I have written a short, simple guide to investing basics that is specifically geared toward regular Joes and Janes who wish to become wealthy but have never thought investment was for them. The Stock Market is For Everyone is a short guide for the beginning, inexperienced investor that is easy to understand and can be … Read more My Book: THE STOCK MARKET IS FOR EVERYONE
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If you’re a typical investor, there are more stocks you’d like to buy than what you have money for.
No matter how satisfied you are with your portfolio, that hot new IPO – or hot “new to you” stock – looks so attractive.
The first thing you do is to start looking at which stocks in your portfolio you care to part with. Your thought process might go as follows: “Well, I’m up 300% in stock A, which just reported a bad quarter. Maybe the time is right to close the position.
“Then there’s the stock I’ve owned for a year that is only up 7%. The market has been on a tear the last 12 months…and this POS is only up 7%!!
“Lastly…I’m down 15% in this dog that I bought 2 years ago. I think I’ll sell that one.”
The latter two scenarios make a sound argument for the stocks in your portfolio that you should sell. However…there are never any guarantees.
Remember that at one time or another, Amazon (NASDAQ: AMZN) sold off – even though they were growing revenue at 15%-20% annually.
Netflix (NASDAQ: NFLX) had a three-year period when it did nothing. Tesla (NASDAQ: TSLA) was flat for two and a half years leading up to 2020.
And Nvidia (NASDAQ: NVDA) underperformed the market for years before they became the AI juggernaut they are today.
When we buy stocks, we can’t buy them in hindsight. Since we have no way of predicting the future, most of the sales we make will most likely turn out to be bad ones.
Sometimes a new company goes public that we feel we just have to own. We don’t have enough cash on hand, so the next best option is to sell stocks. “Shiny new object syndrome” is very real. I’ve been victimized by it myself, and at times it’s come back to bite me in the ass.
Let me share a personal story with you.
In 2016, I purchased shares of Invitae (NYSE: NVTA) at $7.60 a share. It went from $7.60 to $12 in gut-wrenching fashion. There were numerous fundraising rounds that made owning the stock painful, not to mention that it was the victim of a short attack by Citron Research and Akram’s Razor, a writer from Seeking Alpha.
NVTA did nothing until June of 2020, when they announced an acquisition of a company about to go public. In one session, the stock was up 30%, and until recently, it has not looked back.
The idea of selling NVTA for that “shiny new object” crossed my mind plenty of times. When I bought the stock, I intended it to be a long term hold, and I stuck with that. Glad I did.
My book, The Stock Market is For Everyone, is a short guide for the beginning, inexperienced investor that is easy to understand and can be put into action immediately.
What do Amazon, MercadoLibre and Shopify have in common?
If you bought 1000 shares of any one of these companies early in its lifecycle, you could have had a millionaire maker.
A millionaire maker is a stock that singlehandedly turns you into a millionaire, provided you’re not one already.
Millionaire makers are easy to spot in hindsight, but extremely difficult to identify in the present.
Take Amazon (NASDAQ: AMZN) for instance. At the beginning of 2002, AMZN was trading at $10.82 a share and had a market cap around $7.5 billion. This was right after the dot-com bubble burst, and AMZN was looked at by many as merely a survivor.
Over the next 18 years, AMZN would go on to become a compounding machine, appreciating 29,000%. If you’d bought 1000 shares at $10.82, and held it until today, you would have $3,150,000.
So…what are the characteristics of a millionaire maker stock?
If we look at AMZN, MercadoLibre (NASDAQ: MELI) and Shopify (NYSE: SHOP) we will find similarities.
Similarity number one: Each of these companies was the lead dog in a growing industry.
AMZN is the lead dog in e-commerce in the United States. MELI is the lead dog in e-commerce in Latin America. SHOP is the leader in e-commerce solutions for entrepreneurs in America.
Similarity number two: Huge TAM (total addressable market).
