PORTFOLIO STRATEGY // KEN FISHER
Tech’s sneaky market dividend.
READERS REGULARLY ask what can go wrong but almost never what could positively surprise. The elephant in our world’s living room is, simply, technology. Not only is Moore’s Law, the North Star of semiconductors, vibrant and likely intact for fully another decade, but silently other technologies are bulging, too.
Moore’s Law—which, as you know, posits that integrated circuit density doubles roughly every two years while costs halve—is the single most powerful positive economic force of our adult lifetimes, akin to the steam engine’s 19th-century impact. Little-known Koomey’s Law moves even faster now, predicting that the battery needed for a fxed level of computing will shrink greatly every decade—a process incomprehensible to most, yet central to improving our gadgets.
Next: the Shannon-hartley theorem, moving almost as fast, divining maximum data transmission speed over a communications channel, defning telecom’s maximum capability via fber optics. Slightly slower is Kryder’s Law of magnetic memory—behind most of cloud computing and more. Finally, faster-paced than any of them: DNA sequencing, allowing an unfathomable future in customized medications.
All fve concepts are colliding into one another in ways hard to imagine. While I like tech stocks, the big benefciaries will be the rest of us—and frms that derive increased productivity or conception of innovative products and services.
Investors covet past improvements but also always believe pricing unimaginable future creativity and efciency gains is Pollyannaish. And they’re always wrong. Bet on it. Productivity will rise as this bull market endures. Here are fve good stocks that should all see a markedly better future during that time.
Minnetonka, Minn.-based UNITEDHEALTH GROUP (UNH, 108) is a slowgrowth, high-quality way to angle the coming Baby Boomer health care cost spiral. It’s both America’s largest single health carrier (the one my frm chose for its needs) and a leading provider of technol- ogy and services to the broader health care universe. It sells at 16 times my 2015 earnings estimate with a 1.3% dividend yield.
Drug giant PFIZER (PFE, 33) got whacked last year by stagnant sales, falling earnings and its embarrassing failure to acquire Astrazeneca. Yet its basics are sound, drug line exceptionally diversifed and growth potential reasonable. Despite a $209 billion market cap, it’s cheap and could itself be acquired if the stock doesn’t gallop. Buy it frst at 14 times my 2015 earnings estimate with a 3.2% dividend yield.
SANDS CHINA (SCHYY, 48), the Macau arm of Sheldon Adelson’s Las Vegas Sands (LVS) gambling and resort empire, has plunged 42% since last February. Spanning huge hotel, convention and entertainment venues in China’s only legal gambling region—and arguably the world’s largest inhabited building, the Venetian Macao—it has big-time proft and stock volatility. It’s now doubly hit by China’s crackdown on alleged gambling corruption and the announced March departure of CEO Edward Tracy. Bet on Adelson’s ability and Asians refocking to gambling as an opportunity. It sells at 12 times my 2015 earnings guesstimate.
France’s AIRBUS (EADSY, 14) also plunged in 2014, of 31% since January. While of lesser quality than Boeing, it’s basically 40% of a big-plane duopoly. With there being only two, buyers need it. In oligopolies of any form when one stock lags badly it almost always bounces back heavily. So buy it at 11 times my 2015 earnings estimate and 60% of annual sales.
I haven’t recommended India’s large IT service provider INFOSYS (INFY, 36) since July 2009 at 17.5. It spikes to a new peak (and then falls back) about every three years. It’s overdue now, rising, and earnings are on a roll. Expect 2015 to be its year. It sells at nine times my March 2016 earnings estimate, with a 1.7% dividend yield.
PRODUCTIVITY WILL RISE AS THIS BULL MARKET ENDURES