by John Persinos, InvestingDaily.com
Let’s take a break from the daily mood swings of Wall Street. Today, I will put aside the tit-for-tat trade war, this week’s impeachment hearings in Congress, speculation about Federal Reserve policy, and all the other noisy headlines that bombard investors.
It’s helpful to occasionally step back from the hurly-burly and look at the big picture.
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Here’s my macro theme for today: We’re now on the cusp of the next wave of digital development. Below, I’ll pinpoint a crucial wireless technology that’s poised to explode in 2020.
The first wave is coming to an end. Disruptors such as Amazon (NSDQ: AMZN) defeated dinosaurs. Complacent firms got crushed. New markets were created. Consumer habits changed.
Disproportionately driving the bull market have been the FAANG stocks – Facebook (NSDQ: FB), Apple (NSDQ: AAPL), Amazon, Netflix (NSDQ: NFLX) and Alphabet’s (NSDQ: GOOGL) Google. Investors are betting that Silicon Valley will account for an ever-greater share of corporate profits.
A particularly fearsome predator: Amazon. The name of the company has even become a verb. When Amazon enters an industry, the competitors it vanquishes are said to have been “Amazoned.”
Hence the second wave. This phase isn’t dominated by newcomers. The incumbents rule. Amazon’s purchase of Whole Foods reflects this dynamic. With its huge cash hoard, Amazon was able to turn the grocery business upside down. But nimble-footed retail rivals have survived. Consider the case of Target (NYSE: TGT).
Target is a “Big Box” chain. Yet, this legacy retailer has successfully transitioned to e-commerce. Target redesigned its stores. It made its refund and delivery policies more generous. It greatly enhanced its online capabilities.
Target is a bricks-and-mortar chain that’s thriving. It’s one of the few. Many of its peers are flailing, like Mastodons in the tar pits.
Darwin’s disciples…
The most successful entrepreneurs and investors are students of Darwin. They know it’s not the strongest that survive. It’s the most adaptable.
That’s why blue chips are integrating second wave technology into their traditional businesses. Detroit’s “Big Three” automakers – General Motors (NYSE: GM), Ford (NYSE: F) and Chrysler, which is now owned by Fiat Chrysler Automobiles (NYSE: FCAU) – are prime examples.
Automotive pioneers in early 20th century Detroit behaved a lot like Silicon Valley entrepreneurs today. They tinkered with exciting new technologies, regularly hopped from one company to the next, launched start-ups and spinoffs, and challenged the status quo. The cross-fertilization of ideas and products in the Motor City revolutionized society.
Now, Detroit’s Big Three are embracing autonomous cars, artificial intelligence and the Internet of Things (IoT). For the Motor City, it’s adapt or die.
Also instructive is the consolidation that’s wracking big media. In March, Walt Disney (NYSE: DIS) spent $52.4 billion to buy the television and movie studios of 21st Century Fox (NSDQ: FOXA). Disney stopped distributing films through Netflix and launched its own streaming services. Walt’s Empire is taking the fight to Netflix.
Older tech firms, too, are trying to co-opt the second wave. For example, Intel (NSDQ: INTC) has been buying companies that specialize in chips and software for driverless cars. Intel is transitioning away from its legacy PC business to cutting-edge industries predicated on 24/7 mobility.
Incumbents supposedly fear change. That’s the textbook notion. But the tech giants that launched the “first wave” aren’t timid. Their risk-taking only gets more aggressive.
These trends should provide the impetus to keep the bull market alive in the coming months. Looking for new opportunities in the new year? Catch the next wave. Which brings me to an unstoppable trend for 2020 and beyond: 5G wireless.
Welcome to the fifth generation…
The companies developing and leveraging 5G (“fifth generation”) wireless are huge money-making opportunities. 5G technology will provide faster and higher capacity transmissions to carry the massive amount of data that will be generated by the IoT, smart cities, smart homes, autonomous vehicles, video streaming, virtual/augmented reality, and more.
Consumers will soon crave and then get accustomed to the fast download times made possible by 5G (see chart).
Ultra-fast 5G wireless infrastructure also is a pivotal battlefield in the trade war, which shows no sign of relenting. Under the “Made in China 2025″ plan, China has pinpointed the key industries that it views as strategic and seeks to dominate. A linchpin of this march toward global dominance is 5G technology.
The existing standard of 4G accelerated the smartphone boom by allowing a single device to handle a multitude of functions. But 5G’s reach will extend far beyond phones and even affect military competitiveness.
Optimism over a Sino-American trade truce has waxed and waned this week, but I wouldn’t get your hopes up. Indeed, despite a robust retail sector, protracted trade tensions could preclude chances this month of a Santa Claus Rally.
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Ignore the rhetoric from Washington and Beijing. I don’t expect the trade war to get resolved before the 2020 election.
And that’s what makes 5G-related companies particularly appealing: their resistance to trade war tensions, political turbulence, and economic ups-and-downs. An investment in 5G is an investment in the future. 5G is a speeding freight train that can’t be derailed by headlines.
