AMERICA’S ULTIMATE TECH-BOOM

[Pages:12]AMERICA'S ULTIMATE

TECH-BOOM:

3 MOONSHOT STOCKS

BY DAVID FOREST, EDITOR, STRATEGIC INVESTOR

Strategic Investor AMERICA'S ULTIMATE TECH-BOOM: 3 MOONSHOT STOCKS

Dear Reader, America's next golden age is about to begin. The rise in tech... the continuing 5G buildout... and the growth of the internet of things (IoT) is making it easier for smart devices to connect. Everything from our homes... to our devices... to our cars. But the rise of 5G and connectivity means more devices... More data... A rise in cybercrime... And more "places" for terrorists to meet and plan attacks on the U.S. However, there are three companies we've pinpointed that ? using cutting-edge technology ? will keep:

1. Your home safe... 2. Cybersecurity up... 3. And terrorism down. All using the latest in tech. That means 5G, artificial intelligence, data analytics, and more. Not to mention, we plan to make huge gains in the process. Let's get started.

MOONSHOT STOCK NO. 1: VIVINT SMART HOME (VVNT)

The 5G buildout is making it easier for smart devices to connect. That's because 5G helps solve the data problem all of these devices create. More devices means more data. Our legacy 4G network can't handle it. 5G can. That gives established players like Vivint a leg up on the competition. Vivint is on the front lines of the growing smart home market. And that market is growing fast.

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Strategic Investor AMERICA'S ULTIMATE TECH-BOOM: 3 MOONSHOT STOCKS

The chart above shows the revenue forecast for the U.S. smart home market. It's growing at double-digit rates today, according to Statista. Many of you probably have some sort of smart device in your home. That could be Amazon's Echo or Google Home. Yet today, only about a third of homes in the U.S. have smart devices according to Statista. That's changing. By 2025, Statista expects over half of households in the U.S. to have a smart home product. Today, Vivint offers lighting control devices, smart thermostats, smart garage door openers, and smoke and carbon monoxide detectors. Vivint also makes a hub and mobile app where users can control their entire smart home system. However, that doesn't mean Vivint's products replace similar offerings from Amazon or Google. Vivint integrates with Amazon Echo, Google Home, Philips Hue, Nest Thermostat, and Element Thermostat. That helps Vivint attract new customers. But Vivint's array of smart home devices isn't the main reason we're interested in the company. It has an extra advantage that other smart home device makers don't have. Because Vivint doesn't just sell smart home products... it sells home security products as well. That includes wireless security cameras, smart locks, and doorbell video cameras.

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Strategic Investor AMERICA'S ULTIMATE TECH-BOOM: 3 MOONSHOT STOCKS

Vivint Smart Home products Source: Vivint

If there's a smart product dealing with personal safety, Vivint has it. The real value comes through the company's all-in-one system. Vivint makes it easy for its customers to have one connected smart home system. But we're not interested in Vivint stock today for its smart home product sales. We're much more interested in something even better.

A SMART HOME IS A SAFE HOME

Personal security is a choice. And it's a choice more and more people are making. Vivint got its start as APX Alarm in 1999. At the time, APX was a home security company. It quickly grew into one of North America's largest residential security companies. True to its roots, over 95% of the company's revenue today comes from home security. Where Vivint excels is in what we call the "do-it-for-me" business. It's a great solution for consumers that don't want to install smart products from 10 different companies and use 10 separate apps to control them. Rather than sell you a few cameras or smart door locks, Vivint will send a consultant to help design the right system for your home. Then, they'll install everything for you. However, that's not the end of the relationship. That's because once a customer signs up with Vivint, the company signs them to 24/7 security monitoring contracts. Once Vivint gets consumers hooked in its ecosystem, it's hard for them to cancel. In finance circles, Vivint is what we call a business with high switching costs. Its security monitoring business makes it "sticky," meaning it's very good at retaining its customers. It also means Vivint has a handle on revenue as it continues growing.

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Strategic Investor AMERICA'S ULTIMATE TECH-BOOM: 3 MOONSHOT STOCKS

However, in most subscriber-based businesses, companies lose money bringing new customers in the door. They make up for it over time through a subscription. Controlling those costs ? or even lowering them ? could mean the difference between seeing profits sooner. In 2019, Vivint spent $1,018 on average to get one new subscriber. Today, that cost is a full 86% lower at $139 per new subscriber.

That's impressive. But what's even more impressive is how much new customers are spending with Vivint. At almost $2,000 per sale, Vivint completely flipped the subscriber acquisition model on its head. That's very rare. In fact, that figure is 96% higher than just two years ago. We think the growing civil unrest is part of the reason. More and more people are willing to spend more money to protect what they have. It's their first line of defense against a growing mob. After that, it doesn't cost much for the company to keep subscribers around. In fact, it only costs an average of $10.50. That's against an average monthly revenue per user of $65.18. That's a net service margin of 83.9% ? a number most businesses would kill for. With its range of smart home and security products, and its "sticky" business model that retains customers through subscriptions, we expect Vivint's margins to increase over time. Add all this together, and we have no doubt that the company will likely continue its growth going forward. In fact, the company recently announced a partnership with rap icon Snoop Dogg. The new ad campaign featuring Snoop Dogg targets the "do-it-for-me" crowd Vivint is after.

