Editor's note: Our company recently broke a huge new research story from our colleague Dave Lashmet... So today, we're shining a spotlight on his unique approach to the market. In this piece – originally featured in DailyWealth in September 2020 – he shares how thinking like a classic venture capitalist can help you find small biotechnology stocks that crush the competition...
When most people hear "venture capital," they think of Silicon Valley...
They think of men in $5,000 suits trying to predict the next Apple or Facebook. But the concept of venture-capital investing goes back more than 75 years to one of America's blue-blood families.
Laurance Rockefeller, grandson of Standard Oil founder John D. Rockefeller, Sr., developed the strategy to grow his family's wealth.
Rockefeller began his career in finance at 26, when he inherited his grandfather's seat on the New York Stock Exchange. During World War II, he became fascinated with incredible developments in science, technology, and medicine.
It shouldn't surprise you that the stocks I recommend in my biotech newsletter come from a few key sectors... And they look a lot like the emerging technologies that Rockefeller focused on.
We use a few basic clues to identify the winning stocks in these areas. As you'll see, these traits amount to something important – a clear path to beating the competition.
Let me explain...
First of all, we focus on three main types of companies: small drug companies, medical-device makers, and new high-tech devices.
We love developing-drug stocks for several reasons. First, safe drugs save lives, so demand is inelastic. This means revenues go up even as prices rise.
Second, over the next 20 to 30 years, the older segment of our population is going to explode. And aging Baby Boomers will continue to spend a fortune on everything from pharmaceuticals to lifesaving devices.
Third, new drugs are protected monopolies. Patent-holders are guaranteed exclusive rights to sell a new drug for years before a generic version can hit the market and undercut profits.
Plus, all the competition has to undergo testing before it can be released. So there are no surprises about new players coming in the field. You can't build a new drug in your garage. Not if you want FDA approval to sell it legally...
Medical devices are a similar story. Patents give economic monopolies to the companies that sell these products. And they make the competitive landscape relatively easy to read.
In medical sectors, we look for patented lifesaving drugs. We also look for devices with strong positive effects in human trials – and with low side-effect burdens to protect against future competition.
When you get outside of the medical realm... new technologies do not usually address lifesaving needs. But there can still be a regulatory requirement that guarantees a technology will be put into use. Imagine who the winners will be if the U.S. National Highway Traffic Safety Administration mandates lane-departure warning technology, just like it did with seat belts or air bags.
That's why we look for companies with breakthrough technologies that can readily be adopted by the market. In other words, consumers need them, and they're willing to pay a lot of money for them.
When investing in all these types of companies, a deep understanding of the companies' patents will be key. These patents (and related forms of protection of intellectual property) are how we know a company's innovations are protected... that the folks designing these breakthroughs will be the ones to bring them to market. That way, we can be more comfortable investing alongside them.
Patents are the bread and butter of successful biotech investing. Operating businesses are afraid to discuss them, so Wall Street doesn't seem to understand their value.
The trick is, a patent is grounded in science, medicine, or engineering. It's not a financial instrument. And it's only valuable if it addresses a need – like an antibiotic that fights infections.
One way or another, we want to secure our stake in the asset that a future market will desire. So we're doing more than just buying stocks in Stansberry Venture Technology. We also want to understand the patents and their timelines.
One sector you won't see us ranging into often is software. Think about a smartphone application that can order you up a private-car service, like Uber or Lyft. Nothing holds back competition, so there's no guarantee who will win. Will Lyft beat Uber, or will Uber beat Lyft in the ride-hailing space? Trying to guess is a fool's errand. For that matter, a third company might come along and wipe out both.
That's not true of safe new drugs, or devices, or core revolutions in hardware technology... like new classes of computer chips. Although such technologies are much more expensive to develop, they are not fads. And their intellectual property is much harder to steal.
This is why some venture capitalists are now holding on to early-stage drugs, too... At least, they are trying to. But human clinical trials are so expensive, these small drug companies almost have to go public to share the risk.
We are happy with risk, as long as the reward is greater, and we have a reasonable chance to make far more money than we put at risk.
That's the core of what we do in my Venture Technology newsletter... We share a common understanding with early-stage venture capitalists. We give up some of the reward, but we also retire most of the risk... Plus, we stay more liquid.
This is how we find "no contest" companies in emerging technologies – the kind that can soar to spectacular gains. And it's how you can learn to invest like a Rockefeller.
Editor's note: Dave recently found a small, up-and-coming chipmaker that's 100% U.S.-owned. It has a barrier to entry that competitors can't easily match... And he believes it's virtually guaranteed to receive hundreds of millions of dollars – or more – from Congress as it pours $52 billion into the chip industry. If you act now, you'll get all the specifics about this opportunity... plus a full year of Dave's Venture Technology research... at 50% off the regular price. Learn more here while you can.
When you think of biotech stocks, you probably think of new blockbuster medications... But that's not the only way to make money in this sector. Unlike making drugs, another type of biotech company can offer stable profits... Learn more here.
"Even high-flying momentum stocks can come back down to Earth," Dave writes. "So how do you invest for the future?" This is especially important when investing in tech companies. And to succeed, you need to get in a specific mindset... Read more here.
Today’s chart shows reliable, long-term gains from a global tech leader…
Longtime readers are familiar with what Dan Ferris calls “World Dominators.” These companies stand out in their industries and have fortress-like balance sheets… making them well-positioned to endure almost any market environment. They are one of the safest kinds of investments you can make. And today’s company is a great example…
Cisco Systems (CSCO) is a $250 billion Internet powerhouse. It makes networking devices such as routers and switches – what we call the “plumbing” of the Internet. The company estimates that 85% of Internet traffic travels across its systems. And as our world becomes more “digitized” each day, Cisco remains the worldwide industry leader… In the most recent quarter, the company saw product order growth of 31% – the strongest year-over-year growth in more than a decade.
As you can see, CSCO shares are in a strong uptrend. They are up roughly 40% over the past year and recently hit a fresh all-time high. As long as the world depends on Cisco to get online, this success should continue…