It’s hard to be a continual success when you’re selling a commodity.
The typical example might be a miner. Take Fortescue Metals Group Ltd [ASX:FMG] for instance. FMG’s profits are dependent on the price of iron ore.
If the price rises higher, then that’s great for profit. If the price falls, shareholders aren’t so happy.
You could always take a bet on which commodities you think will rise in the near future. Then you could invest in businesses producing those commodities.
Yet it would be far better to find the low cost producer. Maybe they have a mine closer to the port, resulting in cheaper transport costs. Or maybe the purity of their ore is far higher than anyone else’s and thus it’s cheaper to mine.
You’ll still see lumpy earnings as commodity prices change. But over the long haul, you should do pretty well.
Forget the internet, IBM now pursues blockchain
You could also say IBM [NYSE:IBM] is a commodity business. They sell indistinguishable computer parts. In the early 1990s, this fact almost ruined the company. Big Blue went from earning US$6 billion to losing US$8 billion.
It wasn’t until new management came in that IBM shifted gears and set their sights on the internet. The company would redefine themselves. Not only would they sell hardware. They would also offer consulting and services for the mega trend that was the internet.
Yet it again seems like IBM need to jump on another wave to reinvent itself. Sales from consulting services and hardware products have both been declining over the last five years.
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The stock hasn’t fared much better over the same time. Shareholders have seen their holdings drop more than 25% in the last five years.
Yet despite the troubles, IBM management is confidence they can re-energise the business with quantum computing, artificial intelligence and blockchain.
The Australian Financial Review writes:
‘The past half-decade has represented a not-so-quiet revolution as its traditional systems and technology business, which sold mainframes, servers and other hardware, was overhauled from late 2014. IBM offloaded its semiconductor business and sold its x86 server division to Lenovo for $US2.1 billion.
‘At the same it introduced new “strategic imperatives”, which include analytics, cloud, mobile, security and social divisions (a separate segment), where revenue has continued to grow, hitting $US37 billion in 2017, making up 46 per cent of IBM’s revenue.
‘IBM’s general manager of blockchain, Marie Wieck, says transformational shifts are a well-established facet of the company’s history.’
I wouldn’t expect investors to jump in straight away. Most will likely wait to see what happens. But you have to hand it to IBM, they’re jumping into technologies with massive future potential.
Blockchain is not just about transactions
Let’s take a look at blockchain for a minute.
It’s essentially a digital ledger, a data platform. Its most commonly associated with bitcoin because it tracks and verifies all bitcoin transactions ever made.
But it’s so much more than transactions.
‘We started working on blockchain four years ago and there had been spots of work all over,’ Marie Wieck, head of IBM Blockchain, said.
‘Everyone thought it was key to transactions, but we quickly came back and realised this isn’t just transactions, it’s a data platform. We started working on it and about the same time so did the research team, but we came from two different vantage points, so we were tackling both the technology side and figuring out what solutions could use blockchain.’
Today IBM helps businesses build out open-source ledgers. At IBM’s THINK conference this year, Big Blue announced the beta of IBM Blockchain Platform Starter Plan.
It’s a platform that start-ups and developers can use to build their own blockchain network. And as demand increases, shareholders would hope IBM has serious plans to monetise this platform.
Like I said, investors will likely wait to see what happens next. But making blockchain more accessible and available might not only rejuvenate IBM’s sales, it could create a boom for biotech firms.
Are you ready for the collision?
A few weeks ago, a team of scientists said they’ve made a cancer treatment breakthrough. The team spent years deciphering the genetic code of thousands of tumours.
The hope is that it will provide a road map to more effective cancer treatments and new drug developments.
What does this have to do with blockchain?
Well, this and many other biotech ‘breakthroughs’ are only possible because of data.
It’s not obvious at first. But data is extremely important for any kind of healthcare research. The industry handles an enormous amount of data, from patient files to drug composition.
With blockchain, storage and access to data from all over the world becomes that much easier.
According to Ryan Dinse, editor of Exponential Stock Investor, there’s a huge investment opportunity here for Aussie punters. He believes biotech’s harnessing the power of blockchain could bring on a genomic revolution.
And there are four stocks he believes you should buy right now. To find out their names, click here.
Editor, Money Morning