Dear Reader,
Garrett Baldwin here - executive publisher of Money Morning.
A few years ago at a Chicago loop dive bar, a coworker at an agriculture (ag) startup couldn't contain his excitement.
His family grew corn and soy "downstate," and harvest season approached. He couldn't stop talking about the "new paint" on the farm.
I studied agribusiness. But I was the odd man at the table. My other coworkers had family farms too. I just didn't know the term.
If you didn't grow up using "choring" as a verb, you're probably asking the same question: What's "new paint?"
It's a term you need to know today.
It could drive your portfolio to massive artificial intelligence (AI) profits.
The AI Stock to Buy, Hold, and Own Forever
Since January, AI has been the craze. But the valuations of AI stocks like C3.ai (AI) and Nvidia Corp. (NVDA) make no sense to anyone who's ever done basic security analysis.
How can anyone justify C3.ai's valuation?
C3.ai trades at 17.3 times sales. A valuation of 17.3 times sales means the company must return every penny of revenue (not profits... but sales) to investors for 17.3 years to justify its valuation. At that level, they theoretically can't pay their staff... their taxes... or their research and development (R&D).
Every penny goes to investors.
With Nvidia... it's even worse. It trades at 233 times earnings... and 41 times sales. That's 41 years of revenue.
Insane, right?
Now - take a name like heavy machinery maker Deere & Co. (DE). The ag company trades at just 14 times earnings and two times revenue.
And of the three...
Deere is the AI stock to buy.
Why? New paint.
New Paint, New Technology, Bigger Profits
John Deere's been around since 1837. For years, the company has marketed under the classic line, "Nothing runs like a Deere."
Deere manufactures heavy construction equipment, forest machines, diesel engines, lawn equipment, and drive chains.
But ask my farmer friend in Champaign, Illinois, and he'll tell you they make the "best damn farm equipment" in the world.
He calls every new piece of machinery that arrives for planting and harvest the "new paint." Deere owns the lion's share of farm machinery revenue with tractors, combines, backhoes, and more.
But now "new paint" will have a new trick.
For decades, Deere has quietly emerged as one of the top AI companies in the world - and few analysts paid close attention. Who knew the running Deere's secret was automation, advanced analytics, and AI breakthroughs?
As an ag tech giant, Deere began heavy investment into robotics and automation in the 1990s. On November 2, 1999, the company purchased GPS startup NavCom.
The goal: develop satellite-directed guidance systems for tractors.
In 1999, it formed GreenStar - a GPS for precision agriculture that brought positioning down to centimeters at a time. Previous guidance systems were off by meters. GreenStar allowed farmers to accurately map and position key field operations like planting, pesticide spraying, and harvesting.
A lot of the ag tech advancements at the AgTech Innovation Center at the University of California-Davis today... started at Deere's offices before the dot-com bubble.
Deere also established AutoTrac years later. This critical automation advancement allowed farmers to steer their tractors, combines, and more on an automated path.
Plenty of traders I know sit on their machines during harvesting and planting... guided by GPS and AutoTrac.
While they're getting farm work done, they're also buying calls and puts or trading stocks during the day. (Some might be on dating sites or playing online poker. But they're not driving.)
These advancements have not only helped establish Deere as a force of innovation... but it's boosted their sales and set them apart from rivals.
Deere's technology will be invaluable to a trend of increasing populations over the next 30 years. By 2050, the world population could explode to 10 billion people, increasing global food demand by 50%.
All this with less land and less available skilled labor to operate farms. That's why AI is the new frontier - and the solution to so many challenges hitting farms around the globe.
Deere Advancements in the AI Arena
John Deere has made significant investments in recent years in machine learning algorithms. The goal is to optimize its machines' performance and improve decision-making in its tech.
The company has introduced a powerful line of driverless tractors. Its previous AI-guided systems would allow tractors to manage tight turns and carve straight rows along the farm.
However, they required humans to be in the cab to avoid mud puddles, bypass obstacles, or move to the next task.
Today, these AI-driven machines can drive to a field and manage tasks like seeding without a farmer's help. This is the definition of "set-it-and forget-it" farming.
