Help Identify Sea Change Investment Opportunities

by: Henry Miles

There are times when companies simply must change lest they be swept away by the competition.

This piece explores one past sea change and a couple of others that are now underway.

Readers are asked to comment on other such opportunities that may benefit all of us as investors.

As hard as it is to believe, in my early days of banking there was no such thing as “cash management”. Rising interest rates in the late 70’s changed all that. Customers wanted to wring every penny out of cash whether it was on their books or coming or going. Expressions like “funds availability”, “ledger balance”, “uncollected funds”, and “daylight overdraft” came into use. Banks promoted outposts that could be used by customers for “remote disbursements” to slow down the clearing of payments such that interest could be earned on float. “Edge Act” offices in New York squeezed dollars out of international remittances.

With greater frequency, internal meetings occurred as cash management began to gather steam, but still there was resistance. I recall one such assembly where an old-school banker challenged an astute marketing officer; “Why we would even consider economizing money movement when we are doing so well on [unattended] demand deposits?”, he asked. The response was somewhat along these lines, “We can choose not to change but, eventually, we will lose that business to the competition, beginning with our best customers.”

We have no choice.

We’re still in the middle of the cash management sea change. Broker-dealers such as Schwab (SCHW) have recently begun to update cost-basis information instantaneously and that goes hand in hand with real-time securities settlement that itself will require industry-wide participation. And, it’s been reported that Goldman Sachs (GS) is poised to take things to the next level with foreign exchange. The day of instantaneous crediting and debiting will come when organizations no longer tolerate “next day” funds, when T+2 becomes T+0 / T, and when things are standardized internationally.

There are many other examples, including well outside financial services, wherein companies have no choice – 4G (soon 5G), ever lower emission vehicles, and so forth. With each of these mandates, there comes a time when an organization’s most progressive clients raise as a request, or mention in passing, ‘Say, what are you doing with…?”. Companies better have a credible answer to the question or their very survival could be at risk.

Sea Changes

Sea change is defined as, “a profound or notable transformation”. These are times when ready-adopters gain a leg up, perhaps permanently, over their dullard competitors. Notice, I said, “ready-adopters”, not “early-adopters”. For sure, to be ready, organizations must know early on what’s coming at them. However, the ones who really benefit seem to have a sixth-sense about timing, knowing when to push back the threat or grasp the opportunity, knowing when not be too early or too late to the party.

Ready-adopters gain a leg up.

I’ve previously written about such opportunities. Most notable among them, IMO, is blockchain and not in the cryptocurrency sense of the word (scams). No, I’ve talked about multilateral commercial blockchains as in GrainBridge, FoodTrust, TradeLens, TradeFinance, ADNOC, and CLS. These applications hold enormous potential to speed time-to-market, improve product quality, and lower operations and administrative costs. Among ready-adopter consortium members will be Archer Daniels Midland (ADM), Wal-Mart (WMT), Maersk (OTCPK:AMKBY), US Bancorp (USB), and Morgan Stanley (MS). There is little doubt that their ranks will also include IBM (IBM) and Accenture (ACN) that stand to reap substantial reward from facilitating blockchain development and offering critical ancillary services such as cyber-secure cloud computing / storage, and artificial intelligence that can open the way for continuous improvement.

I have also written about the renewable energy sea change that is rolling for companies such as Siemens (OTCPK:SIEGY) in grid, Siemens Gamesa (OTCPK:GCTAY) in wind, and First Solar (FSLR). As for electric vehicles, I’ve expressed an opinion that Tesla (TSLA), while an important early-adopter, may not turn out to be a ready-adopter what for its production and financial challenges. Our money is on Toyota (TM) that I sense has a better handle on timing and, for sure, a stronger foundation in capital, cash-flow, and liquidity.

Quarter, 09/30/2018 Tesla, Early-Adopter+ Toyota, Ready-Adopter?
Liabs. to Equity 5.49x 1.62x
Cash from Ops. $863m $16,034m
Cash from Inv. -$1,972m -$16,280m
Cash from Fin. $686m $1,355m
Current Ratio 0.81x 1.03x

Tidal turbines also interest us as do reusable vanadium flow batteries. We have yet to find reasonable ways to invest directly in these areas but we are into vanadium via global commodity giant, Glencore (OTCPK:GLNCY). In hydrogen fuel cells, we are in through Ballard Power Systems (BLDP), risky, and Toyota (again) that is out front in some vehicle markets including with “Fortune 500” company, Paccar (PCAR), Kenworth and Peterbilt. And, with another sea change coming in the driverless space, we recently established a position in Nvidia (NVDA), and Alphabet / Google / Waymo (GOOG) (GOOGL).

There are still other spaces where we invested ahead of the curve only to back off. CRISPR gene editing comes to mind where we did well with the IPO’s of Crispr Therapeutics (CRSP), Editas Medicine (EDIT) and Intellia Therapeutics (NTLA) but decided to book our profit and wait for markets to develop.

Devoted Followers

In the years I have been writing on this forum, I’ve noticed a few things. First, the ratio of SA contributors to commenters is low. One only needs to scan a long comment string to see that very few of those who opine are authors.

Secondly, most commenters – whether under pseudonyms or not – do not provide background information on themselves. However, those that do, appear to have learned perspectives to share – executives, scientists, professors, attorneys, CPA’s, CFA’s, RIA’s, engineers, and students.

Thirdly, some / many comments do not add much to “the conversation”. If we could only engage commenters, even trolls, to share their know-how at a deeper level, we might really have something. And this is precisely where I am going with this “experimental” article today. Specifically, I ask everyone who has read to this point, to add a comment:

  1. Describing one major sea change idea that may be soon roll in.
  2. Making a high-level business case for why the idea is compelling.
  3. Naming one corporate ready-adopter who might make it happen.

I’d like, as I suspect many SA readers would, for everyone to be more than a laptop pundit. Perhaps this challenge might even persuade a few commenters to take a shot at writing an article about their idea, to become a contributor. Seeking Alpha’s “Write an Article” tab will walk you through the straightforward process and I can attest first-hand that their editors stand ready to help.

A quick scan of almost any day’s trending articles on SA will show a lot of good stuff but very little rising to the level of sea change. For the purposes of this piece, let’s avoid a discussion of the latest gadget, dividend pick, REIT idea, M&A du jour, or speculation about some upcoming earnings release. For those drawn to talk about Boeing’s (BA) order book, please refrain. However, do feel free to talk about inventions and innovations such as the Seattle company’s new transonic truss-braced wing, being developed with NASA, that could make flight significantly more fuel efficient.

Whether it’s true for corporations or for us as individuals, investing is about big ideas as I began to describe in my very first article for SA. There are readers out there who know things that the rest of us don’t. Please jump in so that we might benefit from your knowledge.

Disclosure: I am/we are long ADM, IBM, ACN, SIEGY, FSLR, TM, GLNCY, BLDP, NVDA, GOOGL, BA. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Always do your own due diligence in consultation with a licensed and competent financial adviser who understands your unique needs and puts your interests ahead of their own. Remember, there are added considerations in owning foreign securities including those associated with ADR sponsorship, buying and selling the pinks, foreign withholding taxes on dividends, and fees. (All my proceeds from contributing to SA go to charity.)

Editor's Note: This article covers one or more microcap stocks. Please be aware of the risks associated with these stocks.