 44 million customers. It also makes a new CVS a far bigger player in our Aging of the Population investment theme.
We’re also seeing a contender for our Disruptive Technologies investing theme, Synaptics (SYNA), announce a new fingerprint scanning technology called “Clear ID”, which delivers what the company calls “one-touch high-resolution scanning through full cover glass.” Synaptics claims that its Clear ID technology is twice as fast as 3D facial recognition and requires only one touch to access a smartphone. We see this as a clear shot to Apple’s (AAPL) new FaceID, and as much as we love Apple and our Apple products, we are a bit confounded that Apple has done away with TouchID all together with its new flagship iPhone X model. Synaptics is a supplier to Apple for its iPhone touch screen, and this could signal something for the next iPhone iteration, but when we step back we here at Tematica can envision Clear ID moving beyond just smartphones into other markets that are looking for solutions that are in sync with our Safety & Security investing theme.
Perhaps one of if not the biggest disruptor to watch for in 2018 will be progress on 5G wireless technology.
Mobile connectivity, a cornerstone of our Connected Society investing theme, has been an evolving disruptor that has rocked some industries hard and is busy reshaping others even as I type these words. Given the data speeds associated with 5G networks that will make downloading an HD quality movie in seconds a snap, help power the networks and communications behind autonomous cars and enable the industrial internet, better known as IoT, it’s safe to say we are in for another phase of Connected Society disruption with 5G. In 2018, it means watching companies like Verizon (VZ), AT&T (T) and T-Mobile USA (TMUS) moving from launching test networks to being construction nationwide networks. To keep tabs on that and what it means for the Nokia (NOK) and AXT Inc (AXTI) shares on the Tematica Investing Select List, we’ll be watching signs and progress at specialty contractors like Dycom Industries (DY) that are the ones that actually construct the network.
Infrastructure to be a hot topic in January
Finally, there has been much talk in 2016 and 2017 over the need to rebuild the U.S.’s aging and falling apart infrastructure. We agree, which is why we created the Rebuilding America index that identifies those companies that in our view are best positioned to prosper as President Trump looks to tackle this campaign pledge in 2018. Last week it was revealed that President Trump will unveil his long-awaited framework to rebuild the U.S. crumbling infrastructure in January. This week the World Cement Association shared its view that global cement demand will rise 1.5% in 2018. Digging into the report, we find a far greater rate of demand increase in the U.S. — 6% year over year, up from 2% growth in 2017 — given not only the potential for President Trump’s pending infrastructure rebuilding framework, but also post-hurricane rebuilding efforts. Over the coming weeks, I’ll be looking to migrate one or two companies from the Rebuilding Index to the Tematica Investing Select List to sit alongside our current position in LSI Industries (LYTS).
That’s quite a bit of stock positions to have covered over those 900 or so words, so here’s a quick reminder for those corresponding price targets:
- Heading into its seasonally strongest time of year and with more disruption expected in 2018 as well as further wallet share gains, we continue to rate Amazon (AMZN) shares a Buy, and our current price target is $1,400;
- Disney shares remain a Buy at current levels and our price target for the House of Mouse, Marvel and Star Wars remains $125;
- With a ramping iPhone X cycle that bodes well for revenue and margins at Apple (AAPL), we continue to rate the shares a Buy with a $200 price target;
- We continue to see a bright outlook for both Nokia (NOK) and AXT Inc. (AXTI) as 5G deployments get underway, driving demand for their infrastructure equipment and compound semiconductor products, respectively. Our price targets for these two companies are $8.50 and $11.
- Our price target on LSI Industries (LYTS) still sits at $10, which keeps the shares in the Buy zone.
January also brings the Consumer Electronics Show
Early January also brings the annual geek-fest that is the Consumer Electronics Show, which for investors like us is a must watch event for new gadgets and devices that are slated to hit shelves in 2018. It’s also a time when companies show how they are incorporating new technologies. I expect the upcoming show will feature quite a bit of press around organic light emitting diode displays in smartphones and TVs, and perhaps even automotive lighting. As we saw with this year’s show, seeing as how they are one of the next connected platforms, automobiles are now a part of the show. In addition to display technology, we’ll be watching for new developments and announcements on the Connected Car and 5G.
From a Tematica Investing Select List, the upcoming show should bode rather well for not only Universal Display (OLED) shares but also Applied Materials (AMAT) and Corning (GLW).Heading into 2018, we continue to have Buy ratings on all three of these companies and our respective price targets remain $225, $65 and $37.
Housekeeping
It’s that time of year again folks when even we here at Tematica are hit by year-end travel plans during the holiday season, which means we’ll be suspending the regular weekly issue next week and expect to return on January 3rd. When we formally return, we’ll recap 2017 in full and share more of my thoughts on what we’re likely to see in 2018.
I know that should the need arise I’ll be sharing thoughts on Select List positions and odds are more than a few Thematic Signals will make their way onto TematicaResearch.com. We’d never leave you hanging here at Tematica, and like the mailmen of yore, we aim to deliver no matter what is going on.
On behalf of myself and the rest of Team Tematica, Merry Christmas, Happy Holidays and have some Guilty Pleasure fun along the way as you ring in 2018!
