The Only Stocks That Can Change Your Life

26 | By Michael A. Robinson

Growth stocks can change your life.

If you pick the right ones.

In my June 28 Strategic Tech Investor column, I gave you several reasons why I’m predicting a strong tech rally for the second half of this year.

When I make a prediction this bold, readers don’t waffle: They either completely agree with my argument or write in to say why I’m flat out wrong.

But this time around STI subscriber Chris12 took us in a completely unexpected direction – and kicked off the old “growth-or-dividends” debate.

    “In my opinion tech companies should at least pay a small dividend, otherwise their shares are virtually worthless – in my layman’s opinion of course,” Chris12 wrote.

    “Any company that doesn’t pay some sort of dividend – even a tiny one, is almost worthless. At least Microsoft pays a dividend… (last time I checked).”

I have very strong feelings on this point – for two very good reasons.

First, the “growth-or-dividends” debate goes right to the heart of the tech-investing strategy that I’ve created for you.

And it can determine who gets rich – and who doesn’t.

We Want You to Get Rich

That’s a simple statement. But it’s powerful, too, just because of the dreams and good feelings it evokes.

Let’s start by reiterating the basic premise here at Strategic Tech Investor: The road to wealth is paved by tech.

Whether you are talking about railroads, mass-produced autos, computers, or the Internet, the new classes of technology that come along every decade or so not only change the world …

They also always manage to make some savvy investors very, very rich.

At a time when most Americans have a net worth of $25,000 or less, you want to maximize every profit opportunity that comes your way.

If your goal is to turn that $25,000 into a $250,000 retirement kitty in a few short years, there’s really only one path to travel. You see, you can’t achieve that goal with dividend stocks.

But you can do it with tech.

No other sector but high-technology can produce enough winners – and enough growth – to generate life-changing capital gains.

But as I told you at the start of this column, to generate consistent, sustainable profits, you still have to pick the “right” tech stocks.

That’s why I created my five-part strategy for generating high-tech wealth. And, as Tech-Wealth Rule No. 4 clearly tells us, you have to “focus on growth.”

Otherwise, you are likely to end up with mediocre returns.

Let’s take a look at the stock Chris12 cites as a good example of the type of dividend play he’s seeking.

Over the last year, Microsoft Corp. (NasdaqGS: MSFT) has returned about 14% to investors in price appreciation. (We’ll get to the dividends in a minute.) That’s not bad. But it greatly lags the return of the benchmark Standard & Poor’s 500 Index, which gained 20.6% during the same period – roughly a 45% better return.

To really drive this home, let’s work through a couple examples.

If you started with $10,000, and invested it in Microsoft shares a year ago, those shares would be worth about $11,400. Since MSFT pays a 2.7% dividend, you can add in an additional $270 in gains.

That brings us to a grand total of about $11,670.

But the same $10,000 invested in the S&P 500 would have grown to $12,060 – and that’s even before we factor in dividends.

In other words, just a basic low-cost index fund would have done better.

Now, let’s compare MSFT with some great growth stocks that have crushed the market in the same period.

3D Systems Corp. (NasdaqGS: DDD) is a play on the new, high-growth field of 3D printing. This is a field of technology that could have a total global value of $1 trillion because it can touch virtually every part of the global supply chain – from autos, aircraft and medical devices to even such science-fiction-sounding applications as replacement human organs.

In the past year, even after a major correction, shares of DDD have gained about 101% – meaning a $10,000 investment would have grown to $20,100.

Had you been trolling for stocks based on their dividend payout, however, 3D Systems would have never emitted a “blip” on your investment radar scope. The reason: 3D doesn’t pay a dividend.

So it would have completely passed you by.

Or how about Tesla Motors (NasdaqGS: TSLA). This is a play on the future of electric vehicles and a visionary CEO. The firm’s founder is Elon Musk, the billionaire cofounder of PayPal.

With his firm’s cars getting rave reviews from both drivers and the auto press, the stock has just gone on a tear. Over the past year, it’s returned roughly 280%.

Again, without a single penny in dividends, that original $10,000 investment would have grown to $38,000. In just 12 months…

Don’t get me wrong: I’m not telling you to avoid dividends. Rather, you should look at dividends as a “bonus” for buying a stock that has enough upside to really improve your net worth.

