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Monday Mailbag: Media and Drones and Brexit… Oh My!

By John Persinos on April 3, 2017

A journalist has many lives; I’ve had my share. A few years ago, as the technology editor of a now-defunct financial magazine, I interviewed Guy Kawasaki at the BlogWorld & New Media Expo in Los Angeles, a trade show devoted to bloggers, podcasters and web designers. If you’ve never been to one of these expos, they’re a cross between a Star Trek convention and a punk rock concert.

Kawasaki is a Silicon Valley celebrity. More like a god, actually. He’s a marketing specialist, author and millionaire venture capitalist. While working at Apple (NSDQ: AAPL) in the 1980s, Kawasaki spearheaded the marketing of the Macintosh computer line. So, yeah, he’s a big deal.

As I sorted through this week’s letters, something Kawasaki told me came to mind: “Defy the crowd. The crowd isn’t always wise. It can also lead you down a path of silliness, sub-optimal choices, and downright destruction.”

I never forgot those words and I’ve made contrarianism a guiding principle of this daily newsletter. Despite the increasing prevalence of algorithmic trading, markets are still governed by human beings, who in turn are driven by fear, greed and a range of emotions that cloud judgment. If there’s a common thread to my answers this week, it’s to buck the conventional wisdom. Let’s dive into the mailbag.

Multimedia moneymaking machines…

“I’d love to make a bundle in the upcoming multimedia wars. I know this war is happening but I just don’t know if I should invest in the usual suspects or a breakthrough technology.” — Mike D.

Mike, you’re referring to my March 23 issue, Multimedia Wars: To The Victors, Go The Investment Spoils, in which I recommended long-time Personal Finance Income Portfolio holding Verizon (NYSE: VZ), the nation’s largest wireless company. Verizon will emerge a winner in today’s media convergence, by using its ample cash war chest to upgrade networks and secure crucial spectrum.

There’s another company I like and you’ve probably never heard of it: Scripps Networks Interactive (NSDQ: SNI). While the “usual suspects” (as you put it) garner all the attention on CNBC, Scripps is an under-the-radar media stock that’s on a path for sustained growth.

Media stocks are among the most alluring long-term investments right now, as legacy empires such as Scripps, Time Warner (NYSE: TWX), Walt Disney (NYSE: DIS) and 21st Century Fox (NSDQ: FOXA) embrace new digital applications. Technological evolution is driving mergers and acquisitions in the media sector, whereby telecommunications, traditional news and entertainment, and social media are merging into single integrated entities.

But as these media behemoths struggle to remain relevant, Scripps already serves as an exemplar of how to make all the right moves. Scripps Networks is the spawn of a 1994 spin-off from E. W. Scripps (NYSE: SSP), which was founded in 1878.

After the spin off, Scripps Networks focused on the emerging trend toward lifestyle niches, developing content for television, Internet satellite radio, mobile and social media platforms, as well as books and magazines that serve as complementary products for its other media.

Scripps Networks unveiled a wide variety of lifestyle channels that are highly popular, including the Home and Garden Channel (HGTV), the Food Network, Cooking Channel, Do-it-Yourself (DIY) Network, Travel Channel and Great American Country (GAC).

The average analyst consensus is that Scripps’ earnings growth over the next five years will reach 11.07%, on an annualized basis.

Aircraft without pilots, cars without drivers…

“Pilotless drones, smart robots and autonomous cars! It’s all like something out of a science fiction movie. Which investment plays on these trends stand out for you?” — Allen D.

Autonomous technology is garnering investor interest because it has matured to the point where it’s affordable to apply it to cars, drones and other end uses. We’re already witnessing self-driving cars on the roads, unmanned aerial vehicles overhead, and robots performing human tasks. It’s just the beginning of an interconnected “smart” world.

Jim Pearce, chief investment strategist of Breakthrough Tech Profits, endeavors to pinpoint the moneymaking opportunities when different technologies overlap.

