Goodbye to Paying for Atoms

Perhaps the concept of a digital economy is best encompassed by a metaphor described by Emeritus Professor Nicholas Negroponte of the Media Lab at the Massachusetts Institute of Technology.

Negroponte describes that in former times, the world’s economy was all about trading information via atoms. You paid to get a collection of atoms in the form of a book, magazine, report, etc. with another collection of atoms in the form of a piece of paper currency, such as a dollar bill.

In the digital economy, information is assembled as memory bits and paid for with currency that’s also in the form of bits. For example, if you want to read the New York Times, then you download the bits onto your reader device and pay for them by transferring bits from your bank account to the seller’s bank account. No physical money made from atoms ever trades hands. It’s all digital.

 

No need to ever waste paper on a newspaper again. Go digital instead! (Source: produkte.stuttgarter-zeitung.de)

 

A classic example of this is one of my favorite stocks, Amazon.com (NASDAQ:AMZN). It not only provides the content, but it also provides the cloud-based support services to run the networks that store the books, and it also builds devices for the reader.

Another important example is trading traditional corporate offices for a distributed work environment where everyone works and meets virtually from laptops at any possible location having an internet connection. Methods of old required huge factories, vast powerplants pumping out enough electricity to run those huge factories, and corporations with equally big central physical facilities for support.

The digital economy is instead supported by broadly distributed global digital communication networks where participants from any given connected location can collaborate, trade information, strategize, communicate, and even play. Also supporting the digital economy is protocols for digital transfer of financial currencies and blockchain arrangements.

MegaTrend stock Alphabet (NASDAQ:GOOGL) has been more than influential in building out internet services – from search, to mobile operating systems, to photo and document cloud-based software – that are actually free or very low cost to people and companies.

 

In the digital economy, physical currency is never involved,  only digital wallets and banking. (Source: apple.com)

 

So to take a stab at a definition – the digital economy is the superposition of billions of internet users, such as businesses, financial institutions, individuals that interact through mostly digital means to maintain and grow the flow of resources, wealth, goods, and services.

The foundation of the digital economy is made of the software, devices, data centers, internet of things, hardware, point-of-sale card readers, laptops, WiFi routers, etc. that support it, and one of the kings of consumer tech remains Apple (NASDAQ:AAPL). From phones to music, to content to quite possibly smart cars, it has built a global empire that continues to expand.

 

Learn More About the Digital Economy

In the next newsletter for Proffe’s Megatrends, we’ll discuss how the digital economy is affecting the way everyday consumers earn money and pay for their daily expenses, as well as how it is affecting the way they borrow money to finance the big purchases. We will the move on to tell you how new and existing businesses are creating new types of software to best take advantage of the best that the digital economy has to offer.

In the final part of this series, we will discuss the hardware that supports the digital economy. This includes some ideas on how data centers, internet of things hardware, and high-throughput processors will continue to support the evolution of the digital economy.

 

Inside one of Google’s data centers. This is the place where records of the Digital Economy are kept. (Source: crn.com)

 

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Building Efficiencies and Safety into Existing Systems

In this path to a more sustainable world, there’s little doubt that opportunities abound. Here’s what that kind of growth I’ve been referring to looks like for the rest of this decade.

 

Source: Statista

 

Another way to break this down into its respective parts:

 

Source: KBV Research

 

This graph is a good representation of the default industries that are generally covered, but if you look to the definition of ESG (environmental, social, governance) investing that’s gaining momentum once again, it’s more or less a measure of how every company is or isn’t helping to be more sustainable.

 

Source: Johnson Bixby

 

The sector is gaining interest around the world with investors.

 

 

The Companies

While I don’t focus exclusively on stocks that have high ESG ratings on purpose, I do have a number of them in my portfolios, and that isn’t too surprising since I generally pick market-leading companies that have forged their own paths and are more willing to accept new challenges with innovation than trying to keep things status quo.

For example, Descartes Systems Group (NASDAQ: DSGX) is a cutting-edge intermodal logistics company. That means it’s at the heart of one of the biggest energy intensive sectors in the world – transportation.

Until recently, the logistics sector was either dominated by major players with proprietary systems or was very antiquated, relying on seasoned veterans to guide the process, but e-commerce has shifted that paradigm, and now global shipping has become an absolute necessity for almost any size business.

For example, if you sell a hat on Amazon.com (NASDAQ: AMZN) that’s made in China, your orders are sent to the manufacturer. Then, where there are enough hats to fill a container, that container is moved to the dock for shipping. The diagram below illustrates how complex this journey from hatmaker to homemaker can be.

