10 Investment Themes for the Next 10 Years (Part II)

Hey Guys! Back at it again. Since the last blog post (October 2019), the market has been VERY strong (+15%). While the market has certainly changed, my investing behavior has remained the same. I look for stocks that are fairly or undervalued, I ease into my positions, I average down when necessary, I am patient with my investments, I don’t trade in and out of stocks, and I hold for the long term. My portfolio (and Nick’s) has done an amazing job of working hard for me this year. The S&P 500 ended 2019 year up 31%. That is an amazing and historical year. The Phase One trade deal with China, low inflation, and solid earning have all worked together to power the market higher. While I’m happy to see my portfolios performing really well (yours should be too), it’s getting harder and harder to find market opportunities. A lot of good stocks have run a lot, so I’ve been a lot more picky with my investments, because of the big run up.

This post is Part II of the 10 Investment Themes for the next 10 Years. In the first installment, I talked about Big Tech, Financial Tech, and Big Box/Off Price Retail. Today, I’ll cover 3 more themes that should work in the 20’s decade (still feels weird typing that). I’ll also post some charts of a few stocks within the themes to show you how well they’ve performed over the last 10 years. I hope you find some value in this series of posts!

4. 5G

What the heck is 5G? A lot of us will be purchasing I-Phones over the next couple of years and will be sold on the phrase “this is the new high tech 5G phone”. It’s important to know what you’ll be buying, but also important to try and profit from it. 5G stands for fifth-generation cellular wireless. It is the upgrade to the current 4G cell service that all of us currently have on our wireless devices. There are 3 key benefits to 5G. They are speed (allows users to download content more quickly, up to 100 times faster), much lower latency (allows users to experience less delay when making requests from the network), and will enable a host of new connected technologies, (Internet of Things, Driverless/Connected Cars, etc.). I’m most excited about driverless cars coming this decade. This will not be possible without a successful 5G rollout. There are companies directly involved in the transition to 5G, and their stocks are currently performing very well in anticipation of the rollout. The most obvious companies are the phone companies (Apple, Android) and phone carriers (Verizon, AT&T, TMobile). There are other companies that are not so obvious that make magic happen behind the scenes for 5G to even be possible. The companies that I’d like highlight within this group include Marvell Tech (MRVL), Qualcomm (QCOM), Skyworks (SWKS), Keysight (KEYS), and American Tower (AMT). Other companies that will benefit from 5G include Apple (AAPL), Xlinx (XLNX), Analog Devices (ADI), and Qorvo (QRVO), and Crown Castle (CCI). Please check them out!

Marvell (MRVL) is a semiconductor company that specializes in storage, processing, networking, security and connectivity solutions. Semiconductors are the electronics in every day devices that we use, such televisions, cell phones, digital cameras, washers and dryers, etc. They also play a central role in the functioning of the internet and most communications devices. Marvell offers a wide range of products that will help enable the 5G transition. These products include embedded processors, ethernet switching processors, and transceivers for broadband applications. Essentially, Marvell is involved in all the nerdy stuff that needs to happen with the telecommunications industry to enable the transition to 5G. The network that needs to be built by Verizon, AT&T, and T-Mobile to support all of the 5G devices is happening now. Marvell’s products are directly involved in this build-out. The company has made a lot of acquisitions (and even divested portions of the business) to position itself for 5G. The stock really hasn’t moved over the past 10 years, because of these transitions. If you invested $10,000 back then (@$17.43/share), your investment would now be worth $15,593. The return over the the past 10 years is disappointing for sure, but I expect this to look a lot different 10 years from now. I own this stock personally, and Nick Jr. does as well.

Qualcomm (QCOM) is the world’s largest maker of mobile application processors and baseband modems. The make something called “SoCs” (System on a Chip), which an integrated circuit that includes all components of an electronic system that is typically the size of a coin. Qualcomm’s Snapdragon SoC is one of the most widely used mobile chipsets in the world. The Snapdragon processors are designed to provide numerous benefits including fast charging and long battery life, immersive AR and VR experiences, enhanced camera functionality, and superior connectivity. Qualcomm also has a high margin patent licensing business, which generates royalties from most all smartphones sold worldwide. Launching new Snapdragon chipsets for new phones that are 5G capable should bode well for Qualcomm. Their income from royalties should also increase as well, once we all go out and upgrade to 5G phones. I first bought Qualcomm 4 years ago at around $58/share. Qualcomm really didn’t start increasing until 2019, when a royalty dispute from Apple was resolved in April. The stock should still run due to the market anticipating the 5G roll-out. You also collect a 2.7% dividend while you wait. If you invested $10,000 in Qualcomm 10 years ago (@$46.78/share), your investment would now be worth $19,076. I own this stock personally, but Nick Jr. doesn’t (yet).

