These 5 Simple Rules - and 5 Stocks - Will Put You on the Road to Wealth in 2018

When you look at market performance, 2017 was the best year for American investors since 2013. The S&P 500 rose 19.4%, while the Dow climbed 25.1%, with an unprecedented 71 record-high closes.

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No matter what the market does in 2018, there's no reason you can't beat last year's gains by zeroing in on the stocks with the most growth potential.

As we've said before, the road to wealth is paved by tech.

The Nasdaq, where many U.S. tech stocks are listed, was the best-performing major index last year. It gained 28.2% on the year, helped in large part by some familiar names.

Apple Inc. (Nasdaq: AAPL) gained 50%, Amazon.com Inc. (Nasdaq: AMZN) gained 60%. Smaller companies we've recommended to Money Morning readers, like Cognex Corp. (Nasdaq: CGNX) and NVIDIA Corp. (Nasdaq: NVDA), doubled their value.

So how do you separate the winners from the losers, to make even more money this year?

Money Morning Director of Technology & Venture Capital Research Michael Robinson has developed five simple rules to help you do just that.

The Five Simple Rules to Finding the Biggest Tech Profits

Rule No. 1: Great Companies Have Great Operations - Look for companies led by people with strong track records, that have made smart acquisitions, and maintain solid balance sheets.

Michael recommended Adobe Systems Inc. (Nasdaq: ADBE) in 2013, pointing out that it was one of the most respected software firms in the world. It had created the industry standard platforms for media professionals. And rather than resting on its laurels, it was still improving its product. Adobe was an early adopter of cloud-based software, lowering the short-term cost of its products and expanding its user base. The stock is up 338% since Michael recommended it, compared to 69% for the S&P 500.

Rule No. 2: Separate the Signal from the Noise - If the fundamentals aren't strong, all the hype in the world isn't going to keep a stock rising in the long term.

There's always a lot of noise around Apple Inc. (Nasdaq: AAPL). In 2013, two years after Tim Cook had replaced the legendary Steve Jobs, the "noise" was that Apple would never find its way again. But Michael looked at the fundamentals and the strength of the products coming out and told readers the stock price would double. Sure enough, AAPL is up 137% since then.

Rule No. 3: Ride the Unstoppable Trends - Even well-run companies need a wave to ride. Look for stocks in the hottest sectors, those that offer the best chance for massive gains.

One of those waves to ride is legal marijuana, especially for pharmaceuticals. That's why Michael singled out GW Pharmaceuticals Plc. (Nasdaq: GWPH) in 2014. GW has already put a cannabis-based mouth spray to treat pain from multiple sclerosis in the United Kingdom. And it could soon become the first company to have a cannabis-based drug hit the U.S. market. GW's stock price is up 119% since Michael recommended it, compared to 50% for the S&P 500.

Rule No. 4: Focus on Growth ­- "Companies that have the strongest growth rates almost always offer the highest stock returns," Michael says. This goes back to Rule No. 2: Revenue and profits, not hype, drive a company's value.

Between 2010 and 2014, Activision Blizzard Inc. (Nasdaq: ATVI) nearly doubled its earnings per share. Michael picked it in 2015, and in just two-and-a-half years, the stock price has more than doubled, while the S&P has climbed only 40%.

Rule No. 5: Target Tech Stocks That Can Double Your Money - It's known as the "Rule of 72": Divide 72 by a stock's growth rate to see roughly how many years it will take to double your money.

In line with the previous four rules, Michael suggests using a company's earnings growth - that is, its fundamentals - rather than stock price growth, which can be driven by hype. Find the stocks that can consistently grow earnings by double-digit percentages, and you'll be doubling your money in a few short years.

You can see from the examples above that Michael is great about following this rule. All four of the stocks mentioned have doubled - and then some - in the last few years.

So, now armed with these five rules, let's look at five stocks that could deliver tech fortunes in 2018.

Tech Pick No. 1: The Most Advanced Medical Science Will Soon Cost Less Than a Smartphone Thanks to This Genetics Pioneer

After the first human genome was sequenced in 2003, replicating the feat cost about a million dollars. By 2013, one leader in genetic analysis had gotten it down to $4,000.

Today, that company can perform an entire human genome sequencing for $1,000, and according to Forbes, it's not far away from being able to do it for just 1/10th of that.

Launched in 1998, Illumina Inc. (Nasdaq: ILMN) is tapping into an industry that, according to Mordor Intelligence, will grow 50% to be worth nearly $60 billion by 2021: precision medicine.