 

Source: ScienceDirect.com

 

It’s pretty clear that creating a more efficient process so that cargo doesn’t sit anywhere along this supply chain is not only ideal for the merchants and customer, but it helps to stop wasting energy.

Another company I like a lot, IDEXX Labs (NASDAQ: IDXX), is one of the leading animal health companies in the world.

As we get beyond the pandemic, it’s pretty clear that making sure animals in our food supply chain are healthy is essential, and as a result of the pandemic, a lot of people also bought “pandemic pets” to keep them company. Younger generations are also having children later in life, if at all, and choose to have pets instead.

That means pets become part of the family and care for them is in demand. IDXX caters to both sides of animal health, both the livestock end and the companion animal side.

What’s more, since one of the keys to maintaining healthy livestock is a clean water supply, IDXX also is a leader in water diagnostic and testing equipment. Speaking of water, American Water Works (NYSE: AWK) is one of the leading water companies in the Americas. It operates in 14 states and provides water on 17 US military bases.

 

Source: Water Online

 

AWK has been around since 1886, long before sustainability or ESG investing was cool. Even then, managing the water supply was a highly valued service.

According to the US Bureau of Reclamation, only 0.5% of the Earth’s water supply is potable. That means if the world supply was 26 gallons (~100 liters), only 0.003 ounces, about half a teaspoon, would be potable.

This is why these “stealth” sustainability companies are so important and so highly valued. They didn’t set out to jump on a fad. They set out to deliver better solutions by using technology to complement their expertise.

We’re all better for that, particularly as investors.

 

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Sustainable Energy Generation- Where We Are Today

About two-thirds of the electricity that we use today is generated by burning fossil fuels. At a high level, this comes from nearly equal amounts oil, coal, and gas. Actually, a little more comes from oil than the others.

Regardless, this method of generating electricity is far from sustainable. Moreover, some say there’s a sort of synergistic feedback loop going on here too. The more fossil fuel that’s burned, the more severe climate change becomes, and the more fuel we need to cool our homes and buildings during the warm months and heat our homes in the winter.

Today, hydroelectric generation produces more renewable energy than any sustainable source we have. Nuclear energy is the next highest, followed by wind energy and then solar. Together, they produce about one-third of the world’s electricity.

About 10% of this is nuclear, 15% is hydroelectric, and wind and solar together make up about 10%.  In many places, even in the US, the price of electricity produced with wind and solar is less than that produced using coal.

Even the sustainability of hydroelectric is coming into question. As bigger and bigger droughts become a reality and water sources begin to dry out (as has happened in the US with the Colorado River and with the Danube River in Central Europe, the Po in Italy, and the Yangtze in China), hydroelectric generation may become unreliable and maybe even cease altogether in some places.

 

The Three Gorges Dam in Central China is the largest hydroelectric plant in the world. (Source: Wikipedia.org)

 

These four sources are perhaps the more classic routes to sustainable energy. Be sure that wind and solar are growing. The previous paragraph aside, creation of new hydroelectric plants is generally flat, although there are new tidal technologies, coastal wave generation, and open ocean systems coming online. Legacy nuclear is slowly decreasing. However, there are new sustainable sources of electricity on the horizon that may become tomorrow’s savior.

 

Novel Next-Gen Nuclear

For many years now, both Microsoft (NASDAQ: MSFT) founder, Bill Gates, and The Oracle of Omaha, Nebraska billionaire and Berkshire Hathaway (NYSE: BRK.B) founder, Warren Buffett, have been investing in nuclear energy start-ups Terra Power and PacifiCorp (OTC:PPWLO). These two companies are collaborating on what’s known as the Natrium Project.

Where traditional nuclear involves enormous plants that cost tens of billions of dollars to produce, Natrium hopes to produce smaller reactors that cost closer to a billion dollars.

These smaller units – generally known as small modular reactors (SMRs) – have a uniform design (not unique, custom builds like legacy reactors – and can operate individually or more units can be added as power demand requires.

Natrium believes that by assembling its reactors in precision factories and only building one model, reliability and safety will be dramatically increased.

Generation of electricity using hydrogen is also a current reality and gaining momentum. Hydrogen can be burned or used in a fuel cell to generate electricity.

Regardless of how you want to use it, here in Europe, companies are building hydrogen generating electrolysis plants that take advantage of off-peak electricity generated by wind turbine farms in the North Sea.

 

Wind Farm in the North Sea off the Coast of Germany. (Source: balkengreenenergynews.com)

 

There are also hydrogen cars, trucks, and trains that are operating “in the wild”, and China is subsidizing hydrogen filling stations to convert its buses and municipal vehicles.

