Bypass the Coronavirus…with this hidden
gem at the heart of “the biggest investment boom in history”
Operating revenue increased over 70%.
Gross profit surged 122%.
Net income was up over 60%.
Total bookings increased more than 150%.
Total number of registered users was up 92%.
No sales guys
On a beautiful spring morning in 2019, just a few blocks from the White House, I joined a small group of concerned Washington insiders.
The reason is that, on that same day 7,000 miles away in Beijing, forty world leaders joined Chinese President Xi Jinping for the second international gathering on the Belt and Road Initiative to build a massive network of ports, roads and railways across some 65 countries.
China clearly has the momentum.
For America, the stakes are high and the challenges enormous.
I’m all in on the noble agenda of putting America ahead in this great rivalry for the commanding heights of the global economy but my thoughts quickly pivoted to something else as well.
How can I find the best money-making infrastructure idea for my Cabot Global Stocks Explorer investment letter subscribers?
Tapping into my intelligence network, I have found a company and stock that I have no doubt is the infrastructure play of the decade.
This is no steel or construction company but rather is a leader in a special type of infrastructure, requiring much less capital and offering much more explosive growth than traditional infrastructure.
This type of infrastructure is hardly mentioned by the financial media.
Instead of cement or muscle, it requires brainpower.
Instead of taking years to build, it moves at lightning speeds.
Instead of steady, predictable returns for income investors, it is delivering real wealth.
Let’s begin with three powerful trends that come together to fuel this boom chip stock that you won’t want to miss.
It is at the heart of a growth trend that is both powerful and enduring. It already has 60 million customers and is growing at triple-digit rates making it a target for bigger fish to swallow.
Let’s start the story with the first boom trend and then on to two others and my favorite recommendation.
Boom Trend #1
Oxford University’s geographer reveals
“the biggest investment boom in history.”
$94 Trillion of Infrastructure
What is Infrastructure?
When you arrive for the first time in a country, what is the first thing you notice?
Maybe how modern the airport is – and then the condition of the subway or roads, bridges and the buildings you pass on the way to your hotel.
This is all infrastructure.
And the probability is high that this infrastructure shares one hidden ingredient that will make you a lot of money.
It goes well beyond making an impression on visitors – it is the very foundation and backbone of a modern economy.
Infrastructure is also a very capital-intensive big business presenting a great opportunity for savvy investors.
And keep in mind that like many things in life – looks can be deceiving.
I vividly recall a friend of mine that heads up an investment firm returning from a trip to Shanghai in the 1990s; “You see construction cranes everywhere but the stuff they’re putting up looks like junk to me.”
In just a moment, I’ll tell you more about this important quality issue.
Infrastructure is the key to unlocking a tremendous money-making opportunity.
But first, we need to take a closer look at why infrastructure is so important.
Why Infrastructure is a Big Deal
Infrastructure is critical for economic and social development the world over.
At the most basic level, people need access to clean, safe water for drinking and cooking and the power for lighting and heating their homes.
Infrastructure includes big stuff such as roads, oil and gas projects, telecommunications, satellites, bridges & tunnels, pipelines, airports & seaports, power plants, railways, subways, and water supply and treatment facilities.
The joint Global Infrastructure Hub and Oxford Economics report estimates that total spending on infrastructure will be $94 trillion in the next two decades.
That’s a staggering figure.
To put it in perspective, this number is considerably more than total world GDP in 2018 – and more than four times America’s total economic output in 2018.
And in just the next five years – some experts expect the amount of cash injected into global infrastructure to be a stunning $26 trillion.
This represents more than the annual GDP of the US, Canada & Mexico combined.
Let’s take a look at just where these huge amounts of capital will be spent.
As savvy investors, we need to follow the money for the best opportunities.
The Big Boys Target Infrastructure
Big institutional investors love infrastructure. Giant Brookfield Asset Management has just finished raising a massive new fund dedicated to infrastructure, a sign that global investors are eager to bet on railroads, natural-gas pipelines, renewable power and data centers.
