Tech's "Virtuous Cycle" Trend Will Give Us Profits for Years

My wife Robin is a financial advisor and a CPA.

She also possesses one of the sharpest minds I've ever seen.

That's probably why she has such an affinity for jigsaw puzzles. Back in upstate New York, when we were both attending business school together at night, there was nothing she liked more to "decompress" during the lull between the semesters than to do a jigsaw puzzle.

And the greater the number of pieces - and the more complex the puzzle - the more she liked it.

Truth be told, I view the investing process in much the same way that my wife looks at jigsaw puzzles.

There's something really gratifying about taking hundreds of disparate "pieces" - in this case, the reams of financial, economic, and political data that's available at any given time - and shrewdly assembling them into a "picture" that makes sense or conveys beauty.

Or that points the way to untold wealth...

Face to Face with the Experts

As a financial columnist whose mandate it is to serve you folks, my job is to be on the constant lookout for meaningful data "pieces" that I can use to conduct analyses, draw conclusions, and make profitable recommendations to you.

I was thinking about puzzles the other night after having had the chance to talk with most of our gurus at the Money Map Press holiday parties. Oil & Energy Investor Editor Dr. Kent Moors was there. So was Capital Wave Forecast Editor Shah Gilani. I also enjoyed long and intriguing chats with Small-Cap Rocket Alert Editor Sid Riggs and Stealth Profits Trader's D.R. Barton, a newcomer to the Money Map Press "Platinum Roster" of experts - and a guy who, quite frankly, is pretty damned impressive (I'll be talking more about D.R. very soon).

But it was a talk I had with Radical Technology Profits Editor Michael Robinson that prompted the jigsaw-puzzle thoughts.

Michael and I were attending a dinner at the Four Seasons Hotel Baltimore. And our colleagues were seated all around us. But we were oblivious to the conversational buzz that hung over us like a forest canopy: Michael and I were deep into a discussion about the "spin-off" benefits he's expecting the tech sector to create in the New Year.

"Bill, I believe we are very early into the first part of a 'virtuous cycle' in technology - and it's one that I believe will last for at least five years," he told me. "And those benefits will spill over into such areas as capital investments, research and development, and even new hires."

And if you can identify the beneficiaries of those investments - especially if you're doing so ahead of "the crowd" - you can bolster your returns in a pretty big way.

And the investments in technology that we've been watching for the last several years are going to continue, the latest research shows.

According to the Computerworld Forecast Study 2015 by IDG Enterprise researchers, corporate decision-makers say they will increase spending on security technologies by 46% in the New Year. Outlays on Cloud Computing will increase 42%, and investments on business analytics 38%.

Investments in enterprise storage will rise 36% and in mobile 35%, the study found.

Those statistics speak to Corporate America's broad commitment to technology-related investments. So it's natural there will be spin-off benefits.

"We're entering a new era that I like to refer to as 'pervasive computing' - and which Apple refers to as 'unified computing,' though they mean the same things," Michael said. "Apple, in fact, has made this a key element of its corporate strategy, which underscores the importance. And the bottom line here is that these big, ongoing, and sustainable outlays for information-technology hardware, software, and services will ignite a big round of Silicon Valley innovation, revenue growth and massive shareholder returns."

Let's take a look at three areas we believe will reap a hefty payoff from tech "spin-off effects."

And let's start with a look at "wearable technology."

Pent-Up Demand

Experts like Michael believe the wearables market will get a huge boost when the Apple Watch debuts in the spring. Forrester Research predicts that the "smart" wrist appendage from Apple Inc. (Nasdaq: AAPL) will pull in 10 million users next year.

And that's just one device.

Surveys show that 42% of people are interested in buying a wrist-based wearable, up from 28% in 2013.

Tech firms are listening. In a Forrester survey of 3,000 decision-makers at global companies, 68% said wearables was a major priority for their company. And 51% called it a moderate, high, or critical priority.

That's why Juniper Research says annual wearable shipments will skyrocket from 27 million in 2014 to a whopping 116 million in 2017. And TechNavio says the wearables market will zoom at a 54.11% compound annual growth rate (CAGR) through 2018.

There have to be spin-off benefits from a buying surge that big.

And there will be - in the area of microelectromechanical system (MEMS) chips - known more colloquially as "sensors." According to the MEMS Executive Congress, the MEMS market will grow from about $12 billion last year to more than $22 billion by 2018.

"With all the advances we have in MEMS sensors, Bill, we'll soon see the introduction of wearable clothing with health-monitoring capabilities," Michael said. "Those sensors will be able to 'converse' with your wristband or smartwatch - as well as with your smartphone, tablet, or PC. Those devices will also be able to interact with your 'connected' car. Your doctor or pharmacist - with your authorization, of course - will be able to download crucial health data from those devices in a way that optimizes the care and service they give you."

Chip Shots

That proliferation in devices will drive demand in another area, too.

I'm talking about semiconductors.

Back in January 2013, we were among the first to predict the rebound in the microchip market.

And Private Briefing readers have scored big as a result - with gains of as much as 354%, 249%, 235%, 208%, 96%, and 70% on our semiconductor recommendations alone.