 

The Hunt for the Grail: Nuclear Fusion

The holy grail of electricity generation is nuclear fusion. This technology has been the topic of science fiction movies for decades, but it’s starting to look like it’s within our grasp in the next decade or two.

Fusion promises the ability to generate huge amounts of sustainable electricity with zero carbon emissions and no toxic nuclear waste leftover. Scientists and engineers are making slow but steady progress towards making it a reality.

One of the main challenges is that the heat generated when fusing atoms together (usually hydrogen) is so intense that no container exists that won’t literally evaporate under the heat. We are talking about millions of degrees Fahrenheit that would incinerate the most heat resistant ceramics we know of in milliseconds.

Companies working on fusion, such as Massachusetts Institute of Technology (MIT) spinoff Commonwealth Fusion Systems, must levitate fusing materials using strong magnetic fields. These magnets require copious amounts of electricity on their own, and the main challenge is to produce more energy from the fusion than is required to operate the magnets.

MIT and Commonwealth Fusion Systems have succeeded in developing high temperature superconducting (HTSC) magnets that are more energy efficient than ever before.

In fact, they are so efficient that in September 2021, Commonwealth demonstrated for the first time that its HTSC magnets were so efficient that it’s possible to produce a fusion device that can achieve net positive electricity generation. This was a major milestone on the road to fusion.

 

Illustration of the cross-section of a proposed nuclear fusion reactor being developed by MIT and Commonwealth Fusion Systems.  Note how large this device is by comparing it to the man just to the right of center in the bottom part of the image. (Source: techcrunch.com)

 

Sustainable Electricity Generation is a Megatrend

Sustainable electricity generation will become a widespread reality. Hundreds of companies around the world are heavily invested in it.  It’s a Megatrend in motion and investors who can participate will most certainly profit in the long term.

My portfolios are filled with MegaTrend stocks that are led by people that are disrupting their respective sectors, and changing the world we live in.

 

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Sustainability By Air

The best sector to start in may be the most invisible to people on the outside. It isn’t a hydrogen-fueled plane or a driverless electric vehicle. It’s all the electronics that go on in these vehicles that can maximize the efficiencies of not only logistics, but how that vehicle is operating.

Efficiency is the name of the game, and our binary world is built for speed and efficiency. Having increasingly efficient digital networks means we can communicate huge amounts of data without wires. The term for making our devices and vehicles “smart” is call embedded computing.

This basically means having computing capacity in objects that aren’t computers themselves. For example, a car or a refrigerator aren’t fundamentally devices that serve as computers, but by embedding computing in them, we can increase their value to a driver or homeowner.

 

Source: Lifewire

 

So, it’s the companies that can help embed computing into devices and add value and efficiency to these products.

In our portfolios, we have companies like NVIDIA (NASDAQ: NVDA) that builds the chips for smart devices, as well as self-driving technologies.

 

Source: Yahoo Finance

 

There’s also Qualcomm (NASDAQ: QCOM) that’s essential to supplying state of the art mobile telecom systems to make smart transportation systems reliable, safe, and available.

 

Sustainable By Land

Supporting these software and hardware pioneers are the companies that are using these systems to reinvent transportation using embedded computing.

The most obvious is Tesla (NASDAQ: TSLA). While there are many other car and truck companies now producing electric vehicles (EVs), TLSA was the company that took on the big automakers and made EVs a reality for the mass market.

 

Source: Electrek

 

It’s not the only game-changer out there that’s worth your time. Amazon (NASDAQ: AMZN) is creating a fleet of EV delivery vehicles and is also looking into hydrogen-powered vehicles. It’s also building out its own sophisticated logistics network and warehouse automation to increase efficiencies, as well as improve supply chain challenges.

Alphabet (NASDAQ: GOOGL) has its self-driving Waymo division.

 

Source: economagic.com

 

There’s also a lot of talk that car-hire company Lyft (NASDAQ: LYFT) may well be looking for a buyer, or at least a deep-pocketed investor. Many think that Waymo could be a perfect fit. Waymo would get the Lyft riders and logistical operation, and then it could slowly introduce Waymo cars into the mix.

 

Sustainability by Sea

If there’s one sector that everyone in the globe now knows needs some serious attention, it’s intermodal transportation.

Intermodal logistics are about the entire supply chain – from the raw materials to parts, to manufactured goods to local/regional/global transport, to warehouse to distribution, to final destination.

