The Secret Blueprint For Creating
Massive Tech Wealth
5 Rules For Finding The Best Tech Stocks…
Before They Begin Their Rocketing Surges
The road to wealth is paved by tech – but only if you follow my five key rules.
Developed over my 30 years investing in technology, these ruled are designed to help you become a much savvier and far more profitable tech investor.
They will help you identify the biggest market trends – and the company’s best positioned to make big money from them.
They’ll also make sure you avoid the most common tech pitfalls… like chasing a sexy sounding, but ultimately worthless IPO.
Ultimately, these strategies let you tap into the world’s most exciting (and fastest) moving opportunities so you can safely capture wealth… and have a better life now and in retirement…
So, let’s get right to them…
Tech Wealth Rule No. 1
Great Companies Have Great Operations
The first rule is a big one…
You see, it’s not enough to find an interesting company in a hot tech sector. To score the kind of life-changing profits you desire, you have to invest in the truly exemplary high-tech winners … the companies that are changing the rules in computers, biotechnology, industrial materials, telecommunications, aerospace, and other cutting-edge sectors.
Those paradigm-changing ventures create markets where none existed, leapfrog existing technologies, and create products that their customers never even dreamed about … but then can’t live without.
Companies this innovative, this nimble and this explosive all share a common trait.
They all have great leadership.
Identifying such gifted leadership takes time. That’s why I’ve developed such a vast network of contacts, and I spend so much time rubbing shoulders with industry leaders – especially high-tech CEOs. This allows me to learn about their business plans, competitive strategies and bankable high-tech trends.
It’s because of this perpetual intelligence gathering that I know a man named Warren East is one of the most successful executives of the last 10 years – a period during which “disruptive technology” transformed countless longtime-tech leaders into perennial market laggards.
East and the hard-charging firm that he heads have created countless other winners. Apple wouldn’t be the company it is today without East’s contribution. Not by a long shot. Neither would Qualcomm Inc.
Nor would a slew of other firms that have ridden the mobile wave to industry prominence … and that created boatloads of profits for investors as they did so.
East serves as the CEO of ARM Holdings PLC (NasdaqGS: ARMH), which designs the chips and related devices used in many of the world’s leading smart phones and other digital products.
ARM is part of the new breed of “fabless” semiconductor firms: It designs the microchips and lets other firms make them – a “factory-less” business model that has helped knock the once-invincible Intel Corp. off its monopolistic perch.
With my five tech-investing guidelines in hand, you could have spotted East as a guy to watch. Well, really as a guy you could trust with your hard-earned money.
And you would have been richly rewarded – I’m talking about huge gains here.
. Just look at ARM Holding’s five-year stock gains compared to the so-called titans of tech:
1.ARM Holdings, 680%
4.Intel Corp, 2.6%
Of course, strictly speaking, ARM Holdings is no longer a small cap. It’s now worth about $19 billion. But just five years ago, it was a fraction of its current market size.
I was thinking about all this the other day when I read that East has decided to retire at the ripe old age of 51.
What a career he’s had…
He was originally hired to start the firm’s consulting business. Within three years, he made COO. He became CEO in just four more.
Over the next few years, as the history of the “mobile wave” is written, you can bet that East will be named to that sector’s Hall of Fame.
Heck, he might even be one of the inaugural inductees.
Clearly, I’m sad to see him stepping down after such an amazing run. But truth be told, his reason for leaving makes a lot of sense – and may, in fact, set the stage for ARM’s next growth surge.
East says he wants to step aside and let someone with more energy for the changing digital tech market take over.
Effective July 1, company president Simon Segars becomes CEO. He knows ARM – and the chip market – cold.
Segars joined the firm back in 1991 and has climbed steadily through the ranks. He is also a deep technologist who holds several patents. Since he has worked with East for nearly 20 years, he has learned from one of the best.
Segars takes over a company that basically has a license to print money. That’s what makes an intellectual property (“IP”) firm like ARM so valuable.
It designs the semiconductors for a wide range of digital devices – mobile phones, tablets, smart meters and DVD players.
