- This company seems like a great 5G play, but don’t be fooled
- How the world prepares for quantum supremacy
- Something every investor should know about stop losses
Welcome to our weekly mailbag edition of The Bleeding Edge. All week, you submitted your questions about the biggest trends in technology. Today, I’ll do my best to answer them.
If you have a question you’d like answered next week, be sure you submit it right here.
Why I haven’t recommended this electronics manufacturing giant…
First up is a question about a 5G and my thoughts on a tech giant…
Hi Jeff, I just have a quick question about a company that has been brought to my attention regarding all things 5G. The company is called Foxconn, and I believe it has the biggest patent library of any company I know of.
And the who’s who of the tech world are all involved in multimillion- or billion-dollar deals with this company to all get various parts made for their 5G-related products. It’s not listed in any American stock exchange, only in Taiwan, where it is listed as Hon Hai Precision Industry Co. I would love to hear your thoughts on this as a potential investment.
– Angus O.
Thanks for the question, Angus. For background, Foxconn – or Hon Hai Precisions Industries – is the world’s largest contract electronics manufacturer. Foxconn is headquartered in Taiwan, and it manufactures game consoles for Nintendo and Microsoft, Blackberry phones, Xiaomi smartphones, and Apple iPhones.
But here’s why I haven’t recommended Hon Hai to my readers…
As you stated correctly, Foxconn is a contract manufacturer. That’s it. Companies hire Foxconn to manufacture their products cheaply. Apple is a perfect example. It pays Foxconn to produce its iPhones… but who do we think makes the most money?
Foxconn’s operating margins are 2.36%. How about Apple? Apple is at 24.9%. Which company would we rather invest in?
To be very clear, Foxconn is not a 5G company. I don’t even consider it to be a play on 5G. Foxconn will manufacture 5G-enabled products for its customers (like Apple), but it is not manufacturing its own 5G products, nor is it producing 5G-related intellectual property. It does have intellectual property mostly around manufacturing technology.
We should also keep in mind that Foxconn manufactures a wide range of products for its customers, not just smartphones. Ethernet switches, game consoles, and graphics cards are perfect examples.
If investors want exposure to the 5G boom, there are several high-margin, high-growth technology companies that are directly leveraged to 5G-related investment. These are the kinds of companies that I cover in both The Near Future Report and Exponential Tech Investor.
(For newer readers looking to get exposure to 5G, I advise you to steer clear of Foxconn. But there is one 5G stock that I believe should be in every investor’s portfolio. It’s my favorite way to play Phase 2 – the devices phase – of the 5G rollout. I’ve called this company my No. 1 5G stock to buy today. Details here.)
Quantum supremacy is here…
Next up is a question about quantum computing and what it means for the future…
Jeff. I have heard nothing about quantum protection of data. What is your take?… [There’s] not a hint of strategy mentioning how we’ll protect technologies now that quantum computing is here.
– Steve S.
Thanks for writing in, Steve. This is such an important question.
For readers who missed it, last month, I told you that the age of quantum supremacy had arrived. Quantum supremacy is the point at which a quantum computer can outperform the most powerful classical supercomputer on Earth.
The Financial Times published details on a quantum research report from Google. The report outlined tests that Google ran on its 53-qubit quantum computer.
In those tests, it gave the quantum computer a task that would take the world’s most powerful supercomputer, Summit, 10,000 years to complete.
The quantum computer finished it in three minutes and 20 seconds…
In less than two years – probably sooner – Google, or another major player in quantum computing, will achieve a 256-qubit quantum computer.
That’s significant because nearly every form of encryption used by governments, militaries, and private corporations is a form of 256-bit encryption. This means that a 256-qubit quantum computer will be able to crack any existing encryption in seconds.
Quantum supremacy has arrived much sooner than most ever expected. And the U.S. government and major players in cybersecurity have just kicked into high gear to prepare for the implications.
And there are already bleeding-edge solutions to protect against quantum computing…
One solution is using quantum computing for the purposes of quantum encryption. A company I like in this space is Quintessence Labs, which is doing great work on building a true random number generator. This is a critical component to having quantum-resistant encryption.
Another approach is something called homomorphic encryption. Homomorphic encryption enables something interesting… the ability of an entity to analyze encrypted data without seeing the data.
This is a unique application that maintains data confidentiality because the data is never decrypted. Yet it still allows the data to be used for analysis. An example application would be for biotechnology companies to analyze health records in a way that guarantees that patient data is never compromised.
And one of my very favorite cybersecurity companies, CryptoMove, is addressing this problem in a unique way.
CryptoMove uses a novel technology called “moving target defense.” It encrypts, fragments, and then constantly moves those fragmented pieces of data, as well as the encryption keys, across its customers’ defined networks.
Because everything is in motion, CryptoMove makes it nearly impossible for any bad actors to steal, reconstitute, and decrypt the data. This is a cybersecurity company to watch.
We’re just at the beginning of this trend. Expect to hear more in upcoming issues of The Bleeding Edge.
An important lesson for all investors…
Last is a common question I get from my readers. It’s something every investor should be aware of.
Jeff, I see that you set trailing stop or [hard] stop prices for each investment you recommend. Should we place the stop order in our trading account? Or should we just sell once the prices go below the stop price?
– David H.
Thanks for writing in, David. I get this question a lot. But I’m always happy to answer it.
If you’re a reader of one of my investing services, this is important to know. In fact, this is something every investor should know about.
I strongly encourage my readers not to put their stop losses in as orders with their online brokers.
You can maintain them using your own methods (e.g., a spreadsheet) and check them regularly. You can also set up your own alerts using TradeStops or Yahoo! Finance.
Subscribers of my products can also wait to hear from us with sell alerts. We will always alert you if you need to act.
When a stop-loss order is placed with an online broker, it can be seen by market makers. Market makers are companies that provide quotes on buy and sell prices for stocks. They provide liquidity in stock markets, but they don’t act in investors’ best interest… They’re there to make a profit any way they can.
They’ll see the stop loss, open the stock when the stock market opens (or pull it down momentarily), stop the investor out, buy those shares at a grossly discounted price to the real market value, and then pull the market price back up to normal trading levels.
I’ve personally seen this happen in my own investing experience. It should be illegal. But it’s not.
So please remember: Investors should never enter their stop-loss prices on their online broker accounts.
That’s all the time I have for questions this week. If you have a question you’d like me to tackle next week, send it to me right here. I’ll do my best to get to it next Friday.
Editor, The Bleeding Edge