Last year consulting company McKinsey & Co released a paper called Disruptive Technologies: Advances that Will Transform Life, Business and the Global Economy. I mention this because the companies that benefit from these "disruptions" can earn investors returns over 100%, 500%, or even 700%.
While these are extreme examples, let's take a look at what we can learn about long-term trends, and what lesser-known stocks might be ready to benefit.
As regular readers know, I describe my style of value investing as tailwind investing. That means I combine valuation with looking for long-term trends, including technology advances. While I doubt I'll ever earn returns of 700% within a year (unless I get really lucky), more than one of my picks using this philosophy has doubled in 12 months.
So without further ado, let's start examining some of the transformative technologies that are changing the world.
One of the disruptive technologies McKinsey covered was Energy Storage. "On the power grid," they write, "advanced battery storage systems can help with the integration of solar and wind power, handle peak loads, and reduce costs by enabling utilities to postpone infrastructure expansion. In developing economies, battery/solar systems have the potential to bring reliable power to places it has never reached."
So who will benefit from this trend? The most likely ASX beneficiary is Redflow Limited (ASX: RFX). Basically, the company makes batteries that are appropriate for most of the applications above, and the stock has soared over 100% in recent months.
High expectations are built into the current price, and I've covered the company in more depth in this article. Overall though it's evident that if battery storage makes solar powered remote grids a common reality, companies like Redflow have massive futures.
Another technology trend McKinsey mentions has already played out in Australia – and many investors have made big returns already!
I'm talking about mobile internet. To quote McKinsey: "In just a few years, Internet-enabled portable devices have gone from a luxury for a few to a way of life."
Many Australian investors made money from this by investing in Telstra Corporation Ltd (ASX: TLS), which is up 34% in the last two years, excluding dividends. As the largest mobile provider, the smart-phone roll out has been a big boost to Telstra's bottom line! While Telstra remains a good business, I do not find it an attractive company to buy at current prices.
The third disruptive technology I'd like to talk about is advanced materials. McKinsey says that: "Advanced nanomaterials such as graphene and carbon nanotubes could drive particularly significant impacts. For example, graphene and carbon nanotubes could help create new types of displays and super-efficient batteries and solar cells."
Graphene is made from graphite, so arguably graphite miners such as Syrah Resources Ltd (ASX: SYR) and Triton Minerals Ltd (ASX: TON) stand to benefit. Lo and behold, they are up 43% and 541% in the last year.
However, if I wanted to speculate on graphene, I would prefer Talga Resources Ltd (ASX: TLG), which can actually make graphene. In fact that stock is already up 700% in the last year.
However, all of these graphite stocks are speculative in nature and are quite hyped up at the moment, so I would not buy at current prices.
