TheWall Street crowd is starting to get the picture.
On the cover of a recentissue of Fortune magazine: "The Death
ofCash ," there was an article examining an impending transition
that I've been talking about for some time.
The magazine examined some large companies as the drivers in
this new technological push, which hinges largely on the
continued adoption of portable devices, like cellphones, that can
be used much like acredit ordebit card. Its winners are
Google (Nasdaq: GOOG)
because of its Google Wallet initiative, which I was among
the first to cover;
eBay's (Nasdaq: EBAY)
Apple (Nasdaq: AAPL)
Facebook (Nasdaq: FB)
Those are great companies thatwill lead the trend. But while
everyone else is looking at the obvious "winners," it will take
some time for this macro trend to move the needle for companies
as big as these.
Instead, I've got my eye on a small company that's at the
forefront of this game-changing trend.
I first told StreetAuthority readers about this game-changing
technology in an article about anotherstock in this
sector I like: payment processing firm
Zebra (Nasdaq: ZBRA)
I like this concept for alot of reasons. For one, I hate it
when mycredit card is taken out of my view. Two of my cards -- a
debit card from my bank in Texas and myCapital One Visa -- were
hacked recently, which meant both cards needed to be replaced. I
didn't get stuck with any of the fraudulent charges, but
replacing a card is still a hassle -- and securing the number on
a special microchip would render fraud far more difficult.
It's also going toopen up mobile payments to a whole new
audience, notably among young people and a portion of the
population that doesn't use banks. That's because not only is the
credit card in Google Wallet available as a prepaid card -- no
credit required -- it is also available on a prepaid smartphone
through Virgin Mobile. This will certainly help push this
technology into the mainstream.
And while I like Zebra as a way toprofit from this technology,
my research has led me to a stock I like even more.
As I said, it's not Google. Nor do I think it will be
, which runs the network, and it's not
or MasterCard, which administer the card Google Wallet
Instead, the likely winner is a company most people have never
heard of --
NXP Semiconductors (Nasdaq: NXPI)
. It makes the special chips that go in the phone that "talk" to
cash registers. The technology is known as near-field
communications (NFC), and NXP is the leader, with critical
existing supplier relationships with all the major phone
manufacturers, including Apple.
And mobile wallets are a booming business for NXP: It grew 19%
in 2011, 41% in 2012 and is on track to grow 30% thisyear (to
$1.26 billion), according toanalysts at Merrill Lynch. These ID
chips were just 16% of NXP's $4 billionrevenue base in 2011, but
should account for 35% ofsales by 2015.
The real question for investors: Can NXP makemoney with its
cutting-edge chips? After all, some chip makersoffer boring
products, and are content with grossprofit margins of just 15% or
20%. "We'll make it up onvolume ," these chip makers say.
NXP doesn't need to offer up such excuses.
Thanks to a combined $5 billion in R&D spending over the
past six years, this company's products are so advanced that NXP
can charge top dollar for them. That strongpricing power fuels
gross margins in excess of 45% andEBITDA margins of 30%.
And that's led to market-beating returns for investors so
I expect results like this to continue as NXP grows revenue
from the mobile walletmarket -- especially with Google behind it.
I've covered this area in my
advisory extensively (and will continue to update
I think that alternative payment technologies are one of the
hottest opportunities for aggressive growth investors right now.
This is a rocket ship you need to book a ticket on.
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