Will families have access to AI personal assistants similar to Mark Zuckerberg’s “Jarvis”? Could self-driving cars increase individual productivity and lead to higher results in the workplace or classroom? What role will big data play in decision-making on the global stage, and will society benefit from this newfound insight?

The short and skinny answer is yes – technology is at the forefront of economic growth and many of the items outlined above will be future common goods.

That said, the IoT industry has seen explosive growth in market size, reaching nearly US$235 billion in 2017. In fact, Bain & Company estimates that the industry will grow to $520 billion by 2021. Needless to say, it’s an exciting time to be an investor, and early market participants with positions in innovative companies will be rewarded with excellent returns.

But how close are we to this economic utopia?

Experts believe that the IoT industry is in its infancy, with expectations that data centers and analytics companies will be the initial growth drivers. There are already concrete examples of IoT and artificial intelligence being used by large businesses to improve operations. Take for example, Amazon Robotics (formerly Kiva Systems), which leverages automated storage and retrieval systems used for fulfilment purposes.

In terms of Canadian capital markets, investors can gain exposure to this up-and-coming industry in a number of ways. For example, tech darling Constellation Software (TSX:CSU), which is known for its growth by acquisition strategy, has diversified into IoT through various subsidiaries. The vertically integrated software company boasts data analytics assets like Smartworks through N. Harris Computer Corporation, and Sicap through the Volaris Group.

Constellation’s stock has performed well over the last 10 years, and the business has a strong balance sheet. If the company can continue to capitalize on successful acquisitions, Constellation could be due for further gains and be a key force in Canadian big data.

Another notable Canadian name making splashes in the AI industry is OpenText (TSX:OTEX)(NASDAQ:OTEX). The company’s Magellan platform seeks to compete with IBM’s Watson – which OpenText CTO labelled a “junk” product. Magellan is an open platform that combines machine learning with advanced analytics to leverage big data in business decision-making. Similar to Constellation, OpenText has been successful growing its business through strategic acquisitions.

Staying on the theme of Waterloo-based businesses, BlackBerry (TSX:BB)(NYSE:BB) presents an intriguing opportunity  at a favourable valuation to gain exposure to self-driving vehicles. The company’s QNX technology is in more than 120 million cars and could be the OS of choice for autonomous vehicles. With the recent closing of a 1.4-billion-dollar acquisition of Cylance, BlackBerry’s shift away from the smartphone business and into cybersecurity and AI, positions the company as a global technology leader.

The post These Tech Companies Are Positioned for Explosive Growth appeared first on The Motley Fool Canada.

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Although larger institutions are likely in the lead in terms of broader product development, smaller, niche firms with high-user growth rates can deliver strong platforms with room for advancement. One truly unique company that is attempting to capitalize on innovation is Goldmoney (TSX:XAU).

This Toronto-based financial services company has a market cap of $120 million, providing investors with a new way to gain exposure to precious metals and crypto currencies through its patented platform. Managed by a team of seasoned entrepreneurs, Goldmoney has the potential to be a successful player in the growing digital payments market.

The company provides a suite of services including: precious metals custody, trading and execution, card services, exclusive research, and pension accounts. A notable element of Goldmoney’s prepaid cards is that they provide a low-fee hedge against foreign-exchange risk.

More important, the prepaid cards have free FX conversions and can be used anywhere credit cards are accepted. The Goldmoney prepaid card does not operate on credit like Visa or Mastercard, but is loaded by converting metal holdings to U.S. dollars, euros, pound sterling, or Swiss francs.

Where is the share price today?

Goldmoney stock is currently trading near a 52-week low at an approximate discount of 80% from its all-time high. With the current state of market volatility, Goldmoney is worth assessing as a potential value play. Markedly, Goldmoney’s stock is trading at roughly book value and could be due for an upward shift if management can improve profitability and enhance earnings.

Both the company’s operating and profit margins were negative in fiscal 2017, which can largely be attributed to the high operating costs of the business. Goldmoney generated $526 million in revenue but a mere $8 million in gross profit to end 2017. With these razor-thin margins, Goldmoney must secure sales growth to optimize performance, enhance overall earnings potential, and unlock long-term shareholder value.

On a year-over-year basis, the Goldmoney team has secured increased revenues, but the pace slowed down in 2018, which may have swayed investor confidence. In addition to slower revenue growth the company increased its debt position by a sizeable margin. These two factors accompanied by weak commodity prices could provide reasons behind the plunge of Goldmoney stock in 2018.

Why does Goldmoney have upside?