Skyworks (SWKS) supplies RF chips for the mobile, automotive, broadband, wireless infrastructure, home automation, industrial, and military markets. It should be noted that Skyworks most prominent customer is Apple. Every time we purchase and I-Phone, it will Skyworks chips (electronics) in it. Almost 50% of Skyworks revenue (sales) came from Apple. It’s other major customers include Samsung and Huawei (which unfortunately for Skyworks has been banned by our US administration from having suppliers from the United States). This accounts for 10% of Skyworks revenue. Skyworks will capitalize on the 5G rollout by providing products in the wireless infrastructure, smartphone, and Internet of Things Markets. This stocks usually trades with Apple. If Apple performs well, this stock performs well. If you invested $10,000 in Skyworks 10 years ago (@$13.81/share), your investment would now be worth $88,341. I don’t own this stock personally, and Nick Jr. does not either. Totally missed this one!

Keysight Technologies (KEYS) is a an electronic measurement company that focus on providing hardware and software for engineers and researchers to test data in wireless communications, aerospace and defense, and semiconductor markets. Keysight has two primary goals for 5G. The first is to assist commercial researchers as they accelerate the development and verification of 5G designs. The second is to help researchers in academia explore groundbreaking concepts with more precision and deeper confidence. From a stock perspective, Keysight has performed really well since it became publicly traded in 2014. If you invested $10,000 in Keysight in 2014 (@$29.75/share), your investment would now be worth $34,621. I own this stock personally, and Nick Jr. does as well.

American Tower (AMT) is one of the leading owners and operators of telecommunication towers in the U.S., India, Africa and Latin America. The company owns 17,000 cell phone towers worldwide. Large companies such as AT&T, Verizon, T-Mobile, and Sprint all have to pay American Tower money to use their towers throughout the United States, and throughout the world. Their business will continue to grow due to the growing amount of devices (think Internet of Things) that will need to communicate through cell towers, because 5G enables them to do so. The chart above shows just how much our dependence on cell phones has grown since 2000. We need more data on our phones, and we need that data to get to us faster. American Towers play a direct role in that dependence. I think buying the towers is a no-brainer play on 5G. Crown Castle is another company that I like in this space. If you invested $10,000 in American Tower 10 years ago (@$44.38/share), your investment would now be worth $53,502. I don’t own this stock personally, and Nick Jr. does not as well. I’ve been waiting on a major pull back to happen over the last couple of years, and it just hasn’t happened for me. I’ll continue to be patient, because I’d like to own this name.

5. Household Formation

Household formation stocks are stocks that center around the theme of millennials making babies. Millenials were born between 1981 and 1996 (shout out to my fellow ’86 babies). The average age for a millenial today is age 32. Millenials are at the age where we have pretty good jobs with good incomes, and we’re starting to get married and have babies. When you combine two incomes to form a household, you start spending your money on items that new families typically purchase. You’re in the market for a starter home or rental single family home (instead of an apartment), you’re spending money on furniture to populate the home, if the home is older…you’re spending money to upgrade it, and you’re paying daycare bills. If you’re a millenial that’s not quite married yet with a baby, it’s likely that you are looking for a mate. This means you could be on Bumble/Tinder/Match.com searching for possible companionship. The companies that I’d like highlight within the Household Formation theme include Pulte Homes (PHM), Invitation Homes (INVH), Restoration Hardware (RH), Match.com (MTCH), and Bright Horizons Family Solutions (BFAM). Other stocks in this space to consider include KB Homes (KBH), Lennar Homes (LEN.B), D.R. Horton Homes (DHI), Home Depot (HD), and Lowes (LOW).

Pulte Homes is a home construction company based in Atlanta, GA. It is the third largest home construction company in the United States. The neighborhood I live in is a Pulte Homes neighborhood. They typically build starter level homes. If you invested $10,000 in Pulte Homes 10 years ago (@$11.03/share), your investment would now be worth $39,673. I own this stock personally. Nick Jr. does not (yet).

Invitation Homes is a play on families being formed who would rather rent single family homes than own them. Millenials enjoy the flexibility that renting provides. If you rent, you don’t have to come up with a down payment, pay the annual taxes, or perform repairs around the house. Renting makes sense for a lot of people who don’t want to deal with the headaches of home ownership. This stock is a reflects the need for single family home space, but wanting to rent this space instead of owning it. If you invested $10,000 in Invitation Homes in 2017 when it became publicly traded (@$20.63/share), your investment would now be worth $15,147. I don’t own this stock personally. Nick Jr. does not either (yet).