And its strategy of letting other firms make the chips that it designs is so shrewd because it allows ARM to stay focused on inventing one “secret sauce” after another – and not on the challenge of manufacturing, which can add billions to the cost of products sold.
Given this approach, it’s no surprise at all that ARM makes so much money. It has operating margins of 37% and a recent quarterly earnings gain of 28%. It has $623 million in cash on hand and almost no debt.
Under East (and now Segars), ARM’s success doesn’t turn on the singular vision of a lone creative genius. The company’s technology is embedded in products sold by dozens of firms.
So no matter who wins or loses in the mobile-market wars, ARM will continue to gain.
Any way you look at it, that’s a great business model. ARM will continue to generate a huge profit for investors thanks to a strong business operation topped by one of the shrewdest leaders in that sector.
And that’s exactly what we are looking for as we evaluate a company based on Rule No. 1.
Tech Wealth Rule No. 2
Separate The Signals From The Noise
Let me start by telling you a story that shows you how this rule works – and how much money you can make by using it …
In the spring of 2012, the “experts” were telling anyone who would listen to avoid eBay Inc. (NasdaqGS: EBAY) at all costs.
CNBC, MSNBC, all the “best” financial Websites … no matter where I looked the message was the same: The company’s best days were behind it, its numbers were eroding, and there was nothing the experts could see that would change the auction site’s flagging fortunes.
But I knew differently.
You see, Wall Street is like a big club – a club that nurtures like-minded thinking and discourages dissenting viewpoints. Because it’s so big, and so influential, its views are the ones you read in the mainstream business press.
If you really want to get wealthy, you need to think for yourself.
And that’s just what I did.
I knew that the “experts” had totally blown it when they looked at eBay.
They missed an ongoing turnaround in the company’s main business. They missed the impact that some strategy acquisitions were going to have. They missed the shrewd foray eBay was making into the digital-payments realm – a sector that offered the company an explosive profit opportunity.
The upshot: The experts missed the fact that eBay’s shares were about to soar.
I didn’t keep this to myself. In fact, I told Money Map Press subscribers “two years from now, you’ll wish you’d bought this stock.”
I was right. Ten months after I made that call, the company’s stock doubled the return of the “record-setting” Standard & Poor’s 500.
eBay is suddenly an “in” company on Wall Street, and analysts are extolling the “turnaround” being engineered by the team of CEO John J. Donahoe.
And I was able to make this call because I followed the second of my five rules … Separate The Signal From The Noise.
You can see why I warn investors to ignore “The Noise.” It’s the Siren Song that will lead you down the path to investment destruction. And most retail investors end up succumbing … which is precisely what Wall Street wants to see happen.
But the Noise is hard to ignore. I mean, it’s everywhere. It’s the latest “Buy” ratings from Goldman Sachs or some other investment bank. Or it is CNBC Mad Money host Jim Cramer yelling into the camera, firing off opinions like a turbocharged Gatling gun.
IPOs are another place where you can find a lot of hype. The investment bankers want to make every new issue sound like it’s the Next Big Thing in Tech.
How’s that Facebook IPO working out? It’s off 28% in a year. Groupon is a 56% loser – a train wreck that recently cost the CEO his job (and deservedly so).
Disasters like these give tech investing a bad name… bad enough, in fact, to keep many individual investors at bay.
Don’t make that mistake. The tech sector is one of the greatest creators of new wealth in history – and will be for decades to come.
You just have to know where to look … and how to find the winners.
That’s why it’s so critical that you do what I do – ignore the Noise and focus instead on the Signals that potential winners send out… before they begin their explosive surges.
These Signals are the fundamentals you should be looking at, thinking about and studying on a daily basis.
Even here the “experts” will attempt to dazzle you with their brilliance – and baffle you at the same time – by citing a laundry list of fundamental ratios, indicators and signals.
This is just more Noise. Ignore it.
The reality is that there are three signals that will let you separate the prospects from the suspects on any list of tech stocks you might be looking at.
