Disruptive technologies, however, are always opposed by the status quo. Opposition comes not only from businesses that are replaced and disrupted. Elements of the public itself are threatened psychologically by major change. We see this in the active resistance to even clearly beneficial technologies. Genetically modified food crops are a prime example. Though modified varieties of rice and grains dramatically improve lives in the Third World, they are virulently opposed by parts of the environmental movement that view genetic engineering as a crime against nature.

Regenerative medicine also has its opponents. They are more likely to have religious than environmental grounds for their opposition. We have seen this, unfortunately, in the administration’s general pressure on various executive agencies to discourage stem cell research.

The FDA’s recent refusal to allow stem cell company Geron to proceed with trials of its spinal cord therapy is just one example, but its impact has been enormous. This is not the time for transformational investors to flee regenerative medicine, though. More than ever, it is critical that you make stem cells part of your diversified portfolio of breakthrough stocks. As I’ve said many times, we can afford to lose on some of these as long as we hold the winners. Transformational stocks show profits in the tens of thousands of percent, not the single-digit averages that most successful portfolios boast.

Remember, the great transformational investors have always bought when the public has given up hope. This is one of those times. Nevertheless, I’ll admit that I’m more than irritated by the FDA’s decision. There is no shortage of spinal cord injury patients willing to risk side effects to move the science forward.

The FDA’s justification for preventing their treatment is that Geron’s cells are not proven to be pure. Even if true, it’s unlikely that the consequences would be as severe as paralysis. Quadriplegia is usually an early death sentence, and the U.S. spends over $5 billion per year caring for sufferers.

This is a good time to review the transformational tech cycle. Many economists have addressed this pattern. Here, though, is the version used by tech-consulting research giant Gartner:

On Gartner’s chart, we’re on the rising “slope of enlightenment.” Evidence comes from the sixth annual meeting of the International Society for Stem Cell Research that took place in Philadelphia this June. In the short history of the event, everything about it has changed. Attendance has gone from a few hundred to thousands of working scientists from around the world. More importantly, the mood and outlook of stem cell researchers has wholly changed. The reason is the flood of breakthroughs since last year’s ISSCR meeting. Let’s recap.

Last year, three different research groups reprogrammed normal mouse skin cells to an embryonic state. Though the use of viruses made the technique unacceptable for humans, some of these cells were used to produce healthy mouse clones. This proved that stem cells can be derived from adult cells. Skeptics, however, pointed out that rodent cells are very unlike human cells.

Then, researchers at the Oregon National Primate Research Center produced a new stem cell line using adult monkey cells. This muted most of the doubters. Then, in November, two separate groups announced the creation of completely programmable stem cells from adult human cells.

Just this February, completely programmable pluripotent stem cells were created using cells from an adult mouse’s liver and stomach. Unlike mice born from embryos in the previous experiments, those created with these cells were much more likely to be healthy. The techniques solved some of the health risks associated with human therapies and have spurred further research.

I’ve talked personally in recent months to a number of stem cell researchers, including the leading lights. Most believe we’re closing in on a solution to the large and growing problem of heart failure. Specifically, the solution is growing new muscle cells (recapitulating embryonic myogenesis) within the heart (cardiomyoplasty) via stem cells.

This would, in effect, deliver a brand-new heart. At the same time, this will reline the vascular tree to repair endothelial dysfunction, such as that seen in coronary disease and stroke. Leading researchers expect a breakthrough to occur in the next five years, even if they’re not going on the record.

Until next time, here’s to transformational profits.

Patrick Cox
July 30, 2008

P.S.: I just got word from HQ up in Baltimore that we are launching my brand-new alert service, Breakthrough Technology Alert, over the weekend. You have no idea how excited I am. Currently, I’m sitting on seven big money ideas. Any one of them could end up being the next Google or Pfizer. So be sure to check your inbox this weekend. We’ll be sure to let you know when it’s all set.

Investing in Stem Cell Technology was originally featured in the Penny Sleuth.

By 21st-century standards, however, the microprocessor business is a mature industry. It’s way too late to get in on Intel’s transformational phase, a phase I describe as having stock returns measured in the tens of thousands of percent.

Nevertheless, this accelerating increase in chip power is giving birth to entirely new technologies and companies. Some of these companies will match or surpass the transformational profits earned by Intel and other tech stars of the past.

Not only are microprocessors getting smaller and faster. They’re working more intelligently. They use less electrical power. Most importantly, they deliver more computational power for less cost. These are trends that will continue in the future.

In a sense, of course, this is old news. Some analysts seem almost bored by microprocessor advances, if not downright cynical. I get the feeling sometimes that I ought to not be so excited about this stuff. The truth is that I’m as awed by progress in this field today as I was when Cray supercomputers and preassembled PCs first came to market in 1970s.

It’s not that I have a chip fetish. Rather, I know that increases in computational power create new markets. That, in turn, offers extraordinary opportunities to investors with the insight to recognize the nature of this ongoing transformation.

Slightly farther down the line, components such as carbon nanotubes and memristors will kick in to keep picking up the pace. Already, however, increases in chip power and cost-effectiveness are spawning entirely new technologies and products. While Intel may no longer have transformational profit potential, some of the companies that build on new chips do.

The task now is to identify emerging technologies that will catapult to transformational status by microprocessor advances. Some of these technologies are obvious. Some are less so. The most obvious consequence of chip improvement, I think, is the “convergence.”

Profiting from the Convergence

The term “convergence” signifies, of course, the merging of various electronic devices. This includes phones, personal computers, media players and GPS locators. The process is well under way.

Phones and computers resemble one another more and more every day. People are using laptops for Internet-based phone calls and video conferencing. Many of these services, such as Skype, are free. My 10-year-old and her older brother both use free Google and Yahoo Voice over Internet Protocol to talk with groups of their friends, often while playing multiplayer online games.

Of more relevance, mobile phone devices are acquiring computer capabilities. Within five years, gadgets small enough to fit in your pocket will have more computational power than most laptops today. This will happen not only because of hardware advances, but because much more of what we now do on PCs we’ll do remotely via Web apps. Mobile Internet access will also continue to improve in terms of quality and cost. All these factors will amplify the power of mobile devices.

It’s a Small-Cap World After All

It’s unlikely, however, that profits from the companies that actually manufacture these all-in-one devices will be transformational. As with the chip business, the mobile phone industry has been around too long to generate spectacular profits. Competition among the many players dedicated to that market, including several in low-labor-cost China, will keep profit margins down.

I’m not saying that the proliferation of mobile computing devices won’t create transformational profits. It will, but the chip and phone manufacturers won’t be the ones earning them.

As new technologies enable these unified phone/computer/media player machines, the companies that control trailblazing components will make transformational profits. Small caps with the right patents and expertise will reap enormous returns. Their share of total revenues from each device sold may be small, but the sheer quantity of these portable computing devices will make up for it.

We’ll keep our eyes peeled for the best way to profit from this tech revolution…

Until next time,

Patrick Cox
June 2, 2008

The Next Intel Is Found in Convergence was originally featured in the Penny Sleuth.