As Jim explains: “We have based our portfolio recommendations on how technology acts as a disruptor. These disruptive companies often apply technology to other industries to produce superior results.”

Autonomous navigation, camera systems, sensors, radars, and ultrasound are coming together to revolutionize the way we work and live.

Companies such as Alphabet’s (NSDQ: GOOGL) Google, Uber, Tesla (NSDQ: TSLA), Toyota (NYSE: TM), and Ford (NYSE: F) already have embarked on ambitious efforts to develop self-driving vehicles. Driverless cars will soon be able to provide transportation for people who can no longer drive, offer an easier commute, free up valuable real estate currently devoted to parking lots, and make the trucking industry more efficient.

The drone industry is ahead of the self-driving sector and that’s where I see the most exciting investment opportunities right now.

Drones are spraying crops, flying over cities to deliver packages, providing emergency medical assistance, and patrolling borders and shorelines. Online retailing giant Amazon.com (NSDQ: AMZN) has made headlines by its current testing of drones for home delivery. Rival Wal-Mart (NYSE: WMT) has gotten into the act as well.

A safe way to play the commercial drone industry is AeroVironment (NSDQ: AVAV), the leading manufacturer of unmanned drones. With a market valuation of $637.5 million, this California-based company boasts a pipeline stuffed with innovative drone devices. AeroVironment dominates the world’s unit production of drones, giving it the biggest market share by far of any drone manufacturer and making it one of the most promising small-cap technology stars of 2017 and beyond.

Don’t fear the Brexit…

“British Prime Minister Theresa May just gave the European Union formal notice that the UK is leaving the European Union. Should I dump European stocks?” — Peter G.

Not at all. To be sure, some investors held out hope that Britain wouldn’t follow through on last year’s referendum vote to leave the EU. On March 29, that hope was dashed when Prime Minister May formally delivered her “exit letter” to EU President Donald Tusk, triggering so-called Article 50.

European Commission President Jean-Claude Juncker said that Britons had made “a choice they will regret one day.”

Maybe so. But as London and Brussels discuss divorce terms and the framework for a new UK-EU trade deal, chances are that European blue chip multinationals will emerge just fine. At the end of the day, international business goes on.

A promising European stock right now is diversified consumer giant Unilever N.V. (NYSE: UN). With dual headquarters in London and the Netherlands, Unilever sells about 400 well-known consumer brands in more than 170 countries in Africa, Asia, Latin America, the Middle East, North America and Western Europe.

Unilever stock is poised to have a good year, as recovery aided by EU stimulus programs prompts consumers to buy the everyday goods they need. Unilever’s portfolio of household items comprises a wide range of categories, including ice cream and beverages, salad dressings and sandwich spreads, and beauty care.

The company’s brands adorn shelves around the world and are familiar sights to consumers as they walk down the supermarket aisle: Hellmann’s mayonnaise, Vaseline, Bertolli pasta sauces, Lipton tea, Knorr soups, Lux and Dove soaps, Surf detergent, Ben & Jerry’s, Klondike, Slim Fast, Popsicle, Ragú, Pond’s skin cream, and Sure and Degree antiperspirants. They all enjoy enormous consumer loyalty that should remain immune to Brexit.

Unilever is making inroads into developing nations where newly ascendant middle classes associate Unilever’s colorful brands with the coveted affluence of the West. Despite the uncertainties of Brexit, Unilever enjoys several tailwinds, in addition to broad economic recovery.

First is a cheaper euro. A weaker currency benefits exporters such as Unilever, because it makes goods less expensive for foreign buyers. Unilever’s prospects this year are additionally boosted by the steps it has taken to foster efficiencies throughout its vast supply chain.

Global economic indicators are increasingly sanguine, but the U.S. stock market hovers in overbought territory. Investors who seek both growth and downside protection are well-advised to stick with a large-cap, global consumer company such as Unilever, which makes trusted products of universal appeal and entrenched brand name recognition.

Have a question or comment? Shoot me an email: mailbag@investingdaily.com — John Persinos

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