The Next Revolutionary Stock

"Here's to the crazy ones, the misfits, the rebels, the troublemakers, the round pegs in a square hole, the ones who see things differently."
-- Apple Computer Advertising, 1997

A revolutionary company is one that sees not just the rules, but the ways to break those rules -- and create something unforeseen.

Companies like Apple (Nasdaq: AAPL  ) and Wal-Mart (NYSE: WMT  ) have been doing this for years. Apple bounced back after a decade-long slump, not only changing the way operating systems looked and functioned, but also charging ahead in new and unchartered territories with the advent of the iPod and the iPhone.

Wal-Mart used its clout and massive purchasing power to provide no-frills retail outlets for customers who wanted the most variety of goods at the lowest prices. It did this by mastering supply chain management and strategically placing its distribution centers to minimize costs. It then shrewdly applied its business model to international markets.

Shareholders have certainly reaped the benefit of the companies' determination. Both have delivered thousand-percent gains since inception, and yet both still trade at pretty reasonable multiples -- 21 and 14, respectively. In fact, they're both supposed to continue growing beyond a 10% clip over the next five years, so don't think their best days are behind them. These are still revolutionary companies.

But despite their growth possibilities, when it comes to investing, the trick is to find a revolutionary company before the herd does. That can be the difference between a comfortable retirement and the one you've always dreamed of.

Game-changers
A great example is the theme park industry about 30 years ago. Disney (NYSE: DIS  ) was the de facto leader, providing customers with Disneyland and Disneyworld -- two enormous hits that set the bar for showmanship, effectiveness, and profitability. Disney's attractions were family-friendly and mild in nature. And most importantly, they were wildly popular.

Then Jay Stein came along. At the time he was head of MCA Recreation, which owned Universal Studios (now owned by General Electric ). He wanted to transform Universal's theme parks from doing what they were -- taking customers "behind the movie scene" -- to something much more engaging.

He created thrilling, dangerous, and haunting rides. Rides for movies like Jaws were so perilous that riders could actually get hurt if they put their arms too close to harm's way. According to one source, "Every day there are customer complaints that the fireballs are too hot."

The bottom line is that Stein turned Disney's strength -- its fun-but-safe environment -- into a confining weakness. Disney can't change without losing its core audience.

Now none of this is to say anything bad about Disney; it's still top dog in the entertainment game, and its theme parks still manage to bring in 30% of its overall revenues. There's simply no one better at taking movie products or characters and integrating them into other lines of their business than Disney. But it's not changing the game.

Thinking differently
Game changing companies don't just sit and think for a long time about how to break rules. They actively find ways to exploit weaknesses and employ their own strengths. They find a market that's successful and then figure out why it's suboptimal.

A perfect example is how Amazon (Nasdaq: AMZN  ) took on the prowess of bricks-and-mortar bookstores like Barnes & Noble (NYSE: BKS  ) and Borders (NYSE: BGP  ) .

Bricks-and-mortar stores have a distinct set of qualities. They have a physical presence with a large but limited selection of books chosen by dedicated book buyers. Customers browse by section or genre and choose books based on things like covers, summaries, and blurbs. Before Amazon came along, if you wanted a book that the bricks-and-mortar store didn't stock, it could take weeks to get it in.

Amazon didn't just improve on the model, it changed it altogether. Instead of browsing distinct categories, you could search anything, including related books of interest. Customers were able to read reviews written by people like themselves, and the site suggested books they might not have known about. Best of all, you could get nearly any book -- no matter how obscure -- in three to five days.

Of course, in retrospect, these upgrades to the customer experience seem obvious, but at the time they were anything but. Amazon illustrates that to be revolutionary you need to look to the future and anticipate needs. And Amazon didn't stop there; it's continued to innovate, as evidenced by its foray into cloud computing and its blockbuster venture into the e-reading space with the Amazon Kindle.

That's why a company that was once trading for a dollar and some change is now sitting at a cool $128 a pop.