 

 Source: Persistence Market Research

 

That means the companies that organize all these efforts via road, rail, air, and sea are going to become more and more important.

Our favorite is Descartes Systems Group (NASDAQ:DSGX), which is a relative newcomer to the space, but has been gaining ground because of its sophisticated logistics technology.

In an increasingly complicated world, the companies that are embracing technologies to not only provide consistent results, but improve efficiencies, will be the biggest winner of this quickly emerging MegaTrend.

 

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Agricultural Sustainability Means Decoupling Energy Costs from Food Prices

Have you ever noticed that when the price of gasoline at the pump starts going up, the price of food goes up as well?  This isn’t a coincidence. There’s a firm link between food prices and the price of oil because the tractors, water pumps, cultivators, plows, etc. all run off of fossil fuels.

It’s estimated that in the US, 60% of all farm equipment runs off of diesel fuel, and don’t forget that the truck that takes produce to the market runs off fossil fuels as well. We all know there’s a finite supply of fossil fuels. Therefore, farms that are highly dependent on diesel are inherently not sustainable over the long term. Moreover, burned fossil fuels from diesel engines are a strong contributor to climate change, which also reduces the sustainability of farms.

The current best methods for decoupling energy costs from food prices, and thus bolstering sustainability, are using batteries and maybe even fuel cells to power tractors and other farm equipment.

 

Cut-away view of a tractor produced by New Holland that runs off a hydrogen fuel cell. (Source: wikiwand.com)

 

However, in order to maximize improvements in sustainability, the electricity that charges the batteries and the hydrogen that powers the fuel cells must necessarily come from green sources. Solar, wind, and maybe even nuclear power are necessary for this. Regarding hydrogen, the EU is hard at work building hydrogen generating electrolysis plants that are powered by wind power from wind farms in the North Sea.

 

Desalinization

Drought has certainly been a big topic this summer. The Southwest US is experiencing a very serious drop in water levels. The Colorado River, which major cities like Los Angeles have depended on, has reached record low levels. Likewise, in Central Europe, rivers like the Danube and the Rhine are becoming nearly unnavigable for ships because the water levels are so low.

Be sure that lack of water has affected farming in these regions. If new sources of water aren’t found, sustainability will certainly suffer. The overall amount of water on Earth is pretty constant. If it’s not on land somewhere, it’s either widely dispersed in the air or in the ocean. Desalination plants make ocean water available for sustainable farming.

Countries in the Middle East, including Saudi Arabia, Israel, and United Arab Emirates have become experts at converting sea water into fresh water. Desalinization technology used in processes such as reverse osmosis and thermal multistage flash is constantly improving. These technologies will in the future become cornerstone pieces for improved agricultural sustainability.

 

Desalination plant on the Mediterranean Sea in Israel. (Source: blogs.timesofisrael.com)

 

The Internet of Things to the Rescue

While we’re on the topic of water resources, given the scarcities that exist today, farmers need to be more careful than ever to make sure no water gets wasted. Many farmers have begun using flying drones equipped with multispectral sensors that can evaluate the moisture content of the soil in their fields. This information is transferred back to a computer or smartphone, and water is distributed to the fields most in need.

Autonomous driving technology has also found its way to the farm. Tractors from the likes of Deere & Co (NYSE: DE) and Caterpillar (NYSE: CAT) are now equipped with GPS. The GPS is used by these vehicles to navigate around the farm and the fields. Autonomous driving saves fuel and helps to decouple energy costs from food prices.

Another interesting example is how the internet of things is helping sustainability with dairy and beef cattle. Cows need to be healthy and happy to provide good dairy products and reproduce efficiently. So, some ranchers and farmers now wrap special internet-equipped heath monitors around the necks of their cattle. They’re kind of like a Fitbit for cows!

 

Happy cows wearing Fitbits for health monitoring. (Source: independent.ie)

 

Caretaker monitoring the health of his cattle using a smartphone app. (Source: agfundernews.com)

 

The animals’ caretakers can monitor their herds’ health via a smartphone app. Through doing so, ranchers can constantly monitor their cows’ health and rapidly take medical action when necessary, rather than waiting until the animal or herd’s health is in real crisis.

 

MegaTrend: Sustainable Agriculture

See, I told you not to worry. Farmers and agriculture scientists, not to mention IT engineers, have come up with many very effective methods to promote sustainability. You can file this one away under humanity’s fight for survival. Technology to improve the sustainability of the food supply will continue as long as there are people.

The technology will keep getting more advanced and more effective. That’s why we’re calling sustainable agriculture a true MegaTrend. It’s why we have stocks in our portfolios that reflect this MegaTrend, as well as others we’ve identified.