This is a massive development because the job of farmers isn't just seeding, growing, feeding, and harvesting. As another former colleague explains, a farmer's life is very comparable to a hedge fund manager. The job is part weatherman, financier, supply chain expert, poker player, plant scientist, and more.
The less time they allocate to the fields, the more time they can get to the actual management. And that's where the importance of predictive analytics lies.
Predictive AI analytics will be a core driver in the future for agriculture and maximize the profitability of farm operations.
The variables within a farm operation are massive.
We're talking about soil moisture levels... weather conditions... weed distribution... pest infestation... crop growth patterns... crop selection... root growth and depth... soil fertility... satellite images... crop yield estimates... topography and slope of land... irrigation metrics... and even farm financial reports.
AI will help farmers make more informed decisions across all these variables. It can help engage in automated harvesting and sorting of crops, identify weed growth, and provide real-time recommendations on when to allocate resources across the farm (including water, fertilizers, pesticides, and more).
Deere's AI-powered Operations Center and MyOperations offer farmers real-time insight, probability assessments, and custom recommendations to optimize their farms.
This isn't Old MacDonald's farm.
What Else Can AI Do in Agriculture?
Artificial intelligence won't be limited to the "new paint" machines that operate on the family farm.
We haven't discussed the ability to monitor livestock in real time, manage farm animal health, optimize supply chains, calculate inventory levels, and even maximize hedging strategies when selling commodities to buyers across the value chain.
AI is not just about computer chips, ChatGPT, and automated imagery. It's a deflationary, time-saving phenomenon that will optimize operations and boost profit margins across many industries.
You don't need to speculate on unprofitable or overvalued AI stocks.
A real company with a rich history of AI advancements in producing real assets runs through Deere & Co. (DE).
While other investors chased unprofitable AI names that I couldn't pick out of a lineup, Deere trades at a surprisingly reasonable valuation with decades of dominance in ahead.
It's Not Just About ChatGPT
Mike was a former plumber in New Jersey and served 21 years as a firefighter. We're a blue-collar retirement town. He moved here in 2007.
"It was a lot less crowded back then," he said.
I remember. I moved for a year after I left Wall Street in 2008. The population increased by 20% from 2010 to 2020. It's up another 6% three years later.
Mike asked me what I do. I explained... this. He pounced.
"So what do you think of all this AI stuff?" he asked.
I didn't go into my recent argument about AI and the Nasdaq.
Instead, I asked him what he thought AI provided for investors.
He mentioned ChatGPT - which he read about in Barron's. He said his grandson, a graphic designer, might need a new job.
So I asked him what stocks he owned. He owned Apple Inc. (AAPL)... Amazon.com Inc. (AMZN)... General Electric Co. (GE)... Altria Group Inc. (MO) (for the dividend)... and Exxon Mobil Corp. (XOM).
Ah, Exxon Mobil.
"Exxon Mobil is a perfect artificial intelligence stock, Mike."
How Is Exxon Mobil an Artificial Intelligence Stock?
Mike now looked like a confused Jack Lemmon... a sideways face.
Today, everyone thinks that artificial intelligence is all MidJourney, ChatGPT, and justification for computer chips.
But AI will be critical to the future of the oil and gas industry. It's all about reducing costs, increasing margins, and delivering more value to stakeholders.
Here are five ways that Exxon will benefit from AI in the future.
1. Optimizing Production
I'd rank this role number one. AI will help optimize oil extraction by analyzing a massive amount of data sourced from geological surveys, sensors, and production sites.
Even though Exxon has some brilliant mathematicians and engineers, AI will be smarter and faster over time - building algorithms that can identify successful correlations and patterns to boost output and reduce costs in the process.
We can anticipate that AI will enhance reservoir management practices, slash energy input use and costs, and increase extraction rates. By optimizing production, Exxon will improve margins and reduce its production costs.
They want to reduce oil production costs to $15 per barrel in the Permian Basin in the future. AI can make that happen.
