https://www.securities.io/the-other-hydrogen-fuel-top-5-green-ammonia-stocks/

The Quest To Replace Liquid Fuels

As renewable energies progress, some limitations are becoming clearer. The intermittency of renewables requires the presence of energy storage. This could be in the form of batteries, as we explored in our article “The Future Of Energy Storage – Utility-Scale Batteries Tech”.

However, some forms of energy consumption are very resistant to electrification. For example, long-distance naval shipping, or air freight.

Even trucking has so far failed to be converted to EVs, due to the weight of batteries required; as well as limitations in the battery production capacity, which has delayed for many years the Tesla Semi.

Largely, these limitations stem from the fact that gasoline/diesel/kerosene are extremely energy-dense, much more than the best batteries.

So the idea of a liquid fuel that would be an alternative to petroleum products is highly attractive. One idea is biofuels, which essentially produce the same product as fossil fuel, but from renewable sources. It is another idea we explored in our article “Algal Biofuel: The Next Energy Revolution?”.

Another idea is to use the most abundant atom in the universe, hydrogen, to store energy. However gaseous hydrogen has some limitations, from the difficulties of producing it economically, to the energy costs of liquefying, transporting, and storing it.

Hydrogen atoms do not need to be in the form of H2 gas to be storing energy. Another extremely abundant element, nitrogen, forming 4/5^th of our atmosphere, can help.

Ammonia As An Energy Carrier

Simple Chemistry

Ammonia, or NH3, is a fertilizer and can be burned or oxidized to produce nitrogen and water.

NH3 +O2 → N2 + H2O

So it is somewhat similar to hydrogen combustion, in that it only produces harmless byproducts, at least in ideal conditions (more on that later).

The difference with hydrogen is that ammonia is a lot larger molecule than H2, and a lot more stable as well. This makes its transportation and storage a lot easier. Ammonia is also almost 50% more energy-dense than liquid hydrogen.

Source: Kleinman Center For Energy Policy

Hydrogen liquefaction wastes 44.7% of the energy it contains, as it requires cooling at -253°C (-423°F). Keeping it liquid leads to more losses, increasing with the duration of storage, potentially up to 79% losses for seasonal storage.

“Ammonia, on the other hand, can be liquefied by either cooling it below -33°C (at atmospheric pressure) or pressurizing it above 7.5 bar (at 20°C)—significantly more achievable conditions than those required for hydrogen. This process can be close to 99% efficient”.

Source: Kleinman Center For Energy Policy

Existing Infrastructure

Ammonia is not a rarely produced chemical, with it being a key component in the production of fertilizer, but also plastics and explosives. This means there is already an existing industry and supply chain for the mass production of ammonia, although somewhat dependent on fossil fuels for now. It also makes it a well-understood and efficient process. Overall, ammonia is the second most highly produced chemical in the world.

Ideally, an ammonia economy would rely on so-called green ammonia, generated from renewable energy. This distinguished it from other types of ammonia:

• Grey/brown ammonia: produced from fossil fuels.
• Blue ammonia: produced from fossil fuels, but with carbon capture.
• Pink ammonia (sometimes also called yellow ammonia): produced from nuclear energy.
• Turquoise ammonia: produced from the pyrolysis of methane. This breaks down methane into hydrogen and solid carbon, with the hydrogen later converted to ammonia. The solid carbon can be stored or used for applications like carbon fibers.

And while a lot less extensive than the fossil fuels network, there is no less than 5,000 km (3,100 miles) of ammonia pipeline in the US (and 490,000 km of high-pressure natural gas pipelines). With ammonia being non-corrosive and not damaging steel pipes like hydrogen (“embrittlement ”), new pipelines could be relatively inexpensive.

This would nevertheless require massive investment in both production capacity and pipelines. To replace just half of the global natural gas consumption would require multiplying by 20 the global ammonia production.

Depending on the exact solution adopted, ammonia could work as an energy storage and transfer system with an efficiency (returned energy) ranging from 84%-38%.

Source: Kleinman Center For Energy Policy

The Limitations of Ammonia

The problem with using ammonia directly for energy is that combustion is seldom a perfectly efficient process. When ammonia is impartially burned, it produces NOx gases, which are toxic, as well as greenhouse gases (300x more potent than CO2).

Several solutions have been proposed, including:

• Burning green ammonia in a fuel blend, in combination with fossil fuel.
• Burning green ammonia in a fuel blend, in combination with hydrogen.
• Converting liquid ammonia to compressed hydrogen directly on the storage site, and on-demand, like at a fuel station. A process named “cracking”.
• Using dedicated fuel cells, like for hydrogen, to directly generate electricity and power an electric motor.
• Using catalyst to destroy NOx before they are released. This could cause some problems as these catalysts often are extremely expensive metals like Palladium, Platinum, and Rhodium, which are already used to reduce NOx emissions in fossil-fuel-powered vehicles. A purely ammonia-based combustion would require a lot more of it.

As NOx are powerful greenhouse gases, making sure we don’t see them replacing CO2 is a must to justify transitioning to an ammonia economy.

Ammonia As An Hydrogen Carrier

As mentioned above, ammonia (NH3) can be “cracked” back into nitrogen (N2) and hydrogen (H2). This means that even if the issue of NOx emission proves unsolvable, there is still potential for an ammonia economy.

In this context, ammonia is used directly for storage, transportation, as well some niche applications. And get turned into hydrogen in a gaseous form (even if compressed) to power vehicles through direct combustion or fuel cells.

This allows the decarbonized economy to enjoy a few key benefits of ammonia’s physical and chemical characteristics:

• Lower energy losses during the production of the liquid fuel, while still using green energy to do so.
• Low-cost renewable energy during periods of overproduction (strong sun & wind) can be used to reduce the overall fuel production costs.
• The possibility of multi-month storage, allowing for resiliency in the energy system, is somewhat of a must for mobility. For example, a hurricane knocking off the power grid would not stop the supply chain, ambulances, and cars from running, as it might for a fully EV-centric system.
  • The multi-month storage also allows for excess production in sunny or windy months to be turned into fuel supply for months with lower renewable energy production.

So it is possible that talking of an ammonia economy or a hydrogen economy might be a little misleading.

A more likely scenario is a mixed ammonia-hydrogen economy, with each technology leveraged to perform best on its strong points:

• Ammonia for transportation, long-term storage, and “soaking up” the surplus energy of sunny or windy days.
• Hydrogen for direct consumption, short-term storage, and applications requiring quick & high energy output, like steel production or jet engines.

This is a scenario where nuclear power plants could also play a role in decarbonization, even without mass adoption of EVs, thanks to “pink ammonia” providing a low-carbon source of liquid fuel.

The Path To An Ammonia Economy

The road map for ammonia adoption is a little harder to determine. Some research estimates that an ammonia-driven economy, using mass production of green ammonia (2^nd generation), is unlikely before 2030.

In this scenario, more efficient ammonia production relying on direct electroreduction (3^rd generation) would take over only at the end of the 2030s, due to the technology being today in its early stages, especially efficient electrocatalysts.

Source: Science Direct

Overall, there are massive hopes for green ammonia growth, with some estimates considering the current $300M market could turn into a giant $17.9B market, or an astonishing 72.9% CAGR by 2030.

Top 5 Green Ammonia Stocks

This list looks to focus on green ammonia or green hydrogen companies. But current leaders in ammonia generation, like for example CF Industries Holdings, Inc. (CF) or Yara International ASA (YAR.OL) are likely to turn to green ammonia in due time and might be an option as well.

Aker Horizons ASA (AKH.OL)

Aker Horizon is the subsidiary of the Aker group centered around green energy. The group is an important Norwegian conglomerate, with a focus on renewables and marine/offshore businesses.

Source: Aker

Aker Horizon is the holding company for several subsidiaries including carbon capture, green hydrogen, and renewable energies.

Source: Aker

The company is notably very active in hydrogen and green ammonia generation, with a goal to decarbonize Arctic shipping.

Source: Aker

So Aker is not a purely green ammonia company but can handle the entire vertical integration of green ammonia, from offshore windmills to hydrogen generation to green ammonia production. It is also working on projects like waste-to-energy in France, a biomass plant in Germany, and carbon capture in the Middle East (Saudi Arabia and UAE).

This makes it a good stock for investors looking for exposure to the green energy sector at large, with a strong positioning on green ammonia, but also other green energies, and some geographical diversification.

Plug Power Inc. (PLUG)

Plug Power is a leader in green hydrogen, with a focus on fuel cells. Notably, its fuel cells power over 40,000 forklifts, with revenues up x8 since 2013. It is also active in building hydrogen infrastructure like hydrogen production, logistics, utility-scale power generation, and deliveries.

Source: Plug Power

The company is aiming for scale to reduce production costs from $10/kg to $4/kg, while multiplying production by 14x in 2027.

Source: Plug Power

Due to massive investments to increase production capacity 19x since 2020, the company is not profitable yet. This led to almost doubling revenue from the beginning to the end of 2023. Most of the current and projected business is expected to come from North America.

The company sees its solution as either a direct mobility fuel, or a complement to EVs, as hydrogen allows to reduce the pressure on the grid of EVs peak charging not matching the times of production of renewables in the day.

Source: Plug Power

As a major fuel cell producer, Plug Power would benefit strongly from a turn toward a hydrogen/ammonia-based economy. While not directly active in ammonia production, the company is mostly focused on green hydrogen production (required for green ammonia production) and fuel cells, both components that would be still in high demand in case hydrogen alone is not working out.

So this makes Plug Power a good stock to bet on a turn toward hydrogen in general, with or without ammonia. If the limitation of hydrogen regarding logistics and storage turns out to be un-surmountable, it would still profit from a hydrogen+ammonia economy.

Ballard Power Systems Inc. (BLDP)

Ballard is another fuel cell manufacturer, and a pioneer of the technology with its first fuel cell bus in 1993.

The company is focused on heavy-duty markets: buses, trucks, trains/trams, ships, mining/construction, and power. While buses have been the core of the business, the company expects that by 2025 trucks will be a major business segment. It also expects Europe to stay its main market (50-60%), followed by North America (25%).

Trucking fuel cells are expected to keep growing and represent a $7.5B market in 2030 (from a $195B TAM), almost as large as all the other hydrogen/fuel cell applications combined.

Source: Ballard

Because of the higher power required, and the need for quick charging, heavy-duty vehicles have been a good pick for hydrogen and fuel cells over lighter vehicles like cars. It also reduces the need for catenary wire for rail, and fast recharging for long-distance hauling.

Source: Ballard

The company is not a stranger to ammonia either, with for example a recent contract with Amogy to provide it with fuel cells for its “ammonia-to-power platform which relies on unique ammonia cracking technology”.

While EVs have a reasonable chance to quickly take over the car markets, heavier vehicles are harder to decarbonize. With its established leadership in the sector, Ballard would be a prime beneficiary of a policy push toward a hydrogen economy.

FuelPositive Corporation (NHHHF)

FuelPositive has created a modular/containerized green ammonia generation system. Its first target is the agricultural sector, allowing for on-site ammonia production with locally produced energy. The system can generate up to 300kg/day, 100 tons per year of ammonia for CA$950,000.

Source: Fuel Positive

This makes it a system fits for farms up to 1,800 acres. With just 1.5 acre of land covered with solar panels enough to power the ammonia generation.

Source: Fuel Positive

FuelPositive claim its system can produce ammonia for CA$560/ton, which is in line with historical price, and more importantly, would shield farmers from the extreme price volatility they experienced in the last few years, with ammonia shooting up to $1350/ton at one point.

Source: BusinessAnalitIQ

The start-up is at an early stage, with full-scale production scheduled for 2025, and 30 orders confirmed so far, with the first delivery scheduled for March 2024.

The main strength of FuelPositive is the modularity of its technology, allowing for a more distributed approach and standardized mass production of its ammonia generation module.

The company is building a partnership with Cipher Neutron, which can produce hydrogen without any metal of the platinum group.

While the primary focus is fertilizer production, the ammonia could be used to power farming engines with energy produced on-site, depending on the speed of adoption of ammonia/hydrogen-powered farming tools.

The decentralized and modular nature of FuelPositive systems could also make them a key element of a future ammonia economy. The fertilizer market can provide the gap for the company to grow until the use of hydrogen and ammonia is more widespread.

AmmPower Corp. (AMMPF)

AmmPower is similar to FuelPositive in that it provides modular ammonia generation systems, but at a larger scale, with its base module able to produce 4 tons/day. This put the company more into the field of very large farms (10,000+ acres) or industrial operations like textiles, refrigeration, mining, pharmaceuticals, or semiconductors.

Source: AmmPower

The company is in the process of building its order book, with the near-term booking potential estimated at $30M, and sale prospects for 690 units from 52 countries.

The company estimates the electricity cost to be around $360/ton of ammonia.

The modularity of the system allows for a quick turnaround and deliveries, with less than a year compared to the 3-4 years of similar projects without the modular approach.

It is also working on technology to transform waste into ammonia, in a joint venture with CTEC Energy Sales USA.

To further the progress of ammonia into a hydrogen-ammonia economy, it is creating a dedicated subsidiary dedicated to cracking ammonia into hydrogen, which will look for additional funding separately.

By striking the scale that might fit most industrial usage, as well as very large farms, AmmPower is aiming for clients and companies with deeper access to capital than most. Combined with ammonia cracking technology, this could allow it to scale up quickly following policies to push for the development of hydrogen as an energy carrier.

The post The Other Hydrogen Fuel – Top 5 Green Ammonia Stocks appeared first on Securities.io.

https://www.securities.io/carbon-neutral-biogas-top-5-biomethane-stocks/

Truly “Natural” Gas

Gas represents a massive amount of the world’s energy consumption. A reason for the popularity of natural gas is that is a rather “clean” fuel, that produces very little residue or toxic gases, especially when compared to coal and oil.

It also has lower carbon emissions than other fossil fuels, which led it to often be referred to as a “transition fuel”, a fuel to move away from coal power plants, but while utilizing the existing power infrastructure.

But there is a carbon carbon-neutral alternative to fossil fuel natural gas, which is to produce gas from organic matter, which previously adsorbed carbon from the air through plants’ photosynthesis. This is mostly referred to as biogas or biomethane.

And a lot of resources available to produce biogas are for now just being wasted.

How To Make Biogas

While some other products can be made from fermenting organic matter, the large majority of biogas is made of biomethane, so this article will focus on the potential of biomethane and mostly treat biogas as equivalent to biomethane.

Biomethane production can be divided into roughly 2 categories.

Biomethane Collection

This relies on the harvesting of naturally occurring biomethane production. This is for example common in landfills or wastewater treatment plants. As these places naturally collect a lot of organic matter, when there are anaerobic (no air/oxygen) conditions, bacteria produce biomethane. For a long time, these emissions were just released into the air.

Modern plants and landfills are now being upgraded to harvest this energy source. Because the gas already exists in a centralized place, and the source material does not cost anything, these biogas projects tend to be more profitable.

Source: EIA

In just the USA, 57 wastewater stations with this kind of equipment produced  895 million kWh of electricity. And biogas from 311 landfills generated 9.4 billion kWh. Or 0.2% of the total electricity production of the country.

So while these numbers seem impressive, they are for now too small to change the carbon profile of US electricity generation. In total, 18 GW of power generation runs on biogas around the world, with most of it in Germany, Scandinavia, the UK, and the USA.

Source: EIA

Biomethane From Fermentation

For methane to be produced from organic matter, little or no air is needed to create the right conditions for fermentation. The presence of oxygen will favor microorganisms preferring the process of respiration, which produces CO2 instead of methane (CH4).

These airtight systems are often called biodigesters, but also biofermenters, biogas generators, methanisation units, or organic digesters. In practice, no system produces pure methane, but instead a mixture of methane and CO2, with 45%-75% content of methane.

The Potential of Biogas

Because most biogas production is now located in northern Europe, the UK, and the USA, there is a massive potential for development in South America, Asia, and Africa. This is especially true as landfills or wastewater tend to scale up in proportion to population, so most of the world’s potential for biogas/biomethane is untapped.

In fact, only 5% of the potential biomethane production is currently exploited, with only 35 Mtoe (million tons of oil equivalent) produced, compared to a 730 Mtoe potential, or 803 bcm (billion of cubic meters). For comparison, the world’s consumption of natural gas was just below 4,000 bcm (billion cubic meters) in 2022.

Source: EIA

Sourcing Material For Biogas

Most of the biogas potential is located in Asia and the Americas, with crop residues, animal manure, and woody biomass the bulk of the untapped potential.

Source: IEA

Farming Byproducts

Overall, the prospect of active biomethane production should be seen differently when it comes from animal waste and crop residue. Both are byproducts of existing farming activities and require no additional land clearing or farming to produce the feedstock.

Because they do not increase the pressure on natural and wild ecosystems, these source materials should be viewed as the primary way to increase biomethane production.

They also can provide an income complement or on-site power generation for the farmers.

Another advantage is that except for some of the nitrogen content, the nutrients in the crop residues and manure can be harvested after biomethane production from the carbon fraction of the biomass. So it will still be usable for fertilizing the crops and pastures, helping close the bionutrients loop and reduce the need for chemical fertilizers.

In 2021, only 19 large dairies and livestock operations in the United States produced a total of about 0.2 billion (183 million) kWh of electricity from biogas.

Wood

Another option is woody biomass, either harvested on purpose or as waste from the process of logging for timber.

Direct harvest for biomethane consumption poses the same issues as other wood biomass energy generation, which are the risk of deforestation & damage to woodland habitats. And while collection of woody waste after clear cuttings is a little less damaging, it still removes habitat for small wildlife and nutrients from forests.

However, woody biomass can be valorized further with other methods than methanisation, notably through pyro-gasification (see below the segment about Charwood Energy).

Centralized and Decentralized Production

Biogas scaling up will need to be optimized for multiple conditions, each with a different scale. Some sites like wastewater stations or large animal farms should have medium-sized facilities dedicated to efficient collection, which also reduces their carbon and methane emissions, with uncollected methane a powerful greenhouse gas.

We should see large and highly optimized fermenters to collect woody waste, crop residue, and other materials that can be gathered and centralized for biomethane production. Overall, the more industrialized a country and the more mechanized its farming industry is, the more centralized the biomethane production can be.

But we should also push for local production in developing countries, at the household or village scale, in order for local production to be done as well. Not only will this reduce emissions and produce energy, but it will also help poor farmers with additional income and provide clean cooking fuel & heating, displacing less efficient, resource-wasteful, and more polluting wood burning.

It could also reduce the practice of burning leftover biomass after the harvest, often contributing massively to air pollution, as that biomass would become something valuable instead.

Household-scale biogas systems can provide heating and cooking fuels in developing countries, as an alternative to the traditional use of solid biomass.

The output of these units is typically around 1 m3 per day, providing two to three hours of gas-fired stove cooking time for every 20 to 30 kg of animal manure.

Today there is enough sustainable feedstock to satisfy the entire energy demand for clean cooking in Africa.

Source: “Outlook for biogas and biomethane” – IEA

Top 5 BioGas & Biomethane Stocks

OPAL Fuels Inc. (OPAL)

Opal Fuels is a US producer with country-wide production and distribution of RNG (Renewable Natural Gas/Biomethane). The company established partnerships for biogas production with landfills and waste collection, as well as water department or energy companies.

Source: Opal

It then resells this biogas to a network of distributors or directly to large clients like Amazon, UPS, or the city of Denver for example. Each of these contracts is very long-term oriented, giving the company visibility on its operating cash flow.

Source: Opal

The company is growing quickly, with the production capacity scheduled to almost double in 2024, thanks to many projects already under construction, and should reach a total production of 9.3 MMBtu this year. All these projects are already fully funded.

It also has a pipeline of 19 projects worth 7.9 MMBtu for later development.

Source: Opal

With a relatively cheap valuation when considering the P/E ratio and incoming production growth, and a liquidity of $327M for $141M of net debt, Opal Fuels can be a good pick for investors interested in biogas and looking for a larger and relatively safe company.

EnviTec Biogas AG (ETG.DE)

EnviTec is a quickly growing biogas company, with its sales revenue up by 45.9% in H1 2023. Initially a German company, it is now aggressively expanding internationally, including in the UK and US.

Envitec is looking at expanding beyond biogas, and into advanced biofuels generation as well, notably through a newly opened EUR50M plant in Mecklenburg for bioLNG combined with carbon capture.

Envitec distributed a EUR2/share dividend in July 2023, making it a relatively high dividend yield company, with the EBT (Earning Before Taxes) more than enough to cover this dividend distribution.

Thanks to its balanced approach between growth and distribution of profits to shareholders, EnviTec can be a good pick for investors looking for a mix of growth and income in the biogas space, as well as exposure to the EU energy and gas sector, in the context of the strong decline of Russian gas supplies.

Biokraft International AB (BIOGAS.ST)

BioKraft sells and produces biogas in Sweden (230 GWh biogas and bioLNG), Norway (155 GWh bioLNG) and South Korea (60 GWh compressed biogas).

The company decided in April 2023 to enter the German market with 240 GWh future generation in 2 projects planned to be finished in 2025.

It has a total of 875 GWh of biogas and 825 GWh of bioLNG new projects in the pipeline, planned to be finished by 2025-2026.

This would upgrade the current production capacity of 445 GWh to 1,200 GHw by 2026. The long-term target for the company is to reach a total of 3 TWh (3,000 GWh) by 2030.

Almost all the new projects will supply their feedstock from manure and agro-based waste.

Source: Biokraft

The company has suffered some losses from low sale prices for power and gas in the last few quarters, especially in Scandinavia. This makes the company partially a bet on a rebound of European gas prices.

Between its aggressive growth targets and its current unprofitability, Biokraft is the best fit for investors willing to take a risk and bet on the company turning around, in part thanks to its move toward the German market and maybe a turn of the EU gas market as a whole.

Greenlane Renewables Inc. (GRN.TO)

Greenlane specializes in biogas upgrade, or the process of adding biogas generation to existing facilities like wastewater treatment plants or landfills. With 140 systems deployed globally, it is the #1 in the industry.

Source: Greenlane

Greenlane stands much ahead of its competition by total volume of biogas produced with its machinery, even ahead of industrial giants like Air Liquid. It is also worth noticing that except for Air Liquid and Wartsila (for which biogas is just a small part of total activity), the largest competitors of Greenlane like Prodeval, DMT, or Bright biomethane are not publicly traded.

Source: Greenlane

The company offers 3 different technologies for biogas production (membranes, water wash, and PSA-Pressure Swing Adsorption), which is the best fit depending on the local conditions and feedstock. This allows for the removal from the gas of contaminants like nitrogen, CO2, oxygen, or potentially toxic impurities.

In September 2023, Greenlane launched a new product line with key-in-hand designs for each biogas generation sector (sugarcane residues, landfills, manure, etc.).

It is the only provider able to offer all 3 solutions, making it a good pick for clients interested in adopting the best possible technology for their unique circumstances.

Source: Greenlane

A key growth sector for the company will be Brazil (a global agricultural powerhouse), where it recently signed an agreement to establish industrial-scale volume production.

The agreement was signed with ZEG Biogás, 50% owned by VIBRA, previously the fuel distribution unit of Petrobras, the national oil company. The goal is to reach production at 75+ sites in 5 years.

As it is not a producer of biogas, but a seller of the machinery to produce biogas, Greenlane should be seen as a “pick and shovel” type of stock, with its sale reflecting the pace of adoption of biogas solutions globally. And the largest publicly traded stock in this category.

It is likely to be exposed to the fluctuations of natural gas prices (making new projects more or less attractive) and of the adoption of punitive carbon taxes on non-carbon neutral alternatives.

Charwood Energy SA (ALCWE.PA)

This French company supplies turnkey biomass power plants, with a focus on selling to agricultural holdings, industries, and municipalities.

The company is doing methanisation, but also pyro-gasification, which produces biomethane, as well as direct energy, biochar (used as fertilizer), green hydrogen, and carbon credits.

This method allows for additional revenues besides biogas sales, as well as improving the soils’ health by locking carbon in biochar, a key method in sustainable farming practices.

Source: Charwood

Pyro-gasification relies on wood supply and represents 57% of the company’s pipeline of potential projects. The whole pipeline is estimated at €43M.

To develop the pyro-gasification activity, Charwood has established a partnership with Spanner Re2, the German leader of this technology, with 900 co-generation units installed since 2007. Charwood is in charge of developing the French market for this technology and has also successfully launched a project in the Democratic Republic of Congo (DRC).

The company has registered a decline in turnover in H1 2023 of €1.5M compared to H1 2022’s €2.1M. This was due to a delay in milestones for new projects, with €3.7M of deliverables expected by the end of 2024.

Once these 5 plants in construction are launched, they are expected to generate up to €7.7M in ARR (Annual Recurring Revenue) from energy sales. The company is aiming for a total of 50 plants in construction or operated by Charwood by 2027, representing €90M in ARR.

Because it is at an still early stage, the company should be attractive mostly to investors looking for an aggressive growth profile and low valuation multiple.

The company is listed in France, and publishes its financial report in French. Presentations for investors are however available in English.

The post Carbon Neutral Biogas – Top 5 Biomethane Stocks appeared first on Securities.io.

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Lateral Thinking To Solve EV Limitations

EVs have taken the car market by storm, with some countries like China or Norway seeing a very strong market penetration. But at the same time, EV adoption is still lagging behind in many countries, due to a few key limitations:

• Low range for cheaper EV models.
• Slow charging speed, which when combined with regular charging due to low range can make long-distance travel difficult.
• Concern about power grids’ ability to handle the addition of millions of new EVs.

The first 2 problems, range, and charging speed are something the industry is trying to solve with new battery chemistries, as well as a more dense and quicker network of charging stations. But this is still a tough nut to crack. We detailed all the potential avenues for new batteries in our article “The Future Of Energy Storage – Utility-Scale Batteries Tech”.

The grid issues are compounded by the intermittency of renewable power generation. A surge of EVs charging in the evening when people are back home from work and commuting is not welcome when solar power is already out of the picture.

But a new concept could solve all these problems at once. What if instead of choosing between ICE (Internal combustion Engine) & liquid fossil fuel or EV & batteries, we could “refuel” EVs with a fully recyclable fuel?

The Energy Potential Of Aluminum

Aluminum is a very common element on Earth, actually the most common metal on Earth, ahead of iron, and makes up 8% of the Earth’s crust. It is also a metal that requires a lot of electricity for its production from raw bauxite ore to alumina, and then aluminum metal. Aluminum is even sometimes referred to as “frozen electricity”.

Under its ordinary and placid appearance, aluminum can be a very reactive metal in the right circumstances, and has been used in fireworks; aluminum powder was even powering the solid rocket boosters of the space shuttle. In fact, aluminum is 2.5x more energetically dense than diesel or gasoline.

Aluminum-Air batteries store and produce electricity through the oxidation and reduction of aluminum. It makes the aluminum metal react with air, and offer one of the highest energy density of all battery technologies currently available. It can be eight times lighter & four times smaller than Lithium-Ion.

Aluminum-Air batteries are not to be confused with Aluminum-Ion batteries, which are similar to Lithium-ion, just using a different metal.

Source: Energy Post

Aluminum-Air Advantages

As the cathode is just oxygen from ambient air, there is no need for a metallic cathode, making the battery a lot lighter than its competitors.

Another advantage is that is it essentially an “electric engine” consuming aluminum instead of oil, and does not lose voltage when discharging like battery systems do.

The limitation is that this is consuming the aluminum, and cannot be recharged by just plugging the battery. So it is more similar in its principles to a common AA battery than to a lithium-ion battery. Thus it requires a system for a battery swap, taking around 90 seconds, instead of a liquid fuel refueling or a 10-15 minute electric recharge.

An alternative can also be to use a mix of Aluminum-Air batteries + rechargeable batteries, allowing for flexible use of direct recharge or aluminum-powered drive depending on need, similar to a hybrid vehicle, but without any fossil fuel.

Infrastructure Pros

A strong element in favor of Aluminum-Air batteries is that there is already a well-established, efficient, and scaled-up industry for aluminum recycling. Something still direly missing from Lithium-Ion batteries.

It also means that for sourcing the base material, the Aluminum-Air battery industry could source its material from scrap aluminum from old buildings, machines, or airplanes, and generate power at the same time. Overall, the system does not require any critical/polluting/expensive resources like lithium, nickel, cobalt, or rare earth minerals.

As mentioned above, the battery swap also means that there is no pressure on the power grid for the recharging to be done instantly when the EVs are coming to the recharging/fuel station. Instead, the regeneration of the aluminum and recharge of the batteries can be done with renewable energy when it is produced in surplus.

Lastly, not only can aluminum metal be regenerated with green power when convenient, but it can also be easily stored away without much cost, as it is a stable, nontoxic solid metal that does not oxidize much. So energy can be stored through aluminum stockpiles for long periods of time, at a much lot lower storage cost than with batteries, ammonia, or hydrogen.

The bulk transpiration of aluminum also does not require specific infrastructure like hydrogen does and can be done by ordinary trucks or trains.

Aluminum Cost- Source: RiAlAiR

Aluminum-Air Batteries Cons

A limitation of Aluminum-Air batteries is the need for a dense network of battery-swapping stations. Due to the problem of lack of standardization of EVs and the costs of building a dense enough network, battery swapping has often been a failed idea. This is even less likely to succeed for traditional battery concepts, as the EV industry is moving toward “structural batteries”, integrated into the frame of the car.

Some companies (see below) are working on the battery swap for aluminum-air batteries to be doable by hand, reducing greatly the technological complexity and the need for an expensive battery swapping station, with simpler delivery automates, like for propane bottles, enough to do the job instead.

In any case, an infrastructure for collecting and rebuilding/recharging the spent batteries will need to be put in place.

Overall, the concept is not new and was first envisioned in the 1960s. A the time the toxicity of the electrolyte blocked the progress of this technology. Other technical issues can be significant as well, mostly related to the air cathode:

“The sluggish efficiency of the oxygen reduction reaction is the barrier for its application. Other problems include CO2 reaction with alkaline electrolyte producing carbonate precipitates, water evaporation to open air [electrolyte dry-out] and electrolyte penetration into the pores of the air cathode.”

Source: Automotive Logistics

Aluminum-Air Companies

Aluma Power

Aluma Power is a Canadian company, located on Aamjiwnaang First Nation lands.

Aluma Power envisions a full cycle efficiency of 43%, and 700% efficiency when aluminum is first used for other applications like building the frame of cars, buildings, airplanes, greenhouses, boats, etc… before being recycled into fuel.

Source: Aluma

Aluma Power’s unique approach is to focus on a mechanical method to mitigate the limitations of Aluminum-Air batteries, like anode corrosion and wear, by rotating the anode. This design can use any scrap aluminum, including melted engine blocks or soda cans. It is documented in the US Patent US10978758B2.

The fuel disk can be changed in a few minutes and lasts up to 130 hours of consumption.

Source: Aluma

The company claims that its disk system allows for 70% fewer capital costs than incumbents, and lower labor costs for “storage as a service”.

Métalectrique SAS & MAL Research & Development

Métalectrique in France and its subsidiary in the UK MAL are developing Aluminum-Air batteries. The key IP of the company is a proprietary electrolyte chemistry that is claimed to reduce the problems of anode corrosion of pore blockage.

The company’s website is a little bare, with mostly some news article links and the announcement of a future product release in 2024. This could be a little concerning considering a previous announcement for a launch in Q4 2021.

The company seems to focus on 3 different product concepts:

• A 300-mile range extender for EVs, something in discussion with 2 very large automotive companies.
• A 1,500-mile range EV battery. MAL has signed a multi-million-pound deal with Austin Electric for mass-producing these batteries in the UK.
• £3,500 conversion kits turning regular fuel cars into hybrids.

MAL claims the manufacturing of its battery costs only $36/kWh compared to around $180/kWh for Lithium-Ion batteries. When including the battery amortization, it would bring the cost of driving to £0.08/mile, instead of £0.50/mile for Lithium-Ion.

The technology could also be applied to planes, defense batteries, and remote power on islands.

RiAlAiR

The company is focused on producing Aluminum-Air batteries for the boat and fishing industry. The company offers a subscription service for its batteries, reducing the upfront costs and helping reduce pollution and high fuel costs.

The focus on professional boat users like fishing boats and taxi boats means that the economic argument of cheaper fuel can hit home well, and the business case does not need to rely on green energy arguments, but simply on increased profitability.

The switch from fossil fuel to an electric-powered boat also opens the possibility of supplementing the energy supply with solar panels or wind turbines on the boat itself, increasing even further the fuel economy and the autonomy of the boat.

Source: RiAlAiR

Lastly, an electric power train is more efficient for boat propulsion, with 92% of the energy converted into thrust, instead of just 35% for fuel-powered boats (the difference comes from thermal and mechanical losses in ICE engines).

Currently, millions of fishing boats are consuming 50 billion liters of fuel per year, making 1.2% of the global fuel consumption, with the majority with a tonnage below 20 tons and less than 12 meters in length, mostly located in Asia. There are also 15 million recreational boats that have the potential to be switched to greener electric propulsion.

Source: RiAlAiR

While electric propulsion has been a non-starter for boat propulsion, the limitation has always been the energy density of the batteries. This is something that modern Aluminum-Air designs could solve, potentially creating a niche but profitable market for these batteries.

Phinergy (PNRG.TA)

Phinergy is the only company involved in Aluminum-Air technology we could find that is also publicly listed. The Israeli company is developing aluminum, but also zinc-based batteries. It is targeting the market of power backups, mobility/EVs, and energy storage. It is also looking at the potential for marine energy, with container-ized batteries.

The company recently signed an agreement to provide 300 power backup systems to Indian telecom company Indus Power, as well as a successful test with Cellnex, another telecom company. It is also testing its system with a leading cloud data center company.

It also showed a prototype electric Tata passenger vehicle in January 2023. India is at the center of the company’s export strategy, having signed an agreement for building an ecosystem with Hindalco Industries Limited, one of India’s largest aluminum manufacturers.

Log9

This Indian company is the first indigenous Lithiuim-Ion battery cell manufacturer, which also produces its own battery management system. The company produces batteries, graphene ultracapacitors, and Aluminium-Fuel-Cells (AFC).

The company was reported in 2020 to have a team of 45 people working on Aluminum-Air batteries. It also discussed a prototype for a last-mile delivery vehicle able to perform 3,000 km on a single “charge” in 2021.

More recently, the company seems to have mostly focused on fast charging Lithium-Ion batteries, so it is not clear if its goals for Aluminum-Air are being achieved, but the technology is still featured prominently on its website home page.

Conclusion

Aluminum-Air batteries, or maybe aluminum fuel cells would be a better term, are a very interesting alternative to the conventional approach to EV and battery technology.

By providing a metallic solid fuel, it could circumvent most of the obstacles to EV adoption, as well as solve the problem of managing the intermittence of renewable energy by “storing” it in recycled solid aluminum.

For now, the technology is still in its infancy, with none of the largest corporations or battery companies seemingly working on it.

This is partly due to the concept radically departing from conventional wisdom in the EV industry and would require a completely different skill set and manufacturing processes.

It is also because the technology tends to fall through green policies and subsidies, matching neither the requirements for hydrogen fuel-cell technology nor for the rechargeable batteries/EV policies.

It seems to be the most welcomed in India, with the country eager to catch up with China in battery technology and green energy.

The post Powering EVs with Scrap Aluminum – Aluminum-Air Battery Tech appeared first on Securities.io.

https://www.securities.io/the-future-of-utility-scale-batteries/

The Power Grid Need For Batteries

Batteries have evolved from a cheap component of small electronics to an expensive key component in the EV revolution. But there is another segment besides mobility that requires an increasingly large amount of battery capacity: the power grid.

Renewables are growing as a part of total electric power generation. But they are also more intermittent than fossil fuel-based power plants, as they mostly produce power when the sun shines or the wind blows. This might not coincide with the time of peak consumption, often in the evening or winter. The power grid does not store any electricity but needs to be balanced between production and consumption at all times.

So the more renewables generation, the more batteries will be needed to keep your power grid stable. This is a major area of new energy investment, with utility-scale battery projects scheduled to more than triple the current capacity by 2025.

Source: EIA

For now, a lot of these batteries parks are using lithium-ion batteries. But this might change.

Different Needs

For now, the battery industry has evolved mostly to cater to the small electronics and EV market. This is because both share similar requirements for the ideal battery:

• Small and lightweight, so with high density as measured in Wh/kg.
• Operate in a “normal” temperature range.
• Not extremely price-sensitive.
• Can last at least 5-10 years, with approximately a full charge per day.

For this specific set of criteria, lithium-ion technology has so far been the best for battery technology. This might change soon, with possibilities like solid-state batteries, sodium-ion, or lithium-ferrum-phosphate (LFP) batteries as potential alternatives. You can read more about it in our article: “The Future of Mobility – Battery Tech”.

But power grid /  utility-scale batteries have very different needs.

• No hard constraints on weight. Batteries are not moving anywhere so a weight that would cripple an EV is not a problem.
• No hard constraints on space. Battery parks will be built on cheap land around power stations. No need to pack it tight inside the frame of a computer or an EV.
• High temperatures are not so problematic. If a specific chemistry works better at 200C, this will not cook the passengers of an EV. However, in most countries, the batteries will need to tolerate cold weather, as having to keep them warm in winter would be very costly. Something lithium-based batteries can struggle with.
• The cost of each Wh is the most important factor.
• The longer the battery lasts, the more its cost can be amortized over a long period of time, with utility companies used to invest with a 30-40 years timeframe.

Considering the very different needs between EVs and utility-scale batteries, it is no surprise that new technologies and new battery chemistries are being developed to provide more cost-effective solutions to power companies and grid operators.

In practice, we can expect several different energy storage technologies to “win” together, as some are more fit for immediate grid balancing, and some more for different time scales (hours, weeks, entire seasons).

Source: CleanTech

While this article will give you an overview of the topic, you might also want to read this detailed report from Ara Ake on stationary energy storage systems.

New Battery Chemistries For Grid-Scale Applications

EVs-Derived New Chemistries

Building batteries is a scaling game. The largest production batches, with the deepest supply chain, can manage economies of scale and therefore a cheaper cost per Wh.

For this reason, quite a few utility-scale battery companies are betting on low-cost battery chemistries already used in EVs to replace lithium-ion-based storage.

LFP Batteries

One option is LFP (lithium-iron-phosphate), a good candidate for low-cost EV batteries, and a battery chemistry not relying on expensive cobalt and nickel. They are also longer lasting than lithium-ion, making them even more economical in the long run. This is something already available in ready-made, utility-scale solutions, including from leaders in the sector like CATL or BYD.

Sodium-Ion Batteries

Besides cobalt and nickel, lithium itself can be very expensive at times, depending on the fluctuation of the lithium price. So replacing it with abundant sodium can help reduce prices even more. It is slightly less energy dense (Wh/kg) than LFPs, but also cheaper, so might be an even better candidate for a battery chemistry able to work both in EVs and the power grid.

Redox Flow Batteries

These categories of batteries rely on the chemical process of oxidation and reduction of metal. A variety of different metals can be used for redox-flow batteries, as well as other types of ion flows.

Source: CellCube

Iron-Air Batteries

These batteries work by utilizing the oxidation of iron (commonly known as rust). The batteries produce electricity by oxidizing iron, and then reverse the process by consuming electricity.

The key advantage is that by utilizing extremely cheap materials, these batteries could be extremely cost-effective. Advocates for this technology are claiming iron-air batteries would be 10 times cheaper, perform better, and last 17 times longer. The downside of the batteries being big, heavy, and slow to charge or discharge should not really be an issue for utility-scale applications. Companies like Form Energy are already building facilities to mass manufacture these batteries.

Zinc Batteries

Using another cheap metal, these batteries include several options like zinc-bromine, zinc-manganese, or zinc-air chemistries. The key advantage of this technology is its very long storage capacity, with very little losses/discharge. This could make it a good candidate for storing wind power, with windless days sometimes stretching for several weeks, something battery technologies with less durable storage can struggle to compensate for. “Zinc batteries are expected to comprise 10% of the storage market by 2030, according to energy analyst Avicenne Consulting”. Some notable companies in this space are Redflow (zinc-bromine) and Zinc8 (zinc-air).

Vanadium Redox Flow Batteries – VRFB

Vanadium is a metal mostly used today in the production of stainless steel. In batteries, it could create batteries that are best fit for daily cycles and smoothing the production curve of renewables during the day, thanks to being able to handle at least 10 charge-discharge cycles per day, while also having a good retention capacity for up to 24 hours. The battery lifespan can be very long, up to 20-25 years, and even then it would just need replacement of the plastic frame parts, with the metal components almost fully recyclable.

The sector is very active, with companies like CellCube, Invinty Energy Systems, Rongke Power, and VRB Energy working on this technology.

Sea-Salt / Aqueous Saltwater Batteries

This concept relies on the flow of salt ions through a membrane for storing energy. Some version of this battery made by Salgenx does not even use a membrane at all, which reduces costs, complexity, and maintenance, but with a custom-made electrolyte that does not mix with water.

Molten Metal Batteries

The concept is based on aluminum smelting, a very electricity-hungry process; what if it could be reversed?

A lot of battery costs come from the difficulties of manufacturing them. Anodes and Cathodes need to be perfectly separated to avoid shortcuts.

In a molten metal battery, all 3 main components, the anode, cathode, and electrolyte are liquid. They separate spontaneously from each other thanks to different liquid densities. The fact that there are no solid components should in theory increase the battery’s lifespan dramatically, as well as allow it to charge and discharge very quickly and to be fully recyclable.

The company Ambri, using a calcium and antimony battery, is aiming for producing 200,000 battery cells per year in its new factory by 2024, and has been a supplier to Microsoft since 2022.

Source: Ambri

The company NGK insulator is also working on a sodium-sulfur molten salt battery, and the company FZSoNick is working on a sodium-nickel-chloride battery.

Metal Hydrogen / Nickel Hydrogen Batteries

These batteries cycle hydrogen into water and then oxidize a metal. While nickel is not the only possible cathode metal in this technology (alternatives can be manganese, lead, or iron), it is the most common and energy-dense option.

This is the type of battery used by NASA on the ISS (International Space Station).

This technology would have the advantage of being very safe, with zero maintenance and managing a wide range of temperatures (-40 to +60C).

This technology is notably promoted by Enervenue, which came out of stealth mode in 2020, showing a new version of its battery with a 30-year, 30,000-cycle lifespan released in September 2023. Hydrogen-manganese batteries are developed by RFC Power.

CO2 Batteries

Rising CO2 levels are the driving force behind the push for renewables and electrification, and therefore behind the increasing need for batteries as well. So it would be somewhat ironic that the same molecule becomes used to store renewables energy.

Noon Energy CO2 battery splits CO2 into carbon and oxygen to store energy. The flow battery is operated at high pressures and temperatures ranging from 50 to 200 bar and 600 to 800 ºC. This battery type was first developed for the Mars Rover Perseverance.

This should not be misunderstood to be the same as the “CO2 battery” from Energy Dome, which relies on the cycle of liquefaction and evaporation of CO2, making it not a true battery, but more akin to a compressed gas energy storage.

Sodium-Sulfur Batteries

These batteries had, for now, been limited to applications where the battery was kept at high temperatures (300°C). This might not be an issue for utility-scale applications. However, the technology is still somewhat new and lacks scale and mass production for now. Making these batteries very long-lasting can also be a technological challenge.

Polymer Batteries

Also called plastic batteries, this concept uses conductive polymer instead of lithium or other metals. The main advantage of this concept is that it relies on simple manufacturing and materials readily available. The resulting battery would also be very long-lasting and easy to operate safely.

Polyjoule, an MIT spin-off, is one of the leaders in that idea. But it might in the long run not be a battery type that can reduce costs as much as some other alternatives.

The post The Future Of Utility-Scale Batteries appeared first on Securities.io.

https://www.securities.io/the-future-of-mobility-battery-tech/

The Rise of EVs

When Tesla was founded in 2003, the idea of electric cars was mostly seen as a joke. So far, every electric car had been essentially a glorified golf cart, with poor range, low comfort, small size, and very low top speed.

The Tesla Roadster (1^st generation, as a new version is expected in 2026) completely changed this perception, with the performance of a luxury sports car, making electric cars (EVs) suddenly cool.

https://www.motortrend.com/news/tesla-roadster-sport-auction-sale/

The key part that made EVs suddenly viable was progress in battery technology. At first, this was riding on the back of lithium-ion batteries designed for the small electronic market. And soon, more dedicated systems were developed to give EVs more autonomy.

From a small volume even in 2016, electric cars (EVs) are now an exponentially growing part of global sales, with more than 10 million electric cars sold in 2022, or 14% of global sales, with China and Europe leading the way.

Global EVs sales – Source: IEA

Still, despite this progress, some questions stay open about the adoption of EVs. EV sales have slowed down in a context of high inflation and the need to convince the general public, and not just early adopters. This recently led to the postponement or cancellation of EV strategy by major manufacturers, such as GM, Ford, or Honda.

The Current Limitations

Early EV enthusiasts were happy to use vehicles that could be more carbon neutral, and represented a new technology. Less environmentally concerned buyers are still somewhat skeptical of EVs, for a variety of reasons:

• Price: Most EVs are still costing more to buy than their ICE (Internal Combustion Engine) equivalent. With interest rates going up, this can make EVs too expensive for many people.
• Range anxiety: A way to reduce the price of an EV is to pick the smaller battery pack option. But then, lower range can make long trips difficult, and charging time can be long as well.
• Cold weather: The colder the climate, the more damaging it gets for batteries. Most EVs need to stay charging in winter nights if they are not in a warm garage. Furthermore, cold reduces the theoretical range of EVs.
• Charging infrastructure: People living in apartments might find it difficult to recharge their EV if there are not enough public charging stations available. Long queues, slow charging or no stations nearby can make for a poor experience.
• Battery safety & durability: Lithium-ion batteries pack a lot of energy. And the electrolytes in the battery is very flammable. This makes batteries potentially a safety hazard, especially in closed environments like underground parking. Not that ICE cars are non flammable, but it still a concern.
• Electric grid: While not really a concern for EV buyers, it can become a problem for the sector as a whole. Electric grids are already somewhat strained, and might not handle well millions of vehicles needing recharging. The source of the electricity is also an issue, with still a lot of it coming from fossil fuels, including coal.