 

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You have heard about sustainability with increasing frequency when it comes to almost every sector in the marketplace today – sustainable clothing, food, energy, resources, etc. This month, we’ll feature four of the biggest and most influential sectors that fall under sustainability: Agriculture, Transportation, Energy, Technology.

So, what is sustainable investing? Here’s how Blackrock, one of the largest financial institutions in the world and one of the financial world’s biggest proponents of ESG investing (environmental, social, governance), defines sustainable investing:

Sustainable investing is about investing in progress and recognizing that companies solving the world’s biggest challenges can be best positioned to grow. It is about pioneering better ways of doing business, and creating the momentum to encourage more and more people to opt into the future we’re working to create.

Also, bear in mind that Blackrock isn’t some fuzzy-headed, do-gooder group. When the US government needed someone to buy and manage the multi-trillion portfolio of mortgages and related financial instruments used to stimulate the pandemic-stricken economy in 2020, it chose Blackrock.

Today, there are a number of sustainability indexes out there. These are just a handful of Dow Jones Sustainability Indexes.

 

Source: Pirelli

 

What’s Sustainable Investing About?

The heart of the matter is what’s at the core of sustainability investing. Here are the factors that go into developing a matrix to determine the sustainability of a company.

 

Source: AIChE

 

This basic spider web design is used in a variety of different sectors to measure sustainability, but the broader goal is for organizations to be more thoughtful about how and what they build.

For example, if you’re building screwdrivers, you don’t just buy the cheapest materials, pay the lowest possible wages, and once your product leaves the factory, forget about it – it’s now someone else’s problem.

With sustainable investing, you’d think about where you’re sourcing materials, where to place a factory and find the smallest footprint, pay workers decent wages, and think about packaging and product materials that can be recycled or that aren’t cheap and disposable. For older generations, this is a more challenging concept, especially in the US where cheap, available goods have almost become a right of citizenship.

The most ironic aspect of this transition to sustainability is the fact that it’s the market driving it, not some social movement. The biggest players on Wall Street and in the global financial centers of the world are embracing this, and that means institutional and professional money is already in place and growing. I’m here to help you get involved and not only grow your investing smarts, but your wealth as well.

More to come, so keep a lookout in your inbox every Thursday!

 

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Intuit’s Ability to Adapt and Expand Is Unique and Makes It a Worthy Investment

The idea for Intuit (NASDAQ: INTU) began with Scott Cook. After proving his capacity to start successful businesses as a college undergraduate, Scott Cook became one of the youngest members of his class at the Harvard School of Business.

His second job out of B-school was with Bain and Co. in Northern California. One night while doing his bills at his kitchen table with his wife, he noted that doing bills was a serious hassle. Apparently, this gave him the idea that computer automation might make it a lot easier.

In 1983, that certainly was a novel idea. While looking for a good coder to help him develop this idea into a business, he met Tom Proulx at Stanford University. Tom bought into the idea and started working on it in his dorm room. He coded-up what would eventually become personal accounting software package Quicken. They founded Intuit that same year.

 

Tom Proulx (left) and Scott Cook (right) in the early days of Intuit. (Source: pinterest)

 

The Quicken code was mature enough by 1984 to begin sales to the general public. Sales of the novel software was slow going for many years. Even with the company operating out of Tom’s basement and having only 7 employees, it flirted with bankruptcy many times.

Most sales channels couldn’t see the potential in Scott’s vision. However, persistence paid off and eventual sales picked up. Many credit Intuit’s success at this stage with Scott’s obsession with customer satisfaction and willingness to incorporate customers’ feedback to improve its products.

 

Breakthrough

By 1991, Intuit’s revenue hit $55 million per year. It began introducing completely new software packages and even began acquiring other companies. In 1992, it published QuickBooks which enabled small companies to automate their payroll processing.

Perhaps its most important acquisition came in 1993 when it purchased Chipsoft from Michael Chipman in San Diego. Chipsoft was the predecessor of today’s TurboTax software, and this software became the company’s bread and butter product.

In the years to come, Intuit made many other acquisitions that enabled the company to realize its vision of a single software or web platform that enabled users to take care of all their financial needs from one place. This included enabling customers to not only do bookkeeping and pay their taxes from an Intuit product, but also to pay their credit cards directly (Visa and Discovery), apply for mortgages, buy car and home insurance, conduct all banking transactions, and even invest with the likes of Fidelity and Vanguard. It went public in 1993.