The Canadian investment giant said it raised $20 billion for the fund, exceeding its $17 billion target and the $14 billion it raised for its previous infrastructure fund, which closed in July 2016. It is the biggest fund Brookfield has ever raised.
Even bigger is the $22 billion vehicle Global Infrastructure Partners announced in December 2019.
But Blackstone Group’s infrastructure fund could eventually be as big as $40 billion.
Firms raised a record $97.5 billion for infrastructure in 2019, up nearly 70% from 2015, according to data provider Preqin.
Investors are attracted to the sector’s reputation for steady returns, which tend to be lower than riskier private equity but higher than safer fixed-income securities.
Brookfield targets annualized returns and have reported a blended annualized return of 15%.
This is not bad, but my subscribers are looking for the potential to earn multiples of this.
Digging deeper, I saw that of the $8 billion Brookfield has already invested, about 45% was invested in data infrastructure and the majority of investments have been in emerging markets including China, India, Brazil and Mexico.
This was a clue to where the smart money is really headed.
Boom Trend #2
The Rise of Asia’s Megacities
The blueprint for Asia’s rise is built on infrastructure.
And a substantial part of why this infrastructure is needed is driven by rapid economic growth and urbanization.
As people have moved from rural areas to cities, the pressures on infrastructure have greatly intensified.
In 1980, 39% of the world’s population lived in cities; now, more than half live in major cities, and this figure is expected to rise to 67% by 2050, according to a United Nations forecast.
In 1979 there were only three cities in the world of over 10 million.
In 2017, there are 26 cities of which 20 are in emerging markets.
By 2030, the United Nations expects 41 of these megacities.
Amazingly, China, after about 500 million citizens moving from rural areas to urban centers over the last four decades, now has over 113 cities with a population exceeding 1 million.
According to Demographia, this is more than North America and Europe, combined.
And Asia is already home to seven of the world’s ten largest megacities.
This means that unless these countries build more airports, roads, subways, power plants, railways, seaports, and pipelines, they will literally choke on their growth. Morgan Stanley predicts that $22 trillion will be spent on these projects over the next decade.
Megacities are one of the more fascinating developments emerging from the extraordinary trend of Asian urbanization.
Simply put, a megacity is a city that has more than 10 million people.
There are only two cities like this in America and only three in all of Europe.
But in Asia, they’re everywhere.
Take Vietnam, for example.
The country is spending $16 billion on a new airport, $14 billion on a new national expressway and $4 billion for new subway lines.
The Asian Development Bank has estimated the Vietnamese government will need to borrow a further $480 billion to reach it infrastructure goals by 2030.
More than 3,000 miles away, the government of India estimates it will need to invest more than $1.5 trillion in infrastructure over the next decade. Right now, 31% of its 1.3 billion population live in cities.
But India’s Minister of State for Urban Development has said that this number will rise to 60% in the coming decades.
Which means that in India alone, 377 million people will move into urban areas in the next 10 to 20 years. That’s more than the entire population of the United States, shifting into an urban city.
No other country builds more megaprojects than China.
Bent Flyvbjerg, Nils Bruzelius, and Werner Rothengatter, are the authors of Megaprojects and Risk: An Anatomy of Ambition
This book highlights how we are currently living through the biggest investment boom in history, led by China.
Never have megaprojects been bigger, never have more such projects been built, and never has a country used megaprojects for nation building in the manner and to the degree China does.
The numbers are off the charts. China used more cement in the three years 2011-2013 than the U.S. in the entire twentieth century.
In the five years 2004-2008, China spent more on infrastructure in real terms than it did in the whole of the previous century.
First proposed by President Xi Jinping in 2013, the $900 billion initiative is to develop and construct a vast network of railroads and shipping lanes between China and 65 countries in Asia, North Africa, the Middle East and Europe.
Morgan Stanley believes investments will increase by 14% annually over the next two years, and the total investment amount could double to $1.2-1.3 trillion by 2027.
You can’t talk about Asian infrastructure development without mentioning China.
The region’s “giant” spent $2.6 trillion on infrastructure in 2017.
And it’s committed over $1 trillion to road building in an initiative that’s been called the Belt and Road initiative and its aim is to link China to Europe, Africa and the Middle East by road, port and railway.