Precision medicine is a model for delivering customized healthcare based on a patient's genetics and other physiological characteristics.

This practice can optimize results and lower costs - especially when genetic sequencing only costs $100. That's probably why Congress was willing to put $215 million into precision health initiatives in 2016.

The sequencing services Illumina provides also help scientists track new viruses before they become widespread and develop advanced new drugs, and they're even playing a growing role in forensics. The San Diego-based firm has also carved out a niche in agricultural genomics, helping to produce healthier crops and livestock.

Illumina's sales have doubled in the last five years, to $2.4 billion in 2016. Its annual earnings growth over the last four years has been 21.5%, meaning this stock is likely to double by 2021.

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With a steady track record and more than $2 billion in cash on hand, Illumina is a paragon of great operations. That's probably why Forbes ranked it No. 18 on its list of "World's Most Innovative Companies" in 2017.

"There's a great chance Illumina can have a major positive impact on your physical and financial health," Michael says.

Find out more about Illumina's startup subsidiaries that Michael likes, as well as his favorite "pick-and-shovel" play on precision medicine.

Tech Pick No. 2: This Sleeping Tech Giant Has Awoken and Is Delivering Returns Across the Board Again

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5 Stocks to Put You on the Road to Wealth in 2018

  1. Illumina Inc. (Nasdaq: ILMN)
  2. Sony Corp. (NYSE: SNE)
  3. Workday Inc. (Nasdaq: WDAY)
  4. Abiomed Inc. (Nasdaq: ABMD)
  5. Synaptics Inc. (Nasdaq: SYNA)

Our next pick is a tech giant that lost its way. After the stock price collapsed 75% in the wake of the dot-com bubble burst, the company seemed unable to regain its footing.

Then, in 2012, the new CEO laid out a new vision, jettisoning the less-promising divisions of the business and focusing on growth areas. The plan called for the company to reemerge as a global leader in key tech fields.

To Wall Street's surprise, Sony Corp. (NYSE ADR: SNE) has done just that under CEO Kaz Hirai's "One Sony" strategy.

Sony's stock price jumped 65% in 2017 thanks to a complete turnaround in the company's operations. Even the TV division is profitable for the first time in a decade.

One of Sony's smartest moves was the 2015 acquisition of Optical Archive Inc., a digital storage company founded by former Facebook Inc. (Nasdaq: FB) hardware chief Frank Frankovsky. Frankovsky developed an ingeniously efficient system for "cold storage" - data storage for archive files that still need to be retrieved reasonably quickly (such as Facebook users' old photos).

Frankovsky and his team built custom cabinets that hold 10,000 Blu-ray discs, a total of 1 petabyte (1,000 terabytes) of storage. This system saved Facebook 50% in costs and 80% in energy use compared to its existing hard drive system.

This ideal storage solution for Big Data puts Sony at the forefront of an industry that IDC projects to grow 30% by 2020.

Sony hasn't stopped there, either. It has also become one of the top imaging companies in the world, as evidenced by its chips that power an impressive portion of smartphone cameras. Most recently, it developed the 12-megapixel camera that allows iPhone X users to take nearly professional-quality photos, as well as the sensors that enable facial recognition.

On top of that, Sony is also a major player in self-driving technology, using its own image sensors plus the robotics technology of ZMP, a startup Sony acquired in 2015. When cars with this technology roll onto sales lots in a few years, most of them may come with Sony components.

In other words, Sony is back, in a big way. And that's even if you don't include the PlayStation, which has been dominant in the video gaming industry for years. Sony recently raised its forecast by 5.5%, now expecting to sell 19 million PlayStation 4s this fiscal year.

Overall, Sony's earnings are expected to grow 50% in FY 2018.

"Now that its turnaround plans are hitting their stride," Michael says, "Sony looks to be a great stock you can count on for the long haul. One you can use to get on the road to wealth."

Tech Pick No. 3: This Human Resources Technology Company's Profits Are Skyrocketing as It Racks Up a Stellar Client List

Since the recession of 2009, the economy has been climbing reliably. GDP grew by 3.2% in the third quarter of 2017, and the unemployment rate is down to 4.1%, compared to 5.8% three years ago and 10% in late 2009.

With more employees in the workforce, human capital management (HCM) is in ever higher demand. The Gartner Group projects that HCM will be a $12.6 billion market by 2019.

And there's one company that stands out as a dominant presence in HCM technology.

Workday Inc. (Nasdaq: WDAY) was founded by the same team that built PeopleSoft Inc., a formidable software company that was eventually acquired by Oracle Corp. (NYSE: ORCL). The new company has put together an enviable client list...