In 2009, INTU purchased Mint.com. The company’s app allows users to better keep track of all their accounts, liabilities, bills, and investments in a single glance. It is the most downloaded personal finance app in the marketplace at this point.

 

Intuit’s main products. (Source: Intuit.com)

 

Intuit Today

Today, INTU has over 14,000 employees around the world and 20 offices in 9 countries. Its TurboTax and Quicken apps (and their derivatives) are as popular as ever. INTU also has a market capitalization of approximately $131 billion.

Since the company’s IPO in 1993, the stock has split three times, in 1996, 1999 and 2000. Also, as you can see in the company’s stock chart below, up until just very recently with the Ukraine War crisis, the stock showed impressive megatrend growth over the past few decades. It looks to be headed back up in an impressive “V” recovery.

 

 

Intuit’s most recent acquisitions include Credit Karma in February 2020 and MailChimp in September 2021. These companies complement Intuit’s strengths and help it realize its greater corporate vision.

Credit Karma is a personal e-finance company that allows users to check their credit ratings free of charge, helping them make decisions about applying for loans or not. It also allows users to effectively dispute errors in their credit reporting.

Finally, it allows people to monitor databases for unclaimed property databases. You’d be surprised that sometimes people forget about their accounts and then these accounts are added to databases.

MailChimp is an all-in-one marketing platform that allows its users to manage email marketing lists and create email marketing campaigns and polls to send to customers and prospects. Mailchimp is also known for its marketing campaign strategies for companies wishing to advertise on podcasts.

 

Intuit corporate headquarters in Mountain View, Silicon Valley, CA. (Source: coporateofficeheadquarters.org)

 

A MegaTrend for the Long Haul

All these highly useful software apps mean that INTU has begun to expand its vision to a much more holistic level, which has opened up new, rapidly growing markets. Taxes aren’t going away, bills aren’t going away, and everyone will pretty much always want to figure out how to save more, and it seems very likely Intuit will continue to expand its value and influence for both consumers and professionals.

 

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An Innovator from the Beginning

Descartes Systems Group (NASDAQ: DSGX) has been helping global multimodal supply chains since 1981. Based in Waterloo, Canada, DSGX didn’t go public until 1998 in Canada and 1999 in the US. That initial foray into the markets was just in time to catch the rising wave of the dotcom tsunami.

It was already a tech innovator when it came to the supply chain and logistics space. As a matter of fact, in 2001, it was a pioneer in switching from a direct sales model of its hardware to a subscription-based software model. Remember, companies like Adobe (NASDAQ: ADBE) and Microsoft (NASDAQ: MSFT) didn’t do that until nearly a decade later.

 

Source: Inbound Logistics

 

Also, that subscription model was less attractive then because networks weren’t as powerful and abundant as they are now. In the space where DSGX operated, those terminals were all generally operating off one network hub, so it wasn’t as flexible, but it didn’t have to be.

The larger point is, DSGX management had a good view of the future and saw that recurring revenue was the smart way to go. Its clients would value a subscription model since they weren’t running a variety of networks and didn’t need anything overly complex, at least in the early days.

 

DSGX Success

Obviously, as technology improved, so did DSGX systems. Today, as you can see below, DSGX has a variety of divisions to help at all levels of supply chain and logistics management. Today, DSGX has more than 24,000 customers worldwide and generates more than $425 million in revenue annually.

 

Source: Descartes Systems Group

 

As you can see from the table below, it’s working with some of the biggest global companies out there. Even companies that you think are doing their own logistics operations, like XPO Logistics (NYSE:XPO), UPS (NYSE:UPS), FedEX (NYSE:FDX), and DHL, work with DSGX on a regular basis. These are just the customer highlights, given the long list of customers that DSGX has built over the decades.

 

Source: Capital.com

 

Let’s Talk Outcome

The real story of this MegaTrend favorite is told with this price graph. DSGX stock has gained about 100% a year for the last decade, and this isn’t in some sexy sector like biotech, computer chips, or cybersecurity.

It’s getting packages from point A to point B, and that’s what is so compelling. To be able to come into a relatively stable industry where reliability and stability is more highly valued than whiz-bang tech and make this kind of impression isn’t typical of most firms in this space.

 

 

For the year-to-date, DSGX is still down nearly 12%, but the stock has gained more than 20% in the past three months. That is a powerful comeback, and that momentum is growing, not fading.

Look at the drop when the pandemic hit, and then look at how quickly it recovered and went to even higher highs. DSGX is still on sale. If you’re looking for a great growth stock for the long term that’s an overlapping play on a number of MegaTrends, look no further.

