- Dystopia? Not yet arrived…
- Exciting tech developments across the world
- Plus, why the market is overly pessimistic about this stock…
In 2015, I interviewed Martin Ford. He’s the author of the book Rise of the Robots. It won a business book of the year prize.
The main gist is that the advancements in computing where going to result in a huge level of unemployment as tech eats white-collar jobs.
It’s an easy dystopia to believe in.
It’s also been completely wrong so far.
Just this month, the latest employment figures in the United States smashed expectations.
Unemployment in the US is a measly 3.9%.
And yet technology keeps encroaching in new areas.
Today’s Profit Watch explores why the advancements in technology are a wonderful development, and one stock to watch…
News just in…
The British National Health Service (NHS) is running a trial where artificial intelligence will analyse scans to detect breast cancer.
This follows on from similar moves in Europe.
The current methodology is problematic. Early signs of cancer can be missed. Diagnosis can be incorrect.
One algorithm is now under peer review to see whether it’s better at diagnosis than doctors. Odds are it will be.
There’s another reason the NHS is trialling this technology, according to the Financial Times. The UK has an acute shortage of radiologists.
Machine learning can help alleviate these problems.
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So we could soon have better diagnosis and faster treatment — and at a lower cost for the British government.
How is this a bad thing?
Of course it’s not. It’s great news!
There are exciting developments elsewhere. Using genetic engineering, researchers in the US have found a way to ‘correct’ the natural photosynthesis process in plants, improving crop productivity.
This will help feed the world’s growing population in the coming decades.
That brings me to the stock up for discussion today.
You know it…
Apple’s modest P/E — a market anomaly
The iPhone is everywhere. The Apple brand is huge. And the company has enormous revenues…US$62 billion in its last financial quarter.
Apple is also a key component in the fabled ‘FAANG’ (Facebook, Apple, Amazon, Netflix and Google) trade that drove the US market for so long. It was the first US public company to hit US$1 trillion in market cap.
But get this…
Apple currently trades on a price to earnings (P/E) ratio of just 12.
That is exceedingly modest.
Amazon, for example, has a P/E of 93.
BHP has a P/E of 47.
I could go on with a list of stocks like this.
Why is the market discounting the outlook for Apple so heavily? Because of its reliance on the iPhone to drive its revenue and profitability.
The global smartphone market is reaching saturation point and the upgrade cycle is lengthening.
There’s only so much runway left for Apple to keep growing on this front…and the last big market — China — is not a winner for the company.
Apple is also pumping more money into research and development…but it’s not yet clear if another big payoff will spring from this.
And yet Apple’s ‘service’ division hit US$100 billion in revenue for the last fiscal year…and has a growth rate of 20%. These are big numbers for such an established firm.
That’s not all, and it brings us back to the NHS story above.
Apple — and other big tech firms — have huge potential to move aggressively into healthcare.
10% of global GDP up for grabs
One estimate puts health spending at the equivalent of 10% of global GDP every year… That’s US$7 trillion.
Firms like Apple can hoover up huge amounts of data, and use their enormous cash levels to fund research and development.
They could even move into health insurance, with better ability to price their risk.
Few companies understand their clients better than the major tech firms, because they’re integrated so heavily into our lives.
Why does all this matter?
One reason is that you can make a compelling case that Apple’s current stock price looks pretty reasonable in terms of value.
A bigger reason is that the big tech firms in the US can probably only start moving up again — and taking the markets with them — if they break into a new, enormous market.
Amazon, for example, began with books and retail. But it’s huge growth over the last few years is from its cloud division, called Amazon Web Services.
These companies simply need huge markets to keep growing at high rates. The market has become pessimistic about this — hence the selldown from October in the US.
But the world keeps turning…
Healthcare is so enormous that it dangles a huge growth market carrot in front of them.
Apple is not alone here. Amazon is continually rumoured to want to break further into the pharmaceutical industry.
So…keep an eye out for big tech to move into healthcare. It’s another reason the US market could start moving up again.
At the very least, I find it hard to believe US stocks are a ‘bubble’ when one of the greatest companies in history trades on a multiple of 12.
All the best,