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 John Deere ( DE) as a
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. Intermec ( IN), 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. Remember, being poor is bad, staying that way is stupid.