 

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This Is Prime Time for United Rentals

United Rentals (NYSE: URI) is the largest construction equipment rental company in the world. It owns 13% of the North American share for equipment rentals. In total, the company manages some 660,000 pieces of rental equipment with a total value of approximately $14.2 billion (Wikipedia.org). It employs nearly 19,000 people at 1,186 locations in the US, Canada, and even some locations in Europe.

The company was founded by Bradley Jacobs in 1997. Mr. Jacobs realized that there were many equipment rental companies around the US and clear redundance in the market. Consequently, his strategy from the start was to consolidate these rental dealers across the US.

He started with six small rental stores scattered around the country. The company went public only three months later on the New York Stock Exchange. The first big acquisition came shortly thereafter in the summer of 1998, when the company purchased U.S. Rentals Inc. for about $1.25 billion.

 

Image of United Rentals founder, Mr. Bradley Jacobs. (Source: alchetron.com)

 

Jacobs was able to start United Rentals because he already had sufficient capital from founding three previous multi-billion-dollar companies. The first two were oil brokerage firms and a large refuse collection company formerly known as United Waste Systems, Inc. The latter was sold to Wayne Huizenga’s Waste Management, Inc. for $2.5 billion in 1997.

 

Equipment Offerings

The amount and diversity of equipment offered by United Rentals is staggering and hard to fully comprehend. There are eight primary specialty fields in which it rents equipment. The first is trench safety, which includes equipment for shoring underground construction sites.

Next, it rents mobile power generation and climate controls equipment for construction sites, TV, and movie filming sites. It rents trailers stocked with tools and supplies for construction sites. Then, there’s the fluid solutions for transferring, removing, and containing liquids in mining, agriculture, and emergency zones.

In line with Jacob’s previous experience with waste management, URI offers rental of portable restrooms. If you need to communicate with colleagues on construction sites or movie sets and your smartphone isn’t enough, URI will lease you Motorola handheld radios. It also has equipment for producing movie and televised sports event sets. Finally, it rents drones that can be used to survey construction sites, or even nuclear silos.

 

Typical United Rentals store in North America. (Source: legacig.com)

 

A list of more specific equipment available from United Rentals includes arial platforms (scissor lifts, boom lifts), warehouse forklifts, reach forklifts, back hoe loaders, light towers, generators, trucks, trailers, welding equipment, industrial lawnmowers, concrete mixers, submergible pumps, etc., etc. If you go on their website, you can look up literally tens of thousands of other items. The point is, nearly any type of equipment that might be necessary to construct a building, build roads, build bridges, cap off a mine, build a dam, or lay railroad tracks, you can find it at United Rentals.

 

Growth Strategy

From the beginning, United Rentals adopted a growth by acquisition strategy, and although it has seen organic growth that didn’t involve an acquisition, since its founding, the company has acquired dozens of companies.

Some highlights include RSC Holdings (renter of construction equipment) in 2011, National Pump (pump and pumping equipment manufacturer) in 2014, all of Cummins’ mobile power generation business in 2017, Neff Corporation (renter of industrial and construction equipment) in 2017, Baker Corp (provider of tanks, pumps, and filtration equipment), and BlueLine Rental (top ten renter of construction equipment) in 2018.  Most recently, United Rentals acquired General Finance Corporation for nearly a billion dollars. General Finance is a leader in mobile office storage and mobile office solutions. This latest acquisition (Mid-April 2021) opens a new category of rentals for URI.

 

Baker Corporation, which makes fluid pumping and filtering equipment was acquired by United Rentals in 2018. (Source: wateronline.com)

 

United Rentals also realizes significant profits from selling used equipment that it previously used in its rental businesses. This is an especially important business considering that acceleration in the number of infrastructure projects means that many construction companies will be looking to procure used equipment before committing to buying new equipment.

 

Sustainability at United Rentals

One of United Rentals’ stated primary corporate goals is to reduce greenhouse gas emissions associated with its business by 35% compared to its 2018 emissions by 2030. Indeed, the company has taken many impressive steps already to achieve this goal.

Of all the power equipment for rent at URI, over 20% is offered in an electric or hybrid powertrain version. Some notable examples of this include its pickup trucks, cargo vans, and personnel transporters. Starting in May, companies can rent the new all-electric Ford Lightning F-150s as well the new E-Transit battery electric cargo vans. Moreover, many of the various forklifts, excavators, backhoes, etc. are available to rent in all electric or hybrid powertrain versions.

