It pays to be in stocks that can ride out any economic storms. Earlier I had written about a potential play on the ethanol boom; today we're turning our sights to the emerging technology of RFID.
But first, a recap of where we stand with ethanol. The Bush administration and Congress don't want to give in to WTO pressure to lower or eliminate farm subsidies, and this refusal has resulted in increased tensions with other world powers (imagine that, the U.S. having tension with other world powers). The administration feels that lowering farm subsidies without a clear indication that America's crops can have unabated access to overseas markets would be unfair to our own farmers.
I believe both Democrats and Republicans don't want to alienate a huge voting block in the Midwest. However, the farm subsidies, especially on corn, could be removed without much shock to the system.
There has been a tremendous amount of speculation on how much ethanol corn can produce. One thing is certain: Every kernel of corn that would have been sent overseas can be used here for ethanol.
I was one of the first to write about
play on ethanol, and I still believe it is a great investment. Even without the farm subsidies -- and more importantly, even if the economy slows -- Deere is still a great play. Simply because Deere is tied to a huge booming product in ethanol, it is not as closely tied to the economy as it has been historically.
Deere has fallen from a high of more than $93 to the low $70s. I still own this stock and believe it is a way to profit from the ethanol boom.
Another boom that will continue despite the economic surroundings is RFID (radio frequency identification) technology.
(symbol RFID, of course), was due to make its debut in an IPO Friday, but the date was pushed back to next week.
RFID technology is replacing the bar code as a simple way of tracking supply that doesn't require people on the ground. There will come a time in the very near future when a consumer will go into a store, pull his cart up to the register and and have all his purchases rung up automatically. At the same time, the company's warehouse will receive a message that the purchased items are no longer on the store's shelves. RFID technology already is being used for theft prevention by pharmaceutical companies.
Alien is going to be the low-cost provider of this technology. The inflection point, which is just about to be reached, is 5 cents per tag.
To view John Layfield's video take of this column, click here
Alien has many applications. The last couple of mad cow cases in the U.S. have shown that the tracking system for cattle is lacking. RFID technology will solve this problem. Instead of tagging their cattle with plastic tags, owners will do it with RFID chips. If a cow shows up with a disease, then the whole herd could be located instantly.
, another RFID play, has filed a lawsuit against Alien for what it claims is infringement of it intellectual property. Intermec is trading 35% off its 52-week high. Intermec has almost $5 a share in cash (just over $300 million) with just around $100 million in debt. It has a forward price-to-earnings ratio of about 24, with a long-term growth rate estimated at 25%. Intermec also has an interest in the bar codes and scanner technologies used for reading them.
The lawsuit filed by Intermec was preceded by a lawsuit filed by Alien. Intermec is the 200-pound gorilla: The technology isn't old enough to have an 800-pound gorilla, with 150 different patents. However, Alien is positioning itself to be the low-cost leader.
Believe me, RFID is going to be an exploding technology. Alien is the rare case where the IPO was postponed to make sure news about the lawsuits would be positive. In fact, late-stage investors paid a higher premium for shares of Alien. (Full disclosure: I was involved in pre-IPO financing for Alien.)
Alien will continue burning through cash; this is a late 2006-to-early 2007 story. This is a great opportunity to get involved still early in the RFID story if you can get an allocation (Bear Steans is lead manager). Buying Intermec is also a good investment choice.
being poor is bad, staying that way is stupid.
At the time of publication Layfield was long Deere and was involved in pre-IPO financing for Alien, although holdings can change at any time.
A former All-American offensive lineman at Abilene Christian University, John Layfield played professional football for the then-Los Angeles Raiders and later in the World League. After wrestling in Japan, Mexico and Europe, Layfield arrived in the WWE in the mid-1990's. A former WWE champion, JBL was a featured wrester at WrestleMania 21 and can also be seen on Friday Night SmackDown! on UPN. Outside of the ring, JBL is a self-taught investor who was recruited to write a personal finance book, Have More Money Now, which was released in the summer of 2003. He has appeared on finance shows on CNN and Fox News Network. He is co-chairman of the Smackdown Your Vote! Campaign and he has joined both the USO and Armed Forces Entertainment (AFE) for tours through Iraq, Afghanistan and other Middle East countries. He regularly visits the Walter Reed Army Medical Center and the Bethesda naval hospital to meet with wounded troops.