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October 17, 2016

The Three Laws of Hypergrowth Stocks

By Bill Bonner, Bonner & Partners 
One of the most successful companies to go public in the last 30 years is Amgen.
In fact, from 1984 to today, Amgen has shot up a staggering 166,980% – going from $0.10 per share to around $167.
Had you invested a mere $600 in Amgen back then, you’d be a millionaire today.

This is the exact type of company I look for in my Exponential Tech Investor research service.
If you want to make technology stocks part of your portfolio, here are the three indicators you should look for…
Indicator #1: Exponential Technology
When I analyze technology startups, the first thing I want to know is whether the company is using leading-edge technology, what I call "exponential technology," in its product or service.
What is exponential technology?
Simply put: It is technology that improves rapidly every year instead of a slow, linear climb.
Consider computers. The speed of our computers’ processing power has been doubling every two years over the last 45 years. That makes its growth truly “exponential.”
And it’s happening in various sectors today, like medicine, robotics, artificial intelligence, and information technology.
My advice: If the tech company you’re looking at is not using breakthrough technology that’s improving by leaps and bounds each year, move on.
Indicator #2: Momentum
Once you’ve determined the company is using exponential technology as part of its product or service… the next thing you want to know is:
Is the industry it’s delivering this product or service to growing? More specifically, is this industry growing exponentially?
Here, consider Amgen, the company I mentioned in the start. Over a period of five years in the mid-90s, the industry as a whole was growing at a click of almost 40% per year.
Its industry was doubling about every two years. The market size, and thus the opportunity for Amgen, was growing exponentially.
Indicator #3: The "disruptor"
And the third thing I look for is what I like to call the "disruptor" indicator.
In other words, you want to know if the tech company you’re considering is disrupting an existing industry… or if it’s disrupting old industries in a way that’s actually creating a completely new industry.
The classic example is the advent of the car. Almost overnight, the "horse and buggy" industry was wiped out thanks to the Ford Model T.
Today, we have several "legacy"-type businesses and companies that are facing serious (and potentially terminal) competition.
IBM, FedEx, and Western Union all come to mind.
Companies that offer such compelling products or services, with benefits that are significantly greater than what is available to consumers today, are disruptors. Those companies are almost always delivering something better, faster, and cheaper than consumers or corporations have ever seen before.
"Is there anything else I should look for?"
Now, of course, there are other things that come to play.
Does the company have strong intellectual property or patents – an example of what Warren Buffett called an “economic moat”?
Who else is investing in the company? (Especially pertinent when looking at early-stage companies.)
But if you stick to the three main indicators – exponential technology (is the product using exponential technology to grow?), momentum (is the industry itself growing rapidly), and the “disruptor” (is the company about to displace existing “legacy”-type companies?) – then you will be way ahead of 99% of investors out there.
It’s a fairly straightforward formula. And one I think will benefit the tech holdings in any portfolio moving forward.
The Next Amgen?
Now, of course, you can (and I encourage you to) look at these factors yourself when you invest and study interesting technology companies. Because if there’s one thing I know… it’s that the next Amgen out there will have all three.
While I won’t claim I’ve found that “next Amgen,” I will say that I’ve been following one privately held tech company that checks all three boxes… and many others.
And the company will make its initial public offering (IPO) on the NASDAQ in just three days.
The technology this company is sitting on is truly exponential. It’s the kind of tech that will literally change the world. And it’s the final part of a broad-ranging, “three-legged” investment strategy that I developed for myExponential Tech Investor readers eight months ago.
In short, important scientific studies indicate this technology could play a major role in eradicating close to 6,000 diseases worldwide.
Needless to say, the implications – both from health and investment standpoints – defy the mind.
I can’t guarantee that, like Amgen, a mere $600 investment in this company will make you $1 million… but all I can say is that, even if it does just 10% of that, it will probably still go down as one of the best investments you’ll ever make…
Courtesy of Bill Bonner, Bonner & Partners
The views and opinions expressed herein are the author's own, and do not necessarily reflect those of EconMatters.

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