ARM Holdings PLC (NasdaqGS ADR: ARMH) is just that kind of stock. This semiconductor-design firm is a cash-generating machine. It’s a leader in its field – the “Mobile Wave” – and is enjoying explosive growth. ARM designed the chips that many mobile phone and tablet computer companies use to run their devices.

The stock pays a very slight dividend, with a current yield of roughly 0.6%. It’s so small, the payout simply doesn’t matter. But over the past year, ARM Holdings shares are up 65.9%. That’s more than 4.5 times the appreciation of Microsoft, whose dividend rate is – oddly enough – 4.5 times that of ARM.

As a veteran of Silicon Valley – and someone who knows how institutional investors actually operate – I’m going to tell you a secret … something that very few retail investors even suspect.

Many of the institutional players who have billions under management regard high-yielding tech firms as companies whose best days are behind them.

And there’s real merit in this argument. See, when we put our money in growth companies, our goal is simple: We want to find firms with great management teams that are able to stick with and capitalize on the next round of high-tech expansion – in order to stay on the growth path.

But when management keeps boosting the dividend payment instead, they’re basically saying that they see so few opportunities for investing and growing that cash that they believe you can invest it better than they can.

Or, to look at it another way, consider this: If senior management doesn’t have faith in the quality of its new ideas, why should you?

And that brings me back full circle…

If you really want to improve your net worth in a big way, you simply must follow Tech Wealth Rule No. 4 – and target companies that are experiencing meaningful growth.

That’s the only real shot you have of getting the life-changing gains that so many Americans desperately need to boost their standards of living, their savings, and their retirement.

We’ll do all that we can to help you achieve those goals.

[Editor’s Note: Your feedback is very important. What matters more to you: growth or dividends? As always, I welcome your comments, questions, suggestions, and opinions. Post a comment below … I look forward to hearing from you.]

26 Responses to The Only Stocks That Can Change Your Life

  1. Riffat Azad says:

    A great write up and i really like your “slogan” “and the road to wealth is paved by tech”.

  2. Bert Ekstrom says:

    I keep looking at your information and you hit a home run today. Very good examples and right to the point. I am getting real tired of reading pages of material to make one point. I will be a subscriber soon.

  3. john kavanaugh says:

    Michael, I appreciate your clear thinking and insightful recommendations. How does your latest comment about tech dividends square with your recent recommendation of Intel, a dividend payer with apparently massive growth potential as well?
    I look forward to your response, built into some future commentary.
    Have you ever looked at HIMX or VELT?
    Yours gratefully,

  4. Glenn Garland says:

    I agree with you Michael. There are many of us, the baby boomers, who are approaching retirement and would like to know that we can, or at least, feel comfortable in knowing that we have a source of income. Divident paying stocks are nice, but even with a million invested in them, would they provide enough income for a comfortable standard of living? Especially when one looks at whether social security will even be around in ten years. And there are many of us that don’t have a large bankroll to play with, and we can’t wait for ten to twenty years for the slow growth of some of the dividend paying companies. It’s really a bit of a quandary, but I think there is a balance that can be found. Utilize the big tech winners to invest some of the winnings in those solid companies if one has doubts and wants a foundation in securities.

  5. Anthony Davis says:

    So are you recommending we buy DDD, TSLA, and ARMH at market rates or after a pullback in price?

    • Al says:

      Does not seem as if there was a recommendation to buy. These were used as examples of growth tech stocks that outperformed the S&P 500 and a noted dividend paying tech stock. Not saying that DDD, TSLA, and ARMH don’t have more room for growth but I don’t believe that they were mentioned here as recommendations. Personally still watching all three along with many others that are written about on these pages.

      • 49woody says:

        While you are correct, Al, that these were not presented as ‘buys’ in this article, of the three, all but TSLA have been editorial staples and – at various times – ‘buys’ with Michael & Private Briefing for some time now.
        By my incomplete reckoning, in the free recommendation arena, only Zack’s took a flyer & got a little jump on TSLA with a ‘buy’ entry at $92.75 fairly recently…should’ve jumped on that one!

  6. albert eldridge says:

    I am learning a lot from your well reasoned arguments ,iook forward to the profits that should follow. all we need now is a sustained rising market .thank you.

  7. Mary Jane Pagan says:

    What do you think of the new chip Intel is developing? Supposed to be a game-changer, with a new CEO. Is it possible to be BOTH a dividend payer and a force for growth?

