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Lou Basenese
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A former Wall Street consultant and analyst, Louis helped direct over $1 billion in institutional capital before founding The White Cap Research Group and Wall Street Daily where he serves as Chief Investment Strategist. In addition to being an expert on technology and small-cap stocks, Louis is... More
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  • Investors Are Playing the Mobile Revolution All Wrong 0 comments
    Mar 15, 2011 11:05 PM | about stocks: AAPL

    The exploding use of mobile devices promises to be the fastest growing – and possibly biggest technological trend ever. Bigger than the personal computer revolution of the 1990s. Bigger than the desktop internet revolution of the early 2000s. Bigger than the invention of the automobile, too.

    In fact, it already accounts for over $1 trillion in sales. And yet, we’re still in the infancy of this mega-trend.

    Consider: Over the next five years, mobile device subscriptions are expected to hit 7.1 billion, according to Cisco – enough for every man, woman and child on Earth. And the offshoot of that will be a 26-fold increase in mobile data traffic.

    Talk about some growth on steroids. (Lyle Alzado and Jose Canseco would be so jealous.)

    But wouldn’t you know it? Most investors are being played the fool. Don’t be one of them.

    Pity the Fool, the Hardware Investor

    Most investors are playing the mobile revolution the wrong way. As mobile devices fly off store shelves, investors’ knee-jerk response has been to snap up the leading device manufacturers like Apple, Inc. (Nasdaq: AAPL).

    Wall Street isn’t exactly discouraging the behavior either. A staggering 54 analysts currently provide coverage on the tech giant. Fifty analysts rate Apple a “Buy”… three analysts rate it a “Hold” and only one lone wolf analyst rates it a “Sell.” (So much for original thought and independent thinking!)

    I’m not about to tell you Apple is a terrible investment. After all, the company sold a record 15 million iPads in the first nine months of the mobile device’s existence. And the iPad 2 appears destined for similar success.

    What I am going to tell you – that Wall Street is conveniently omitting – is this: hardware is low margin business. It’s about half as profitable as the average software business, on average.

    Not to mention, hardware is not what’s driving this mobile revolution. If political strategist James Carville had to explain it, “It’s the software, stupid!”

    Hardware is So 2004!

    Whereas as cool hardware designs like Motorola’s RAZR used to be the primary demand driver for mobile devices way back in 2004, now it’s cool software or apps.

    Think about it. It’s the software on mobile devices that’s transforming the ways we bank, communicate with friends, access the internet, run businesses, access healthcare, enjoy entertainment, even shop.

    So clearly, software holds the most profit potential in the mobile space. Especially since most hardware makers are well-known, mega-cap companies that have already enjoyed historic runs. Stocks of such big companies just can’t keep going up and up forever.

    Take Apple, for example. The stock trades for an ungodly sum of $360 per share and a market cap of $332 billion. Sorry, folks. No matter how many iPads, iPods and iPhones it sells, Apple’s stock is not going to double in price in short order (if ever). The company’s too darn big already.

    In contrast, most software makers are under-the-radar, small cap stocks, with no analyst coverage, blistering sales growth and practically unlimited upside potential.

    Themes: mobile stocks Stocks: AAPL
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