The time to invest in small, disruptive high-tech companies has never been better.
The values of these companies have been going through the roof as larger, stodgier firms realize it’s easier by buy new technology than to create it or even adapt to it. The big firms have been consuming these high-tech hotshots to save themselves from being left in the technological dust.
The result has been a banner year for mergers and acquisitions. Some small, high-techs have even been scooped up before they could bring their IPOs to market.
With more than $3.6 trillion in deals announced, Reuters reports 2016 was the third-largest on record for mergers and acquisitions. This sets up logical winners. And for once, they are not just investment bankers with wallets opened wide. There’s never been a better time for you to invest in small, disruptive enterprises.
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“There’s no doubt that many non-tech companies have tried to build and have made the determination that it’s enormously challenging,” Anthony Armstrong, a technology mergers expert at Morgan Stanley, told The New York Times. “It’s better to acquire disruptive technology than to be disrupted by that technology.”
|In the past, all these emerging technologies caught many companies flat-footed. But today, big firms buy startups as a hedge against change.|
In the past, the easiest way to invest in those technologies was IPOs. However, tracking resource IPO Candy notes that 2016 was one of the slowest on record for new deals. Just 113 companies made it to market.
For instance, this year AppDynamics, a company that makes application-monitoring software, was gobbled up for a huge premium by Cisco Systems (CSCO) just one day before its scheduled IPO. The networking giant paid $3.7 billion, versus the latest $1.9 billion valuation!
IPO Candy reports have piqued my interest in two new healthcare issues in the field of immuno-oncology. Both AnaptysBio (ANAB) and Jounce Therapeutics (JNCE) develop immunotherapies that use the unique characteristics of the human immune system to attack and kill cancer tumors.
Some immunotherapies have had near-miraculous results. President Jimmy Carter credited the biologic therapy with the complete cure of a very aggressive melanoma he battled in 2015.
Other stocks to watch are firms that managed to reach market last year and that have retreated after initial rallies:
Nutanix (NTNX) is a San Jose maker of infrastructure software that brings pay-as-you-go and rapid-to-market economics to enterprise clouds of all sizes in a single, convergent experience.
Twilio (TWLO) makes web service APIs for software developers to build packages to make and send messages via phones, texts and videos over the Internet. (We use Twilio for our mass text messaging.)
Acacia Communications (ACIA) makes optical equipment that allows companies to boost bandwidth over existing fiber infrastructure.
Impinj (PI) makes the ultra RFID equipment that allows businesses to track physical items over a network in real-time.
All of these companies are nimble and have disruptive technologies. They will either exert that advantage over slow-footed, larger companies to grow market share, or become a light snack. Either way, they make compelling investments.
For now, I’m just watching. When I have specific recommendations for these or other companies on my radar, members of my Tech Trend Trader and Pivotal Point Trader will be the first to know.