Most of the issues with current EVs can be solved with better batteries. Slow charging, too low range, safety issues, cold sensitivity, and even price, all are characteristics of current lithium-ion batteries.

Researchers and industry leaders are working hard to solve these shortcomings, either by improving the existing design, or inventing entirely new ways to build batteries.

Overall, denser batteries mean cheaper, safer batteries that are also more likely to last longer and charge quicker.

Improving Lithium Batteries

The first step is to improve the existing batteries, capitalize on the wealth of knowledge and experience with this technology. Some researchers see the current generation of batteries still able to be incrementally improved until 2030: “Prospects for lithium-ion batteries and beyond—a 2030 vision”.

The first part is to improve the cathode part of the battery, currently mostly made of lithium and nickel in lithium-ion batteries. A deeper understanding of the crystalline structure and chemical change when a battery age could improve all specs of the batteries.

Anodes, currently made of graphite, could be replaced by 5x-10x more energy dense silicon or silicon oxide. This so far has been difficult, as silicon anodes tend to “age” too quickly. Graphite-silicon mixes are already becoming more common, and it could help boost the batteries’ total energy.

Changing the electrolytes connecting anode and cathode could also help. New types of liquid solvent, more concentrated electrolytes, or maybe even gel-like electrolytes could improve the safety profile and increase battery density.

Lastly, better design is an option to optimize the relation between batteries and EVs. Many EV manufacturers are starting to use so-called structural batteries that are both energy storage and structural components of the vehicle. This can reduce the total car weight, leading to more efficiency and range. Rolls-Royce, Tesla and Volvo are already working on this idea which could increase range by 16%.

Solid State Batteries

Long theorized, and slowly made reality in laboratories, solid-state batteries are often described as the Holy Grail of battery technology.

The idea is to entirely remove the need for liquid electrolytes, greatly reducing the weight of the battery and dramatically boosting its density. By removing the flammable electrolyte, it should make the battery a lot safer. The removal of the electrolyte should also simplify the production process, removing up to 3 weeks in the manufacturing line.

Lastly, such designs are promising almost full reload in 3-5 minutes, or around the same time it takes to refuel a car with gasoline.

Many companies are talking about launching their own version of solid-state batteries as soon as 2026-2029. This includes QuantumScape (QS), CATL (300750.SZ), Toyota (TM), Panasonic (6752.T), LG (051910.KS), and Samsung SDI (006400.KS). For now, Tesla (TSLA) is working on its own alternative to solid-state batteries, the 4680 battery cells based on lithium-ion technology.

Solid-state Batteries’ Issues

Solid-state battery development have been plagued by the difficulties of scaling up laboratory prototypes to mass-manufactured products. Reliable, automated and low-cost production is still in the works, and the timeline for arrival to market of solid-state batteries is likely in the 2026-2028 horizon at best.

Source: Vertex Holdings

Lastly, solid state batteries will use much more lithium than current lithium-ion batteries, something that might cause a repeat of the skyrocketing price for lithium in 2022, when it went up 10x in 2 years. Recycling might also be difficult.

“Condensed” Batteries

Maybe we do not need to wait for solid-state batteries to see very high-density batteries. CATL has announced its creation of a “condensed matter” battery, able to reach 500 Wh/kg. The company also claims the possibility to achieve mass production in a short period of time, which coming from the leader in the sector and not a small startup, is likely credible.

This is a level of density previously believed to be achievable only by solid-state batteries. It is also the level required to start considering electric aircrafts, and other applications which have so far been impossible to electrify.

Alternative Battery Chemistries

There are many possible alternatives to lithium-ion for creating a battery. But only a few battery chemistries will have the right mix of light weight, high density, and safety to be fit for use in mobile applications.

In the long run, some of these alternative batteries might even replace the more costly lithium batteries, at least when it comes to the more price-sensitive automotive mass market.

Lithium-Iron(Ferrum)-Phosphate Batteries – LFP

LFP batteries have for a long time been out of mobility applications due to too low energy density, typically 30-40% lower than a classic lithium ion battery. The latest version of this chemistry is now reaching the density level of older generation lithium-ion batteries, making them viable for low-cost vehicles.

A big advantage of LFP is that they do not require any nickel or cobalt, both responsible for the price of classic lithium-ion batteries. In contrast, iron and phosphate are abundant and cheap. LFP are also more likely to last longer, further reducing the total life cost of the battery system.

The leading manufacturer of LFP is Chinese CATL (300750.SZ), together with BYD (BYDDF), even if the company is now looking at other options to keep its position of manufacturer of half of the world’s batteries.

It nevertheless does not neglect the LFP market, after the reveal in August 2023 of a 700 kilometer LFP battery that can recharge 400km of range in just 10 minutes.

Sodium-Ion

Beside cobalt and nickel, lithium is the other key costly resource going into lithium-ion. By contrast, sodium is extremely abundant and cheap, and much less likely to fall in short supply regularly like lithium.

The leading Chinese car manufacturer, BYD, has announced its intention to use sodium-ion batteries for its new low price models Dolphin and Seagull, with the Seagull maybe as cheap as $10,000 (sadly, only in China).

This followed the announcement of a high-density sodium-ion battery by CATL in 2021. And in November 2023, the European Northvolt have announced a breakthrough in sodium-ion achieving the same 160 watt-hours per kilogram energy density than CATL.

While slightly less energy dense than LFP, and much less than lithium-ion, sodium-ion might win the mass market thanks to a MUCH cheaper price, potentially 1/3rd of the price of current batteries using nickel.

Other Chemistries

While it would be too long to look at each one by one, there are quite a few other potential chemistries that might one day become serious contenders for batteries used in mobility applications. But these technologies are at an earlier stage, making their adoption into EVs unlikely in the short term.

Glass batteries

An intriguing idea, using only very abundant materials, that for now other researchers have been struggling to replicate in their own labs. But considering this idea is supported by Mr. Goodenough, the inventor of the lithium-ion battery, it is not to be dismissed either (sadly, Mr. Goodenough passed away in the summer of 2023)

Graphene batteries

Graphene, a single layer of carbon atoms, is extremely conductive. The company Graphene Manufacturing Group (GMG.V) is pushing for graphene/aluminum batteries, which could have higher density than lithium-ion, while charging 70 times faster and last 3x longer. The company is working with mining giant (and graphite miner) Rio Tinto to start production at scale for 2025.

Manganese Hydrogen Batteries

These batteries would use magnesium to replace lithium. This kind of battery has been described as “quasi solid-state” and could be able to handle much better temperatures as low as −22°C (-7°F).

Lithium-sulfur Batteries

These batteries would use lithium and sulfur instead of expensive cobalt and nickel. Even at this early stage, they display remarkably high density of energy. They however have been plagued by issues regarding durability, and will need to become a lot more durable to be a good alternative to existing chemistries.

Source: Vertex Holdings

Sodium-Sulfur Batteries

These batteries had for now been limited to applications where the battery was kept at high temperatures (300°C). But new electrolytes preventing sulfur dissolution could remove this requirement. So it might become a new angle for finding powerful and cheap batteries.

Aluminum-ion Batteries

This technology replaces the lithium anode by an aluminum one. By using a polymer replacement for graphite, these batteries could achieve high storage capacity.

Aluminum-Air

These “batteries” function by consuming aluminum like a fuel, giving the EV using it a higher range than a fuel car (1,600 km per tank), with a far denser energy density than lithium-ion (1,350 W/kg). This makes it also a potential electricity source for electric planes.

The consumed aluminum can then be replaces by fresh aluminum in 90 seconds, and the spent “fuel” recycled. This technology could also be combined to older EVs to give them back more range.

Currently, the main limit to the development of this technology seems to be that it fails to receive public support, being neither a true battery, a fuel-cell or hydrogen-based, making it ineligible for support by existing green policies.

The post The Future of Mobility Battery Tech appeared first on Securities.io.

https://www.securities.io/the-future-martian-economy/

A Dream Within Arm’s Reach

With more tests of SpaceX’s Starship ongoing, it seems that the dream of marching on Mars or even colonizing it, is getting more realistic by the day.

This is also with the backdrop of both China and NASA having big plans for a permanent Moon base (The Artemis missions), as well as discussions of new space stations by the EU, India, and Russia, on top of the quickly growing Chinese one.

No matter what you think of Elon Musk’s management methods or politics, it is clear that the richest man in the world is now getting closer to his life goal of making “humans a multi-planetary species”.

But once the initial landing is achieved, and scientific exploration by SpaceX or leading nations is done, any sustainable Martian colonies will need to justify their own existence from an economic point of view. And it is easier said than done.

This is an idea that has been explored in depth in science fiction, notably in the excellent Mars Trilogy by Kim Stanley Robinson, published first in 1992. 30 years later, let’s look again at this idea with new technology and more knowledge about the red planet.

Source: Unsplash

The Costs

The need for a self-sustaining Martian economy is because not only the initial setup, but also the continuous imports of goods and people to Mars will be extremely expensive. In the long run, people will want to see it pay for itself.

Transportation

The first major cost, that so far kept us from even walking on Mars, is transportation.

A Starship trip to orbit is expected to cost up to $1-5M per orbital launch (depending if you ask Elon Musk or maybe more realistic third parties), each carrying “only” 150 tons. The cost for a Mars trip, which will require still untested refueling in the orbit, might be several times larger.

So this is likely around a $100,000/ton transportation cost or more. For reference, even air freight, the most costly trading method we currently use, costs around $3,000-7,000/ton. Sea freight is as little as $2.5 per ton per 1,000-miles.

So Mars-Earth trade is going to be 100x to 100,000x more expensive.

Simply put, anything imported to Mars will be imported only because it is close to impossible to make locally. Actual trade will, by the sheer force of economics and transportation costs, be rather limited.

This is likely going to look like how the trade of precious items and rare spices was done in the pre-modern world, more than the globalized economy of today.

Survival

The second obvious question about Martian economics is all the extra costs of just living on the red planet. Earth provides us “for free” with breathable air, abundant liquid water, radiation protection, and fertile lands, making growing food and simply staying alive a relatively low-cost and low-tech endeavor.

So the first issue for any colony will be to manage efficiently to procure the very basics locally. This is because transportation costs between Earth and Mars are so astronomical (pun intended) that only people or high-value machinery and parts make sense to carry between the 2 in the long run.

So let’s examine quickly how to cover the basics: food, water, shelter, and heat.

The Basics

Food

Food is probably not the hardest problem to solve. We know how to grow food in hydroponic or aeroponic conditions. It is more expensive than farming with “free” soil & rain, but nothing dramatic. An airtight dome/greenhouse is also a possibility. In any case, spending a lot of time with green plants or even small farm animals would probably be a psychological boost for the early colonists.

Source: Unsplash

Water

For a long time, this was thought to be a quasi-solvable problem. But we know since 2021 that Mars has a LOT more water than previously believed, including far from the polar regions. So as long as it is not about making entire ocean from scratch, it is unlikely Martian colonies will ever really struggle to access water.

Shelter

Now this can be a more difficult topic. Mars does not have a magnetosphere, so a very thick wall will be needed to give protection from cosmic radiation. It seems the main ideas are now either to do 3D printing of buildings from the local soil or to build underground shelters. You can read more about early experiences regarding radiation and human life on Mars in this dedicated scientific paper.

Source: Autodesk

In my opinion, it is clear Elon Musk has already decided for early colonies to be in tunnels, considering his otherwise odd interest in the Boring Company and its improved, electric-powered tunneling machines. Here too, the average 2-room flat might be a little more expensive to build than on Earth, but might also be much more durable, and well, real estate speculation is yet to pump up the prices of raw land on Mars… (For that matter, electric vehicles are the ONLY possible option for mobility on Mars).

Heat

Mars is a cold world, with an average temperature of -63C (-81F). Most likely, the early colonies will run on nuclear power, with Rolls-Royce microreactors being already tested and to be shipped to the Moon by 2029. The “waste heat” of such reactors will be great to warm the habitats as well.

Source: Rolls Royce

In the longer run, wind power could be another source of energy, with the thin Martian atmosphere often having very strong wind, resulting in a lot of harvestable energy.

Solar energy is going to be more tricky, with the planet receiving only 43% of Earth’s solar radiation. Maybe space-based solar power is an option, as anyway, a Martian economy is also a space-centric economy.

Making Money

In the long run, every society needs to produce as much as it consumes. What it cannot produce itself, it must trade in exchange for products of an equal value.

At first, this balance will be equalized by Earth subsidies, but we can be sure that as soon as humanity walks on Mars, some will grumble this is all a waste of their taxes, and probably even before that.

And the problem is that some items will need to be imported for decades, maybe centuries. For example, microchips, specialized machines, or advanced medicine and scientific instruments.

So how could Martian colonists make enough money to pay for these imports AND the exorbitant costs of transport?

Research

This is something at the edge of “subsidies”, but it is obvious that plenty of fundamental research from Earth-bound research institutes will want to study Mars from its surface. These will probably be the first “jobs” on Mars that are not linked to immediate survival. A little bit like it works for Antarctica today, but with very long or permanent job contracts for these scientists.

Medical research, geology, and astronomy, all will make progress from works conducted on a new planet. And if we ever find a trace of past alien life, this will be an even bigger “industry”. Active lifeforms would be an absolute banger for this sector, with probably every pharmaceutical and chemical company flooding the planet with funding and researchers in the search for new enzymes, chemicals, and medicine.

Tourism

This is probably the first “real” industry Mars could develop, once the details of not only surviving, but living in reasonable comfort on another world have become a matter of well-ordained routine.

We are already seeing this sector slowly turning into an actual industry for orbital flight, with companies like Virgin Galactic (SPCE) and Jeff Bezos’s Blue Origin working on the concept.

Ultimately, orbital tourism has only a limited set of experiences to offer, mostly weightlessness and a private view of Earth from orbit.

In comparison, Mars can offer:

Valles Marineris: The largest canyon in the solar system, 4,000 km (2,500 mi) long, 200 km (120 mi) wide, and up to 7 km (23,000 ft) deep. Combined with the 1/3 gravity, this is just a paradise for explorers, alpinists, and other adrenaline junkies.

Source: Wikipedia

Olympus Mons: A dormant volcano so large that its top reaches into space, with a total height of 21.9 km (13.6 mi or 72,000 ft). It is roughly as large as France or the state of Arizona.

Source: Wikipedia

It is also surrounded by a massive cliff. At its tallest point, this cliff is 7km high. Many people pay from $30,000 to $200,000 for a Mount Everest expedition. We can imagine a higher price tag will find people ready to pay it in order to climb the tallest mountain in the solar system. One Mars trip costing $1-5M with 1-5 tourists on it seems rather reasonable.

If that was not enough, there is also the Tharsi Montes, 3 giant volcanoes larger than anything on Earth.

Easy flight: As mentioned before, the planet has very low gravity, 38% of Earth. This could make all sorts of flight experiences possible, from zeppelins to gliders, small planes, and helicopters. Scenic flights will likely be part of the travel kit of every luxury Mars adventure.

Luxury resorts: Many expensive tourism options rely very little on the environment around them. For example, cruise ships or ultra-luxurious resorts in Dubai and Las Vegas are for all functions and purposes self-contained cities not too dissimilar to a Martian colony. The unique location, gravity, possibility for easy exploration/hikes, and uniqueness of the experience could make some places on Mars the new Dubai/St-Tropez/Las Vegas/Macao, etc.

Bragging rights & exclusivity

Let’s be honest, the main feature of space tourism in general, and a hypothetical Mars tourism industry, is its uniqueness. This is something that sets you apart from the common mortals, and the richer people are, the more such status symbols are prized.

We can easily imagine Mars trips being sold in auctions, with limited space available. As well as corporate sponsorship selling limited spots as “supporter of humankind expansion” being a major revenue source for a Martian colony.

For the same reasons, each of the major world powers will want to have “their” colony, and treat it as a matter of national prestige, as well as a nonviolent form of competition with other powers.

In that respect, the strong international tensions might be a major driver in boosting lunar and Martian colonization, with both the US and China, and their respective allies, rushing to “not be left behind” in the new space race.

Over time, declining costs and the loss of novelty will probably change the appeal of this reason for colonization. But it might be vital to turn the fledgling early colonies into fully stable communities and proto-nations.

Rare materials

As a completely untapped world, Mars is bound to have easy-to-exploit deposits of materials like gold, diamonds, platinum, etc. Maybe also some unique gemstones and minerals with no equivalent on Earth. These are precious enough to be worth both the effort of mining and bringing them back to Earth.

For example at the current price of $28,000/kg – $28M/ton, platinum can easily cover its transportation costs back to Earth, especially as most rockets are likely to come back mostly empty.

This will not be true for deeper or harder-to-exploit deposits. But at first, this sort of resource exploitation might be a great boost in Martian colonization, the way the gold rush greatly helped a quick integration of California into the USA.

Collector items, like the first Martian rock brought back to Earth could as well command a very high price.

High-value Industries

Any significantly high-value product could be also traded between Mars and Earth. We could potentially imagine items like microchips being worth the transport costs.

We know very little about what manufacturing advantage a 38% of Earth gravity could procure. But we already know that some niche items, like some types of optic fibers, are only possible to build in microgravity.

So it is not completely impossible to rule out that Mars might have some unique potential as a high-tech manufacturing hub. Maybe some unique effect of low gravity will be beneficial for biotechnology as well.

It is also likely that a local culture founded by scientists, engineers, and a population entirely reliant on technology to stay alive might produce quite a few top innovators and scientists. On Earth, the richest places are often like Singapore of the Silicon Valley, resource-poor and benefiting from an educated and productive population.

Remote Work

Mars is too distant from Earth to perform a Zoom call, with a communication lag of 20 minutes on average. But it nevertheless would not hinder the possibility of any work that can be done remotely, like research, writing, design, finance, anything intellectual property related, etc.

If it can be done only with emails, a job probably can be done as easily by a digital nomad on Earth than on Mars.

In the long run, this might be a prime source of employment for the Martian population, as well as of exports, as digital goods & services could be perfectly competitive, not suffering from physical transportation costs. Patents and royalties from R&D effort made on Mars could provide a sustainable source of income for the planete.

Others Income Sources

While probably never major drivers of the Martian economy, many other activities could be a source of profitable “exports” for the Martian economy.

Low gravity sports

Can you imagine playing basketball or baseball with only 38% gravity? Or for that matter mixed martial arts, American football, and rugby? We can easily see some niche (or maybe mainstream) new sports being invented to exploit this unique environment.

Retirement & Convalescence Homes

It is possible that low gravity could help handle old age or specific diseases, like cardiovascular issues. If this turns out to be true, some people will definitely want to pay for a one-way ticket and spend their retirement money watching a red sky.

Film making

This is maybe more going to be true for orbital stations than for Mars, thanks to the advantage of weightlessness. But it is equally likely given that movies about Mars and space are already highly popular today. They might be even more so in a future where colonization is not science fiction anymore.

Refueling & Repair Hub

The human drive for expansion might drive it further, toward the metal riches of the asteroid belt, or the moons of Jupiter and Saturn. For that matter, the giant gaseous planets might be a great unlimited source of fuel for nuclear fusion. In that scenario Mars could become a logistical hub for deep-space activities.

Photo by Planet Volumes on Unsplash

Terraforming

Terraformation is the concept of turning another planet into something similar to Earth (moderate temperature, breathable atmosphere, oceans, active ecosystems. People are very engaged in ecology and the need to protect all forms of life on Earth. The same impulse could see spreading life in a dead world as a moral good, worth donating to.

Even financial speculation could play a part in the push for terraformation, with now “useless” land potentially turned fertile and attractive, both for farming and for real estate.

Source: Deviantart

Life And Culture On Mars

In the long run, we can expect most Martian colonists to work for other Martians, growing food, producing power & local goods, etc.

The more advanced and complex a technology, the more likely it will have to be imported. So it is not impossible that automation might be a lot less common on Mars than on Earth, with local labor cheaper than anything requiring the import of advanced chips or robotics.

It is also likely that the local production of basic electrics and electronics will have to be quickly developed, as any local supply will be a lot cheaper than imports, even if not produced at the same scale.

A culture of simplicity and low consumption will probably be required to handle the harsh living conditions of the first decades. A strong belief in science and rationality is also likely to dominate the culture, with technology the only thing keeping everyone alive.

One outcome of having to build subterranean or heavily shielded habitats might also be a culture that views the outside as a place to avoid most of the time.

On one hand, the Martian surface could be seen as a place to preserve free of human interference, especially if terraformation becomes successful.

On the other hand, this could encourage ruthless exploitation of the planet’s resources, with no ecosystem risking being damaged, and a mix of domed gardens and massive heavy industry could dot the surface of this new world.

So from techno-ecological utopia, or cyberpunk mass industrialization, many paths are possible for a future Martian society and economy. But in any case, it is likely to become as influential on humankind’s history as the discovery and colonization of the Americas.

The post The Future Martian Economy appeared first on Securities.io.

https://www.securities.io/our-future-energy-mix/

Predicting Energy Systems

Very few topics are as complex and as important as the future energy mix of our civilization. Depending on who you ask, dependency upon fossil fuel is impossible to shake off, or renewables are going to take over at a breakneck pace. The reality is of course complex, and it is very hard to predict the future of energy.

In this article, we will look at our current situation, see the few possible scenarios, and more importantly, what economic or technological changes will make one scenario more likely to happen than the other.

Where We Are

If there is so far a pattern to our growing energy usage, it is that new energy sources tend to be added to our energy mix, rather than replacing the previous one.

For example, we are still using as much, if not more, biomass (mostly wood) than in the 1800s, before the Industrial Revolution. Similarly, coal consumption has mostly only increased over time, on which was added oil, gas, and then hydropower, nuclear, and renewables.

Source: OurWorldInData

This might come as a surprise, considering how much progress in our electricity production renewables seemingly have made. This is due to multiple causes:

• China, the leader in renewables’ new capacity and transition to EVs, is also the leader in coal power plant construction.
• Most of the primary energy consumption is not used to generate electricity. Instead, most of our energy consumption comes from mobility, heating, and industrial uses like steel production and petrochemicals (production of fertilizer, plastics, pharmaceuticals, chemicals, etc.).
• Population growth and billions leaving extreme poverty meant growing energy consumption, with the cheapest available option often coal. As well as more meat consumption, air conditioning, cars, plane travel, etc.
• Globalization of the economy, leading to a lot more transportation of goods, including multiple back-and-forth movements of raw materials, semi-transformed parts, and final goods.
• Agriculture industrialization, increasing yields and reducing the required manpower, but also boosting consumption of fossil fuels and fertilizers.

For anybody concerned by climate change and carbon emissions, this can make a depressing outlook, with fossil fuels firmly entrenched in our global energy mix. But this is not truly the whole picture either.

The Ongoing Change

From barely a nice theory in 2016, electric cars (EVs) are now an exponentially growing part of global sales, with more than 10 million electric cars sold in 2022, or 14% of global sales, with China and Europe leading the way.

Source: IEA

The share of renewable energy (hydro + solar + wind + geothermal) is also quickly growing. And while some countries have been high on this list for a long time, due to massive hydropower resources (like Norway. Brazil, or Canada), solar + wind is really where the change is happening.

Source: Our World In Data

A look on a country basis shows the clear inflection point in 2010 when renewables often more than doubled, usually entirely carried by the growth in solar and wind production. For example, China and Australia:

Source: OurWorldInData

Source: OurWorldInData

A massive driver of this change has been a steep decline in costs for renewables. Driven equally by technological innovation and scaling up industrial production, this has made renewables increasingly competitive. At least on paper, renewables seem now cheaper than fossil fuels (more on that below), as shown by the IRENA (International Renewable Energy Agency).

Source: IRENA

The Challenges

In the last few years, a strange situation started to emerge. The quickly declining costs of renewables have convinced quite a few people that fossil fuels would be going the way of the dodo birds anytime soon.

Source: Twitter/X

But in the last few years, a few macroeconomic shocks have put this idea into question. The war in Ukraine triggered massive inflation, and pushed countries like Germany to restart their reliance on coal.

And that same inflation has direly damaged the profitability of planned renewable projects. Massive offshore wind projects canceled, crashing stock price of solar and wind companies, this has been a painful period. You can read more about what happen in our article “The 2023 Renewable Energy Crash“.

Even EV sales are put into question, after the postponement or cancellation of EV strategy by major manufacturers, such as GM, Ford, or Honda.

Renewables’ Intermittency

One key issue that will need to be solved is energy storage. Wind and solar energy production is depending on the weather and can be temporally disconnected from the demand. This is an issue for an electric grid requiring “just-in-time” production and an instantenous perfect balance between production and demand.

There are plenty of possible alternatives, but the technologies are either just getting started, or have not been deployed at a massive scale soon enough. This leads to energy surplus in the day and/or summer, and shortage at night and/or winter.

The problem is not unsolvable but requires well-coordinated policies, and more investment in power grids.

And frankly, also admitting that the “real” costs of renewables should include the costs of energy storage. Renewables might not be just yet fully cheaper than fossil fuels, at least once they become a large part of the electric production of the country.

The Limits of Batteries

The concern about EV adoption staying on track is due to similar technological limitations. While the early adopters were fine with more upfront costs, lower range, or slower charging time than ICE (Internal Combustion Engine) vehicles, other buyers might not be. The shortage of lithium boosting the price of the white metal also caused some concerns.

Luckily, new battery technologies are coming soon, from Chinese Sodium-Ion batteries to solid-state batteries that should help reduce EV prices and cancel legitimate concerns like range anxiety or fire hazards.

Hard-To-Switch Energy Demand

And then, some energy consumption is simply hard to switch away from fossil fuels. For example, long-distance shipping still requires a very dense and liquid fuel to work. Flying also requires a very high energy density energy source, that batteries are for now unable to deliver. Most plastic production relies on oil, fertilizer on gas, and steel on coking coal.

Here too, solutions exist, but are somewhat immature technologies and far from being globally deployed.

Game Changer Technologies

The Likely Game Changers

Quite a few solutions are already at hand to help restart the growth of renewables and low-carbon technology.

Nuclear Innovation

Still controversial, nuclear energy is nevertheless a low-carbon technology that may be needed to bridge the gap toward a renewable-driven future.

Small Nuclear Reactors (SMRs) are another sector that recently suffered from bad news due to rising costs, linked to global inflation. But in any case, nuclear technology is undergoing a renaissance, with new safer designs looking at smaller reactors (SMRs and micro-reactors), or even new fuels like thorium. Meanwhile, China is building 24 new large nuclear reactors, and planning for a total of as many as 150 reactors.

Better Renewables

Declining costs compared to fossil fuels are likely to stay a durable trend. This is especially true for solar, with innovations like thin-film solar cells or 3rd generation solar cells (amorphous silicon, organic polymers, or perovskite crystals).

Utility-scale battery projects will also help, with more than triple the current capacity by 2025.

Source: EIA

Solid-State batteries

Everybody working on battery technology knows that solid-sate batteries, not requiring the liquid electrolytes of the current lithium battery, will be a game changer. And many companies are talking about launching their own version of solid-state batteries as soon as 2026-2029. This includes QuantumScape (QS), CATL (300750.SZ), Toyota (TM), Panasonic (6752.T), LG (051910.KS), and Samsung SDI (006400.KS). While Tesla (TSLA) is working on its own alternative to solid-state batteries.

The Speculative Game Changer

Some other technologies are less mature, but even more promising and will likely be how we get our energy in 2040-2050 and onward.

Nuclear Surgenerators

A big concern with nuclear power plants is nuclear waste. Surgenerators (or “breeders”) can consume these nuclear wastes and turn them back into power & nuclear fuel. This could both make the available nuclear fuel virtually limitless, and reduce greatly the issue of nuclear wastes. A bonus is that this technology is not really new, as it was used by France until 1997, so it is only speculative due to the political difficulty surrounding nuclear power.

Space-based Solar

Producing solar energy from the orbit would solve at once all of solar energy’s problems: no intermittency, no clouds, no declining production in winter. With space-based Internet suddenly a reality with Starlink, this is not as outlandish as it sounds.

It is something we investigated further in our article “From Sci-Fi to Sky-High: Are Orbiting Solar Panels a Bright Idea?”

Geothermal

A so far mostly neglected source of renewable energy, and able to provide baseload power 24/7 is geothermal energy. This is finally changing, with companies like Vulkan Energy (VUL.AX), Ormat Technologies (ORA), and Eavor. These companies, somewhat ironically, repurpose the advances in drilling and fracking made by the oil industry to tap into the heat sources of the Earth. (We covered Ormat in this article and Vulkan in this one).

Synthetic fuels

Power generated from renewables (or even nuclear) could be used to synthesize gas or liquid fuels. This includes hydrogen, ammonia, syngas, or synthetic fuels.

Another option for synthetic fuel could be to leverage biology, and use microalgae to generate biofuels (see “Algal Biofuel: The Next Energy Revolution?”) or bio-fermenters to produce biogas & biomethane from waste organic matter.

These fuels could then be used in planes, ships, and other applications that require either very dense fuels or very high combustion temperatures (like steel making).

Fusion

Fusion energy aims to create energy by fusing together light elements like hydrogen, re-creating on Earth the process that powers the Sun itself. With temperatures ranging from millions to hundreds of millions of degrees, this is an immense technological challenge.

It would also provide clean energy, producing neither carbon nor nuclear waste, with an unlimited supply of “fuel”, as hydrogen is the most abundant atom in the universe.

The largest fusion project is the international research consortium ITER, with many startups also pursuing the dream of nuclear fusion, including Helion, General Fusion, Commonwealth Fusion, TEA Technologies, ZAP Energy, and NEO Fusion (financed by Chinese EV maker Nio).

The Future Energy Mix(es)

While likely promising in the long run, we will mostly examine possible energy mixes without any of the “speculative game changers” discussed above, as we look at the horizon of 2040.

The EIA (Energy Information Administration) has released multiple scenarios, depending on economic growth and the adoption or not of low-carbon technology.

In most cases, energy use is expected to keep growing, with fossil fuels still making most of the world’s energy by 2050. Now this is a projection if no laws change, and investments in energy stay in line with the current trend.

Source: EIA

Business as usual

This is a depressing scenario for anyone paying attention to climate change. It assumes that coal, gas, and oil will stay for the next 2 decades the dominant force in our energy system, producing the bulk of our energy.

This is far from impossible, as illustrated by the recent return of Germany to coal, despite the country being widely viewed previously as a champion of renewables and the energy transition.

The High Tech Road

Another option is for our societies to embrace technological change when it comes to energy. This includes renewables, but also massively nuclear, likely both of the conventional and smaller types at once.

This is a scenario where fossil fuel power generation from fossil fuel is either priced out by better alternatives or outright banned by law.

It is also a scenario where EVs keep being adopted quickly, likely thanks to new battery technologies.

While nuclear produces baseload power and winter capacities, renewables can manage surplus production for liquid fuels to decarbonize flying, shipping, and heavy industry.

The Low Consumption Road

Considering the hunger for energy of the developing world, including not only China but South America, Africa, India, and Indonesia, this does not seem a very likely scenario.

Somehow, it would involve “choosing” true de-growth, and probably on average a decline in life standards, with especially less travel and international trade. Agriculture de-industrializes to some extent, industrial activity declines, and overall economies become a lot more local.

Such a scenario should most likely be envisioned in parallel to massive international tensions, war, or a global depression, explaining the sudden decrease in economic activities, as a voluntary choosing of lower production appears unlikely in both democratic and autocratic countries.

The Muddle-Through Scenario

This is a scenario where everything happens at once. Fossil fuels are on the slight decline, but not fully phased out. Coal is overall being phased out, but oil and gas not so much. Some countries bet on nuclear, others on renewables, other keep business as usual.

Electrification and decarbonization occur but at a slower-than-desired pace. Carbon emissions stay in that scenario much above the net zero scenario envisioned by the GIEC to keep global temperatures from rising too much.

This is not very different from the EIA scenarios mentioned above. Later on, carbon capture might be deployed to accelerate decarbonization and reverse some of the past emissions.

The Breakthrough Scenario

An energy generation breakthrough is made, allowing for abundant energy, and the solution can be quickly deployed all over the globe.

It could be a drastic decline of orbital solar infrastructure through a new space race between SpaceX and Chinese firms.

Or a massive success for ITER at launch in 2025-2026.

Or revolutionary new designs in solar and battery tech.

Such changes are by nature almost impossible to predict or quantify. But they should not be fully dismissed either.

The post Our Future Energy Mix appeared first on Securities.io.

https://www.securities.io/top-10-stocks-for-the-future-of-cardiology/

A Silent Killer

Among the leading causes of death in developed countries are various forms of heart failure. It can be anything from sudden and unexpected heart attacks to slow the degradation of the heart’s ability to pump blood.

1 in 5 deaths in the USA are related to heart diseases, with one person dying every 33 seconds from it.

The market for cardiology devices was $68.4B in 2023, and is expected to grow to $95.8B by 2028. Heart diseases cost more than $240B to just the USA per year, when including hospitalization costs and lost productivity due to death.

Thankfully, a large selection of innovative treatments, diagnostic tools, and therapies are coming to help reduce cardiovascular risks and keep more hearts healthy.

Top 10 Stocks For The Future Of Cardiology

Abbott Laboratories (ABT)

Most “Big Pharma” firms are focused on a wide selection of diseases and often target sectors like cancer, diabetes, or infectious diseases. Abbott’s main specialty is cardiovascular diseases, with more products in this category than all the others combined.

The other large segment of the company is diabetes management, notably through glucose monitoring devices, a condition often associated with cardiovascular issues. This segment has recently grown with the acquisition of Bigfoot Biomedical in September 2023, a manufacturer of smart insulin management systems.

Abbott’s business has grown quickly, with 10-18% growth year-to-year depending on the fast-growing segments, reaching $10.1B in sales worldwide.

Source: Abbott Laboratories

Abbott’s cardiovascular products cover the entirety of this medical field, including:

• Electrophysiology: mapping the heart’s electric activity.
• Heart failure: heart pump and emergency care.
• Cardiac rhythm management: monitors, defibrillators, and pacemakers.
• Structural heart: valve repairs or replacement up to treating holes in the heart.
• Vascular care: stents and other treatment of veins and arteries.

Source: Abbott Laboratories

The company is a key actor in cardiology, and this is unlikely to change. This is in part thanks to continuous innovation, with for example the approval in July 2023 of the AVEIR leadless pacemaker, which can be implanted without an incision (cut).

Medtronic plc (MDT)

Medtronic is a very large medical device company, with a strong presence in cardiology, its largest sector of activity. The other large segments of the company are neurology and medical surgery.

Source: Medtronic

Some of the highest growth segments of Medtronic in 2023 included structural heart, neurovascular, and cardiac ablation, with 10%+ growth on average and the top 1 or 2 positions in the market. This is partially due to innovations like a leadless pacemaker (Micra) and advanced defibrillators (Aurora) approved in October 2023.

Source: Medtronic

Medtronic is overall a highly innovative company, with 125 new products approved in the last 12 months. The company spent $2.7B in R&D in 2023 (up 5% CAGR since 2020), and acquired 10 companies since 2021.

This is also a company with a very shareholder-friendly policy, redistributing to them 86% of free cash flow, with $4B in share repurchases & dividends in FY 2023.

Thanks to its leading position in surgery, especially cardiac surgery, Medtronic is a good stock for investors looking for broad exposure to the sector, and medical devices in general.

Boston Scientific Corporation (BSX)

Boston Scientific is a very large medical device producer active in cardiology, endoscopy, urology, and neurological assistance.

This includes products like:

• Pacemakers & defibrillators.
• Spinal cord stimulators and stimulation electrodes.
• Laser surgery.
• Arteries stent.

The company uses a mix of self-developed products and acquisitions to grow in these markets. Since 2011, the company has spent $18B on acquisitions, with VC investments into smaller companies feeding its pipeline (35 VC investments currently).

Source: Boston Scientific

Cardiovascular represents the largest segment with $3.3B of revenues in H1 2023, on a total of $7B total revenues. $4.1B of sales were from the USA.

Source: Boston Scientific

The company has grown revenue at 6-7% CAGR since 2014, a goal of 8-10% yearly growth until 2026. Earnings per share have also grown 13-15% per year since 2014.

Source: Boston Scientific

In large part, the growth has been due to the overall growth of the markets where Boston Scientific is active, with 45% of its sales in moderate-growth segments (4-7% CAGR) and 35% in high-growth segments (>7% CAGR).

The company has consistently managed to stay #1 or #2 in its core markets, despite a quickly changing technology. The focus of Boston Scientific on VC investment gives it unique access to innovative technology that might otherwise have been acquired at a later date by competitors, or directly attack Boston Scientific’s market share.

So the company is a good pick for investors looking for a serial acquirer with a great track record, and a history of compounding stock price and rising dividends.

Edwards Lifesciences Corporation (EW)

Edwards Lifesciences is a purely cardiovascular-focused company. This goes back to the origins of the company in 1958, when Miles Lowell Edwards built the first artificial heart. To date, 800,000 patients have been treated with transcatheter therapies.

Today, the company produces aortic valve replacements, heart valves, valve repairs, and heart monitoring.

Edwards’ sales have almost tripled since 2013. The sales growth in 2023 is expected to be 9-12%.  The largest segment is the Transcatheter Aortic Valve Replacement (TARV), representing 65% of sales.

Source: Edwards Lifesciences

Currently, Edwards controls around 50% of its market, a smaller but important sub-section of cardiology. The company expects the addressable market for its products to double by 2028, partly driven by the aging of the global population and economic development in previously under-treated markets, especially in Asia.

Source: Edwards Lifesciences

The company has been growing earnings per share quickly and has also increased by 50% its R&D spending since 2018.

In Q3 2023, the company grew its revenues by 12%, and received a CE mark and approval for multiple new cardiac valves. The company is not distributing very high dividends but bought back shares for a total of $3.1B since 2019.

Edwards Lifesciences is a very focused company, with a complete dedication to making the best possible heart valves. While in the very long-term, 10 or 20 years in the future, these products might become less popular due to alternatives like direct regeneration or lab-grown biological valves, the company has a long period of time where its products will be in high demand and dominate their respective market niche.

OMRON Corporation (OMRNY)

Omron is a Japanese company active in the sector of sensors, present in multiple industries, from healthcare to industrial automation, energy, and infrastructure. Healthcare is the second largest segment of the company, with $37.7M in revenues in Q1 2023 compared to a total of $184M. The segment grew 16.9% year-to-year, by far quicker than any other of the company.

Source: Omron

In this healthcare segment, the company is selling blood monitors, but also EKG, thermometers, nebulizers, scales, and electric pain relievers.

Omron is the #1 brand recommended by cardiologists in the EU for home blood pressure monitors.

Source: Omron

Its product HeartGuide is also the first wearable smartwatch to monitor blood pressure, while also monitoring sleep patterns and tracking fitness.

Source: Omron

Patients suffering from a heart condition will want a dedicated product to monitor their health, ideally one recommended to them by their cardiologists. So while the general public might be satisfied with the health monitoring of smartwatches from companies like Apple, people with heart problems are likely to stick to a dedicated product, with strong ties to cardiologists.

Healthcare is a growing business for Omron, with its lead in blood pressure measurement likely possible to expand to other cardiology applications.

Overall, Omron can capitalize on its technical know-how from industrial applications, and expand it into healthcare, giving the company a new space for continuous growth, and turning wearables IoT (Internet of Things) devices into a systematic part of heart therapies.

iRhythm Technologies, Inc. (IRTC)

Where Omron smartwatches are able to monitor blood pressure, iRhythm is developing sensors able to detect, predict, and prevent cardiac diseases.

The company has a 25-30% market penetration in the U.S. ambulatory cardiac monitoring market. It serves 1.5 million patients annually and grew its revenues by 30% CAGR.

Source: iRythm

The monitors are remarkably discreet and comfortable, allowing for a record 99% patient compliance. Symptoms are monitored through a smartphone app, and AI deep neural net + cloud-based analytics allow for detecting the risk of heart attack or stroke early.

Source: iRhythm Technologies

The company has only started to expand internationally, with early commercialization in the UK (potential market of 500,000 people), early market efforts in prioritized EU countries (1.8M+ people), and pursuing regulatory approval in Japan (1.8M people).

iRhythm also plans to expand into new markets, with its monitors able to expand into the hypertension or sleep apnea markets.  It can also expand its TAM by targeting patients not yet diagnosed but suspected of cardiac arrhythmia.

In 2023, the company’s net revenues grew larger than its operating expenses. It is nonetheless not yet profitable, and will likely only be profitable when it has reached a larger scale.

Source: iRhythm Technologies

iRhythm has a large space to keep growing this market through international expansion and deepening its US market penetration. Considering the success it already encountered, it is likely to keep managing aggressive growth.

This makes it a good stock for growth investors interested in cardiology and wearables, as well as patient enough to tolerate loss-making growth while the company enters new markets, both medical and geographic.

Verve Therapeutics, Inc. (VERV)

Most of the field of cardiology focuses on either detecting and analyzing cardiac symptoms, or on surgery and drugs that can make weak hearts keep beating.

Verve Therapeutics is instead looking at a radical new approach: gene therapy. It focuses on atherosclerotic cardiovascular disease (ASCVD), a growing problem linked to metabolic diseases and obesity.

“ASCVD is a large subset of CVD (CardioVascular Diseases). Cholesterol drives the development of atherosclerotic plaque, a mixture of cholesterol, cells, and cellular debris in the wall of a blood vessel that results in hardening of the arteries, and can lead to fatal outcomes such as heart attack and stroke.”

Verve uses nanolipid particles to deliver gene editing directly in vivo (in the patient) to liver cells, in order to modify how the body handles cholesterol (LDC-L) in the bloodstream. This essentially would replace and improve the existing treatments based on drugs called statins.

Source: Verve Therapeutics

The company is still at an early stage, with most of its R&D programs before entering the clinical stage. The company is developing most of its therapies in partnership with gene editing company Beam Therapeutics and pharmaceutical companies Eli Lilly and Vertex.

Source: Verve Therapeutics

Because it is at an early stage, Verve is still a rather risky biotech. But by promising a better and permanent replacement to statins, it is also addressing a gigantic market, with statins a $15.4B yearly market, or 15x larger than Verve’s current market capitalization.

So this is a stock for investors willing to take a large risk for a potentially large reward. A deeper understanding of the technology is also recommended, and you can read our article on Beam Therapeutics to understand more about gene therapy and “base editing”: “Gene Editing: CRISPR Therapeutics vs. Beam Therapeutics”.

Anteris Technologies Ltd (AMEUF)

Anteris is looking to change the way aortic valves are made, with its new technology called DurAVR THV. It is made from a single piece of native-shaped tissue and uses an anti-calcification technology called ADAPT to increase the durability of the heart valve.

Source: Anteris Technologies

The biomimetics (imitating real biology) design improves the flow of blood into the heart compared to more mechanical replacements of the original faulty heart valve. The implants have already been successfully implemented and have shown good results with no major problems in any of the first patients treated by Anteris in its clinical trials.

The company raised an additional $40M in October 2023, for $20/share, much above its current trading price. Sio Capital Management and L1 Capital, a hedge fund and a capital manager, have both increased their ownership in Anteris following this offering.

Because Anteris is very much a one-product company, investors will want to familiarize themselves with the clinical studies’ latest results and understand the unique characteristics of DurARV THV.

More understanding of the $7.5B aortic valve market, expected to grow 13.2% CAGR to $29.1B by 2030 will also help to determine how much market penetration Anteris might be able to achieve.

Tenaya Therapeutics, Inc. (TNYA)

Tenaya is a company with its sole focus on heart diseases and innovative therapies, like gene and cell therapies, and precision medicine.

Source: Tenaya Therapeutics

The idea behind Tenaya is that 30% of heart problems are linked to genetic factors. This is especially relevant for specific forms of cardiomyopathies (diseases of the heart muscle), like MYBPC3 Hypertrophic cardiomyopathy (HCM). This is the most common form of inherited cardiomyopathy, with 115,000 patients in the US.

The company’s R&D pipeline is still at an early stage, with only 2 candidates in phase I (including one gene therapy targeting HCM), and the other 8 programs in the preclinical or discovery stages.

Source: Tenaya Therapeutics

HFpEF is the largest unmet need in heart disease (3M patients in the US, 13M worldwide), and Tenaya Therapeutics has the potential to strongly reduce some of the symptoms of the disease. PK2P mutation concerns 70,000 patients in the US.

Initial results are encouraging, with a good safety profile so far for the HFpEF and HCM candidate therapies.

Tenaya is an early-stage biotech, with ambitious goals and targeting diseases and mutations generally ignored by the largest gene therapy companies like CRISPR Therapeutics or Editas, which prefer to focus on incurable rare genetic diseases. This means that Tenaya has a higher chance to achieve its goals without being overtaken by a larger competitor, while still having large total addressable markets.

It also means that investors have little comparison available, and will need to be ready to wait several years before a product can maybe be approved by the FDA.

Artrya Limited (AYA.AX)

Heart problems can be silent killers, and providing the right diagnostic from partial and incomplete data can sometimes be more of an art than a science.

Artrya is working to change that by developing an AI-driven imaging tool to detect undiagnosed coronary disease. This kills no less than 600,000 Americans per year, due to 50% of people having no warning signs before a heart attack, and the diagnostic method has been mostly unchanged in 50 years.

The software benefits from the massive growth in a new type of CT scan performed, with 355% more CCTA (Coronary Computed Tomography Angiography) scans performed in the last 10 years globally. 2.5 million CCTA scans were performed in 2021, and 4.4 million are expected yearly by 2025.

Source: Artrya Limited

The software Artrya Salix analyzes new or existing CCTA scans through an AI neural network to be able to help detect previously missed diseases.

It can also detect patients that do not need emergency care, and reduce the costs and workload in hospitals. This can make the products a lot more valuable and easier to sell than from “just” improved care, especially in the context of inflation, personnel shortages, and crowded hospitals and ERs.

To make adoption easier, the company also offers the software for free for a limited period of time and offers a subscription or per image scanned fee model, limiting strongly the upfront investment needed.

The company has gathered strong support from the world’s top cardiologists, with notably the former CEO of the American College of Cardiologists on the Clinical Advisory Board.

The approval of the product is expected to be decided by the FDA in early to mid-2024, with approvals already secured in Australia, New Zealand, the EU, and the UK.

