Tag: invest

Is PacBio A Millionaire Maker?

Is PacBio A Millionaire Maker?

ericmilton

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.

Click here to be taken to its Amazon page.

(Disclosure: As a participant in the Amazon Services LLC Associates Program, I earn a small commission on each sale generated through these links.)

 

 

 

Five Reasons People Don’t Buy And Hold

Five Reasons People Don’t Buy And Hold

ericmilton

If you’re on social media like Twitter and Reddit, or watch financial media like CNBC, you get a heavy dose of short-term thinking every day.

It is the job of the media, as well as some posters on Twitter, to take a minute-by-minute temperature of the stock market. If the stock market is up, the media wants to tell you why. If the stock market is down, the media wants to tell you why.

If you’re a long term investor, and you’re planning to hold on to these stocks for the long term, none of that information matters to you.

Yet…it can be hard to be a buy and hold investor. Why is this?

Reason Number One: Holding Period Too Short

When people ask me if they should purchase a stock, the first question I ask them is: “How long are you planning on holding it?”

In my opinion, if you’re not planning on holding a stock for a minimum of three to five years, you should not purchase it.  A year or two may not be a long enough time period to benefit from owning a stock.

Take this year for example. Suppose you purchased stock in October of 2019 with the intent to hold on to it for six months.

You would have been in for a rude awakening, because six months later saw the stock market drop 25%  due to fears of the pandemic.

If you’d needed that money then, you’d likely have been down 40% or 50% on your initial investment.

A longer holding period gives your portfolio the opportunity to come back from such steep losses – and then some.

Reason Number Two: Lack Of Patience

Patience is a huge part of being able to successfully buy and hold your investment.

In this world of immediate gratification, we want to buy a stock on Monday and have it go up every day after that. That’s not how investing works!

The time it can take for an investment theme to materialize varies from a few months to a few years. For example, Netflix (NASDAQ: NFLX) went public in 2002. From 2006 to 2008, the stock was up a whopping 10%. It pretty much did nothing over three years.

I know someone personally who owned Netflix during this period, became impatient due to the lack of movement, and sold.

In 2007, Netflix introduced streaming video – which would eventually go  on to be one of the biggest disrupters of our time. It took a few years to gain traction…but once it did, it went on to become one of the greatest investments of all time.

Over the next eleven years, Netflix would go up 27,200% or 272 times your money. The only way to have captured that move was to be patient and hold for the long term.

Reason Number Three: Take Profits Too Soon

If you are a long-term investor, and thinking in terms of decades as opposed to quarters, you cannot be too anxious to take profits.

If you look at some of the greatest investments of all time, the only way to capture those life-changing returns is by holding.

For example, in 2016, I bought shares in a small genetic testing company called Invitae (NYSE: NVTA) at $7.36. The stock is currently trading at $40, a return of 444%. I have no idea what will happen in the future, but I’m not thinking about selling. If the company becomes as big a winner as I believe it can, it still has a long way to go.

Is there a chance the company will not meet or exceed my expectations? Of course.

On the flip side…I don’t have enough fingers and toes to count the stories I’ve heard of investors that took profits too soon and missed out.

Reason Number Four: Try To Time The Market

Unless you’re a genius or get very lucky, it is impossible to successfully time the stock market.

What is “timing the market”? Timing the market is when you try to anticipate when the market is going to fall so you can buy, or try to anticipate when the market will go up so you can sell.

If you’re on Twitter or other social media, you’ll see tons of posts by traders who are short-term in nature, as well as some people who call themselves long-term investors, about how they time the market.

The beautiful thing about being a true long-term investor is that you don’t have to time the market.

In 2016, I bought shares of Nvidia (NASDAQ: NVDA) at $69. The stock went to $299 over the next two years. It then proceeded to go from $299 to $128, and looked as though it could fall below $100. Eventually – a year later – it went back to around $248, but the market was looking very shaky. During this time, I actually thought about selling the stock around $248 to buy it more cheaply.

As it turned out, the stock never went much lower. NVDA is sitting above $500 today.

The best choice I made was to not do anything.

Don’t try to time the market. Just buy stocks when you have the money.

Reason Number Five: Fear

If you are going to be a long-term investor, you need to understand volatility.

Over the last 50 years, the stock market has gone up two out of every three years. However, we will have times when the stock market sells off – or maybe even crashes. As a result, your stocks will go down with the market. It is not inconceivable that the market and your stocks could fall 20%, 30% or even 50%. During the dotcom bubble, the NASDAQ fell 80%.

It is very important to not get scared because of downturns. Sell-offs are a natural part of the process.

You should actually welcome them. Downturns should be looked at as stocks going on sale.

When pandemic fears hit the market in March, my portfolio lost 40% of its value in the blink of an eye. Since then, my account has more than doubled, and is now near all-time highs. It’s not because I’m smart or some sort of investing genius. It’s just that I didn’t panic.

In Conclusion…

Being a long-term investor is not easy. It’s scary at times, and boring most other times. I liken it to watching paint dry the majority of the time. However, don’t let fear or boredom distract you from your goal of becoming a long-term investor.

 

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.

Click the image of the book at left to be taken to its Amazon page.  (Disclosure: As a participant in the Amazon Services LLC Associates Program, I earn a small commission on each sale generated through these links.)