I sat in my office on the 24th story of a skyscraper in Tokyo. Dusk was settling in, revealing the lights of the beautiful skyline. It was 2011. I was the president of NXP Semiconductors Japan at the time.
I looked up from my computer and got a glimpse of the rainbow bridge lighting up over Tokyo Bay.
Suddenly, my chair started to oscillate gently up and down. I looked over to one of my staff who sat near me, and we had a chuckle. Earthquakes are a normal part of life in Japan.
And then it hit. The big one. A 9.1 scale earthquake shook the building to its core.
The 15 minutes that followed were the worst I’ve ever experienced. The building felt like it would snap.
We’d swing three or four feet in one direction… and then shift back in the other direction just as far.
Books and binders were flying off shelves. The walls were cracking. Some of my employees were lying on the floor crying. Across the bay, we all stared in amazement as an oil refinery exploded into flames.
I moved as quickly as I could through the office, hanging on to anything that I could. I was pulling employees away from the windows. If the window cracked and shattered, the pressure change would have sucked them right out to their death.
I pulled everyone into the center of the building and explained that the building was designed to bend just as it was doing.
Once everybody was safe, I called my CEO. I told him that there would be massive disruptions to the global semiconductor supply chain and that manufacturing plants would be badly damaged across Japan.
I told him to quickly secure product and materials inventory before everything dried up due to a halt of production. I told him a massive tsunami was coming as well.
He didn’t believe me.
Of course, we know what happened. Nearly 16,000 people died from the earthquake, the tsunami, and nuclear meltdowns. And this disaster ushered in the worst crisis the semiconductor industry had ever seen.
I’m telling you this story to make an important point. When faced with a society-altering event, we must react accordingly.
In the wake of COVID-19, our society has come to a standstill. The world has been forced to change. And as investors, we must learn to adapt as well.
This Tech Sector Is in Overdrive
Let me say upfront that things are absolutely going to get better. As I’ve been showing readers of The Bleeding Edge, there are plenty of reasons to be optimistic. By this time next year, I believe COVID-19 will be in the rearview mirror.
But while the world gets COVID-19 under control, many industries are going to suffer.
Hotels have been shut down. Cruise liners have been sitting dormant at their ports. Rental car agencies are facing tough times ahead. This certainly is not the time to be investing in the hospitality industry or in any companies that depend on consumer travel.
However, that doesn’t mean that there aren’t incredible investments to be found in this environment.
As I’ve been sharing with you, companies involved in cloud computing services and wireless infrastructure are seeing a spike in demand. With the world on lockdown, we need these services to supply the massive demand for wireless bandwidth.
But there is one more area of the technology markets that is also in overdrive.
In my nearly 30 years as a technology analyst, I’ve never experienced a time when this industry was as elevated as it is right now.
Every venture capitalist and private equity house has just woken up to how powerful these technologies are and how quickly their stocks can move.
And here’s the important part…
Companies in this sector aren’t affected by supply chain problems as a result of a worldwide lockdown.
They don’t care if the market is volatile. All that matters is that they make progress on their research and development. And when they do, the stocks run higher.
In fact – as history shows – some of these stocks are immune to shocks.
For example, in the downturn of 2008 – right smack-dab in the middle of the last crisis – three stocks in this sector rose by 84%, 108%, and even as much as 382%.
And recently, in the coronavirus scare…
For the last week of February – one of the worst weeks for the market ever…
Only seven stocks out of the S&P 500 showed positive gains…
And the two biggest gainers?
You guessed it…
Both came from this same sector…
One of these has gone up as much as 197x in recent years…
And the other has risen as much as 557 times over.
We are going to see an acceleration in investment in this area. More and more of these early stage companies will hold initial public offerings (IPOs).
And unlike the overhyped, overpriced tech IPOs we’ve seen recently, these “forgotten” tech companies do things a little differently…
Uber was the premier IPO of 2019. This was a “hot” company that investors were champing at the bit to get a piece of.
What few retail investors considered, however, was that Uber was nearly nine years old when it went public. It had already raised nearly $20 billion in venture capital as a private company. That valued the company at $67.6 billion before its IPO.
Then, Uber went public at $45 per share, raising another $8.1 billion. That valued the company at a whopping $75.7 billion.
For comparison, Amazon was valued at just $438 million when it went public in 1997. That means that Uber’s IPO valuation was more than 154 times larger than Amazon’s.
And there was another problem. The company was hemorrhaging money like a small-cap firm. In 2018, the year before the company went public, Uber reported losses of $1.8 billion.
I warned my readers to steer clear of Uber’s IPO. And I’m glad I did. Nearly a year and a half after going public, Uber is still down over 23%.
This is the problem with buying overvalued, overhyped IPOs. They are almost always a bad investment.
That’s not the case with this technology sector that I mentioned above. These companies still go public early. Very often, they are the same size as Amazon when it held its IPO.
For this reason, I’ve referred to these investments as “Penny IPOs.”
The potential return from these “Penny IPOs” is exponentially higher than anything we will ever see from IPOs like Uber.
And I believe “Penny IPOs” will be one of the best ways to profit in the coming months.
What precisely is a “Penny IPO”? And why is the technology more critical today than at any other time in recent memory?
I’ll share the full story at my upcoming event, Penny IPOs: The 4X Window. It’s happening next Wednesday, September 23, at 8 p.m. ET. Go right here to reserve your seat.
Editor, The Bleeding Edge
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