Barnes & Noble and Borders, well, they're a different story. Barnes & Noble is trying to adapt -- it's at least offered up the Nook in the e-reader space -- but both still suffer from constantly trying to play "catch-up." In addition, Borders is saddled with debt and has considered selling itself on numerous occasions. Sometimes that lack-of-innovation mentality is hard to shed.

The next groundbreaking stock
David Gardner, co-founder of The Motley Fool, specializes in finding stocks just like this. He looks for companies that are disrupting their industries and igniting fear in the competition.

In a conversation with David a few months ago, he told me he specifically looks for companies facing clouds of adversity, and then determines whether a company has the wherewithal to break through those clouds.

He recently selected IMAX (Nasdaq: IMAX  ) as a Motley Fool Rule Breakers recommendation. It has all the traits of a groundbreaker. Although operating in a recessionary environment and with a few rough years at its back, IMAX has increased its number of screens from 248 to 403 over the past five years and adopted joint ventures with retail chains like AMC and Regal. And despite tough economic conditions, movie revenues were up this year, in large part due to IMAX's contribution to incremental ticket prices.

Hollywood loves IMAX because it offers an opportunity to reap higher ticket prices while increasing the fan base. IMAX loves Hollywood because the transition to 3-D movies is only going to bring IMAX more and more business. And you should love IMAX, too. Its 163-screen backlog offers tons of room for future growth, and this is definitely the time to take advantage of the conversion from regular movie-viewing to the nascent 3-D revolution.

Remember -- it only takes one earth-shattering stock to completely ramp up your portfolio. David's recommendations are beating the S&P 500 by over 25 percentage points; that's the type of success that can revolutionize your financial future. If you're interested in learning more about IMAX or seeing all of David's past and present recommendations, you can be a guest of the service, free for 30 days. Click here for more information.

Fool contributor Jordan DiPietro owns shares of General Electric. Walt Disney and Wal-Mart Stores are Motley Fool Inside Value recommendations. IMAX is a Rule Breakers selection. Apple, Amazon.com, and Walt Disney are Stock Advisor picks. The Fool's disclosure policy looks better in 3-D.


Read/Post Comments (25) | Recommend This Article (119)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On May 07, 2010, at 5:16 PM, steinbrock wrote:

    My comment has to do with Imax. Since only one picture, "AVATAR" has been released using Imax, do you really think Hollywood is preparing to issue many pictures in 3D? I remember years ago, 3D was all the rage for 6 months, but without new releases, it dropped dead. I would hold off investing in this stock and maybe I'll be sorry. Sillyjack

  • Report this Comment On May 07, 2010, at 6:34 PM, cybergaijin wrote:

    I believe the article was a little bit simplistic about equating the 3D movies trend to IMAX. I think it could work both ways -- it all depends on how IMAX respond to the market. The 3D movies trend may make IMAX appear like a proprietary standard unable to drive entrance price premiums if 3D screens become much more common than now.

  • Report this Comment On May 07, 2010, at 6:55 PM, LDSGJA wrote:

    IMAX has more to do with the digital movie technology. So rather than using actual film, it uses digital media stored an Hard drives.

    In fact, I believe that the movie is actually given to the theater on a Hard Drive.

    A lot of nice theaters will have their largest/best screen be an IMAX. It isn't strictly for 3D. Plus, IMAX does great with any 3D movie, weather or not it is made with IMAX technology.

  • Report this Comment On May 08, 2010, at 4:13 PM, Howard1ii wrote:

    There's just too much competition from the Home front. People have spent a ton of money on upgrading their home entertainment centers and with the quality of TV's just becoming SO good, why leave the house to pay extra to see a movie, sit in an uncomfortable chair and have your feet stick to the floor? When you will be able to rent or buy in a week for $1.

