As investors, we often jump on the flavor-of-the-week in the hopes of profiting from the immediate momentum. However, some of the best returns are found in companies levered towards next-generation technologies and innovations. These so-called megatrend stocks are extremely viable for your portfolio; they just require some patience.
One of the biggest trends that has taken over the mainstream consciousness is artificial intelligence. Once the exclusive domain of movies and TV shows, AI is now very much a reality. While we’re not at the level of replicating human intelligence and emotions, AI has a broad definition. For instance, driver assistance systems, such as those developed by Nvidia Corporation (NASDAQ:NVDA), rightfully falls under this category.
Another innovation is the rapidly-growing Internet of Things (IoT) concept, which describes the internet connectivity of everyday devices.
But the surge in technological advancements hasn’t eliminated human involvement or intervention. Quite the opposite actually. In the coming years and decades, carbon-based operators will be in high demand. After all, somebody must interpret the mountains of data into meaningful, actionable information.
Here are seven megatrend stocks with massive, long-term potential.
Megatrend Stocks with Huge Potential: BioXcel Therapeutics Inc (BTAI)
Most investors looking for AI-based megatrend stocks typically look exclusively at the technology sector. However, the beauty of AI is that its applications are only limited to one’s creativity, as BioXcel Therapeutics Inc (NASDAQ:BTAI) demonstrates.
BioXcel is first and foremost a clinical-stage biopharmaceutical company, with a specialty in immuno-oncology. This term refers to the process of using a patient’s immune system to treat cancer. But what separates BTAI from other immune-oncology firms is their use of AI in filtering and categorizing the big data found in clinical research.
From there, BioXcel can analyze a treatment’s performance metrics on particular patients. Through careful tweaks and modulations, the pharmaceutical company aims for higher clinical success rates, even among patients previously deemed as failed test candidates. This provides meaningful hope for patients struggling with rare or difficult-to-treat cancers.
BTAI just launched with an initial public offering in March of this year. As a result, BioXcel is a risky affair. But with a longer-term outlook, BTAI could be a surprise hit due to its combination of biotechnology and AI.
Megatrend Stocks with Huge Potential: Taiwan Semiconductor (TSM)
Because AI has such a broad range, you can find any number of direct plays in the sector. However, a better approach is to choose an indirect play like Taiwan Semiconductor (NYSE:TSM).
Earlier this week, Susquehanna Financial Group analyst Mehdi Hosseini upgraded TSM stock to “positive” from “neutral.” Hosseini cited several optimistic factors, key among them Taiwan Semiconductor’s AI-specific chipmaking facilities. These chips are specially designed for AI applications. Notable TSM clients include Alphabet Inc (NASDAQ:GOOGL) and Microsoft Corporation (NASDAQ:MSFT).
And as an indirect play on AI, Taiwan Semiconductor levers the advantage of multiple revenue streams, including the 5G rollout. With consumers expecting faster and better smart devices, the company will be quite busy churning out their highly-demanded goods.
Moreover, TSM is one of the more compelling megatrend stocks to consider right now. On a year-to-date basis, shares are down more than 7%. But management runs a tight ship. The company features a strong balance sheet, with a high cash-to-debt ratio. It also has class-leading profitability margins.
I’d take a serious look at TSM stock, both as a current bet, and a longer-term investment.
Megatrend Stocks with Huge Potential: Silicon Laboratories (SLAB)
The only two guarantees in life are death and taxes. But as we progress further in the information age, we can add another certainty: anything that can house an electric signal will be connected to the internet. Welcome to the world of Silicon Laboratories (NASDAQ:SLAB)!
If you believe in the paradigm-altering power of IoT, Silicon Laboratories is a name you can’t ignore. One of their biggest business divisions is home automation and entertainment. Through their technologies, SLAB offers solutions for areas such as connected lighting, home security, and smart thermostats.
In addition, Silicon Laboratories provides multiple innovations towards in-car entertainment systems, driver interfaces, and security measures. If that’s not enough, SLAB offers solutions in the extremely lucrative data-server market.
