A ‘Sneak Peek’ Inside Two Subscribers-Only Portfolios

Posted: Apr 02, 2015 12:01 AM
A ‘Sneak Peek’ Inside Two Subscribers-Only Portfolios

There’s an old investment saying that you should buy what you know. If we did that, it surely would limit the number of companies in which we invest. Maybe that wouldn’t be such a bad thing, but perhaps a better strategy would be to buy things you understand. That would open the gates to a number of companies, particularly if you understand the tailwinds that may be driving the business.

A case in point occurred last week when Twitter (TWTR) took the wraps off Periscope, its new live streaming service that looks to do for video what “selfies” did for camera shots. We’ve seen the steady progression toward mobile video streaming that now goes above and beyond streaming video from Netflix (NFLX), Amazon (AMZN) or Hulu on a smartphone or tablet. Twitter’s Vine and even Facebook’s (FB) streaming videos on its own service or on Instagram have paved the way for Periscope and other soon-to-be-released products.

For those like me who follow Cisco’s (CSCO) annual Visual Networking Index report, the shift to video is no surprise. In fact, it’s a cornerstone of my Always On, Always Connected PowerTrend. According to the global mobile data traffic aspect of the Cisco report, mobile video traffic exceeded 50% of total mobile data traffic in 2013 and grew to 55% by the end of 2014. That’s a little rearview mirror look. But what’s forecasted will blow your mind. By the end of 2019, Cisco expects mobile video to increase 13-fold, accounting for 72% of total mobile data traffic.

Now, when I look these situations, I’m thinking of how to play this via companies in the food chain. When I think of mobile, chip companies such as Qualcomm (QCOM) and Skyworks (SWKS) come to mind. But in this case, we also need to think about video, and that means shifting our gaze to companies such as Cavium (CAVM), Broadcom (BRCM), Entropic (ENTR) and others.

Qualcomm and Skyworks are longtime favorites of mine and are stocks that should benefit from the transformation in mobile from “just cell phones” to a service that we take for granted like water and electric utilities. That makes them core long-term holdings. From the video side and streaming side, there is no doubt that robust video consumption growth will tax the network. To me, that means Cavium shares are the ones to watch.

Notice that I used the word watch; we’re on some rocky ground, and I continue to think the March quarter earnings season will be one that offers opportunity for patient investors. CAVM shares are up big during the last 52 weeks, from a low near $38 to a high just under $75. At the current price, the shares are trading at 36x expected 2015 earnings. Unlike many other tech companies, the net cash position equates to something near $1.50 per share. Given those metrics, it means picking your spot for Cavium and others.

As you can see, rapid growth in video consumption is easy to comprehend. But I have to admit there are more than few businesses that I just don’t get. Maybe it’s me and the way I look at the world, but for the life of me, I don’t understand the value proposition offered by LinkedIn’s (LNKD) premium service. With access to contacts and jobs with a free subscription, I’ve asked many I know about the benefits and few have responded that it’s a must-have service. By comparison, Facebook (FB) continues to do a bang-up job on monetizing its platforms and it is a free service. Facebook is seeking to partner with businesses more in the future, as evidenced by the news it will work with publishers. I half wonder when Facebook will eat LinkedIn’s lunch. Even though LinkedIn’s shares are drifting lower during the last few days, I see little value in buying them.

Some say one of the pitfalls of buying what you understand is you may miss hot opportunities. My response to that is if that were the case, we would have missed Facebook, Kraft Foods (KRFT), Mobileye (MBLY) and even the sleeper hit that American Water Works (AWK) has been. But my investment newsletter, The Growth & Dividend Report, did not miss any of them. Instead, my subscribers are up 36%, 42%, 9% and 40%, respectively, in those positions. It sure doesn’t look like we missed much, if you ask me.

Instead, by letting the data talk to us — mobile and monetization, falling input prices, braking mandates and the growing water shortage — and recognizing the opportunities for what they were, we scooped up each of them and a number of others up in the process. If you want to be alerted to my next Growth & Dividend Report recommendation, just sign up.

In several of the positions I mentioned above, subscribers to my PowerOptions Trader

service were able to generate even bigger returns by buying the call options I recommended to them. With Kraft Foods (KRFT), in the span of just under two weeks, subscribers were able to book a whopping 700% return!

Those same subscribers also had the opportunity to book returns of 150% and better than 75% on HCP Inc. (HCP) and Nike Inc. (NKE), respectively, if they followed my recommendations. If you’re interest in learning more about my PowerOptions Trader service — and how I consistently beat the “options bookies” at their own game – click here.

In case you missed it, I encourage you to read my e-letter column from last week about a strategy for tracking big market catalysts.