  • Report this Comment On May 09, 2010, at 10:02 AM, JustinSeine wrote:

    Why can't Goobatrons like shoes2.us limit themselves to getting in our faces only once? Why does the moron have to do it twice? Did you ever get the urge to take a ballpean hammer to someone's teeth? I have that irresistable urge right now! I'd like to walk up to that imbecile wearing a $39 pair of Roca womens jeans, pull my ballpean hammer out of my $45 Prada handbag and do the tune's on that moron's teeth! - The buffoon is clearly off topic!

  • Report this Comment On May 10, 2010, at 1:28 PM, mikecart1 wrote:

    A lot of people in this thread that have no clue off what IMAX or 3D is. LOL at one person saying the movie producers hand over a Western Digital HD to the theater. Just WOW!!!

  • Report this Comment On May 11, 2010, at 2:34 AM, metalarmor wrote:

    IMAX certainly looks like an interesting selection. I was keeping an eye on this stock for a while as well. Has solid potential

  • Report this Comment On May 11, 2010, at 9:04 AM, NDimensionalDino wrote:

    Movie theaters are struggling and 3D is perhaps the straw to clutch as they go under. Hindsight being 20/20, I'm sure you would not want your money invested in new technology for the vinyl record industry no matter how neat it seems.

    On the other hand, those who invested in satellite TV back in the 80s when it seemed to be exhaling it's last breath are now richly rewarded.

  • Report this Comment On May 14, 2010, at 1:01 PM, ahtas wrote:

    IMAX is on the right track. Do some research and you will know that besides from making movies in 3D the loins share of revenue is generated from converting 2D movies to 3D. IMAX has developed technology that can do this in digital format for a small incremental. Co is signing on box office revenue sharing deals instead of just selling projection systems plus they are pushing int'l growth into markets where home systems are not a threat.

    This is a good growth pick

  • Report this Comment On May 14, 2010, at 1:21 PM, PokerTaoist wrote:

    Having been directly involved with the cinema industry over the last year, the real story with 3D is the virtual print fees (VPFs) now being offered to theaters from the studios - through a company called Cinedigm. 3D has come and gone before, but because the technology simply has not been available. With digital cameras and projectors now available - the product is spot on.

    James Cameron, director of previously top grossing Titanic used this technology to take his Avatar blasting through that previous record. Not only is hollywood and the cinema industry behind this "product", but this year you will see large numbers of 3DTVs available and selling. 3D was the buzzword at the Consumer Electronics Show this year in Las Vegas.

    The content will be there in Bluray format and there are even new satelites being launched in order to support the bandwidth for new 3DTV channels here and around the world. Look at the Cinedigm stock chart if you don't believe me. IMAX has staying power to be sure and will be a part of this phenomenon, but certainly 3D is the bigger story. Jump on in - the water's fine!

  • Report this Comment On May 14, 2010, at 4:33 PM, brucedieter wrote:

    Last month a theater manager shared that IMAX claims to bring in excess patrons therefore contracts are written that allow IMAX to share concession revenue....and IMAX doesn't have to pop the corn, pour the drinks, manage concession inventory or staff. Is that what "icing on the cake means?" SWEET!

  • Report this Comment On May 16, 2010, at 7:19 PM, UpHillAllTheWay wrote:

    @ahtas - " the loins share of revenue " - is that for new underpants, after those scary 3D scenes? :-)

  • Report this Comment On May 17, 2010, at 11:28 AM, EnigmaDude wrote:

    Some funny comments, but they basically prove the point that the author is making. This is a rule-breaker stock that has incredible potential! I'm in.

  • Report this Comment On May 30, 2010, at 1:24 PM, pete4357 wrote:

    Hey Jordan,

    "In addition, Borders is saddled with debt and has considered selling itself on numerous occasions. Sometimes that lack-of-innovation mentality is hard to shed.

    The next groundbreaking stock

    David Gardner, co-founder of The Motley Fool, specializes in finding stocks just like this. He looks for companies that are disrupting their industries and igniting fear in the competition."