For contrarian investors, libertarian thinkers, and students of Austrian economics, Goldmoney may seem like an attractive service provider. However, the long-run success of the company is contingent on growing the customer base in a low fee environment while maintaining the highest level of customer service. If the management team is successful, Goldmoney stock could vault upward and secure a prosperous turnaround.

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Over the past few years, the media has provided significant commentary on how the entertainment industry’s competitive landscape has been shaped by the dominance of Netflix. The convenience and quality content of the streaming service has undoubtedly caused competitors to up their game. In attempt to drive up revenues, movie theatre operators such as Cineplex (TSX:CGX) have shifted strategies to focus on the entertainment experience. But has this approach worked?

Glancing at Cineplex’s chart of historical stock prices since its IPO, it’s apparent that the market is skittish about the company’s future prospects. However, a closer examination of the company’s business model may change investor sentiment. In truth, the management team at Cineplex has done an exceptional job in creating value in an extremely competitive market.

First and foremost, the Cineplex team has developed strong, innovative partnerships that will provide wider market exposure to new audiences. For example, Cineplex’s relationship with D-Box Technologies—a company that specializes in immersive entertainment through motion systems—adds a ground-breaking level of audience engagement that enhances user experience. D-Box seats bring movies to life, and the technology can be applied to additional aspects of entertainment like gaming, which is another industry on Cineplex’s radar.

Through a subsidiary known as World Gaming, Cineplex has tapped into the growing eSports market, which is expected to surpass the $1 billion revenue mark by 2019. In anticipation of growth, equities within this space have seen rapid price acceleration and have outperformed the market by a wide margin. Over the past five years, Activision Blizzard is up over 300%, and Electronic Arts is up roughly 250%, which signifies that investors should take notice of this growing trend.

That being said, smart money has certainly flowed into the eSports realm, perhaps most notably with Amazon’s US$970 million purchase of Twitch. Following suit, Cineplex’s acquisition of World Gaming allows the company to leverage theatre sites as locations for larger e-sports tournaments and offers a revenue-rich content alternative to the traditional cinema operator.

Aside from eSports, the company has invested heavily in location-based entertainment through brands such as Playdium, The Rec Room, and Topgolf. With plans to develop 10-15 locations each for both Playdium and The Rec Room, Cineplex is testing new waters by betting on businesses that bring people together. In addition to these exciting developments, Cineplex’s joint venture with Topgolf brings an opportunity to add a brand with a global footprint, which boasts Callaway Golf Company as an investor.

It’s clear that Cineplex has a strategic vision to build a premium entertainment company that can reach wide audiences. The traditional movie theatre business model may face market uncertainty due to technological change, but investors should ignore the noise and dismiss that criticism if applied to Cineplex. This company is building something interesting that promotes community and increases social capital, which both have positive effects on economic growth.

In short, if the company is successful with its expansion into eSports and development of location-based entertainment venues, this stock could be a blockbuster hit.

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With the S&P 500 Healthcare Index earning annualized returns of approximately 12% since 2014, there is reason for investors to be bullish on the medical industry. One key driver of health-sector growth is an increasing aging population, which will enhance demand for efficient, affordable care. With this in mind, investors looking for exposure in the healthcare sector will benefit from companies with a specialized focus on delivering treatments to large markets at a reasonable price.

Cardiovascular disease (CVD) is the leading cause of death globally and accounts for a quarter of total annual deaths in the United States. In fact, John Hopkins Medicine estimates that nearly 84 million Americans suffer from some type of CVD. Hence, it is clear that the U.S. provides a robust market for CVD therapeutics, and specialty companies such as Medicure stand to benefit.

Medicure is headquartered in Winnipeg, Manitoba, and has a handful of operating subsidiaries in the U.S. and Barbados. The company targets hospitals with a premier focus on the sale of Aggrastat—a tirofiban hydrochloride injection. Tirofiban actively deters blood clotting, which can dramatically reduce the risk of heart attacks and other cardiovascular events.

In addition to Aggrastat, Medicure has a handful of other cardiovascular therapeutics available to the public. For example, two products currently sold by Medicure include Zypitamag and a sodium nitroprusside injection. Zypitamag works to lower bad cholesterol and the nitroprusside injection offers an immediate solution to high blood pressure.

So, why is Medicure worth a closer look?

1. Strong fundamentals

Over the past few years, the company has consistently generated revenues in the mid to upper $20 million range and has ample cash on the books to potentially build a stronger product pipeline. In addition to having a healthy amount of cash, Medicure’s balance sheet has seen a significant reduction in debt which further stabilizes the company’s financial position. However, if the management team decides to allocate excess cash to research and development (R&D) initiatives, the company could also profit (queue point two).