2. Optimizing Maintenance
The term "predictive maintenance" might not be familiar to most investors. But what if you can tell when a production rig is about to fail - or a critical machine might break before it happens? That's the magic of predictive maintenance.
AI will measure important metrics like air pressure, surface temperature, and vibration readings. AI can predict equipment failures before they happen, allowing engineers to repair and replace them on the fly.
This will reduce downtime in the fields, helping to keep production humming. This can boost revenue and optimize asset management.
3. Safety and Risk Optimization
AI will enhance safety and risk management. This will not only bring a sigh of relief to employees (operating in dangerous conditions)... but it will also bring relief to regulatory agencies overseeing their industry.
Think of all the regulations around the environment, safety hazards, and anything related to equipment requirements. In addition, AI will require less waiting time to measure risk scenarios. This is critical to reducing liability in this industry. If AI can increase the security of pipelines, reduce ocean-platform security, and enhance safety in transportation, it will protect and boost margins in the industry.
4. Supply Chain Optimization
I mentioned pipelines. The oil and gas sector consists of upstream, midstream, and downstream operations. For companies that aren't vertically integrated, it can be a challenge to optimize transportation routes, measure inventory levels, and enhance their demand forecasts downstream to the customer.
AI can examine everything from levels of fuel in storage facilities (inventory management) to identifying arbitrage opportunities and reducing operational costs. The goal is to prevent the whipsawing of prices and inventory in the supply chain, which can streamline costs. In addition, companies may be able to improve and better predict future margins - which will help Wall Street analysts (Assuming they still have a job.) forecast the business and industries in the future.
5. Energy and Waste Optimization
I anticipate that energy optimization will be the big-ticket item for AI across all sectors. But the ability to reduce energy consumption in drilling and transportation will be dramatic if AI can unlock that potential. In drilling, companies that pull too much from the ground are overextending their input costs.
But when they pull too much from the ground and can't get that oil out of the fields, the result is too much fuel - which becomes waste. And where there is waste - especially in the natural gas field - there is flaring.
And that's just lighting fuel on fire and burning it. That has not only environmental costs... but it also loses potential revenue for a company. AI's production optimization potential is one more thing that will produce environmental efficiencies.
But that's not all. AI will help drive greater energy efficiency across all industries, saving an untold amount of oil, gas, and other fuels for future usage.
I've only discussed five potential benefits of AI.
There are others - fraud detection, decision support, and exploration modeling. But those five were enough to convince Mike that Exxon is a sound investment for the long term and that he doesn't need to buy Nvidia at its overstretched valuations to take part in the AI revolution.
Get the Door: It's Another Great "Stealth" AI Stock
In July 2004, one of the world's most innovative tech companies went public.
The money poured in. And why wouldn't it?
This company was one of the earliest adopters of online commerce - a radically disruptive titan, which upended the traditional dynamic between businesses and consumers.
That was for openers: This e-commerce giant would go on to create some of the most critical technologies and applications in satellite navigation, online delivery systems, autonomous driving, customer personalization, and communication.
In fact, it's one of the essential innovators in how consumers communicate across platforms like smart TVs, smartwatches, Facebook Messenger, Twitter, and even Ford Motor Co. (F)'s digital auto dashboard.
And it completely transformed the way that people buy products.
Now, if you think I'm talking about Alphabet Inc. (GOOGL), you're mistaken... though I don't blame you a bit.
The truth - as I've shown you with picks like Exxon and Deere - is that AI and tech are a much bigger "tent" than Wall Street and the media would have you believe.
There are excellent companies with sane valuations and fantastic long-term hold potential innovating and leveraging AI right now. They're using these technologies to add shareholder value.
These "stealth" tech stocks are right there for the buying - and in a lot more places than you'd think.
That said, it might not surprise you to learn Google's IPO was in August 2004... one month after the landmark IPO I'm talking about.
And if you think Google's AI prospects are exciting... wait until you hear about this one.
Constant Special Deliveries for Investors
For 17 years, since well before the AI craze took over the markets, Domino's Pizza Inc. (DPZ) was a better-performing stock than Google - now known, for some reason, as Alphabet.
