Opportunities in Disruptive Technologies

Sound Changes

Opportunities in Disruptive Technologies

A Breakthrough Small-Cap Stock

It’s hard to remember now, but there used to be a time when, if you wanted to listen to music outside your home or car, your only choices were listening to a transistor radio or lugging a full-sized audio cassette player (powered by four D-cells, not included) around with you. And it’s very hard to be cool while you’re saddled with a five-pound chunk of electronics.

The isolation of pedestrians from their very own tunes changed in 1979, when Sony introduced the first Walkman, a 14-ounce beauty that sold for about $150 (actually 30,000 yen, since it was only available in Japan at first). Sony sold 50,000 of them in two months, 2.5 times more than they had estimated. As anyone who ever made a mix tape will remember, cassettes quickly became a huge part of courtship and popular culture.

It took just four years for sales of prerecorded cassette tapes to overtake sales of LPs, pushing vinyl records off the main road and into either a connoisseur’s niche or a hip-hop artist’s turntable. But cassettes were hardly an ideal format. If you remember the hassles—small recording capacity, cleaning oxide from clogged tape heads, using a pencil to rewind and occasionally digging a lapful of loose tape out of a malfunctioning player—you’re probably not too nostalgic about them.

And that’s a good thing, because the introduction of compact discs in 1983 created a cassette killer, although that wasn’t obvious at first. CDs were a huge hit as a music source, with greater capacity, higher fidelity and more convenient transport than a boxful of cassettes. Yes, the “jewel boxes” used to sell and store CDs were a fragile pain, but the discs themselves were a revelation. You didn’t have to turn them over and they sounded great (after a few early missteps).

But the most important thing about CDs wasn’t all that obvious at first, and that was that having music in a digitized format eventually brought the personal computer into the picture. That wasn’t the case at first, because in the early days, a CD had more digital information on it than the average home computer’s hard drive.

And just for the trivia fans among you, the specifications of a compact disc are no accident. The diameter of the disc is the same as the largest (diagonal) measurement of a tape cassette, allowing players to have the same width as a portable tape player. And when the Japanese (Sony) and Dutch (Philips) engineers were debating the upper limit of a CD’s capacity, the Japanese held out for 80 minutes, because that was how long Beethoven’s 9th Symphony (hugely popular in Japan) took to perform.

Once PCs began packing on the memory, the merging of personal music libraries and personal computers was inevitable as sunrise. Steve Jobs had a vision that included that and more. He saw the whole picture in advance, and when Apple introduced the iPod, the world changed in a major way. The PC became the center of the entertainment universe and the Internet morphed into the preferred venue for buying music. Throw in movies, videos, books, podcasts, magazines and the letters and notes we used to write to one another, and it’s clear that just about every form of human communication is now on either your computer or a mobile device.

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I’d like to say that nobody saw this coming, but that’s not quite true. Chester Gould, the brilliantly warped imagination behind Dick Tracy, saw at least part of it. Check out this blast from the past that anticipated the Apple Watch by a few decades.

Years ago, someone noticed that really popular tech products weren’t just profitable; they actually transformed a market (or a society) in ways that couldn’t have been predicted. And someone dreamed up the new use of the word “disruptive” to describe that effect.

New products are described as disruptive all the time now, including many that don’t even come close to deserving the label. People are even publishing books about how to create disruptive products. Fat chance!

The truth is that nobody sees disruptive products coming. And when they do see them coming, they usually laugh or sneer or miss the point.

But—and I’m finally getting to the point here—seeing the potential of a genuinely disruptive technology, product or service can be ridiculously profitable, especially if you see it well ahead of the investing herd.

The Cabot advisory that consistently gets it right most often is Cabot Small-Cap Confidential. The advisory, which comes out once a month, is very much the personal project of Tom Garrity, a research genius who can sniff out a promising new medical breakthrough or technology before anyone outside the small circle of initial investors has heard of it. Tom’s picks of tiny companies sometimes take a while to attract the attention of the investing herd. That’s how good he is at seeing the disruptors that ordinary analysts routinely miss, or misinterpret.

If you want to get some disruption into your portfolio, you should take a look at Cabot Small-Cap Confidential. In one recent success story, Tom told his readers to buy OvaScience (OVAS) last October when the stock was trading at 16.53. When the stock soared to the high 40s, Tom started advising that they start taking profits. And when, after trading for a while over 50 and several more rounds of profit-taking, OVAS started correcting, Tom finally told his subscribers to sell out at 32, which was still a 100% gain.

For investors who have the patience to wait for the markets to recognize what real disruption looks like, Tom Garrity is a far-sighted hero. If you’d like to see how this could work for you, click here.

If I’ve piqued your interest in OvaScience and Tom Garrity’s stocks, you’ll be interested in these excerpts from Tom’s OVAS recommendation back in October 2014:

“Founded in 2011, OvaScience (OVAS) is a global life sciences company focused on discovering, developing and commercializing fertility treatments. The company is led by rising 30-something biotech star CEO Michelle Dipp, and is driven by fertility expert and Harvard Medical School researcher Jonathan Tilly, Ph.D, whose research was named one of the top 25 science stories of 2012 by Science News.

“In fact, it was Tilly’s research that led to OvaScience’s breakthrough infertility treatment. While working with mice, Tilly discovered oocyte-producing stem cells within their ovaries. Oocytes are essentially undeveloped eggs, and, with additional research, Tilly was able to use these stem cells and oocytes to produce new fertile eggs. The results sent ripples through the scientific community, shattering the long-held dogma that individuals are born with a fixed number of primary oocytes.

“In 2012, Tilly’s research team duplicated the procedure in humans, extracting oocyte stem cells (OSCs), or egg precursor cells, and creating immature eggs that could eventually be fertilized. Dubbing the precursor cells EggPCs, OvaScience patented this procedure and launched its flagship next-generation IVF treatment called Augment. Since developing Augment, OvaScience has developed two additional IVF procedures, OvaPrime and OvaTure, and has a third under development with a third-party, OvaXon. …

Historical Price: OVAS shares took a roundabout path to reach the public, starting out on the Over The Counter Bulletin Board (OTCBB) in November 2012 before reaching the Nasdaq in April 2013. And shares have had a rocky relationship with investors during these past two years. In 2013, OVAS was capped by firm resistance at 10, with shares bouncing in a tight range along support at 8. After a false start in January, OVAS broke out above 10 in February, peaking just shy of 12. However, regulatory concerns forced OVAS down to an all-time low of 5.50 by mid-May.

“Following a brief basing period near 7, OVAS has been in rally mode. The stock broke above 10 in early August, and hasn’t looked back since. In fact, since the beginning of August, OVAS has soared more than 65%, gaining the support of its 10-day and 25-day moving averages in the process.

Currently, OVAS is digesting these rapid gains, and appears to be forming a base just north of 15. As shares stabilize, any dips could be seen as buying opportunities.”

For more updates on OVAS and additional high-potential small-cap stocks, click here.


Paul Goodwin
Chief Analyst, Cabot China & Emerging Markets Report
And Editor of Cabot Wealth Advisory


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