Every company is a tech company.
We came to realize this on Aug. 1, when the four most valuable companies in the Standard & Poor’s 500, for the first time ever, were all “pure” technology companies.
That was the birth of the Singularity Era – with overlapping “rings” of technology, such as the cloud, mobile, chips, sensors, and software, all interconnected.
We also believe here that the Road to Wealth Is Paved by Tech. And over the past few years, we’ve used dozens of tech stocks to build our wealth.
Add those two “belief systems” together – and you might think you could blindly invest in the tech sector… and make your fortune.
While I fully expect a strong rally for tech in the year ahead, we still need to select the best tech stocks in order to build true wealth.
That’s our No. 1 job here, in fact: identifying the best tech stocks and funds – and then “playing” them correctly.
Job No. 2?
That’s knowing which investments to avoid – the kind that Wall Street touts to you… with promises of getting rich quick… and that then rob you blind.
I’ve got four of these “Tech Turkeys” today.
Before we check out these “turkeys,” remember that this is an exciting time to be a tech investor.
Like we discussed last week, President-elect Donald Trump promises to shake things up in Washington by cutting red tape and bringing some $2.4 trillion in overseas cash back home. Trump also has a goal of expanding GDP by 4% a year, or 66% faster than over the last eight years.
And to take advantage of the new pro-growth realm in the White House, last week I also shared with you three Tech Wealth Gems to get started with in 2017.
So while I’m okay with Washington – for now – Wall Street has me worried. See, I know the “experts” there will be trying to convince you that some of these stocks that we’re discussing today are “on the rebound.”
Don’t believe it.
To make money in the long run you have to follow Rule No. 2 and “Separate the Signals From the Noise” – and ignore Wall Street’s hype machine.
To help you make sense of it all, I’ve compiled a list of four “turnaround” stock likely to get a lot of buzz in the months ahead.
Ignore that buzz…
And these four Tech Turkeys…
Tech Turkey No. 1: Toshiba
I can tell you why you should avoid Toshiba Corp. (OTC: TOSYY) for 2017 in just one word – credibility.
Over roughly the last two years, Toshiba has tried hard to restructure operations to improve profits. Nothing to date has worked.
Not only that, but the company early last year had to take a $1.3 billion write-down after an accounting scandal. At the time, management at the Japanese electronics giant sounded upbeat, saying that the worst was behind them.
But just two weeks ago, Toshiba said it would be writing off “several billion dollars” due to cost overruns at nuclear reactors that its subsidiary Westinghouse Electric Co. is building in the United States.
This is a disturbing pattern. Toshiba’s top execs at this point don’t know how much they will write off – always a bad sign.
When you add up accounting scandals and lack of insight about financial damages ahead, you end up with a company that has no credibility.
Plus, the stock is thinly traded in the United States. That could be a recipe for disaster for shareholders if Toshiba takes another big hit and you need to get out of the stock.
Tech Turkey No. 2: Cisco
The new slogan on the Cisco Systems Inc. (Nasdaq: CSCO) website sums up the firm’s challenges in 2017: “It’s all good until it goes bad.”
The new tagline is meant to be a clever inducement to get IT managers to use more Cisco gear in their networks. But to me, it sums up Cisco’s big “bad” – a lack of solid sales growth.
Now then, there’s just no question that Cisco investors had a great year in 2016. From the time shares hit a closing low of $22.51 on Feb. 10 until they hit a closing peak of $31.87 on Sept. 6, they rallied for gains of 41%.
The stock has headed back down again despite the fact that earnings have been sharply higher for the last couple of quarters. That’s because Cisco’s restructuring plan, which includes the layoff of 5,500 workers, is helping the bottom line.
Sounds good – but you can’t cut your way to growth.
For the October quarter, sales grew a mere 1% after factoring in the impact of a sold-off video business. Cisco projects in the current quarter that sales will fall another 2% to 4%, even though it’s moving into the growth field for cloud computing.
Stay away… far away.
Tech Turkey No. 3: Mylan
Once one of the world’s more respected makers of generic drugs, Mylan NV (Nasdaq: MYL) has become embroiled in exactly the wrong kind of controversy at exactly the wrong time.
Over the past five years, its antiallergy injection, EpiPen, has helped more than double Mylan’s sales to an expected $1.35 billion in 2016.
Unfortunately, that’s also what is wrong for Mylan.
You see, the EpiPen’s list price — $600 for a two-pack – represents a 500% jump since 2007. Not surprisingly, that price hike garnered Mylan intense scrutiny from consumers and lawmakers.
The firm is now offering rebates to patients, but that has not stemmed the political crisis it finds itself in.
Congress recently held hearings about the EpiPen, and Mylan is paying the U.S. Department of Justice and other government agencies $465 million settlement in order to resolve charges that Medicaid overpaid for the EpiPen.
Then there’s the Trump Factor. No doubt, the president-elect has been great for the overall market – and I think he’ll be good for the U.S. economy as well once he takes office.
However, Trump rode into the White House on populist wave. And we know he wants to cracks down on drug prices.
That could put Mylan – and its shareholders – back in the government’s cross-hairs.
Tech Turkey No. 4: GoPro
Soon after GoPro Inc. (Nasdaq: GPRO) launched in 2004, its action cameras – which young folks used to capture their skateboarding, surfing, and other extreme-sports feats – became the hottest tech toys in the world.
Asian upstarts have roiled the action video market with low-cost knockoffs. Some high-definition, Wi-Fi-enabled units sell for as little as $52.99 – compared with $399 for a GoPro Hero5
It’s even cheaper for those daredevils to use their smartphones. They can buy a chest band or head mount for their cell for just $17.99.
The firm recently recalled recall its first drone, the $799 Karma, shortly after it entered the market because some units lost power during flight. And in the September quarter, GoPro lost 60 cents per share on an adjusted basis, more than twice as much as was expected.
GoPro has announced a restructuring plan, including layoffs of about 200 folks, designed to get the firm back in the black next year.
But until GoPro gets back on solid footing, we’re going to steer very clear of it.
While these Tech Turkeys are all entering the New Year on weak footing, you shouldn’t despair.
We’ll be focusing on companies with solid growth prospects for 2017 and that aren’t distracted by big internal challenges.
Tech is filled with companies like that.
And we’ll be checking them out all year long.
In fact, I’ll be sharing one of them with you on Friday.
It’s the kind of investment that can be a real life-changer for investors planning for a wealthy retirement – or for those who just want a little extra so they can amp up their vacation.
See you then.
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