Wal-Mart Stores Inc. (NYSE: WMT) signed up for multiple software modules by Workday last January, in a contract that analysts at Drexel Hamilton say could bring in up to $200 million per year. Wal-Mart follows Amazon.com Inc. (Nasdaq: AMZN), which uses Workday's full suite and, notably, is planning on increasing its workforce by a third over the next year and half.

Other Workday clients include Netflix Inc. (Nasdaq: NFLX), Citigroup Inc. (NYSE: C), and Qualcomm Inc. (Nasdaq: QCOM). In fact, 30% of the Fortune 500 uses Workday software.

Workday's earnings shot up 700% in 2017, while the stock rose 50%. Aside from growing demand in the United States, Workday is also increasing its international presence. More than 20% of sales in the last quarter came from outside the United States, a number that is likely to grow.

"Workday is a stock you want in your portfolio," Michael says. "Get in now - before that unemployment number starts getting better again."

Tech Pick No. 4: This Tiny Heart Pump Could Mean Big Returns for Investors

Coronary artery disease affects more than 100 million people each year around the globe and is the No. 1 cause of death. Heart disease and heart failure together account for one out of every three deaths in the United States.

But many high-risk patients don't qualify for transplants or surgical coronary bypass treatments due to the risks involved. In those cases, a minimally invasive intervention procedure may be the only available option.

And thanks to the world's smallest heart pump, those procedures can now be performed with considerably less risk to the patient.

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The company behind the device is Massachusetts-based Abiomed Inc. (Nasdaq: ABMD), and to date, its Impella pump has helped more patients than could fill Fenway Park.

It's not only angioplasty that the pump can assist with, either. As reported in Tulsa World, when Jara Herron suffered a spontaneous coronary artery dissection (followed by cardiac arrest, kidney failure, respiratory distress, and gastrointestinal bleeding), she was lucky that the hospital she went to had purchased an Impella two weeks earlier. It kept her blood pumping for several days while doctors stabilized her.

Her heart had stopped beating for an hour. But less than five months later, she was back at work part-time.

According to Cardiovascular Business, heart failure in the United States - already at epidemic levels - is expected to rise 46% by 2030. That would mean 8 million new diagnoses every year. So Abiomed's device, currently only used in 1% of percutaneous coronary intervention procedures, fills a desperate need in the healthcare industry.

When Michael recommended this stock back in August, he said that even if you cut its current growth rate in half, it would still double in value in two years.

Since then, it's outperforming the S&P 500 by 200%. So don't wait to take advantage of this opportunity.

"This is the kind of stock," he adds, "that really puts you in the fast lane of high tech's road to wealth."

Tech Pick No. 5: Grab Silicon Valley's Go-To Biometrics Developer Before Wall Street Catches On

Biometrics is no longer the stuff of high-tech spy movies. Today we have smartphones that can recognize our fingerprints, our faces, and even our patterns of speech in order to provide security, analytics, and a better user experience.

Investors know this and scramble for shares of Apple or Alphabet when a device comes out with the latest biometric technology. But what they're not looking for are the companies who are developing the technology for the next generation of devices.

That's why one of our favorites is available at a discount - for now.

That's Synaptics Inc. (Nasdaq: SYNA), the company that Alphabet, Intel, Microsoft, and Qualcomm all turn to in order to enhance their tech products.

"And they're all willing to pay big dollars" for it, Michael says.

Synaptics pioneered the touchpad for Apple's PowerBook 500 laptops in the 1990s. It was also a major player in developing capacitive touch screens for smartphones, which respond to the electrical fields in your skin rather than requiring a stylus.

Biometrics is already a $10 billion industry. But Grand View Research projects that to grow to $60 billion by 2025. Market intelligence firm Tractica puts it at $68 billion by 2024.

SYNA stock suffered recently thanks to mild guidance and the June rollout of new fingerprint technology from a rival company. But these short-term blips don't affect the company's long-term growth potential. Michael expects Synaptics to hold onto 60% of the TDDI (touch and display driver integration) market, and Morningstar expects sales to grow 15% per year.

So when the stock fell below $40 in the summer of 2017, Michael saw it as a buying opportunity. As of January, it's on the rise again. But if you get in now, before Wall Street catches on, he says you can sit back and "watch as these shares rocket toward $80."

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About the Author

Stephen Mack has been writing about economics and finance since 2011. He contributed material for the best-selling books Aftershock and The Aftershock Investor. He lives in Baltimore, Maryland.

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