At the end of 2022, the company cash burn was only $1.25M per month, for a $43.8M cash position, making the company stable until it starts selling its product in the EU, UK, and Australia while waiting for the US regulatory decision.

While still technically a medical treatment, a SaaS model can be more attractive to some investors than a drug, gene therapy, or medical device, each often more capex intensive and under stronger regulatory scrutiny. It could also command higher margins, and become an integral part of the diagnostics for heart attack risks.

The post Top 10 Stocks For The Future Of Cardiology appeared first on Securities.io.

https://www.securities.io/5-best-genome-sequencing-companies/

The Genomic And Multi-omic Revolution

The first human genome decoding started in 1990 and was first achieved in 2003. It also cost a staggering $3B.

Fast forward 20 years, and the cost of genome sequencing has fallen to $600/genome. Or a 5,000,000x reduction in cost! And it could fall to as little as $200.

This completely changed the way we approach genomics from a medical perspective. Not only does it allow for a massive amount of data to be created and analyzed, but also for each person to potentially have access to advanced personalized medicine, matching his unique genetic makeup.

With genomics turning into a basic medical amenity, genome sequencing companies will benefit from a quickly growing market, and a growing number of applications, from nutrition and aging prevention to early cancer detection.

And this is not all. The same technology that was used to do the sequencing of the genome’s DNA can also be used to create whole new scientific fields:

• Metagenomics: sequencing the genome of the bacteria that live in our guts and have a huge impact on our health.
• Transcriptomes & Epigenetics: if the genome is the blueprint, the transcriptomes are how the blueprint is used in practice and in real-time. This is likely to be very relevant for solving many uncurable diseases and metabolic problems.
• Agrigenomics: using genomics to improve agricultural yields and farm animal productivity.
• Ecological studies: evaluating accurately the health of an ecosystem and its genetic diversity.
• Synthetic Biology: The creation of new genes, traits, or entire organisms with a specific purpose: for example, plastic-eating bacteria or biofuel-producing algae.

Source: PacBio

5 Best Genome Sequencing Companies

This article covers the 5 best publicly traded genome sequencing companies. It does not cover equally relevant, but privately listed companies like Ultima Genomics or Chinese MGI. 

Illumina, Inc. (ILMN)

Illumina is the leading genomics company, by far the largest and most established in the industry, with $1.2B in revenues, which grew 11% CAGR in the last 5 years.

Source: Illumina

Like most genome sequencing companies, Illumina makes money when selling the sequencers, but mostly when selling the consumables used by the sequencers, with revenue per machine usually growing over time as it gets progressively used to full-time capacity.

The company’s new genome sequencer model, NovaSeqX, is a hit with 109 shipments in Q2 2023 and 390 shipments expected for 2023. This has accelerated the adoption of mass genome sequencing among Illumina’s clients with more multi-omics analyses (mixing multiple “-omics” techniques) and larger scale for single cell and spatial analyses.

When talking about Illumina, a long explanation is required for a new genomics application, cancer detection in a blood sample, also called liquid biopsy. Illumina worked on this technology and then spun it off into a company called Grail.

Grail is very successful from a technical and commercial standpoint, with 7,500 providers prescribing Grail’s tests and passing the 100,000 tests performed milestone in Q2 2023. It also detected 92% of cancer relapse across 6 different blood cancers.

Several years later, Illumina would reacquire this company at a much higher price.

This caused several problems. First, regulatory authorities in both the USA and the EU raised concerns about the risk of monopoly, with Illumina the supplier of genome sequencing machines to many of Grail’s competitors.

This resulted in a €432M fine from the EU. If this ruling forbidding the acquisition is not solved “Illumina will divest Grail within a year if it does not win challenge in EU court”

Source: Illumina

Another set of problems came from the conditions of the costly Grail spin-off, money raising, and re-absorption into Illumina.

Activist invest Carl Icahn has attacked the company’s board and implied that potential dishonest or malicious dealings were done in favor of insiders against the interests of the company’s shareholders. The SEC is also investigating the question.

So far, the CEO has been changed, another board member has departed, 4 new board members have been instated, and Illumina has published a “Stewardship-Focused Update“. You can also read more about these suspicions and accusations in this series of articles by Non-GAAP investing.

The company stock has subsequently been falling steeply from its highs of July 2021 by almost 80%, back to its 2013 levels.

This is a rather shocking situation for a large and established company like Illumina, no matter how true these accusations are or not, as it reflects poorly on its management decision to divest Grail in the first place. At the very least, this has proven to be a costly mistake.

Investors will want to assess if they are ready to tag along with Carl Icahn, a legendary and controversial activist investor, with an impressive track record. And if the poor governance of the last few years is now fully priced-in, and maybe has damaged the company’s valuation excessively.

10x Genomics, Inc. (TXG)

10x Genomics is a leader in spatial biology, which studies the genome and transcriptome in 3D, allowing visualization of the activity of genes at the cellular or even intracellular level.

The company was founded in 2012, with Serge Saxonov among its founders, the director of R&D of the personalized genome testing company 23andMe.

10x Genomic grew using a mix of R&D ($1B+ investing in R&D so far) and acquisitions. Notably, its Visium platform was obtained through the acquisition of Spatial Transcriptomics in 2018.

Source: 10x Genomics: 10x Genomics acquisitions timeline

This is also how 10x Genomics would acquire its Xenium platform, through the acquisition of Readcoor and Cartana in 2020.

In 2020, it would also launch the Chromium platform, updated the year after to Chromium X.

Through the acquisition of Tetramer Shop in 2021, 10x Genomics would also launch BEAM (Barcode Enabled Antigen Mapping) in 2022. It allows researchers to identify components of the immune system in an extremely detailed fashion. This could be very impactful in research on immunity and new diseases.

Revenues grew by 17% year-to-year in Q2 2023, driven by Xenium sales, with the 100-unit sold milestone passed in August 2023.

The company also earned in September 2023 a critical victory against its main rival, Nanostring. Nanostring is for now banned from selling its CosMx Spatial Molecular Imager (SMI) instruments in most of the EU, for infringing on 10x Genomic patents.

The company is still at an early stage, somewhat similar to the early days of Illumina. For now, spatial biology is confined to the world of academic and fundamental research. But like many biotechnologies, it might one day become widespread and slowly turn into a medical tool, and then into a “routine” test. In any case, the growing pool of installed machines should drive sales of consumables and revenue growth.

Oxford Nanopore Technologies plc (ONT.L)

Oxford Nanopore is using a unique genome sequencing technology relying on flow cells. This allows DNA to be “read” when crossing the nanopores, not through chemical means, but directly by the measurement of an electric current. So in a way, this is the first time a computer can read a genetic sequence (DNA & RNA) in real time.

Source: Oxford Nanopore

https://nanoporetech.com/platform/technology

Another unique advantage of the company’s technology is that it can read longer genetic sequences than conventional sequencing methods. Long sequences and real-time reading can help to get better and quicker results, important for cancer analysis or infectious diseases like antibiotic-resistant bacteria.

Lastly, the electrical measurement allows for smaller and more portable sequencers, an improvement to the massive machines used until now. This allows the company to produce a wide array of sequencers, including slower and smaller, but also much cheaper machines, starting at $1,000. This could radically expand the sequencing market, with mobile or low-cost sequencing not an option previously.

Source: Oxford Nanopore

Oxford Nanopore’s revenues grew by 46% CAGR in the last 4 years, thanks to 7,300 customers in Q2 2023 of which 640 acquired in the last 12 months.

Source: Oxford Nanopore

Because of its radically new technology, it is unclear where Oxford will fit in a more mature genome sequencing ecosystem.

It could fully replace the incumbent technology of chemical/optical reading of genomes.

Or it could become a successful, but niche application for low-volume or mobile sequencing, or for sequencing requiring a high-accuracy reading of long genetic sequences.

The company is also planning to expand into reading of proteins, post-translational modification of proteins, or small molecules, and other measurements at the very edge of life sciences.

Pacific Biosciences of California, Inc. (PACB)

Started a few years after Illumina, PacBio has been the smaller player in genome sequencing since. Despite its smaller size, the company’s equipment has stayed on the top level of performance.

PacBio has recently acquired Omniome in 2021, giving it an advantage in accuracy for reading very long or very short genetic sequences. This advantage was reinforced with the later acquisition of Apton for $110M in August 2023, which also specialized in short read, high throughput (SR-HI).

Source: PacBio

PacBio’s Onso systems, now starting to ship to customers, and its launch has been described by the company as the “best start in PacBio history”. It will be specialized in short sequences, while its Revio HiFi System will be able to read long sequences and work 24/7, making it able to read 1,300 full human genomes per year (roughly 4/day). Later on, the Revio HiFi will be replaced by the HT SBB system, likely integrating Apton technology.

Source: PacBio

Pacbio expects long sequences to grow much quicker than the broader NGS market and claims its systems are 10x more accurate than the competition.

Source: PacBio

Interestingly, it could also bring down the total cost of genome sequencing. Without getting too technical, short sequences need to be reassembled in a comprehensive whole. So a $500 short read genome can quickly need extra analyses costing an extra $1000 to be actually useful as a diagnostic tool.

So a $950 Revio long sequence analysis, being more accurate, avoids this step and comes out cheaper for diagnostic application.

PacBio’s focus on high-precision/long-sequences analysis should give it an edge in diagnostics for the few next years. PacBio management believes this could boost the company’s market penetration in human genomics from 5% to 10% and in oncology (cancer) from 1% to 5%.

While PacBio is mostly focused on its decades-old competition with Illumina, it might also have to contend with Oxford Nanopore in the diagnostic/long-sequence market.

With a history of being the smaller competitor to Illumina, PacBio is a little bit the underdog of the field, while also not a new “exciting” startup. This does not mean it is not competitive, and would it succeed in capturing the niche market it is currently specializing in, it might positively surprise the market by differentiating itself from its historical rival.

NanoString Technologies, Inc. (NSTG)

NanoString was launched in 2003 to leverage the digital molecular barcoding technology invented at the Seattle Institute for Systems Biology.

Source: NanoString

By 2008 it had launched its first product, nCounter, which was a great progress in transcriptomics (the study of mRNA). nCounter carried the company forward, while it developed the next steps. In 2019, it launched the GeoMx, followed by the CosMx and the digital platform AtoMX.

GeoMx is designed to study RNA expression in whole tissues, and is also able to analyze 150+ proteins, more targets than 10x’s Xenium. CosMx Single Molecular Imager (SMI) instead can look at a single cell and what happens inside for RNA and up to 64 protein targets, and possibly up to 120 in 2024.

Source: NanoString

NanoString was instrumental in the explosion of scientific publications using spatial biology. No less than 7,117 publications mention NanoString machines, from various fields like research on cancer, infectious disease (including Covid-19), immunology, agriculture, or neurology.

NanoString is engaged in a bitter legal battle with 10x Genomics. The recent court order by the EU patent regulator would affect 10% of NanoString should the company not win its appeal. So while not a death blow, this is still bad news for a young company with negative cash flows.

Markets are clearly concerned about the long-term viability of NanoString, with the stock below $2/share, down from a high of $79 in 2021, and its IPO price of $9.1/share in 2013.

Investors will want to assess the company’s plans to reach profitability in 2025, and determine if the price decline is excessive and represents an opportunity, taking into account that the company has reduced its cash burn by 50% in Q3 2023.

The post 5 Best Genome Sequencing Companies appeared first on Securities.io.

https://www.securities.io/top-10-cancer-therapy-stocks/

The Last Great Illness

Modern medicine has mostly cured most of history’s greatest killers, infectious diseases: smallpox, tuberculosis, tetanus, etc. But another category of diseases has proven harder to cure, the one coming from dysfunctions in our own body.

Some are genetic diseases, or related to aging like Parkinson’s or Alzheimer’s. But another deadly group of diseases is cancer.

Cancers are when some cells in the body start to multiply uncontrollably. Generally due to genetic error. And while this is the general pattern, the diversity of cell types in our bodies, as well as the various mechanisms by which this can happen mean that cancer is not just one disease. It is more like 1,000 or 10,000 different diseases wrapped under a common label.

This diversity has made it exceptionally difficult to cure. Treatments are getting better, but it is still an ongoing battle.

Because of its deadliness, cancer is also a type of therapy commending a high price tag. This is done to stimulate research, but also can be highly profitable for the companies that discover successful treatments.

Historically, cancer drugs were molecules able to reduce cell replication, or kill cancer cells at a higher rate than healthy ones. And while this works for some cancer types, new approaches are now emerging, from modifying immune cells to mRNA and early detection from just a blood sample.

Top 10 Cancer Therapy Stocks

This list is looking to give an overview of the sector, and include both leading “Big Pharma” in cancer therapy, as well as diagnostics companies and clinical-stage startups.

It also tries to keep a balanced view between classical drug-based therapies and more innovative biotech approaches.

Roche Holding AG (RHHBY)

Roche has been a long-time leader in oncology (cancer medicine), with blockbuster drugs like Rituxan, Herceptin, and Avastin, even if these products are now getting under pressure from the commercialization of biosimilars (the equivalent of generics for biotech drugs).

The company is overall active in both therapies and diagnostics, with 28 million people treated annually with Roche’s medicines and 27 billion Roche tests performed annually. The therapy division represents roughly 3/4^th of the company’s revenues.

This presence in diagnostics is important to Roche’s position in oncology, as accurate and early diagnosis in oncology is probably the single most important factor in surviving cancer. Discovering and then testing in patients the proper biomarkers or mutations can mean the difference between life and death, as explained in this article from Roche.

The oncology part of Roche’s portfolio has been steadily growing since 2018, now making around a quarter of the company’s revenues (it includes “AHR”: AHR: Avastin, Herceptin, Rituxan/MabThera), without counting the cancer-related diagnostics sales. Immunology and neurosciences are other segments of importance for Roche.

Source: Roche

The company currently has no less than 78 cancer therapies in its R&D pipeline, from a total of 161 therapies in development. Of these 78 oncology therapies in the pipeline, 2 are already approved and 30 are in phase III of clinical trials.

In September 2023, the oncology portfolio sales had grown by 5% year-to-year.

Source: Roche

Roche is a very large pharmaceutical company, which will fit best investors looking for a steady income and a relatively safe stock.

The company stock price has declined somewhat from its peak in March 2022, partially due to a decline in diagnostic/testing with the Covid-19 pandemic slowing down. As a result, the company valuation is rather reasonable, especially considering its size and diversity of revenues.

Merck & Co., Inc. (MRK)

Merck is another large pharmaceutical company with a historical focus on both infectious diseases/vaccines and oncology. It also has an animal health department.

Merck’s blockbuster drug in oncology is Keytruda, a cancer therapy for multiple cancers, including “head and neck” cancer, breast cancer, lung cancer, melanoma, stomach cancer, and cervical cancer. In Q3 2023, Keytruda brought $6.3B in sales, or a 19% growth year-to-year, with Merck’s total sales at $ for that quarter.

Source: Merck

The other cancer drugs of the company are less massive in sales, as they focus on more narrow medical applications. Their sales have nonetheless grown well in the last 2 years.

Source: Merck

The other large income source for Merck is Gardasil, a vaccine against HPV (human papillomavirus), itself the main cause of cervical cancer. In Q2 2023, Gardasil brought $2.6B in sales, up from $2B 2 years before.

The company pipeline is rich in oncology treatment, with 16 new molecules in the pipeline.

In addition, Merck signed a $5.5B deal with Japanese Daiichi Sankyo in October 2023 for the commercialization of 3 cancer therapies developed by Daiichi.

Merck’s current revenue is highly reliant on Keytruda, for which the patent runs until 2028. While this patent could be maybe extended thanks to new subcutaneous injection deliveries, this is relatively far in the future.

However, the success of Merck also means a quite high valuation, so investors will need to evaluate if the price is reasonable, even for assets of this quality.

Bristol-Myers Squibb Company (BMY)

BMS is a company with a long-established presence in oncology, which was reinforced by the acquisition of Celgene in 2019.

In October 2023, it also acquired Mirati Therapeutics for $5.8B (all-cash transaction, through cash and debt), accessing the company’s portfolio of therapy for lung, liver, and pancreatic cancer. The deal should be closed by H1 2024.

BMS’s R&D effort combined with this acquisition has strongly boosted the company’s portfolio, with its new products growing rapidly, more than tripling since 2021. The “in-line brands”  have also grown by 7% year-to-year.

Source: BMS

By far, the company’s R&D pipeline is dominated by oncology, as 50 out of 71 therapies in development are targeting cancer, with a focus on solid tumors, lymphoma, and myeloma.

Overall, we could say that the company’s focus on immunology and oncology has paid off, with good results from the R&D efforts. It is also feeding the company’s pipeline, by providing it with a deep understanding of the cause of cancer, and of possible targets it can aim for new therapies.

This focus also pays off in terms of manufacturing, with new therapies requiring advanced facilities to produce custom cell lines and/or monoclonal antibodies.

BMS has been rising quickly since 2018, to become progressively one of, if not THE leading company in oncology. This position is likely to persist for the next few years, and be highly profitable for its shareholders.

Moderna, Inc. (MRNA)

Most biotech and pharmaceutical firms are focused on expanding upon their existing cancer therapies, relying on small molecules, monoclonal antibodies, or other such well-established therapies.

Meanwhile, Moderna is looking to expand the application of mRNA beyond vaccines and into oncology. It now has 2 programs in oncology entering phase III of clinical trials, another one in phase II, and many others in phase I or earlier. Most of these programs are expected to bear fruit by 2028, after a first batch of new mRNA products by 2025 in respiratory vaccines.

Source: Moderna

Another promising aspect of Moderna is a flurry of acquisitions of ambitious small startups working on entirely new technology platforms. For example, synthetic genome company OriCiro, metagenomics and AI gene discovery Metagenomi, and macrophage therapies Carisma Therapeutics.

Each could potentially have an oncology application, with Carisma explicitly presenting the 6 products in its pipeline as targeting cancer.

The reactivity to the pandemic has proven Moderna’s ability to quickly innovate and utilize mRNA at scale. The company’s focus is on new vaccines, both for respiratory and for other diseases, but its oncology program is equally interesting, especially with the recent acquisitions of new therapeutics concepts.

mRNA, macrophage therapy, and metagenomics are all still only potential cures for cancer. But this is also the appeal of Moderna, as a company innovating beyond the conventional wisdom of the pharmaceutical industry, with stellar medical and financial results so far.

BioNTech (BTNX)

Moderna is working on multiple possible innovative therapies. Meanwhile, its rival in mRNA vaccine innovation, BioNTech, is doubling down on the technology that forms the core of its business.

The company behind the Covid mRNA vaccine sold by Pfizer is now using the money made during the pandemic to widely expand its offer.

It is now developing mRNA vaccines for shingles, tuberculosis, malaria, HIV, and the herpes virus. This makes it a leading company in the field of mRNA vaccines, with only its competitor Moderna (MRNA) developing more mRNA vaccines than BioNTech.

BioNTech is also exploring the potential of mRNA for cancer, with  12 different candidate products for cancer treatment in its pipeline. ”.

Source: BioNTech

Finally, it also has in its R&D pipeline some cell therapies and other non-mRNA potential cancer treatments.

mRNA has been a revolution in therapy for viral infection. BioNTech is counting on mRNA being an equally massive revolution in oncology. This is by far the leader in this new idea in oncology.

So investors might want to consider which of BioNTech or Moderna they are the most interested in. If they want to mostly bet on the oncology use of mRNA, BioNTech is probably their best choice. But if they are wary of a yet unproven completely new concept, they might prefer Moderna with its greater focus on infectious disease mRNA vaccines.

Exact Sciences Corporation (EXAS)

Cancer is especially deadly because it is a silent disease. Most of the time, symptoms become visible only when it is already too late. This is why early detection can radically improve the survival rate of cancer patients.

For successful monitoring, the technology needs to be non-invasive and cheap enough to run regular testing. This is the idea behind Exact Sciences, which is using both DNA & RNA data to detect early cancer, which “simple” DNA tests might miss.

The company develops solutions for all stages of cancer detection.

Source: Exact Sciences

Such cancer detection is done from a simple blood sample and is also called liquid biopsy.

Exact Sciences has grown its revenues very quickly by 38% CAGR, and reached positive EBITDA in 2023.

Source: Exact Sciences

In the long term, liquid biopsy will likely become routine testing, as early cancer detection is a lot cheaper (and safer) than finding it later, making it a very cost-efficient option for insurance and society at large.

Exelixis, Inc. (EXEL)

Exelixis is a biotech company solely focused on oncology. It has 2 therapies approved in the USA, as well as 2 partner programs in Japan with Daiichi Sankyo.

The company’s flagship product is cabozantinib, which brought $426M in Q3 2023, making the large majority of the company’s $471M revenues. Exelixis is also looking to expand the application of this drug, with 2 ongoing clinical trials, both in phase 2/3.

Cabozantinib has doubled revenues since 2020, and keeps growing, capturing an increasing market share for the relevant cancers (thyroid, kidneys, liver).

Source: Exelixis

In its R&D pipeline, the company has another therapy in phase 2/3, Zanzalintinib. Besides this, it has 4 other therapies in phase 1 for solid tumors and 9 products in discovery/pre-clinical.

The company pipeline is expanding also from licensing agreements, with CBX-12 from Cybrexa Therapeutics, and ADU-1805 from Sairopa, as well as an agreement in September 2023 with Insilico Medicine.

Source: Exelixis

Exelixis is for now very much a one-product company, with aggressive plans for expansion through R&D and licensing of new therapies. At current revenues, the valuation is somewhat expensive, but that would be dismissing any potential for new therapies or growth of cabozantinib prescription (or new applications).

So an investment in Exelixis is an investment in the company’s continuous success in cabozantinib commercialization, as well as new success in developing cancer therapies.

CRISPR Therapeutics (CRSP)

One of the leading companies in this sector is CRISPR Therapeutics, founded by one of the discoverers of CRISPR-CAs9. For this discovery revolutionizing genetic engineering, they were awarded a Nobel Prize.

CRISPR Therapeutics CAR-T cells are immune cells modified not only to target cancer cells, but also to reduce the risk of unwanted side effects (graft versus host disease) as well as to increase the survival time of the modified immune cell in the patient’s body, giving it more time to attack cancer cells.

The whole process can also be a lot quicker, which can mean the difference between life and death for some patients.

Source: CRISPR Therapeutics

The company has currently 7 candidates in the pipeline, of which 4 already in clinical trials.

Source: CRISPR Therapeutics

CRISPR is also investing in a CAR-NK therapy, in partnership with Nkarta Therapeutics (NKTX), in the pre-clinical stage. CAR-NK therapies have the potential to be even less likely to trigger side effects, and to be more effective against solid tumors (90% of cancer in adults).

Currently, the short-term prospect of CRISPR Therapeutics is a lot more focused on its Sickle Cell Disease therapy, potentially approved by 2024. This therapy is developed in partnership with Vertex, with whom CRISPR Therapeutics also develops a potentially revolutionary diabetes treatment.

So other potential therapies and clinical trials are likely to impact CRISPR stock price in the short term. Nevertheless, the company has demonstrated a talent for leveraging CRISPR technology into new applications, and cancer / CAR-T therapies are some of the most promising ideas of the last few years for improving cancer therapies.

Guardant Health, Inc. (GH)

Most cancer-related stocks are focused on innovative therapies. But another key factor in making cancer more survivable is early detection. Until now, it required specific radiography, testing, or biopsy for each cancer type, something often invasive or unpleasant, and done too rarely to catch many cancers early on.

This could change thanks to the concept of a liquid biopsy, the idea of replacing traditional biopsy with an analysis of a simple blood sample. This is made possible thanks to much more advanced and sensitive genomics analyzers.

Guardant has developed a liquid biopsy test relying on ctDNA and methylation detection, Guardant Shield.

It is also working on complete genomic testing for advanced cancer, allowing for custom therapies/precision medicine. Guardant 360 Cdx is the first FDA-approved blood test for complete genomic testing.

Lastly, Guardant Reveal, uses ctDNA for detecting early possible recurrence of cancer, the ” first liquid-only test to detect minimal residual disease (MRD) in colorectal cancer, now available for breast and lung cancers”.

Source: Guardant

The next step for Guardant is the unification of all its tests under the Smart Liquid Biopsy platform.

Most importantly, it will significantly boost the performance of the Guardant Reveal testing, with the company calling it “a larger blockbuster franchise in its early innings”.

Source: Guardant

It is also working on a multi-cancer test, with hopes to submit it for FDA approval in 2026.

Revenues have grown 49% CAGR since 2018, and aim for a further 30% CAGR until 2028. The company expects to reach the free cash flow breakeven point in 2028.

Source: Guardant

It should be noted that Guardant has a strong competitor in the company Grail. However, we decided to not put Grail on this list, as it is currently part of the larger genomics company Illumina, which might be forced to divest Grail in 2024 due to monopoly concerns. These concerns about governance and potential malpractice around the Grail acquisition make the case for Illumina even more complex.

Regarding Illumina, it is also worth noting that Guarant and Illumina have agreed to settle a court case around intellectual properties, after Guardant’s co-founders, both ex-Illumina employees, were accused of stealing Illumina’s patents.

MacroGenics, Inc. (MGNX)

Macrogenics is a biotech company dedicated to the development of antibody therapies for cancer. It already has one approved product, Margenza, for breast cancer.

The company has developed 3 different technology platforms and hopes to increase efficiency and reduce toxicity compared to existing monoclonal antibody cancer therapies.

Source: Macrogenics

The R&D pipeline is mostly made of products in phase 1 or 2 of clinical trials, as well as 2 molecules in the pre-clinical stage.

MacroGenics has several partner programs with Gilead, Incyte, and Synaffix, for which it received $210M upfront, with up to $2.55B in potential milestones and tiered royalties if the product gets commercialized.

The company has also contributed to creating TZIELD, a “vaccine” used to delay the onset of Stage 3 Type 1 diabetes. The company has already been paid $210M by Sanofi, with $380M remaining potential payment for regulatory and commercial milestones, on top of potential royalties upside.

Source: Macrogenics

Like most early-stage biotech companies, MacroGenics will need to keep delivering on its R&D milestones to stay afloat. So this is a typical biotech high-risk, high-reward type of investment, where success is far from certain, but would mean a large jump in the company valuation.

The post Top 10 Cancer Therapy Stocks appeared first on Securities.io.

https://www.securities.io/top-10-european-tech-stocks-to-invest-in/

The Forgotten Tech Scene

The world of tech stock is dominated by US tech giants, especially the “Big 7”: Apple, Microsoft, Alphabet, Amazon, Nvidia, Tesla and Meta Platforms.

Another big segment of the world tech industry is controlled by Asian companies, like the Korean Samsung, Japanese Sony, and Taiwanese TSMC.

Nevertheless, the other largest economic pole, Europe, has quite a few tech champions of its own. And because it is less discussed and known, there is also a greater chance to find good bargains in these markets.

The European tech sector includes quite a few world-class companies, internationally recognized brands, as well as leaders in their niche that most investors might not know are European.

Top 10 European Tech Stocks to Invest In

ASML Holding N.V. (ASML)

The Dutch company is the sole manufacturer of EUV chip-making machinery. EUV (Extreme UltraViolet) lithography is the most advanced process for making computer chips and a must for the most advanced chips at 5nm and below.

The company has a de facto monopoly on this technology, It is also a leader in DUV (Deep UltraViolet), the previous generation of semiconductor manufacturing machines.

Source: ASML

This has made it a crucial part of the strategy of sanctions deployed by the USA to limit the development of the Chinese semiconductor industry. In the last few years, increasing levels of sanctions have been imposed on China, with notably a ban on the export of EUV machines. These sanctions have also expanded to the most advanced DUV machines, in part due to the recent success of Huawei in producing advanced chips without EUV machines in September 2023.

So far, while Huawei and other Chinese firms have worked hard at bypassing the limitations & sanctions on EUV, this still represents a strong advance of ASML over its competitors.

The company keeps innovating, and is also actively doing acquisitions of new key technologies, like Berliner Glas Group in 2020, allowing it to push for the next generation of chip-making machines.

ASML has grown its sales from €10.9B in 2018 to  €21.2B in 2022, as well as its net income from €2.6B to €5.6B.

It is likely that the trade sanctions against China will somewhat hurt the company, as a lot of its sales were toward Chinese chip manufacturers.

With chip-making an increasingly strategic asset, it is equally likely that the push to bring back home at least some chip-making capacity, both in the US and the EU, will increase the demand for ASML’s machines for the next few years.

The growing demand for AI and computing in general is also a very strong support for the company, with most advanced applications requiring the best 5nm or 3nm chips.

SAP SE (SAP)

Besides American Oracle, the other major ERP software is the German SAP, with 280 million cloud users through 24,000+ companies. Both are competing in the same space but with somewhat different characteristics. While Oracle’s ERP is considered the most “powerful”, it is also more expensive, and more complex, while SAP is often considered more secure.

Like many enterprise subscription services, SAP tends to have a very high retention rate of its clients, and to grow the relationship over time, leading to increasing income from existing cohorts.

Source: SAP

SAP is not lagging with AI either, thanks to its Joule AI copilot system. It works as a virtual personal assistant, from generating job descriptions in HR to coding assistance.

Source: SAP

AI solutions are also available from SAP in sales, marketing, supply chain, procurement, and HR, all integrated with the other software to create a secure environment where to use generative AI.

It is likely there is space for more than one major player in deploying ERP and AI at scale at the enterprise level, and that makes SAP one of the most promising European software companies, both for enterprise applications and AI.

Dassault Systèmes SE (DSY.PA)

French Dassault Systemes is part of the larger Dassault Group, a large aerospace, media, and defense conglomerate. Dassault Systemes’ initial products came from the need for more powerful software in aviation design.

The company expanded since the 1980s through the development of more powerful software, as well as a long series of acquisitions of CAD and 3D software companies.

Today, Dassault Systemes covers many industries beyond aviation and defense, including urbanism/construction, life sciences, packaging, electronics, heavy industries, robotics, shipyards, and mobility (cars, trains, etc…).

What was historically an array of 3D software solutions specialized for each industry is progressively merging into one integrated solution, called 3DEXPERIENCE. This unified environment allows for the integration of VR/AR solutions, 3D modeling, manufacturing, and customer experience. It can also create a “virtual twin” of real-world components, that can then be tested, experimented upon, or modified by other people more quickly and efficiently. In Q3 2023, 3DEXPERIENCE delivered a remarkable growth of 46% in software revenue.

Source: Dassault

Dassault Systemes softwares is an invisible layer of technology deeply embedded in the processes related to research, design, and manufacturing in all the most advanced industries, from aerospace to biotech and EVs.

The earnings per share grew by 20% in Q3 2023, and revenues are expected to grow by 8-9% in 2023. The long-established relationship with industrial partners, the critical mass of engineers trained and familiar with Dassault’s softwares, and the quality of the products make for a hard-to-beat competitive moat. With the emergence of 3D printing, IoT, and in general the so-called 4^th industrial revolution, Dassault is in a pole position to keep growing and deliver good returns to its shareholders.

AutoStore Holdings Ltd. (AUTO.OL)

Autonomous vehicles like self-driving cars might be around the corner, but have been a difficult technology to develop, even for tech leaders like Google and Tesla. But there is a sector that is already getting revolutionized by autonomous driving and robotics, which is logistics.

The Norwegian AutoStore provides automated warehouses for industries as diverse as pharmaceutics, clothing, groceries, aviation, logistics, or industrial manufacturers. Apparel, industrial, and third-party logistic companies make up the 3 largest segments of AutoStore’s business.

Source: AutoStore

The company warehouses rely on autonomous robots that can identify, pick up the parcels or products, and carry them to where they should go, entirely autonomously. You can see them in action in this video.

Source: AutoStore

The company is quickly expanding, thanks to more and more major companies realizing the advantage of creating more efficient, resilient, and quicker logistical systems after the pandemic. On average, it takes only 1-3 years for the upgrading to autonomous warehouses to pay back the initial investment.

AutoStore is active in 50 countries, operating 58,500 robots for 900 different customers. It grew its revenues by 50% CAGR since 2017. This is 2-3x quicker than the automated warehouse market yearly growth, estimated at 15%.

Like many European tech companies, AutoStore is providing very advanced solutions that are also somewhat invisible to the greater public.

Most warehouses will move toward automation. Leaders in this sector are likely to outperform the sector growth, as it makes sense to rely on the provider able to deploy these solutions at scale and at a cheaper price. Once adopted, it is unlikely for a company to switch to another provider, as it would require a complete redesign of the warehouse, changing the robot fleet, etc. So the current quick growth is likely to convert into recurring revenues for many years, if not decades.

STMicroelectronics N.V. (STM)

When speaking of the semiconductor industry, the dominant region that comes to mind is Asia, with most microchips and computer components built and assembled in the region.

But for other sectors equally requiring semiconductors, Europe is a key supplier, with STM one of the leading companies of the continent. It is active in mobility (EVs and automotive digitalization), power and energy (especially renewables), as well as sensors and IoT (Internet of Things) systems. The company is also active in small electronics, with smart chargers, AR/VR displays, gaming controllers, and robotic toys.

Source: STM

STM activity is for now driven by its core businesses in personal electronics and industrial applications. But EVs (including silicon carbide), automation, and AR/VR are areas of high growth expected to grow its markets by $8B.

Source: STM

STM is not producing ultra-advanced 5nm chips like TSMC. Instead, its components are integrated into all the key digital devices in less central but not less vital parts of EVs, small electronics, and automation/robotics like sensors, micro-controllers, and power management.

This allowed STM to grow with the semiconductors industry as a whole, with revenues growing 10% CAGR since 2018, as well as generating high gross margins in the 36-42% range since 2016.

STM’s main limitation currently is its semiconductor foundry ability, with $3.6B in capex investment in 2022 for new or expanded factories in Canada, Singapore, France, and Germany.

The company is trading at a cheap price compared to its earnings, with a P/E below 10. This reflects how semiconductor companies out of Asia have been somewhat “forgotten” by the speculative enthusiasm around more geopolitically important companies like TSMC, ASML, and NVIDIA. It is also an opportunity, as this pricing might not reflect the growth prospects of STM.

Spotify Technology S.A. (SPOT)

The Swedish company is the leader in audio streaming, with by far the largest music catalog (100 million tracks), making it the go-to application for music lovers all over the world.

The company is also a place where users can find 5 million podcast titles, as well as 350,000 audiobooks. It has 574 million users, including 226 million subscribers in 184 markets.

Spotify is now a household name, but it is easy to forget that it single-handedly managed to stem the issue of music piracy of the early 2000s, by providing a seamless streaming experience that users were ready to pay for, while illegal but free alternatives existed.

The user base keeps growing, with year-to-year growth of 26% in monthly active users in Q3 2023, and a 16% growth of active subscribers. The company generated €216M of free cash flow in Q3 2023, from €3.3B in revenues.

Source: Spotify

While at the core of Spotify’s offering, the music segment is not very profitable, due to high payment to the music rights holders stemming from historical deals signed early in Spotify’s history, including with all the major music labels. So the company has been looking at podcasts to push its advantage on audio content.

A part of this push toward podcasts has been signing mega-deals with some of the most popular podcasters like Joe Rogan, with varying levels of success. Original content creation has been tried as well, with limited success. This also included unique services like an automated translation of podcasts in a new language, in a duplicate of the original podcaster’s voice.

Overall, podcast is still a troubled segment for Spotify, with Alphabet’s YouTube and Apple still leading in term of popularity and total downloads. Similarly, audiobooks are still dominated by Amazon’s Audible.

Investors in Spotify will want to assess if the company will be able to convert its massive and quickly growing user base into leadership in new segments like podcasts or audiobooks. This is far from done, but could also work, especially considering for example the growing backlash over anti-competitive practices and abuse of content creators by YouTube or Audible.

Telefonaktiebolaget LM Ericsson (publ) (ERIC)

Swedish Ericsson is a leader in telecommunication technology, especially 5G. The company is also an important provider of connected solutions, network services, and automation.

Source: Ericsson

50% of 5G traffic outside of China is established through the Ericsson radio network, and 16 out of 20 of the largest communications service providers have chosen Ericsson technology. In total, Ericsson controls 39% of the global RAN (radio access network) market, excluding China.

This impressive result is thanks to a massive R&D effort initiated in 2017, after a period where the company’s technology had started to lag behind, yielding more than 60,000 5G-related patents.

The company has seen its sales decline slightly from 2022 to 2023 (-5%), due to a decline in network sales, partially offset by growth in the cloud, enterprise, and services segments. It also registered an impairment of SEK 31.9B ($2.85B).

The recent stagnation in sales has been attributed to a challenging macroeconomic environment, marked by slower-than-expected 5G deployment, inflation, and reduced investment due to rising interest rates.

While the recent slowdown in sales is disappointing, it does not change the technological and commercial advantage of Ericsson in 5G technology.

With this technology becoming the base of future connectivity, as well as being required for AR/VR (Augmented and Virtual Reality) and IoT (Internet of Things) applications, this should ensure continued business for the company for years to come, especially once the current economic shock from high-interest rates has passed. In the meanwhile, Ericsson’s shareholders can collect a pretty solid dividend above 5%.

Logitech International S.A. (LOGI)

Logitech is one of the largest companies in computer accessories, like keyboards, mice, webcams, and headsets. It controls 53% of the market share in pointing devices (laser pointer), 49% in keyboard and combos, 30% in gaming accessories, and 28% in video conference/webcam.

Source: Logitech

The company benefits from a stellar reputation with gamers for its sturdy and high-quality devices. Logitech’s sales exploded during the pandemic, and are still at a much higher level than in 2020 (50% higher). The market might be durably larger, thanks to the rise of remote and hybrid work, as well as the growth of the videogame market.

Source: Logitech

In the heart of the pandemic, Logitech was a market darling, seeing its stock price rising from $39/share in February 2020 to $120/share in May 2021. It subsequently fell down to $46 in September 2022, to rebound at $78 in November 2023.

Considering the brand quality and the growth of the market from changing consumer habits, the post-pandemic crash was clearly excessive. With the current rebound in share price, the company is probably fairly priced, and represents a good opportunity to buy a leading electronic company at a reasonable price.

Wise plc (WISE.L)

Wise (formerly TransferWise) is an Estonian startup initially founded to facilitate cross-border money transfers while reducing dramatically the often outrageous fees banks charged for this service. This represents a total market of £2T for individuals and £9T for SMEs.

The company claims to be able to do international and multi-currency money transfers in less than 20 seconds, for 8-10x cheaper fees than banks.

Since 2019, the company has multiplied its customer base by 3x, reaching 10 million people, and grew even more its income and EBITDA.

Source: Wise

This still leaves a lot of room to grow for Wise, with only a 5% share of the personal market and 1% of the SME market.

A very impressive statistic from Wise is that 66% of its customers came from word-of-mouth, what Wise calls “evangelical customers”, an almost unheard-of performance in finance, where customer acquisition can be very expensive.

This is most likely due to the exceptional performance in both speed and fees. The volume of transfers from existing customers also tends to grow over time.

Source: Wise

Wise is now profitable and listed on the London Stock Exchange. Wise’s business is somewhat niche, not trying to compete on trading fees, loans, and other larger sectors of the financial industry.

It is also responding to a very real need that has been neglected (abused?) by banks, with an infrastructure for money transfers that had not evolved for decades.

So investors in the company will aim for Wise to have developed a strong economic moat and brand, and the ability to expand it globally beyond the US+EU region.

CD Projekt S.A. (OTGLY)

Initially, a very small Polish developer, CD Projekt Red grew with its core license: The Witcher series. Launched in 2007, it brought to video game the popular, but somewhat unknown in the West, “Witcher” fantasy story from Polish author Andrzej Sapkowski.

The popularity of the series with RPG (Role Playing Game) fans grew with each iteration. The Witcher 3 turned out to be the great breakthrough for CD Projekt, ranking as the 10^th most-sold video game in history and 2nd best-selling RPG behind Red Dead Redemption 2.

Source: The Witcher

The game was followed by a massive DLC acclaimed by fans as the “Best DLC in history” for its scale and quality. The Witcher would receive a high-budget Netflix series adaption, which would go on for 3 seasons.

It is crowned with this stellar and well-deserved reputation that CD Projekt announced a new license, Cyberpunk 2077, promising to be a science-fiction version of The Witcher, except bigger and better. The initial release, struggling with bugs, questionable design choices, and a botched port to PS4 was damaging to the company’s reputation, especially considering how high the standards and expectations had been set.

Since then, CD Projekt has worked on fixing Cyberpunk 2077 (Steam reviews are back to 80% positive), repairing its reputation with fans, and launching new ambitious projects. The animated show Cyperpunk Edgerunner is also the highest-rated show ever on Netflix, rebuilding enthusiasm for the license and its universe.

‘

Source: The Cat’s Eye

CD Projekt is working on a new Witcher trilogy, remakes of the earlier and dated Witcher 1 & 2, a multi-player Witcher game (Project Sirius), as well as Phantom Liberty (offshoots of Cyberpunk 2077) and Orion (essentially Cyperpunk 2).

Source: CD

The stock of CD Projekt is yet to recover from the poor reception of Cyberpunk 2077. Still, the success of the Netflix series, the recovery of Cyperpunk 2077 rating, and the eager wait for the new releases show that CD Projekt still holds a lot of goodwill with gamers. It also demonstrates the value of its IPs yet to be fully monetized into movies or other product lines.

So CD Projekt Red stock is for investors willing to take a risk and interested in a quality stock that is selling at a (temporary?) discount and with strong growth potential.

The post Top 10 European Tech Stocks to Invest In appeared first on Securities.io.

https://www.securities.io/top-10-battery-metals-renewable-energy-mining-stocks/

Metals Are The New Oil

The green energy revolution is aiming to replace fossil fuels with renewables. This will drastically reduce the need for energy extraction of coal, oil, and gas. However, EVs, solar panels, and wind turbines require specific materials to be built.

Source: Rio Tinto

For example, mass EV adoption will require a tremendous amount of minerals, especially graphite, copper, and lithium, but also silicon, cobalt, manganese, nickel, and rare earth elements. Just for copper, the demand would grow from 110,000 tons in 2020 to 3,119,000 tons in 2040 in the sustainable development scenario. Even in the more moderate “stated policies scenario”, copper demand would grow to 951,000 tons of copper or 8.6x more.

Mineral requirements for clean energy transitions – IEA

The same holds true for all aspects of the energy transition. Stronger power grids will require copper and aluminum (the largest power line cables are made of aluminum). Wind turbines require powerful magnets rich in rare earth elements. Each solar panel contains on average 20g of silver, on top of polysilicon and copper. And of course, power grid-scale battery packs will require a lot of metal as well. As a whole, EVs, energy storage and the electric grids will be the highest drivers of mineral demand from clean energy by 2040.

Mineral requirements for clean energy transitions – IEA

Which Metal?

Because many metals will be in high demand due to the energy transition, it can be a little confusing for investors to know which to pick.

The first one to consider is copper. This is because it is the only highly conductive metal that is cheap and abundant enough to be used at scale in batteries and grid applications. So no matter if the demand comes from EVs, utility-scale batteries, grid improvement, or energy production (solar and wind), they will all need more copper.

Source: Macro Trends

Another one is lithium. Most alternative battery chemistry compositions for EVs are different from the classical lithium-ion, but still use a lot of lithium. This includes lithium-iron-phosphate (LFP) batteries, as well as most designs for solid-state batteries.

Source: Daily Metal Price

Regarding batteries, another 2 metals of importance are nickel and graphite. Both are used in large amounts even in advanced battery chemistry.

Cobalt however is something most batteries and EV companies are actively trying to either reduce or eliminate entirely. So it might not be a great investing idea in the long run, at least not if this is the only metal produced by the company.

Lastly, something to consider is the outsized role of China in the renewable and EV supply chain, with the country responsible for a large part (and sometimes almost all) of the refining of these metals. So a look at graphite, rare earth metals and other important metal is also an option.

Source: Visual Capitalist

Top 10 Battery Metals & Renewable Energy Mining Stocks

This list is looking to give broad exposure to mining stocks active in metals important for batteries and renewable energy. It is also looking to reduce geopolitical risks for Western investors, with such metals increasingly used as a weapon in the US-China trade wars. So this is a partial list, with a preference for large, liquid stocks over more speculative smaller or exploration-stage miners (junior miners).

BHP Group Limited (BHP)

BHP is the largest mining company on Earth, and also the one with the largest reserves of copper, with more than 180 Mt (million tons) contained in its deposits.

The company is also mining potash (fertilizer), nickel, and iron ore.

Source: BHP

In 2023, BHP finished divesting its metallurgical coal mines, in a bid to re-center on renewable-focused metal instead.

It is also working hard at decarbonizing its daily operations, with the company already one of the mining companies with the lowest carbon intensity, and among the ones reducing it the quickest. A lower carbon footprint will mostly be achieved by decarbonizing electricity used in its mines (wind + solar), as well as phasing out diesel engines in favor of electric equipment, first with trolleys (cables over the trucks) and then batteries.

Source: BHP

Because of its deep commitment to the energy transition, BHP might be an easy pick for investors looking for exposure to the mining sector, as well as mining operations that will progressively become less sensitive to oil prices.

Rio Tinto Group (RIO)

Rio Tinto is the world’s second-largest mining company. A large part of the company’s business is in iron ore. But it is also a very large producer of copper and aluminum, with strong expansion plans for copper production.

Notably, it is expanding the Oyu Tolgoi mine in Mongolia. The mine is the largest project in the history of Mongolia. Rio Tinto recently finalized the full acquisition of the mine, leaving it the sole private owner (66%) together with the Mongolian government (34%).

Rio Tinto is expected to provide 25% of growth volumes in global copper supply in the next 5 years.

Rio Tinto is also a leader in innovation of copper extraction, through its venture Nuton, whose new technology allows for a much higher rate of copper recovery from mined ore.

Rio Tinto’s aluminum production is low-carbon, thanks to the usage of hydropower to refine bauxite into alumina and then aluminum.

The company is also active in lithium, with the recent acquisition of the Ricon project in Argentina, and despite the (temporary?) cancelation/freezing of the Jadar lithium project in Serbia.

