In the 2013 movie Flight, Denzel Washington plays a drug- and alcohol-addicted commercial airline pilot named William “Whip” Whitaker.
To stay alert after a sleepless night in his Orlando hotel room, Whip uses cocaine before a morning flight to Atlanta.
During the flight, Whip hands over the controls to his co-pilot. He then discreetly mixes vodka into a cup of orange juice to take a nap.
While he’s napping, the plane experiences severe turbulence and goes into a steep dive.
In one of the greatest opening scenes in cinema history, a drunken Whip takes over the controls and somehow manages to crash-land the plane in an open field – saving 100 of the 106 crew and passengers aboard the plane.
Although Flight is famous for the crash-landing scene, it’s ultimately a great movie about addicts and their enablers. We encourage you to watch it.
The reason Whip could drink a vodka cocktail in the cockpit is because one of the flight attendants he had an affair with the night before slipped him the bottle before takeoff.
And he was able to keep his job despite numerous warning signs of his addiction because the pilot union constantly ran interference for him.
So why are we talking about a movie about addiction in a financial newsletter?
Generally, enablers are those whose behavior allows other people to continue self-destructive patterns. Like the flight attendant and pilots’ union did for Whip.
So you might be surprised that we like investing in corporate enablers. That’s because in the corporate world, enablers do the exact opposite.
Corporate enablers provide the underlying technology or services that allow other businesses to flourish.
Most of them aren’t household names. They don’t dominate headlines. So they likely never cross your radar.
But if you find the right corporate enabler, it has the potential to really move the needle on your net worth.
The Internet Enabler
One example of a corporate enabler is Cisco (CSCO).
Back in 1990, Cisco was the primary manufacturer of internet routers. Routers are basically the backbone of the internet. They direct data across networks as efficiently as possible.
Over the 1990s, the number of internet users jumped from 2.6 million to 412.8 million. Routers became a critical piece of technology for all those computers to connect to the internet.
As a result, Cisco’s business expanded rapidly over the decade.
From 1990–2000, Cisco’s revenue grew from $69 million to $19 billion. That’s an average of 75% annual growth.
From 1995–2000, Cisco’s share price soared 2,644%. That’s more than household names like Microsoft, IBM, and Intel.
Corporate enablers don’t just reside in the tech space. We saw similar enablers arise in the oil industry during the mid-2000s.
For example, soaring demand from a rising Chinese population and Middle East tension caused oil prices to skyrocket in the mid-2000s.
At that time, oil explorers that most investors recognize like ExxonMobil, Chevron, and ConocoPhillips became the darlings of the market.
Between 2000 and 2007, these companies’ share prices rose by as much as 136%, 132%, and 305%, respectively. That’s much better than the 7% growth the S&P 500 recorded over that same period.
However, the little-known enablers did much better than the oil explorers…
Companies like Helmerich & Payne, NOV, and RPC provide pumps, drill rigs, and manpower to help the explorers pump oil from the ground.
Their share prices rose by 919%, 1,141%, and 1,740%, respectively, over those same eight years.
Similarly, the clean energy trend has grown in popularity over the past few years.
Enphase Energy and First Solar have seen gains of 67% and 129%, respectively, over the past three years.
Yet little is spoken about the electric transmission and distribution companies that are vital to those companies’ success like MYR Group and Quanta Services. They’ve seen gains of 277% and 298%, respectively.
As you can see, enablers directly benefit from powerful demand drivers that big trends bring about.
Plus, the lack of investor awareness means they tend to offer much better valuations and return opportunities.
Today, as it did in the 1990s, tech finds itself at the precipice of another booming era. This time, the potential advancement of artificial intelligence (AI) is causing it.
And we believe it’ll once again pay to stick with the enablers.
The Simple Way to Play the AI Trend
The advancement of AI has led to a surge in interest for technology companies that stand to benefit.
In fact, consultant firm PwC Global estimates AI will create $15.7 trillion in new wealth.
Nearly all of the S&P 500’s 14% rise this year has come from the technology sector. Strip out the tech sector, and the index has only gained 0.6% this year.
Companies like Adobe, Salesforce, and Palo Alto Networks have seen their shares explode 57%, 58%, and 69% higher, respectively.
These companies are leveraging AI to improve their businesses.
However, for those looking for the chance to pocket even greater gains from the AI trend, we believe it’s best to stick with the enablers.
Fortunately, there’s a way you can gain access to multiple AI enablers in one quick investment.
The WisdomTree Artificial Intelligence and Innovation Fund (WTAI) is a one-stop shop for a variety of companies that are enabling the AI trend.
WTAI focuses on three primary areas of AI:
-
Semiconductors: Semiconductors provide the computational power needed to power AI. These include companies like Nvidia and Lattice Semiconductor.
-
Semiconductor Design: These companies provide software to design the semiconductors powering AI, including Synopsys and Cadence Design Systems.
-
Hardware: This includes both semiconductor equipment manufacturers as well as quantum computers that are improving AI capabilities. Some examples are ASML and IonQ.
If you’re looking for a way to gain broad exposure to this trend, then WTAI is a simple way to do so.
Remember, always do your due diligence before making an investment. And never invest more than you can afford to lose.
Regards,
Palm Beach Research Group