The Three Biggest Signals For Finding Profits
- •Profit Margins (often shortened to “margins” in investor parlance).
- •Return on Equity (ROE).
- •And Return on Assets (ROA).
Let’s take a look at each of these three “quick-check” signals.
- Profit Margins
These are what your boss or your accountant might refer to as the “bottom line.”
Profit Margins are just that – what’s left over after the company pays all its expenses, and all its taxes. Over the past 30 years, profit margins for U.S. firms have averaged 7%. Higher is always better, but we’d like to see a firm at least hit that benchmark.
It’s also vital to look at “Operating Margins.” This excludes such items as amortization and tells us how well a high-tech growth firm controls costs as it expands operations. The number here is simple – operating margins should be higher than those for net profits.
- Return on Equity
This shows us how good a job the CEO is doing for the company’s shareholders. For most of the 20th century, the average ROE for U.S. stocks was 10%. Except for special situations, we want a stock that at least matches that number. Again, higher is better.
- Return on Assets.
This tells us how good the company is at investing in factories and the equipment that goes inside them.
We’d like to see a minimum ROA of 5%. Anything less means the firm is spending too much of our money on gear that generates little in the way of additional returns.
This One Company Has All 3 Signals Covered
The Mobile Wave is one of the planets hottest sectors. Well, InterDigital Inc. (NasdaqGS: IDCC) is a mid-cap leader in mobile technology. And leaders are what we look for.
IDCC not only has great technology … it also has a patent portfolio that most of its rivals would kill to own. That’s because these patents are like a gator-infested moat that protects IDCC’s business by serving as a “barrier to entry” for any would-be rivals.
And our quick-check signals confirm this view. It has a profit margin of about 41%, and an operating return of 65% – both well above our thresholds.
It checks out fine with our other two signals, as well: its ROA is 26%, and its ROE is better than 50%.
Clearly, this is a potential tech-market wealth-builder that we’d want to look at. Ironically, not long ago it was the victim of market noise itself. The stock started selling off sharply in 2011 and the carnage continued for months.
Even now some of the experts continue to dismiss this stock – just as they did with eBay a year ago. They’re predicting an average price of $40 a share for IDCC – even though it’s trading 8% higher than that right now.
Oh, and it’s up 20% during the past six months.
So, once again, it paid to ignore “The Noise” and follow the signals. Because those signals tell us that InterDigital is a quality company in a high-growth venue in tech.
Tech Wealth Rule No. 3
Ride The Unstoppable Trends
I recently put this strategy to work with a recommendation that enabled my readers to nearly double their money in less than three months.
About a year ago, you see, I spotted an emerging trend that had “Big Money” written all over it. Industry insiders were referring to it as “Mobile TV” and were saying it was the Next Big Thing in tech.
But I quickly realized that all of these experts were looking at this from their own limited vantage points. Engineers were taken with the technology itself. Hardware makers were viewing it as a product opportunity. Service providers were either viewing it as a threat … or were cavorting about as they thought of all the users they could sign up.
I saw the whole picture. As a veteran tech investor, I’m trained to take a step back … and view the entire opportunity. I recognized this development for what it really was – the latest result of the “Mobile Wave,” a truly disruptive technology trend with the power to transform the world around us.
And that transformation was starting right in my own home.
My two TV-loving daughters – tech-savvy teens who define the term “early adopter” – were no longer watching television on the giant plasma that adorns our living room.
They were catching these shows and their favorite flicks on a smartphone, laptop – or on the iPad they like to liberate from my briefcase.
Anyone who’s been on a recent commercial flight has probably seen the same thing.” Perhaps one of their seatmates was watching a TV show that they downloaded just for the flight. Or a movie. Or a History Channel documentary.
Mobile TV (and video) were clearly assuming a vital role in the future of entertainment.
In short, this transformation was playing out right in the open – any investor could’ve spotted it.
I did – and found a way to profit. I put subscribers of my Radical Technology Profits trading service into a sizzling mobile TV play – LIN TV Corp. (NYSE: TVL)
And my prediction was right on the money…
My subscribers pulled down a 102% gain on LIN TV shares in just three months. That’s an annualized return of 408%.