Source: Rio Tinto

The company is a major actor in copper, and looking to benefit from the growing demand for lithium and low-carbon aluminum. Nevertheless, the core business is still to this day iron ore. So investors in the company will want to be familiar with this market as well and calculate accordingly the potential risks of a recession or a declining demand for steel from the Chinese infrastructure and construction sectors.

Glencore plc (GLNCY)

Glencore is a major mining company in copper, nickel, and cobalt, as well as silver, gold, zinc, lead, and chrome.

It is also a producer of coal (both thermal and metallurgical), a trader/marketer of coal, oil, and gas (including 6 million barrels of oil sold per day), and a recycler.

Source: Glencore

Glencore’s earnings are largely derived from its energy products, especially coal, still in high demand globally due to the global energy crisis that unfolded since the beginning of the war in Ukraine.

Source: Glencore

Most of the company’s investments, $2.5B in capex in H1 2023, is in copper, followed by coal and zinc. The company has also recently bought mining assets in bauxite (aluminum) from Norsk Hydro, copper from Pan-American Silver, and copper+nickel from Polymet Mining.

Source: Glencore

The company is distributing a generous dividend (almost 10% yield at the time of writing of this article). This dividend might not be sustainable in case the price of coal or copper comes down, but in any case, reflects a long-term policy of returning cash to the shareholders.

The important activity in coal might be a problem for some investors looking for a climate-friendly investment.

At the same time, it can provide diversification in case the growing demand for energy worldwide means that we need both more renewable energy, but that coal stays in demand as well.

It should also be noted that metallurgical coal is important for the production of steel, itself an important competent of wind turbines.

Southern Copper Corporation (SCCO)

Southern Copper is a subsidiary of GrupoMexico Mineria, which owns 88.9% of the company, with 11.1% in free float publicly traded. The company itself is roughly split 2/3rd toward its Mexican assets, and 1/3rd toward its Peruvian assets.

Source: Southern Copper

The company mines are exceptionally rich in ore, with the lifespan of the mine the largest in the industry, measured in decades, even after the expansion of production scheduled for 2028. So while Southern is maybe not the largest producer of copper (it is the 5^th largest), the company is one of the richest in copper assets in the world. Finally, it has some of the cheapest to operate mine, together with Vale and Glencore.

Source: Southern Copper

Copper makes the bulk of Southern Copper production, followed by molybdenum. 86% of the global production of molybdenum is used in steel production, with the rest used by the chemical industry.

Source: Southern Copper

The remarkable quality of Southern Copper mining assets means there is very little geological risk for the company’s shareholders.

However, there is some geopolitical risk, as Peru has recently seen mass protests against other copper mines, like the Las Bambas copper mega mines. New regulations on Mexican mining might also be a risk. Nearby, nationwide violent protests against a mine extension in Panama also occurred in October 2023.

So while Southern Copper stock can be very attractive from a perspective of copper reserves, production costs, and dividend yield, investors might want to diversify their exposure, something true for all mining stocks.

Freeport-McMoRan Inc. (FCX)

Freeport is a large copper company, that also produces molybdenum and gold. The company produces in the Americas (Arizona, New Mexico, Peru, and Chile) and Indonesia.

The company is operating mines but is also building a massive smelter operation (refining ore) in Indonesia, costing $3.6B and to be commissioned in 2024.

Each region is roughly responsible for 1/3rd of the company production (with Indonesia a little above North America which is above South America).

The company is looking to reduce its carbon footprint by moving its Indonesian operation energy needs from coal to LNG and other projects to renewable electricity.

Freeport has been aggressively reducing its net debt thanks to the higher copper price of the last few years and is redistributing cash to shareholders mostly through share repurchases.

Source: Freeport

Freeport has been at the tip of innovation in the industry, notably being the first US mine with a fully autonomous haulage system (self-driving trucks).

Thanks to its very diversified assets base and mines in the USA, Freeport-McMoRan carries less jurisdiction risk than most mining companies. This somewhat comes at a premium on the stock price but can make it a good choice for investors looking to benefit from rising copper prices while also looking to reduce risks.

Albemarle Corporation (ALB)

Albemarle is the largest lithium company on Earth, with production sites in Australia, Chile, Argentina, and the USA. The company also produces bromine.

The company has steadily grown its production and sales, with 2023 net sales expected to be 3x times higher than in 2021. It is also quickly expanding its refining capacity, to triple it by 2027 compared to 2022’s. It expects to be able to triple again its lithium production by 2030.

Source: Albemarle

Thanks to its scale, Albemarle can produce lithium at a relatively low cost, and is a key partner for most EV manufacturers and battery producers, with 80% of its products sold through long-term contracts.

Because of its wide geographical reach, Albermarle is benefiting from the global electrification trends and makes for the simpler option in lithium investing. It presents a relatively safe profile by mining industry standards, with most of its mines in “safe” jurisdictions like Australia and the USA.

Sociedad Química y Minera de Chile S.A. (SQM)

SQM is the second-largest lithium mining company in the world, with its assets in Chile and lithium representing the bulk of the company’s business. It is also the market leader in producing potassium nitrate of natural origin, and sells specialty chemicals like iodine, potassium chloride, boric acid, and magnesium chlorides.

Source: SQM

In April 2023, the company had to face a move by Chile threatening a partial nationalization of the country’s lithium industry. Past the initial shock, the further details on the plan clarified that the country still intended to attract private foreign investment.

More specifically, national lithium company Coldeco is renegotiating a contract with SQM and other lithium deposits will be offered for exploitation. The existing contract will nevertheless be respected, and run until 2030.

Because the negotiations are ongoing, very little information is available and it is hard to predict the long-term future of SQM. Still, Chile is a country highly dependent on mining for its economy, and the initial backlash against the nationalization plans, impacting not only confidence in lithium but in all mining, have forced the government to limit its ambitions (for now?).

The combination of a moderate decline in lithium prices and the threat of nationalization has severely hurt the share price, with the company trading at the end of 2023 almost 50% down from its peak at the end of 2022.

This can be seen as either reflecting the real risk on the company, or as an opportunity to grab for investors willing to take the risk and collect a high double-digit dividend yield as a reward.

Like for all lithium investments, investors will want to be familiar with the EV landscape (demand and the potential of innovative chemistry like sodium-ion batteries, not using lithium) and expect the high volatility of lithium prices to persist for the foreseeable future.

Norsk Hydro ASA (NHYDY)

While not directly a battery metal, aluminum is a metal of growing importance in the modern world. This is partially because it is used to build lighter vehicles and infrastructure, driving fuel efficiency and reducing carbon footprint, while also being 100% recyclable.

It is also important as most high-tension aerial power lines are actually made of aluminum, instead of lower-tension copper cables. So investments in stronger power grids are likely to ramp up aluminum demand. Solar farms require a lot of aluminum for their structural frames. So while the green transition made “only” 6 million tons of demand, out of 97 million tons in total in 2022, this demand will more than double by 2030.

Source: Norsk Hydro

Aluminum is also a metal that requires tremendous amounts of energy for the refining of bauxite and the production of aluminum.

Thanks to its reliance on hydropower in Norway and recycling, Norsk Hydro is one of the suppliers of aluminum with the lowest carbon footprint. The company is also planning to switch fuel and improve its operations to improve it further by 2025. It aims to reach net zero by 2050 or earlier.

Source: Norsk Hydro

Lastly, Norsk Hydro also benefits from the fact that Russia, formerly a key supplier to Europe, has been mostly cut off from the Western aluminum markets.

The company has been investing in green energies, with Havrand Hydro, a green hydrogen project, and REIN Hydro, a provider of green energy solutions to industrial companies. It also invested in battery production capacity in the EU, notably owning 30% of synthetic graphite anode material producer Vianode and 50% of EV battery recycler Hydrovolt.

The focus of Norsk Hydro on Norwegian hydropower and low-carbon operations makes it a strong metal company to handle the green transition. Its aluminum products are also going to be in high demand for consumers and companies committed to the green transition, and who are ready to pay a premium for low-carbon aluminum. The same can be said for green hydrogen, which should in the long run replace coking coal in the make of low-carbon footprint steel.

Source: Norsk Hydro

Lynas Rare Earths Limited (LYSCF)

Rare earth metals are not technically rare on earth, although they are often hard to obtain as they are mostly present in very low concentrations, instead of dense ore or nuggets like most other metals.

Rare earth metals are instrumental to computing and renewable technology, notably making a vital part of permanent magnets needed in wind turbines, as well as in electric motors (including for EVs) or advanced weaponry.

Currently, most rare earth production, and even more, the refining, is done by China. Recently, China has started to “weaponize” this quasi-monopoly, notably by limiting the exports of germanium and gallium, 2 rare earth metals important for the semiconductor industry, in retaliation for trade sanctions by the USA on semiconductor technologies.

Lynas is a rare earth miner with mines in Australia. The company is also building a processing facility to see more of its refining operations down in Australia, instead of shipping it to partners in China, with the Kalgoorlie Rare Earths Processing Facility almost finished (see link for video timelapse of the construction) and facilities in Malaysia, as well as a project expected to be operational in Texas by 2025-2026.

Source: Lynas

Rare earths are now considered a strategic asset, with the vulnerability of depending on Chinese supply perceived as a critical risk. This means that Lynas production might be able to command a premium in case of an international crisis, or if China decides to restrict further the export of other rare earth metals. And also represents a sector of the commodity market often uncorrelated to other metals like copper or lithium.

Syrah Resources Limited (3S7.F)

While most of the R&D effort on battery technology is focused on the cathode part (currently mostly made of lithium), the anode part is widely considered a problem “solved”, relying on the unique electric properties of graphite. As graphite is much cheaper than lithium, this is not a part of battery technology likely to be modified heavily any time soon.

This too is a sector where China is dominant. Something potentially problematic, as China has just announced in October 2023 restrictions on graphite exports. With China controlling most of the graphite production steps, this could severely impact the plans of most EV manufacturers out of China.

Source: Syrah

This move should benefit Syrah, as the company is producing its graphite in Mozambique (with a mine life of 50 years), and is nearing completion of an Active Anode Material (AAM) factory in the USA, the first in the country.

Syrah is the largest integrated natural graphite company globally, and the first integrated supplier to be present outside China. Its graphite operation is the largest outside of China, with a much higher grade and larger reserves than its competitors.

Source: Syrah

Graphite is not necessarily a rare resource, but nevertheless is in high demand compared to production, due to the EV boom. Compounding the problem is the process of de-globalization and US-China trade tensions, leading Western manufacturers to look for more reliable suppliers in neutral third-party countries.

The company has invested heavily in expanding its production, and it seems that the timing will turn out to be lucky, with full vertical integration to be achieved by 2024. This global context benefits Syrah, which signed 2 offtake agreements with Tesla. It is likely that other Western manufacturers of EVs and batteries will also look to Syrah for securing non-Chinese supplies of graphite as soon as possible.

The post Top 10 Battery Metals & Renewable Energy Mining Stocks appeared first on Securities.io.

https://www.securities.io/?p=240373

Metals Are The New Oil

The green energy revolution is aiming to replace fossil fuels with renewables. This will drastically reduce the need for energy extraction of coal, oil, and gas. However, EVs, solar panels, and wind turbines require specific materials to be built.

Source: Rio Tinto

For example, mass EV adoption will require a tremendous amount of minerals, especially graphite, copper, and lithium, but also silicon, cobalt, manganese, nickel, and rare earth elements. Just for copper, the demand would grow from 110,000 tons in 2020 to 3,119,000 tons in 2040 in the sustainable development scenario. Even in the more moderate “stated policies scenario”, copper demand would grow to 951,000 tons of copper or 8.6x more.

Mineral requirements for clean energy transitions – IEA

The same holds true for all aspects of the energy transition. Stronger power grids will require copper and aluminum (the largest power line cables are made of aluminum). Wind turbines require powerful magnets rich in rare earth elements. Each solar panel contains on average 20g of silver, on top of polysilicon and copper. And of course, power grid-scale battery packs will require a lot of metal as well. As a whole, EVs, energy storage and the electric grids will be the highest drivers of mineral demand from clean energy by 2040.

Mineral requirements for clean energy transitions – IEA

Which Metal?

Because many metals will be in high demand due to the energy transition, it can be a little confusing for investors to know which to pick.

The first one to consider is copper. This is because it is the only highly conductive metal that is cheap and abundant enough to be used at scale in batteries and grid applications. So no matter if the demand comes from EVs, utility-scale batteries, grid improvement, or energy production (solar and wind), they will all need more copper.

Source: Macro Trends

Another one is lithium. Most alternative battery chemistry compositions for EVs are different from the classical lithium-ion, but still use a lot of lithium. This includes lithium-iron-phosphate (LFP) batteries, as well as most designs for solid-state batteries.

Source: Daily Metal Price

Regarding batteries, another 2 metals of importance are nickel and graphite. Both are used in large amounts even in advanced battery chemistry.

Cobalt however is something most batteries and EV companies are actively trying to either reduce or eliminate entirely. So it might not be a great investing idea in the long run, at least not if this is the only metal produced by the company.

Lastly, something to consider is the outsized role of China in the renewable and EV supply chain, with the country responsible for a large part (and sometimes almost all) of the refining of these metals. So a look at graphite, rare earth metals and other important metal is also an option.

Source: Visual Capitalist

Top 10 Battery Metals & Renewable Energy Mining Stocks

This list is looking to give broad exposure to mining stocks active in metals important for batteries and renewable energy. It is also looking to reduce geopolitical risks for Western investors, with such metals increasingly used as a weapon in the US-China trade wars. So this is a partial list, with a preference for large, liquid stocks over more speculative smaller or exploration-stage miners (junior miners).

BHP Group Limited (BHP)

BHP is the largest mining company on Earth, and also the one with the largest reserves of copper, with more than 180 Mt (million tons) contained in its deposits.

The company is also mining potash (fertilizer), nickel, and iron ore.

Source: BHP

In 2023, BHP finished divesting its metallurgical coal mines, in a bid to re-center on renewable-focused metal instead.

It is also working hard at decarbonizing its daily operations, with the company already one of the mining companies with the lowest carbon intensity, and among the ones reducing it the quickest. A lower carbon footprint will mostly be achieved by decarbonizing electricity used in its mines (wind + solar), as well as phasing out diesel engines in favor of electric equipment, first with trolleys (cables over the trucks) and then batteries.

Source: BHP

Because of its deep commitment to the energy transition, BHP might be an easy pick for investors looking for exposure to the mining sector, as well as mining operations that will progressively become less sensitive to oil prices.

Rio Tinto Group (RIO)

Rio Tinto is the world’s second-largest mining company. A large part of the company’s business is in iron ore. But it is also a very large producer of copper and aluminum, with strong expansion plans for copper production.

Notably, it is expanding the Oyu Tolgoi mine in Mongolia. The mine is the largest project in the history of Mongolia. Rio Tinto recently finalized the full acquisition of the mine, leaving it the sole private owner (66%) together with the Mongolian government (34%).

Rio Tinto is expected to provide 25% of growth volumes in global copper supply in the next 5 years.

Rio Tinto is also a leader in innovation of copper extraction, through its venture Nuton, whose new technology allows for a much higher rate of copper recovery from mined ore.

Rio Tinto’s aluminum production is low-carbon, thanks to the usage of hydropower to refine bauxite into alumina and then aluminum.

The company is also active in lithium, with the recent acquisition of the Ricon project in Argentina, and despite the (temporary?) cancelation/freezing of the Jadar lithium project in Serbia.

Source: Rio Tinto

The company is a major actor in copper, and looking to benefit from the growing demand for lithium and low-carbon aluminum. Nevertheless, the core business is still to this day iron ore. So investors in the company will want to be familiar with this market as well and calculate accordingly the potential risks of a recession or a declining demand for steel from the Chinese infrastructure and construction sectors.

Glencore plc (GLNCY)

Glencore is a major mining company in copper, nickel, and cobalt, as well as silver, gold, zinc, lead, and chrome.

It is also a producer of coal (both thermal and metallurgical), a trader/marketer of coal, oil, and gas (including 6 million barrels of oil sold per day), and a recycler.

Source: Glencore

Glencore’s earnings are largely derived from its energy products, especially coal, still in high demand globally due to the global energy crisis that unfolded since the beginning of the war in Ukraine.

Source: Glencore

Most of the company’s investments, $2.5B in capex in H1 2023, is in copper, followed by coal and zinc. The company has also recently bought mining assets in bauxite (aluminum) from Norsk Hydro, copper from Pan-American Silver, and copper+nickel from Polymet Mining.

Source: Glencore

The company is distributing a generous dividend (almost 10% yield at the time of writing of this article). This dividend might not be sustainable in case the price of coal or copper comes down, but in any case, reflects a long-term policy of returning cash to the shareholders.

The important activity in coal might be a problem for some investors looking for a climate-friendly investment.

At the same time, it can provide diversification in case the growing demand for energy worldwide means that we need both more renewable energy, but that coal stays in demand as well.

It should also be noted that metallurgical coal is important for the production of steel, itself an important competent of wind turbines.

Southern Copper Corporation (SCCO)

Southern Copper is a subsidiary of GrupoMexico Mineria, which owns 88.9% of the company, with 11.1% in free float publicly traded. The company itself is roughly split 2/3rd toward its Mexican assets, and 1/3rd toward its Peruvian assets.

Source: Southern Copper

The company mines are exceptionally rich in ore, with the lifespan of the mine the largest in the industry, measured in decades, even after the expansion of production scheduled for 2028. So while Southern is maybe not the largest producer of copper (it is the 5^th largest), the company is one of the richest in copper assets in the world. Finally, it has some of the cheapest to operate mine, together with Vale and Glencore.

Source: Southern Copper

Copper makes the bulk of Southern Copper production, followed by molybdenum. 86% of the global production of molybdenum is used in steel production, with the rest used by the chemical industry.

Source: Southern Copper

The remarkable quality of Southern Copper mining assets means there is very little geological risk for the company’s shareholders.

However, there is some geopolitical risk, as Peru has recently seen mass protests against other copper mines, like the Las Bambas copper mega mines. New regulations on Mexican mining might also be a risk. Nearby, nationwide violent protests against a mine extension in Panama also occurred in October 2023.

So while Southern Copper stock can be very attractive from a perspective of copper reserves, production costs, and dividend yield, investors might want to diversify their exposure, something true for all mining stocks.

Freeport-McMoRan Inc. (FCX)

Freeport is a large copper company, that also produces molybdenum and gold. The company produces in the Americas (Arizona, New Mexico, Peru, and Chile) and Indonesia.

The company is operating mines but is also building a massive smelter operation (refining ore) in Indonesia, costing $3.6B and to be commissioned in 2024.

Each region is roughly responsible for 1/3rd of the company production (with Indonesia a little above North America which is above South America).

The company is looking to reduce its carbon footprint by moving its Indonesian operation energy needs from coal to LNG and other projects to renewable electricity.

Freeport has been aggressively reducing its net debt thanks to the higher copper price of the last few years and is redistributing cash to shareholders mostly through share repurchases.

Source: Freeport

Freeport has been at the tip of innovation in the industry, notably being the first US mine with a fully autonomous haulage system (self-driving trucks).

Thanks to its very diversified assets base and mines in the USA, Freeport-McMoRan carries less jurisdiction risk than most mining companies. This somewhat comes at a premium on the stock price but can make it a good choice for investors looking to benefit from rising copper prices while also looking to reduce risks.

Albemarle Corporation (ALB)

Albemarle is the largest lithium company on Earth, with production sites in Australia, Chile, Argentina, and the USA. The company also produces bromine.

The company has steadily grown its production and sales, with 2023 net sales expected to be 3x times higher than in 2021. It is also quickly expanding its refining capacity, to triple it by 2027 compared to 2022’s. It expects to be able to triple again its lithium production by 2030.

Source: Albemarle

Thanks to its scale, Albemarle can produce lithium at a relatively low cost, and is a key partner for most EV manufacturers and battery producers, with 80% of its products sold through long-term contracts.

Because of its wide geographical reach, Albermarle is benefiting from the global electrification trends and makes for the simpler option in lithium investing. It presents a relatively safe profile by mining industry standards, with most of its mines in “safe” jurisdictions like Australia and the USA.

Sociedad Química y Minera de Chile S.A. (SQM)

SQM is the second-largest lithium mining company in the world, with its assets in Chile and lithium representing the bulk of the company’s business. It is also the market leader in producing potassium nitrate of natural origin, and sells specialty chemicals like iodine, potassium chloride, boric acid, and magnesium chlorides.

Source: SQM

In April 2023, the company had to face a move by Chile threatening a partial nationalization of the country’s lithium industry. Past the initial shock, the further details on the plan clarified that the country still intended to attract private foreign investment.

More specifically, national lithium company Coldeco is renegotiating a contract with SQM and other lithium deposits will be offered for exploitation. The existing contract will nevertheless be respected, and run until 2030.

Because the negotiations are ongoing, very little information is available and it is hard to predict the long-term future of SQM. Still, Chile is a country highly dependent on mining for its economy, and the initial backlash against the nationalization plans, impacting not only confidence in lithium but in all mining, have forced the government to limit its ambitions (for now?).

The combination of a moderate decline in lithium prices and the threat of nationalization has severely hurt the share price, with the company trading at the end of 2023 almost 50% down from its peak at the end of 2022.

This can be seen as either reflecting the real risk on the company, or as an opportunity to grab for investors willing to take the risk and collect a high double-digit dividend yield as a reward.

Like for all lithium investments, investors will want to be familiar with the EV landscape (demand and the potential of innovative chemistry like sodium-ion batteries, not using lithium) and expect the high volatility of lithium prices to persist for the foreseeable future.

Norsk Hydro ASA (NHYDY)

While not directly a battery metal, aluminum is a metal of growing importance in the modern world. This is partially because it is used to build lighter vehicles and infrastructure, driving fuel efficiency and reducing carbon footprint, while also being 100% recyclable.

It is also important as most high-tension aerial power lines are actually made of aluminum, instead of lower-tension copper cables. So investments in stronger power grids are likely to ramp up aluminum demand. Solar farms require a lot of aluminum for their structural frames. So while the green transition made “only” 6 million tons of demand, out of 97 million tons in total in 2022, this demand will more than double by 2030.

Source: Norsk Hydro

Aluminum is also a metal that requires tremendous amounts of energy for the refining of bauxite and the production of aluminum.

Thanks to its reliance on hydropower in Norway and recycling, Norsk Hydro is one of the suppliers of aluminum with the lowest carbon footprint. The company is also planning to switch fuel and improve its operations to improve it further by 2025. It aims to reach net zero by 2050 or earlier.

Source: Norsk Hydro

Lastly, Norsk Hydro also benefits from the fact that Russia, formerly a key supplier to Europe, has been mostly cut off from the Western aluminum markets.

The company has been investing in green energies, with Havrand Hydro, a green hydrogen project, and REIN Hydro, a provider of green energy solutions to industrial companies. It also invested in battery production capacity in the EU, notably owning 30% of synthetic graphite anode material producer Vianode and 50% of EV battery recycler Hydrovolt.

The focus of Norsk Hydro on Norwegian hydropower and low-carbon operations makes it a strong metal company to handle the green transition. Its aluminum products are also going to be in high demand for consumers and companies committed to the green transition, and who are ready to pay a premium for low-carbon aluminum. The same can be said for green hydrogen, which should in the long run replace coking coal in the make of low-carbon footprint steel.

Source: Norsk Hydro

Lynas Rare Earths Limited (LYSCF)

Rare earth metals are not technically rare on earth, although they are often hard to obtain as they are mostly present in very low concentrations, instead of dense ore or nuggets like most other metals.

Rare earth metals are instrumental to computing and renewable technology, notably making a vital part of permanent magnets needed in wind turbines, as well as in electric motors (including for EVs) or advanced weaponry.

Currently, most rare earth production, and even more, the refining, is done by China. Recently, China has started to “weaponize” this quasi-monopoly, notably by limiting the exports of germanium and gallium, 2 rare earth metals important for the semiconductor industry, in retaliation for trade sanctions by the USA on semiconductor technologies.

Lynas is a rare earth miner with mines in Australia. The company is also building a processing facility to see more of its refining operations down in Australia, instead of shipping it to partners in China, with the Kalgoorlie Rare Earths Processing Facility almost finished (see link for video timelapse of the construction) and facilities in Malaysia, as well as a project expected to be operational in Texas by 2025-2026.

Source: Lynas

Rare earths are now considered a strategic asset, with the vulnerability of depending on Chinese supply perceived as a critical risk. This means that Lynas production might be able to command a premium in case of an international crisis, or if China decides to restrict further the export of other rare earth metals. And also represents a sector of the commodity market often uncorrelated to other metals like copper or lithium.

Syrah Resources Limited (3S7.F)

While most of the R&D effort on battery technology is focused on the cathode part (currently mostly made of lithium), the anode part is widely considered a problem “solved”, relying on the unique electric properties of graphite. As graphite is much cheaper than lithium, this is not a part of battery technology likely to be modified heavily any time soon.

This too is a sector where China is dominant. Something potentially problematic, as China has just announced in October 2023 restrictions on graphite exports. With China controlling most of the graphite production steps, this could severely impact the plans of most EV manufacturers out of China.

Source: Syrah

This move should benefit Syrah, as the company is producing its graphite in Mozambique (with a mine life of 50 years), and is nearing completion of an Active Anode Material (AAM) factory in the USA, the first in the country.

Syrah is the largest integrated natural graphite company globally, and the first integrated supplier to be present outside China. Its graphite operation is the largest outside of China, with a much higher grade and larger reserves than its competitors.

Source: Syrah

Graphite is not necessarily a rare resource, but nevertheless is in high demand compared to production, due to the EV boom. Compounding the problem is the process of de-globalization and US-China trade tensions, leading Western manufacturers to look for more reliable suppliers in neutral third-party countries.

The company has invested heavily in expanding its production, and it seems that the timing will turn out to be lucky, with full vertical integration to be achieved by 2024. This global context benefits Syrah, which signed 2 offtake agreements with Tesla. It is likely that other Western manufacturers of EVs and batteries will also look to Syrah for securing non-Chinese supplies of graphite as soon as possible.

The post Top 10 Battery Metals & Renewable Energy Mining Stocks appeared first on Securities.io.

https://www.securities.io/monoclonal-antibodies-the-original-precision-therapy/

The Old Therapeutic Method

Until recently, most of the pharmaceutical industry has been focused on finding new chemical molecules that could be used as drugs. The idea is to find chemical compounds affecting how the body and cells work.

At first, this worked really well, with the discovery of medical (and commercial) miracles like antibiotics and other powerful and profitable products. This is because the pharmaceutical industry could rely on traditional medicine and the natural world to provide the active molecules.

Progressively, they had to find entirely new molecules. This meant a lot of trial and error. As a rule of thumb, it could take as much as 10,000 candidate molecules to identify only one medical treatment. Such a process is naturally very time-consuming and expensive.

In a nutshell, this approach can be described as “a solution looking for a problem”. You start with the chemistry and find out if it can do something in the body. And ideally, not kill the patient…

Source: Why 90% of clinical drug development fails and how to improve it?

Most of the time, these drugs would only treat the symptoms. You can administer painkillers to remove the pain signal, but it does not solve the cause of the pain. We knew what a cancer cell looked like, and what might kill it, but not why it turned cancerous.

This forced doctors to essentially shoot in the dark, hoping they find something that works.

Another problem with this method is that active molecules tend to have more than one biochemical effect. So while it might have the intended effect on let’s say the lungs, it might also impact the heart, liver, or brain.

This is why most medicines have a long list of “side effects”. This is because it is rather rare for an active drug to have only the desired effect.

Precision Therapies: The New Approach

Instead of an untargeted chemical approach, modern medicine is increasingly using the paradigm of precision therapy. This relies on a deeper understanding of biology, where we can figure out a biological mechanism, and then work on leveraging it for medical purposes.

While not new, this concept has been power-charged by the genomics revolution, allowing for engineering on-demand specific proteins, as well as finding new potential targets.

Currently, precision therapies are a $500B market according to an estimate by Ark Invest. It is not anymore just an idea or a potential medicine, but the driving force behind most of the pharmaceutical sector growth in the past decade.

The largest part of the current precision therapies market is driven by monoclonal antibodies. In 2021, the FDA approved the 100^th monoclonal therapy, and monoclonal antibodies make up 9 out of the top 20 therapeutic products worldwide ranked by sales.

A Biological Guided Missile

Most drugs and biological molecules are relatively un-specific. This means they will interact with a variety of biological targets.

On the contrary, antibodies are naturally designed to be extremely specific, reacting only to a given antigen. This makes them a very useful part of our immune system in targeting specific pathogens. Antibodies are also able to activate our immune system, functioning somewhat like a targeting system.

In the body, one antigen will react to multiple antibodies, creating a polyclonal antibody mix. To reach a truly targeted approach, monoclonal antibodies, produced by the selection of only one lymphocyte B is needed.

Monoclonal antibodies have been mostly used for cancer therapies, but the list of diseases it can address is much larger:

• Organ transplant rejection.
• Inflammatory and autoimmune disorders, including allergies.
• Infections, including COVID-19.
• Osteoporosis.
• Eye conditions.
• Migraines.
• High cholesterol.
• Nervous system disorders.

Monoclonal antibodies are also commonly used in diagnostic and biological testing.

If you are interested, you can read more about “Technological Advancements in Monoclonal Antibodies” in this scientific publication.

Monoclonal Antibodies Companies

Monoclonal therapies have been a growing part of the portfolio of the largest pharmaceutical companies, among which are Novartis, Sanofi, GSK, Merck, Eli Lilly, and AstraZeneca. But considering these companies are also very active in other fields, they hardly match the definition of an “antibodies company”. So this list focuses on companies for which monoclonal antibodies are a core part of their business.

Regeneron Pharmaceuticals, Inc. (REGN)

Regeneron’s main product is Duxipent, a monoclonal antibody for autoimmune diseases. It also sells Libtayo, a monoclonal antibody for cancer therapy that recently got approved for a new medical indication. Both drugs are sold through a partnership with Sanofi. The third important approved drug of Regeneron is Eylea, an eye treatment that is not an antibody.

It also has a very large pipeline of products in 9 different therapeutic areas. 8 products are in phase III clinical trials, 12 in phase II, and 22 in phase I. Out of 42 ongoing clinical trials, 22 are monoclonal antibodies, and 13 are bispecific antibodies.

The Q2 2023 quarter saw a growth in revenues of 11% year-to-year. A large part of that growth was carried by Libtayo, with 49 % growth year-to-year.

Source: Regeneron

Another contributor was Duxipent, with 34% growth year-to-year, thanks to multiple new application approvals.

Source: Regeneron

Regeneron’s success in monoclonal antibodies has turned it from a biotech startup to a major pharmaceutical company on its way to a $100B market capitalization. This sector is still the center of its R&D pipeline, and investors in the company will want to bet that past successes indicate the unique scientific expertise of the company.

WuXi Biologics (Cayman) Inc. (WXXWY)

Wuxi is a large Chinese Contract Manufacturing Organization (CMO), and a pioneer in the model of CRDMO, adding research services to the classic CDMO offers. This tends to blur a little the line between CDMOs (Contract Development and Manufacturing Organizations) and full-stack pharmaceutical companies.

You can read more about CMOs in our dedicated article: “Top 5 Contract Manufacturing Organization (CMO) Stocks (October 2023)”

The CRDMO model recently got validated by the signing of a contract with GSK for antibodies, worth up to $1.4B in royalties if all key milestones are reached.

The largest component of Wuxi’s pipeline is in monoclonal antibodies (mAb), with 284 out of 621. The second largest category is bispecific antibodies (BsAb).

Source: Wuxi Biologics

Most of the company revenues are from North America (54%), with the rest from China and Europe, with Europe having experienced the quickest relative growth.

Projects have grown steadily, from 103 in 2016 to 588 in 2022.

The company achieved for the first time positive free cash flow in 2022 and achieved a record of RMB 3.4B ($438M).

Source: Wuxi Biologics

Wuxi is focused on the high-growth segment of biologics, especially monoclonal antibodies. Potential investors will want to fully understand the advantages and limitations of the CRDMO business model. They will also look at the future expansion into more European projects and maybe other Asian countries.

Overall, Wuxi Biologics is a way to bet on monoclonal antibodies as a therapy class, but with an investment more focused on their development and manufacturing, instead of the commercialization of new drugs, which can be highly reliant on the result of clinical trials.

UCB SA (UCB.BR)

UCB (Union Chimique Belge) is a European pharmaceutical company.

Almost half of UCB sales are from CIMZIA, a monoclonal antibody treating several autoimmune diseases. The other large sector for the company is neurology (in blue below), with drugs for epilepsy (Keppra, BRIVIACT, and VIMPAT) making by far most of the sales in this segment.

Source: UCB

The company has recently launched new drugs:

• Fintepla (fenfluramine) for Dravet syndrome /  Lennox-Gastaut syndrome, both rare forms of epilepsy.
• Evenity, a monoclonal antibody for osteoporosis.
• Binzelx, a monoclonal antibody for psoriasis.
• Ristigo, a monoclonal antibody for myasthenia gravis, a neuromuscular disease.

Evenity is now leading in its sector, trending above 30% market share 2 years after launch. Bimzlex is equally at 35% share of its market.

The company pipeline is also rich in more monoclonal antibodies, with 3 drugs and 5 clinical trials on a total of 11 drugs in development. 5 of these clinical trials are in phase III, with topline results or submission expected in 2024.

Source: UCB

UCB has a unique expertise in its niches of epilepsy, as well as a proven track record of developing successful monoclonal therapies, from autoimmune diseases to osteoporosis.

The company’s successful launches have allowed it to turn around, after a few years when it was viewed as declining with an aging portfolio. Still, it is trading at the same price as in 2014, and if the new products manage to keep growing the company’s revenues, this might make the stock undervalued.

In the same way, if the products in phase III of clinical trials are approved and are successful commercially, this could help the company enter a new era of durable growth.

Abcam plc (ABCM)

Creating or finding useful new monoclonal antibodies can be challenging, with a lot of technical issues potentially hindering this process. This is where Abcam can help, with multiple dedicated platforms for the development of new antibodies.

The company is a large service provider to the life science industry, providing development of antibodies, but also CRISPR gene editing, recombinant protein platforms, and antibody labeling technologies.

The company has been expanding the reach of its portfolio of 29,000 antibodies used in research, with now more than 20% of global antibody research material mentioning Abcam products.  In total, at least one Abcam product is cited in 50%+ of all life science research papers.

Source: Abcam

The company has 450+ antibodies validated for diagnostic use and 20+ products that are FDA-approved or in clinical trials through partners. A key advantage of Abcam products is using rabbits instead of mice for its mass production of monoclonal antibodies, producing higher affinity and more precise targeting  (see “advantages of RabMabs”).

In August 2023, Abcam was the subject of an acquisition offer from Danaher Corporation (DHR) for $24/share. So far the deal seems to be going through and stands above the share price of Abcam at the time of writing of this article.

Danaher is an even bigger supplier to the life science industry, whose stock price has gone up x20 since 2000.

Danaher Stock Chart – Source: Yahoo Finance

Either alone or as part of Danaher, Abcam is likely to stay a central provider of monoclonal antibodies to the life science industry, as well as several medical therapies either already approved or in clinical trials. In the case of an acquisition, shareholders in Abcam will be able to pocket the premium between the current price and acquisition price, and then recycle that cash into Danaher’s shares if they wish.

Ultragenyx Pharmaceutical Inc. (RARE)

Ultragenyx is specialized in developing drugs and therapies for rare diseases. Since its IPO, it has had a stellar track record on getting its drugs approved, with more approvals for rare disease indications than industry leaders and biotech giants like Genzyme (bought by Sanofi in 2011 for $20B).

Source: Ultragenyx

While the 2 commercialized medicines (MEPSEVII & DOLJOVI) are not monoclonal antibodies, 3  monoclonal antibodies in its pipeline have also been approved, each for a different rare disease, on top of another monoclonal therapy in phase III. The pipeline contains also 6 gene therapies (3 in phase III) and 2 mRNA therapies, each for a different rare disease.

Source: Ultragenyx

While not profitable currently due to R&D expenses, the company is planning to be cash flow positive by 2026, with revenues more than tripling by that point.

Source: Ultragenyx

Despite extremely positive results for its R&D effort, Ultragenyx shares’ prices have been down since their high in 2021, reflecting the despondent mood on biotech startups.

MacroGenics, Inc. (MGNX)

Macrogenics is a biotech company dedicated to the development of antibody therapies for cancer. It already has one approved product, Margenza, for breast cancer.

The company has developed 3 different technology platforms and hopes to increase efficiency and reduce toxicity compared to existing monoclonal antibody cancer therapies.

Source: Macrogenics

The R&D pipeline is mostly made of products in phase 1 or 2 of clinical trials, as well as 2 molecules in the pre-clinical stage.

MacroGenics has several partner programs with Gilead, Incyte, and Synaffix, for which it received $210M upfront, with up to $2.55B in potential milestones and tiered royalties if the product gets commercialized.

The company has also contributed to creating TZIELD, a “vaccine” used to delay the onset of Stage 3 type 1 diabetes. The company has already been paid $210M by Sanofi, with $380M remaining potential payment for regulatory and commercial milestones, on top of potential royalties upside.

Source: Macrogenics

Like most early-stage biotech companies, MacroGenics will need to keep delivering on its R&D milestones to stay afloat. So this is a typical biotech high-risk, high-reward type of investment, where success is far from certain, but would mean a large jump in the company valuation.

The post Monoclonal Antibodies: The Original Precision Therapy appeared first on Securities.io.

https://www.securities.io/how-crispr-companies-target-sickle-cell-anemia/

A Crippling And Painful Disease

Sickle Cell Disease (SCD) is a blood disease caused by a genetic mutation. This mutation creates abnormal hemoglobin, the protein carrying oxygen in the blood’s red cells.

As a result, red cells are shaped like sickles and tend to get stuck in blood vessels, causing reduced blood flow and obstruction. Such obstruction can cause extreme pain, swelling, vision problems, and sensitivity to infections.

This also causes red cells to die off in just 10 to 20 days instead of the normal 120 days, causing anemia in the patients.

Source: Wikipedia

This is a disease affecting more than 20 million people worldwide, of which 100,000 are in the USA.

It also disproportionately affects people of African ancestry, with 1 in 13 Black or African American babies being born with sickle cell trait, and 1 in every 365 Black or African American babies being born with sickle cell disease.

Because the disease affects each individual blood cell produced by the body, efficient treatments have long been impossible to develop, with most healthcare limited to reducing the severity or consequences of the symptoms.

Red cells are also constantly produced and recycled in the body, so ideally, a cure would repair the body’s capacity to create functional/normal red cells.

The Gene Therapy Miracle

What made SCD so difficult to cure, its genetic origin, is also what makes it uniquely fit for the novel tools of gene therapy, especially gene editing. The mutation affects only one gene, and in most cases, only a single nucleotide (one letter of the genetic code).

This means that if we could modify that one letter in the patient’s DNA, we could cure the disease entirely for life.

Previous generations of gene therapies struggled to be precise enough to provide a cure for SCD. But with the emergence of CRISPR technology, able to precisely target and edit genes one nucleotide at a time, this might become possible soon.

Many companies are working on this technology, with SCD the prime focus of many of them.

Gene Editing Companies Working On An SCD Cure

CRISPR Therapeutics

CRISPR Therapeutics was founded by CRISPR Cas9 co-discoverer and 2020’s Nobel Prize winner Emmanuel Charpentier. The company focuses on applying to human medicine the CRISPR Cas9 system.

Source: CRISPR Therapeutics

CRISPR Therapeutics is working in close collaboration with larger biotech Vertex to develop therapies for blood diseases (Beta-thalassemia and SCD), as well as a potential cure for Type-1 diabetes.

For curing both Beta-thalassemia & SCD, CRISPR Therapeutics is looking to replace the deficient hemoglobin with fetal hemoglobin (HbF), which is naturally present in all people before birth and with a higher affinity for oxygen than adult hemoglobin.

The cure could work for both, because SCD patients have the wrong type of hemoglobin, while beta-thalassemia do not have enough hemoglobin. Adding enough HbF would solve the problem for both.

The stem cells producing the blood cells are genetically modified ex-vivo (out of the body, in a lab), and then re-injected in the patient’s body, under a process branded as “Exa-cel”.

In the Exa-cel clinical trial, 42 out of 44 beta-thalassemia patients have stopped blood transfusion, with the other 2 having reduced transfusion volume by 75% and 89%. All 31 SCD disease patients were free of the painful vaso-occlusive crisis (VOC), one of the most indicative and debilitating symptoms of SCD. You can read more about the clinical trial and its results in the dedicated presentation by CRISPR Therapeutics.

The Marketing Authorization Application (MAA), which is the demand for authorization to commercialize a new therapy, has already been submitted for Exa-cel, making CRISPR Therapeutics the most advanced gene therapy for Beta-thalassemia & SCD.

Editas Medicine, Inc. (EDIT)

Editas was founded by the other CRISPR-Cas9 discoverer, Jennifer Doudna. You can also read an overview of all of Jennifer Doudna’s companies in the corresponding article “Top Jennifer Doudna Companies to Watch”.

Editas started working with Cas9 but is now focused on a proprietary version of Cas12 that they engineered: AsCas12a.

You can read more about Cas12a’s unique properties in our dedicated article “What Is CRISPR-Cas12a2? & Why Does It Matter?”.

To resume it shortly, Cas12as’s uniqueness is because:

• Hard-to-solve problems with Cas9 could be workable with Cas12a
• It results in higher chances of gene editing happening than with Cas9.
• More than one gene can be modified at once with CAs12a

Source: Editas

In addition, this gives Editas an exclusive license for AsCas12a, and the company does not require any commercial license for CRISPR Cas9 to commercialize its SCD therapy.

Editas is strongly focused on Sickle Cell Disease (SCD) and beta-thalassemia, with 40 patients in a clinical trial at phase 1/2, with the first results expected by the end of 2023. You can read more about the clinical trial design and early results in the dedicated presentation.

In October 2023, Editas was granted by the FDA the Regenerative Medicine Advanced Therapy (RMAT) designation for EDIT-301 for the treatment of severe SCD. This overall should speed up the clinical trial process, which is the goal of RMAT, including through priority review of the biologics license application (BLA).

The company has also made a plan to reduce spending, allowing for “a decreased cash burn, extending operational runway into 2025.

Beam Therapeutics Inc. (BEAM)

The company was founded in 2017 with a  focus on developing the technology of “base editing”. This promises more precise gene editing than traditional CRISPR-Cas9 technology. It could also edit multiple spots in a gene at once, or multiple different genes at once.

“Many existing gene editing approaches are like ‘scissors’ that cut the genome. Base editors are like ‘pencils’ that enable erasing and rewriting one letter of the genome at a time.”

GIUSEPPE CIARAMELLA, President and Chief Scientific Officer.

Beam Therapeutics is at an earlier stage than other CRISPR companies, with its manufacturing facilities expected to start only in late 2023. Most of its pipeline is still at the research stage of entering phase 1/2 of clinical trials.

It has pretty much the same focuses as CRISPR therapeutics: hematology (sickle cell disease), oncology, and rarer genetic diseases (impaired glycogen metabolism and Alpha-1 Anti-trypsin Deficiency – AATD).

Source: Beam Therapeutics

In October 2023, BEAM Therapeutics announced its intention to prioritize BEAM-101 and ESCAPE for sickle cell disease and BEAM-302 for alpha-1 antitrypsin deficiency.

The news came with the pausing of its Hepatitis-B program, as well as a reduction of headcount by 20%, or around 100 employees. Together with a cost reduction program, this should provide the company with enough funding to operate until 2026 with its current cash balance.

Considering rising interest rates and the difficulty to raise more money in the current environment, this sounds like a cautious, but wise strategy for a pre-revenue company with a promising product that should be done with clinical trials by 2026.

Precision BioSciences, Inc. (PBS.F)

Most CRISPR therapies for SCD (and for other diseases as well) target an “ex-vivo- approach, where cells are extracted from the body, modified in labs, and re-injected in the patient. This makes gene editing a lot easier and safer, but also comes with a whole different set of problems in getting the re-injected cells to perform normally and cure the patients.

In theory, in-vivo therapies could be easier to handle and have fewer side effects. In practice, it can be difficult to have the gene therapy precisely editing the right cells and no others, as well as precise and predictable gene editing, or affecting a large enough percentage of the body’s cells in order to be effective.

This is nevertheless the approach favored by Precision BioSciences, which granted it a partnership for curing SCD in-vivo with Novartis in 2022. It relies not on CRISPR, but on ARCUS, a system using an editing enzyme, I-CreI, found in algae.

The company is still at a very early stage for its potential SCD treatment, with its most advanced program a potential therapy for ornithine transcarbamylase deficiency, in partnership with Ecure.

Source: Precision Biosciences

Precision Biosciences is not solely focused on SCD, but might be the long-term future of gene therapies, unless CRISPR therapies prove to be fully sufficient in curing most SCD cases before the ARCUS system can be validated through clinical trials.

Abandoned Or Delayed Gene Therapies

Biotech development is a difficult task, and some programs that looked promising in the treatment of SCD have been abandoned recently.

Notably, Intellia Therapeutics, Inc. (NTLA) saw its partner Novartis (NVS) pulling the plug on a CRISPR therapy in the work since 2014. At the time, Intellia mentioned its interest in pursuing an in-vivo method but has communicated little about SCD since.

Source: Intellia

Sangamo Therapeutics (SGMO) and Graphite Bio (GRPH) have also stopped their SCD gene therapy programs. Sangamo therapy relied on zinc-fingers gene editing, and Graphite Bio had poor results in preliminary clinical trials.

The post How CRISPR Companies Target Sickle Cell Anemia appeared first on Securities.io.

https://www.securities.io/?p=239392

A New Blockbuster

Very rarely, the pharmaceutical industry finds a new “blockbuster” class of drugs. For example, statins, used to control cholesterol levels, represented a market larger than $10B in just the USA, and $15B globally. Or sometimes it is just a single new molecule that suddenly turns into a money-making machine, like Viagra, with tens of billions of revenues since 1998.

In most cases, this is the result of a few factors coming together:

• An unaddressed or poorly treated health problem.
• A health problem that significantly affects the lifestyle of the patient, or directly threatens their life.
• A massive market, with tens of millions of people needing treatment.
• A simple enough way of treatment, like an injection or a pill, allowing for mass adoption, compared to more complex therapies.
• Requires regular treatments, sometimes for life, guaranteeing regular sales for years once the therapy is started.
• Low risks compared to the health benefits.

