Intelligence always moves to the edge of the network.
That wasn't always true of the communications business. The only
thing "smart" at either end of this network might be one of the
callers, and that certainly varied. Phones used to be nothing more
than a speaker, a microphone and set of buttons that sent audible
tones that the system could recognize as numbers.
Now, that has changed.
The infrastructure of the nation's communications system is still
home to some impressive technology, but the real genius is at the
edge of the network -- that is, the tablet devices and computers we
use to process information and in the smartphones we use to
After all, the smartphones we all have in our purses or pockets
contain more capability than the computers NASA had at its disposal
when Neil Armstrong was walking on the moon.
The smart money invests at the edge of the network. The rest is
The single most important change that this network will undergo in
the coming years is right at the edge. It is the integration of
functionality into our smartphones.
I have written extensively about this in my newsletter,
, and I will continue to. Simply put, I think it's the Next Big
So far, I've been telling my readers about the consumer side of the
. But what we really need to look at is the company that merchants
rely on for the state-of-the-art equipment that will allow for
seamless smartphone transactions to take place.
That company is
It's the leading provider of hardware for electronic payment
processing. And here's the thing: Nearly every one of the devices
that you see on the merchant's counter will need to be replaced.
There are two reasons for this. The first: Customers will be paying
with highly secure near-field communication chips instead of
handing over their credit or debit cards. But the other trend
that's going on at the same time is the mass unplugging of retail
Well, "unplugging" might be the wrong word. The enterprise system
is still there, but they're increasingly running in the background.
The sales clerk is just as likely to process the transaction with a
portable device as to ask the customer to walk back to the cash
and device-toting sales clerks are going to
a one-two punch for VeriFone's business, which I think is going to
explode in the coming years.
Major retailers such as
are already getting interested.
It is my prediction that smartphone-based commerce will become the
fastest-adopted technology in U.S. history.
VeriFone started a trend of its own. The company, founded in 1981,
came up with the first electronic credit-card processing system. In
the old days, the retailer took an imprint of your card sent the
charge slips to the bank to be verified. As banks began to lower
their credit standards for a
, retailers wanted to protect themselves from getting stiffed by
customers who were over their limit, and VeriFone's system was the
first that allowed retailers to do that.
But with every new technology that has come to market, VeriFone has
been there to take advantage of it, from new and innovative ways
for customers to pay, to new and innovative ways for retailers to
connect. It is the market leader with an unassailable industry
The best reason to use a near-field communication chip in lieu of a
physical credit card is that you don't have to hand your account
information to an unknown sales clerk. The transaction is totally
secure and invisible to the clerk. With a smartphone-based
transaction, that won't be possible.
Security is clearly a major concern, and complying with the
stringent security requirements set forth by
American Express (NYSE:
and other financial institutions is a huge moat for the VeriFone
business. The whole system runs on a secure proprietary operating
system. That is a wall around this business that no other
competitor can breach.
Sales at this company are a billion a year. That's what the company
pulls in keeping the existing retailer base supplied with hardware.
When one considers the possibility that so many of those terminals
need to be replaced with new technology, the numbers get
impressive, and quickly.
The thing to do is to beat the rest of the pack to the trade.
Smartphone-based commerce won't make headlines until it's
implemented at Wal-Mart, and I think these
are worth owning well in advance of that date.
While the company, with a
of $5.6 billion, is a little larger than my recommendation in
, its growth profile is just too sweet to ignore.
Two other things to like about this stock...
One, most of its shares are held by institutions, some 91%. That
means the shares that are traded each day are more likely than not
to be the 9% held by individual investors. That's always nice -- a
less visible supply of shares means that the effect of good news
will be magnified.
The other aspect to like about this company is its increase in
shareholder equity during the past three years, where the portion
of the company owned by the shareholders has risen in value from
$72 million to $1.1 billion. This is evidence of strong financial
management and bodes well for the company's ability to translate
market demand into an increased stock price. I don't know about
you, but I like that.
Risks to Consider:
It is possible that this trend takes longer to develop than I
predict, but I just don't see it not happening. That said, you
should do additional research on this stock before committing to
Action to Take -->
Smartphone-based commerce is an unstoppable trend. I like shares of
VeriFone at any price under $55.
Andy Obermueller does not personally hold positions in any
securities mentioned in this article. StreetAuthority owns shares
of V, MA, TGT, in one or more if its real-money or investment