Just last month, we told you how the expanding Intel Corp. (Nasdaq: INTC) plant in the Saigon Hi-Tech Park (SHTP) near Ho Chi Minh City, Vietnam, will next year make 80% of the chips for the world's new PCs.

So we know semiconductors. And Michael and I both believe the chip boom will continue.

Global chip sales hit $87 billion during 2014's third quarter, the last period for full data. That's an all-time quarterly record, according to the Semiconductor Industry Association (SIA).

Brian Toohey, the trade group's president, says that total represented a year-over-year increase of 8%. But here's the real kicker: Through September, the chip industry had enjoyed seven straight months of "sequential" growth, meaning semiconductor sales had increased from the month before.

Expect the chip sector to keep flexing its muscles. Research and Markets is forecasting global chip sales will close 2014 up 4.4%. Market tracker Gartner is even more bullish: It expects worldwide semiconductor revenue will come in at $336 billion for 2014, up 6.7% from 2013.

That momentum will carry over into the New Year.

That's why Michael is recommending microchip play Taiwan Semiconductor Manufacturing Co. Ltd. (NYSE ADR: TSM).

"Bill, you and I have made some great calls on semis over the past few years - and this is my latest," Michael began. "Wall Street discounts Taiwan's potential because it operates its own foundry and, by definition, has more overhead than a 'fabless' chip firm. But I'm projecting sales growth of 25% in the New Year. In 1997, the company had sales of $1.5 billion, a figure that grew 13-fold to $20 billion by 2013. Taiwan Semi has a new generation of highly dense chips for smartphones and tablets and strong financials."

Taiwan Semi is trading at about $22 a share. Analysts have a high-water target of $27.62 on the shares - 24% above the recent close.

The Scientific Approach to Investing

The investment surge we've been telling you about is also generating spin-off benefits for the biotech sector.

An early (April 2012) Private Briefing call on biotech - based on both the "patent cliff" and new drugs - has made our readers big biotech winners, too, with peak gains of 648% on some of our recommendations.

Indeed, our very first recommendation, made in our very first column - Galapagos NV (OTCMKTS ADR: GLPYY) - posted a peak gain of 211.7%.

Biotech, overall, has been a big winner: Since 2010, the Nasdaq Biotech Index generated returns of 257% - more than three times the still-hefty Standard & Poor's 500 Index return of 80%.

Expect long-term biotech gains of a similar magnitude. Humira, the rheumatoid arthritis drug marketed by Private Briefing recommendation AbbVie Inc. (NYSE: ABBV) is expected to have sales soar from $10.5 billion in 2014 to $15.8 billion this year. We already have peak gains of 103% (112% with dividends). And now Michael's recommending it, too. He's forecasting an additional 61% gain for AbbVie by 2016.

And he's got another recommendation, too: Incyte Corp. (Nasdaq: INCY), a $12.78 billion company whose shares trade at $69.

"The Wilmington, Delaware-based Incyte specializes in small-molecule drugs and already has one commercialized for bone-marrow cancer," Michael said. "It's likely the drug will be approved for at least one other condition next year. And Incyte has a number of products in the pipeline."

In mid-December, Zacks Equity Research analysts said they were "encouraged" by positive results from a study looking at the drug baricitinib in patients suffering from moderately to severely active rheumatoid arthritis (RA).

Zacks currently rates Incyte as a no. 2 "Moderate Buy." If you decide to buy, split your purchases into three tranches: Buy the first 50% now, and add to the position at each point 15% below your previous purchase price. But if the stock doesn't decline, leave the position unfilled.

Job - and Profit - Hunting

If there are two common threads running through Silicon Valley right now, it's this: We're seeing unprecedented investments in technology, and we are also seeing an unparalleled pace of innovation and commercialization.

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Together, those twin catalysts are fueling the spin-off benefits we've detailed in today's report.

But for Silicon Valley firms to continue innovating, they need the very best talent. And as we've said before, with the U.S. economy well into its recovery, hiring is becoming a big challenge.

And that's creating a hefty spin-off opportunity for Private Briefing recommendation Dice Holdings Inc. (NYSE: DHX). This is an intriguing play on Web-based professional staffing recruitment with a focus on both tech and healthcare firms first brought to us by Money Map Press Chief Investment Strategist Keith Fitz-Gerald.

"In a surging recovery, it gets tougher and tougher to find the 'right' talent," said Michael, who's also now recommending Dice. "That's why many firms are turning to 'specialist' talent procurers like Dice. This is a company that has beat the Street's earnings estimates for the past two quarters, and that is poised to benefit from the general advance in the U.S. economy in the New Year."

The company has a market cap of $544 million, and its stock trades at $10.20 a share. Analysts have a high-water target price of $12.20 on the stock.

"This specialty firm is a clear potential beneficiary from the spin-off financial effect of the surging tech sector," Michael said. "Those benefits will carry over into 2015 - and for several years beyond."

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About the Author

Before he moved into the investment-research business in 2005, William (Bill) Patalon III spent 22 years as an award-winning financial reporter, columnist, and editor. Today he is the Executive Editor and Senior Research Analyst for Money Morning at Money Map Press.

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