The growing need for infrastructure combined with the steady investment returns it delivers has made it a favorite destination of investment capital.
Next to China, the next biggest investor is sovereign wealth funds, with $7 trillion of assets, putting roughly 25% of their investments in infrastructure projects at home and abroad.
The Asian Development Bank (ADB) in Manila allocates at least $10 billion each year to infrastructure and the China-led Asia Infrastructure Investment Bank (AIIB) is up and running with $50 billion of capital and 57 founding members.
But what about individual investors like you and me?
How can we get a cut of this tremendous opportunity?
I’m going to tell you about a few traditional infrastructure plays and then get to two more exciting hidden ideas that really get my heart pumping.
Three Traditional Infrastructure Investment Plays
There are several strategies you can use to capture the growth and profits of global infrastructure.
One strategy is to actually own and operate infrastructure around the world and Brookfield Infrastructure (BIP) is a leader in this space.
Bermuda-based Brookfield Infrastructure Partners focuses on high-quality projects that generate stable cash flows, have low maintenance expenses and are virtual monopolies with high barriers to entry.
Brookfield is a Master Limited Partnership (MLP) established by world renowned, Toronto-based asset manager Brookfield Asset Management (BAM) in 2008 to take advantage of the infrastructure build-out.
Brookfield has a current portfolio with 2000 assets in 30 countries on five continents. It is well diversified geographically with roughly 25% in North America, 30% South America, 25% Europe and 20% Asia Pacific.
• Toll roads in South America
• Telecom towers in France
• Railroads in Australia
• Natural gas pipelines and storage in North America
• Utilities in Brazil
• Ports in Europe, Australia and North America
• Data centers on three continents
As money is pouring into the sector, Brookfield is well-positioned with established relationships, contacts and established expertise all over the world.
The company knows how to select the most profitable assets. And more and more opportunities are flooding in with the rising tide of investments.
Despite a strong historical performance, the stock is still reasonably priced because it had a rare bad year in 2018, down almost 20% but BIP seems to be regaining favor with the market as it’s up over 21% so far this year.
Brookfield Infrastructure has many of the benefits of a utility but with a higher growth rate and steady cash flows that come in handy during a recession.
Furthermore, about 75% of its cash flows are inflation-indexed and only 5% are subject to commodity price risk.
Our next idea goes to an often-overlooked part of the infrastructure business: the engineering and project management that goes into developing and building infrastructure.
It often takes years and a lot of capital simply to get to the point of breaking ground on a project, and it takes a lot of experts and experience to get something built and running smoothly.
In my experience, Fluor Corporation (FLR) is one of the best at international engineering and construction.
Founded in 1912 and based in Texas, Fluor has built power plants that light up our homes, petroleum plants that fuel commerce, and roads and bridges that connect our cities by developing, executing and maintaining capital projects.
Fluor serves more than 4,000 clients in over 100 countries and its current backlog is an impressive $40 billion, which was more than a $9 billion rise from the previous year and new awards in 2018 hit $28 billion – a 100% increase over 2017.
Our third idea represents another reasonable way to invest in infrastructure: invest in what’s behind most of it – cold, hard steel.
You can’t go wrong with America’s biggest steel company – Nucor (NUE) on the heels of a great performance in 2018.
Whether it’s rebar for concrete construction, tube steel for uses including energy transportation and production, or the beams used to build bridges and skyscrapers, Nucor is a leader in steel for infrastructure.
The company reported 20%+ sales growth and a steep increase in earnings that follow a steady increase in shipments. Nucor also has a solid balance sheet and a nimble management team that has demonstrated an ability to manage growth even when steel demand swings against it.
As you can imagine, the stock has done well and seems pretty fully priced to me so I would build a position on any pullbacks in 2020.
You can certainly expect above average returns from the above three infrastructure plays.
But if you are at all like me, you want more.
To get ahead of the pack, we need to think deeper and find hidden ideas with explosive upside potential.
Now, let’s turn to an investment theme and hidden investment idea that is beyond the radar screen of even the world’s most savvy investors.