Obviously, such products are hard to find, as all the “obvious” solutions have already been found, commercialized, and likely off patents (like most antibiotics today).

Still, fundamental biological research into new concepts can change an entire medical field. And it seems a new type of blockbuster should be added to the list: semaglutide.

The Holy Grail Of Weight Loss Drug

Semaglutide was initially developed as an anti-diabetic medication, under the drug brand Ozempic. It was first developed by Novo Nordisk (NVO) in 2012. Semaglutide mimics a weight-related hormone called GLP-1 (glucagon-like peptide-1). If you are interested in more details, you can read a compilation of scientific publications about semaglutide in Science Direct.

More recently, semaglutide got approved and repackaged under the brand Wegovy for a new application: weight loss. This is because the drug decreases appetite and slows down the emptying of the stomach, so people feel less hungry and therefore eat less.

This turned out to be a massive success, with a lot of people looking forward to a drug actually efficient at helping them lose weight.

Maybe this is not surprising, with obesity a growing issue, affecting 41.9% of adults in the USA. For its promotion, Novo Nordisk recruited US rapper Queen Latifah for a campaign about the stigma that surrounds obesity treatments.  Even Elon Musk referred to Wegovy as a way for him to lose unwanted weight.

Wegovy’s success is truly global, notably reaching China, where it is used even by people with very little weight to lose:

Young girls crowded into the endocrine and metabolism department of the hospital, regardless of whether they were thin or fat, just to get a dose of semaglutide.

In the doctor’s hospital, they only prescribed just over 100 doses of semaglutide in June, but now the number has risen to 1500-2000 doses, which is the average sales volume of semaglutide in most tertiary hospitals in Shanghai.

Baiguan News

Even the CEO of Walmart discussed Wegovy, blaming it for a decrease in grocery shopping, a declaration which offended many who think inflation and the rising cost of living are the cause for struggling consumer spending.

Overall, the GLP-1-inspired drug has been a hit, even larger than Novo Nordisk expected. It might also be something that will need to be taken continuously to keep its benefits, making it a long-term treatment and cash cow for Novo Nordisk.

A Financial Tsunami

The overnight success of Wegovy caught Novo Nordisk by surprise, with the company ramping up production regularly, and still seeing recurring shortages from a constantly growing demand. It is likely that despite new production facilities, the shortage will persist well into 2024.

The commercial relaunch of Wegovy in January 2023 has been nothing short of spectacular, with sales exploding in a line straight up, and only hindered by supply constraints.

Source: Novo Nordisk

The financial consequences are no less massive. Novo Nordisk became the most valuable European company by market capitalization, exploding ahead of luxury products maker LVMH.

This is to the point that Denmark, where Novo Nordisk is headquartered, felt the need to publish national GDP data excluding the company, something making sense with Novo Nordisk’s market cap is now larger than Denmark’s GDP, and as the country’s GDP would have shrunk by 0.3% instead of a 1.7% growth without Novo Nordisk success.

Source: Novo Nordisk share price – Yahoo Finance

So while diabetes is still the core business of Novo Nordisk, obesity treatments might soon overtake it, with a growth of +124% in Q1 2023. Especially as a lot of the “diabetes” GLP-1 business growth (+50%) is off-prescription use of Ozempic instead of Wegovy, due to supply shortages.

The use of Wegovy is also only starting in international markets (IO – International Operation), with approval only getting done now, for example on the 4^th of September 2023 in the UK. Considering how large obesity-related sales already are in North America Operations (NAO), this leaves a lot of space to grow revenues for Novo Nordisk.

Source: Novo Nordisk

This has also made Novo Nordisk raise its outlook for the year 2023, with the sales growth expectation of 27-33% in August 2023 now at 32-38% in October 2023, and the growth of operating earning profits at 40-46%.

The company is also investigating what other applications or improvements could be approved for semaglutide in its R&D pipeline.

This includes:

• Once a day semaglutide pills.
• Once a week semaglutide treatment.
• Once a week injections in combination with another drug (amylin analogue cagrilintide).
• Treatment for liver disease NASH (Non-Alcoholic SteatoHepatitis).
• Once a week treatment of type-2 diabetes, in combination with another drug (insulin icodec).

Recently, a trial to investigate the effect on kidney disease progression has been halted.

The rest of the R&D pipeline contains also potential treatments for diabetes, NASH, cardiovascular diseases, and rare diseases.

The company has also already started to deploy aggressively its extra cash in 2023, with the acquisition of metabolic disease company Inversago Pharma for $1.075B, of hypertension drug ocedurenone from KBP Biosciences for $1.3B, a research partnership worth up to $335M with gene editing Life Edit Therapeutics, and another partnership worth up to $650M for bioprinted organs with Aspect Biosystems.

Eager Competitors

In the ultra-competitive world of pharmaceuticals, such a success is guaranteed to catch the attention of all the other pharmaceutical companies.

Eli Lilly and Company (LLY)

The potential of GLP-1-targeting drugs was seized first by Novo Nordisk, but right on its heels is Eli Lilly, the other major diabetes drug manufacturer.

Eli Lilly has its own potential blockbuster obesity drug, Mounjaro (using the molecule Tirzepatide). Its preliminary clinical trials had similar and maybe superior results to Wegovy, an average reduction of nearly 16% of test patients’ body weight. The weight loss can even be up to 22% for patients without diabetes.

Mounjaro is targeting not only GLP-1 (like Wegovy) but also GIP (glucose-dependent insulinotropic polypeptide), which might (or might not) create a stronger weight-loss drug.

Eli Lilly expects Mounjaro to launch for obesity soon, with the molecule already under regulatory review, and might become a serious competitor to Wegovy. Mounjaro was already a very successful type-2 diabetes drug. UBS analysts suspect that if approved for obesity treatment, Mounjaro could become the first drug to sell for more than $25B in just one year.

The Mounjaro studies are ongoing, with new results expected in mid-2023, 2025, and 2027, testing different effects on specific subsections of the population, in order to get a wider range of approved applications.

The company is also researching other obesity treatments, and is in phase 3 of clinical trials of orforglipron, phase 2 of retatrutide, also acting on GLP-1 receptors, and phase 1 of Amylin Agonist Long Acting, DACRA QW II, and Mazdutide.

Eli Lilly is a more diversified company than Novo Nordisk, with notably a pipeline on Alzheimer’s, Parkinson’s, cancer, immunology, etc.

For the foreseeable future, the GLP-1 obesity market will likely be split between Novo Nordisk and Eli Lilly, with the ratio of this partition yet to be seen.

Amgen Inc. (AMGN)

A giant in biotechnology, Amgen is a company we covered in “5 Best Biotech Stocks To Watch (May 2023)”. It nevertheless got caught lagging behind its competitors more focused on metabolism and diabetes when it comes to potential obesity treatments.

It has a program, AMG 133, targeting both GLP-1 and GIPR (Gastric Inhibitory Polypeptide Receptor). The combination of both effects might be stronger than each separately according to pre-clinical data.

AMG 133’s unique advantage would be a long half-life, with a dosage every 4 weeks instead of the required weekly treatment of Wegovy. Phase 1 results arrived in December 2022, showing a weight loss of 14.5% of body weight. Phase 2 was still enrolling patients in August 2023.

Because it is only entering phase 2 of clinical trials, and because the company focuses on a wide array of therapies, AMG 133 is less central to the investment thesis for Amgen. Still, a potential 20 billion dollar blockbuster drug could seriously boost the company’s bottom line. So with Wegovy showing the market is larger than expected, this is something investors in Amgen will want to keep an eye on.

Altimmune, Inc. (ALT)

Altimmune is performing phase 2 of clinical trials for its obesity-treating drug pemvidutide. The molecule is acting on GLP-1, but also Glucagon, giving hopes that it could also help liver functions, and mimic the effect of exercise in addition to the hunger-reduction effect of GLP-1.

Source: Altimmune

The company has ongoing clinical trials for obesity, with the results from phase 2 for obesity expected in Q4 2023. Pemvidutide is also investigated for NASH (Non-alcoholic steatohepatitis), the most severe form of nonalcoholic fatty liver disease.

The other product of the company, in phase 1, is the immunotherapeutic for chronic hepatitis B infections. This is a condition affecting 300 million people worldwide, of which 15 million are in the EU + USA and 87 million in China.

Source: Altimmune

The company’s products are at an earlier stage than Novo Nordisk’s or Eli Lilly’s. It also has a market cap around 1000x smaller. So if its obesity treatment can reach the patients and snatch even a portion of the predicted $50B obesity markets, this could be a massive boost to the company’s value.

Having passed the phase 1 trials (toxicity evaluation essentially) and shown up to 10% of body weight losses, and seeing the success of other GLP-1-based drugs, this looked like a promising idea.

Still, somewhat disappointing results in March 2023, due to widespread nausea side effects worse than with Wegovy, have led to a 50% drop in the company’s stock value.

Financial capacity will be crucial to reach the point of commercialization, with a net loss of $84M in 2022, for $160M in cash in Q2 2023. Additional funding will likely be required to finance the phase 3 of clinical trials for obesity treatment.

Sosei Heptares (SOLTF) / Pfizer (PFE)

Pfizer has signed a partnership with Japanese Sosei Heptares for lotiglipron (PF-07081532), its GLP-1 agonist in phase 2 of clinical trials. While Pfizer could be a way to invest in that drug, it is such a large company that a more direct investment strategy would be Sosei stock instead.

Sosei is relying on a computer-based drug discovery process, centered on GPCRs (G-protein coupled receptors), a class of proteins targeted by drugs representing 27% of the global pharmaceutical market. The segment still has a lot of therapeutic potential, with 56% of the 400 GPCR proteins in the human body still “undrugged” in any way.

Would Pfizer GLP-1 drug be successful and reach $1B-$10B in sales, this could represent in a few years royalties worth 10-100% of Sosei’s current market capitalization.

Pfizer is also working on another GLP-1 drug, danuglipron, with encouraging phase 2 clinical trial results.

The rest of Sosei Heptares’s pipeline should be valuable as well, with partnerships with Genentech, AbbVie, GSK, Lilly, Neurocrine, Allergan, Teva, and Astra Zeneca. It also has in-house 3 drugs in pre-clinical development, for solid tumors, schizophrenia and psychosis, and inflammatory bowel disease.

Investors in Sosei will want to keep a close eye on Pfizer clinical trials, now in phase 2. The company is profitable, even if barely as in 2022, it spent $7.4B in R&D and had revenues of $15.5B.

Source: Sosei Heptares

This financial stability might make Sosei a safer proposition than Altimmune for a high payout in case of drug development success, even if likely a less large growth compared to current market capitalization as well.

Structure Therapeutics Inc. (GPCR)

Only publicly listed in a very recent IPO in February 2023, Structure Therapeutics is working on a phase 1b trial for a GLP-1 drug, and pre-clinical for a GLP-1 + GIPR drug. Phase 2a studies are expected in the second half of 2023. The company is based in Shanghai and San Francisco.

This seems to be a very science-driven company and team. The company is focused like Sosei on GPCRs, using structure analysis and AI + machine learning (ML) to find new drug candidates.

Source: Structure Therapeutics

Besides obesity treatment, Structure Therapeutics also has candidates in the cardio-pulmonary segment.

Source: Structure Therapeutics

The $185.3 million IPO brought cash to a total of $249M in February 2023, giving some breathing room to the company. Net losses for 2022 were $51M.

In October 2023, the company’s share price almost doubled thanks to positive results from its clinical trial on its GLP-1 drug.

No Side Effects?

No really powerful drug is fully safe. By definition, the intended therapeutic effect almost always comes with unwanted side effects.

With Wegovy, it must be emphasized that potential side effects are no joke, including stomach paralysis, thyroid cancer, pancreas inflammation, kidney problems, and gallstones. So it is highly recommended to get medical advice first and use it only for severe obesity, and NOT for small weight losses like the Chinese young girls mentioned above.

These issues are related to the whole metabolism, so competitors’ products are likely to carry the same risks. This is something investors will want to keep in mind. But for now, the FDA and other regulatory authorities worldwide are considering that the health benefits of weight loss outweigh the potential risks of side effects.

An Anti-Addiction Drug?

In the last few months, news about Wegovy’s revolutionary effect on weight loss has dominated the headlines. But another potential effect is publicly discussed, even if there is no clinical trial data to back it.

This is about the potential effect of semaglutide to reduce ALL addictions, and not just food/obesity/over-eating. Semaglutide seems to reduce addictive behaviors toward multiple substances like alcohol in studies on rats and mice. Small preliminary human trials are ongoing for addiction to opioids, alcohol, and tobacco.

This would also match anecdotal data from Wegovy consumers who reported a reduction in nail-biting, impulse shopping, binge eating, alcohol consumption, or smoking.

Even if true, such an application is likely to take years to be approved by the FDA, and require dedicated clinical trials which have not even started.

This is nevertheless something on which investors will want to keep an eye. Considering how Ozempic has been prescribed by doctors for weight loss without FDA approval, it is likely to boost consumer demand and off-label prescriptions, whether the effect on addictions is officially confirmed and approved or not.

The post The New Blockbuster Drug: Wegovy appeared first on Securities.io.

https://www.securities.io/?p=239195

Rising Dangers

It is sadly the case that the international order that has prevailed since 1990 and the fall of the Soviet Union is unraveling. From the war in Ukraine to the war between Armenia and Azerbaijan, war between Israel and Hamas (and maybe more like the USA, Hezbollah and Iran), to tensions around Taiwan and the China-USA rivalry, the world is becoming a dangerous place quickly.

“This may be the most dangerous time the world has seen in decades.“

Jamie Dimon, JPMorgan CEO

So in this context, it can make sense for investors to look at the defense industry. The sector has already performed well, but might still be only at the beginning of explosive growth. This is because contrary to what we could assume from news headlines, the leading defense ETFs have been rising in price from 2007 to 2019, and have mostly been stagnant since.

Source: Yahoo Finance: iShares U.S. Aerospace & Defense ETF

A reason behind this relatively slow performance has been that the USA has actually decreased its defense spending if measured as a percentage of GDP in the last few years.

Source: Crescat Capital

Matching A Growing Demand

The return of industrial warfare in Ukraine has caught the Western defense industry by surprise. To this day, it is still struggling to catch up and produce all the vehicles, missiles, and artillery shells needed to replace depleting stockpiles. And this was before the sudden explosion of violence in Israel:

• Voice Of America: “NATO Warns of Ammunition Shortage Due to War in Ukraine“.
• Responsible Statecraft: “US weapons makers report ‘all-time record orders’ since Russian invasion”.
• Reuters: “Rheinmetall moving towards order backlog of 30 billion euros”.
• The National Interest “Bad News: The U.S. Navy Has a Warship Shortage”.

While this is not good news in the short term, this is good news for the defense industry. The world is rearming and maybe entering a new Cold War. Many armies that had been shrunk, especially in Europe, are now looking to rebuild their forces.

Many investors might be a little uncomfortable with the idea of making money from weapon manufacturers. And of course, this carries some ethical questions.

But in the end, every nation needs to be able to defend itself. And the sector is often considered a “sin stock”, together with tobacco, gambling, alcohol, etc., which tend to create larger returns on investment than other sectors.

Only the dead have seen the end of war.

Plato

Top 10 Aerospace and Defense Stocks

Lockheed Martin Corporation (LMT)

Lockheed is behind some of the most powerful (and expensive) weapon programs in the USA, like the F-35. The stealth plane developed together with Northrop Grumman and BAE Systems suffered a troubled development but is now “debugged” and getting built in large quantities, with demand outpacing production.

While it is active in all branches of the military, the company is mostly active in advanced technologies and aerospace, with aeronautics representing $6.2B of revenues in Q1 2023, missiles & fire control $2.3B (including the now famous in Ukraine HIMARS), rotary (helicopters) $3.5B, and space $2.9B, for total sales of $15.1B total sales.

Lockheed is also active in cyber defense and naval systems (AEGIS anti-air systems and long-range anti-ship missiles).

Source: Lockheed Martin

It is present in the most advanced segment of the defense industry, including AI & autonomous weapons, electronic warfare, hypersonic missiles, laser weapons,

Ever since the massive military build-up of World War 2, Lockheed Martin has been a central part of the US defense industry. This is unlikely to change any time soon. Air superiority is the central tenet of NATO military doctrine after all.

The company is also likely to be a prime recipient of increasing military spending from the US allies, as illustrated by the recent sales of F-35 to Finland, Switzerland, and Germany, or the 486 HIMARS artillery systems ordered by Poland (more than the USA itself operates).

RTX Corporation (RTX)

Often just called Raytheon, the company is a conglomerate of weapon manufacturer Raytheon, aviation reactors maker Pratt & Whitney, and Collins Aerospace.

The company is present in virtually everything that flies, with 11 million passengers per day moved with Collins Aerospace equipment, a Pratt & Whitney-powered aircraft taking off every second, and half of the world population protected by Raytheon military products (including the air defense Patriot missile system, of which $15B got recently sold to Poland).

Source: Raytheon

On the aircraft component of the business, RTX will be a key supplier to the massive backlog order of 12,500 aircrafts between Airbus and Boeing.

The company expects sales to grow by 6-7% CAGR until 2025, with $9B in free cash flow in 2025.

RTX is a very innovative company, with its technologies crucial for air travel, both military and civilian. It is also working on the electrification of air transport and the deployment of sustainable or alternative aviation fuels, as well as the integration of existing systems with AI and advanced sensors. On the military side, Raytheon is also working on hypersonic missiles, a key capability where the US has been somewhat lagging behind Russia and China, with Lockheed Martin the only real competitor.

The war in Ukraine has illustrated the importance of air dominance and air defense in modern wars. And the post-pandemic boom in travel has shown that the desire for air travel is not going anywhere. So it is likely that RTX will continue to perform well, as the central supplier of air travel and air defense systems in the USA and NATO. And makes investors a good choice for a defense company that also has extensive civilian activities.

Northrop Grumman Corporation (NOC)

Northrop Grumman is a defense aerospace company most famous for the creation of the iconic B-2 stealth strategic bomber, each one costing almost a billion dollars. This more than 20-year-old design is going to be replaced by the B-21, still in development.

The company is also at the very edge of space technology and notably worked on the state-of-the-art James Webb Space Telescope.

Source: Northrop

The company derives most of its revenues from space and aeronautics systems, with another large segment the mission systems division, covering a wide array of sensors, cyberdefense softwares, secured communication, and C4ISR (Command, Control, Communications, Computers, Intelligence, Surveillance and Reconnaissance). It is also a leading producer of ammunition, from small caliber to guided projectiles and large caliber.

Source: Northrop

The company is looking forward to its position as a supplier of advanced weapons, with the development and deployment of autonomous weapons systems like the X-47B, helicopter drone Fire Scout, surveillance drones Global Hawk and MQ-4C Triton, or future autonomous strike drones.

Source: Northrop

The company is at the edge of the development of direct energy weapons (lasers), electronic warfare, anti-drone systems, and intercontinental ballistic missiles.

Where companies like RTX and Lockheed provide the bulk of the US Air Force punch (fighter jet, missiles, air defense), Northrop Grumman is providing the most advanced capacity, from space to integrated command and stealth heavy bombers. So in many ways, an investment in the company is a bet on the US Army keeping its doctrine of being an ultra-technological military force, driven by innovation, cutting-edge capacities, and overwhelming technological advantage.

With the growing importance of drone and electronic warfare, Northrop will likely be increasingly central to the US’s both offensive and defensive capabilities, and with its new stealth bombers a key factor in keeping pace with peer adversaries like Russia and China.

General Dynamics Corporation (GD)

Some of the most important (and expensive) weapons systems in the US are aerospace assets. But time and time again, military strategists rediscover the simple truth that any war is first and foremost won on the ground and at sea. From infantry to tanks and artillery, and from ships to submarines, the most cost-efficient way to deploy firepower is at the ground or sea level.

General Dynamics is behind the Stryker armored vehicle, the M1 Abrams tanks, the Arleigh Burke-class guided-missile destroyers, and Virginia & Columbia-class nuclear-powered submarines. It also has a civilian line of business, with its Gulfstream private jets.

Source: General Dynamics

Every weapons system of General Dynamics is central to the operations of the US Army and Navy, and can often be described as the backbone of their military power.

On the naval side, General Dynamics is the sole supplier of nuclear submarines besides Huntington Ingalls Industries (see below for a detailed company profile). The Arleigh Burke class has no less than 73 active ships as of October 2023, with nineteen more planned to enter service.

On the land weapons side, the M1 Abrams tank entered service in 1980, and is one of the heaviest tanks in service worldwide, and more than 10,000 units were produced. Around 4,900 Striker vehicles have been produced since 2000.

The war in Ukraine saw a significant part of NATO, which was still operating Soviet-era equipment or German-made tanks, give these weapons to Ukraine. This has opened a significant export market for General Dynamics, as illustrated by the large sales to Poland (a $4.75B deal) and maybe soon Romania.

On the other side of the world, the mounting rivalry with China has made the US worry that it might fall behind in naval capacity, with China forecasted to become the largest submarine fleet by 2030. This might be difficult to solve in the short term, with the military shipyards of General Dynamics and  Huntington Ingalls often described as already operating at maximum capacity. This is nevertheless an encouraging trend for General Dynamics, which will be in a prime position to help build up the US Pacific fleet.

Both the war in Ukraine and now in Israel demonstrated the importance of “ordinary” military assets in the global security architecture. Naval capacities and boots on the ground matter. So investors in General Dynamics can count on NATO allies rearming and growing rivalry with China to keep the company’s order book full, and maybe even bigger than its production capacity in the short and medium term.

BAE Systems plc (BAESY)

BAE is the leading defense company in the UK, the largest manufacturer in the UK, and the largest defense contractor in Europe (7^th largest globally). Despite being a UK company, BAE makes most of its revenues in the US, with Europe its 3rd largest market and Saudi Arabia the 4^th.

Source: BAE Systems

The company has diversified activities, with air and maritime systems the largest segments, followed by electronic systems (ES), platforms & services (P&S), and Cyber & Intelligence (C&I). The total order backlog stands at $83B.

Source: BAE Systems

Among its most important programs are the Eurofighter jets, the participation in the F-35 program, the Dreadnought, and Astute class submarines.

In the naval segment, the recent AUKUS (Australia, UK, USA) deal has awarded BAE £3.95B for the next stage of the program regarding nuclear submarines.

On land, BAE has been selected to provide the Armored Multi-Purpose Vehicle (AMPV), replacing the Vietnam War-era and legacy M113 Family of Vehicles in the US Army.

The Ukraine war has suddenly made vital the capacity of NATO’s industrial base to produce enough “basic” 155m artillery shells, with BAE a supplier of this ammo, behind Reihnmetal (see below for a more detailed description of that company), and production capacity way below what is needed, with a backlog measured in decades.

Source: BAE Systems

BAE is looking to acquire the American Balls Aerospace for $5.55B, which will expand BAE’s reach in space technology, both civilian and military.

The company is innovating in technologies like Virtual and Augmented Reality, advanced ammunition, cyber defense, electronic warfare, drones, and surveillance. BAE is also working on civilian electrification applications, including hybrid and electric aviation.

The AUKUS deal is a symbol of the growing integration of the UK and Australian defense industries with the American one. This trend should persist in the context of rising international tensions, giving new overseas opportunities for BAE. This makes the company one of the prime European defense contractors, while also being deeply intertwined with the American defense budget, shielding it from the risk of EU defense spending falling short.

L3Harris Technologies, Inc. (LHX)

L3Harris is a key supplier to the defense industry. It generated 60% of its revenues in 2022 from the US Department of Defense (DoD), 20% from international defense orders, and 20% from the civilian industries.

It sells solutions in integrated mission systems (sensors, command center, etc…), space, and communication systems. The company enjoys a leading position in all domains of air, land, space, sea, & cyber, with notably Harris controlling 45% of the global tactical radios market, several times larger than the next competitor.

Source: L3Harris

In many ways, L3Harris systems are “invisible” to the public at large, either located in satellites in orbit or not as photogenic as tanks and destroyers, with things like radios, antennas, steering controls, radar, sonars, optics,  etc. Such equipment are nevertheless absolutely vital for almost every modern military equipment in an increasingly connected battlefield.

The company is expanding through acquisition, with the purchase in July 2023 of hypersonic missile reactor developer Aerojet Rocketdyne for $4.7B, adding a 4^th department to the company.

Due to its presence in most NATO equipment, L3Harris is likely to benefit from the general build-up of new or upgraded equipment, no matter what weapon system is selected by a given nation.

This makes it a good stock pick for investors looking for exposure to the defense sector, but uninterested in learning about the prospect of specific weapons or which branch of the military might be the most interesting to invest in.

Dassault Aviation société anonyme (AM.PA)

With the largest weapons manufacturers being American, it can be easy to forget that other countries are large weapons manufacturers and exporters. An important one is France, with Dassault Aviation as the leading company in the country. It is part of the Dassault Group, which also includes the larger Dassault Systemes, media group Dassault Figaro, as well as public utility Veolia.

The most famous and important weapons system of Dassault is the French fighter jet Rafale. The fighter jet has recently seen growing hope of further exports to the Middle East, notably an additional 24 planes to Qatar, with the recent events in Israel making it hard to evaluate if they will increase or decrease the chances of such a deal going through. 42 Rafale were also sold to Indonesia in 2022, and India selected the Rafale for its naval forces in 2023, adding to its existing 26 planes.

In total, Dassault Aviation saw 80 new Rafale orders in H1 2023, and has an existing backlog of 164 planes, of which 125 are for export. This large backlog gives the company 10+ years of visibility.

Dassault is also the producer of the Falcon business jets, with 2,100 units in service.

Besides its own sales, Dassault Aviation owns 25.23% of the other major French defense contractor, Thales (HO.PA), with activity in aerospace, software, and cybersecurity.

Contrary to US jet fighter manufacturers, Dassault has a strategy of joint production with third-party countries, including non-NATO countries like India or Indonesia. This contributes greatly to its recent export successes, with many countries eager to develop their domestic defense industries and partially localize the production of key advanced weapons systems, especially in aeronautics and aerospace.

This trend of international collaboration is also visible in the nEUROn program, the first European Unmanned Combat Air Vehicle (UCAV), developed in collaboration with the Italian, Swedish, Spanish, Greek, and Swiss governments.

Source: Dassault – Rafale & nEUROn planes

The European defense sector is booming in the aftermath of the war in Ukraine and the need for all NATO members to boost their defense spending above 2% of GDP. Combined with the success of Dassault Aviation’s export strategy, this makes the company a good defense stock diversifying out of the US-centric approach of many defense stocks.

Rheinmetall AG (RNMBY)

Rheinmetall is the largest defense contractor in Germany. The country has long had a position of minimizing its armed forces after the fall of the Soviet Union. The invasion of Ukraine changed that, with Germany looking to quickly ramp up its spending to 2% of GDP, and already more than doubling its defense spending between 2014 and 2024.

Source: Rheinmetall

The company’s “main products” are tanks (Leopard and in the future, Panther), military trucks, air defense systems, and unmanned air assets (drones), with sensors and electronic systems as well.

Source: Rheinmetall

Rheinmetall is also the largest producer of artillery shells in Europe, especially the critical 155mm caliber, with facilities in Germany and South Africa, and a new one being built in Hungary. It also produces a loitering munition (suicide drone), HERO.

The war in Ukraine has shown military planners in Europe the likely outlook a land war in Europe would take:

• Heavy reliance on artillery, with tremendous consumption of ammunition way beyond previous expectations.
• The growing importance of drones and loitering ammunition.
• Subsequently, growing importance of local and mobile air defenses, not targeting planes but drones and smaller/cheaper targets.

For all of these new needs, Rheinmetall is well-positioned to deliver to European armies. It is the only large contractor in Europe that has anticipated the need for new ammunition factories. It can also provide its HERO drone, as well as fixed or mobile, land-based or ship-based local and connected air defense.

Source: Rheinmetall

In Q2 2023, Rheinmetall succeeded in being selected as a finalist for the American XM30 combat vehicle program. The winner will not be announced before 2027, but this replacement of the M2 Bradley vehicle could be a game changer for Rheinmetall, with 6,785 units of its predecessor having been produced.

On a more peaceful theme, Rheinmetall is also working on hydrogen technology and has already started to receive orders for its technology in this sector. The company is also exploring the potential of civilian applications for its land drone systems, for example, an unmanned baggage handler for airports.

Due to its focus on ammunition, tanks, and air defense, Rheinmetall is very well positioned to fill the gap in European defense revealed by the Ukraine war. It will also be likely to benefit from new orders coming from the need to rebuild arsenals after older weapons have been sent to Ukraine.

Huntington Ingalls Industries, Inc. (HII)

There is a prevalent trend in the defense industry, especially in the US, of mergers and acquisitions leading to the creation of large defense conglomerates active in all defense sectors at once.

Huntington Ingalls has so far resisted this trend, with an exclusive focus on shipbuilding. The company is responsible for having built most of the US Navy, including aircraft carriers, submarines, amphibious ships, destroyers, etc… This includes the Ford-class aircraft carrier, the world’s largest military ship.

Source: Huntington Ingalls Industries

Huntington Ingall is not only responsible for building these ships but also maintaining them and upgrading them, giving the company very good visibility over its work several decades ahead.

Shipbuilding is now the limiting factor in the build-up of the US Navy, instead of budget, or the need for more ships. It is increasingly clear that the US will need to engage in a decade-long process of increasing its shipyard capacity to keep up with China, with just one of China’s 13 military shipyards having more capacity than all 7 US  military shipyards together.

This should ensure the continuous growth of Huntington Ingall up to 2040 or beyond, and even then, the need for maintenance, repairs, and upgrades of the existing fleet should keep it running at 100% capacity for even longer.

Despite this outlook, the company stock is still trading at the same price as in 2017, with so far most of the attention given by markets to aerospace companies or European defense contractors. In case of a security crisis in the Pacific, or even the Persian Gulf, the necessity of a strong navy will likely come back to the forefront, and markets might follow accordingly.

Leonardo S.p.a. (LDO.MI)

The Italian defense contractor is a provider of many military systems used in multiple platforms. Leonardo is more of a technology company, selling its products to others for integration into their finished equipment. This makes it slightly different from larger defense companies, usually focused on selling a specific aircraft, tank, or submarine design.

Source: Leonardo

The company mostly sells to the USA, Italy, and Europe. Its business is mostly driven by procurement for helicopters and aircraft, followed by electronics (especially radars and communications tools).

Source: Leonardo

Leonardo is also starting to transform into a holding company of niche defense equipment, looking to build synergy across the portfolio and between partners.

Recently, Leonardo has acquired a 25.1% ownership in German sensor company Hensoldt, for €606M (self-funded), following the 2022 merger with Israeli RADA Electronic Industries (all-stock merger). This comes on top of multiple other participation in helicopter companies, satellite makers, and defense electronic companies.

Source: Leonardo

A key growth opportunity for Leonardo is in the counter-drone market. Its DRS’ air surveillance and Counter-Unmanned Aerial Systems (C-UAS) combine radar, short-range missiles, and auto-canon (see video) to protect from all drone threats, including quadcopters and loitering ammunitions that have proven in Ukraine to be devastating even for the most advanced tanks. It also fields the SPEAR, using High Power Electromagnetic (HPEM) to fry the electronics of incoming drones, including the growing danger of drone swarms.

These systems can be added to many vehicle platforms and provide a flexible response to a quickly changing threat. In 2021, Leonardo was awarded $600M for anti-drone packages by the US Army, in partnership with General Dynamics, thanks to a rapid prototyping process that took only 2 years.

main

https://www.leonardodrs.com/what-we-do/our-solutions/advanced-sensing/tactical-expeditionary-radars/

The core business of Leonardo, defense electronics, and avionics is a very stable one, and growing. Combined with the anti-drone systems, this could make Leonardo a quickly growing defense company. With a stock trading at a P/E ratio below 10, the company is rather cheap and its stock price likely does not reflect its growth potential, despite remarkable 3x returns since 2020.

The post Top 10 Aerospace and Defense Stocks appeared first on Securities.io.

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In the last few months, investors in renewable energy have had a pretty bad time. Stock price crashes, offshore wind auctions canceled, and write-downs have contributed to a rather despondent mood.

So what happened? And Why? And where could things go from here?

A Brutal Correction

The largest clean energy ETF, QCLN, has suffered an almost 50% decline since its peak in 2021.

First Trust NASDAQ Clean Edge Green Energy Index Fund (QCLN)

This correction is even more brutal in some sub-sectors of the clean energy industry, with the situation especially painful for the wind industry. For example, the leading offshore wind operator Orsted stock (DNNGY) is now priced below its 2017 IPO level (excluding dividends). And the largest wind turbine manufacturer Vestas (VWDRY) is back to its 2008 price level (excluding dividends).

This came as a surprise to many investors, with renewable becoming a larger part of the energy mix and widely viewed as the future of energy systems.

A Convergence of Causes

Stormwinds

The first problem in the renewable energy sector started with a profit warning from Siemens Energy in June 2023. Quality problems in its Gamesa branch meant that some turbine engines would need to be replaced much sooner than expected, hurting the company’s profits. This led to a sudden drop of 36% in the stock price.

The bad news kept piling up when Orsted warned of problems on its US projects in August 2023, with some maybe having to be canceled entirely.

This created a wave of concern in the industry, with many offshore auctions for wind projects meeting little enthusiasm, or even failing entirely, like in the UK in September 2023.

Inflation

Besides technological issues at Siemens, the root cause of the sudden wave of troubles in the wind industry is inflation.

Projects calculated a few years ago are now facing increasing costs on labor and equipment, as well as supply chain damage by the pandemic. So what made sense economically in 2020 or 2021 might not make sense anymore in 2023.

Rising rate

Compounding on the inflation issue, central banks all over the world have raised interest rates to put inflation under control. This caught market participants and industrial companies by surprise, after 3 decades of declining rates, marked only by temporary and short-lived spikes.

Source: Chartstorm

This means that huge capital-intensive projects, like renewable energy, are now facing financing costs much higher than in the previous decade.

This can also hurt companies that need to refinance their debt load, a common situation for fast-growing renewable companies.

As a result, July to September 2023 saw a record outflow of capital from clean energy ETFs.

This is a more generalized problem, affecting all the energy sector, including solar farms and utilities, and solar panel manufacturers.

Grid Saturation & Storage

While the previous factors are mostly out of the control of the industry, one additional growing issue is starting to hurt renewable energy. Power grids have been designed around fossil fuel-based power generation (and hydro + nuclear power). This means that the intermittency of renewables can become a growing issue the larger part of the grid they represent.

This is supposed to be mitigated by utility-scale energy storage. The problem is that investments in this sector have lagged behind, resulting in occasional waste of renewable energy. Similarly, in periods of low wind or low sun intensity, the lack of energy storage capacity forces grid operators to fall back on fossil fuels like gas or even coal.

This is getting corrected, with a +75% storage capacity growth between 2021 and 2022. But this might take a few years to catch up and weigh on the renewable sector as a whole until it is solved.

Source: IEA

What Now?

A Wall Of Worries

Some issues are temporary, but serious in the short term.

The durability of older models of wind turbines might not be as good as initially forecasted. This is for sure true for the Siemens Gamesa turbines, but this is now a concern for the rest of the industry as well.

Grid saturation and the mismatch between demand and production of electricity is likely to stay for a few years until energy storage has caught up with the renewable revolution. This might have different effects for different sub-sectors:

• Green utilities might see profits down for a few years from having to curtail production or invest more in energy storage.
• Producers of wind turbines and solar panels will need to be strategic in what market they target.
• Energy storage companies, both operators and manufacturers, could experience an unprecedented boom.

None of these problem are unsolvable, but they will not be solved overnight either.

Higher Costs For Longer

The important thing to consider is that energy generation of any kind is a capital-intensive industry. This is true for renewable, as well as for fossil fuels or nuclear.

So it is likely that growing power generation will be more costly from now on, no matter the technology used. At least, as long as inflation and higher interest rates are the new normal.

Other investing sectors got damaged by this macroeconomic environment as well, for example, the entire US utility sector is down to a 3.5-year low in October 2023. Even “safe” investment vehicles like US bonds “have suffered the steepest decline in history”, according to Bank of America.

This is true in the fossil fuel industry as well. Shale oil is not growing much its production, preferring to keep a close eye on rising costs and favoring returning capital to shareholders. There are now just 504 operating rigs in the US, compared to 1,609 in 2014 at the peak of the shale boom.

The higher costs are likely to last, as more expensive energy (of all kinds) will likely contribute to keeping inflation high. Other factors like geopolitical chaos (as sadly illustrated by the wars in Ukraine and now Israel), deglobalization, and unionization will as well be contributing to keeping inflation higher for longer.

Ongoing Technological Progress

The renewable revolution was made possible thanks to continuous progress in solar and wind technology. This has caused a collapse of renewables energies’ costs, making them competitive with fossil fuels and nuclear, with solar costs down 90% in 10 years.

Now this trend of declining costs thanks to technology is compensated by rising costs due to inflation. But this does not mean renewable technologies have stopped progressing.

For example, the most innovative companies, with cheaper or more efficient solar panels like First Solar (FSLR) could be among the big winners in the sector in the long term.

It is also possible that other technologies make a comeback, like nuclear, thanks to innovative Small Modular Reactors (SMR), something we discussed in our articles “Top 5 Nuclear Stocks To Invest In (October 2023)” and “The Nuclear Debate: A Power Solution for the Future or a High-Stakes Gamble?”.

So investors should stay optimistic over technological progress, and count on a new round of innovation to durably make renewables (and maybe nuclear) the dominant, low-carbon solutions for energy generation in the future.

The increasing push of electrification for heating, transportation, and industrial demand currently covered by fossil fuels should also guarantee a constantly growing demand for power generation for the decades to come.

The post The 2023 Renewable Energy Crash appeared first on Securities.io.

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Slow And Steady

In the financial sector, insurance is a relatively “boring segment”. It is far from the Wolf of Wall Street or The Big Short speculations. It is also not associated with the glamorous lifestyle of investment bankers. It is nevertheless an absolutely massive sector, making no less than 9.4% of total GDP among OECD countries.

The central idea of insurance to pay a certain price against uncertain events, spreading the average risks between millions, and for the insurance company to properly calculate that risk so it can collect a small premium for providing this service. This makes the quality of management very important in insurance, where solid risk assessment and cautious asset management wins the day over riskier behaviors.

The boring nature of the insurance business can be a good thing for investors looking for a safe haven and steady returns. This means insurance is generally regarded as slow growing and safer than most other financial sectors.

In this article we will look at some of the insurance stocks with a strong historical performance over a long period, reflecting the quality of their strategy and management.

Top 10 Insurance Stocks With Strong Performance

UnitedHealth Group Incorporated (UNH)

One of the largest healthcare insurance companies in the USA, it serves insurance to almost 40 million people: 26+ million active and 13 million on Medicare and retirement.

It also provides health services through Optum, with Optum Health providing directly healthcare to 103 million people through 70,000 physicians. And Optum Rx and Optum Insight provide pharmacy care services and data insight to healthcare professionals and organizations.

This brings the total number of people served by UnitedHealth Group to 149 million.

Source: United Health

The company provides many types of health insurance, from Medicare & Medicaid to private insurance, employers provided insurance, dental, vision, and accident.

The company sees a long-term outlook growth of 13% – 16% for earnings per share. In part it is carried by the high returns on invested capital, and in part due to the growing number of people needing extra healthcare due to the aging of the population.

UnitedHealth stock price has gone up x1000 since 1985, not including dividends. Due to its massive size, such explosive growth might slow down at one point, but it nevertheless makes for a very stable stock, backed by one of the largest companies in the USA.

Chubb Limited (CB)

Chubb is the world’s largest property and casualty  (P&C) insurer, based on market capitalization. P&C concerns mostly commercial companies, and often requires a high level of technical expertise and customized offers, covering every risk from environmental to crime, medical, railroad, aviation, agriculture, building, etc.…

Chubb is exclusively an insurer, with no other line of business.

Source: Chubb

In practice, Chubb is like a conglomerate of insurance companies, bringing together:

• P&C globally
• The largest commercial line insurer in the USA, and one of the largest globally.
• P&C reinsurance (providing financial protection to other insurers).
• An Asia-focused life insurer.

P&C represents 57% of the total activity. The company is active in 54 countries, and 42% of the business is conducted out of the USA.

Source: Chubb

Chubb stock has been a very successful holding for its shareholders, with its price going up 20x since 1995, not including dividends. The company has also been very cautious with its investment portfolio, with 86% invested in fixed income securities.

Source: Chubb

This reflects the company’s conservative approach, but might also be something investors want to keep in mind when assessing the stock in the context of rising interest rates.

The Cigna Group (CI)

Cigna is a large health insurance group, split between 2 segments:

• Cigna Healthcare: the insurance segment, with 14 million users.
• EverNorth Health Services: they are used by 60% of U.S. health plans for things like fertility assistance, digital formulary, vaccination programs, home-based care/telemedicine, or cost containment strategies.
  • These services are key in digitalization of healthcare, and help Cigna improve treatments, reduce costs, collect data and drive growth for the whole group.

Source: Cigna

In total Cigna impacts the healthcare of 180 million people in the USA and abroad.

Because of the broad reach of its health services, Cigna benefits form the overall growth in healthcare spending in the USA. It is also targeting high-growth sectors like US government employees insurance, specialty pharmacy.

Cigna Insurance has outgrown its industry, with revenue growing at 7.1% CAGR in 2018-2021, compared to the industry’s 3.5%. Combined with aggressive stock repurchase (more than half of available cash flow), this allowed the company to target a 10-13% CAGR for earnings per share, on top of a growing dividend.

Source: Cigna

Considering the persistent pattern  of accretive growth of Cigna stock, the 20x performance since 1995 is likely not a fluke but something that Cigna might manage to keep doing in the future, at least for some time.

Humana Inc. (HUM)

Humana is a health insurance provider with a focus on senior demographics. It is the #1 senior-focused primary care provider, #1 home health provider, and 4^th largest pharmacy benefit manager.

The company business is carried by the aging of the population, with 1 in 5 US residents having reached retirement age by 2030.

Humana has a leading position and strong competitive advantage on Medicare Advantage, an alternative to standard Medicare services, often offering greater coverage in exchange for a more limited network of doctors and care providers available. The company estimates that by 2030 60% of Medicare users will be enrolled in Medicare Advantage.

Source: Humana

In addition to lower costs and larger treatment selection, Humana “value-based” care provides significantly better health outcome, including less time in hospital and less trips to the ER.

Source: Humana

Humana is also expanding in providing care directly, through its CenterWell senior care clinics, where more than half of patients in new markets are not initially Humana patients. It takes approximately 3-4 years for a new CenterWell to break even from its initial investment. The company has 350+ CenterWell locations, hiring 9,000+ physicians and therapists.

Source: Humana

The company stock has gone up 20x since 2004, and should keep growing thanks to the CenterWell expansion, as well as strong underlying market dynamics.

The Allstate Corporation (ALL)

Allstate is a insurance company focused on property and liability insurance. So it covers vehicles, homes, life insurance, as well as renters insurance. In practice, most of the company’s business is in auto insurance and property insurance.

Source; Allstate

The company has recently suffered some loss due to severe weather events (hurricanes, fires, tornados, etc.), leading to a one-time $2.1B loss. The company is looking to increase growth in its auto business and optimize its costs to turn back into profitability.

Higher returns from investment due to rising interest yields are also contributing to reduce the losses. In addition, the company has managed to increase its rate by 16.9% in 2023.

Allstate is an insurance stock that had difficulties in the 1990s to 2010 period, but has since strongly outperformed, with the stock price going up 5x since 2011.

Considering the recent losses were due to extreme weather events, this does not damage the case for the company to be a solid insurance company with a good track record, with a focus on profitability. The company also provides a more than 3% dividend yield.

Markel Group Inc. (MKL)

Markel is a specialty insurer, covering risks that other insurance companies refuse to cover. This gives it an a edge and a unique position in the insurance market, with access to niche markets that other larger corporations choose to ignore.

Just as an example, it provides insurance to the life science industry, for things like clinical trials liability, the shipping & maritime industry, the construction market contract bonds, or even event insurance for weddings, parties, etc.

Source: Markel

Another unique feature of Markel is how it handles its available cash. All insurance companies have access to a very large “float”, the amount of money collected from insurance contracts, but not yet distributed in case of accident. Most insurance companies invest it in safe and low yield bonds.

Markel instead invests around 1/3^rd of its assets in publicly traded stock, replicating what Warren Buffett’s Berkshire Hathaway does, in a bid to increase returns and be able to offer more competitive insurance offers.

So Markel is both an insurance company and a holding company, with one of its top holding stocks of Berkshire Hathaway itself, and many other companies through its Markel Venture segment.

In Q2 2023, Markel investments have brought in as much as 1/4^th of the entire earned premiums from the insurance activity.

Berkshire Hathaway astonishing returns are due in part to Buffett’s genius, but also due to its leveraging of insurance float to provide abundant capital.

So this makes Markel interesting for investors looking for a similar company, but at a much smaller scale, as well as an insurance company with a strong focus on specialty niches.

W. R. Berkley Corporation (WRB)

Berkley is an insurer active in the insurance market for high-net worth individuals and commercial entities. It works through a network of 50 different smaller insurance businesses, with specializations like cyber-risk, offshore, oil & gas, agribusiness, life science, sport, industrial, etc…

The portfolio is quite diversified, with a focus on liabilities. Berkley is also active in reinsurance, with a focus on casualty insurance.

Source: Berkley

The company has been growing its activity, with steadily rising premiums a record net income in 2022.

Source: Berkley

The company is especially cautious to avoid catastrophic rare events, and has managed to limit its the exposure to events like hurricanes, the 2009 financial crisis or earthquakes much better than the rest of the insurance industry.

The company is also active in insuring startups, seeing them as growing businesses with growing insurance premium over time, even if the first 2 to 3 years are much more modest and represent a slight loss for the insurance company.

Berkley’s focus on high-net worth market has paid off handsomely, with the stock price going up 100x since 1974. It is likely to keep performing well, thanks to its diversified and international network of insurance businesses, keeping with a long tradition of low volatility and profitable activity.

