R&D Stocks: 2 Letters That Could Boost Your Trading Results ...

Each Friday I share with you the global trends that are taking off like wildfire in the investment world. And I often remind you to do your own due diligence before adding any sector or stock to your investing account.

Now, research may sound like a tedious task or an extra step to add to your already busy day. But while you don’t have to spend nine or 10 hours a day like I do — poring over journals, analyst reports and huge databases — my goal is to give you a running start in identifying promising investments

There’s nothing I enjoy more than discovering high-potential stocks in industries whose research turns into products that improve how we interact … add length and quality to our lifespans … and create technologies that save us time, effort and money. And if they have the potential to make us money, even better!

I’m still waiting for my "Jetsons"-like flying car, but because I do so much research, I appreciate organizations that give high priority to this tedious but critical background work that makes tomorrow’s technologies (and profits) possible sooner than we ever could have dreamed.

So today, I want to bring you my best "research" ideas … specifically, companies that devote a big chunk of their revenue to research and development, or R&D — two little letters that could change your trading and investing results.

This week I filtered a database of U.S.-listed securities, including ADRs of foreign-domiciled firms, My goal was to identify firms with these characteristics in their most recent fiscal year …

• At least $1 billion in revenue, and

• R&D spending of at least 6% of fiscal revenue

The table below shows you the biggest R&D spenders in percentages of revenue for selected industries.

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Internal Sponsorship

I sorted the list to show the most research-intensive industry leaders at the top. I’m confident some of them will show top investment results as their research pays off in the future.

Future-Focused Companies
R&D Leaders in Selected Industries

Click on the chart to see the full data.
Data Source: Morningstar

As you review these research-intensive stocks, keep in mind what really drives stock prices …

Expectations!

As I said in a recent column, history can help us evaluate companies and their management teams. An accurate snapshot of a company’s current condition is helpful, too.

But by far the major factor in determining its price is future growth expectations …  and companies that reinvest revenue in R&D are working to optimize those expectations.

Biotechnology is the classic illustration. Virtually every firm in the biotech industry devotes a double-digit percentage of revenue to R&D.

In fact, some well-funded startups ring up R&D expenditures far exceeding their still-embryonic product sales. Many startups would be on this table if they met the $1 billion revenue requirement.

Some Surprising Results

Until I thought about it, I was surprised to see computer gaming and multimedia at second place. I’m not a gamer myself, but I appreciate the amazing software these companies produce.

On the multimedia side — designing applications for smartphones, intelligent TVs, wearable devices, tablets and such — this group wins by hitting the books.

The semiconductor industry, as you might expect, is high on the list, but I didn’t expect to see Facebook (FB) near the top of the list. It makes sense, though — they company’s "social" growth depends on heavy investment to adapt its platform to smartphones and digital devices.

Since I know how many hours my Uncommon Wisdom Daily colleagues and I spend on research, I wondered why the "asset management" industry is missing from the list. Maybe this explains the sub-par results of so many traditional money managers.

Similarly, if R&D spawns growth, why aren’t the chemical and petroleum industries re-investing their impressive revenue in research? In fact, they are, but financial statements generally don’t categorize the huge investments in exploration and drilling as "R&D" expenditures.

I might feel a bit more comfortable aboard airliners if someone in the aerospace industry spent more on R&D. It may be another accounting quirk, or because not every listed company is included in the database I used for this study.

Geographically, the United States seems to be holding its own. Only two foreign-domiciled companies show up in the table: Japan’s Canon (CAJ) and Netherlands-based diagnostics and research firm Qiagen (QGEN).

Research Giants!

And, as far as absolute dollar amounts devoted to R&D, the dozen super-heavyweights are:

All these companies allocate major bucks to R&D! In my eyes, they’re investing in the future.

That means they are worth some research from investors like us. I look for companies like these in Global Trend Trader because research usually pays off!

Happy hunting!

Rudy Martin

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Rudy Martin, editor of Global Trend Trader, is the President at Acamar Global Investments, with 25 years of experience serving institutions and high net-worth individuals.

Rudy started his investment career in 1983, co-managing a $2 billion private investment portfolio for Transamerica. Later, he went on to Wall Street as an equity analyst for Dean Witter and traveled globally, serving major institutional equity investors. In 1995, he joined Fidelity Investments as a Senior Investment Analyst for a series of multibillion-dollar fund portfolios.

During his career, Rudy has received awards for institutional investing and is widely quoted in the financial press and on television about topics related to global investing and emerging markets. For more information on Global Trend Trader click here.

Source: http://www.uncommonwisdomdaily.com/rd-stocks-2-letters-that-could-boost-your-trading-results-17262
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