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- 7investing CEO Simon Erickson believes investors should look “outside the herd”.
- He believes that “buy now, pay later”, quantum computing and gene editing are disruptive sectors.
- Erickson recently revealed his top investment decisions in each sector in a podcast appearance.
Simon Erickson, CEO of Premium Stock Picking Service 7investing, believes the greatest opportunity for investors today is to look for innovative companies “outside the herd”.
“[Disruptive innovators] can completely overthrow these existing incumbents, completely transform the markets, “he told host Nathaniel E. Baker during the Nov. 1st episode of the Contrarian Investor Podcast.” We have seen it over and over again. If you find these early as an investor, it will be the ones who can return 10 to 100 times your original money. “
Erickson shared the top three sectors he believed will be the most transformative for our world today, and within each sector he also revealed his top stock picks.
Buy now, pay later
Erickson’s first pick was that “Buy now, pay later” (BNPL) sector which he believes will be extremely disruptive to traditional credit card companies.
According to Erickson, US credit card companies charge $ 125 billion in interest each year, with an additional $ 15 billion to $ 20 billion in unexpected late fees.
“Often times, these fees reward credit card companies for giving credit cards to people who then misbehave [like] Buy things they shouldn’t be buying, “he says.
Erickson believes BNPL solutions are innovative because they “reveal in advance what all the installments and interest payments for them will look like”.
The BNPL model enables customers to pay for an item in installments, often interest-free and fee-free. After paying the first installment at the checkout, the customer receives the item immediately, while the rest of the payments are later debited by debit or credit card.
“You are setting up a mortgage on a consumer payment of any type and size, and making sure you find the right consumers and the people who can responsibly pay them off,” continued Erickson.
With just a few personal data points, BNPL companies can carry out a credit check and adjust the conditions and interest rates individually for each customer. At checkout, BNPL companies pay merchants the full amount and charge a certain additional percentage for assuming the consumer’s credit risk. You are then solely responsible for collecting payments for the item.
Within the industry is Erickson’s favorite company Confirm (AFRM)which he refers to as the “included example” of BNPL. He likes the name especially because co-founder Max Levchin also co-founded PayPal.
“[Levchin’s] He’s made a name for himself for decades by finding the needles in the runaways’ haystack, “said Erickson.” Now he’s looking for the runaways who really shouldn’t be taking this type of loan. “
In addition to helping consumers finance purchases, Erickson says, Affirm benefits merchants by giving them access to a new pool of consumers. Affirm also helps retailers make additional offers using the same BNPL system, such as: B. propose a bedside table as an addition to a mattress that has already been purchased.
Erickson firmly believes that BNPL systems will persist and evolve over time.
“The disturbing thing is that we are trying to break free of interest payments,” he said. “If we’re paying in installments, we can still use credit cards. That doesn’t solve the fundamental problem that people shouldn’t borrow this money in the first place. It has to be withdrawn directly from your bank account and we need to know that it is is a creditworthy borrower. “
Difficult problems, quantum solutions
The second sector that Erickson believes will disrupt modern systems is Quantum computing.
Quantum computing is exponentially faster than classical computing and is based on “a completely different, fundamental science that is based on quantum mechanics and quantum physics,” he explained.
According to Erickson, quantum computers are used to solve extremely complex problems, such as simulating molecular reactions in drug development or modeling climate change scenarios around the world. They can even help with material design, for example solving range anxiety in electric vehicles by finding the perfect storage capacity in a battery.
Companies that specialize in quantum computing have market caps that can exceed their sales “hundreds, if not thousands, of times,” Erickson said on the podcast.
“These are companies that will make maybe $ 10 million in sales this year, if all goes well, and they sell for $ 2 billion.”
Market capitalization
“he said.” This is a headache for anyone who is a value investor and says, ‘How can you pay so much for a company like this?’ “
While quantum computing is still in its infancy early enough that any type of prediction is “one of many darts,” according to Erickson, these evaluations make sense when compared to manufacturers of classic CPUs such as Intel and Nvidia.
“If they crack the code and it actually becomes the standard, you could have a market cap of $ 100 billion, $ 200 billion, $ 500 billion for these companies,” he said. “The contrarian in me realizes that while these reviews may seem super expensive right now, maybe they really aren’t.”
Within the industry, Erickson likes the pure gaming company IonQ (IONQ)that start with a. merged
SPAC
in October.
“They believe their ion trap technology completely interferes with everything else that’s going on out there,” he said.
It’s in the genes
Eventually, Erickson identified the field of the Gene editing as a potential disruptive factor.
“The health system that we traditionally have is based on health care,” said Erickson. “The disturbing part is, what if you could actually go ahead and fix the underlying problem yourself before treating a condition that was manifesting itself and showing symptoms?”
Gene editing is about going down to the molecular level and repairing the DNA that is causing a particular condition or disease. Use cases are still years away as many of the potential long-term side effects are still unknown and there are many government safeguards and ethical debates surrounding the technology.
While gene editing is still a novel concept, Erickson says certain breakthroughs have already caught the attention of investors. Its top pick in the industry is Intellia Therapeutics (NTLA)using the CRISPR technique.
“Gene editing as a whole is a type of in vitro fertilization that was really controversial decades ago and is now widely accepted by most places,” Erickson said.
“Is gene editing going to take a similar approach, where something that is very controversial today finds social acceptance to really eradicate many diseases and many conditions that are causing a lot of problems and suffering for people out there?
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