Loews Corporation (L)

Loews is a diversified holding company, with activity in insurance (Property and Casualty – P&C), but also in plastic packaging (Altium), oil & gas pipelines (Boardwalk), and hotels (11 hotels owned, 12 in joint venture, 2 managed, and 4 in development). Still, by far, the insurance business is the largest part of the group and makes up $10.8B out of the $14B+ market capitalization.

Source: Loews

Loews’ float and investment is mostly held in cash or short term investment, strongly reducing its exposure to potential losses from rising interest rates. The company is active in reducing its total shares, its main way of returning money to shareholders.

Source: Loews

Loews’ stock price has gone up 10x since 1988, a relatively good performance, reflecting the steady and slowly growing nature of the group. The company is focused on safe investments and a conservative management of its float, making it a good pick for investors looking for good performance and safety.

RenaissanceRe Holdings Ltd. (RNR)

RenaissanceRe is a global provider of reinsurance, especially in P&C. As such, it transfers the risk of existing contracts, reducing the risk to individual insurers. In a way, this is similar to large banks writing derivatives in financial instruments, except more focused on reducing risks than on maximizing profits.

Renaissance has been growing strongly since 2014, increasing its Gross Premium Written (GPW) from $1.6B to $9.2B

Source: RenaissanceRe

RenaissanceRe has recently moved to acquire Validus Re, a reinsurer with $2.7B activity, which would increase RenaissanceRe’s size by 30%. The company is active in most major insurance sectors, including property, casualty and specialty. The acquisition will put RenaissanceRe among the top 5 largest reinsurers, just behind Berkshire Hathaway.

Source: RenaissanceRe

RenaissanceRe stock has gone up by 10x since 2000. With the mounting of new risks from geopolitics or the pandemic, the demand for reinsurance is not going anywhere, and should ensure a steady growth pattern for the company.

Unum Group (UNM)

Unum is an insurance company specialized in life insurance, as well as insurance against diseases or accidents.

The company is insuring 45 million workers and their families, and helped more than 348,000 individuals with going back to work, paying $8B in benefits in 2022. It is the leader in disability insurance in both the US and the UK.

Source: Unum

The company has experienced dramatic growth year-to-year on the exit of the pandemic, with earnings per share up 43% in early 2023. Another driver of growth for the company has been the growing ESG push for more socially responsible HR policies. Moving onward, earnings per share growth is expected to be in the 8-12%.

Considering the type of insurance business that Unum covers (disability, life insurance), if it managed to go through the worst pandemic in a century, it should be able to stay profitable moving forward.

The company stock has had a very volatile few years, notably due to the pandemic crash in 2020, from which it has bounced back up x3. It is also still trading at a very cheap price if measured by P/E ratio.

The post Top 10 Insurance Stock With Strong Performance appeared first on Securities.io.

https://www.securities.io/best-10-software-stocks-for-technological-advancements/

Software For Everything

“Software is eating the world” has been the motto of Silicon Valley for decades. And this is rather true, considering how there is no sector of the economy unaffected by digitalization. With the rise of Big Data, Work-From-Home, omnipresent smartphones, and of course AI, this is not changing any time soon.

Software is also a sector that has evolved a lot from the programmer in a garage of the 1970s and 1980s. Now, innovation requires massive resources, from whole datacenters worth tens of billions of dollars to train AI, to access to a massive trove of data to train said AI.

So to find the software companies (and stocks) the most likely to push innovation forward, we should look at either the companies operating in the most advanced fields, or the ones with the resources (technical and financial), data, and commercial position to revolutionize the world once again.

Best 10 Software Stocks for Technological Advancements

Oracle Corporation (ORCL)

Oracle is one of the largest SaaS companies in the world, through its ERP offering (Enterprise Resource Planning) and other associated software covering virtually everything from accounting to project management and supply chain.

It has more than 430,000 customers in 175 countries and $50B+ of expected revenues in 2023.

Oracle is very active with cloud systems, with the bulk of the company revenues still coming from it ($30.2B out of $42.4B in 2022).

The company is very active in the Healthcare sector, especially since its $28B acquisition in 2022 of Cerner, a major provider of EHR (Electronic Health Record – a digital patient file system) and other hospital software for anesthesia, radiology, surgery, etc.

This merging of Cerner and Oracle software provides Oracle with a complete healthcare SaaS offering, potentially integrating together EHR, finances, accounting, image database, and leading ERP Netsuite (with a special version existing for healthcare & life sciences).

The company is also aggressively moving into analytical AI, with automated systems able to forecast the company’s activity, and needs and offer in-depth analysis of efficiency in general.

Source: Oracle

Combined with the sheer amount of data managed by Oracle in every industry, this makes it a prime contender for AI deployment at the enterprise level. And as the recent acquisition of Cerner demonstrates, there is still large space for the company to grow its offer beyond ERP and into other enterprise software services.

Adobe Inc. (ADBE)

Adobe is a leading provider of software and apps for digital workers, especially in creative fields, among which the most famous are Photoshop and Acrobat (PDFs). Other important softwares from Adobe are Illustrator, Lightroom, InDesign, and After Effects.

Source: Adobe

For a long time, Adobe softwares were sold through very pricey licenses you would buy once, and often expense on your company budget, as the price tag made it somewhat inaccessible to amateurs. This also encouraged a flourishing market for “free” pirated versions of the company’s softwares.

In 2013 Adobe pivoted to a subscription-based system, what was at the time a bold move into cloud-only services.

This move paid off, expanding the pool of people learning and using Adobe softwares, while also ultimately extracting more value from its users than buying and selling only irregularly a copy of its products.

Adobe is still growing quickly, with 13% year-to-year growth in Q3 2023

Adobe’s focus on image creation and edition also means that it is at the center of attention with the emergence of generative AI like Mindjourney. Luckily for its shareholders, Adobe is also at the forefront of this revolution in image creation, with its Firefly offer integrated generative AI into Adobe products.

Source: Adobe

The AI can not only generate images from text, but also create from nothing missing parts of an image, turn 3D into images, recolor, and apply texture to text. Essentially making it effortless that which used to take a lot of time using the other tools of Adobe.

The AI is natively integrated into the whole Adobe Software Suite, making its usage much more powerful and seamless for professionals than most of its competition. This has already been downloaded by 3 million users.

Adobe is a company at the center of everything visual on the internet, from image generation to photography to design. Considering its light-speed reactivity to the arrival of generative AI, it is likely to stay the first choice for digital professionals moving forward.

Salesforce, Inc. (CRM)

Salesforce’s core software is one of the world’s most popular CRM (Customer Relationship Management) software. It has offerings for every industry and company size. The company is also behind the popular work chat app Slack, acquired in 2021.

It made $31.4B in 2023, with an 18% year-to-year growth.

Source: Salesforce

One key strength of Salesforce is its extensive integration with virtually every other work-related app, with no less than 2,600 pre-built integrations. It means that Salesforce users can at any time connect their customer and sales data to any other solution without time-consuming and costly integration projects.

Source: Salesforce

The company is leveraging AI to create no-code solutions for managers looking to develop automation without being programmers themselves. It offers through AI a “low-code” bot system that can be easily created with minimal effort and technical knowledge and the integration with Slack and Chat-GPT allows for efficient chatbots.

The company also offers Einstein, an AI tool to increase sales efficiency, help write emails, provides an AI sales assistant, Chat-GPT for services, etc.

Salesforce’s AI solutions are a boost to companies’ team productivity, but also a safe way to deploy AI without risking compromising sensitive data. This should solidify the company’s position in the CRM market, and help it grow its user base even further.

SAP SE (SAP)

Besides Oracle, the other major ERP software is SAP, with 280 million cloud users through 24,000+ companies. Both are competing in the same space but with somewhat different characteristics. While Oracle’s ERP is considered the most “powerful”, it is also more expensive, more complex, and SAP is often considered more secure.

Like many enterprise subscription services, SAP tends to have a very high retention rate of its clients, and to grow over time the relationship, leading to increasing income from existing cohorts.

Source: SAP

SAP is not lagging with AI either, thanks to its Joule AI copilot system. It works as a virtual personal assistant, from generating job descriptions in HR to coding assistance.

Source: SAP

AI solutions are also available from SAP in sales, marketing, supply chain, procurement, and HR, all integrated with the other software to create a secure environment where to use generative AI.

It is likely there is space for more than one major player in deploying ERP and AI at scale at the enterprise level, and that makes SAP stock a good complement to Oracle discussed above.

Fiserv, Inc. (FI)

Fiserv provides “financial technologies” to the financial sector. In practice, this means software for payment systems, electronic billing, mobile banking, debit and credit card processing, digital payments, debt collection, etc.

The company serves 6 million merchant locations, has 1.4 billion accounts on file, and processes 12,000 financial transactions per second, from nearly 10,000 financial institutions.

This makes Fiserv one of the original “fintech” before the word even existed. It also makes it a central part of the financial infrastructure, which gives the company a solid economic moat.

Growth might be somewhat slowing down, which is maybe not fully a surprise for such a large company. Still, the merchant segment grew revenues by 16% year-to-date and the payment and network segment grew by 11% year-to-date, showing that out of relationships with banks, the company might still be able to keep expanding.

Source: Fiserv

The company does not distribute a dividend but rewards its shareholders through a solid share repurchase program, with already $2.5B in the first two quarters of 2023.

Fiserv has been at the core of the digitalization of the financial sector. Far from a “legacy” fintech, it is also serving leading fintech companies to launch quickly and scale up, like with crypto solutions Bakkts or MoonPay, mobile banking Goalsetter, and student debt solution Candidly.

This is enabled thanks to Fiserv’s AppMarket, whose API allows to connect growing Fintech firms to thousands of financial institutions without having to reinvent the wheel.

Thanks to its historical role in digitalizing financial systems, and its keystone positions in enabling further Fintech innovation, Fiserv is likely to stay at the forefront of software advancement in the financial sector, while also expanding quickly in new markets like merchant and payments.

Autodesk, Inc. (ADSK)

Autodesk is the creator and provider of many professional 3D software programs, of which the most famous is probably AutoCAD. They are used worldwide by professionals like engineers and architects for designing industrial components, buildings, and 3D models.

Because they are often the standard practice for their industries, these softwares have a very strong economic moat, where entire professions depend on them daily and for which proficient skills at using them to their full potential can be a career-making advantage.

Autodesk is very active in staying on top of its industries’ innovations, among which is the concept of “extended reality”. This concept includes and merges together AR, VR, and “mixed reality”, treating them all in a continuum of blended digital and real experiences. These can be used to design new things, but also to share ideas and 3D models with colleagues, and include real-time collaboration on shared virtual items.

Source: Autodesk

Safely protected by its firm grasp over the industries in which it operates, Autodesk is able to leverage partnerships with almost all the key actors of VR/AR technology development, including Unity, Unreal Engine, and NVIDIA.

Source: Autodesk

Manufacturing is becoming an increasingly high-tech process, with 3D designs being produced through CNC machining, 3D printing, and other automated or robotic processes.

This puts Autodesk at the forefront of industrial innovation, and increasingly a key partner for the integration of AI into industrial designs, through “generative design”.

So while the most visible part of innovation in AI and software might be image generation and chatbots, the most impactful for the world might be in greener and more efficient machinery, robots, and buildings, all possible thanks to the integration with Autodesk software.

CrowdStrike Holdings, Inc. (CRWD)

The more software becomes important, the more cybersecurity moves from just “needed” to absolutely vital. This is especially true as most of our software usage is migrating to the cloud, driven by SaaS subscription, ERP software, and work-from-home.

CrowdStrike was founded with a cloud-first approach to cybersecurity. The company’s offer covers all categories of cybersecurity threats, and among its clients are 15 of the 20 largest US banks, 70 of the Fortune 100 companies, and 556 of the Global 2000.

The company has achieved $2.7B of annual recurring revenues (ARR) in Q1 2023, a year-to-year growth of 42%, for a free cash flow of $227M, growing at 53%.

CrowdStrike’s growth is supported by a quickly expanding total addressable market (TAM), expected to grow 13% CAGR in the next 2 years. With additional offerings still in development, the company expects to expand its TAM from the current $76B to $158B by 2026.

Source: CrowdStrike

Another growth factor for CrowdStrike is the expansion of business with pre-existing clients. When a client starts with at least one cybersecurity module, it usually goes on and keeps integrating more modules, with 62% of clients using 5 or more modules, and 23% using 7 or more modules.

This dynamic creates an environment that allows CrowdStrike to grow its margins when a relationship has developed for long enough, with an impressive total gross margin of 78% in 2023.

Source: CrowdStrike

The transition to the cloud is still mostly ongoing for many large companies. This creates a large opportunity for a market leader like CrowdStrike to help them transition their cybersecurity strategy to the cloud as well.

The company should also see its international business grow, with still 3/4th of the Global 2000 companies yet to enter the CrowdStrike ecosystem. The company’s innovation and the constant addition of new functionalities/modules also keeps it at the edge of its sector and able to respond to quickly evolving cyber threats.

The cloud-first approach of CrowdStrike has allowed it to quickly take market share and is now replicated by all the large cybersecurity companies. So investors will want to pay attention to CrowdStrike’s ability to retain its advantage despite mounting counter-attacks by the industry.

IQVIA Holdings Inc. (IQV)

While software innovation is often confined to the tech industry, other segments of the economy are themselves highly innovative and need all the available tools to handle their data.

A prime example is the biotech and pharmaceutical industry.

IQVIA provides software, database, and data analytic solutions to the life science industry. It is especially well established in the clinical trial market, with 5 million clinical trial investigators in its network, 2,000+ partner hospitals, and a 100 million patient network for trial recruitment in 100+ countries.

Source: IQVIA

This makes IQVIA a partner, at one point or another, of most drug development and medical progress. All top 15 pharmaceutical companies use IQVIA services.

Source: IQVIA

The reach of IQVIA also gives it the possibility to analyze and sell data about pharmaceutical markets, R&D spending, and overall insights & intelligence on the industry. Its analytic solution, for individual clients or industry-level, uses AI and machine learning to optimize data profiling and analytics.

A growing segment for IQVIA is also the public sector: payers, providers, and government. It can help them analyze and better leverage their available data, helping them to optimize costs, make better decisions, and overall improve healthcare.

In the post-pandemic landscape, IQVIA has suffered from slightly declining/plateauing revenues and earnings after the boom in activities in 2021. The company income is driven by R&D solutions, followed closely by technology and analytic solutions.

IQVIA is an integral part of the R&D ecosystem in life science and pharmaceuticals. With biotech reaching the point of many new concepts and technologies now ready to enter the clinical trial stage, it is expected that the sector will keep growing for the foreseeable future, at least in the long term.

It will also increasingly need more medical data and advanced analytical methods using AI, and rely on IQVIA’s offer for an AI-driven patient journey, analyzing clinical trials results with AI, and decreasing many risks.

Source: IQVIA

So investors in the company will directly benefit from the emergence of innovative treatments like gene therapies, cell therapies, mRNA, etc. as well as the need for dedicated AI tools for the healthcare sector.

Palantir Technologies Inc. (PLTR)

Palantir is a somewhat secretive intelligence company founded by PayPal cofounder Peter Thiel. Its offer is to be “Powering AI-assisted decision making — from war zones to factory floors.”

The company claims to be at the forefront of a new arms race, fought in the field of developing AI weapons, between democracies and autocracies.

Palantir is also active in optimizing industrial operations, from Cisco to Panasonic or Novartis.

Still, it seems a lot of the company business is with the US government and the military-industrial complex, notably in May 2023 with a $463M contract for an AI-enabled mission command platform with the US Special Operation Command (SOCOM).

The company has grown its revenues more than 3x since 2019 and had for the first time a profitable period in H1 2023, with a net profit of $14M. And $285M of free cash flow in H1 2023.

Source: Palantir

The company maintains an impressive 80-82% gross margin as well. In Q2 2023, it had a cash stash of $3.1B (10% of total market cap) and no debt.

The actual product delivered by Palantir is a little hard to grasp, due to the rather confidential and sensitive nature of most of the details of its AI-powered services. So investors are forced to judge it from the assessments of Palantir’s clients, including the US government and many major international corporations.

From this perspective, it seems that Palantir technology is very impressive, and quickly becoming a central part of the decision-making and problem-solving of the Western economy and governments.

With the AI mania going on, it seems that Palantir is one rare AI company with already proven use cases and technology applied to real-world needs. This should give Palantir a large space for growth, especially as the geopolitical situation of the world seems to get less stable by the day.

Unity Software Inc. (U)

Unity’s core business is a 3D engine used by video game developers all over the world. It is one of the most popular engines, together with the Unreal engine, indirectly owned by Tencent. The engine also provides a very extensive asset shop, providing for a few tens of hundred dollars in digital assets what would cost hundreds of hours of work to recreate from scratch.

Source: Unity

To add to its videogame offer, Unity acquired IronSource, an analytics, monetization, and marketing platform, making it a one-stop shop for developing AND selling a videogame.

Source: Unity

This videogame focus has since the early days expanded to all 3D modelization, including in industries like automotive (Mercedes Benz) defense (CACI) or construction (Obayashi). Revenues outside of the game accounted for 40% of Unity revenues in Q2 2023.

Another segment of growth for Unity is filmmaking. With the purchase of Weta Workshop in 2021, famous for the CGI and FX for the Lord of The Ring trilogy, Unity is now able to use its digital asset database to blend the difference between movie and videogame making, like for the water effects of Avatar 2.

The company revenues were down in 2022, with a low of $297M in Q2 2022, bouncing back to $533M in Q2 2023. Still, the company is operating at a loss, mostly due to a massive $267M in R&D.

Every segment where Unity is a dominant force is poised for strong growth. Videogames are now the most popular and highest-revenue entertainment sector, with AR/VR offers only beginning to reach the market.

Movies are increasingly reliant on CGI, with filming in front of a green screen may have been just the first step before AI-simulated actors.

And many industries are now embracing 3D printing, VR, and 3D modeling for designing new components, interfaces, and products.

This makes Unity a strong “pick and shovel” stock for anything related to 3D models, AR/VR, 3D printing, and digital simulation. No matter which VR headset or game & movie IP succeeds, Unity is likely to have been instrumental in making it happen.

The massive R&D spending is hurting the company’s profitability, but also helping it grow its offer further. So this is a stock for patient investors willing to wait for Unity to reach the critical mass where it can turn profitable and/or reduce its R&D costs.

The post Best 10 Software Stocks for Technological Advancements appeared first on Securities.io.

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Selling What People Need

A lot of attention in financial markets is given to “trendy” sectors. Biotech, EVs, IT, renewables, or even oil & gas, banks, etc. This makes sense as these sectors are either very important for the global economy, or display amazing technologies and growth.

But at the same time, it means some other “boring” sectors are often forgotten by investors. One such sector is food and beverage. This is a segment of the economy everybody is exposed to daily, as after all, everybody needs to eat.

It is also a sector with intense competition, where the only way to secure good margins is through high-quality brands. These brands can commend extremely high loyalty from their consumers, with Coca-Cola’s business moat probably only equaled by super brands like Apple or Tesla.

Still, because they are far from popular among most investors, and unlikely to make the news headlines, stocks in this sector can be remarkably cheap, despite great return on invested capital or growth. This can create excellent long-term returns, while also offering low volatility and steadily growing dividends.

Top 10 Food and Beverage Stocks for Consumer Demand

Nestlé S.A. (NSRGY)

The food and beverage giant headquartered in Switzerland is behind so many of the brands we know in shops that it is hard to get a grasp on how omnipresent Nestle is in the daily life of every consumer. To name just a few, this includes Nescafe, Nespresso, Maggi, KitKat, Corn Flakes, Felix, Purina, Hot Pockets, Perrier, and Vittel.

The company is doing most of its business in Europe and North America, but is also growing quickly in the rest of the world. Beverage (especially coffee) and pet care are its top segments, at respectively 27% and 19% of total revenues.

Source: Nestle

The company sees most of its growth opportunity in emerging markets, where it captures only 0.5% of the global food and beverage expenditure, a market share bound to grow with the emergence of a global middle class starting to consume more local and international brands.

The Nestle Group has shown a steady 4.5% yearly organic growth in the last decade, to which was added a long history of successful acquisitions, with many of the group’s current brand acquired many years ago. Just in 2022, Nestle acquired no less than 5 different companies, expanding strongly its health & nutrition portfolio.

Nestle is a good stock pick for investors looking for an extremely stable company and proven compounder, with efficient business operations, and also offering an almost 3% dividend yield at the time of writing of this article.

The Coca-Cola Company (KO)

Coca-Cola is of course best known for its flagship sugary and bubbly soda. Building upon the basis and cash flow of soda sales, the company has grown into an international conglomerate in everything drinkable, holding many of the best brands on Earth in this segment.

This includes Fanta, Schweppes, Dasani, Fanta, Minute Maid, Sprite, Powerade, etc. Coca-Cola also has a 16.7% equity investment in the energy drink producer Monster. The product lineup of the company is slowly changing, with now 29% of sold volume low or zero-calorie drinks.

Source: Coca Cola

The company sees a large opportunity in the people still not yet consumers of Coca-Cola products, especially in developing and emerging markets.

Source: Coca Cola

Coca-Cola’s business model is one focused on brands, with the actual operation of producing and distributing the drinks locally licensed out to 200+ “bottlers”, who buy from Coca-Cola concentrated products, and put them into bottles and handle the distribution.

This makes Coca-Cola an extremely capital-efficient business, with most of its spending from advertisement and marketing, leaving the capital-intensive business of building factories and bottling the drinks to its sub-contractors. This efficiency is also behind the rationale for Warren Buffett to have acquired a large stake in Coca-Cola in 1988, never selling it then and currently owning a 9.2% stake in the whole company.

The company has managed an average of 7% organic growth in the last 5 years, and grew its free cash flow by 14% CAGR, almost doubling it since 2017.

Source: Coca Cola

Coca-Cola brands are among the strongest and most recognized in the beverage market. It is also a company famous for being a compounding stock and growing dividends since the 1970s. This makes it a remarkably solid asset in a portfolio, one likely to reduce volatility and bring steady and growing returns, especially if investors reinvest the >3% yield they get from dividends.

Mondelez International, Inc. (MDLZ)

Mondelez is the leading company in the snack segment, with a global #1 position in biscuits, #2 in chocolate, and #3 in snack bars and cake & pastries. When it comes to brands, the company offering includes Cadbury, 7 days, Oreo, Milka, Toblerone, Tuc, Chips Ahoy, Cote d’Or,  Daim, Lu, Mikado, etc…

Source: Mondelez

These core offerings have experienced strong growth over the last years, with an exceptional +10% in 2022. This was partially driven by double-digit growth in emerging markets, especially Latin America at 14.1% CAGR.

Source: Mondelez

The company is a serial acquirer, with 9 acquisitions completed since 2018, adding $2.8B in annual revenues, to be compared to 2022 total revenues of $31.4B.

Thanks to share repurchases and growing dividends, the total shareholder returns have been at an annualized 16.2% since 2018.

Source: Mondelez

Mondelez’s offering is highly diversified, with each of its products occupying a dominant position in its specific niche. When many food and beverage companies are looking to diversify, Mondelez is doubling down on chocolate and sweet biscuits & snack bars.

So investors will want to assess properly if these highly addictive products are going to stay as popular as ever, or if concerns about health could erode the popularity of the company’s brands. A good guess could come from testing if they themselves would be ready to give up their own favorite Mondelez snack.

Monster Beverage Corporation (MNST)

This stock is a legend in the financial markets, with “monstrous” annualized returns of 37.1% since its IPO in 1998, meaning that Monster beat the returns of Apple and Amazon, and $1,000 invested in 1998 would have turned into $2.6M by 2023, making it the most successful stock of the last 25 years.

The energy drink company has a strong position in its market, controlling 30.1% of the market, only dwarfed by Red Bull at 42.5%. In 2022, energy drinks made up 14.9% of the total US beverage market.

Source: Monster

The company is strongly associated with sports, with the brand ambassadors including golfer Tiger Woods or Formula One driver Lewis Hamilton, as well as champions in skiing, MotoGP, Superbowl, Nascar, surfing, skateboarding, snowboarding, MMA, etc…

Source: Monster

Monster is also a very active brand on social media, with 8M+ followers on Instagram, 3M+ subscribers on YouTube, and 25 million Facebook followers.

The company is also testing waters in entering the alcoholic drink market, with the launch of “The Beast”, a 6% hard seltzer alcohol drink tasting like its iconic energy drink.

Monster’s exceptional growth was carried out by the sudden emergence of energy drinks in the drink market in Western countries. This growth is likely to somewhat slow down in the upcoming years, as most interested consumers are already using energy drinks.

This does not mean that the growth of Monster the company will have to slow down. It has built very strong relations with its customers, and has many possibilities to expand beyond the energy drink market, as the launch of “The Beast” illustrates. The identification of Monster with “cool” activities like street art and extreme sports could carry well into other segments, like hard alcohol, beers, etc…

Constellation Brands, Inc. (STZ)

Constellation Brands manages many drinks brands, with its most famous being flavored beer Modelo and Corona. The company also owns many wine brands as well as strong spirits.

Modelo is the #2 beer in the US, Corona #4, and Constellation is the 3rd largest supplier of wine to the US market, and the 3rd in vodka.

Source: Constellation Brands

The beer business is among the best performing in the sector, with 9% CAGR growth in net sales and 39-40% operating margins, remarkably high for the industry. Most of the revenues come from the US wholesale markets.

Constellation is also looking toward the future, where cannabis consumption will be as mainstream as beer drinking, with a 40% stake in cannabis company Canopy Growth. With buying in 2019, at the height of cannabis valuation, the deal has turned out poorly from a financial point of view, with Canopy Growth losing most of its market valuation since and #1B impairment.

Would this market turn around, it could provide a significant venue of growth for Constellation, as well as a foot in the door of a market promised to become as large as the entire alcohol market in the US.

Constellation’s strategy is focused on premium brands and capturing the higher-end market, commanding higher margins. So where most drink and beverage companies have a focus on volume on acquiring new brands, Constellation offers its shareholders highly profitable operations and premium brands with deepening market penetration, as well as optionality toward the cannabis market.

This makes the company both more valuable, but also potentially more exposed to economic downturns, like most luxury brands.

The Kraft Heinz Company (KHC)

Another of Warren Buffett’s large holdings, Kraft is best known for its ketchup brand, and includes many successful consumer brands like Caprisun, Jello, KoolAid, Mac & Cheese, and Philadelphia.

Source: Kraft

Most of the company business is in North America (77% of revenues). The company sees its largest opportunity in sauces (“taste elevation”) and easy meals like declinations of the classic “Mac & Cheese” and other tasty easy to cook meals.

Source: Kraft

Since 2017, it has struggled with a high level of debt reducing profitability and capacity for reinvestment. A focus on “unhealthy” food also made it rather unpopular when meat-free products were all the rage in the markets.

This led the stock price to decline, leading to the company now having some of the lowest P/E ratios among its peers.

This situation has started to turn around, with Kraft experiencing a 4% organic growth year-to-year in Q2 2023, and a +12.9% growth of earnings per share. The international segment also grew by 13%.

The company is not expecting very strong revenue growth in the US, but is also already priced as if no growth should be expected, ever. This makes Kraft a good stock for investors looking for a turnaround potential and a value stock. The almost 5% dividend yield at the time of writing of this article is also a good argument to add the stock to an income portfolio.

General Mills, Inc. (GIS)

Starting from a flour mill in 1866, General Mills is now a giant food conglomerate managing no less than 46 brands with a focus on breakfast, cereals, and candies, of which the most famous include Cheerios, Cocoa Puffs, Annie’s, and Lucky Charms.

It is present internationally with Haggen-Dasz and locally dominant brands like for example Old El Paso, the #1 Mexican food brand in France. The company is also active in the pet food market through its Blue Buffalo brand.

Source: General Mills

In 2023, the company is focusing its efforts on maintaining the brands and reducing costs, wary of inflation’s direct effect on margins and its indirect effect on consumer’s purchasing power.

Still, its management expects for 2024 a 3-4% growth in revenues, and 4-6% growth in earnings per share, mostly from organic growth. This growth is partially driven by a growth of “at home” food, which seems to stabilize at a higher level than pre-pandemic.

Debt is not really a concern, with $2.6B in net earnings in 2023, for just $11.1B in net debt.

The relatively low growth is rather priced in, with the 2023 valuation of the stock reflecting little expectation for growth. This might be a mistake, as the company is holding strong brands, and demonstrated a low but steady growth rate of 4-6%, despite a difficult inflationary environment.

So it is possible that markets will reprice General Mills in the future, especially if more promising but also riskier stocks fail to deliver on their growth promises.

Brown-Forman Corporation (BF-B)

Brown-Forman is a company managing multiple alcohol brands, of which the most famous is likely Jack Daniels. The portfolio however is a lot larger than that, with another 7 whiskey, 2 tequila, 1 rum, 1 vodka, 2 gins, 1 liquor, and 2 wine brands.

Source: Brown-Forman

The company is also building partnerships, notably with Coca-Cola, to create pre-mixed drinks, acknowledging what mixing consumers are already doing. These pre-mix drinks are also a source of growth, with consumers liking the brand often looking for a less strong drink, and younger demographic more open to experimenting with new tastes.

Source: Brown-Forman

When other brands are reducing spending, Brown-Forman is increasing its advertising budget by 19% in Q1 2024. This is paying off, with sales growing by 7% CAGR in the last 5 years, and operating income growing 6%. The company’s business is also growing quickly in emerging markets, with 13% growth in revenues in 2023.

Brown-Forman is a consolidated giant in strong alcohols, while also expanding its most recognizable brands in light mixer drinks and building up its sales in emerging markets. This is somewhat reflected in the stock price, with strong expectations about long-term growth. This also means investors will want to keep an eye on how well these expansion plans are going.

Tyson Foods, Inc. (TSN)

A segment of the food sector that is often less discussed than drinks and snacks is meat. This is partially because meat consumption has become a little bit unpopular if you care about ecology and global warming.

But the truth is that meat consumption is still strong, and actually rising in most of the world, where growing incomes and a new emerging middle class are boosting consumption.

Tyson Foods is one of the largest meat packers in the world, operating in a sector that is essentially an oligopoly, allowing the meat packer to get the best possible price from ranchers, ensuring rather high margins.

Tyson is processing weekly 122,000 cattle, 395,000 pigs, 43 million chickens, and making 56 million pounds of prepared food. Most of these sales are in the USA.

Source: Tyson

The company owns many of the most famous meat brands in the US, and ranks #1 for many meat products, including hot dogs, nuggets, frozen meat, lunchmeat, sausage, etc…

Source: Tyson

Tyson is also working constantly on expanding its offer of pre-made meals, with a keen sense of evolving taste and the interest of consumers for convenience and easy-to-cook meals. Another factor was quickly rising feed prices, impacting especially the profitability of the pork and chicken segments.

Source: Tyson

In the last year, Tyson has seen its operating income plummet from $998M in Q2 2022 to just $179M a year later, a consequence of consumer cutting on expensive food products, first of it meat.

This has put some pressure on Tyson Foods’ stock price as well. However, such moves are to be expected in the meat industry, famous for being highly cyclical. Tyson is experienced in navigating such downturns and historically used them to acquire competitors with a less solid financial position at a cheap price.

So an investment in Tyson Foods is a bet on the company’s long history of expanding and dominating its market, as well as in the cyclical nature of the meat markets.

JBS S.A. (JBSAY)

While meat producers worldwide are under pressure from rising feed costs and reduced consumer spending, some companies can also be caught in market turmoil outside of their control.

A good example is JBS, a massive meat producer in Brazil. The country as a whole has been out of favor with investors due to political turmoil between what is often internationally considered a far-right departing president and a socialist & corrupt new president. This led to extremely low valuation for all Brazilian companies, JBS included.

This pessimism ignores the massive cost and scale advantage of JBS in the domestic and international meat markets. This also ignores that JBS is far from just a Brazilian meat packer, with almost as many employees abroad as in Brazil, with the majority in the US.

JBS is the world’s largest producer of beef, and poultry, and the second largest of pork. This makes JBS the largest food producer by revenues, above Nestle, despite a market capitalization at less than a 30^th of Nestle.

Source: JBS

This is the result of a series of domestic and international acquisitions over the last 15 years, with JBS leading the charge in the consolidation of the meat industry.

Source: JBS

JBS is active in other sectors, making it the #1 in aquaculture in Australia, and 31 in prepared foods in the UK, Australia, and New Zealand.

It is also taking seriously the risk of plant-based meat alternatives, with large investment making it the largest Brazilian producer of plant-based meat and 3nd in Europe.

The stagnant stock price, back to the same level it was in 2011 does not reflect fully the returns for its shareholders. This is due to a generous dividend policy and very high, double-digit yields.

Investors might also look at JBS differently with the upcoming direct listing of the stock in the US stock exchange, with an IPO in the NYSE planned for the end of 2023 as a potential catalyst.

So JBS is a good stock for investors willing to take risks with international exposure to Brazil, and looking for high yields in an income portfolio. It will also attract value investors, thanks to very low valuation metrics like the P/E ratio.

The post Top 10 Food and Beverage Stocks for Consumer Demand appeared first on Securities.io.

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The Rise Of Gaming Giants

Videogames are now a well-established pass time, bringing in more money than the music and movie industries combined (182.9B in 2022). From the passion of a few “geeks” in the early days, this tremendous commercial success has brought in the tech giants, eager to get a slice of the pie.

So while there are still plenty of very successful pure-play gaming stocks (as we covered in our article “Top 10 Pure-Play Gaming Stock To Invest In”), investing in gaming can also be done by investing in some of the mega-cap tech stocks.

For some, this is the center of the business from day one and new activities come on top of gaming. For others, gaming is a growing and profitable division among many. In any case, the financial backing of other business divisions is a strength, and so is the in-house availability of top-level electronic components, cloud services, etc…

In any case, they are increasingly powerful in a gaming industry increasingly centered around AAA titles, requiring very high standards for graphic quality, full voice acting, movie-like cinematics, and perfect execution, often requiring teams of hundreds if not thousands of people.

Top 5 Mega Caps Gaming Stocks

Microsoft Corporation (MSFT)

Microsoft is an old and established actor in the video gaming industry. It started with its initial lead in PC gaming, which was much more established on Windows than on competing Apple operating systems. In that period, it also published landmark games and e-sport successes. One example is the Age of Empire series.

Source: Microsoft

But it is really with its entry into the console market that Microsoft fully committed to the videogame industry. Taking by surprise a market dominated by Nintendo, Sony, and Sega, the launch of the Xbox was a massive success, carried by exclusive titles like the Halo games.

Source: Microsoft

The Xbox is now on its 4^th iteration with the Xbox Series X, which sold more than 21 million units.

Microsoft is working on changing the way gamers buy games, with the system of Game Passes offering unlimited access to a large catalog for a monthly subscription, a sort of “Netflix for games”. It is also active in VR through its Holosense VR headset.

While initially Microsoft has mostly relied on third-party developers, including for its exclusive games, it has in recent years acquired development studios, one after the other. No less than 24 studios so far, including truly massive ones like Bethesda (Skyrim, Fallout, Starfield), 343 Industries (Halo), ID Software (Doom), Machine Game (Wolfenstein), Mojang (Minecraft), and Obsidian (Pillars of Eternity).

This acquisition streak might reach new levels with the targeted acquisition of Activision Blizzard. This would strengthen Microsoft’s position so much that multiple authorities, including the US, UK, and EU, have questioned the legality of the acquisition for a potential monopoly risk.

(This is something we will discuss further below in the Activision Blizzard section.)

Even without this acquisition, Microsoft is one of the largest console producers and controls several dozens of the most acclaimed and successful video game studios. Windows is also still the prime platform for PC gaming several decades later.

This makes the tech giant an impressive gaming stock, even if it is also active in software (Office, Outlook), cloud service, cybersecurity, social media (LinkedIn), etc.  with gaming the smallest of the 3 segments ($13.9B in revenues for Personal Computing in  Q4 FY 2023), behind Business ($18.3B) and Cloud ($24B).

Tencent Holdings Limited (TCEHY)

Tencent is the leader in gaming in China, itself one of the largest gaming markets on Earth. It is mostly present in mobile games, with massive successes in China and Asia like Honor of Kings.

Source: Tencent

The influence of Tencent goes far beyond the games it developed itself, as the company used its cash flow from other ventures to go on an acquisition spree all over the world.

It notably owns 100% of Riot Game, the studio behind e-sport leader League of Legends and the acclaimed Netflix series Arcane.

It also participates in many other gaming companies:

• 3% of SuperCell: the Finnish developer of mobile gaming superhit Clash of Clans.
• 40% of Epic Game: the creator of game development software Unreal Engine, Fortnite, and competing with Steam in the game launcher/marketplace market.
• 6% of SEA Limited, behind Garena, a leading game in the SE-Asia region.
• 5% of Bluehole: the creator of Fortnite competitor PUBG.
• 5% of Ubisoft: creator of the Assassin’s Creed series.
• 5% of Activision Blizzard: the creator of Warcraft, looked into further detail below.
• Tencent also has undisclosed levels of ownership in Roblox and the videogame social platform Discord.

Besides gaming, Tencent is also behind the popular Chinese email service QQ.com and the superApp WeChat, as well as investing in many non-gaming tech startups and companies in China and the Asian region.

Source: AgileTech

Gaming is now a core business of Tencent, with RMB44.58B from gaming in Q2 2023, for a total revenue of RMB149.2B.

The company has, like many other Chinese tech companies, came into the crosshairs of the Chinese government, wary of a too strong influence of its tech giants. This has durably depressed its stock prices. New policies limiting the gaming time of young Chinese to just 1 hour daily did not help either, even if some claim that this policy proved inefficient.

Tencent is a company with almost as many studios owned as Microsoft, but trading at a deep discount. This is due to the recent crackdown on tech conglomerates by the Chinese government, and an overall disaffection of international investors for Chinese stocks. This is a risk, but can as well be seen as an opportunity to buy at a discount a quickly growing mega-cap in gaming.

Sony Group Corporation (SONY)

The Japanese electronic conglomerate is a relative late-comer to the console wars, initially dominated by Sega versus Nintendo. With the launch of the PlayStation in 1994, it immediately became a major player in the console market.

To this day, the PlayStation 2 is the most-sold console in history, with a record of 155 million units. The PlayStation 1 and PlayStation 4 take respectively the 6^th and 5^th place for the most sold units as well. The latest iteration, the PlayStation 5, has been a success as well, since its launch in 2020, with repeated shortages due to semiconductor shortages amid the pandemic.

Source: Reddit

The console market has now firmly been in the hands of Microsoft, Xbox, and Nintendo for more than a decade. And with Nintendo focusing on lower prices and family-friendly games, most console gamers really have only to choose between a PlayStation or an Xbox.

Sony also offers a subscription service, with hundreds of PS5 and PS4 games available in its PlayStation Plus membership program, which includes a deal with Ubisoft for access to all the developer classic titles.

Source: PlayStation

Games make up for a significant part of the Sony Group revenues, with 771 billion yens in Q1 2023, for a group’s total revenue of 2.9 trillion yens. Other major segments are financial services (681 billion yen in revenues) and electronics (571 billion yen in revenue), alongside music, pictures, and sensors.

Activision Blizzard, Inc. (ATVI)

Born of the merger of 2 videogame giants, the company brings together the IPs and players from both together, as well as a third mobile game segment acquired in 2016:

Blizzard: the creator of the first true e-sport game Starcraft, as well as the famous license Warcraft, a series of strategy games, but also the most successful MMORPG ever made, World of Warcraft. And that would be forgetting the extremely successful Diablo series, collecting card game Hearthstone, and shooter Overwatch.

Source: Blizzard

Activision: The Call of Duty series, with no less than 37 opus since inception in 2003, for a total of 400+ million copies sold in total. It also holds some less active but still beloved licenses like Crash Bandicoot, Spiro, Tony Hawk’s, or Sekiro.

Source: ActivisionKing: Most famous for its Candy Crush mobile game, the company is less popular than at its peak in 2014, but can still claim a stable 230-250 million monthly users for the last decade.

Source: Statista

Activision Blizzard is in itself a large videogame conglomerate, bringing together under one house very different gaming sectors, from hardcore MMO and RPG players to more console-focused shooters or casual mobile gaming.

It is maybe this breadth of genre that has caught the attention of an even larger conglomerate, Microsoft. The acquisition of Activision Blizzard by Microsoft has been an ongoing process since January 2022. This would create a true giant, considering that Activision Blizzard alone is recording 400+ million monthly users.

Source: Activision

The deal should close for $95/share if the regulators let it happen. On September 25^th, the UK competition authority provisionally approved the deal. The merger has already been approved in the EU, China, Japan, and South Korea.

The biggest hurdle left is the US FTC (Federal Trade Commission) which has only “paused” its lawsuit against the deal in July 2023.

So investors in Activision Blizzard might end up just getting forced to sell their shares to Microsoft, or risk a temporary price decline if the deal falls through.

Still, this can provide plenty of arbitration or trading opportunities for investors willing to take a chance. And with a firm foot in almost every major gaming segment, Activision Blizzard would still be an exceptional large-cap company in the gaming sector.

Nintendo Co., Ltd. (NTDOY)

One of the oldest video game companies, the Japanese console maker has been an industry leader since the early era of arcade games. It has often been a trailblazer of new trends, from technical innovation to game design.

The company is also notorious for keeping a very tight control over its products, with most of the games on Nintendo consoles either developed by Nintendo itself or by a third party with strict quality control from Japan.

Nintendo consoles are occupying a niche of their own, usually priced a lot cheaper than its XBox and Playstation competitors, with a focus on affordability, family-friendly games, and innovative gameplay. It is also the dominant actor in handheld consoles, since the time of the GameBoy, and with the current best-selling Switch, it is blurring the line between traditional and handheld consoles.

Source: Nintendo

Nintendo is also the owner of many very valuable IPs, many going back decades with tens of games, including Mario, Pokemon, and Zelda.

The family friendly focus is also a great asset in making Nintendo IPs trans-generational, with parents who grew playing on the GameBoy, NES of Nintendo 64 now happy to make new memories with their own kids on the Switch.

Source: Nintendo

These IP have historically been under-monetized, with Nintendo notoriously reluctant to ever try again non-game usage of the IP after the disastrous Mario movie in 1993.

But this is changing recently, with the opening of Nintendo theme parks in partnership with Universal and the recent blockbuster Mario Bros animated movie. With an estimated budget of $100M, it paid back its production budget in the first opening weekend, and ended a total gross revenues of $1.3B.

Investors have been encouraged by this box office success to re-rate Nintendo IPs, with some people putting them on par with Marvel or Star Wars. This would transform Nintendo from “just” a video game company into a mega entertainment giant on par with Disney or Warner Bros.

Other investors are more cautious, considering the long history of Nintendo failing its next console release after a very successful one, causing some worries over the successor of the Switch.

The post Top 5 Mega Caps Gaming Stocks appeared first on Securities.io.

https://www.securities.io/top-10-pure-play-gaming-stock-to-invest-in/

The Largest Entertainment Market

Videogames have evolved in the past 3 decades from a nerdy activity for IT university students to kid toys to mainstream culture.

And while non-gamers might not realize it, it is by far the largest entertainment industry. In 2022, the gaming industry as a whole made $182.9B, more than the music and movie industries combined.

These revenues are driven by mobile gaming (50% of the market), followed by console gaming (29%) and PC gaming (21%).

However, this metric may maybe a little misleading, as some mobile “gaming” is closer to gambling than actual video games. So for investors looking at video games, mobile gaming might be larger but also driven by a different dynamic than the rest of the sector and partially includes online gambling.

It is an industry increasingly dominated by a few large companies, either through mergers and acquisitions or through the influence of a few large distributors. In this article, we will review only pure-play gaming companies, while investors should also be aware of competitors like Microsoft, Tencent, Sony, etc. for whom gaming is an important, but also a relatively small part of the whole business.

It is a sector that has recently embraced aggressive monetization tactics, including DLC (Downloadable Content), microtransactions, loot boxes, etc. This has led to growing revenues, but also some backlash and controversy, putting in question if the current trajectory of increasing revenues, productions costs, and margin is sustainable.

Nevertheless, the industry is predicted to grow at 13.4% CAGR until 2030.

Source: Grand View Research

Top 10 Pure-Play Gaming Stock

Nintendo Co., Ltd. (NTDOY)

One of the oldest video game companies, the Japanese console maker has been an industry leader since the early era of arcade games. It has often been a trailblazer of new trends, from technical innovation to game design.

The company is also notorious for keeping a very tight control over its products, with most of the games on Nintendo consoles either developed by Nintendo itself or by a third party with strict quality control from Japan.

Nintendo consoles are occupying a niche of their own, usually priced a lot cheaper than its XBox and Playstation competitors, with a focus on affordability, family-friendly games, and innovative gameplay. It is also the dominant actor in handheld consoles, since the time of the GameBoy, and with the current best-selling Switch blurring the line between traditional and handheld consoles.

Source: Nintendo

Nintendo is also the owner of many very valuable IPs, some of them the most iconic in the whole of gaming, including Mario, Pokemon, Zelda, and Metroid.

Source: Nintendo

These have historically been under-monetized, but this is changing recently, with the opening of Nintendo theme parks in partnership with Universal and the recent blockbuster Mario Bros movie. With an estimated budget of $100M, it paid back its production budget in the first opening weekend, and ended a total gross revenues of $1.3B.

Investors have been encouraged by this box office success to re-rate Nintendo IPs, with some people putting them on par with Marvel or Star Wars. Others are more cautious, considering the long history of Nintendo failing its next console release after a very successful one, causing some worries over the successor of the Switch.

Electronic Arts Inc. (EA)

EA is the holder of some of the most popular licenses in video gaming, including many sports licenses with well-selling yearly iterations of sports games (FIFA, NHL, etc.), the Sims, Apex Legend, Dead Space, Battlefield, Mass Effect, Dragon Age, Need for Speed, Crysis, Star Wars-licensed games, etc.

Source: EA

The company grew from the regular acquisition of game developers and currently brings together 24 different gaming studios.

The company has a somewhat mixed reputation with PC gamers, as an acquirer that often kills the studios it acquires. It is nevertheless selling very well in the console market, which makes up around 65% of total revenues.

