Although cryptocurrencies have had a miserable year, the technology underlying them, known as blockchain, may have staying power. In particular, blockchain technology offers the ability to transmit money in a secure manner without the need for traditional banking networks. It also allows for the transparent and immutable storage of data. In plain English, it could allow for quicker money transfers and provide use outside the banking industry with regard to data storage. Its utility both within and outside the financial sector is what makes blockchain so intriguing.
With that being said, we asked three of our blockchain-focused contributors to name one company they're watching in November that they believe is on the cusp of this revolution. Rising to the top of the list were payment processor Mastercard (MA), stalwart tech giant IBM (IBM), and investor communications provider Broadridge Financial Solutions (BR).
Are hybrid networks the future?
Sean Williams (Mastercard): Sometimes it's the least obvious companies that can be the most intriguing. Whereas some folks would view payment processing giant Mastercard as a company that would be threatened by the blockchain revolution -- after all, blockchain aims to transfer money from Point A to B without using traditional banking networks -- it's actually one that could thrive because of it.
One of the most exciting revelations on this front came back in mid-July, when the U.S. Patent and Trademark Office awarded a patent to Mastercard "for linkage of blockchain-based assets to fiat currency accounts." In plain English, this means it would allow Mastercard to build a hybrid payment network that would process blockchain currencies on traditional payment networks.
Why the hybrid network? One of the greatest criticism of blockchain technology, at least in its early stages, is that blockchain transactions can take quite a bit of time to process and validate. By using traditional networks, Mastercard can process transactions in nanoseconds and use what security data it's gathered over many decades to keep safety standards high.
But this doesn't mean Mastercard has given up on blockchain as an alternative, either. In October 2017, the company offered the ability to select banks and merchants to send traditional currencies over blockchain networks. Essentially, the opposite of the hybrid network I've described. Mastercard has no intention of introducing another cryptocurrency to the mix. Rather, it intends to try to incorporate the safety and immutability of blockchain using existing currencies.
To be clear, blockchain projects like these are a work in progress that'll probably take years to materialize into tangible results. But with Mastercard laying the foundation for the blockchain revolution, it's a company investors would be wise to monitor this November.
Big Blue is big into blockchain
Keith Speights (International Business Machines): It's hard to keep count of the number of times IBM has been written off as a dinosaur has-been that can't compete in the midst of new technological advances. Yet the technology giant seems to always find a way to adapt. And Big Blue is big into blockchain.
As a case in point, Walmart announced in September that it plans to require some of its suppliers to use IBM's blockchain-based Food Trust platform. IBM developed the system to track food items back to their source suppliers, which is vitally important when there are outbreaks of food-borne illnesses.
This is only one example, though. Bloomberg reported in July 2018 that the top technology provider in terms of customers' blockchain spending is -- you guessed it -- IBM. Big Blue claimed a market share of 32%, well ahead of its rivals.
But blockchain isn't the main reason I think IBM is a stock to watch in November and beyond. I'm intrigued by IBM's pending acquisition of Red Hat (NYSE: RHT). It's a huge deal that sets IBM up to be even bigger in the Linux and cloud software arenas. I don't think IBM is necessarily a stock to buy yet because of the pending Red Hat buyout, but I do think this supposed dinosaur just might keep surprising investors.
A hidden blockchain winner
Brian Feroldi (Broadridge Financial Solutions): Most investors haven't ever heard of Broadridge Financial Solutions, but the odds are extremely good they've benefited from the company's services without even knowing it. Broadridge holds a near-monopoly position in the investor communication industry. Scores of publicly traded companies rely on Broadridge to send their investors regulatory documents such as proxies, annual reports, and more.
Broadridge's management team believes that incorporating blockchain technology into its core business could have huge implications for its business over time. Blockchain could help significantly lower the costs of tracking asset ownership while simultaneously increasing security. It could also make it far easier to facilitate investor communication with greater speed and accuracy than exists today. The company has been making investments in the space for a few years to help speed up the process.
While investors wait for those investments to pay off, they can rest easy knowing that they own a steady-eddy business that throws off gobs of free cash flow that's regularly used to reward shareholders.
Wall Street currently believes that Broadridge will be able to grow its earnings by 13% annually over the next five years through a combination of customer gains, pricing increases, margin improvements, and a lower share count. Throwing in a dividend yield of 1.7% and the long-term potential of blockchain acts as icing on the cake.