A couple of weeks ago, I started talking with you all about how the road to wealth is paved by tech.
I told you there is still hope for you to build a fortune – and to be prepared for retirement – because of the massive profits that the right high-tech and life-sciences stocks can generate.
And to get you started, I shared “The Million Dollar Tech Portfolio.”
The five recommendations in that portfolio aren’t the only great tech investments out there, of course. And that’s why I put together “Your Tech Wealth Blueprint” – the five-part strategy that I use to find these companies before their shares begin to soar.
I hope you’ve had a chance to read through that blueprint, because today I’m going to use it to show you how a certain fast-growing small-cap healthcare firm meets and/or exceeds all five of my “Tech Wealth Secrets.”
In fact, I believe it will double in value in less than three years.
Let’s check it out…
A Truly Healthy Sector
You’d be hard-pressed to find a more profitable tech-related investing field over the last two years than the life sciences – specifically healthcare and biopharmaceuticals.
Firms in those sectors have enjoyed an excellent run despite concerns that ObamaCare’s emphasis on cost controls would reduce profit margins.
Just look at the returns enjoyed by iShares Dow Jones US Healthcare (NYSE: IYH), an exchange-traded fund (ETF) that’s a proxy for the whole industry. Over the past two years, IYH is up some 65.9%, nearly double the Standard & Poor’s 500 Index’s 36.4% return over the period.
The healthcare industry is profiting from trends such as a wave of mergers designed to improve efficiencies and a steady stream of new drugs approved by the U.S. Food and Drug Administration.
However, the United States’ aging population remains the biggest driver behind the healthcare industry forward motion. And that’s a trend that can’t be affected by the ups and downs of the economy or the whims of federal regulators.
And a trend that can’t be stopped is the kind of trend we like.
Baby boomers, those born between 1946 and 1964, are the nation’s largest population group, with an estimated 76.5 million members.
And as these baby boomers age, they will consume more and more medical resources. And that’s been showing up in the proportion of consumer spending devoted to medical costs for at least the past few years.
New figures compiled by the U.S. Commerce Department show that health expenditures last year rose to a record high – 20.6% of total consumer spending.
Since 1990, that proportion has climbed some 37%. And that spending will only continue rising as boomers get older.
Enter Inogen Inc. (Nasdaq: INGN), a fast-growing provider of oxygen supply technology.
Inogen is pioneering the use of portable oxygen concentrators (POCs). And the Goleta, Calif.-based firm boasts breakthrough technology that has disrupted its entire sector.
Traditionally, people who need home-based oxygen therapy have had to depend on tanks or bottles filled with a limited supply of oxygen – or an oxygen concentrator too big and bulky to travel with.
Instead of storing oxygen, Inogen’s POCs remove nitrogen from the ambient air and deliver pure oxygen to patients – and they work as long as their batteries stay charged. While oxygen-concentration technology has been around for decades, only since 2000 have portable versions become reliable – and only since 2009 has the Federal Aviation Administration allowed POCs on U.S. flights.
These technological and regulatory breakthroughs have truly opened the doors for Inogen and the POCs it started innovating in 2001. The company’s POCs are lighter, quieter and far more energy-efficient than portable oxygen tanks – and also of most of its competitors’ POCs.
This is a huge market with a lot of upside for Inogen.
According to WinterGreen Research, the market for oxygen concentrators – both POCs and the larger home and hospital units – will rise from $242.5 million in 2012 to $1.9 billion by 2019. However, based on federal spending data, Inogen estimates its market to be worth $3 billion to $4 billion a year right now.
Either way, POCs only account for about 5% of oxygen concentrator sales.
And that means Inogen has just barely scratched the surface of a large and growing market.
“The reimbursement is too low to support what worked in the past,” according to WinterGreen’s report. “This is a dramatic shift in the home medical oxygen market. The move from [larger units and their delivery infrastructure and costs] to a portable device market is set to bring dramatic changes to the industry.”
That makes Inogen the type of investment that can provide tech investors with market-beating gains. To see what I’m talking about, let’s run this stock through the five filters of Your Tech Wealth Blueprint.
Rule No. 1: Identify Companies With Great Operations
As I define it, companies with “great operations” are well-run firms with topnotch leaders.
Inogen CEO Raymond Huggenberger has extensive experience at improving global sales in the medical device sector. Before joining Inogen, he served as the president of Sunrise Medical LLC’s European operations.
Sunrise Medical is a global leader in wheelchairs and other mobility products. While there, Huggenberger led the integration of 10 independent businesses across Europe into one streamlined organization, increasing profits by 200%.