While maybe not popular with the most active and vocal members of the gaming community, EA is a very successful company with mainstream gamers, able to prioritize and monetize effectively profitable licenses. It should grow its revenues by 25% year-to-year in Q1 FY 2024.

As such, this is a good stock for investors looking for a good capital allocator, and a company with control or access to some of the most valuable IP in videogames outside of Nintendo and tech giants.

Paradox Interactive AB (publ) (PDX.ST)

This Swedish video game developer has found success by going against the flow of most of the industry. When most developers have been trying to emulate EA’s licenses toward more action-focused gaming, Paradox Interactive has instead carved out a very profitable niche in “grand strategy” and management sim games.

These games are often a lot less visual, almost abstract, and more focused on gameplay complexity and depth. This means a smaller user base, but a very dedicated one, often playing thousands of hours on a single game.

Source: Steam

This also allows Paradox to monetize heavily its base games through an aggressive DLC strategy, with an ongoing development lasting several years after the release of the base version.

As a result, the “complete” version of a Paradox game can cost several hundreds of dollars, in an industry where games have often stayed stuck at the $60 price tag for most of the decade.

Source: Steam

Thanks to its strategic focus, Paradox is able to enjoy a quasi-monopoly in its niche. This does not mean it cannot be competitive with large developers either, as illustrated by the City Skyline license. Leveraging a poor reception from market leader & EA-backed Sim City’s latest iteration, it has become the leading IP in the city-builder genre in just a few years.

Most recently, the company has announced its entry into the 4X strategy game genre, similar to the classic and best selling Civilization series, with the title Millenia to be released in 2024.

So Paradox is a good gaming company for investors knowledgeable about gaming and willing to take a chance with a niche developer with a proven track record of developing a fanatic fan base and expanding into new genre opportunistically.

Take-Two Interactive Software, Inc. (TTWO)

Take-Two is a very large developer, carried by a few extremely successful gaming IPs, contrasting with the more diverse roster of EA for example.

Among these leading properties is Grand Theft Auto (GTA V is the second best-selling game in history, with 185 million copies sold!). Another Take-Two game, Red Dead Redemption 2 is the 8^th most sold video game ever, only behind Minecraft. It also owns the rights to the strategy game Civilization, the most selling in its category.

Source: Rockstargames

Finally, Take-Two acquired mobile developer Zynga in 2022 for $12.7B, famous for its Farmville Facebook games. Behind the reasoning for this acquisition, Take-Two mentioned that 10% of the world population play Zynga’s games every month.

Thanks to its incredibly large user base and the popularity of its flagship game, Take-Two should generate $1.2B in revenues in Q1 FY 2024, with Recurrent Consumer Spending (RCS) growing by 34% year-to-year.

Games like GTA V, still popular and very active 10 years after its release, are exceptional in an industry driven by the “next big thing”. This gives some visibility for investors, with 73% of Take-Two’s income being from recurring consumer spending like in-game purchases and subscriptions.

And short of massive technical or design issues, investors can confidently expect the next iteration of Take-Two flagship licenses to sell well into the future, giving more visibility than with most gaming stocks.

Roblox Corporation (RBLX)

A trend in gaming has been to focus on the adult and “mature” gaming market, following the aging of the gamer demographic. Roblox has instead captured the imagination of the younger audience, with 29% of users between 9 and 12 years old.

Roblox is played by 202 million people every month, and 20 million play daily.

Source: Stealthy Gaming

The monthly user number is not only very large but shows an impressive level of player retention, as the game has been downloaded “only” 383 million times.

The user base is also very international, with 70% out of the USA and Canada. However, most revenues are from the US & Canada (64%).

The platform is free, but includes almost countless in-game transaction possibilities, including user-generated content.

Roblox revenues have more than tripled since 2020, with year-to-year growth slowly declining from its pandemic peak, from 100%+ in 2021 to 15-22% in 2023.

Source: Roblox

More than a video game, Roblox is essentially a social media platform for school-age children in the form of a video game. As such, its business model is extremely sticky and represents a strong investing moat. In many ways, Roblox is a successful tentative to create a meta-verse, a least for this demographic.

Roblox investors will want to check the lasting appeal of the game with its core demographic getting older and potentially migrating to other games. An encouraging sign is the 17-24-year-old being its quickest growing demographic, showing the potential of Roblox to become a durable generational phenomenon.

CD Projekt S.A. (CDR.WA)

Initially, a very small Polish developer, CD Projekt Red grew with its core license: The Witcher series. Launched in 2007, it brought to video game the popular, but somewhat unknown in the West, “Witcher” fantasy story from Polish author Andrzej Sapkowski.

The popularity of the series with RPG (Role Playing Game) fans grew with each iteration. The Witcher 3 turned out to be the great breakthrough for CD Projekt, ranking as the 10^th most-sold video game in history and 2nd best-selling RPG behind Red Dead Redemption 2.

Source: The Witcher

The game was be followed by a massive DLC acclaimed by fans as the “Best DLC in history” for its scale and quality. The Witcher would receive a high-budget Netflix series adaption, which would go on for 3 seasons.

It is crowned with this stellar and well-deserved reputation that CD Projekt announced a new license, Cyberpunk 2077, promising to be a science-fiction version of The Witcher, except bigger and better. The initial release, struggling with bugs, questionable design choices, and a botched port to PS4 was damaging to the company’s reputation, especially considering how high the standards and expectations had been set.

Since then, CD Projekt has worked on fixing Cyberpunk 2077 (Steam reviews are back to 80% positive), repairing its reputation with fans, and launching new ambitious projects. The animated show Cyperpunk Edgerunner is also the highest-rated show ever on Netflix, rebuilding enthusiasm for the license and its universe.

Source: The Cat’s Eye

CD Projekt is working on a new Witcher trilogy, remakes of the earlier and dated Witcher 1 & 2, a multi-player Witcher game (Project Sirius), as well as Phantom Liberty (offshoots of Cyberpunk 2077) and Orion (essentially Cyperpunk 2).

Source: CD Projekt Red

The stock of CD Projekt is yet to recover from the poor reception of Cyberpunk 2077. Still, the success of the Netflix series, the recovery of Cyperpunk 2077 rating, and the eager wait for the new releases show that CD Projekt still holds a lot of goodwill with gamers. It also demonstrates the value of its IPs yet to be fully monetized into movies or other product lines.

So CD Projekt Red stock is for investors willing to take a risk and interested in a quality stock that is selling at a (temporary?) discount and with strong growth potential.

Konami Group Corporation (KONMY)

The Japanese developer was instrumental in the early console gaming era, with platformers like Contra and Castlevania. It also holds the license of cult-classics like Metal Gear Solid and Silent Hill, as well as the popular e-football series (former PES). Finally, it also controls the Yu-Gi-Ho license, which is associated with a popular collecting card game and now turning 25 years old.

Source: Dual Shockers

Konami licensing has evolved over time and is still important to video game culture, but less at the forefront than it used to be. Still, nostalgia is a powerful force, and the unique aesthetic of Konami games has been successfully modernized, notably the Castelvania licenses, including in a Netflix series considered one of the best Netflix anime series until Cyperpunk Edgerunners.

While Konami is also active in slot machines and fitness clubs in Japan, the immense majority of its profits (95%) are coming from digital entertainment. For Q1 FY 2024, revenues grew by 5,3% and operating profits by 13%.

Konami has not developed a new major video game license for a very long time now, but the existing ones are still solid and profitable. This is also one of the video game developers that has managed early on to monetize its IP through movies (Silent Hill).

So it can be a stock for investors willing to bet that gamers rarely turn away from an IP they previously appreciated, and might even pass that interest to their own children. And with more adaptations in movies or other media possible down the road, especially Castlevania and Metal Gear Solid, considering the recent success of the Mario Bros movie and Hollywood’s eagerness for fresh IP.

Capcom Co., Ltd. (9697.T)

Capcom started as a manufacturer and distributor of arcade games in 1979. Since then it has created many iconic games, like the Resident Evil series, Monster Hunter, Devil May Cry, and Street Fighter. In its 40-year history, Capcom has sold more than 500 million game units.

Source: Capcom

Video games represent 80% of the company’s revenues, with the other 20% of legacy arcade and collecting/gambling Pachinko machines, popular in Japan.

The company recently released Resident Evil 4, a remake of the 2005 game. It received critical acclaim and sold over 5 million copies. Among its top 10 most-sold games, 6 have been released since 2018, demonstrating the relevance of the company’s brands.

This in turn has allowed the company to grow its income significantly, almost doubling since 2020 and with strong operating margins above 50%.

Source: Capcom

In the near future, shareholders of Capcom can look forward to a new Street Fighter live-action movie and TV series, with a production deal signed in 2022.

New quality games from the existing licenses, as well as nostalgia for remakes of older games, keep Capcom relevant and profitable. As long as this remains true, shareholders in Capcom can be assured that the company will stay profitable and at the very least grow with the overall gaming market.

Square Enix Holdings Co., Ltd. (SQNXF)

Square Enix is in theory a gaming company with many brands in its portfolio, including Kingdom Heart, Dragon Quest, and the Chrono series.

But what is by far the largest revenue driver and face of the company is its Final Fantasy series, with a release of Final Fantasy 16 in 2023.

Source: Final Fantasy

Final Fantasy (or FF for the fans) has come to represent for many players the typical JRPG (Japanese Role Play Game).

At some point, Final Fantasy XIV was the most-played MMO in the world. Even in 2023, 13 years after its release, the game still has 1.6 million daily players.

In 2022, Square Enix sold many legacy brands to Embracer Group, including Tomb Raider, Deus Ex, Thief, and Legacy of Kain.

In 2020, the company published a remake of Final Fantasy 7, the most beloved iteration of the franchise. The remake is the first out of 3 games dedicated to cover the entirety of the 1997 Playstation game. Final Fantasy VII Rebirth, scheduled for February 29, 2024, will be the second part.

Source: Final Fantasy

The company has faced some headwinds with the release of Final Fantasy 16, with negative reviews by critics as beautiful graphically, but hollow narratively. The company stock has somewhat suffered accordingly, falling back to 2017 levels.

This would not be the first time that one entry in the Final Fantasy series disappoints, with some previous entries in the 16-game-long series having received similar reception. It should nevertheless not cause durable damage to the brand.

Investors in the stock might see the current stock price weakness as an opportunity to buy at a discount, and hope for the next iteration in the Final Fantasy series, as well as Final Fantasy VII Rebirth in February 2024, to restore a somewhat battered, but not shattered reputation.

Ubisoft Entertainment SA (UBI.PA)

Ubisoft is a Franco-Canadian game developer most known for its open-world Assassin Creed franchise. The license is well known for its consistent design and has had a major influence on other open-world games’ design.

Source: Ubisoft

It also holds the rights to the city builder series Anno and Settlers, racing games The Crew, Price of Persia, and Far Cry. The company is also often contracted to create games for other IP holders, for example recently James Cameron’s Avatar, or Star Wars.

Source: Ubisoft

Ubisoft is looking to create new licenses, with the upcoming pirate RPG Skulls and Bones, as well as remakes for Splinter Cell and Prince of Persia, and new Tom Clancy’s games.

Meanwhile, Ubisoft is also continuing the Assassin’s Creed series with 2 new opus: Mirage and Jade, respectively released in October 2023 and 2024.

The company has been on a winning streak lately, with The Crew Motorfest’s recent release the biggest-ever launch in the franchise. This contrasts with a more despondent mood in January 2023, when Ubisoft CEO said “We are clearly disappointed by our recent performance”.

The business has long been plagued by excessive debt and hostile takeover risks, recently alleviated by Tencent’s increasing its stake in Ubisoft. These concerns regarding the company’s financial stability have wiped out a lot of its market valuation, falling back to 2016 and even 2008 levels.

This might be offering an opportunity to investors willing to take the risk, considering that the top 3 best-selling Assassin’s Creed games were released in 2017, 2018, and 2020, indicating that gamers are far from tired of the series.

The result of Assassin’s Creed Mirage at the end of 2023 will likely be a catalyst for a stock price rebound or further weakness, depending on its performance.

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https://www.securities.io/5-best-healthcare-saas-companies-to-invest-in/

Digital Revolution In Healthcare

Healthcare is an activity driven by medical expertise, hospitals, drugs, clinical trials, and insurance companies. But it is also a very “data-heavy” sector, from patient files to medical images, as well as billing, inventory management, logistics, etc…

This creates large opportunities for software companies able to navigate the sector-specific requirements and often complex regulatory restrictions.

This is a growing trend in healthcare like elsewhere is SaaS (Software as a Service). It means providing the software through a cloud-based service, and often selling the service as a subscription. This both reduces upfront costs and allows for synchronized data accessible at all time.

The sector is expected to grow by 19.5% CAGR until 2028, reaching $50B in revenues.

Source: Grand view research

5 Best Healthcare SaaS Companies to Invest In

(The hospital SaaS market is dominated by privately listed companies, so this list also includes SaaS companies active in other segments of healthcare SaaS).

Oracle Corporation (ORCL)

Oracle is one of the largest SaaS companies in the world, through its ERP offering (Enterprise Resource Planning) and other associated software.

The company is very active in the Healthcare sector, especially since its $28B acquisition in 2022 of Cerner, a major provider of EHR (Electronic Health Record – a digital patient files system) and other hospital software for anesthesia, radiology, surgery, etc.

This merging of Cerner and Oracle software provides Oracle with a very complete SaaS offering, potentially integrating together EHR, finances, accounting, image database, and leading ERP Netsuite (with a special version existing for healthcare & life sciences).

Source: Netsuite – Oracle

This acquisition is likely to create many synergies, as clients of Cerner might be interested in other Oracle products, but in most likelihood this will take a few years to show in the revenues.

In the long run, Oracle’s strong presence in so many SaaS solutions also allows it to provide data analytics at a larger scale, for a whole hospital, an entire healthcare corporation, or even for a whole population of patients. The data can be used to optimize operations, make clinical trials easier and cheaper, or improve healthcare quality.

Oracle also has dedicated software for the life science industry (biotech, pharma, clinical trials), health insurers, and public health organizations.

Despite its massive size, Oracle is still growing, with revenues up 5% in 2022 at $42.4B and operating income of $10.9B. It has returned 19.7B to shareholders in 2022, mostly in the form of share buybacks.

So Oracle is a good stock for investors in SaaS looking for strong exposure to healthcare, a sector the company’s management called “one of Oracle’s most important verticals”.

McKesson Corporation (MCK)

McKesson is a leading supplier to healthcare organizations, especially pharmacies. It resells drugs, medical supplies, software, and full medical practice solutions by medical specialties. It also provides resources for the biopharma sector (biotech + pharmaceutical), including distribution services, and clinical research. The largest part of revenues comes from pharmaceutical sales.

McKesson’s massive scale allows it to be in contact with virtually all of the healthcare supply chain. For example, its “AMP” (Access for More Patients) solution speeds up patient access to rare or complex therapies, reaching 96% of pharmacies and prescription volume, 95% of payers (insurances), and 300 life sciences brands.

McKesson notably runs the Health Mart franchise, a chain of independent pharmacies helping them to compete with large pharmacy chains. It also helps pharmacies with drug purchasing, pharmacy management software, patient engagement and even buying or selling a pharmacy.

In its software offering, McKesson offers solutions for POS (Point Of Sales), audit risk mitigation, marketing & sales, group purchasing, reimbursement claims, etc.

Finally, the company also has a Venture Capitalist branch, investing in innovative healthcare solutions, from genetic testing for cancer to drug delivery by drones or rare diseases.

Source: McKesson

Its revenues grew by 11% in Q1 2024 for $74.5B, with earnings per share growing 25%.

While not a pure SaaS company, McKesson is an important software provider to pharmacies and can leverage its trusted drug supply services to cross-sell additional software, equipment, consulting, etc.

IQVIA Holdings Inc. (IQV)

IQVIA provides software, database, and data analytic solutions to the life science industry. It is especially well established in the clinical trial market, with 5 million clinical trial investigators in its network, 2,000+ partner hospitals, and a 100 million patient network for trial recruitment in 100+ countries.

Source: IQVIA

This makes IQVIA a partner, at one point or another, of most drug development and medical progress. All top 15 pharmaceutical companies use IQVIA services.

Source: IQVIA

The reach of IQVIA also gives it the possibility to analyze and sell data about pharmaceutical markets, R&D spending, and overall insights & intelligence on the industry. Its analytic solution, for individual clients or industry-level, uses AI and machine learning to optimize data profiling and analytics.

A growing segment for IQVIA is also the public sector: payers, providers, and government. It can help them analyze and better leverage their available data, helping them to optimize costs, make better decisions, and overall improve healthcare.

In the post-pandemic landscape, IQVIA has suffered from slightly declining/plateauing revenues and earnings after the boom in activities in 2021. The company income is driven by R&D solutions, followed closely by technology and analytic solutions.

IQVIA is an integral part of the R&D ecosystem in life science and pharmaceuticals. With biotech reaching the point of many new concepts and technologies now ready to enter the clinical trial stage, it is expected that the sector will keep growing for the foreseeable future, at least in the long term.

So investors in the company will directly benefit from the emergence of innovative treatments like gene therapies, cell therapies, mRNA, etc. They will also likely benefit from the need for more medical data and advanced analytical methods using AI.

Veeva Systems Inc. (VEEV)

Veeva products with the highest market share are its CRM (Customer Relationship Management) software supporting the industry’s sales & marketing teams, leveraging the Salesforce infrastructure. 83% of approved drugs in the US are launched with Veeva CRM.

Most of the company’s business is conducted in North America (58%), followed by Europe (28%).

Veeva has been expanding into new markets with a large potential of cross-selling with the pharmaceutical companies already clients of the company, including clinical trials, safety monitoring, regulatory (drug submission to the FDA), quality control, and medical communication.

Source: Veeva

Source: Veeva

The absolute dominance of Veeva in the CRM market is the first strong point of the company and the stock, with over 80% of the share of the 450k global pharma sales representatives. The second argument is that with the launch of its full suite of software, the company can be a trusted partner for the entire process of drug development. This starts with the development of the drug, followed by clinical trials, regulatory approval, production quality control, safety monitoring, medical communication, and product launch.

Veeva is likely to stay one of the most dominant software and SaaS providers in the life science industry, making it a good stock for investors looking for a strong business moat. They will however need to pay attention to the stock valuation, with the P/E ratio and other financial metrics often very high, reflecting the market appreciation for the company’s quality.

Computer Programs and Systems, Inc. (CPSI)

CPSI is a leading provider of software and services to smaller community hospitals, below 400 beds, especially in the segment of revenue cycle management (RCM). It also provides EHR (Electronic Health Records).

Source: CPSI

In total, it has above 1,700 hospitals among its clients, of which 900 use only CPSI services and are the most likely to deepen the relationship with the company. 93% of revenue is recurring (subscription). Since 2019, the net patient revenue has grown by 18% CAGR.

CPSI sees a large opportunity in its market, with 80% of hospitals in its segment still using proprietary solutions and in-house software instead of a vendor’s RCM and EHR. With a total of 4,659 hospitals below 400 beds, this represents a $12B opportunity.

Source: CPSI

Part of the company’s growth has come from a series of acquisitions, starting from Heathland in 2016 and Get Real Health in 2017. Revenues have grown 9% CAGR since 2020 and EBITDA has grown by 12% CAGR.

The landscape of healthcare SaaS tends to be dominated by private equity and a few publicly traded giants like Oracle, leaving few choices for investors looking for hospital SaaS.

This makes CPSI a rather unique stock in the sector, thanks to a smaller valuation and a focus on a niche where the target hospitals are too small to move the needle for giant corporations, and for which the software requirements are not a match to the more powerful but also more complex HER and RCM solutions designed for large hospitals.

The post 5 Best Healthcare SaaS Companies to Invest In appeared first on Securities.io.

https://www.securities.io/top-10-cybersecurity-stocks-for-digital-protection/

Digital Safety First

While our economy has been computerized for a while, it is still getting more and more connected.

What data used to be locally stored is now in the cloud. Work is not done in one office but remotely by delocalized teams, often in multiple countries. And most softwares we use are in the cloud. This means that vital or confidential business data are constantly circulated back and forth through the Internet. And that virtually all devices are connected at all times.

This is equally true in our personal lives, where online identity and activities are often as important as the ones “in real life”.

And then the risks are even higher when it comes to defense and geopolitics, with “cyber” now considered by military analysts as a new “fighting domain”, alongside sea, air, land, and space.

All of this makes cybersecurity a growing and all-important concern. Failure in this domain can paralyze businesses, allow for identity theft, or even endanger a nation’s safety. Especially as the number of malicious programs has increased by x20 since 2011, reaching an astonishing total of 1.3 billion.

Source: Palo Alto

The business model of cybersecurity is inherently sticky, with cybersecurity subscriptions something clients will be very reluctant to cut, lest they get left exposed to catastrophic risks to their operations.

Consequently, the market for cybersecurity services is expected to grow by 13.8% CAGR until 2030, more than doubling from the current $172B.

Top 10 Cybersecurity Stocks for Digital Protection

Cisco Systems, Inc. (CSCO)

Cisco is a giant of network and cybersecurity, well established already in the dot.com bubble in 1999. It is active in cloud, software, and cybersecurity.

The company revenues are mostly in the Americas (59% of the total in Q4 FY 2023). The company protects 840,000 networks and 67 million mailboxes.

Source: Cisco

Cisco’s scale makes it a prime contender for winning at a new level of cybersecurity and network complexity, referred to as “multi-cloud”, where a company relies on many different cloud offerings for its inventory, sales, R&D, etc.

This requires new tools and strategies to handle cybersecurity in a unified fashion. Cisco is able to provide everything from the network’s physical infrastructure (routers, datacenters, etc.) to the software and the cybersecurity monitoring tools.

While Cisco mostly works with large international corporations, it also offers its services to SMEs with less powerful, but also simpler to implement cloud services, switches & routers, and firewalls or VPNs.

Source: Cisco

While not a pure play in cybersecurity, Cisco is very active in the sector and relies on its reputation for safety for the sales of its softwares and network infrastructures. So it is likely to benefit from the trend of increased security needs and remote work.

Palo Alto Networks, Inc. (PANW)

Palo Alto is a leader in cybersecurity, with a focus on firewalls and security platforms. Palo Alto’s platform strategy is powered by regular new product launches, covering more and more all possible cybersecurity needs through a coherent offering, instead of patching it together from multiple vendors. Since 2019, the company has multiplied by 5x the number of yearly launches.

Source: Palo Alto

The company is also actively embracing AI, both to detect threats (Precision AI) and to handle how customers interact with its products (generative AI, like ChatGPT). Since 2019, the company has moved from only 8 products to 35 using AI, with more still in development.

Source: Palo Alto

The growing selection of products is contributing to existing clients increasingly using more and more modules from Palo Alto, leading to larger revenues per client over time, with many expected to use 5 modules or more by 2028.

Source: Palo Alto

Palo Alto is growing strongly, with revenues reaching $1.9B in Q4 2023, compared to $1.55B  a year before. It is also looking for potential acquisitions, with 250+ companies evaluated per year for the potential of their technology.

All together, this makes Palo Alto a good cybersecurity for investors looking to invest in the industry leaders and exposure to AI.

Fortinet, Inc. (FTNT)

Fortinet is one of the largest cybersecurity companies, offering integrated solutions to enterprises and SMEs. SMEs make up a large part of the company’s clients (62%).

The company is partially competing on price, claiming that its “Proprietary ASIC technology (SPU) provides 5x – 10x better performance, contributing to a lower total cost of ownership”, as well as “one of the lowest total cost of ownership in the industry”.

Despite this focus on price, Fortinet managed to show an impressive margin, reflecting the efficiency of the company’s operations.

Source: Fortinet

Together with the other major cybersecurity firms, Fortinet is likely to benefit from the trend of consolidating multiple disparate cybersecurity solutions into a unified platform. Unified strategies merging cybersecurity and network infrastructure will help as well.

Source: Fortinet

This trend of moving from solution to platform has been the driver behind Fortinet’s growth, with enhanced platform technology growing 38% CAGR since 2019.

Source: Fortinet

Fortinet’s business is less US-centric than many of its competitors, with the USA making only 27% of total revenues, and 100+ countries making half of revenues.

Source: Fortinet

Fortinet’s leadership, focus on SMEs, and international markets makes it a good stock for exposure to the global cybersecurity markets, especially with SMEs only now fully embracing the digital revolution. Its focus on affordable pricing might also be a strength in case of recession or pressure from rising interest rates on indebted companies.

CrowdStrike Holdings, Inc. (CRWD)

CrowdStrike was founded with a cloud-first approach to cybersecurity.

The company’s offer covers all categories of cybersecurity threats, and among its clients are 15 of the 20 largest US banks, 70 of the Fortune 100 companies, and 556 of the Global 2000.

The company has achieved $2.7B of annual recurring revenues (ARR) in Q1 2023, a year-to-year growth of 42%, for a free cash flow of $227M, growing at 53%.

CrowdStrike’s growth is supported by a quickly expanding total addressable market (TAM), expected to grow 13% CAGR in the next 2 years. With additional offerings still in development, the company expects to expand its TAM from the current $76B to $158B by 2026.

Source: CrowdStrike

Another growth factor for CrowdStrike is the expansion of business with pre-existing clients. When a client starts with at least one cybersecurity module, it usually goes on and keeps integrating more modules, with 62% of clients using 5 or more modules, and 23% using 7 or more modules.

This dynamic creates an environment that allows CrowdStrike to grow its margins when a relationship has developed for long enough, with an impressive total gross margin of 78% in 2023.

Source: CrowdStrike

The transition to the cloud is still mostly ongoing for many large companies. This creates a large opportunity for a market leader like CrowdStrike to help them transition their cybersecurity strategy to the cloud as well.

The company should also see its international business grow, with still 3/4th of the Global 2000 companies yet to enter the CrowdStrike ecosystem.

The cloud-first approach of CrowdStrike has allowed it to quickly take market share and is now replicated by all the large cybersecurity companies. So investors will want to pay attention to CrowdStrike’s ability to retain its advantage despite mounting counter-attacks by the industry.

Zscaler, Inc. (ZS)

Zscaler is a pioneer in cloud security, since its foundation in 2007. The company partially relies on a strategy of a partner network/alliance, including with Amazon’s leading cloud service AWS or Microsoft, as well as large cybersecurity firms like CrowdStrike, Okta, or Splunk.

Zscaler claims excellent results in its case studies, like an 80% faster user experience for GE, 35x fewer infected machines for NOY, or a 70% reduction in infrastructure costs for Siemens.

The company has grown its revenues very quickly, by 52% CAGR since 2019, driven by the global wave of cloud adoption by companies of all sizes.

Source: Zscaler

Zscaler has early on targeted the international market, with 50% of its revenue coming from outside of the Americas.

Zscaler’s business is mostly with enterprise-level customers, driving the growth of the company, with a 37% growth for customers >$1M ARR (Annual Recurring Revenue) and 25% growth for customers >$100k ARR.

The company also expects strong results from upsell (selling more to existing customers), with a 6x potential just from existing products.

Zscaler’s early move into the key point of cloud cybersecurity has made it a central partner for many of the largest players in the cloud industry, as well as large corporations highly reliant on cloud services. This trend is still ongoing at a strong pace and should carry Zscaler’s growth.

Splunk Inc. (SPLK)

Splunk is a cybersecurity company focused on “monitoring and observability”. In layman’s terms, this means Splunk is more concerned about threat detection than infrastructure, firewalls, or other cybersecurity tools. This specialization means that Splunk’s offering is more of a complement than that of a competitor of many other cybersecurity offerings.

Reflecting this complementary nature, 90 out of the Fortune 100 companies have deployed Plunk offerings, often alongside cybersecurity solutions or platforms. And the number of customers with more than $1M ARR (Annual Recurring Revenue) has grown steadily since 2022.

Source: Splunk

Splunk’s threat detection is using a mix of “human-in-the-loop” and deep learning, and AI to make detection easier and automate security checks and reports.

Another segment for Splunk is manufacturing and IoT, with its Edge Hub. This device gathers and monitors cyber activity from sensors and IoT devices into an easy-to-analyze and check platform. In turn, this helps reduce downtime, avoid equipment failure or inconsistent product output.

Source: Splunk

The company has grown its revenues by 14% year-to-year, reaching $911M in Q2 2023. It also turned from a negative free cash flow of -$428M in Q2 2021 to a forecast of positive $805M in Q2 2024.

The need for extra information and visibility on security risk is powering Splunk’s growth while allowing it to carve a smaller but profitable niche in the very competitive cybersecurity market.

In the long run, the adoption of IoT could also be a new driver of growth, with innovations like the Edge Hub likely to be adopted when more IoT data are available, and a centralized analytic center physically present on the factory floor will help boost productivity.

Akamai Technologies, Inc. (AKAM)

Akamai is a company centered around the concept of “edge computing“. In short, it is the concept of having computing and decisions made as close as possible to where the data is, instead of a distant centralized place.

This is a concept relevant to multiple applications, many of them becoming prevalent today, including streaming and cybersecurity.

Source: Akamai

In 2022, Akamai acquired cloud provider Linode. The merger allows for the company to deliver distributed cloud services, in contrast to centralized ones like AWS. Interestingly, companies like Amazon, the owner of AWS, are now launching “local zones”, a concept very similar to edge cloud computing championed by Akamai.

This creates a unique positioning, at the border between the large enterprise-scale cloud providers, and the more easy-to-use and developer-friendly alternatives.

Source: Akamai

Another advantage of a localized, “fragmented” cloud is security. The dominant paradigm of “Zero Trust Network Access” only really works with a segmentation of the data by geography and/or roles.

So Akamai’s unique approach is an advantage for companies with strong developing capabilities and wanting to keep direct control over their cybersecurity. Or looking to reduce the price per byte delivered. Or for whom cybersecurity is an absolute must instead of an extra concern.

This can include a lot of different situations, from banks to streaming services or fast-moving e-commerce with a lot of internal tech knowledge.

It often pays in the tech sector to be a first mover or to have a unique approach. Akamai’s early focus on edge computing provides both. So while this might not make it a service likely to reach the scale of AWS, it is equally likely to stay an integral and growing part of the cloud computing ecosystem. A good indication of that is how strongly the traffic on Akamai grew over time, almost 5x since 2018.

Source: Akamai

Okta, Inc. (OKTA)

At the core of most cybersecurity solutions is the concept of identity. Is this person/computer/software who he claims to be, and is he authorized to access or modify this dataset?

This is a crucial question, because too easy access leads to security breaches, but too strong can make an IT system anywhere from annoying and inefficient to useless.

Okta provides identity verification and cloud security certification with 99.99% uptime through its Okta Identity Platform.

This is a growing field, especially with so many activities moving to the cloud and remote or hybrid work becoming a new business model. This is driving Okta’s revenue growth, with a forecast of doubling revenues since Q1 2022.

Source: Okta

Okta also grew its customer base from 10,000 in 2021 to 17,600 in 2023. This includes very different industry leaders, like pharmaceutical maker Takeda, utility Engie, FedEx, HP, S&P Global, and T Mobile.

Okta was somewhat of a “pandemic stock”, with its stock price rising rapidly in 2021 before falling back down. However, its business performance as measured by revenues, cash flow margin or client base did not show any slowdown in growth.

So this might be an opportunity for investors to buy the stock at a cheaper point, when identity certification and other remote work-centered business models are out of favor, despite a strong underlying trend in that direction.

Leidos Holdings, Inc. (LDOS)

One sector very interested in digital transformation & cybersecurity, and often lagging behind in actually performing well in that respect, is public institutions and government services. This is where Leidos enters and helps them secure their digital infrastructure.

The company’s activity is split between defense (57%), civil (24%), and healthcare (19%). Health was the strongest growth driver in Q2 2023 at 9% growth, followed by defense (7%) and civil (5%), for a total revenue growth of 7%.

Source: Leidos

One of the company’s key activity is cybersecurity, bringing the zero-trust concept to the public sector. Something that is now commonly accepted in the private sector, but where Leidos’ experience navigating the public institution structure brings extra value.

The company is also active in helping assess the impact of quantum computing, a very important question in the defense industry, where encryption and its possible breaking by quantum computing can be of vital strategic importance.

Beyond pure cybersecurity, Leidos is also active in digital transformation, cloud computing, and the development of integrated systems like drone navigation, autonomous unmanned vessels, biometrics, strikes systems, space & hypersonic, and security checks, all crucial to the defense industry.

Source: Leidos

Notably, Leidos is behind the “Civilian Cloud Exchange” for government agencies and the “DoD Cloud Exchange” for military purposes.

The government sector, and especially defense, has been both a hard-to-crack nut and a segment of interest for the largest tech companies. This includes Google, Palantir, Microsoft, Amazon, and many others.

Leidos is another more important actor in this sector, with a long-established and trusted partnership regarding the most vital and secured digital requirements in the US government.

Considering the growing importance of cyberdefense, and the constantly growing international tensions with Russia, China, Iran, and other US “adversaries”, it is likely that companies like Leidos will be on the receiving end of growing defense and cyberdefense budgets.

In addition, most federal and governmental agencies are just starting to modernize and migrate to the cloud, providing plenty of opportunity for Leidos to grow these segments.

Juniper Networks, Inc. (JNPR)

Juniper is claiming to offer the #1 cloud-native wireless solution, and the only AI-driven WiFi network. This puts it directly in competition with older and more established giants like Cisco. Juniper’s technology called Juniper Mist is claimed to be more scalable, more flexible, and better at anomaly detection than its Cisco’s equivalent offers.

The company’s solutions rely heavily on AI, with its AI engine “Marvis” used at all network levels, from user to datacenter.

Source: Juniper

When it comes to security, Juniper also shows outstanding results on firewalls, threat defense, and defense against exploits, outperforming most vendors like Fortinet, Palo Alto, Zscaler, etc…

Source: Juniper

To keep growing, the company is working on turning from being a network company to a software company as well. It includes AI-driven analytics, cloud management software, and automation.

Source: Juniper

Overall, Juniper is a very ambitious company, with great technical performance. Its actual growth is a little less spectacular, with 5-6% growth in revenues expected for 2023. Still, it should convert into a double-digit earning per share growth, thanks to a disciplined approach to expenses. It is also looking to give back to shareholders at least 50% of free cash flow, through dividends and opportunistic stock buybacks. Altogether, this makes Juniper an interesting stock for investors looking for exposure to cybersecurity with a mix of growth, profitability, and a shareholder-friendly policy.

The post Top 10 Cybersecurity Stocks for Digital Protection appeared first on Securities.io.

https://www.securities.io/perfect-monitoring-wearable-health-tracking-companies-to-invest-in/

Healthcare In Your Pocket

The miniaturization and decline in prices of electronics have already given us GPS navigation, smartphones, and omnipresent connectivity. One sector that has been lagging a little behind is health.

It is becoming increasingly clear to both patients and doctors that more health data is required to deliver the best healthcare. One of the easiest ways is through wearable devices, monitoring health parameters continuously day in and day out.

These devices can be either dedicated to health monitoring, or perform these functions on top of others, like with smartwatches. They can record daily movements, blood pressure, pulse rates, sleep monitoring, oxygen levels, etc… Other devices will also be able to monitor more medical data for specific conditions, like blood sugar for example.

Most wearable companies are not solely active in healthcare wearables, but also manufacture other types of electronic devices.

The industry is currently dominated by a few giant tech companies. While they have massive resources and capabilities, health monitoring is often a small afterthought for these companies.

In the background, a few other specialized manufacturers are also trying to show that focus and dedication to their clients’ needs can overcome the scattershot approach of tech giants.

The market for wearable medical devices is expected to grow by 13.67% CAGR until 2027.

Best Wearable Health Tracking Stocks

Apple Inc. (AAPL)

Apple is of course best known for its iPhone smartphone series, as well as computers, laptops, tablets and other consumer electronic products. It is also a leader in wearables, especially smartwatches.

The health App coming with the Apple Watch can monitor your sleep, record medications, record movements and activity, measure hearing, heart health, mental health, and more.

Source: Apple

Apple is also selling the Withings smart thermometer, able to connect to health apps and record all temperatures measured on the device. Apple also offers Fitness+, providing support to stay fit and practice a healthy level of physical activity.

Source: Apple

Apple’s main strength in this market is its well-known capacity for seamless integration with other Apple devices. This reinforces its ecosystem and gives its smartwatches extra capacities that a stand-alone product can struggle to replicate.

Apple Watch is currently holding almost 1/3rd of the smartwatches market. This gives Apple a good chance to stay a leading brand in the health monitoring sector and gives it access to millions or even billions of people’s health data.

Alphabet Inc. (GOOGL)

Another smartphone giant through its Android operating system, Google (now Alphabet) is aggressively expanding in the health & fitness wearable markets. The largest move in the segment was the 2021 acquisition of market pioneer FitBit.

Source: FitBit

Google is a very rich and powerful company. It is also one that has struggled to venture successfully out of its main niche of search engine and smartphone OS. Concerns about privacy and its handling of private data are also recurrent with the company.

So it may not be a complete surprise that the acquisition of FitBit, and Google getting access to the users’ data, has generated mixed reactions, and even multiple inquiries by official institutions like the European Union.

Some users also claim that FitBit products suffered from Google interference, including the removal of apps, connectivity to third parties, and the general openness that had made FitBit popular in the first place.

Nevertheless, FitBit is a very popular product. It is estimated to sell more than 18 million devices in 2022 and in 2020, it already reached the impressive milestone of 17.72% of adult Internet users in the US using FitBit.

Google’s holding company, Alphabet, is also active in other fronts of health. It notably owns Verily, a leader in “precision health”. The company has for now been loss-making and seems to be looking to cut costs. Still, the growing knowledge and experience of Alphabet in health data from Verily could translate into radical innovation for its wearables, something any other manufacturers would have to partner with a biotech or healthcare company to achieve.

(While this article was going to cover Amazon as well, the company has suddenly decided to exit the health wearable market and discontinued its Halo product line)

Samsung Electronics Co., Ltd. (SMSN.IL)

Samsung’s wearable and health offerings closely mimic the ones of Apple with its Galaxy Watch series. It similarly covers heart rate, sleep, activity, etc…

Source: Samsung

While lagging behind Apple, Samsung is no pushover, having ranked 2^nd for 3rd in smartwatches sales in most quarters in the last years.

Once again similarly to Apple, the company has many activities, of which smartwatches are just one among many, with bendable smartphones the latest innovation from the Korean firm, and ranking #1 in global smartphone shipments by volume.

Samsung is very concerned in its strategy for wearables to turn smartwatches into “a personalized, holistic health experience“. This includes nurturing better lifestyle habits around sleep and exercise, going beyond just monitoring health data.

Source: Samsung

Koninklijke Philips N.V. (PHG)

Philips is a well-known small electronics consumer brand (shavers, electric toothbrushes), equally active in the healthcare sector. It was the #1 for MedTech patent filing in Europe for 2022.

It is active in connected medical products, from wearables to imaging, respirators, or medical robots. The company is also active in semiconductors (including maglev technology) and high-tech/robotics/automation.

Source: Philips

Philips’ wearables offer covers cardiac, respiratory, and activity metrics. Its sensors can be integrated into smartwatches, health monitors, medical patches, and activity trackers.

When it comes to wearables, Philips favors a partnership solution, where it develops for third parties “their” connected IoT (Internet of Things) medical devices fully compatible with the rest of Philips’ solutions. In that context, it offers its clients prototyping, regulatory advising, end-to-end product development, and industrial-scale production.

The company is looking to create a fully integrated digital healthcare environment, where sensors match devices, and then use multiple connectivity solutions to integrate into the Philips HealthSuite Cloud solution, and allow for in-depth data analytics.

Source: Philips

In Q2 2023, Philips has been growing sales by 9% year-to-year, for a total of $4.5B, and 1.82 billion people were directly affected by Philips’ products.

Philips being often a supplier to the MedTech industry is not as visible in the sector as other more prominent companies. It is nevertheless an expert in building high-performance electronic devices and sensors, often pushing forward what’s possible in its niche in healthcare and wearables.

With wearables increasingly integrated into healthcare and part of medical protocols, we can expect the Healthcare segment of Philips to be a growing part of the conglomerate.

Garmin Ltd. (GRMN)

Garmin is a leader in outdoor electronics, with an initial offering of GPS and navigation tools (automobile, but also marine, and planes), now expanded to fitness and health monitoring.

Fitness represents 23% of the company’s revenues and 10% of operating income, mostly driven by smartwatches.

Source: Garmin

It has shipped 15 million devices in 2022, for a total of $4.86B in revenues.

Source: Garmin

Garmin offers a full ecosystem of health data for researchers, helping fields as different as research about sleep, depression, cancer treatments, women’s health, or even drowsy driving.

Investors will be interested to know the company is debt-free, generated an operating income of $1.03B, and paid $679M in dividends in 2022.

Garmin might not be a tech giant, but it is razor-focused on the outdoor & fitness target, making half of its income beside navigation. This sector is also the main growth area for the company, with the segment most likely to become the main revenue source in the future.

The reputation of Garmin for sturdy, high-quality, and useful outdoor products converts well into the fitness and health segment. Interestingly, it leads in the premium segment, with the greatest market share in the >$500 price range, beating Apple here despite it usually dominating the high-price segment of its markets of smartphones, computers, and tablets.

So Garmin might be confined to the niche market of fitness and sports “fanatics”, ready to pay more for the highest quality and a dedicated brand. This nevertheless can be a very profitable activity and might help investing in Garmin to pay off for its shareholders.

DexCom, Inc. (DXCM)

While health monitoring is often synonymous with smartwatches, some health data and conditions cannot be (yet?) handled by such devices. One such case is diabetes. This is a quickly growing health condition, driven by the rise in obesity and sedentary lifestyles. Just between 2019 and 2021, global expenditure for diabetes grew from $760B to $966B.

Source: Dexcom

DexCom is offering a full range of glucose and diabetes monitors:

Source: Dexcom

Source: Dexcom

The company is growing quickly, having doubled its sales force in 2021, and is expanding internationally, by gaining reimbursement in new countries and a mix of resellers globally, and direct entry into strategic markets.

Source: Dexcom

When it comes to serious and life-threatening conditions, the barriers to entry for wearables can be considerable. Regulatory requirements are much higher, more medical expertise is needed, and patients are usually relying on their doctors’ opinions, whose trust can be hard to win. The need for reimbursement by public or private insurances is also another issue.

This creates a strong niche for specialized companies like DexCom, which can leverage its expertise and network to dominate its home market of diabetes monitoring.  So while holistic health monitoring from a smartwatch or smartphone might be the future, there is a long time until this vision becomes true, and companies like DexCom are more likely than not to be profitable in the meantime. And eventually to be a prime target for merger or acquisition by more generalist wearable device companies.

OMRON Corporation (OMRNY)

Omron is a Japanese company active in the sector of sensors, present in multiple industries, from healthcare to industrial automation, energy, and infrastructure. Healthcare is the second largest segment of the company, with $37.7M in revenues in Q1 2023 compared to a total of $184M. The segment grew 16.9% year-to-year, by far quicker than any other of the company.

Source: Omron

In the healthcare segment, Omron is the #1 brand recommended by cardiologists in the EU for home blood pressure monitors. In the healthcare segment, the company is selling blood monitors, but also EKG, thermometers, nebulizers, scales, and electric pain relievers.

Source: Omron

Its product HeartGuide is also the first wearable smartwatch to monitor blood pressure, while also monitoring sleep patterns and tracking fitness.

Source: Omron

In a similar fashion to DexCom, patients suffering from a heart condition will want a dedicated product to monitor their health, ideally one recommended to them by their cardiologists.

Healthcare is a growing business for Omron, with its lead in blood pressure measurement likely to be possible to expand to other cardiology applications. Overall, Omron can capitalize on its technical known-how from industrial application, and expend it into healthcare, giving the company a new space for continuous growth.

Masimo Corporation (MASI)

Masimo is a health-tracking company with products both in the hospital and at home. This includes 200 million patients a year around the world monitored by Masimo SET pulse oximetry, by far the main driver of the company’s revenue for now.

It is also present in the home audio market, with smart speakers and HiFi systems.

Its healthcare offer is rather large, including a $499 health tracking watch, advanced baby monitor “Stork” (in the shape of a baby shoe), oximeter, wearable thermometer, or drug-free opioid withdrawal devices, as well as a large range of hospital health monitors.

Source: Masimo

The company sees its opportunity to bring home a hospital-level quality of health monitoring, as illustrated by its baby monitor checking on pulse and oximetry. In most of its product vertical, Masimo sees a 20% long-term annual growth opportunity.

The very strong presence of Masimo in the hospital gives it the network and reputation to keep expanding its offer into home-based products.

The company stock price had gone up massively during the pandemic, before crashing like many other healthcare stocks. This can represent an opportunity for investors willing to see in Masimo the potential of a large consumer health brand, instead of a niche, hospital-based, oxymeters company.

iRhythm Technologies, Inc. (IRTC)

iRhythm is a health monitoring company with a focus on heart monitoring, especially ECG.

The company has been growing rapidly, with revenues growing >30% CAGR in the last 5 years. It is serving 1.5 million patients globally, representing 28% of the core U.S. ambulatory cardiac monitoring market.

This 6 million people market is only part of the company target, with another 26 million people that could be potential users of iRythm, possibly poorly diagnosed or undiagnosed, with further expansion possible in the field of sleep heart failure, apnea, hypertension, and international markets. International markets would represent an immediate TAM (Total Addressable Market) in ECG of 5+ million people in specific prioritized markets, as much as the current US market.

Source: iRythm

iRhythm did a limited launch of its Zio Monitor in 2023, a wearable biosensor and digital platform that is 72% smaller and 62% lighter, greatly increasing the patient’s comfort. The initial sales performance has been strong, and a US commercial launch is expected by the end of 2023.

The company is also currently evaluating the potential of a smartwatch offering, planning to launch clinical studies in 2024.

iRhythm has grown to become dominant in its ECG monitoring field through superior technology and design, including in user interface. It has large space to keep growing this market through international expansion and deepening its penetration of the US market. It can also expand its TAM by targeting patients not yet diagnosed, but suspected of cardiac arrhythmia.

Altogether, this makes iRhythm a growth company in the health wearable industry, with a focus on expansion over immediate profitability.