    Also read of a plan that says = 90% of stocks in dividends and 10% in high-growth prospects. That 10% leverage makes a huge difference over time.

    Enjoy your column very much, thanks for your generosity to your readers.

  8. ed zuschlag says:

    you are a real asset to us without much money for subscriptions. Your reccos make sense, you are not blowing smoke, dont get paid to hype the companies you suggest, and they work out well. Thanks, Michael-keep em coming.

  9. Aaron Lehmann says:

    As someone that spent 40 years on Wall Street as a high tech analyst on both the “buy” side and “sell” side, I agree with your points. However, there is much,much more to be said before finding the spectacular breakthroughs. I wrote a research report on Stratasys(SSYS) in 1995 long before 3D took
    off and the stock is up over 2000%.

    • 49woody says:

      Hey Aaron,
      How much did you buy 1995?

      And if you had the good sense to buy a bunch, what are you buying now?!

      We could all use a little help here!

  10. Dax says:

    Excellent emails from you and ones I am eager to read. Not so with lots of other newsletters. Keep up your great email disbursement of info that keeps me using my thinking skills … instead of using the delete button like I do with so many other emails

  11. Aristo Kiziroglou says:

    I would like to fully reflect the comments of some of your subscribers :

    james scheb says: July 12, 2013 at 2:12 pm
    I wholehearted agree with your prognostications! gem

    Anthony Davis says: July 12, 2013 at 1:50 pm
    So are you recommending we buy DDD, TSLA, and ARMH at market rates or after a pullback in price?
    Al says: July 12, 2013 at 3:03 pm
    Does not seem as if there was a recommendation to buy. These were used as examples of growth tech stocks that outperformed the S&P 500 and a noted dividend paying tech stock. Not saying that DDD, TSLA, and ARMH don’t have more room for growth but I don’t believe that they were mentioned here as recommendations. Personally still watching all three along with many others that are written about on these pages.

    I look forward to your specific recommendations for investment ! Many thanks.

  12. Matt Gauch says:

    OMG, Michael! You have GOT to be kidding! I have found your writings and analysis in the past to be insightful and spot on. But your argument here is so naïve, misguided, and neglectful of fundamental truths as to nearly make me question EVERYTHING I’ve heard from you previously! I, too, once believed in growth as you espouse in this piece, until a Finance professor set me straight 30-some years ago. If I may be so bold, allow me to take you back to Business Administration 101 and Finance 101: the ONLY reason to own a stock is to receive the dividends from ownership of the underlying business!! Think about this for a minute: why does anyone start a business in the first place? Because he believes that he can sell a product or service for more than the cost to produce that product or service, and keep the difference (profit) for his efforts, no? That difference is returned to the owner of the business as DIVIDENDS. And what is a share of stock, but a share of OWNERSHIP of the business? What about growth in the value of the stock, you argue. But think about it further…WHY is a share of the ownership of the business more valuable to someone else? The ONLY reason, for a reasonable person, at least, is because that person believes that he will receive more money from OWNING that share of the business than he paid for the share (or at least, will earn a reasonable return on his investment to purchase that share of the business). “Well, he will later sell the share for more than he paid for it, so that is his profit,” you counter. But why does the next person pay a premium to buy the share from the original purchaser? Because that person expects to be paid DIVIDENDS on his share from the profits of the business!!

    Sure, capital appreciation is nice, and I agree that it’s about the most effective way to jump-start your wealth. But it’s the profits of the business paid out as DIVIDENDS that are what really makes ANY business worth owning!! Please don’t ever forget this most fundamental rule of business and investing!

    • Jim says:

      Who would have guessed that I have been violating the “most fundamental rule of investing” for 50 years! Think about the tech stocks in the hay day of the tech boom, and I don’t know any investor or investment newsletter that was basing investment decisions based on dividend payments; indeed, there were not many of the high flyers that were paying dividends. What motivated the investors to buy into those companies?? I think the author got it right in his analysis, and as the inquiry noted at the beginning of his article, even Microsoft pays a small dividend (because its growth prospects are not what they used to be, and investors need some incentive to buy the stock).

  13. dan banago says:

    Thanks Michael, I like your prediction and thinking. Can’t wait for the next tech recommendation, it could be one of my ticket to change my life.

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