That’s one stunner.
And here’s another. Even after we pulled down this whopping profit on this small-cap leader, the mainstream media never picked up on this amazing story. I mean, you could have scoured the pages of The Wall Street Journal, Forbes and Fortune without ever getting a whiff of the massive profit generator that LIN turned out to be.
It’s almost as if the company didn’t exist … and the Mobile Wave wasn’t happening.
And the Wall Street crowd was just as clueless. There’s basically just one bona fide analyst who covers the firm. Not only that, but The Street.com just “downgraded” the stock from “Buy” to “Hold.”
That’s flat out insane. After a recent correction, TVL has been on a steady surge again.
I was able to see what the technical experts, the Wall Street analysts and even the news media didn’t pick up on because I followed the third of my five rules … Ride The Unstoppable Trends… a rule that’s vital if you really intend to amass meaningful wealth.
I’m able to spot these big, newly emergent trends because I have a bit of an insider’s edge, a talent for identifying opportunities that most of my rivals will miss.
That’s because I started developing this skill as a teenager, under the tutelage of a true master – a walking, talking encyclopedia of critical defense technology.
I’m referring to my Dad – Clarence A. “Rob” Robinson Jr., who remains one of the world’s leading authorities in the field.
To this day, I still meet people who tell me how much they loved reading my Dad’s reports about some of the sexiest technology the Pentagon ever invented.
My “apprenticeship” started back during my senior year of high school, when we were living just outside Washington, D.C.
My father used to regale me with fascinating stories about breakthroughs in semiconductors, exotic new materials, lasers, missile guidance systems and jet fighter avionics. Or some futuristic tech on the drawing boards at the DoD’s world-renowned DARPA division.
And he did more than just list these emergent technologies … he also connected the dots.
He knew how to separate the winners from the losers and could explain with great authority why some breakthroughs were destined to be hits.
Later in the 1980s, I actually worked for him analyzing all sorts of technology involved in Ronald Reagan’s Star Wars program. My job was to uncover and report about the hottest new trends in cutting-edge technology. It was a great gig, and was one that helped me develop the analytical skills that I now use for the benefit of my subscribers.
Indeed, I honed these skills and bolstered my mental arsenal by talking with top Silicon Valley scientists, questioning corporate executives and sitting down for long sessions with computer engineers.
Though the focus of my work was largely defense, I could already see how these discoveries would permeate the commercial world, and bolster the intellectual property portfolios of publicly traded firms in the “civilian” sectors of the economy.
My dad and I often talked about how Pentagon tech – discoveries such as Velcro, GPS, microwaves, lasers, and even the Web – would one day become commercial businesses that were massive in magnitude.
I guess you can say that I’ve actually lived my third rule of tech-investing wealth – for decades.
And my subscribers have been the biggest winners.
Just look at the call I made for my Radical Tech subscribers last year on another “Unstoppable Trend” – a disruptive trend known as Big Data.
Shortly after launching that research service, I recommended one of the sector’s small-cap leaders – and even described it as an-almost-can’t-miss profit play.
And once again we hit the bulls-eye.
My Radical Tech subscribers are up more than 107% in less than a year.
This was another winner that the mainstream media and most of Wall Street completely ignored.
I’m talking about Cray, Inc. (NasdaqGS: CRAY)
Several years ago, Cray fell out of favor with Wall Street. The “experts” considered them “out-of-date” because they made supercomputers.
But I knew Cray was a hidden gem because I have followed the firm since the 1980s when I first began analyzing the impact supercomputers would have on Star Wars and other defense programs.
I knew they were onto something big when in 2005 they hired the multi-talented IBM veteran Peter J. Ungaro as president and CEO.
Ungaro had a vision that supercomputers could be relevant if they could be made many times faster.
And Cray makes some of the fastest machines on earth. They’re needed to solve such Big Data puzzles as climate change, using nanomolecules to cure disease and rerouting traffic in major cities to save lives and reduce gridlock.
