Author: Matthew Frankel, CFP | May 28, 2019
The biggest investment opportunities of tomorrow
Taking advantage of market trends can result in fantastic
returns. After all, who doesn’t wish that they invested in Apple before smartphones
became such a mainstream product? Or Netflix
before streaming video was so widely used by consumers? With that in mind, here
are 15 trends that could help you uncover some of the winning stocks of
Financial technology, or fintech, has been an explosive
growth market over the past few years, and there’s no sign that this will
change anytime soon. Companies like PayPal
(NASDAQ: PYPL), Square (NYSE: SQ), Visa (NYSE: V), and Mastercard (NYSE: MA) have done a great
job of capitalizing on (and accelerating) the trend towards a cashless society.
With many aspects of fintech, such as person-to-person payments and mobile
payment technology still in their relative infancy, the next decade or so could
be a very interesting one for fintech.
2. Cannabis stocks
This one shouldn’t be a surprise. Since the trend of
marijuana legalization began a few years ago, public companies have sprung up
and investors can’t seem to get enough of them. In fact, as I’m writing this,
two out of the five articles featured on the Fool.com homepage are about
However, I’d strongly advise that you use caution before investing. There are some perfectly legitimate Cannabis stocks, but there are also some penny stocks in the space that aren’t much more than scams. This is an area where it’s extremely important to do your homework.
Bitcoin and other cryptocurrencies have largely cooled off
from the late-2017 hysteria, but blockchain technology is still alive and well.
Even the most negative bitcoin critics like JPMorgan Chase (NYSE: JPM) CEO Jamie Dimon and Berkshire Hathaway (NYSE: BRK-B) CEO Warren Buffett have openly
said that blockchain technology has a lot of promise. In fact, JPMorgan is
actively ramping up its own blockchain efforts.
4. Mobile payments
Some companies, such as Starbucks
(NASDAQ: SBUX) have done a great job of building out their mobile payment
platform, while others are still in the early stages. Mobile payments have
evolved dramatically over the last few years and should continue to do so for
the foreseeable future. Investors who choose the winners in the space could see
some excellent returns over the coming years.
5. Personal lending
Until a few years ago, if you wanted to obtain a personal
(or small business) loan, you had to go to a bank, fill out an application, and
deal with a lengthy and frustrating process that often resulted in a “no.”
Those days have passed. Dozens of peer-to-peer lenders, fintech newcomers, and traditional banks have developed streamlined and user-friendly personal loan products, as well as loans designed to refinance student loans. In many cases, these offer customers tremendous savings over their existing interest rates. Between credit card and student loan debt, we’re talking about a roughly $2 trillion addressable market, so there’s lots of potential for this industry to evolve further.
6. Artificial intelligence
One of the youngest and most exciting technology trends you
can invest in is artificial intelligence, or AI. AI can make companies more
efficient while improving products at the same time. The artificial
intelligence market is forecast
to grow to $15.7 trillion in size by 2030, so it’s fair to say that
there are some big growth opportunities for adventurous investors.
When I went away to college in 2000, I needed Microsoft Office to write papers, make
presentations, and more for school. So I went to my local Best Buy, picked up a copy of the software on CD, went home and
installed it on my PC. I then owned the software and could use that version of
Office for as long as I wanted.
Fast forward about 11 years until I started writing articles like this one. Again, I found myself in need of Microsoft Office, but instead of buying software at the store, I pay Microsoft a monthly fee in exchange for the right to use the software.
This is known as software-as-a-service, or SaaS, and the reason it’s been such a growing market is that there are advantages for both consumers and software companies. For example, I always have the latest version of Office, and I can use the software’s online version anywhere, not just on my home computer. And, from Microsoft’s perspective, I represent recurring revenue that they know they’ll get each month, as opposed to the old model where they used to have to wait until I decided to upgrade to get paid.
The development and implementation of 5G wireless
networks is widely thought of as one of the next big things in technology.
While estimates of just how fast it will be depend on who you ask, even the
most conservative analysts say that 5G networks should initially be about three
times faster than 4G, with other estimates claiming speeds of 200 times what 4G
Along with the emergence of 5G, there will be many companies involved with the continued development of the technology that will make these new networks increasingly more efficient. Others will be involved in building out the massive infrastructure necessary to deploy the new technology on a large scale. The point -- a lot of money will likely be made on 5G in the coming years.