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Strategic Investor AMERICA'S ULTIMATE TECH-BOOM: 3 MOONSHOT STOCKS

At the end of the day, Vivint has a great business model. As we said above, once Vivint hooks a user, they tend to stick around. With a growing user base and lower costs over time, plus the continuing rise of 5G tech, Vivint looks like a long-term winner.

Action to Take: BUY Vivint Smart Home (VVNT) up to $30.

With its cutting-edge connectivity and 5G tech, Vivint has your home covered. But this next company uses the best tech to keep the U.S. safe from cybercrime...

MOONSHOT STOCK NO. 2: LEIDOS HOLDINGS (LDOS)

Leidos Holdings provides technology solutions for the government. That includes cybersecurity, information technology, and analytics. You can think of the company basically as an outsourced government IT department.

Leidos operates three business segments:

1. Defense solutions ? This includes research and development for intelligence, surveillance and reconnaissance, largescale software development, data analytics, and autonomy.

2. Civil ? Helps modernize infrastructure, systems, and security for both government and highly regulated commercial customers. The main areas of focus are in IT, security, software, engineering, and operations.

3. Health ? Consists of electronic health records management, enterprise IT modernization, operations, and maintenance.

In this report, we're focusing on the company's defense and civil divisions. Together they make up about 84% of revenue. That includes the company's cybersecurity operations.

Leidos does cybersecurity very well. The company manages three of the four largest federal security operations centers. Plus it has over 2,900 cyber certifications across the company.

That helps the company provide services like cyber analytics, risk management, and threat detection. Leidos is the first line of defense against cyber attacks.

Overall, Leidos has the perfect product mix to serve the Department of Defense and other government agencies. In fact, 88% of the company's revenue is from government contracts. Around 48% is from DoD and intelligence agency contracts. Another 11% is from the U.S. Army.

The fact is, Leidos knows how to secure government work. In today's digital world, the company's focus on technology gives it an edge.

It also helps to have the staff to support that focus. Forty-two percent of its 38,000 employees have a security clearance. Sixty-two percent of those have top secret clearance or higher.

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Strategic Investor AMERICA'S ULTIMATE TECH-BOOM: 3 MOONSHOT STOCKS

All of this helps Leidos maintain its status as the top government IT contractor according to Washington Technology. It's also why we see the company's backlog ? the amount of work booked for the future ? continuing to grow year after year. But Leidos doesn't just sit back at its headquarters hoping to retain clients. Fifty-three percent of the company's staff works on-site with customers. That's how you keep winning more government contracts. And the government is open for business.

FLUSH WITH CASH

If there's one thing that's certain in Washington, it's defense spending.

Even with some slowdowns in spending, the amount spent is constantly increasing. We don't see any reason for that trend to stop. Neither does Leidos. In fact, Leidos is stepping up its efforts to maintain its No. 1 position as a go-to defense contractor. In 2020, revenue grew 10.8%, from $11.09 billion in 2019 to $12.3 billion in 2020. The biggest gains came from its largest segment, Defense Solutions, with revenue increasing 16.5%. More importantly, the company's free cash flow grew from $871 million in 2019 to $1.15 billion in 2020. So even though revenue grew a healthy 10%, cash profits grew three times as much. That's a recipe for success.

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Strategic Investor AMERICA'S ULTIMATE TECH-BOOM: 3 MOONSHOT STOCKS

However, the company isn't slowing down. Today, its backlog stands at $31.9 billion. That's up from $24.1 billion at the end of 2019. Part of that is from in-house growth. Part is from acquisitions the company makes to help bolster its business.

In 2020, the company closed two major acquisitions. The first was its acquisition of Dynetics for $1.65 billion. Dynetics is an applied research and national security solutions company. Basically, this is top secret research developed for agencies like DARPA (Defense Advanced Research Projects Agency) and the intelligence community.

That includes hypersonics and space solutions, avionics, unmanned and advanced engineering, and weapons technology.

Later, the company closed a deal acquiring L3Harris for $1 billion. L3Harris provides security detection and automation. That includes things like airport checkpoint security, checked baggage screeners, and tray return systems.

These acquisitions help complement and diversify the company's business. We have no doubt Leidos will benefit based on its track record as a government contractor.

But the deal that we think could end up as the major winner is the smallest. In January, Leidos acquired 1901 Group for $215 million. 1901 Group delivers cloud, cybersecurity, and enterprise-scale digital modernization services.

This helps bolster Leidos' cybersecurity business at just the right time.

Hacking isn't going away anytime soon. It's becoming an ever-greater problem for U.S. government agencies.

In fact, under a recently passed law, President Biden has to appoint a new National Cyber Director. In April, he finally appointed NSA veteran Chris Inglis to the post.

That puts Leidos in the driver's seat for what we see as a ramp-up in cybersecurity spending.

Simply put, Leidos is about as good as you can get investing in a defense contractor. The company knows how to secure government work and continues to produce an increasing cash profit year after year.

Action to Take: BUY Leidos Holdings (LDOS) up to $140 per share.

While Leidos is keeping the U.S. safe from cybercrime... this next company is using data analytics to keep the entire U.S. safe from terror threats...

MOONSHOT STOCK NO. 3: PALANTIR TECHNOLOGIES (PLTR)

You may have heard about Palantir Technologies. Most people know the company as a key part of government surveillance programs. While that's true, that's only a part of the story.

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