I know... I know... that sounds insane, but the math doesn't lie: When you add up dividends and total return, PDZ blows GOOGL away. But you have to understand that Domino's is not just about pizza.
Domino's could very well be a better technology company than Alphabet.
You just didn't know it.
Let's start with an appetizer.
Domino's generates more than 60% of its orders from digital platforms.
The company couldn't have reached that level of digital integration without getting there first... and that's a massive trend for Domino's. They always get there faster than everyone - whether it's delivering food or integrating digital innovation.
This was the first major pizza chain to offer online and mobile ordering. The company started its foray into online ordering in the late 1990s. I'm talking about dial-up modems here. By 2007, it launched an online platform on its website allowing customers to place orders.
For its next trick, in 1998, it created the "HeatWave" bag - which keeps food warm during delivery. This simple innovation is a staple of almost every delivery giant today. By 2008, it had created the Domino's Tracker - a real-time order tracking system. It provided customers with updates on the progress of their order - from preparation to delivery - enhancing transparency and customer experience.
Today, in fact... you see nearly every delivery company replicate that experience - or try to anyway. In fact, when I ordered Chipotle recently... it was nearly the same customer experience that I had with Domino's 15 years ago.
Of course, back then... who would want to track food online?
Then it released its mobile app in 2011. People started buying pizza directly from their shiny new Apple and Samsung smartphones. The app allowed people to customize pizzas, save their preferences, and then reorder at the push of a button.
It moved into voice ordering with Amazon's Alexa in 2014. Today, these technologies seem commonplace. It was revolutionary eight years ago that you could use voice commands to tell a robot to order you a pizza. A year later, they integrated simple ordering functionality across smart TVs, social media platforms, and even the dashboards of Ford trucks.
Then it started a partnership with the robotics company Nuro. It tested robot pizza delivery across Houston. When the pizza arrives, users plug in a unique code to unlock a chamber and take their pie from the robot. And it also tested drone delivery programs in New Zealand. And - of course - there are the famous Hotspots. This 2018 program enabled pizza lovers to meet their drivers in public places like beaches and museums.
That program evolved into the brand-new Pinpoint Delivery service, which launched on June 20. It allows users to get pizzas delivered... pretty much anywhere - no standard address required.
So that's an impressive list of technological accomplishments and innovations by any standard - even Silicon Valley's... but we're about the future here.
And as I'll show you, what Domino's does next could take its tech edge up to XL.
Pepperoni and Mushrooms and Data and Natural Language Processing
When you order a pizza lunch on a Monday, the company will return in a month and ask you if you want to order the same pizza.
Domino's will be an AI player too. It's already well on the way; Domino's started its AI efforts five years ago. It currently engages AI chatbots to provide customer service. This technology can take customer orders, make recommendations based on previous orders and behaviors, and use natural language processing (NLP) to answer questions.
Domino's also leverages AI and predictive analytics to explore new and existing customer data.
This allows it to determine customer buying patterns, which can fuel the type of marketing I mentioned above. Order a pizza from Dominos this week, and I guarantee you that they will market to you about the same pizza on a predictable timeline.
It uses AI to optimize delivery, navigate traffic, organize inventory, and drive efficiencies through its business. AI also monitors customer feedback on social media, tracking sentiment analysis across various platforms - the better to manage the Domino's brand. Feedback goes directly to marketing managers and other stakeholders in the business.
Finally - and most importantly - AI makes the pizza good.
Computer vision technology can use AI to objectively determine the quality of a pizza. Like an AI-powered robotic surgeon, AI will be able to determine abnormalities in the pizza, determine if ingredients are correct and sufficient, and ensure quality and consistency for each order.
I've no doubt that these three companies will continue with their AI efforts as the back-end technology advances - all while providing maximum shareholder returns over the long term.
But they're also not the only ones.
This is a developing story, and there are many companies just like these three.
The remainder are what we'll cover on Money Morning each week. You'll hear from me and our other experts, so make sure you're keeping an eye on your inbox.
I'll speak to you again soon,
Garrett Baldwin, Executive Publisher, Money Morning
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