I just won a $10.5 billion bet.
Here’s why I say that. I first began telling Strategic Tech Investor members – maybe you were one of them – about what a great company a certain stock was back in May 2013.
At the time, it seemed like no one on Wall Street liked this firm.
But I pounded the table and said the Silicon Valley leader’s then-young move into cloud computing would richly reward investors.
That’s why I was so glad to see that on May 21, nearly five years later, this company said it intends to buy back up to $8 billion of its own stock through 2021.
And that’s on top of the current $2.5 billion plan that ends later this year.
That’s the $10.5 billion bet I won.
But really, it’s you folks who are the true winners here.
If you took my recommendation back in May 2013, congratulations – you’re up nearly 390%.
But this company isn’t done.
Far from it.
In fact, another new catalyst for the stock just got put in place.
And that trigger sets this company up to double again in as little as 30 months…
From Software to the Cloud to E-Commerce
I’m talking about Adobe Systems Inc. (Nasdaq: ADBE) – the company best known for its photo-editing and PDF-making software.
Now then, in addition to the huge buyback plan, Adobe’s latest big catalyst is its $1.68 billion acquisition of the privately held Magento Commerce.
This isn’t just any acquisition. This deal is going to largely shift Adobe’s focus from digital content management and related analytics to e-commerce.
Magento is a company Adobe knows well and should be able to integrate smoothly as they two have worked together for years. It also means a huge boost in high-margin sales for Adobe.
Even though you’ve likely never heard of it, Magento is one of the biggest e-commerce companies around. It handles more than $150 billion in gross merchandise volume a year – nearly twice as much as eBay Inc. (Nasdaq: EBAY)’s $88.4 billion in 2017, according to data from FactSet.
I think of Magento as one the many “stealth” companies out there. Instead of dealing with consumers itself, the Campbell, Calif.-based company develops and markets software to corporate clients to build and run their web stores, and to handle online purchases, shipping, and returns. Magento also helps merchants sell products through social media ads. Its customers include Canon Inc. (NYSE ADR: CAJ) and Rosetta Stone Inc. (NYSE: RST).
The merger shows you how far Adobe has come since 2009 when it began moving away from software retail sales to delivering products and services via the cloud.
Along the way, it has maintained its core leadership in creative content like brochures, photos, newsletters, and publishing. Its Creative Cloud platform now offers far more than just Illustrator for creating, editing, and managing graphics and Photoshop for managing and editing pictures.
Now I told you before that Adobe is going to double in less than 30 months.
To see how and why, let’s run it through our Tech Wealth Blueprint. Those are the five “filters” we use to screen stocks that can truly help you build your wealth.
Take a look…
Tech Wealth Rule No. 1
Great Companies Have Great Operations
These are well-run firms with top-notch leaders.
You’d be hard pressed to find a higher rated tech-sector leader than Adobe CEO Shantanu Narayen. Barron’s named him one of the world’s best CEOs in 2016 and 2017.
It’s easy to see why. Under his leadership, Adobe has reached record revenue and a series of accolades. For 18 straight years, Fortune has named the firm one of the 100 Best Companies to Work For. Narayen served on the President’s Management Advisory Council from 2011 to 2017.
Plus, Adobe’s financials look great. It has operating margins of 31% and a 23% return on equity. It also has net cash on hand of more than $4 billion. Profits are growing more than twice as fast as sales, proving that its shift to higher margin cloud sales have really paid off for investors.
And its shift to e-commerce should further that trend even more.
Tech Wealth Rule No. 2
Separate the Signal From the Noise
To create real wealth, you must ignore the hype and find companies with rock-solid fundamentals.
Had you listened to Wall Street back when I first started talking with you about Adobe back in 2013, you would never have entered the position. Back then, the Street was convinced that Adobe was an archaic software firm you should avoid in the era of cloud computing.
Had you listened to me instead, you would have scored roughly 457% gains in what has become one of the world’s leading cloud-centric tech firms. Those returns are nearly 6.5 times that of the S&P 500.
And as I’ll reveal in a moment, I see at least another double ahead.
Tech Wealth Rule No. 3
Ride the Unstoppable Trends
Look for stocks in red-hot sectors because they offer the best chance for life-changing gains.
Adobe revamped its operations specifically so it could target the massive shift to digital content shared via the cloud. We’re talking the need for documents, artwork, email marketing, and the like to be published on websites and social media.
At the same time, Adobe is moving in to data analytics and developing products that use machine learning and artificial intelligence. In other words, with Adobe we get a blend of some of the hottest trends in digital content, mobile engagement, and cloud computing all in one company.
No wonder the firm says its total addressable market for all its wide-ranging services will be $80 billion at the end of 2020. Not bad for a firm that only got involved in the cloud back in 2009.
Tech Wealth Rule No. 4
Focus on Growth
Companies that have the strongest growth rates almost always offer the biggest share-price gains.
Over the past three years, Adobe has grown its sales an average 24%. This is an incredible feat for a 36-year-old company with a $120 billion market cap.
And the quality of the growth also is improving. In its fiscal first quarter, Adobe said nearly all its sales – 90% of them – came from subscriptions rather than one-time retail sales. That’s up 28% from the year-ago.
In other words, the movement to cloud-based product has set the company on fire. No wonder that in the most recent quarter operating income rose 50% to roughly $703 million.
Tech Wealth Rule No. 5
Target Stocks That Can Double Your Money
This is where we look at the firm’s earnings growth and see how long it will take to double profits. By doing that, we can figure out how long on average it should take for our shares to double.
I’ve gone through the firm’s financials in detail and am projecting earnings per share will grow by an average 36% over the next three years. Bear in mind, that’s a conservative estimate.
See, over the past three years the firm has had an average 48% earnings growth. To take a cautious approach, I cut one-fourth off that rate.
Now we use what I call my Doubling Calculator. Divide the compound profit growth rate of 36 into the number 72. We find that it should double in two years. But to be extra conservative, I extended my prediction out to 30 months.
The stock trades at roughly $240. That may sound pricey, but Adobe has absolutely crushed the broad market over the past two years. During the period, it has soared 141%.
That smashes the S&P 500’s 30% gains by 370%.
Please don’t let that quick, big return scare you off this winner. Recall that we still see another double ahead… in just a little more than two years.
No matter what you’re trying to do – building up your retirement account… saving up for a boat… or financing your kids’ education – it will only take a few stocks like Adobe to get you there.
— Michael A. Robinson
Source:Strategic Tech Investor