    It kinda sounds like you're saying David Gardner specializes in find stocks like Borders. I've seen the sentence starting "David Gardner..." so many times in MF articles that I'm sure it's just a bad cut-and-paste job.

    Thanks for the insight.

  • Report this Comment On July 25, 2010, at 6:55 PM, wtblanch5 wrote:

    You might want to look at new IPO RealD (RLD) and how it might affect IMAX's growth. One source says that RLD is cheaper for theaters to install even if the result isn't quite as good. Perhaps the market is big enough for both, or perhaps they'll just duke it out with neither one really outperforming the other as stocks.

  • Report this Comment On November 04, 2010, at 10:08 AM, WBHaselden wrote:

    Obviously an outdated thread, but as someone with some experience in this area I wanted to expand on a couple of points should someone read this article down the road:

    First, @Mikecart1: Some may know more than you think they do; the production company actually does send the content to the theater on a hard drive called a DCP, and each projector scheduled for playback is individually unlocked by a file called a KDM that the theater receives separately. There are additionally numerous security systems built in that allow only the destination theater to decode the content, and even then only to play it on very specific projectors. All digital projectors, whether 3D or not, receive their content this way.

    It should also be noted that the success of 3D as a viable format and the success of IMAX are not mutually inclusive as companies like Sony have 4K digital projectors used for 3D reproduction in most Regal and AMC theaters; although not capable of producing the sheer size of an IMAX screen, the quality they produce is analogous and can be significantly less expensive.

    That being said, IMAX is still a fascinating company due to the type of research and development they do which pushes the boundaries for audio and video reproduction that can help continue to drive the industry forward. They've made a lot of progress over the past ten years stepping outside of their isolationist element and partnering with companies like Regal, and I'm excited to see what they look internationally in five years time.

  • Report this Comment On November 20, 2010, at 11:59 AM, Lordrobot wrote:

    I think IMAX is an absurd idea. It is nothing more than putting a face on an old dying business... movie theaters. Bigger better louder brighter is not going to save a business which continues to contract over time.

    Persons with big screen TVs and their own home theaters can duplicate the atmosphere of a movie theater with cheaper popcorn, nicer seating, horizontal seating, less exposure to communicable diseases etc.

    Next is the cost of movie theater seats which has soared. This isn't the ten cent movie or the Strand with a summer movie pass for the kids; this is an assault to the wallet.

    The biggest problem is the cost of the movie content. In spite of new advances in film, particularly video, the cost of making movies the traditional way is simply not cost effective. Thus, you are seeing the industry spread out from Hollywood into small video production. And you are seeing films increasingly made off of video then transferred to filmstock then transferred to the projector format. So this is a huge waste of money in an attempt to keep a proprietary technology alive.

    So I look at the whole field of film as gasping for air and ready to collapse along with California's economy.

    This is akin to the computer game industry. You have have the most elaborate game in the world, but if it only works with 1% of the present day computers, the game is doomed.

    How important is 3D? I say it was as important as it was in the 50s. It is merely a method to repackage content in a fancier box for which you pay triple the price. In a dying industry like the theater business, where nothing is new except packaging, it's hardly the next microwave popcorn.

  • Report this Comment On January 14, 2011, at 6:03 PM, firemachine69 wrote:

    Polishing up a venue that's struggling is like trying to sell your used car with a fresh coat of wax.

  • Report this Comment On October 18, 2012, at 5:43 PM, pschoi92 wrote:

    I don't think that IMAX is a very good investment. The 3D movie craze is over and the tickets are also more expensive. With less buzz and higher costs, the market would seem to be considerably smaller.

  • Report this Comment On March 02, 2013, at 9:59 PM, notthisagain wrote:

    I have not read any comments about the theaters that you have been to or the movies playing now or past and what you thought of the actual experience of iMax and 3D. There was a wide screen wrap around theater is LA that I saw the movie Grand Prix in the mid 1960’s. I don’t remember if that was iMax or some other large formate wide screen. DisneyLand used to have a World of Tomorrow 360 degree movie, you stood in the middle and the screen was all around you. I liked them both.