Restoration Hardware is a home furnishing retail company that families are using to decorate their homes. Many families gravitate towards Restoration Hardware because of the company’s luxury brand reputation. The company also has an outlet store than you can purchase furniture from at a “discount” price. The reason that this company fits in the “Household Formation” theme is because new families want to impress their friends with how well their homes are furnished and decorated. If you couple this with an economy that’s doing well, along with low unemployment rates, a company like Restoration hardware tends to perform well. Another reason to like this stock is the fact that Warren Buffet’s company (Berkshire Hathaway) recently purchased a small stake in Restoration Hardware. If you invested $10,000 in Restoration Hardware back in 2012 (@$31.10/share), your investment would now be worth $70,704. I own this stock personally. Nick Jr. does not (yet).

Match.com is a play on all of the swiping that millenials are doing to find potential mates. Match Group owns companies such as Match.com, OkCupid, Hinge, PlentyOfFish, and most famous of all….Tinder. All that swiping we are doing can (and should) be profited off of! Don’t just be a consumer of the product, be an owner of the stock. This is the digital way to meet new people, and Tinder is the most important company in the Match Group portfolio. It seems much easier to just swipe, instead of finding mates the traditional way. If you invested $10,000 in Match group back in 2015 (@$15.20/share) , your investment would now be worth $56,684. I don’t own this stock personally, but Nick Jr. does.

God I wished I invested in this company when Nicholas was born. This is the daycare that he went to for 5 years! 5 years of taking all of my money! 5 years of feeling like I was paying an extra mortgage. 5 years of drop offs and picks ups. 5 years of ever increasing fees. 5 FREAKING YEARS, and I never invested in the stock. If I’m contributing to the earnings of the company, I might as well participate in the wealth creation that the stock allows. I think all of our major daycare centers have seen this type of growth. You see, in our generation you typically have a working father and mother. Long gone are the days where the dad just works, and mom raises the kids. We are in the era of women making major moves in our workforce, and I am here for it. The effect of this is more discretionary income for the household to spend on the kids. If you have a two income household, you’re going to spend money on the best daycare for your child possible. This is the reason why the stock has increased dramatically over the last few years. If you invested $10,000 in Bright Horizons in 2013 (@$28.32/share), your investment would now be worth $57,507. I don’t own this stock personally (yet), and Nick Jr. doesn’t either (yet).

6. Data Centers

Despite the fact that hardware is constantly getting smaller, faster and more powerful, we are an increasingly data-hungry species, and the demand for processing power, storage space and information Data centers provide secure, continuously available environments for the exchange, processing, and storage of critical electronic information. Data centers are used for digital communication, disaster recovery purposes, transaction processing, and housing mission-critical corporate IT applications. Demand for data centers is a function of the need for highly specialized properties designed for housing the high-power loads, cooling facilities, hardware and telecommunications equipment for computers, data storage, Internet and other related functions. Such properties are constructed for a variety of clients, from small users to major international telecommunications companies. Some centers are more focused on computer power, servers, and information storage, while others are more geared for telecommunications and Internet support. When we make a post or story on Instagram, that data is being routed through a data center. When we’re watching a movie on Netflix, streaming is made possible because of data centers. When we’re watching a youtube video or searching for information on Google, this is made possible because of data centers. When Apple backs up our photos to the cloud, this information is routed through a data center. Essentially every part of our internet activity is made possible because of data centers. Data is growing exponentially year over year. Our lives in the coming years will be centered around data. The companies profiled below are all data center real estate investment trusts. These companies own and manage facilities that customers use to safely store data. Data center REITs offer a range of products and services to help keep servers and data safe, including providing uninterruptable power supplies, air-cooled chillers and physical security. Data center stocks have been on fire the last 10 years! They provide both strong dividend yields and price appreciation. The companies that I’d like highlight within this group include CyrusOne (CONE), Equinix (EQIX), Coresite (COR), Digital Realty (DLR), and QTS Realty Trust (QTS).

All of these data centers operate similarly, bus Cyrus One is my largest position. If you invested $10,000 in Cyrus One in 2013 (@$21.20/share), your investment would now be worth $29,084. I own this stock personally. Nick Jr. does not (yet).

If you invested $10,000 in Equinix 10 years ago (@$106.77/share), your investment would now be worth $56,690. I own this stock personally. Nick Jr. does not (yet).

If you invested $10,000 in CoreSite in 2012 years ago (@$26.18/share), your investment would now be worth $43,544. I own this stock personally. Nick Jr. does not (yet).

If you invested $10,000 in Digital Realty 10 years ago (@$49.10/share), your investment would now be worth $25,071. I own this stock personally. Nick Jr. does not (yet).

If you invested $10,000 in QTS Realty 10 in 2013 (@$19.93/share), your investment would now be worth $29,247. I own this stock personally. Nick Jr. does not (yet).