Today is a good day to remind ourselves that we should always be in the stock market.
The markets remain the single best place to tap into the ongoing innovations in technology and the relentless growth that they create. And there are strategies we have at our disposal that we can use to safely capture some of that growth – and the wealth we all desire.
Today we’re going to head to the heart of the global auto industry to use Rule No. 3 – “Ride the unstoppable trends.” While we’re staying in the United States on this trip, we’re not traveling to Detroit.
And once we arrive at our destination, I’ll show you the best way to profit from the technology that is fueling the ongoing auto sales boom…
Forget the Motor City
I hope you don’t still think of the Motor City as the home base of the global auto industry.
I sure don’t.
As a former auto analyst who was based in Detroit in the early 1980s – and as a longtime “GM guy” – it hurts to say that.
And it’s not in Japan or Germany or South Korea either.
The U.S. auto industry has closed the books for 2014, and it was a boom year. Automakers reported their strongest U.S. sales since 2006. Collectively, they sold 16.5 million cars, up 5.9% from 2013.
And the advanced technology embedded in today’s vehicles is among the biggest driver for sales of new cars and trucks. With the average car on the road at 11.4 years old, many folks are feeling a bit of “backup-camera envy” – and they’re heading to their local dealers with open checkbooks.
Cars and trucks are running better and lasting longer than ever before, and so automakers find themselves with a marketing challenge. And car manufacturers are getting us to buy more often by adding Wi-Fi-connected infotainment units, in-dash GPS navigation systems and backup cameras.
Essentially, they’ve turned their vehicles into $30,000 gadgets, “smart cars,” that consumers will feel the need to upgrade more regularly than every decade or so – making this an unstoppable trend.
And that makes Silicon Valley the real capital of the global auto industry.
Way Beyond Tesla
Many analysts attribute increased vehicle sales to an improving economy and falling gas prices. But I think the rise of the “smart car” is at least as important a catalyst.
And a recent survey proves just that. In-vehicle technology is the top selling point for 39% of new car buyers, according to a study by consulting firm Accenture.
Consumers expect their cars to have tech upgrades that are on par with their smartphones, tablets and other gadgets.
Of course, there’s Tesla Motors Inc. (Nasdaq: TSLA), the tech leader among all cars made in the world today. It’s introducing an all-wheel drive Model S that sports two engines and self-driving features in a tech package known as Autopilot.
Tesla is headquartered in Palo Alto, Calif., the epicenter of Silicon Valley. And its assembly plant is in Fremont, just across San Francisco Bay.
Of course, Tesla is far from the only car company tapping the power of Silicon Valley.
We saw that at the Consumer Electronics Show (CES) this year. The “connected car” was a major theme of CES 2015 – and both Daimler AG (OTC: DDAIF) CEO Dieter Zetsche and Ford Motor Co. (NYSE: F) CEO Mark Fields delivered keynote speeches.
As you might imagine, this is also great news for the semiconductor industry.
And that’s where we come in as investors.
The researchers at IHS say the car industry is boosting sales of semiconductors. IHS is projecting that sales of automotive chips grew by 6.1% to $27.9 billion in 2014.
Last June, Bloomberg estimated that semiconductors inside a new car average $329 per vehicle. By comparison, the chips inside a smartphone cost as little as 10% of that.
While almost every chip company in and out of Silicon Valley counts a car company or two among its clients, your best pick right now is Intel Corp. (Nasdaq: INTC).
And six months ago, Intel announced a new research partnership with Ford for connected-car applications.
This could be a lucrative move for Intel. Ford sold nearly 2.5 million vehicles in 2014.
Intel executives say they are working to develop automotive technology that tracks body movements inside the cabin. With this kind of system, a driver could adjust the stereo volume or the air conditioning with simple hand gestures.
This shows that Intel is absolutely committed to remaining at the forefront of chip technology.
And Intel’s sales of automotive chips are a fast-growing part of its business. According to VDC Research, they jumped some 65% from 2012 to 2013, the last full year for data.
That $51 million is only a tiny slice of the Santa Clara, Calif.-based company’s 2014 revenue of $52.7 billion. However, the deal with Ford covers more than 2 million vehicles and has the potential to multiply that revenue figure.
Moreover, it shows how quickly Intel is changing its focus after years of depending on sales of chips for personal computers.
While the PC market has finally stabilized after years of declines, under CEO Brian Krzanich, the Silicon Valley legend is also moving heavily into the growth markets of wearable tech and mobile computing.
That’s why last year he paid $90 million to acquire the division of ST-Ericsson that makes microchips for wireless GPS. Krzanich also launched new chips optimized for smartphones and tablets, a market that all but eluded the firm in the early stages of the mobile revolution.
If all goes according to plan, Intel will sell 40 million tablet chips a year, a figure considered impossible just five years ago. And to boost sales of wearable chips, Intel has launched a couple of its own products — a smart headset and a pair of fitness tracking earbuds.
Here’s what this all means for investors: On Jan. 10, 2014, I put a note on my trading platform about Intel’s announcements regarding mobile and wearable tech.
Since then, essentially a year ago, the stock is up 34.25%, compared with the S&P’s 11.5% return. And I first recommended Intel to you back in July 2013 – and you’ve made 42.8% gains since then, even with today’s tech sell-off.
The stock trades at $34.50, giving it a market cap of $175.04 billion. And it has plenty of upside left.
These three new initiatives – smart cars, wearables and mobile – alone should propel Intel’s share price higher over the next three years.
That makes Intel a rare foundational play on three unstoppable trends.
And with its dividend yield of 2.6%, Intel is paying investors to be patient.
This is the kind of big-cap stock you can afford to hold so that it gives your portfolio a solid base for years to come.
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