2. Investment in R&D

Medicure has gradually increased investment in R&D on a year-over-year basis as the company scales up for clinical trial advancement. Diversifying away from the CVD market, Medicure’s product Taradoxal treats a neurological disorder called Tardive Dyskinesia (TD). With no present FDA-approved treatment for TD, Taradoxal could be an impending game-changer that is currently in phase IIa of clinical trials.

3. Historical return on assets

Through a series of transactions spanning from 2014 to 2017, Medicure secured a majority interest in Apicore. In late 2017, the company sold Apicore for US$105 million, which represented a strong return on investment.

Conclusion

Given the aforementioned catalysts, Medicure should be added to the watch list for the possibility of wholesome returns.

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Empire Company (TSX:EMP.A) just gobbled up Farm Boy in an $800 million deal. The company’s bold acquisition will strengthen its food retailer portfolio, which already includes brands such as Sobeys, Safeway, IGA, Foodland, FreshCo, and Thrifty Foods. Empire’s strategic purchase provides broader market exposure in Ontario and an aggressive action plan to expand the Farm Boy brand into the GTA.

What investors need to know about Farm Boy

The Ottawa-based grocer has 26 locations across Ontario and specializes in farm-to-table products. For the past 36 years, the Farm Boy brand has developed into a regular household name known for its quality products and prepared foods. The company is focused on the food experience and seeks to bring fresh products to Canadian households while emphasizing its in-store brand name.

Empire’s hefty investment in the Farm Boy brand underlines the company’s vision for expected consumer demand growth of high-quality food products. At roughly 14.1 times EBITDA, Farm Boy’s $800 million price tag factors in the future growth prospects of the brand. In addition, Empire’s CEO Michael Medline described Farm Boy as one of the most well-protected companies with respect to the growing e-commerce food industry due to its “laser-like focus on fresh, private-label, and prepared foods.”

As CEO Medline has already taken steps to increase shareholder value through Project Sunrise, which seeks to establish a leaner corporate structure at the Sobeys franchises. Through a significant shake-up at the Sobeys locations, Empire aims to reduce costs by $500 million by 2020. An important takeaway from the Farm Boy acquisition is that Medline has been clear that expanding Farm Boy’s customer base will not see any material change to their shopping experience.

According to management, Empire will capitalize on Farm Boy’s demonstrated business model, which has secured historical same-store sales growth of 5.3%. Same-store sales is an important metric in the retail environment, and Empire most recently reported this measure is on the rise for its other assets. By adding an industry leader in same-store sales growth to its already established portfolio of food retailer brands, Empire has discovered a game changer in a highly competitive market.

The company will finance the transaction through a combination of cash and debt. Empire has nearly tripled its cash and short-term investment position from 2017 through 2018, which should be complementary to this deal. On the flip side, the company has effectively decreased year-over-year long-term debt since 2014, which, again, is a positive trend.

If the management team is successful with Project Sunrise, there should be an improvement in the company’s profitability. Empire’s gross margin outperformed the industry average by roughly 2% through the last fiscal year. With operational efficiencies at the forefront of Empire’s strategic approach and the acquisition of an accomplished asset such as Farm Boy the company should see improvements in its performance, which will benefit shareholders in the long run.

In brief, it’s clear that Empire has set the table for growth — all while grabbing a larger piece of the food retailer pie.

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With political uncertainty and cross-border tensions on the rise, enhanced security infrastructure is of the utmost importance. As a result, increased government spending in the defence and aerospace industry has reaped solid returns for investors. For example, the S&P 500 Aerospace & Defense Index has generated five-year annualized returns of 19.66% compared to the S&P 500’s five-year annualized returns of 12.21%.

In a year that has seen a false missile alert, a trade war, humanitarian crises, and much more, it is clear the defence industry provides a necessary service to the world. Aside from the social aspect, investing in the aerospace and defence industry could provide a degree of stability to your portfolio.

One industry leader that investors should pay close attention to is United Technologies Corporation (NYSE:UTX). United Technologies Corporation (UTC) is a multinational conglomerate that is poised for growth. The company operates a diversified portfolio of subsidiaries, such as Otis Elevator Company, Pratt & Whitney, UTC Aerospace Systems, and UTC Climate Controls & Security.

