Boeckl's Bets: The Long-Cycle for Tech

03/07/2014 10:00 am EST

Focus: STOCKS

A specialist on very long-term, macro trends, Leo Boeckl, editor of Smart Tech Investor, looks back on the evolution of the auto industry as an analogy for assessing the current evolution of the technology sector.

Steve Halpern: Joining us today is Leo Boeckl, editor of Smart Tech Investor. How are you doing today, Leo?

Leo Boeckl: Just fine, Steve. How are you doing?

Steve Halpern: Very good, thank you. Leo, you recently wrote a fascinating research article for Smart Tech that compares the growth of the Internet today with the evolution of the early auto industry. Could you expand on that for our listeners?

Leo Boeckl: Sure. Both the internal combustion engine, which, of course, gave birth to the automobile industry and the explosion that occurred as a result of that, as well as the growth of the Internet, share two very common features.

The first is they—in the past, as well as what they're doing today—remake every industry. In other words, you can tell that they're core technologies of their time, because they remake every industry completely.

As well, and more specifically, both technologies were build-outs of their horizontal infrastructures and share some major attributes.

For example, in the automobile-tech wave, they started out with hundreds of carmakers. That consolidates to a few majors. Well, we saw the same thing occur, of course, with computer makers, consolidating again to a few majors, right? The internal combustion engine leads to roads, which completely remade this horizontal infrastructure.

The car expanded personal freedom and economic productivity of the individual, and really, gave birth to this huge economy that we had in the US back then. The same thing occurred in the first half of this wave, right? Where you see that the total horizontal communications infrastructure was rebuilt.

Instead of it just being people talking on telephones, it became data driven, and, as a result, PCs and smartphones have expanded personal freedom and economic productivity for the individual, and, as well as, I'll say it again, remade all industries. You can see they're very similar, and their impacts are identical.

Steve Halpern: Now, you take a particularly long-term approach to investing, really looking at the macro level, and often looking out many years. What factors come into play when taking such a long-term view?

Leo Boeckl: Well, the reason why we take the long-term view is there are two things that you get from it. The one is, you know, anybody can get lucky and call the right little company that gets a nice little blip, but will that company go out and continue to grow and provide solid returns for ten years?

The answer is, typically, not. Whereas, when you take a longer-term view—what companies have cash and have the right strategies to take advantage of what's occurring in the market place—then you tend to make better choices for the folks that are subscribing to our service, so that they get the better total return.

The second piece of that is, well, we can look back at history and see what companies did in the past, which, of course, we're not the only ones looking at it. The tech companies of today are doing the same thing and it provides us somewhat of a roadmap as to where all of this is going.

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Steve Halpern: Okay, so, if we combine this very long-term view with your analogy between the development of the auto industry and the new developments in the Internet sector, are you able to look back on history and then isolate individual stocks today that you think will do well in future years?

Leo Boeckl: Absolutely. If you look back at the automobile wave, right, I mean, you saw companies like Ford and General Motors essentially take over. You saw what they then did to take over, which was the integration of multiple technologies—you know, radio, AC, power steering, et cetera.

So, you see this integration and then you saw what they created, you know, suburbs, malls, hotels, motels, food services, all come into existence as a result of what is sort of riding on the back of this infrastructure that the car technology enabled.

Well, we've got the same thing going on today, right, with what's going on with PCs, and what's going on with smartphones, you see Cloud mobility, big data social networks where you have this huge ubiquitous, always-on network of interconnected—what they call the Internet of Things (IoT)—always being available.

So, the expansion of commerce and the expansion of possibilities is just exploding, and, as a result, yes, my partner Jim Pearce and I have sat down and built, sort of, an algorithm as it were, to make extrapolations based on that, and if you'd like, I can give you a couple of winners, what we see that's working sort of as an example from the last wave, as well as ones that we can see where it's headed in the future.

Steve Halpern: Yes, we really appreciate that, if you'd like to share some names that our listeners could consider.

Leo Boeckl: Sure, and so, if you look at the big monsters, they're visible today, right? Just like General Motors (GM) and Ford (F), you see Apple (AAPL), you see Microsoft (MSFT), you see those companies, so, obviously, provided they execute properly, they're likely to be here for the next 20 years and have the cash to take on all-comers and do very well.

In terms of where we are in the current tech wave, we really like Ricoh Co. Ltd. (RICOY). They're very well managed, though, you wouldn't think of them as particularly sexy. They provide a solid return.

Their stock has been growing because they're very well managed, so we really like Ricoh right now, and then, as an up and comer, we see Lenovo Group Limited (LNVGY) is kind of an interesting one.

A year ago, I wouldn't have made this statement to you; however, based on the purchases that they made buying the mobility unit from Google (GOOG), buying the server unit from IBM (IBM), they have all the pieces to be able to compete with, say, an Apple, a Microsoft, and a Samsung (SSNLF), as this Internet explosion occurs, so those are the ones that the model points out today.

Steve Halpern: I appreciate you taking the time today. Thanks for joining us.

Leo Boeckl: Thank you.

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