The total addressable market (TAM) refers to the amount of potential or anticipated sales in a particular industry. The TAM for each of these companies is massive. The opportunity in e-commerce alone is in the trillions of dollars globally.
Similarity number three: Millionaire makers tend to have optionality (but not always).
Optionality is the ability of a company to expand into new businesses over time, continuing to increase its TAM.
Thirty years ago, millionaire maker stocks did not have to have optionality. Home Depot (NYSE: HD), one of the greatest (if not the greatest) stock of all time, does the same thing today it did when it IPOed. In this new world, however, millionaire makers have to have optionality. For example, Amazon started out just selling books, and now it sells everything under the sun. It’s also the dominant player in cloud computing with AWS (Amazon Web Services).
Similarity number four: Millionaire makers tend to have smaller market caps.
If you want a potential millionaire maker stock , try to find companies with a market cap less than $10 billion. You could have bought MELI and SHOP when they were both valued at less than $1 billion. AMZN had the largest market cap among the three at around $7.5 billion before making its big move.
So…is Pacific Biosciences (NASDAQ: PACB) a millionaire maker?
I have no idea, but it has some qualities that I like when I compare it to previous millionaire maker stocks.
Who is Pacific Biosciences?
PacBio, according to its website, “provides sophisticated genomic analysis systems that deliver invaluable insights for scientists who strive to resolve complex genetic challenges.” PACB is the pioneer of long-read human genome sequencing with its HiFi sequencing method. Its current market cap is $2.88 billion.
How big is the total addressable market (TAM) for PacBio?
In order for a company to be a millionaire maker, it must have a huge TAM. Over the next five to ten years and beyond, genomics is expected to generate trillions of dollars in market cap. The future of health care will be to focus on preventing and curing disease using the most revolutionary medical breakthroughs of our time. Gene sequencing companies will play a huge role in making this possible.
When the TAM is potentially in the trillions, there is some serious money to be made! In 2002, when Amazon was a $7.5 billion company, very few people understood or knew its total addressable market. As it turns out, Amazon’s optionality made its TAM in the multiple trillions. Great management, execution and vision took AMZN from a small cap to a super mega cap with a current market cap over $1.5 trillion.
What is genomics?
The Human Genome Project was “the international scientific research effort to determine the DNA sequence of the entire human genome” (source: genome.gov). A genome is the complete set of genetic instructions necessary to build a living being – in this case, a human. In 2003, the cost of sequencing a human genome was $2.7 billion. Then Illumina (NASDAQ: ILMN) came along with revolutionary technology that lowered the cost of sequencing a gene from $2.7 billion to $600.
Is PacBio the lead dog in genomics?
The simple answer to this question is no. Illumina is currently the lead dog in genomics with about 90% of the gene sequencing market.
However, here’s what is so interesting about PacBio…
In 2018, ILMN made a bid to purchase PACB for $1.2 billion in cash. The deal eventually fell apart because the regulators were not going to allow it; ILMN is practically a monopoly in genomics, and purchasing PACB would have been a huge antitrust issue.
Now the question we have to ask ourselves is: why did Illumina want to purchase PacBio? PacBio has been a publicly traded company for a decade. During that time period, the stock has done nothing.
Well, although Illumina is the leader, it specializes in short-read next generation sequencing instruments, while PacBio has pioneered long-read sequencing. Long-read sequencing can detect difficult to sequence mutations called structural variants, which cannot be detected with short-read sequencing.
In addition, PacBio’s technology has made terrific strides since 2018. According to ARK Invest, “PacBio HiFi reads…produced more accurate data than…Illumina… suggesting that PacBio now is the industry leader in complete, highly accurate sequencing.”
In summary
Pacific Biosciences is a small cap company that may be on the verge of becoming the industry leader in gene sequencing. If PACB’s HIFI reads can become the industry standard in the age of genomics, they could very well become a millionaire maker stock.
My book, The Stock Market is For Everyone, is a short guide for the beginning, inexperienced investor that is easy to understand and can be put into action immediately.