Like Mobile TV, Big Data is the embodiment of an Unstoppable Trend.
Like Mobile TV, Big Data is the embodiment of an Unstoppable Trend.
At its heart, Big Data is a simple idea. Companies, research labs, and government agencies have oceans of raw, unstructured data that can be tapped to solve a wide range of problems.
We’re talking challenges as diverse as… using DNA as a cure for disease … to sorting through billions of online transactions per day in a search for patterns that would reveal fraud or embezzlement.
Today, Big Data is growing exponentially. As this desire to tap into Big Data makes its way around the world, Cray has emerged as the technical leader in its field.
Not only does it boast the world’s fastest supercomputer, it’s picking up new multi-million dollar contracts left and right.
In the past two years the stock has rallied for gains of 247%. Trading at roughly $21 a share, the stock sells for just five times forward earnings and has a 38% profit margin and a 63% return on equity.
Because Big Data solves so many problems that can affect the lives of millions around the world, this is an emerging catalyst that’s destined to produce more big winners like Cray
Of course, the Mobile Wave and Big Data aren’t the only trends I’m monitoring – not by a long shot. There are others – like Cloud Computing, Synthetic Vaccines and Miracle Materials – that are creating massive profit opportunities of their own.
In the months to come, I’ll be sharing those (and more) with you, and will show you how to spot, analyze and exploit them – just as my Dad did for me.
Tech Wealth Rule No. 4
Focus On Growth
This next rule is really the Holy Grail of investing.
It’s the one thing that elevates the tech sector far above any other profit opportunity you can think of. It’s also the one thing that will let you take your average household net worth of $25,000 and turn it into $250,000, $500,000 or more.
I’m talking, of course, about growth.
If you’re looking to create life-changing wealth – to get rich – then you have to find investments that can deliver superior growth on a consistent basis… like clockwork.
Let me show you what I mean.
Most of you have probably never heard of Abaxis Inc. (NasdaqGS: ABAX), a Union City, Calif.-based maker of portable blood screeners.
But I have.
And I can tell you some very intriguing insights about these folks.
I can tell you, for instance, that the company’s flagship product is in high demand because it can screen for several diseases at once. It delivers test results in a matter of minutes. And it requires very little training to use.
Last quarter, Abaxis grew its sales by 38% and its profits by almost twice that much.
And going forward, I’m expecting to see the company’s profits advance at an average annual pace of 15% for the next 5 years.
Product-focused innovation like this translates into substantive growth – and meaningful wealth. Indeed, $25,000 invested in Abaxis 10 years ago, would be worth $311,250 today.
That’s a return of 1,145%.
That’s why if you want to supercharge your investment portfolio – and perhaps even get rich – focusing on growth is one strategy you just can’t ignore.
To drive this point home, I’m going to share a bit of wisdom that most investors – including Wall Street institutions – just don’t get.
You’ve probably been reading a lot lately about some of the high-tech heavyweights and the huge cash hoards they’ve amassed. If you include cash and both short- and long-term investments Apple, Microsoft, and Cisco Systems are right now sitting on about $137 billion, $78.8 billion and $47 billion, respectively.
That’s a heck of a lot of money. And the controversy, of course, is whether those companies should be able to keep all that cash on their balance sheets, or should pay it out to shareholders as hefty dividends.
But that’s the wrong question to be asking. The real question is: Why would I want to invest in these companies at all?
What happens, you see, is that highly profitable companies over time can amass big blocks of cash. For high-growth-seeking investors like you and me, however, that’s often a cautionary signal.
Chances are, those companies have either run out of ideas on how to use that cash to generate continued growth. Or their business has slowed so much that there’s just no place to profitably redeploy that cash.
In those situations, firms often boost their dividend payouts in a big way – effectively saying they believe you can make your money grow faster than they can.
If you’re looking to create meaningful wealth, why would you invest in a company that thinks like that?
After all, Silicon Valley has given birth to firms that have created more than $1 trillion in new shareholder wealth just since the middle 1980s. So there are plenty of high-growth alternatives.