Biotricity, Inc. (BTCY)

Biotricity’s product line is focused on real-time recording of cardiac data. This includes ECG monitoring and home monitoring, as well as a remote patient consultation platform, and cardiac disease management software. Each of those has a massive TAM, with more than $43B in total.

Source: Biotricity

Biotricity is still a very recent company early in the commercialization of its product. So far it has managed to incorporate 2198 physicians in its network, with a customer retention rate of 98% and multiple innovation awards.

Biotricity is remarkably ambitious, looking to build not only a cardiac monitoring wearable company, but a full clinical ecosystem integrating the collected data into a software solution. By doing so, it would be able to help physicians and nurses to deliver better healthcare, including through telemedicine.

This makes it a startup stock, and investors in Biotricity will want to closely monitor the momentum of the company, as well as its burn rate and cash available.

In Q2 2023, the company had grown revenues by 50% year-to-year, to $3M, but also registered a net loss greater than its revenues. It is very likely to need fresh cash in this phase of quick growth, so shareholders should expect some level of dilution moving forward.

The post Perfect Monitoring: Wearable Health Tracking Companies to Invest In appeared first on Securities.io.

https://www.securities.io/10-internet-of-things-iot-stocks-for-the-connected-future/

Internet For Everything

Tech enthusiasts have been talking for a while now about the “Internet of Things”, or IoT. What it actually means might vary quite a lot depending on who you ask.

The general idea is a hyper-connected world, where every item around us transmits back data about its status, consumption, etc., as well as being remotely controllable. What constitutes an IoT device or not will depend, creating varying expectations and understanding of the concept.

How far it really goes, depends. Some people envision a fully connected world, where every light bulb and house appliance is fully connected independently. Others would see it first reaching industries, the electric grid, and large devices like HVAC and cars.

The IoT market is expected to grow at an impressive 26.1% CAGR, and reach a total of $3.3T by 2030, from “just” $662B in 2023.

Source: Statista

10 Internet of Things (IoT) Stocks for the Connected Future

Amazon.com, Inc. (AMZN)

The e-commerce giant is also a major actor in smart homes, as well as a reseller of countless connected devices. The company is equally active in cloud computing, controlling 32% of the market through WAS, a key infrastructure requirement for IoT to become part of everyday life.

The company’s smart home offer includes Alexa and Echo smart speakers, security systems, as well as various appliances, WiFi & network solutions, lightning, thermostats, and power.

Source: Amazon

The integration of other IoT systems into Alexa allows for voice control of the whole house. Amazon sold half a billion Alexa-enabled devices globally since inception.

Amazon’s offer around Alexa also complements the wider Amazon products of Kindle e-reader, Prime subscription, and e-commerce services, while being backed by AWS in the background. This makes Amazon a strong IoT actor, but far from a pure play in the sector, with e-commerce and cloud making the core of the company for the foreseeable future.

Broadcom Inc. (AVGO)

Broadcom is a major manufacturer of connected devices and Internet infrastructure, from physical optic fiber to antennas, routers, semiconductors, and software. It is active in all sectors of infrastructural, industrial, enterprise, and consumer-level connectivity.

This means the company is present at every level of IoT, from homes or factories to datacenters.

Source: Broadcom

Source: Broadcom

The boom in demand for more connectivity and Internet capacity has strongly increased Broadcom profits, with free cash flow doubling in the last 5 years.

Source: Broadcom

This also allowed Broadcom to increase its dividend by 38% CAGR since 2016, almost multiplying it by x10.

Because Broadcom is so deeply embedded in the global Internet, it should be a major winner of a wide and consistent increase in data volume generated by IoT becoming commonplace. So this can be a good stock to bet on the world getting more and more connected, no matter if it is smart homes, cloud databases, or enterprises.

QUALCOMM Incorporated (QCOM)

Qualcomm’s Snapdragon chips and other semiconductor products are at the heart of a large section of the world’s digital experiences. This includes Samsung smartphones, more recently 5G chips to Apple, cars’ digital interface and connectivity, smartwatches, smart homes, audio devices, but also industrial systems for electric grids, retail, automation, robotics, healthcare, etc…

Source: Qualcomm

In Q2 2023, the company derived $1.5B of revenues from, and $434M from automotive, out of $7.2B total revenues. So for now, smartphones are the bulk of Qualcomm’s revenues, but IoT is quickly growing as well.

The company is also active in the AI field, with moves to have AI models being able to run on Snapdragon, as well as AI services for smartphones.

Being a leader in 5G, the only telecom system able to handle the volume of data likely to be generated by the wide adoption of IoT, Qualcomm is well positioned to see its chip sales grow in proportion.

The rise of EVs and more connected cars is another sector of growth for the company, especially now that traditional automakers are going all in on these technologies.

So not dissimilar to Broadcom, Qualcomm is a good stock to collect a part of the budget going to IoT, as well as 5G infrastructure, especially in the context of Chinese rivals like Huawei getting banned in most Western countries.

Siemens Aktiengesellschaft (SIEGY)

Siemens is a strong electronic company in the industrial sector, with activity in industries, infrastructure, mobility, and healthcare.

Source: Siemens

The company activities in IoT are spread in several segments, including automation (62% of total digital industries) and smart infrastructure. The healthcare activity is more focused on imaging, analyses, and robotics, while the mobility segment is mostly train and rail infrastructure.

The company sees a large opportunity in automation from the globally declining population and “glocalization” (or “re-shoring” of industrial capacity closer to the final markets). The increasing presence of renewables in the electric grid also increases the demand for a “smart grid” able to handle these more intermittent and variable power sources.

In the niche where it is active, Siemens is a very strong competitor, ranking #1 for factory automation, rail automation, grid automation, and vertical industrial software (including 1,300 cybersecurity experts).

Siemens’ business segments out of healthcare are expected to grow at 10-16% for 2023.

Source: Siemens

Source: Siemens

Siemens is a stock positioned to benefit from electrification, re-shoring, IoT, automation, and overall the increasing level of technology in our industrial processes. So it is not directly exposed to the consumer side of IoT, and will profit the most if IoT is first adopted en masse by utilities and industries.

Schneider Electric S.E. (SBGSY)

Schneider is a company active in the electric sector and industrial automation. It is positioned to benefit from increasing demand for energy, electrification & renewable, and digitalization of industrial processes.

Source: Schenider

When it comes to IoT, Schneider offers components or full solutions in almost every possible sub-sections of IoT, including residential, building management, solar solutions, power grid, data centers’ power supply and cooling, automation,

The company relies heavily on its partners for its sales, with 60% of revenues done through its 650,000+ partners and service providers.

The company has been growing its revenues by 16% in Q1 2023, and its dividends by x3 since 2009. Schneider’s management sees a double-digit growth in the next years as sustainable.

At first glance, Schneider’s products are less high-tech than computer chips or robots. However they are needed for building the energy infrastructure supporting the green revolution, automation, and electrification. So this can be a good stock for a “pick and shovel” strategy, where Schneider sales will closely mirror the build-up in datacenters, solar farms, EVs, smart factories, etc…

NXP Semiconductors N.V. (NXPI)

NXP is a major producer of microcontrollers, sensors, and wireless antennas. Its main sectors are automotive, IoT, mobile, and telecom infrastructures.

Source: NXP

A strong growth driver for the company has been the changing design of cars, with radar systems, electrification, and wireless connections. The demand for RF power in 5G infrastructure is another source of growth. The company expects these activities to keep growing at a high 20-25% CAGR, while the rest should grow at a much more modest pace.

Source: NXP

The company has grown its revenues by 14% CAGR since 2019, driven by the growth of the automotive segment (18% CAG) and IoT (19%).

The growing importance of IoT and automotive makes NXP very sensitive to the pace of adoption of IoT and EVs. A further segment likely to matter increasingly for NXP is smart cities.

NXP’s future success will depend on its ability to stay a leader in very competitive markets. Currently, it is the leader for the large majority of its automotive and mobile segments, while having a less solid position in IoT and telecom.

Source: NXP

So while an interesting IoT stock, investors will need to be familiar with the EV market as well, as this is for the short term the main driver of NXP revenues and growth.

Johnson Controls International plc (JCI)

Johnson Controls is a company producing and servicing HVAC equipment, fire detection & suppression, refrigeration, energy systems, and smart homes. The company is the result of the merger of Johnson Controls and  Tyco in 2016.

With its focus on cooling + heating and safety, Johnson Controls is active in a $300B+ total addressable market. For residential IoT, Johnson sells connected thermostats, wireless security systems, and indoor air quality controls.

The company should benefit from the push for greener and more efficient buildings, as well as cleaner air systems after the pandemic. The company’s 2 main activities are HVAC, both residential and commercial, and fire systems, with 46% of revenues generated out of the USA.

Source: Johnson

Thanks to a comprehensive offer of sensors, fire safety, security, and air systems, Johnson can provide integrated solutions for the entire building management, increasing safety while also reducing costs through more efficient resource management.

Source: Johnson

With more than 2/3nd of the company’s revenues coming from equipment or installation fees, it is greatly exposed to the spending of the building industry. So while this can also include renovation and repairs, a slowdown in the construction of commercial and residential real estate is a risk for the company, especially in the context of rising interest rates.

In the long run, the efforts Johnson spent on R&D since 2016, resulting in multiplying its patents number by x10 should also help it stay at the edge of an industry quickly turning more technological.

Source: Johnson

Acuity Brands, Inc. (AYI)

Acuity is a company focusing on smart and efficient lighting systems and indoor space design, by the usage of LED lamps, but also UV air purification systems. The company is also selling lighting systems for horticulture and indoor farming.

Acuity’s lamps allow for controlling colors dynamically and have embedded controls, allowing for an easy installation of smart & connected lighting, reducing total costs and making sure the building is compliant with increasingly severe building energy codes.

Source: Acuity

Source: Acuity

It is also relatively unique when it comes to UV lamps, as Acuity systems do not require people to leave the room and can work as well for occupied spaces like hospitals or classrooms.

When it comes to design services, Acuity, through Atrius, offers the possibility to automate carbon footprint reporting, helping the company to automatically gather data for their ESG reporting. It also provides an integrated energy management software, complete with automated utility bills, maintenance schedules, and energy reporting.

Through its Distech branch, Acuity also offers software for designing HVAC systems and air control apps.

The company has seen sales decline in Q3 2023, with net sales down 6% and flat adjusted operating profit. This is likely due to a slowdown in commercial real estate, following a related banking crisis in the US in the first part of 2023.

It is still to be seen how the US real estate sector will be impacted by rising interest rates. Still, at a rather low P/E and a stock price back to 2015 levels, Acuity can be a good pick for investors willing to brave short-term risks for long-term opportunities in building and getting more efficient in their lighting systems.

Alarm.com Holdings, Inc. (ALRM)

As its name indicates, the company started in 2000 as a seller of connected security systems for both homes and businesses, and did its IPO in 2015. It allows its users to remotely control and check their properties via a dedicated app.

Alarm.com currently has 9.1 million subscribers and 11,000+ service partners performing security checks and installations.

Since 2019, the company developed AI-based video analytics to evaluate security risks, complemented by the acquisition of OpenEye.

Security is the primary reason for people to adopt smart home systems, way above convenience or energy efficiency. This gives Alarm.com an advantage, as it is active in the sector where people are already convinced of the pertinence of smart homes, beyond the usual tech enthusiasts.

Source: Alarm

In fact, the company dominates its niche, with 9 out of 29 million home equipped with home security in the USA & Canada powered by Alarm.com  It however has only half a million in the international market, leaving it much room to increase market penetration. In total, the company expects that a total of up to 400 million homes might be relevant for the home security markets, more than 40x Alarm.com’s current client count.

Source: Alarm

The total addressable market is even larger for commercial properties, with 500,000 clients currently, and a total of 118 million properties globally considered as “serviceable business”. With already 11 million business monitored, Alarm.com’s current market share is only 4.5%, and even less for internationals markets, leaving plenty of rooms for consolidation of the industry.

Source: Alarm

Alarm.com is not so much a builder of IoT systems than a promoter and integrator of these solutions, able to bring together all manner of sensors and smart devices with a full cloud-based security service adapted to each situation.

Source: Alarm

Alarm.com’s scale allows it to quickly deploy AI solutions and benefit from economies of scale. The company also has a history of successful acquisitions, from AI vision to drones to software.

It also expects to see new growth opportunities from its energy management service EnergyHub, property management PointCentral, and HVAC automated smart home solution Building36.

Impinj, Inc. (PI)

Impinj is a producer of RAIN (RAdio IdentificatioN) RFID tag chips allowing for tracking individual items, pushing for a vision to “Connect Everything to the IoT”.

The company might be justified in that sort of declaration, with revenues up by 20% CAGR since 2018, having shipped 85 billion tags and sold 4 million readers.

Just in 2022, RAIN tags allowed for tracking of 34 billion items, an impressive number, but still only 0.3% of connectable items like food, auto parts, parcels, parcels, cosmetics, etc. This is in large part due to the fact that RAIN RFID technology is still for now mostly used only by some large corporations, making an impressive 2,000+ client list for Impinj, from NASA to Coca-Cola and Walmart.

Source: Impinj

By keeping track of every individual item, tag chips can solve a multitude of issues, from inventory management to logistics or even shoplifting, while allowing for increased efficiency through automated checkout and omnichannel fulfillment.

Source: Impinj

When IoT often means smartwatches, smart grids/cities/homes, Impinj offers a different approach, focused on the endless movement of goods throughout the supply chain. A system of which we saw the limitations during the pandemic.

With the need for more visibility on inventory, and customers getting used to self-checkout, it is likely the market for cheap tag chips is bound to grow massively, which in turn should benefit leaders in the sector like Impinj.

The post 10 Internet of Things (IoT) Stocks for the Connected Future appeared first on Securities.io.

https://www.securities.io/how-can-crispr-be-used-to-treat-cancer/

CRISPR Beyond Genetic Diseases

When CRISPR-Cas9 was first found, and subsequently earned its discoverers a Nobel Price in 2020, the obvious first application of this technology was gene therapy. This is because CRISPR allows for very precise and targeted gene editing, making possible the idea of correcting abnormal gene sequence in patients.

But another growing potential of CRISPR is in oncology (cancer treatment), an application with some of the largest number of ongoing gene editing clinical trials.

Source: ARK Invest

One of the first applications of CRISPR to cancer research is for it to replace previous genetic modification tools. CRISPR being cheaper, quicker, and easier, it opens the door to a lot more researchers to work with genetically modified animal models, like mice.

“Before, only a handful of labs in the world could make the proper tools [for gene editing]. Now, even a high school student can make a change in a complex genome” using CRISPR

Alejandro Chavez, M.D., Ph.D., an assistant professor at Columbia University

But CRISPR as a tool for researchers is only the beginning, and it could be fashioned into a weapon against cancers.

Curing Cancer With CRISPR?

The main obstacle on the way to cure cancer is that this is not just one disease. Each cancer is made of abnormal cells in its own unique way. This means that no chemical drug is likely to work on every cancer, as each will have a unique pattern of resistance and weaknesses.

One promising strategy is to take immune cells from the patient and modify them so they focus on killing cancerous cells. The cells are them multiplied in a lab and re-injected in the patient.

Source: Cancer.gov

These are the basics behind the promising CAR-T cancer therapies (Chimeric Antigen Receptor).

Other similar methods use other immune cells type than lymphocyte T, like lymphocyte NK (Natural Killer). In any case, CRISPR is also used to improve the cells so they are not rejected by the patient body’s, and with an increase efficiency at finding and destroying cancer.

The most advanced therapies look to engineer CAR-T or CAR-NK cells that can be produced in large batches, and still accepted by the body of multiple patients.

CRISPR Companies Leading In Cancer Therapies

CRISPR Therapeutics (CRSP)

One of the leading companies in this sector is CRISPR Therapeutics, founded by one of the discoverers of CRISPR-CAs9.

Its CAR-T cells are modified not only to target cancer cells, but also to reduce the risk of unwanted side effects (graft versus host disease) as well as to increase the survival time of the modified immune cell in the patient’s body, giving it more time to attack cancer cells.

Source: CRISPR Therapeutics

The company has currently 7 candidates in the pipeline, of which 4 already in clinical trials.

Source: CRISPR

CRISPR is also investing a CAR-NK therapy, in partnership with Nkarta Therapeutics (NKTX), in the pre-clinical stage. CAR-NK therapies have the potential to be even less likely to trigger side effects, and to be more effective against solid tumors (90% of cancer in adults).

Ginkgo Bioworks Holdings, Inc. (DNA)

Synthetic biology company Gingko Bioworks announced in April 2023 a partnership with the Wisconsin Alumni Research Foundation (WARF) to jointly develop the new generation of CAR-T treatment. Researchers at the WARF were behind the first FDA-approved CAR-T therapy. Today, 6 CAR-T therapies have been approved, and intense research efforts are being made to adapt CAR-T therapies to solid tumors.

A key technology behind Bioworks’ ambitions in CAR-T therapies is its CAR-T screening platform. It allows it to “scan” hundreds of thousands of CAR-T designs, helping find quicker and cheaper what might work for solid tumors.

Editas Medicine, Inc. (EDIT)

Editas is another gene-editing biotech company with programs targeting cancer. It currently has 2 different strategies in oncology, both relying on genetically modifying immune T-cells.

Source: Editas

Its autologous CAR-T cell therapies are developed in partnership with Bristol Myers Squibb (BMY).

It also has a program running with Immatix (IMTX), on a proprietary Activated allogeneic cell therapy (ACT), a therapy modifying the tumor micro-chemical environment, in order to reduce its resistance or growth.

Editas is focused on using a variant of CRISPR called AsCas12a. This is expected to create more precise and efficient gene editing.

Source: Editas

(We explained in more details the potential of Cas12a in a dedicated article “What Is CRISPR-Cas12a2? & Why Does It Matter?”)

Caribou Biosciences (CRBU)

Caribou Biosciences is working on CAR-T therapies for blood cancers, with 2 out of 3 candidates in phase I of clinical trials.

It has a CAR-NK therapies platform in the pre-clinical stage, to target solid tumors.

It also has a partnership with AbbVie for cancer cell therapies (CAR-T), at an undisclosed stage, due to confidentiality agreements.

Source: Caribou

Caribou is also pushing the frontier of CRISPR technology, with the invention of a DNA/RNA hybrid CRISPR system, ChRDNA.

This system should be able to achieve a strong reduction of off-target gene editing, a constant concern for all gene editing and CRISPR therapies. This in turns should reduce side effects, potential dangers for the patients and increase efficiency, and maybe allows for smaller doses.

Source: Caribou

Intellia Therapeutics, Inc. (NTLA)

Intellia is the first company to achieve successful systemic CRISPR gene editing in humans. This is especially useful for genetic diseases where ex-vivo like CAR-T therapies might not be an option. The company still favors an ex-vivo approach for its cancer therapies.

Source: Intellia

Intellia’s main focus is rare diseases, with a total of 8 candidates, of which 2 are in early clinical stage. In the cancer segment, one is at the pre-clinical stage and another one is at the IND-enabling stage (Investigational New Drug).

Source: Intellia

While the Itellia cancer pipeline is interesting, investors will want to pay attention to the rare disease portfolio, likely the focus of markets for the foreseeable future.

The post How Can CRISPR Be Used to Treat Cancer appeared first on Securities.io.

https://www.securities.io/top-10-additive-manufacturing-and-3d-printing-stock-to-watch/

A New Manufacturing Age

For ages, the way to manufacture items in metal or plastic has been reliant on either forging or molding technologies. In recent years, an entirely new concept emerged: 3D printing (also called additive manufacturing).

3D printing slowly adds layer-by-layer the material into the final design, instead of pouring molten materials and waiting for them to take the shape of the mold. It allows it to create complex shapes and products that traditional methods simply cannot achieve.

This technology is expected to be more and more adopted by the industry. Research reports envision additive manufacturing to maintain a compound annual growth rate (CAGR) of 21%, and boast a market size in excess of $77B. Ark Invest even declared that “3D printing will be a $500 billion market opportunity”.

Source: ARK Invest ‘Big Ideas 2023′ Page 131.

This is also a sector that became extremely popular in 2013-2014, leading to a high valuation that subsequently crashed. 10 years later, the sector is now more mature and becoming more and more part of everyday industrial processes. You read more about 3D printing applications in our dedicated article as well.

Top 10 3D Printing Stock to Watch

Xometry, Inc. (XMTR)

Xometry is an AI-enabled marketplace for industrial manufacturing. Its goal is to create a massive and liquid marketplace for industrial components and on-demand design. This is known as a very inefficient market, with a lot of time consumed by finding vendors, and then requesting and comparing quotes.

The company is active in 3D printing, but also CNC machining, cutting. It is active in multiple industries, including aerospace, medical, automotive, industrial, government agencies (including defense), and robotics.

Source: Xometry

Xometry is currently mostly focused on the US, but has rapidly expanded its international footprint, with now 11% of revenues coming from Europe and Asia. The European expansion is in part driven by the acquisition of the on-demand marketplace Tridi for $3.8M, following the previous acquisition of manufacturer database Thomasnet for $3000M in 2021.

Xometry’s AI allows for instant pricing and receiving quotes in seconds (instead of days doing it alone), as well as 3D geometry and feature recognition, enhancing the accuracy of the quotes and of the pricing. It also offers a payment system for suppliers to manage their cashflow.

The company is growing rapidly, with 52% CAGR active buyers and 47% CAGR active sellers since 2019.

Source: Xometry

While not a pure play on 3D printing, the flexibility of Xometry’s quotes system makes it a prime candidate for benefiting from a more widespread adoption of 3D printing and its flexible design capabilities. The company is now looking to acquire the scale and international reach to become the “Amazon of manufacturing”, and if the recent growth can be sustained, it could well achieve that.

3D Systems Corporation (DDD)

3D Systems can print 130 materials, producing more than a million parts per day. 64% of revenues are recurring (material, software subscription, etc…).

47% of the company’s clients in 2021 were new clients, showing the quick growth of the industry and 3D Systems client base. In 2021, the company’s revenues were equally split between industrial and healthcare (mostly prostheses and dental).

It is also working on a 3D bioprinting technology, which could be used to create synthetic organs, with a target for 2026 for the human trial in lung transplant. The addressable market is estimated at $4B.

3D Systems has recently announced the proposal for a merger with its competitor Stratasys. This would put 3D Systems much ahead of its closest competitor, Desktop Metal, also competing for Stratasys. In the case of a merger failure (you can read more about the latest news here), investors will need to re-evaluate which of Desktop Metal or 3D Systems ends up in the best competitive position.

Source: 3D Systems

Even in the case of a failure of merger with Stratasys, it is likely that the 3D market will be dominated by the 2 leaders, 3D Systems and Desktop Metal. With the market growing quickly, it is likely that both companies can thrive and take over more of the industrial supply chain equipment market, especially in the context of “re-shoring” industries closer to home and out of China.

Proto Labs, Inc. (PRLB)

Proto Labs is a pioneer in digital manufacturing, launched in 1999. It combines in-house manufacturing capacities (1 million square feet of factories) and a growing network of manufacturing partners.

Proto Labs’ main selling point is very quick lead time, up to just 1 day to receive the freshly ordered parts. This makes it an excellent partner for prototyping or for parts needing to be produced in small volume, like for example urgent repairs, maintenance of rare equipment, or unique and advanced equipment like space probes.

Source: Proto Labs

The company’s main business comes from injection molding and CNC machining but with a quickly growing 3D printing activity as well.

Source: Proto Labs

Proto Labs has almost quadrupled its revenues since its 2013 IPO, for a total of $488M in 2022. The company’s customer base is diversified, with the main industries being medical, electronics, and aerospace.

Source: Proto Labs

Where Xometry is more generalist and targets the whole manufacturing industry, Proto Labs is a more established player with direct control over most of its manufacturing capacity. This should help it stay strong in its niche of prototyping and small-batch manufacturing, where speed, quality, and precision are the most important factors above price.

Nano Dimension Ltd. (NNDM)

Most 3D printing companies focus on metal and plastic, with an eye for complex mechanical parts. Nano Dimension is instead focused on 3D-printed electronics. This includes very specialized technologies like conductive or dielectric inks & ceramics.

Source: Nano Dimensions

For example, these technologies can be used for building optical or radio components. The company claims it can reduce the ecological footprint of manufacturing, with a reduction of 94% in CO2 emissions, 100% in water, 98% in materials, and 82% in chemicals.

Nano Dimension is active in aerospace, automotive electronics, and other sectors.

Source: Nano Dimensions

The company has grown its revenues by 258% CAGR since 2020, or a 12x growth. Part of this growth was driven by a series of acquisitions since 2021 bringing under the same roof multiple electronic 3D printing technologies.

Source: Nano Dimensions

Recently the company has been at the center of a battle for control, between the current management and the asset management firm Murchinson. Management claims that Murchinson’s intention is to acquire the company at a discount, and liquidate the company to “liquidate its cash assets”. The situation could be resolved soon, but until then, investors might want to wait and see that the company will continue to innovate in 3D printing instead of being liquidated.

Desktop Metal, Inc. (DM)

Desktop Metal is another large 3D printing leader, with 650+ patents, 250+ possible materials, and 6,000 customers. One of its key centers of focus has been metal 3D printing, a target long sought after by the 3D printing industry.

It is also active in healthcare, starting from its acquisition of German EnvisionTEC, which includes dental care technology. This comes in tandem with a strategic partnership with the orthodontic leading firm Align Technology.

The merger with EnvisionTEC also helped Desktop Metal to develop its Desktop Health 3D printer. It is more of a scaffold printer than a full cell/organ 3D printer, but if bioprinting turns out to permanently require hydrogel or other polymers as a scaffold, this will be a strong technological advantage for Desktop Health.

Source: Desktop Metal

Desktop Metal is competing with 3D Systems for a merger with Stratasys. Would that fail, it might end up a lot smaller than the resulting 3D + Stratasys, and potentially struggle to achieve the right scale.

No matter the result of the merger, Desktop Metal has recently launched a $100m cost reduction program. For now, it is still loss-making and has relied on the sale of convertible bonds to make ends meet.

Investors in Desktop Metal will be hoping for a turnaround in profitability, potentially driven by a merger with Stratasys. They will also want to pay close attention to financial data and cash available.

Materialise NV (MTLS)

Materialise is a 3D printer with a strong software component, with its ranking #1 among additive manufacturing (3D printing) software.

It is also a company with a strong component of healthcare, making up 39% of revenues, much higher than comparable 3D systems or Desktop Metal. Materialise is doing most of its business in Europe, followed by the Americas.

Source: Materialise

Materialise is somewhat profitable, only sometimes with a negative income due to massive R&D spending.

The company’s strongest position is in medical, especially footwear, eyewear, and dental. In these segments, it managed to compete efficiently with the larger 3D companies, and grew its medical revenues by 20% year-to-year in Q2 2023. It also grew its EBITDA by 12.2%.

Source: Materialise

While competitors are focused on growth and as many materials and offers as possible, Materialise has instead focused on profitability and smaller niches like medical products and software.

This makes the stock a good pick for investors uninterested in profitless growth and looking for a smaller and safer stock pick. They will nevertheless be cautious that the bigger players do not manage in the long run to take away market share from Materialise.

Velo3D, Inc. (VLD)

Velo3D is a 3D printing company primarily working on metal 3D printing. The company has been successful at entering this market, achieving almost 20% of the market share in metal 3D printing in 2023, from almost nothing 2 years prior.

Source: Velo3D

More than 1/3 of the company’s revenues come from the space sector (with NASA a new customer in Q2 2023), with the rest being made in the majority of contract manufacturing and automotive.

Part of the success of Velo3D come from proprietary advanced alloys, like HASTELLOY C22 (chromium, molybdenum, tungsten, and iron) or GRCop-42 (copper/chromium/niobium) offering unique features for rocket engines or chemical production.

Another factor is strong hardware/software integration, allowing for easier training in additive manufacturing and a more efficient design process.

The company is still at an early stage, with negative EBITDA and net income. It has been improving its gross margin quickly, but might still need some extra cash injection before reaching the scale it needs to be cash flow positive.

Source: Velo3D

A newcomer in the industry, Velo3D has achieved impressive results in the space industry and advanced metal 3D printing. It might be a strong beneficiary of the growing new space race between the US and China, as well as the growing space private sector.

Still, investors will need to be cautious of the cash position of the company, and expect some level of dilution by new capital raise at some point in the future.

Markforged Holding Corporation (MKFG)

Markforged is a 3D printer manufacturer, coming with a unified software/hardware platform (Digital Forge).

A key technology of Markforged is Continuous Fiber Fabrication (CFF). This unique method of 3D printing allows fiber (plastic of carbon) to achieve physical performance like directional strength equal to or even superior to metal.

Its specialization in advanced composite is the main strength of the company, with a clear goal to change manufacturing practices and see a lot of parts moving away from metal and using lighter more advanced materials.

Source: Markforged

The company has been growing quickly, with revenues and GAAP gross margin up 50% CAGR since 2015. Still, it is expected to experience large losses in 2023, with $54M operating losses on revenues of $101M.

Investors will need to examine the company’s prospect of reaching profitability, and might want to understand deeper the market position of CFF manufacturing.

Cyfuse Biomedical K.K. (4892.T)

The Japanese company was founded in 2010 and started selling 3D printers to researchers since 2013. What is unique about Cyfuse is that its 3D printers are printing not with ink, metal, or composite, but with living cells.

Its focus is producing tissues and organs without any artificial scaffolding, only the cells themselves, through its S-Spike platform, which would make it the most advanced bioprinting solution on the market. This is an ambitious goal, but also the final form 3D bioprinting will likely adopt over time.

The absence of scaffolding could prove crucial to producing “premium” organs as close as possible to native organs. For now, the technology can only 3D print 2-3cm organ pieces at a time.

Source: Cyfuse Biomedical

It is targeting 4 segments: articulations, liver, nerve, and blood vessels.

Source: Cyfuse Biomedical

It could also be used to create “training” organs for surgeons, helping them learn without risking a patient’s life. This is likely the first market reachable for Cyfuse, as well as biomedical researchers needing testing on part of organs instead of cell cultures.

Cyfuse is for now not profitable (after a brief period of profit in 2021) but is already registering a few million dollars in revenues.

This is a company for patient investors, counting on this technology to become more mainstream, and also improve to the point where it can build full organs at once in one block.

So this is as much a biotech company as a 3D printing company, with a very ambitious goal and massive addressable market if it manages to improve its technology to “print” full organs on demand.

Voxeljet AG (VJET)

Voxeljet is a small German manufacturer of 3D printers. Voxeljet technology relies on “binder/ink jetting”, a process that is able to quickly produce parts, allowing for larger production batches and more diverse materials. It also allows to mix 3D printing and traditional manufacturing methods like casting.

The mix between 3D printing and traditional manufacturing allows for drastically reduced costs and quicker production, while still allowing for the advanced designs of 3D printing.

This lower cost structure helps Voxeljet to be active in sectors not usual for a 3D printing company, like architecture, props for the film industry, museums, or even statues.

It also can produce larger components, with Voxeljet having achieved the largest single-piece titanium casting in the world manufactured using 3D printing (hypersonic grid fin) and the world’s largest 3D printer, for offshore wind applications.

The company derived a bit more than half of its revenues from the sale of 3D printers, and the rest from “services”, where Voxeljet directly printed parts after receiving an order. This creates a sales funnel for Voxeljet, where 90% of customers start ordering some services, before deciding to buy a 3D printer to produce directly in-house.

Source: Voxeljet

While impressive technically, Voxeljet’s financial performances are less so, with a massive net income loss in Q2 2023 of $3.6M, on a revenue of $6.8M. This has weighed heavily on the stock price, as the company is expected to have to raise more money, either through debt or selling shares.

So investors in Voxeljet can see it as a bet of 3D printing finding its place inside the traditional manufacturing supply chain, but not replacing it entirely. And calculating that at the recent low stock price, with a very low price-to-sales ratio of 0.36, Voxeljet’s financial issues are already priced-in.

The post Top 10 Additive Manufacturing And 3D Printing Stock to Watch appeared first on Securities.io.

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Innovation In Finance

One sector of the economy that has been slow to change is the financial sector. Banking especially, but also insurance and other financial firms have been sticking to rather ancient technology and methods.

This gave an opportunity for more tech-savvy and innovative companies to reinvent these businesses and grab market share, especially with the younger generations, creating the so-called fintech (financial tech) sector. A large ecosystem of startups has bloomed to embrace digitalization and innovation of financial offers.

Source: LendingTree

Another segment where fintech succeeded is with part of the population that was neglected or poorly cared for by traditional financial companies.

Freelancers, entrepreneurs, digital nomads, and many new work and lifestyles could not fit into the narrow definition of old finance and struggled to access financing or get efficient purely digital services. E-commerce and crypto were other sectors which traditional banks did not want or could not properly service.

The large unbanked population in developing countries in Asia, Africa, and Latin America is another interesting target for ambitious fintech companies.

Top 10 Financial Technology (Fintech) Stocks to Watch

Fiserv, Inc. (FI)

Fiserv provides “financial technologies” to the financial sector. In practice, this means payment systems, electronic billing, mobile banking, debit and credit card processing, digital payments, debt collection, etc.

The company serves 6 million merchant locations, has 1.4 billion accounts on file, and processes 12,000 financial transactions per second, from nearly 10,000 financial institutions.

This makes Fiserv one of the original “fintech” before the word even existed. It also makes it a central part of the financial infrastructure, which gives the company a solid economic moat.

Growth might be somewhat slowing down, which is maybe not fully a surprise for such a large company. Still, the merchant segment grew revenues by 16% year-to-date and the payment and network segment grew by 11% year-to-date, showing that out of financial technology, the company might still be able to keep expanding.

Source: Fiserv

The company does not distribute a dividend but rewards its shareholders through a solid share repurchase program, with already $2.5B in the first two quarters of 2023.

Fiserv might not be the most trendy or newest fintech, but that also makes it a safer bet than more ambitious and smaller competitors. So it is likely more fit for rather conservative investors looking for exposure to the sector without taking too much risk.

PayPal Holdings, Inc. (PYPL)

When the Internet was still young, payment processing was a real issue. People did not have enough trust in online payments, or online sellers to put their credit card data online. To solve these issues, and make payment seamless, both Elon Musk and Peter Thiel were working tirelessly to build payment processing companies. They would put aside their differences, and merge their respective companies to form the so-called PayPal mafia. PayPal employees would later found LinkedIn and Youtube.

PayPal today has lost a little of its early days’ luster, being seen as a “boring” payment company. This is rather misleading, with PayPal still to this day a central keystone of e-commerce. The company also owns Venmo and Braintree, both acquired in 2013.

Far from being out of fashion, PayPal has 400 active million customer accounts, and 35 million active merchant accounts, active in 200 countries in 150 currencies.

In Q2 2023, it processed $377B and generated $7.3B of revenues. The company is still growing aggressively today, with year-to-year growth regularly above 10%.

Source: Paypal

PayPal is also quite shareholder-friendly, with $19B in share repurchases since 2015.

Source: Paypal

Contracting margin, rising rate, and inflation have created anxiety among investors about PayPal’s future, leading to a severe decline in share price, back to 2018’s levels. The long search for a new CEO, which ended in August 2023, also contributed to worries about PayPal’s future strategy.

This lower price can be an opportunity for investors looking for fintech stocks at a discount. Considering the steady growth and dominant position in the e-commerce ecosystem, risks might be lower than perceived.

On a side note, PayPal is also still innovating, notably launching a dollar stablecoin in August 2023, aiming to “Build the bridge between fiat and Web3 for consumers, merchants and developers”.

MercadoLibre, Inc. (MELI)

MercadoLibre is an e-commerce company also very active in the fintech sector. It is the dominant e-commerce company in Latin America, with more visitors per month than all other e-commerce platforms in the region combined. It had 108 million unique active users in Q2 2023. The region has a rather young demography, strong economic growth and far from mature adoption of the Internet and e-commerce.

Source: MercadoLibre

The Fintech segment of MercadoLibre, Mercado Pago, has just passed the bar of 45 million users in Q2 2023. The company is thriving from the inefficiency of banks in its main markets.

In fact, it is on the strength of its payment system, usable directly from phones, that MercadoLibre managed to build an e-commerce company in a region of the world where payments and transfers are notoriously inefficient. This simplicity of usage also gave it access to the massive 122 million people unbanked in Latin America.

Source: MercadoLibre

Mercado Pago also offers loans and an investing platform, not dissimilar to Robinhood in the US.

The fintech activities have been growing strongly, only slowed down a little by a decline in credit growth.

Source: MercadoLibre

One strength of MercadoLibre is its ecosystem. People might start using it for e-commerce, or the online wallet, and then progressively use it more and more for all online purchases and money transfers.

Combined with its dominant position, its ecosystem is well positioned to grow both in market share and with the overall Latin America fintech + e-commerce sector, both at a much earlier stage than in Western countries. So this could be akin to buying a company merging together PayPal and Amazon, somewhere between 2000 and 2010, even if Latin America is also known for being a much more unstable economy than the US.

Block, Inc. (SQ)

Block, formerly known as Square, was founded by Jack Dorsey, co-founder of Twitter. Its first product, Square, is focused on helping small and medium businesses to accept credit card payments, using tablets as payment registers.

It also has Cash App, for direct transfer of money from person to person, Afterpay, a buy-now, pay-later service, Weebly, a web hosting service, and Tidal, a music streaming service.

The company’s expanding list of services have somewhat helped it grow its revenues and gross profit, with most of the profit coming from Cash App and Square. The company has been recording a positive net income since 2019.

Source: Block

The company’s largest opportunity is with mid-sized companies, with less than 0.5% market penetration to this day. By comparison, market penetration was 13% for micro and 4% for small companies.

Cash App is used only by 20% of Gen Z and 17% of millennials, leaving a lot of room for growth to Block. Nevertheless, it was the number 1 finance app in the App Store for the last 5 years and 8^th most downloaded app in 2021.

Source: Block

Block has also been known as a Bitcoin enthusiast company, notably putting 1% of its assets in Bitcoin in 2020. With TBD, it is building an open developer platform to facilitate access to bitcoin and blockchain in general while bypassing financial institutions.

The potential of Block is to turn into “the future of finance”, connecting its square payments system to Cash App and TBD, as it has proven a remarkable ability to reach a younger audience.

With a lot of the company’s future resting on future market penetration, investors will want to monitor the company’s margins and growth rate closely, to check if the growth thesis is still alive and well.

Nu Holdings Ltd. (NU)

Nu Holdings and its subsidiary NuBank are the other large and growing fintech in Latin America, with 85 million customers in Mexico, Brazil, and Colombia.

The company functions as an online bank, and provides 5 million people with their first credit card or bank account. The company market penetration is especially impressive in Brazil, where 49% of the adult population is a client of NuBank.

This makes NuBank the world’s largest digital banking platform, with explosive growth since 2019 (10x in customer numbers).

Source: Nu Holdings

The company is also active in the commercial banking sector, with 3.1 million business customers. It is currently expanding in the sector of investing, with 10 million customers and 1.3 million NuBank crypto customers. More recently, NuBank launched a home insurance offer, which led it to pass the bar of 1 million active insurance policies.

The company has now reached the scale it needed to turn profitable, with 53% growth of net income quarter-to-quarter.

Source: Nu Holdings

A strong driver of growth for the company is that customers increasingly make NuBank their primary bank account and adopt multiple services from the company, and do so very quickly, on average after just 6-12 months.

Overall, NuBank’s extreme growth level is the best case that can be made for the stock. Investors will nevertheless need to be cautious, as inflation and globally rising rates might cause some economic hardship, and put at risk the loan book of banks.

NuBank does not seem to be an exception, with 90+ days nonperforming loans on the rise since 2021, even if according to the company’s management, “delinquency ratios are tracking expectations”.

Source: Nu Holdings

Robinhood Markets, Inc. (HOOD)

Robinhood is the creator of a very popular investing app, and with the stated mission to “democratize finance for all”.

It was one of the first to offer a commission-free trading service to retail investors, leading to very quick adoption, especially among younger audiences. It also offered fractional share investing (allowing to buy only a fraction of a full share of a company).

The company has 10.8 million monthly active users and $89B in assets in custody. The user base has declined severely since the highs of 2021, when investing and trading (and honestly, for some people, gambling) rose dramatically due to the pandemic and lockdowns.

Source: Robinhood

This decline in monthly users did not translate into an equivalent decline in assets under custody, with volume mostly fluctuating from changes in the stock market valuation. In itself, this seems to indicate that the larger accounts have stayed, with smaller or more speculative accounts making most of the monthly user losses.

While options and crypto often made headlines in connection with Robinhood, equity & cash still represent the bulk of the assets in custody.

Source: Robinhood

Because of the relative decline in trading activity, Robinhood stock has performed rather poorly since its July 2021 IPO. At the same time, the company metrics are not as bad as people seem to think. The company is still the custodian of a massive asset base, and has also achieved GAAP profitability for the first time in Q2 2023.

Overall, it seems Robinhood has managed to rationalize its expenses while increasing its revenues. So while the investing mania of 2021 might be over, what is left behind is a solid company with a strong user base, improving technology, and a more efficient cost structure.

So investors in Robinhood will have to bet that the market will reconsider their opinion on the company now that it is turning profitable and has not lost assets in custody despite poor expectations.

SoFi Technologies, Inc. (SOFI)

SoFi is a fintech with a strong focus on loans, offering a diverse selection of student loans, personal loans, mortgages, and auto loans. It also offers investing accounts, credit cards, banking, insurance, and cryptos.

The company looks to win the loyalty of its client base through the Member program, providing discounts, unique offers, hotlines, coaching, etc.

Source: SoFi

SoFi’s customer base is still expanding quickly, with a growth of 43% year-to-year in Q2 2023. Net revenues grew by 37% and quarterly EBITDA by 385%.

Source: SoFi

A key point of interest for SoFi, and any lender for that matter, is how it will deal with rising interest rates. On one part, it could benefit from rising rates, which in turn provides more profits to the company. On the other hand, it can cause a rise in delinquency and bad loans, which could endanger the company, as we recently saw with a few regional banks in the US.

Another layer of complexity is added for SoFi as many student loan repayments have been on hold since the pandemic, and are scheduled to restart in October 2023. With student loans $5.4B of a total $18.2B loan book, this could affect the company.

Home prices and commercial real estate are not a concern for SoFi, with home loans being only $78M.

Investors in SoFi will want to carefully evaluate the loan book risks, while also taking into account that a quickly growing customer base creates a very different situation than for a more mature and stagnant regional bank.

Wise plc (WISE.L)

Wise (formerly TransferWise) is an Estonian startup initially founded to facilitate cross-border money transfer while reducing dramatically the often outrageous fees banks charged for this service. This represents a total market of £2T for individuals and £9T for SMEs.

The company claims to be able to do international and multi-currency money transfers in less than 20 seconds, for 8-10x cheaper fees than banks.

Since 2019, the company has multiplied its customer base by 3x, reaching 10 million people, and grew even more its income and EBITDA.

Source: Wise

This still leaves a lot of room to grow for Wise, with only a 5% share of the personal market and 1% of the SME market.

A very impressive statistic from Wise is that 66% of its customers came from word-of-mouth, what Wise calls “evangelical customers”, an almost unheard of performance in finance, where customer acquisition can be very expensive. This is most likely due to the exceptional performance in both speed and fees. The volume of transfers from existing customers also tends to grow over time.

Source: Wise

Wise is now profitable and listed on the London Stock Exchange. Wise’s business is somewhat niche, not trying to compete on trading fees, loans, and other larger sectors of the financial industry. It is also responding to a very real need that has been neglected (abused?) by banks, with an infrastructure for money transfer that had not evolved for decades.

So investors in the company will aim for Wise to have developed a strong economic moat and brand, and the ability to expand it globally beyond the US+EU region.

Upstart Holdings, Inc. (UPST)

Upstart is a lending marketplace powered by AI, launched much before AI became a center of tech conversation in 2023. It currently has 2.3 million customers and originated $34B in loans with 100 banks. Upstart’s process is mostly automated, with 87% of granted loans fully decided through automation.

The idea behind Upstart is that the existing credit score system is inefficient and outdated. With a lot more data available, it is possible to better identify loan risks, and as a result, provide cheaper loans to a large portion of the population.

This means Upstart’s method can identify people with high FICO scores, but in practice high risk of defaulting on their loans. And reversely, people with low FICO scores who are not that likely to default.

Source: Upstart

The Total Addressable Market is very large, with a yearly $4T originated for personal, auto, home, and small business loans.

Due to rising interest rates and reduced demand for loans, Upstart has experienced a decline in revenues, with $135M in Q2 2023, compared to $228M a year before.

This temporary setback in loan volume has not slowed down Upstart’s expansion of its lending partner network, with 100 banks, up from 71 a year before and only 10 at the IPO in 2020, and 61 dealerships, from 39 in Q1 2023.

The company has a cash stash of $422M, and will need to use it to pass this period, while the growing network will have to help it restart growing revenues.

Investors in Upstart will need to hope that the growing network is a clear sign of the value of Upstart technology and of its potential to become a large originator for loans in the US market.

LendingTree, Inc. (TREE)

LendingTree is an online lending marketplace, which is helping people find the best loan offer available among 500 loan providers. Over 26 years of activity, it has contributed to $260B of loans for 111 million people.

Like other companies in the lending space, LendingTree has suffered from rising rates and a decline in overall activity. Still, its Q2 2023 AEBTIDA was only down by 7% year-to-year, even with revenues down 23%-50% depending on the sector, with the largest decline seen in housing loans.

Overall, LendingTree might suffer from the decline in loan volumes, but this does not change its long-term prospect once the economy has absorbed higher rates.

The main question for LendingTree moving forward is whether the model of a lending marketplace is still valid. Will customers still look to compare loan offers, the way they are doing routinely for hotels, travel, etc.… ? Or will they just accept the offers from their trading app, digital bank, and other fintech they are already using?

While in the short term, many fintech are looking to expand their own loan offer, the more they multiply, the more a reliable and neutral comparison tool will be needed, the same way it is with traditional banks. So there is a good case to be made that a leading marketplace like LendingTree will still have a space in the ecosystem, even if becomes dominated by fintech instead of traditional banking.

The post Top 10 Financial Technology (Fintech) Stocks to Watch appeared first on Securities.io.