The Biggest Catalyst on the Horizon

Over the weekend with some friends, I sat around a table playing games.

We’re all in our 20s. However, I’m sure it’s not unusual for a bunch of 30 or 40-year olds to do the same.

Mobile games, computer games, consoles and board games. The gaming industry isn’t going away. It’s growing at an amazing rate.

At the turn of the century, competitive gaming tournaments really came into fashion. They call it eSports (electronic sports). These tournaments, held all over the world, draw in millions of viewers each year.

Not only does this help to pay for the prize pool, worth millions. It’s also an opportunity for advertisers and game producers to get their name in front of eye balls.

Two companies in particular have benefited a whole lot from eSports. Activision Blizzard, Inc. [NASDAQ:ATVI] and Riot games (owned by Tencent Holding Ltd [HKG:0700]) have seen huge increases in sales, in part thanks to the rise of eSports.

Growing sales have also pushed both stocks up. Lucky shareholders who bought in early are now up more than 5,000% and 50,000% on each investment.

You could say eSports was the catalyst for these exponential climbs.

How can you find more catalysts like the above?

Let me show you how…

Looking for catalysts

In the last five years, the All Ordinaries (largest 500 Aussie stocks) is up. But it’s nothing to write home about.

Those that have ‘bought the index’ are up around 25%, before fees. Over a five-year stretch, that’s about 4.6% each year.

It leaves a lot to be desired.

But according to the Australian Financial Review, there is new found optimism for Aussie shares…

‘…the S&P/ASX 200 could potentially extend its month-long advance to 4 per cent though that may not happen on Monday, following weakness on Wall Street amid persistent worries about the Trump administration’s position on trade and concerns about where global interest rates are heading.

It goes on to talk about various wider economic events in recent weeks. But will knowing this really help you do better in the stock market?

Maybe if you’re a day trader. But if you want to find catalysts that could make stock prices explode over time, these short-term events really have no bearing.

That’s why I suggest you focus on long-term trends and events with long growth runways. Don’t invest in a sector on the word of some politician or central banker. Invest in an individual company because they stand to benefit from a huge growing market that will become a part of the future.

The catalyst that pushes stock prices higher more often than not is earnings. So it makes sense then you want to be looking for earnings catalysts.

We’ve just seen a catalyst (eSports) that contributed to sales growth of multiple gaming companies. Another could be adopting a new line of business.

This is what IBM [NYSE:IBM] did in the latter half of the 1990s. Leading up to that point, IBM saw huge declines in profitability. 

They were a hardware company operating in an industry with little barriers to entry. So while computer hardware was still in massive demand, competitors were able to come in and prices started their race to zero.

IBM had to under-price all their parts to gain market share. At one point IBM, which was one of the most admired companies in America, was losing US$8 billion.

Thankfully, for shareholders, the board of directors brought in fresh new faces. They had new ideas and new visions for the company.

IBM would no longer just produce hardware. They would also jump on the internet wave and also become a consultancy.

This change of business was the catalyst that saw profits rise back to their original glory. IBM’s stock price followed earnings up, climbing more than 10 times before the decade was over.

Of course a catalyst doesn’t have to be this dramatic. It could be that the company is removing poor performing divisions, which would make the business more efficient.

But if you want a catalyst you can really sink your teeth into, why not look into how Chinese tech giants are trying to create super consumers in Southeast Asia.

Securing growth for the future

China has a massive population. Millions of households are growing wealthier by the year. They’re moving to cities, buying smartphones, purchasing goods online.

Two companies that have benefited beyond their wildest dreams are Alibaba Group Holdings [NYSE:BABA] and JD.com, Inc. [NASDAQ:JD].

Both are extremely dominate ecommerce companies in China. And for both, earnings growth of 50–100% is not unusual.

At some point, however, growth will have to slow down. It’s why both companies are looking abroad for even more consumers to bolster future growth.

The region both are racing to first is Southeast Asia. Like China, countries in Southeast Asia have massive populations that are growing wealthier each year.

Unlike China, consumers in countries like Thailand and Indonesia are not super avid consumers. But companies like Alibaba, JD.com and Tencent are looking to change that.

All three are gobbling up promising start-ups. They’re introducing unique payment systems to help consumers spend more where ever they are. They’re also building out the infrastructure that will help get more people online, looking at ads, consumer goods, and entertainment.

While this is a catalyst to increase the earnings of these tech giants, it will also benefit far smaller stocks operating within these regions.

Chinese tech giants are turning the populace of Southeast Asia into super consumers. And that could really boost earnings for multiple online businesses in the region.

With that said, very few people have the time to dig for these undiscovered gems. However, I am not one of them.

It’s why I’ve recently launched a brand new advisory service, Wealth Eruption.

We look for undiscovered small-caps that could have the potential to erupt within months.

I’m specifically looking for returns that could literally change your wealth. Already I’ve recommended five ASX-listed stocks that could rise significantly higher on the back of Asia (later today that number will climb to six).

If you want to find out more about the service, click here.

Your friend,

Härje Ronngard,
Editor, Money Morning

PS: If there’s a catalyst you’re looking at, I want to hear about it. Alternatively, you might just want to hear more about a particular opportunity.  If that’s you, please write in to: cs@portphillippublishing.com.au.

Please use ‘Money Morning Catalyst’ in the subject line. That way, I’ll be sure to receive your emails.


Money Morning is Australia’s most outspoken financial news service. Your Money Morning editorial team are not afraid to tell it like it is. From calling out politicians to taking on the housing industry, our aim is to cut through the hype and BS to help you make sense of the stories that make a difference to your wealth. Whether you agree with us or not, you’ll find our common-sense, thought provoking arguments well worth a read.

Money Morning Australia is published by Port Phillip Publishing, an independent financial publisher based in Melbourne, Australia. As an Australian financial services license holder we are subject to the regulations and laws of Corporations Act and Financial Services Act.


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