9. Autonomous vehicles
vehicles, also known as self-driving cars or driverless cars, have the
potential to be one of the biggest technological breakthroughs of our time.
There’s already been a lot of progress made. Tesla’s Autopilot feature is
widely known, Alphabet has launched a small self-driving ride-sharing service,
and General Motors has invested large sums of money in autonomous technology
through its Cruise Automation subsidiary.
This is certainly one of the longer-tailed trends on this list, as truly autonomous vehicles available to the masses are likely a decade or more away. However, there should be tremendous growth opportunity for patient investors. The self-driving vehicle market is expected to reach $7 trillion in size by 2050.
10. Electric vehicles
In addition to autonomous vehicles, electric vehicles are
another popular (and investable) trend. Tesla
was the first big player in the space, and many mainstream vehicle
manufacturers are planning to release an all-electric vehicle, or several, within
the next couple of years. To name a few, General
Motors, Audi, BMW, Nissan, and Jaguar all offer fully-electric vehicles you
can buy right now, but to be clear, this technology is still in the early
stages of its development.
The Tax Cuts and Jobs Act reduced the corporate tax rate in
the United States from a maximum rate of 35% to a flat 21% rate. This has
resulted in tons of additional income for many corporations, and one of the
ways they’ve decided to put this extra money to work is through stock
buybacks. 2018 saw the highest buyback volume on record, and this trend doesn’t
seem to be changing anytime soon with big buybacks so far in 2019.
12. The war on fees
One trend that should benefit all investors over the coming years is a phenomenon I refer to as the “war on fees.” To put it mildly, investors have become increasingly aware of the fees they’re paying for investment management, trading commissions, and on mutual funds and ETFs they own. Plus, many disruptive companies have figured out how to slash, or even eliminate, investment fees.
The result here is that a pricing war has emerged. Over the past few years many brokerage firms have cut their trading commissions -- for example, TD Ameritrade’s standard commission dropped from $9.95 to $6.95. Average fees charged by investment advisors have fallen, as have the fees charged by mutual funds and ETFs. You can now get a S&P 500 index fund with an expense ratio of just 0.03%, and Fidelity recently rolled out the industry’s first fee-free mutual funds. Lower fees mean more money in investors’ pockets, so this is a trend that should make everyone a winner.
13. Internet of Things
number of connected
devices has exploded in recent years. From smart doorbells to vacuum
cleaners to light bulbs, there are many categories of consumer products where
an internet-connected version is available. However, this technology is still
in the early stages and most households haven’t adopted smart devices on a
broad scale yet. In fact, it is
estimated that the Internet of Things (IoT) market is growing at a 34%
Space is likely to be a rapidly-growing industry over the
next few decades. Morgan Stanley recently
estimated that the size of the space industry is about $350 billion in
annual sales, and that it could grow to $1.75 trillion by 2040.
Unfortunately, the most promising space startups such as SpaceX, Virgin Galactic, and Blue Origin, are all private companies, so investment opportunities are quite limited at this point. However, I don’t think anyone would be surprised if we saw a wave of space-related IPOs in the coming years.
15. Socially responsible investing
Socially responsible investing, or SRI, refers to selecting investments that fit your particular values and morals. For example, many SRI strategies specifically exclude companies that focus on nonrenewable energy sources, or companies that sell tobacco products or firearms. The SRI market has exploded in recent years.
Not only do many investors practice SRI because it’s a responsible and morally-sound thing to do, but as a whole, companies that are widely-considered to be socially responsible have outperformed the market. For example, the Vanguard FTSE Social Index Fund (NASDAQMUTFUND: VFTSX) has outperformed the S&P 500 over the past one-year, three-year, five-year, and 10-year periods.
Is the trend your friend?
As a final thought, it’s very important to point out that these are broad trends. Not every company that fits into one of these trends is a good investment. Some of these are like the dot-com boom of the late 1990s -- there are companies that will become the next Amazon, and companies that will be the next Pets.com (it didn’t make it). So it’s still very important to do your homework before putting your money behind any of these trends.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors.Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool’s board of directors. Matthew Frankel, CFP owns shares of Apple, Berkshire Hathaway (B shares), General Motors, and Square. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Amazon, Apple, Berkshire Hathaway (B shares), Mastercard, Microsoft, Netflix, PayPal Holdings, Square, Starbucks, Tesla, and Visa. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool recommends BMW. The Motley Fool has a disclosure policy.