The coronavirus crisis showed us all the hazards of relying on a lengthy supply chain like you would find in today’s construction sites. Having crews scrambling to find lumber, copper wire, and lighting supplies is a massive risk.
That’s why the tech-centric field of modular construction is an unstoppable trend. I even mentioned it when we spoke last September 22.
Now, if anything, the field’s yearly growth rate of 6.5% is bound to accelerate.
Even before the recent shutdowns and supply bottlenecks, Grand View Research forecast the field to be worth $178.4 billion by 2025.
The field is so potentially lucrative that the world’s most legendary investor is staking a claim.
That’s right, none other than Warren Buffett is backing modular construction.
A startup owned by Buffett’s Berkshire Hathaway Inc. wants to make construction more like assembling automobiles, the main thrust of this sector.
The thing is, it will be impossible to achieve that goal without cutting-edge software. With that in mind, today I want to show you a great software leader who has a pole position in this field.
They just expanded their arsenal of products with a savvy merger that adds $1.7 billion to their addressable market. And they have triple-digit earnings growth on pace to double in 2.5 years.
Let me show you just how indispensable, and potentially profitable, this company really is…
Better Building Blocks
I want to set the stage by showing you the upside ahead in the post-pandemic world of modular building.
The Buffett-backed company, a firm called MiTek out of Missouri, is an established provider of components and engineering for the construction industry.
But now, the 6,000-employee company is starting a new division that will partner with Danny Forster & Architecture to get a jump on the modular construction business.
They’re starting in the housing sector that’s most amenable to modularization: apartments and hotels.
See, one of the main reasons most things today, from toys to cars, are assembled according to standardized plans in a factory is scale.
Put simply, when we make things like cars, toys, even airplanes, we make lots and lots of them, with few differences from one copy to another.
Houses are different. They have different layouts, ground conditions, owner preferences, environmental needs, and so on.
MiTek is now moving in on two areas of construction that don’t have these problems: rooms for hotels and apartment buildings, where individual rooms are all the same.
The startup will build all the parts for these rooms in its factories and ship the standardized parts to the building site, where contractors will quickly assemble them according to identical instructions.
Think of it like flat-pack furniture but for housing.
Building and shipping a hotel room or apartment in pieces would be impossible without advanced 3D modeling and planning software that ensures everything will fit, be strong enough, and can be transported efficiently.
That’s why I want to tell you about Autodesk Inc. (ADSK) today. This software leader is the trailblazer in product design software.
It’s not just construction, either. The firm’s software is used across engineering, architecture, manufacturing, and media, as well as education.
Autodesk is even the standard in entertainment, where computer-generated graphics, especially in movies, are often made using the firm’s software.
See, Autodesk cuts its teeth in a field known is known as CAD/CAM, which stands for Computer-Aided Design/Computer-Aided Modeling. Among other things, its software provides very complex 3D views for product designers.
Among architects, Autodesk has remained a favorite for many years. It’s the industry standard for designing building components. The company ‘s Forge and BIM 360 packages translate those models into fabrication on the factory floor.
In the past few years, Autodesk has re-written all its software into a fully cloud-based platform where staff and clients alike can share all key documents delivered via the Web.
Fully harnessing the cloud also opened the door to a key sales shift. The client base has been prodded to migrate from one-time license fees into a monthly subscription, known as Software-as-a-Service (SaaS).
And as 5G wireless connections become more and more common, any company that bases its services on the cloud is going to be in an even stronger position.
It’s such a huge development that it’s projected to unleash $1.4 trillion in new wealth. I talk more about this trend, and how best to play it to maximize your own profits right here.
Making Water Work
A moment ago, I mentioned Autodesk was expanding into a new, $1.7 billion sector. I was referring to the firm’s merger with Innovyze, the world’s largest software provider dedicated to water infrastructure.
Innovyze is about 240 employees strong, with about half of those in research and development, perfecting water simulations using Artificial Intelligence and Machine Learning.
The merger adds to Autodesk’s existing strengths in the civil engineering space. And with a trillion-plus dollar infrastructure bill with upgrades to our water lines likely coming from D.C., the timing couldn’t be better.
Autodesk isn’t stopping there. It’s also acquiring Upchain, a cloud product data management provider.
By adopting Upchain, Autodesk will allow its users to keep their product planning cohesive from design and simulation through construction and customer relations.
Upchain allows everyone related to a project to work on it simultaneously, through the cloud, without running into file compatibility issues.
This could massively reduce time and effort wasted on converting or re-creating blueprints and specifications from one format to another for different parts of a company.
Both acquisitions will boost already strong growth. See, over the last three years, Autodesk has been reporting triple-digit earnings-per-share growth.
That slowed in the most recent quarter, as the aftershocks of the Covid crisis continue.
This still allows us to make a very conservative forecast of 28% earnings growth a year. At that rate, earnings per share double in just 2.5 years.
So, a savvy tech leader like Autodesk can do for your portfolio what it does for its clients – build a great foundation that will last for many years.
Cheers and good investing,
Michael A. Robinson