    So I looked up the theaters here in the northwest and found these.

    Two theatre locations in Victoria BC, one in Bellingham WA, one in Langley BC, one in Richmond BC, one in Vancouver BC. listing these films

    The Hobbit: An Unexpected Journey The IMAX Experience

    To The Arctic

    The Last Reef: Cities Beneath the Sea

    Everest

    Jack the Giant Slayer: An IMAX 3D Experience

    Oz The Great and Powerful An IMAX 3D Experience

    Rocky Mountain Express

    Bugs!

    Mysteries Of Egypt

    The Human Body

    Near Seattle there are two at Pacific Science Center (one sponsored by Boeing and one by Paccar), and one downtown, One in Bellevue, one in Tukwilla, One in Lynnwood, one in Kent and one being built in Issaquah. These are all within driving distance that many people commute for work. Shows that are different from above are.

    Shackleton's Antarctic Adventure

    A Good Day to Die Hard: The IMAX Experience

    My wife and I saw the Hobbit last month at the PSC Paccar theatre. The 3D glasses were comfortable over my daily glasses. The seating is like captain chairs on a very steep row layout, almost as steep as a baseball stadium. The seats are high enough that my long legs don’t get cramped.The theater is very clean. the sound is very loud, more than I need, it becomes distracting.

    I think the nature and adventure movies are really better in 3D than popular movies. For me Special effects in popular action movies are only special the first time I see them and then they get the ‘this again’ reation. Flying with a V of geese, or being underwater is always exciting to me.

    There is NO WAY to reproduce the experience of an iMax movie be it 2D or 3D that would be within the price range of the 99%. If you have not been to a iMax movie try one on your next vacation or staycation. They are GREAT.

  • Report this Comment On May 29, 2013, at 10:26 AM, Stoneglass wrote:

    Graphene is suppose to be the next big think in electronics and may replace silicone in computers, batteries and solar cells. Anyone know of investable opportunities in this area?

  • Report this Comment On October 10, 2013, at 6:09 PM, tmuscat wrote:

    After twenty or so years of logging in to fool I can not believe you put out these long drawn yak yak messages and promise to give a stock to your members and in the end all you are rereally doing it is shlepping for a membership. If you are as good as you say you are you have to be loaded with money and you should give a break to the start ups that are buying a few shares at a time and would need some insite as to how to value a stock,when to buy or sell so they could make some money and maybe they will grace you with a membership so you can add to your money bag.

    I always say there is no point being the richest dead person. I feel I do not want a lot,just enough will do

    , and it will be nice of you to help the next fellow to reach his dream.

    So enough of these messages, if you have something worthwhile so others will benefit say it otherwise just offer an opinion or a story, That will suffice . Enough foolery I say.

    t muscat

  • Report this Comment On October 23, 2013, at 12:23 PM, DMoreaux wrote:

    I have to echo the comments by "t muscat". Having been a MF member for more than 5 years, I am discouraged when I get an email from MF promoting a product, with 'teaser' techniques similar to what the masses of online scammers are using to sell me.

    Example: I recently received an MF email proporting to send me a "Free Report" (in the subject line) for Dave's Rule Breakers. I sat through the 30 minute video of "yak-yak" only to finally be sent to a site where I could, for a price, send away for a membership which would include the report. At no time in the 30 minutes was I given an actionable information.

    I will continue to be a dedicated MF member, but find my resolve wavering. How about it boys, can you get back to what you are good at, Helping us uninlightened get into the mix?

  • Report this Comment On March 06, 2014, at 9:45 PM, kankemike wrote:

    No thanks on IMAX, I believe NFLX will outperform this stock 5 years from now.

  • Report this Comment On June 20, 2014, at 9:14 PM, NinaSerentsia wrote:

    Next revolutionary stock be here at fvpharma.com

    This company has just started selling their stocks - 50 cents for each one.

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