Last week, a small army of high-powered celebrities gathered in Las Vegas …
Films stars Tom Cruise, Dana Carvey, Tom Hanks, Danny Devito, Robin Williams, Morgan Freeman and Ron Howard …
Sports heroes Dan Marino, Troy Aikman, Roger Staubach, Boomer Esiason, and Bonnie Blair …
Music giants Justin Timberlake, Quincy Jones, and Stevie Wonder …
Not to mention, technology giants Bill Gates and Michael Dell!
Plus, my own private scout was also there — my brother-in-law.
Why were all these people in the same place at the same time? To attend the famed and flamboyant Consumer Electronics Show.
They joined 150,000 geeks, nerds, and techies gathered to check out the newest and coolest electronic doodads.
Some highlights of the show …
With thousands of people watching, Kevin Collins popped an HD-DVD disc into a Toshiba player, pressed the “play†button … and … nothing happened.
No big deal. But the mishap is a metaphor for what I think will be a losing DVD format, as I’ll explain in just a moment.
At another booth, my brother-in-law stared in amazement at a 120-inch high-definition TV from Phillips. “It was the coolest thing I have ever seen,†he said breathlessly. “I’ve got to get one of those for my living room.â€
I didn’t have the heart to tell him that it costs $198,000.
He was equally excited about another item hundreds of times smaller: “They have these wrist watches with a built-in cell phone. I thought I was watching an episode of Get Smart or Dick Tracey,†he reported.
Both fictional characters would indeed be impressed. The item was the TWC 1150 from Korean company Telson. Not only does the wristwatch have a built-in cell phone, it also has a digital camera, an infrared wireless earpiece, a 256-color LCD screen, photo caller ID, a speakerphone, and voice recognition.
In another booth, he was also blown away by Asimo, the 51-inch walking, talking extraordinary human-like robot from Honda. The robot can jump, carry on conversations, complete ordinary office tasks, deliver food, and greet visitors … even play soccer.
Not a Nerd? Doesn’t Matter. The Vegas Show
Is Still An Event You Should Watch Carefully
I’m telling you about the Las Vegas Consumer Electronics Show because it highlights what I believe to be the sweetest spot of the high-tech investment food chain: the market for consumer electronic doodads.
Warning: This is NOT about the big-ticket corporate technology vendors — like Cisco, Nortel, EMC, Siebel Systems, Computer Associates — still struggling to grow their top and bottom lines. I’ve been telling you that these are companies to avoid. And that has not changed.
Rather, it’s the electronic doodad vendors that are making money hand over fist. Here are some situations where we see rip-roaring sales in the sector:
- Rip-roaring doodad sales #1: Best Buy, the largest consumer electronics retailer in the country, reported that its December sales increased by 12% to $5.7 billion while same-store sales grew by 5.8%. It now expects that Q4 earnings would be near the top of its earlier guidance.
Meanwhile, Best Buy said its strongest selling segment was consumer electronics, with sales rising 47%. Electronic doodads are flying off the shelves.
- Rip-roaring doodad sales #2: Business was also strong at Circuit City, which reported a 10.8% increase in December same-store sales and a 12.1% overall sales increase. No question — those are darn impressive numbers. In their own words … “A strong increase in the average ticket size more than offset a reduction in traffic.†“In December we saw strength in a broad number of categories, but we saw significant strength in flat panel televisions, MP3 players and accessories, notebook computers, video game hardware, navigation products and imaging products.â€
- Rip-roaring doodad sales #3: Apple has reported staggering iPod sales. It sold 14 million iPods last quarter — up from 4.6 million the year before — and pulled in $700 million more in sales than Wall Street was expecting.
Overall, it’s pretty clear to me that I underestimated how much consumers with cash would gobble up the latest and coolest electronic gismos.
But I was dead right about the slowdown in PC and home office equipment. At Best Buy, for example, sales of home office equipment — computers, printers, telephone systems, scanners, fax machines, networking equipment — increased by a measly 1.7% over the last 12 months.
All this has important implications for technology stock investors. The technology sectors that I said would be sinking — software, the entire PC food chain, and corporate (enterprise) IT spending — are still in trouble.