All You Have To Do Is Look Around.
While we are focused on growth, we don’t way to buy growth at any price. We want to pay reasonable prices so we can really generate wealth.
There is a formula we follow.
The entire objective of my 5 Rule Tech Wealth Strategies, developed from decades of experience, is to find these companies just before they start their surge – or at least soon after they start.
By that I mean we want to find companies that offer us excellent growth and safety of principal.
One way to achieve this objective is to sleuth out firms that have strong fundamentals – while continuing to invest in their future growth. Taking some of that balance-sheet cash we talked about and plowing it back into R&D results in new sales, higher profits and fatter shareholder returns.
That’s why I look for companies like ResMed Inc. (NYSE: RMD).
This mid-cap firm is a leader in medical devices for treating, diagnosing, and managing sleep-disordered breathing and other respiratory problems.
This is truly a growth field. Sleep-related breathing problems are as widespread as diabetes and asthma, affecting 20% of all U.S. adults.
With a market cap of $6.5 billion, ResMed recently boosted its quarterly profits by about 24%. It throws off $350 million in cash each year.
No wonder the stock is up more than 45% in the past year.
Meantime, ResMed also is doing a great job of paving the way for its continued success. The company invests about 7% of its sales in R&D in the five clinical areas that comprise the bulk of its sales. That’s about 15% higher than the medical device industry’s average R&D rate.
ResMed has about 50 clinical trials for new products under way that will lead to new profits, not to mention more gains for its investors.
This is a firm that truly understands that growth and shareholder wealth go hand-in-hand. R&D is such an integral part of ResMed’s operations it has set up a web page with an online video explaining its reinvestment strategy.
That’s why I expect the company to grow its earnings at a rate of 20% a year for at least the next three years…
These guys get it. They’re all about growth. They live by Rule No. 4.
And you should, too…
Tech Wealth Rule No. 5
Target Stocks That Can Double Your Money
Finding stocks that can double your money isn’t that tough – if you know what to look for.
You need to find companies that are growing earnings at high rates – 15%, 20%, 30% or more a year…
As surprising as it sounds, finding companies that are generating that kind of profit growth for the present is really very easy.
But the real trick is finding companies that can keep doing it.
And that’s where my five rules come into play.
These five guidelines are kind of like a shopping list, or even a recipe – a shopping list that helps you find great companies… and a recipe for the kind of wealth that gives you a stress-free life today, and a worry-free retirement tomorrow.
And right now, my “shopping list” tells me that one of those great companies is FleetCor Technologies Inc. (NYSE: FLT).
The Norcross, GA-based FleetCor is what many investors might refer to as a classic “pick-and-shovel” play. It doesn’t develop smartphones, or gaming software or a tech product that you’d use – or at least be familiar with.
FleetCor serves the oil-and-gas industry, providing payment cards and transaction processing. And its sophisticated algorithms help combat cyber-fraud.
In other words, it’s the kind of company whose technology let’s other companies operate efficiently.
Its technology is invisible.
As boring as that sounds, remember this: About 300,000 “Miner Forty-Niners” came to California hoping to strike it rich during the gold rush of 1848-1855. But it was the merchants who discovered the real “mother lode” – by selling the picks and shovels the gold-rushers needed to pursue their dreams.
And today, clients are lining up to use FleetCor’s “boring” payment network.
The company serves more than 500,000 commercial accounts with millions of cardholders spread out across the U.S., Canada, Mexico and 16 other countries.
FleetCor manages relationships with more than 800 partners. They range in size from mammoth oil companies to mom-and-pop shops with just a single fuel stop.
Now that I’ve introduced you to the FleetCor story, let me show you how my five rules helped me find this hidden gem – and show you how it could help fatten your portfolio over the next several years.
- Rule No. 1: Great companies Have Great Operations – When Ronald F. Clarke joined FleetCor as its CEO back in 2000, he’d already enjoyed successful stints at Automated Data Processing, Booz Allen Hamilton and General Electric Co. And he was joining a successful company – one that sold “fleet” payment cards to a bevy of smaller firms.