 

United Rentals now offers to rent its customers the new all-electric Ford F-150 Lightning. (Source: electrek.co)

 

United Rentals is even going beyond offering green vehicles. Starting this month, the company offers its customers its Total Emissions Control app. This software allows companies to estimate the amount of greenhouse gases and particulate emissions emitted by the entire fleet of powered equipment they rent, including CO2 and NOx emissions, as well as diesel particulate emissions.

As construction companies and their customers become increasingly interested in achieving carbon neutrality, the Total Emissions Control app is becoming more useful. It gives these construction companies the ability to not only track their emissions, but also be able to report to their customers if they are achieving agreed, and possibly even contractual, obligations on making building construction clean and sustainable.

A good example of this is Meta’s recent construction of new hyperscale data centers. It contracted Turner Construction to build these new facilities. By using the URI app, Turner was able to demonstrate to Meta that it had met its obligations, and therefore helped Meta achieve its goals for greenhouse gas emissions.

 

Down, But Hardly Out

Below is the stock chart for United Rentals.  As you can see, in recent months it has followed the general trends of the market.

 

 

It has seen some recent recovery and seems to have cut its losses quickly. Given the company’s strong market position and the likelihood that its markets will see growth from the recent semiconductor and climate bills with all the construction and infrastructure projects they will initiate, the stock should be back on track quickly.

It’s currently only down less than 4% while the NASDAQ 100 is down 20% and the S&P 500 is down 13%. That’s the thing with MegaTrend stocks. They will get hit like other stocks in a broad downturn, but they’re the first ones back and will regain their past highs and keep going much faster than other stocks.

 

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You see the founder of Costco (NASDAQ: COST), Jim Sinegal, worked for Sol Price, the founder of Price Club. Sinegal then teamed up with Jeffrey Brotman, a lawyer and part of a retail family in Seattle. They followed the model that Price Club began, big box stores where it was membership only and offered low prices are bulk items.

 

Source: Kiplinger

 

In 1985, they took the company public. That meant plenty of capital to expand the business beyond its Pacific Northwest roots. By 1993, they bought Price Club as part of that expansion.

Today, COST has more than 880 warehouses around the world. It has 574 in the US, 107 in Canada, 40 in Mexico, 31 in Japan, 29 in the UK, 16 in Korea, 14 in Taiwan, 13 in Australia, 4 in Spain, 2 each in France and China, and 1 in Iceland.

That’s a pretty strong growth path in about 37 years. The fact is, however, that within those decades, the stores haven’t changed that much. They have a signature footprint, and they not only appeal to families, but there are a number of businesses that rely on COST for their products and services.

Some of these stores are Costco Business Centers. They carry many of the items that the typical consumer Costco carries, but they specialize in products for enterprises and don’t carry items like jewelry, clothes, media, and automotive goods. As a matter of fact, 70% of the items in the Business Centers aren’t available in the consumer-oriented stores.

 

Source: WL Butler

 

Also, remember that all members pay at least a $60 annual membership fee. Given the significant discounts on the products COST sells, it’s pretty easy to make that back in a trip or two.

COST isn’t like Netflix (NASDAQ: NFLX) or AMZN. Each person needs a membership to buy products. While this may not be hyper-policed, it can be an issue when it’s time for checkout, since you have to present your card to the cashier and he/she checks the person on the card.

For $120, you can get an Executive Membership, which gets you a household card, which is handy if you have kids in school that may want to buy for their roommates or just pick up coffee or sweatpants. The card has other perks as well.

Those membership fees are solid, guaranteed revenue every year. The massive amount of business COST does every year – more than $195 billion in revenue in 2021 – means it can cut deals with suppliers of its house brand products and deliver incredible quality. For example, COST is one of the largest wine brokers in the US. That means it can find great wineries that can sell significant volumes to COST, which COST can then sell to its member at a fraction of the cost, if they were under private labels.

That same aspect works with all COST house brands, but COST also sells top brand name goods as well. The company is laser focused on providing quality and quantity. There isn’t a tradeoff, and that’s why the company continues to grow.

 

Source: The Motley Fool

 

Those lines are headed in the right direction and the amazing thing is, given the fact that most of its business remains in-store, there’s hardly a blip during the pandemic. If you think those graphs of the past five years are impressive, check out this price graph since 2009.

 

 

COST certainly got hit earlier this year, but now it’s one of the big winners in a rising inflation environment.

Food trucks and restaurants that use their products are getting squeezed but COST can maintain its pricing since it’s such a big buyer. Consumers can buy what they need and store some away if things get worse instead of better for them. This strategy has been working for four decades, and it looks like it won’t be changing anytime soon.

 

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