Yet again, we need to circle back to China.
Boom Trend #3
The Rise of Mobile Payments & Digital Financial Infrastructure
In 1865, sending a telegram from Britain to India took five to six days, and it involved up to 14 relay stations. At each of those relay stations, the message was received, decoded, and then physically transferred to someone else who coded the message and sent it onto the next relay system.
And a 20-word message cost the equivalent of around $800 today. Amazing.
Even as late as the 1990s, many people in Asia did not even have a landline.
But according to Statista, there are now 1.6 billion smart phones in Asia and this mobile ecosystem accounts for 10% of the region’s GDP.
Contrast this with first mobile and than smart phones today, which are at the core of what is known as financial infrastructure.
Now we will bring everything together, the two previously discussed boom trends of infrastructure and Asian mega cities with mobile payment and financial infrastructure.
Because of the explosive leapfrog growth of cell phones, the rising young consumer middle class, and a willingness to bypass traditional credit cards and bricks and mortar banks, mobile payments and digital banking are soaring.
One company I call the “Giant” – stands tall in Asia. This company is private and not listed on U.S. markets but I will shortly explain to you how to invest in its growth.
I’ll also explain how you can learn about a smaller company that is growing even faster and will likely be acquired by this giant.
This smaller company has most recently posted some eye-popping numbers:
- ✓ Operating revenue increased 76%.
- ✓ Gross profit surged 122%.
- ✓ Net income was up 62%.
- ✓ Loans outstanding are over $7 billion – double that of a year ago.
- ✓ Total loan bookings increased 170%.
- ✓ Total number of registered users reached 62 million – up 92%
And the giant has gotten even bigger with 900 million Chinese and about 300 million overseas customers using its payment platform. And its goal is a staggering 2 billion by 2030.
The company’s value has gone from $50 billion in 2015 to $150 billion in 2020.
The company is also starting to make loans to individuals and to small businesses, and it has set aside $1 billion to expand in India and Southeast Asia – a potential combined market of 2 billion alone.
Both these companies are financial infrastructure plays, better known as fintech.
What is Fintech?
Fintech describes any company that provides financial services through software or other technology using the Internet, mobile devices, software technology or cloud services to perform or connect with financial services.
Many fintech products are designed to connect consumers’ finances with technology for ease of use, such as with mobile payments, insurance, banking or investments.
All this bypasses traditional bricks and mortar banks and buildings.
It seems as though everyone with a smartphone uses some form of mobile payments and according to Statista, the global mobile payment market exceeded $1 trillion in 2019.
And fintech is spreading quickly throughout Asia and the world.
Citi customers in Asia can pay for their Spotify subscriptions with card points and JPMorgan Chase & Co has invested U.S.$40 billion on technology in four years and is hawking new capabilities to Asian corporate clients.
Jerry Yang, cofounder of Yahoo, said in a recent interview that Southeast Asia’s high-speed growth resembles China 10-15 years ago.
Yang believes that this so-called digital leapfrogging, such as wide use of mobile phones or smartphones, without the period of landline use develops more rapidly in Southeast Asia than in China. For example, more than half the population of Southeast Asia does not yet have a bank account.
Due to these circumstances, e-payment service via smart phones has spread through Southeast Asia rapidly. In Thailand, 44 million people, around 60 percent of the total population, use mobile phones to make payments.
Unfortunately, China and Chinese companies are way ahead of America in capturing business opportunities in the Indo-Pacific region.
The U.S. and Japan have agreed to collaborate on the digital aspect of Indo-Pacific strategy in addition to the infrastructure and energy aspects.
Supporting digital businesses are next-generation telecommunications infrastructure such as 5G networks or submarine cables. These are just a few on the agenda of the U.S.- Japan cooperation as you can see from the below map.
The giant is already in all of these markets through joint ventures or partnerships in Thailand, Bangladesh, South Korea, Singapore, Philippines, India, Pakistan, Indonesia, Vietnam, Malaysia and Mexico.
What’s Driving FinTech?
Here are three key drivers of fintech.
