2013 Consumer Electronics Show: What Investors Should Watch

by David Eller Natural Riches Natural Riches

Each year Las Vegas hosts a show where gadget vendors show off the next greatest thing a 13-year old with a pocket protector will drool over.  It’s the 2013 Consumer Electronics Show in Las Vegas.  It’s an incredible event and I will definitely miss going this year.

Why? It’s not just for technology enthusiasts.  Savvy investors can benefit too…

There are long-term trends with investable ideas hidden inside the future of electronic consumption.  Like hunters, investors arrive looking for tracks to profits.

Even before you arrive at the show you notice sales reps wearing company logos and shuttling heavy black cases filled with gear.  If you’re lucky, you sit next to one on the plane.  The bars are filled with out-of-towners, gabbing about the cool things happening at their companies behind the scenes, which products over the prior year were a bust and which key people are switching firms.

As an investor, your job is to soak it all in and build your buy list.  Hunters plot out a strategy to find big game, look for tracks and wait for the right opportunity.  You can do the same at a show like this. Plot which trends are meaningful, build your buy list based on what you find out, then wait for the right opportunity to pull the trigger on a stock.

This Year’s Trends

To save you the legwork, I’ve sifted through the tech journals and the San Jose Mercury News to find the companies likely to be getting press over the course of the next week.

Two trends jump out:

  • The connected living room
  • Automotive technology

Although Apple (Nasdaq: AAPL) never attends the show, since the launch of the iPod, it has managed a presence by some well-timed product announcements and rumors.

In 2010, there was chatter about the Apple tablet.  In 2011, rumors that Verizon (NYSE: VZ) would begin offering the iPhone were rampant.  Apple launched the Mac App Store during the show in 2012.  So, what’s ahead for 2013?

My guess is Apple TV.

A Look Inside the Living Room of the Future

NPD recently published a survey that shows that less than 10% of web connected HDTV owners use TVs for web content like Facebook (NYSE: FB), LinkedIn (Nasdaq: LNKD), or shopping  - but 60% of these same people watch online video.

Why is that?  Simplicity - the key feature Apple offers in all of its products.

A product like Apple TV could bring big screen computing to the masses.

Beyond Apple, companies likely to be highlighted in the connected living room are Facebook, Netflix (Nasdaq: NFLX) and Pandora (NYSE: P).

Facebook’s biggest growth drag has been a shift from traditional computing to mobile. But a good, widely adopted web TV solution could shift users to a large screen again.  As younger people do more computing on the go, phones have increased in importance.  However, web TV could make it easy enough for an older demographic to use Facebook in a setting where traditional online advertising is more effective.

The same could be said for Netflix and Pandora but these two could benefit even more because the NPD survey showed that 60% of web connected HDTV owners watch online streaming video with 15% listening to online streaming audio.

A Look Inside Tomorrow’s Automobile

Outside of the living room, another increasing and potentially large trend is automotive technology.  In 2013, seven of the 10 largest auto manufacturers will have a presence at CES.  Last year Audi stole the show with a heads up display projected onto the windshield (think fighter jet).

This may be a cool feature but the trend isn’t investable since there are no pure play, public technology companies.  This year may be different however as the focus shifts to connected cars.

Chrysler’s UConnect is now a year old and may be the model for other companies with its new feature list:  built in voice-texting, 3G/Wifi connectivity and smartphone integration.  If connectivity becomes mainstream, list is offered by all of the major auto companies, voice integration will be a must have on the road and Nuance (Nasdaq: NUAN), the maker of Siri, will benefit.

Nuance will likely have its place on multiple platforms given the Siri handset traction, recent product launch of Nuance’s Dragon Assistant and the partnership with Intel (Nasdaq: INTC) for developing voice recognition for Ultrabooks.

AAPL

NFLX

NUAN

P

FB

Rev Growth

27.2

10.1

27.7

60.0

32.3

Op Mgn

35.3

2.9

11.7

-8.2

12.1

EPS Growth

17.4

NM

12

NM

27

Forward P/E

9.6

234

10.9

NM

43

CES is a good place to find some of the products that will make headlines in the coming year and create investment opportunities.  Niche companies like Nuance, Pandora, Netflix and Facebook could be the key beneficiaries of new trends.

But established companies like Apple use the concentration on electronics as a platform for key announcements for new lines of business as well.  So keep an eye on the headlines and our newsletter for updates.

Good Investing,

David

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