On a YTD basis, SLAB stock is up over 13%. However, shares have slid recently. Since the open of June 1st, SLAB dropped more than 5%. This could be a shrewd opportunity to get in, as the company features a fairly strong balance sheet.
Furthermore, Silicon has strung together at least four consecutive years of sales growth and its last earnings report suggests increased momentum is likely.
Megatrend Stocks with Huge Potential: Yext Inc (YEXT)
A common myth about advancing technologies is that they’ll replace the human element. Nothing could be further from the truth. While computers can calculate data infinitely faster than humans can, only a human can provide critical context to that data. Case in point is Yext Inc (NYSE:YEXT).
Yext is a data analysis company with a very practical approach for businesses. Nowadays, almost every prospective customer researches their target retailer using the internet. But what is the “internet reputation” of that retailer? Do customers see varying information when they utilize different web platforms?
Yext answers these and many other questions, ultimately enabling their clients to become supremely net-savvy. This isn’t just about spitting data and convoluted metrics at people. Instead, Yext converts the litany of numbers and figures into actionable advice for its clients. Essentially, the company combines the megatrends of big data, AI, and IoT into a user-friendly format.
The only knock that I have against YEXT stock is that several investors have caught on. Shares are smoking hot, up nearly 67% YTD. That said, if you see a dip in price, consider picking some up while they’re on discount.
Megatrend Stocks with Huge Potential: Intuitive Surgical, Inc. (ISRG)
One area in which AI and robotics technology can replace human operators (with careful oversight) is surgery. While that sounds insane at first, consider that surgeons commit preventable errors, such as leaving equipment in a patient’s body.
With robotics-based surgery, we can theoretically whittle that error to near-zero. Intuitive Surgical, Inc. (NASDAQ:ISRG) wants to go one step further, making the entire process smoother and less invasive. Key to this effort is the company’s da Vinci Surgical System, which facilitates operations through small incisions.
So far, investors are encouraged with the results they see. ISRG stock is up nearly 33% YTD. Moreover, shares are trending in a decisively bullish trend channel. If dips occur, you may want to buy in while you have the chance.
I say this because Intuitive Surgical is also blessed with strong financials. The company carries no debt on its balance sheet. On the income statement, it features strong sales growth, and even stronger profitability margins.
Megatrend Stocks with Huge Potential: IBM (IBM)
IBM (NYSE:IBM) may be a surprising pick for a story about megatrend stocks given the company’s age. However, IBM is divided into two companies: a legacy business (which gives the company its “boring” reputation), and what I call the exciting stuff.
Nomura Instinet’s Jeffrey Kvaal isn’t about to let the bad spoil the good. The analyst recently initiated coverage on IBM stock with a “buy” rating. In his view, the company’s cloud, analytics, and security divisions will more than balance out losses in its legacy ventures.
I couldn’t agree more. Management has decisively transitioned IBM into an AI and big-data powerhouse. At the very least, we’re reminded through the commercials and advertisements that this is no longer your father’s IBM.
From a trading perspective, I can’t help but notice that shares are down 7.6% YTD. I think this is a shrewd opportunity to buy a company that has its footprint on all of tomorrow’s technologies.
Megatrend Stocks with Huge Potential: Raytheon Company (RTN)
Most technology-based megatrends are net positive for society. That said, human history has always been marked with warfare, and that will probably never change. For whatever reason, we must kill each other, or at least threaten to do so. In that regard, we have no better option among megatrend stocks than Raytheon Company (NYSE:RTN).
The defense contractor has several notable “products,” including the awestriking Tomahawk cruise missile. But in my opinion, what best symbolizes Raytheon’s marriage of technological innovation and deadly efficiency is the Griffin missile. Known as a multi-platform, multi-service weapon, the Griffin measures only 43 inches, and weighs 34 pounds. Essentially, this weapon can launch from anywhere and hit targets with extreme precision.
Notably, Raytheon markets the Griffin for “irregular warfare operations.” This perfectly describes tomorrow’s rules of engagement, which focus on minimizing collateral damage while maximizing threat elimination.
I’ll freely admit that RTN stock is a cynical play on megatrends, but it is an effective one.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.