But the small slice of the industry that’s devoted to electronic doodads is doing just fine. And the Las Vegas Consumer Electronic Show was filled with clear clues about which ones are likely to be the biggest winners. The four I think stand out among the clearest are:
- Doodad Opportunity #1: Blu-ray DVD. If you’ve been a reader of my reports for a while, you know how excited I am about a new technology called Blu-ray DVDs. Blu-ray DVDs look identical to conventional DVDs, but they display five to eight times as many pixels, which makes the picture remarkably clearer. Plus, Blu-ray DVDs hold as much as 20 times the amount of data. That’s 20 times more movies, more songs, or more graphics and text. The Blu-ray DVD format does face some serious competition from a competing format called HD-DVD. But as Kevin Collins’ failed demo highlighted, HD-DVD has its problems. Blu-ray DVDs, in my opinion, will be the winner. What’s the best way to play the Blu-ray DVD wave? Sony (SNE).
- Doodad Opportunity #2: The iPod Killer? Their marketing department needs to come up with a better name, but a new portable entertainment system from Creative Technology sure looks like a better mousetrap.
It’s called the Creative Zen Vision. It has a brighter screen, a voice recorder, and an FM radio.
It holds 15,000 songs or thousands of pictures, supports a wide range of audio and video formats, works with multiple online song sellers and costs only $350.
The prognosis: Apple’s great success is inviting an army of imitators, and it’s only a matter of time before somebody pushes Apple off its profitable throne. To me, that somebody looks like Singapore-based Creative Technology (Nasdaq:CREAF).
- Doodad Opportunity #3: Cell phone killer. Consider the impact of a cell-phone look-alike that permits unlimited free calling anywhere in the world! Sound impossible? Well, these new phones from Netgear (Nasdaq:NTGR) are WiFi-powered and should hit the market sometime in 2006. There are a couple of minor catches, though: You can only talk to people using the same type of Netgear phone … and you can’t switch WiFi hotspots while talking. If you move around and leave a hotspot, it won’t switch to the next hotspot like a traditional cell phone. But if you’re sitting at a Panera Bread, Starbucks, or any other WiFi-enabled hot spot, the ability to make unlimited free calls to anywhere in the world is a powerful tool — and potentially a gangbuster seller.
- Doodad Opportunity #4: Spam, pop-up, and virus protection made easy. Taiwan-based D-Link makes connectivity products — hubs, switches, adapters, print servers, routers, and transceivers — primarily for the home and small office market.
Its newest product, SecureSpot, is a 3-in-1 Internet security system for home networks, protecting against spam, pop-up advertisements, and viruses. I find it to be an amazingly easy-to-use piece of hardware that consolidates all the pain-in-the-butt utilities to protect a home network into one small, plug-and-play device. It even automatically loads the latest virus and spyware updates as well as spam lists to your computer for you.
SecureSpot was awarded the prestigious “Best of Show†award and should be popping up in homes all around the world in the very near future. At $99.99 for the hardware and $79.99 per year for the ongoing updates, I think the company will see its profits explode.
The only thing more impressive than these amazing new technologies to me is the opportunity to make a mountain of money by investing in them.
Some of them have already run up and need to pull back before I’d buy them. But the opportunity is a large one, in my view.
Just remember: Many U.S.-based tech companies are still loaded with risks and problems. They’re …
(1) Very, very richly valued and …
(2) Too focused on the big-ticket corporate hardware and software market instead of the red-hot electronic doodad market.
That’s why Apple’s stock, for example, is smoking hot while the stock of companies like Sun Microsystems and JDS Uniphase are below $5 a share.
During the tech boom of the 1990s, you could throw a dart at the Nasdaq and make a bundle. Not any more! I think that anybody who blindly buys into a Nasdaq index fund could end up owning one of the worst performing funds of 2006.
To successfully invest in tech stocks today, you need to use a rifle instead of a shotgun. More importantly, make sure you’re aimed at Asia, including Japan (e.g. Sony), Singapore (Creative Technology) and Taiwan (D-link).
Best wishes,
Tony Sagami
About MONEY AND MARKETS
MONEY AND MARKETS (MAM) is published by Weiss Research, Inc. and written by Martin D. Weiss along with Larry Edelson, Tony Sagami and other contributors. To avoid conflicts of interest, Weiss Research and its staff do not hold positions in companies recommended in MAM. Nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in MAM are based upon data whose accuracy is deemed reliable but not guaranteed. Performance returns cited are derived from our best estimates but must be considered hypothetical inasmuch as we do not track the actual prices investors pay or receive. Contributors include Marie Albin, John Burke, Beth Cain, Amber Dakar, Michael Larson, Monica Lewman-Garcia, Julie Trudeau and others.
© 2006 by Weiss Research, Inc. All rights reserved.
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