Scott Wilkinson, Inogen’s executive vice president for sales and marketing, is an expert in consumer healthcare. He previously logged stints at Johnson & Johnson (NYSE: JNJ) and Kimberly Clark Corp. (NYSE: KMB).
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.
Investors have worried about the impact of ObamaCare on the medical devices industry and firms like Inogen. Moreover, the federal government has cut reimbursement payments on oxygen tanks for medical patients.
Here’s why we have to ignore that “noise.”
Those budget cuts don’t apply to the products that Inogen develops and markets. This gives the company a built-in sales advantage at a time when suppliers of traditional oxygen tanks have seen their profit margins heavily slashed.
There’s your “signal.”
Rule No. 3: Ride the Unstoppable Trends
Look for stocks in red-hot sectors because they offer the best chance for life-changing gains.
Inogen should get continued growth by serving the largest patient group in the United States – baby boomers. Those 76.5 million boomers are now between the ages of 51 and 69… and they’re not getting any younger.
According to the nonpartisan Congressional Budget Office, the sheer size of the boomer cohort is why U.S. healthcare spending per capita will continue to climb for the next 45 years.
Rule No. 4: Focus on Growth
Companies with the strongest growth rates almost always offer the highest stock returns.
Over the past three years, Inogen has averaged a 58% sales growth rate. And sales in last year’s third quarter were up by 49%.
Inogen grew revenue by 605% between 2009 and 2013. That prompted its inclusion last year on Deloitte’s Technology Fast 500 list of the fastest-growing firms in technology, telecommunications and life sciences.
Rule No. 5: Target Stocks That Can Double Your Money
This is where we look at Inogen’s earnings growth to see how long it will take the firm to double profits. By doing that, we can figure out how long it should take for the stock to double.
There’s no question the stock has been a star performer so far. Inogen went public in February 2014 at roughly $16 a share and has more than doubled since then to about $34.
Inogen currently has a market cap of $625.9 million, making it a true small-cap stock. It has 9.5% operating margins and a nearly 37% return on equity.
In last year’s third quarter, earnings per share jumped by 50%. I’ve gone through the firm’s financials and taken a conservative approach to projecting earnings growth, cutting that to 25% over the next five years.
Now we use what I call my “Doubling Calculator.” Mathematicians call it the Rule of 72.
Divide the compound growth rate of 25 into the number 72. We find that it should take roughly 2.8 years for Inogen’s stock to give us 100% gains.
On March 11, Inogen announced that it’s delaying the reporting of its fourth-quarter and annual earnings over accounting issues. However, at the same time, the company also said it has not changed its positive forecast for 2015.
Shares of Inogen declined to as low as $30.53 per share on March 12. But they’ve rallied back more than 9% since then. And that tells me investors are realizing that the financial report should be strong for the company. To me, it sounds like the accounting issues are about categories, and the company says it expects no material impact.
And so, I see this not only as a “Five Rules” play, but also as an opportunistic play. Until that report comes out, other investors are going to be pretty wary of the stock – giving us an opportunity to jump in before it soars.
Inogen has a clear high-tech advantage in a market expected to expand for many years to come. In other words, this is the kind of stock you can count on to provide market-beating returns over the long haul.
Raise Your Limit
As I write this, the stock is trading at more than $7, but I’m going to tick up our price ceiling to just $6.90.
Consider purchasing one-third of your intended position now. And then look to use “limit orders” to pick up the final two-thirds – the second third at 15% below your purchase price and the final third at 15% below that.
If you’re able to pick it up at $6.90, your second tranche would be at $5.87, and your third tranche would come at $4.99.
Also, cap your total purchase (all three tranches) to no more than 1% of your investment holdings.
Finally, don’t chase the stock. If TrovaGene zooms, leave those other tranches unfilled. You don’t want to overpay. And barring a major change in the company’s prospects, plan on holding the stock for at least two or three years.
As you’ll soon see, TrovaGene and Inogen are the kind of tech stocks that can truly – and quickly – put you on the road to wealth.
Editor’s Note: Michael loves to hear what you all have to say. So, if you have any comments, questions or even suggestions for future columns, just leave a reply below. We’ll see you on Friday.
- Strategic Tech Investor: The Million Dollar Tech Portfolio.
- Strategic Tech Investor: Your Tech Wealth Blueprint.
- Strategic Tech Investor: This $6 Biotech Is Opening the Door to True “Personalized Medicine.”