UTC is set to acquire Rockwell-Collins for US$30 billion later this month. The acquisition will bolster UTC’s aviation manufacturing division in pursuit of streamlining efficiencies and increasing market share. If UTC is successful with the Rockwell Collins acquisition, it could benefit Magellan Aerospace Corporation (TSX:MAL) as a subcontractor.

Magellan is a Canadian manufacturer and supplier of specialized components for aeroengines and aerostructures. The company provides unique systems solutions and advanced products to the military, industrial power, and space markets. Magellan is a partner of UTC and has several long-standing contracts with the aerospace titan. Most recently, Magellan secured a supply agreement with Pratt & Whitney for $81 million.

What makes Magellan an attractive long-term investment?

First and foremost, the company is well managed and growing at an incredible rate. From 2014 through 2017, Magellan increased year-over-year earnings, while managing to reduce long-term debt. In fact, earnings per share have more than doubled over the past five years.

For the 2017 fiscal year, Magellan outperformed the industry average in terms of the gross margin, operating margin, and profit margin. The management team has also been effective in increasing dividend yields over the past five years. Magellan’s history of profitability is an encouraging sign and the company currently pays a dividend of 1.91%. If the past five years are any indicator and the company can keep up its excellent performance, that dividend yield should grow.

As mentioned before, investing in the aerospace and defence industry provides a level of stability to a portfolio largely due to the fact that governments are the primary customers. With NATO’s secretary general recently reiterating that member countries have committed to spend approximately 2% of GDP on defence and security, the argument that the sector should see continued growth is solidified. All in all, the market outlook is positive for Magellan Aerospace — a company whose share price has gained returns of nearly 200% over the past five years.

Evidently, it may be a grounded decision to take a flyer on this stock.

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There is no question that the technology and marijuana industries have outperformed the market over the past few years, and equities within these spaces may be due for a correction. However, if the prolonged bull market continues, growth stocks can offer significant upside to investors who are willing to take on the risk.

As the old adage goes, a successful investor buys fear and sells greed. Perhaps this anecdote would have deterred rational folks from panic selling both Shopify (TSX:SHOP)(NYSE:SHOP) and Cronos Group (TSX:CRON)(NASDAQ:CRON) after renowned short seller Andrew Left released bearish reports against the companies. But then again, markets are irrational, and investor confidence can be swayed easily, which can cause price volatility.

Take for example the significant plunge to Shopify’s stock price in late 2017. The e-commerce giant was targeted by a critical report released by Citron Research, and the company’s share price decreased by roughly 11% as a result.

Described as a get-rich-quick scheme and compared to Herbalife, which was handed a hefty $200 million fine in 2016 for its business practices, the argument can be made that Shopify investors were influenced by Citron’s claims. However, it does seem that this was a short-run phenomenon, as Shopify’s share price recovered and has rallied to as high as $232.65 since Left’s report.

Similarly, Cronos Group—an integrated cannabis distributor—saw its stock price decline after the release of a short thesis by Citron. Share prices decreased by roughly 28% after the company drew criticism for a lack of transparency surrounding its provincial supply agreements.

A few other issues the report highlights are the company’s level of investment in R&D, relatively low international sales, and an expensive valuation. Again, the share price of Cronos Group has recovered since the release of Citron’s critique.

Other than being targeted by a short seller, Shopify and Cronos Group share a similar characteristic: both equities are expensive from a fundamental perspective. The enterprise value (EV) relative to revenue can be helpful in illustrating a company’s valuation when a firm’s EBITDA metric is negative. Both Shopify and Cronos Group generated negative EBITDA in 2017.

A simplified approach to calculating EV can be achieved by combining a company’s market capitalization plus debt less cash. Shopify’s trailing EV/revenue of 24.5 times could suggest the company’s market capitalization is inflated. Cronos Group’s trailing EV/revenue of 216 times also exemplifies a rich valuation.

Why have these share prices been on such a run?

Clearly, the market has priced the growth potential of Shopify and Cronos Group into their current valuations. Three indicators that may be helpful in evaluating a company’s growth potential are return on equity, profitability, and return on assets.

Cronos Group has achieved returns on equity of roughly 2%, and Shopify has generated returns on equity of -3.94%. Neither company is profitable. They have returns on assets of -0.67% and -3.03%, respectively. It may be difficult to understand these valuations, and one could assume that speculative behaviour is holding influence over both of these stock prices.

Alternatively, Shopify and Cronos Group have attained exceptional year-over-year revenue growth, which could justify the current share price premiums. With strong earnings performance and effective management, both of these companies could see their future share prices grow. As of right now, it is difficult to tell whether the long or short strategy will garner the best returns without a significant level of guesswork.

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