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SuperModels Recent articles: • Why market skeptics see a huge opportunity, 4/20/2005 • Pfizer's pain can be your gain, 4/13/2005 • Take advantage of a market reversal, 4/6/2005 More... | SuperModels Look for holiday stocks ... in April By next fall, when everybody's talking about the hot electronics gear for the holidays, would-be investors will have missed the boat. Here are some contenders for next season's big sellers. By Jon D. Markman About seven months from now, the mainstream investment media will happily regale you with stories about the consumer electronics devices and apparel that are flying off store shelves as Christmas presents. Theyll make their manufacturers sound like theyre great investment opportunities, but of course theyll be late. Just to give you an idea of how messed up this reactionary method of investing can be, recall that last years big holiday items were the iPod, the red-hot personal music device from Apple Computer On the other hand, if youd picked up on the trend at this time last year and sold on Dec. 1, just as the story was becoming more widely understood, then youd have been up 150% on Apple and almost 100% on Sirius. And that is how the game is played properly. $1 trillion market? The markets recent panic, in other words, may turn out in retrospect to have been a good time to do a special kind of Christmas shopping. So what shall it be?
Lets go big picture first. If you have a wide enough field of vision, you can see a $250 billion-to-$1 trillion market opportunity just now opening up in the new world of consumer electronics, in which the long-promised convergence of media, software and hardware is swiftly becoming reality. That sounds like a really big number, but it may actually be conservative, according to a report by CreditSights analysts. If youre old enough, after all, you may recall the skepticism that met personal computers in the 1980s. And yet the humble PC spawned annual industries of $200 billion for computers and $200 billion for software. Flexible, energetic companies able to provide easy-to-use, digital media software, hardware, delivery systems, content or components at reasonable prices will increasingly find favor with investors in this environment. In many cases, you already know the names: device-maker Apple, to be sure, as well as those satellite-radio providers. But also content providers like Pixar Related news and commentary on MSN Money Its important to keep in mind that people in the future -- which is to say, seven months from now, but also seven years from now -- will still only have 24 hours in the day, so the new digital devices and content they buy will largely replace stuff they already have. Just as iPods selling for $250 surmounted large switching costs to replace Walkmans selling for $50 once digital content became available, so will high-definition plasma televisions selling for $999 ultimately replace conventional televisions selling for $500 once HD programming becomes more prevalent. Its just a matter of time, as manufacturing costs plunge and consumer prices fall into a sweet zone under $1,000. Jumbo replacement cycle So in this context, what we are really facing is the prospect of playing the early stages of what might be the biggest replacement cycle since the PC edged out paper and pen. CreditSights analysts get to their calculation of $500 billion, for the United States role in the cycle alone, this way:
Now weve got to bring this 30,000-foot view back down to Earth and figure out which pieces are actually going to sell big in the coming holiday season. The holiday season contenders For my money, Sonys beautiful, popular PlayStation Portable is a slam dunk -- so even though there are many more moving parts at Sony to worry about, not to mention the lumbering Japanese economy, I would consider Sony shares at the current quote and lower after their recent sell-off from $41.50 to $35. Another is still Apple, for although iPod sales will slow, its computer line continues to make significant headway both technologically and in the market against the Windows competition. I would love to see Apple purchase palmOne On the component side of things, you have to be impressed with the opportunity in front of consumer disk-drive maker Western Digital On the television side, there are not a lot of great choices, unfortunately, as this is still a brutal business with cutthroat pricing. But for sheer innovation and low-price leadership, you should take a look at Korean-Dutch joint venture LG Philips LCD Without doubt, some devices, software and delivery systems will emerge from obscurity by the fall to blow us away. If you think you know what the electronics, software or content will be this year, please write me at jon.markman@gmail.com and put DIGITAL in the subject line. Ill follow up with a roundup of reader suggestions in a few weeks. Fine Print Another component maker for high-def television to keep an eye on is chipmaker Trident Microsystems Jon D. Markman is publisher of StockTactics Advisor, an independent weekly investment newsletter, as well as senior strategist and portfolio manager at Pinnacle Investment Advisors. While he cannot provide personalized investment advice or recommendations, he welcomes column critiques and comments at jon.markman@gmail.com; put COMMENT in the subject line. At the time of publication, Markman was long Microsoft. | ||||||||||||||||||
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