To remain successful, however, Clarke knew FleetCor needed to broaden its offerings – to evolve from a one-product provider to a marketer of multiple services to that same group of customers. It grew internally – investing in technology, expanding the acceptance of its payment cards, and building a sales force. It also made selective acquisitions.
Twelve years, 40 deals and a lot of building later, revenue has grown 600%. And last year FleetCor processed 304 million transactions.
- Rule No. 2: Separate the Signal From the Noise – To create real wealth, you have to ignore the hype and find companies that have rock-solid fundamentals. FleetCor has a 30% profit margin and a 25% return on equity (ROE).
- Rule No. 3: Ride the Unstoppable Trends – Look for stocks in red-hot sectors because they offer the best chance for life-changing gains. FleetCor benefited from the trend that saw cost-conscious companies “outsource” non-core functions – and also rode the rapid growth in electronic payments that is completely disrupting the world of checks and cash. The new “digital wallet” wave is further fueling that trend.
- Rule No. 4: Focus on Growth - Companies that have the strongest growth rates almost always offer the highest stock returns. And FleetCor is hyper-committed to growth – using a mix of organic (internal) expansion and dealmaking to keep moving profits higher. In March, for instance, the company snapped up GE Capital Australia’s custom-fleet leasing business. In April, it followed up with the purchase of CardLink, a New Zealand fuel card with near-universal acceptance across that island nation. Both purchases will be accretive to FleetCor’s earnings, which grew last quarter by a stunning 59%.
- Rule No. 5: Target Tech Stocks That Can Double Your Money – As it turns out, FleetCor grew its earning at a 33% clip for each of the past three years. When growth compounds at that frenetic pace, a stock is on track to double in a bit more than two years. And we’re looking at earnings to continue to surge in the months and years to come. In fact, FleetCor has become such a cash machine that I’m expecting it to grow earnings per share at an average annual rate of at least 22% in the next two years alone. At that pace, this stock is a great candidate to double in as little as three-and-a-half years. And if you sprinkle in a couple more meaningful deals, you could double your money in that stock even quicker.
Forecasting Your Profits
As part of Rule No. 5, let me show you a neat trick that makes it simple to figure out how long it will take for you to double your money with any particular company.
Mathematicians call it the “Rule of 72.”
But I like to refer to it as my “Double Your Money Calculator.”
If you know a company’s earnings growth rate, the Rule of 72 lets you estimate how long it will take for its stock to double. You just divide 72 by the growth rate and you have your answer – in this case 3.3 years. (Doubling calculator: 72 divided by the 22% growth rate = 3.3 years to double.)
In other words, if the company grows its earnings as I forecast (and assuming a relatively healthy stock market, of course), FleetCor’s stock – currently trading at roughly $75 – should trade up to about $150 by late 2016.
To show you this really does work, let me use FleetCor’s past performance as an example of what I just demonstrated.
As I mentioned, FleetCor grew its earnings at an average annual rate of 33% for each of the past three years. At a pace like that, our Doubling Calculator tells us the stock should have been able to double in a bit more than two years.
How did it work out?
On April 29, 2011, the stock closed at $37.51. On April 26 of this year – not even two years to the day – it closed at $75.48.
That’s a gain of 105% – which is precisely what our calculation said should happen.
Let me tell you … it doesn’t take many gains of this magnitude for you to see a major impact on your personal net worth.
Profits like that turn dreams into reality. You can ski the slopes of Sun Valley… vacation in Hawaii… or buy that SL-class Mercedes that you’ve always wanted to own.
Or perhaps you’re more of a “Millionaire Next Door” type… and your dreams are more akin to the simple security of a no-stress retirement… knowing your spouse will never have to worry about money… or having a nice nest egg to pass along to your children.
Whatever your goals, wealth will help you achieve them. And the road to that wealth is paved by tech.
[Editor's Note: Your feedback is very important. As always, I welcome your comments, questions and suggestions. Post a comment to me at customerservice@StrategicTechInvestor.com... I look forward to hearing from you.]