• Digital Transformation
Physical financial infrastructure requires significant investment in people, buildings, aging technology systems and even older paper-based processes.
This out-dated foundation places incumbents at a disadvantage in terms of both cost structure and user convenience.
In contrast, new companies have the advantage of a clean slate and can begin with a state-of-the-art technology platform from the get go.
This dynamic is playing out in virtually every arena of financial services, including banking, capital markets, real estate, insurance, payments, asset management and wealth management.
• Artificial Intelligence (AI)
Artificial intelligence is simply the ability of machines to think like an intelligent human but perhaps 1,000 times faster and at a higher level.
The ability to gain actionable insights from data using AI is driving the fin tech and creating frictionless and personalized consumer experiences that are predictive, personal and efficient.
Taking a page from the playbooks of Amazon and Netflix, incumbent financial firms are seeking to move from a “search-and-browse” to “curate-and-deliver” model, where they anticipate client needs utilizing data and machine learning.
Emerging fintech companies are helping consumers gain access to small business loans and home mortgages, “intelligent” automated savings and investment plans based on a customer’s data profile.
You might think of blockchain as a secure, flexible ledger in the cloud, which offers tamper-proof, transparent tracking of transactions.
This allows any process to be streamlined and settlement times can be greatly shortened. Not only does this greatly reduce costs for financial services firms, but it also saves capital.
This is increasingly important given the decline in fees plus the increase in regulatory costs.
Don’t Miss Our Favorite Fintech Stock
Fintech is an exciting, competitive, fast-growing market offering investors significant growth potential.
My recommendation is based on this company’s:
1) huge growth market
2) impressive numbers, credit quality, and low valuation
3) high potential for international expansion.
1) Well-defined, huge, fast growing target market
The company’s target market is 250 million educated young adults aged between 18 and 36 with high income potential, high educational background, high consumption needs, and a strong desire to build their credit profile.
And because it begins serving them early in their career, they have a clear advantage in data and analysis. In fact, this company gets to these Chinese yuppies years ahead of the banks by about five years.
In addition, while there is considerable competition in this space, the market is huge and nobody can serve it all. This is why the company has signed strategic agreements with dozens of leading banks, insurance companies and consumer finance companies and has more than 100 institutional funding partners.
2) Strong growth, high credit quality, and low valuation
This company posted some impressive numbers in its last quarter’s earnings report.
- ✓ Operating revenue increased over 70%.
- ✓ Gross profit surged 122%.
- ✓ Net income was up over 60%.
- ✓ Loans outstanding were double that of a year ago.
- ✓ Total loan bookings increased more than 150%.
- ✓ Total number of registered users was up 92%.
Despite these stellar numbers, this stock sells for 14 times trailing earnings and between 5-6 times prospective earnings. Earnings could increase by as much as 40%-50% in 2020.
In comparison, the S&P 500 sells for about 25 times trailing earnings and 19 times prospective earnings for the next 12 months.
So this high-growth stock is trading at a valuation of about 1/3 the average stock in the S&P 500 despite impressive numbers that would put all but a few to shame.
And the company’s credit quality continues to be high as the company’s 90-day plus delinquency ratio remains just over 1%.
3) Opportunities to expand internationally and prime takeover candidate
There is no reason the company cannot take its system and platform to other Asian and emerging markets. This could easily be done through joint ventures with financial institutions that already have a strong position in their home market but wish to follow the company’s first mover strategy.
In addition, given its growth and rising profile, this stock seems to represent an ideal takeover candidate. I could easily see a large bank or other financial institution going after the company to strengthen its position with young, high quality consumers.
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Making Money with Fintech Stocks
Three Trends Driving Fintech
America & China Lead in Fintech
Seven Leading Fintech Stocks
Sectors Most Impacted by Fintech
Best Fintech Stock Recommendation
Confidential Special Report #2
The Best New Tycoon Stock for the Pacific Century
The Clean Energy Revolution
Electric Vehicles Gain Traction
The Oil of the 21st Century
The Tesla of China is On the Move
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Yours, for adventure and profit,
Chief Analyst, Cabot Global Stocks Explorer