The Next Big Thing
By Jersey Gilbert and Tiernan Ray
Trends to Watch
WE?RE NOT going to kid ourselves. We know that a lot of people won?t be thrilled with the number they get at the bottom of our new early-retirement worksheet. Just now starting to save? Putting your children through college? Supporting elderly parents who themselves perhaps never saved enough for retirement? Then you know what we?re talking about. Your number -- the amount you need to save every year to make your retirement goal -- is going to look huge. Or even, perish the thought, unattainable.
But with a little luck, there might be something you can do about it. The fact is, even a small amount invested in the right place can give your portfolio the lift it needs, getting you close to your early retirement faster than you ever imagined.
Public Companies to Watch
COMPANY PRICE AS
OF 6/25/99 FORWARD
P/E* KEY
PRODUCT COMMENT
Ciena
(CIEN) $30.06 54.6 Network equipment Grabbed a head start
in optical networking.
Conexant Systems
( CNXT) 55.50 82.8 Communications chips Anticipating big
market in 3G wireless.
Hewlett-Packard
( HWP) 92.63 22.9 Fiber-optic software and components Spinoff NewCo is an
optical-network dark horse.
Inktomi
( INKT) 106.75 NM Internet software A necessary key to improving
the Internet infrastructure.
Marimba
( MRBA) 38.25 637.5 Service-mgt. software Lifted by the trend of
applications over the Web.
RF Micro Devices
( RFMD) 60.75 44.6 Wireless-power amplifiers An important component for
all emerging wireless applications.
Texas Instruments
( TXN) 135.50 33.5 Digital micro mirrors Has over 300 patents
for digital light processing
JDS Uniphase
( JDSU ) 151.38 78.8 Fiber-optic equipment Merger of JDS Fitel and Uniphase
creates an optical-systems powerhouse.
Sources: Zacks Investment Research, SmartMoney
*Based on next fiscal year's earnings
NM=not meaningful
In the past few years, it?s been stocks like Microsoft (MSFT), Applied Materials (AMAT) and Nokia (NOK), not to mention all those Internet highfliers. These are the kinds of investments that in five or 10 years can give you the gains it would ordinarily take decades to reach with a diversified portfolio.
Take Vitesse Semiconductor (VTSS). Can it really be just three-and-a-half years since we recommended this chipmaker as one of our "Ten Stocks Under $20" (March 1996)? In that short time, a $10,000 investment in Vitesse has grown into nearly $150,000. It typically takes the Standard & Poor?s 500-stock index 26 years to produce that kind of return.
We?re not suggesting these life-changing stocks are just lying around in bunches waiting to be picked up. Nor do we have some magic formula for discovering them early enough to get the full benefit of their rise. If we did, we?d all be living in Antigua or Sedona, Ariz. Yet you can?t deny the evidence. Some stocks do seem to defy gravity for ages -- or better yet, enrich investors so quickly that they change our way of thinking about our future in just a few years. (How many of these stocks are there? Consider this: A surprising 277 of the stocks in the Russell 3000 index at least doubled the 309 percent gain of the S&P 500 over the last decade.)
Private Companies to Watch
COMPANY WEB
SITE KEY
PRODUCT COMMENT
Corvis www.corvis.com Optical switches Its founder has already brought
one blockbuster IPO to market.
Fujant www.fujant.com Base-station amplifiers A key player in the
construction of wireless networks.
Microcosm Technologies www.memcad.com Chip-design software Watch this company to
see who's hot in MEMS.
Historically, most of these home-run stocks have been associated with a new technology, a new product or new ways of delivering products and services to consumers. Look back over the blockbuster trends of this century (a sampling of the bigger ones appears throughout the next three pages) and you?ll see what we mean.
After the fact, they all seem like such obvious winners. Fast food: Who wouldn?t have invested in McDonald?s (MCD)? Cell phones: Of course they were revolutionary. If you had followed Peter Lynch?s classic advice and invested in what you knew, you would be very rich indeed.
In many ways, though, spotting the "next big thing" is growing harder than ever before. The Commerce Department reports that since 1995, 35 percent of GDP growth has come from the tech sector. That?s where most of the key breakthroughs are typically located -- on a piece of silicon the size of your fingernail. Not exactly easy to find.
Intimidated? Don?t be. The truth is, you can learn enough about the evolution of technology to give yourself an edge over the next guy. The more you know, and the earlier you know it, the better off you are, notes Michael Murphy, editor of the California Technology Stock Letter. This article will give you a head start.
After talking with a number of analysts, futurists, money managers and engineers, we?ve developed some pretty good ideas about what probably lies ahead. As you learn more about these technologies, however, we do suggest you resist committing yourself to any one stock early in their development. When you look back at the major technological breakthroughs of the last hundred years or so, a clear pattern emerges, in which hoards of overeager but ultimately under-resourced companies jump on the latest trend. An investment in Kaypro, Commodore, Seiko Epson or Tandy (TAN), for example, would not have helped you much back in 1985, even if you fully understood the future significance of the PC. As it turned out, the box wasn?t as important for making money as the operating system or the microprocessor chip. "The biggest single misunderstanding of investing is that people think they have to get in real early, at the IPO or before," says Roger McNamee, general partner in Integral Capital Partners, which provided venture capital for Intuit (INTU), Rambus (RMBS), Inktomi (INKT) and Healtheon (HLTH). "There?s a tendency to think that just because you?ve identified a cool technology you?re going to make money. Sure, there are obvious advantages to getting there early and holding forever, but the real trick is to find out who the long-term winners are and know enough to buy when others sell."
That in mind, we stop short of recommending specific investments in specific companies. The trends we discuss here are simply too new to declare the long-term winners. But by all means, keep a watchful eye on the ones we mention. Because one day these stocks might just be your ticket -- for the fast track to retirement. |
