Chris’ note: Our top priority here at Legacy Research is to make sure you come out of the coronavirus crisis with your health… and your wealth… intact.
We know these are trying times. And we’ve got your back.
That’s why, as long as the crisis lasts, we’re tearing down our “paywall.” We’re sending you our best research and recommendations about how to handle the pandemic and its impact on markets in a bonus morning edition – Daily Cut AM.
Yesterday, you heard from our tech expert, Jeff Brown, on the race to find a vaccine for the virus. And today, Jeff is allowing me to unlock an extract from the recommendation he sent paid-up subscribers of our Near Future Report tech investing advisory recently.
As you’ll see below, Jeff has found a “virus resistant” stock that he believes will double your money if you buy now.
If you want to see what the recommendation below can become, look no further than Amazon Web Services (AWS).
AWS is a division of Amazon.com.
It started as a file storage service. It quickly developed into what it calls “Elastic Compute Cloud.” This allowed corporations and individuals to rent computing power and storage on an as-needed basis.
From there, AWS kept adding features… database capabilities, networking, analytics, developer tools, Internet of Things, and now even quantum computing…
In short, Amazon built the world’s largest marketplace for cloud-based services.
Two years ago, analysts estimated Amazon’s AWS division was worth $250 billion. Now, Goldman Sachs estimates AWS would be worth $500 billion as a standalone company.
That would make it the eighth-largest publicly traded company in America. AWS is bigger than JPMorgan Chase, the largest U.S. bank. It’s bigger than Walmart… and AT&T.
And even as a $500 billion company with over $35 billion in annual revenue, AWS is still able to increase its revenue by 36.5% a year. That’s staggering growth for such a large company.
The recommendation below is following AWS’s playbook.
It started out in one niche – customer relationship management. From there, it expanded into a wide range of enterprise software applications. And it is using Amazon’s playbook to build out the largest marketplace of its kind.
That company is Salesforce (CRM). I’m sure you’ve heard of it. You may even use its software.
I’m also sure you don’t know the whole story about Salesforce… until now.
Today, I’ll show you how we’ll double our money with the “must-have” software platform of the modern business world.
One reason we’re investing in Salesforce is that factory shutdowns around the world won’t impact its business like they would a hardware company.
With millions of people around the world quarantined and factories shuttered, supply chain issues are happening daily. All it takes is for one key component to be out of inventory and a product can’t be produced. Then sales come to a screeching halt.
If the COVID-19 virus continues spreading, we could see many more companies guide lower when they next report earnings.
But Salesforce doesn’t have a physical product to manufacture. Salesforce is a software company. But it’s not like Microsoft, which depends on PCs that are manufactured and shipped with its software preinstalled.
Salesforce is an entirely cloud-based business. Its software runs in data centers around the world. It is accessible through any internet browser.
Salesforce is a software-as-a-service (SaaS) company. SaaS companies license their software to users on a monthly, quarterly, or annual basis. It’s a subscription business model.
We love subscription business models. They tend to be high-gross-margin businesses that grow quickly if the product is great.
And Wall Street likes to see the consistent, reoccurring revenue that comes from subscriptions. This makes for less “lumpy” sales cycles and simplifies the forecasting. The end result is that high-quality SaaS companies receive higher valuation multiples.
This results in better consistency and predictability of revenue growth. As a result, investors will value these companies at higher multiples.
Companies that use these cloud-based subscription services aren’t going to cancel their subscriptions because of a virus – especially not something as important as Salesforce’s CRM software. And I can say that from personal experience.
The marketing team here at Legacy Research – our parent publishing company – said our business would come to a standstill if we were unable to use Salesforce. Many companies feel the same way.
That makes Salesforce’s revenues virus resistant.
This isn’t to say share prices won’t go down in a panic. Shares have fallen in the past few weeks. But that is something I’ve been waiting for now for a few years… a chance to recommend Salesforce at a reasonable valuation.
And that makes Salesforce very attractive right now.
Salesforce controls about 17% of the customer relationship management (CRM) market. As you can see in the chart below, the rest of the players are fighting for scraps.
But this isn’t just a story of CRM software. It’s a story about building the most comprehensive enterprise software marketplace on the planet.
This type of software used to be available only to the largest companies. But Salesforce makes it available to mid-sized and even small businesses. It levels the playing field for new businesses, allowing them to compete with the established behemoths using the same level of software automation and digital savvy.
Salesforce has made its product accessible to all businesses by making it modular and hosting it in the cloud. No hardware is required to use Salesforce’s software application. The modular business model for software applications means that companies can pay for just the software they need… And it’s easy to scale up as the business grows and has new needs.
Small businesses can even get free trials of the software to see if it’ll help them. And when a business finds it helpful, it can start using the software for as little as $25 a month. Any business can afford the service… And once the business grows, Salesforce has many more software applications/modules to meet its increasing needs.
Salesforce’s services will be in high demand for years to come. Companies not using software like this to automate their business will be at a severe competitive disadvantage.
The internet was the single most disruptive force in modern business. It allowed someone with a little time and HTML programming skills to set up a storefront. And this storefront had the potential to have as much traffic as any other store in the world.
People started doing business digitally in the late 1990s… It grew slowly at first. But it has accelerated over the past decade. Right now, about one-third of the world’s gross domestic product (GDP) is driven digitally.
And by 2023, more than half of the world’s GDP will be driven by enterprises that have made the digital transformation.
These digital businesses either thrive or die based on how well they know their customers. If a business can’t tell where its customers are coming from, it doesn’t know which of its marketing campaigns are working.
Salesforce has products that can track current and potential customers and pinpoint the ones most likely to buy something new. This allows successful businesses to focus on what is most likely to convert to sales. This is an advantage that digital firms have over their brick-and-mortar counterparts. That’s precisely why companies are rapidly transitioning to digital platforms to run their businesses.
No company in the world is better positioned to help companies go digital in the next three years.
Salesforce recognizes how quickly this shift is happening. And to position itself to take advantage of this trend, it has made a series of strategic acquisitions.
Just like Amazon did with Amazon Web Services, Salesforce continues to build out its marketplace for enterprise software acquisitions. And just like Amazon, it builds some of that software itself and then strategically acquires companies that help it achieve its marketplace goals even quicker.
Buy shares of Salesforce (CRM) up to a price of $175.
As always, we recommend you never bet the house on any one investment. So keep your position size small relative to your overall portfolio.
Chris here – If you’re a Near Future Report subscriber, you can catch up on Jeff’s full write up here.
Today’s issue is a little longer than normal. So I won’t be including our regular mailbag and “Corona Watch” segments.
But keep an eye out for this evening’s Daily Cut for more on the coronavirus and the economic crisis that’s unfolding in its wake. My colleagues at Legacy and I will be answering more of your most pressing questions then.
We’ll publish it at the regular time of 5 p.m. ET.
And remember, The Daily Cut AM is a shared resource for all Legacy readers. These are trying times. And the way we’ll get through this is together.
So please share your stories of how you’re coping… along with any local updates… at feedback@legacyresearch.com. We’ll publish as many of your emails in future Daily Cut dispatches as we can.
Regards,
Chris Lowe
March 20, 2020
County Kilkenny, Ireland
P.S. As cities across the U.S. go into lockdown, here at Legacy, we want to go the extra mile for you. It can be boring being stuck indoors with nothing to do. So we’re also unlocking a digital copy of Legacy cofounder Bill Bonner’s latest book for you.
It’s called Win-Win or Lose: A Modest Theory of Civilization. And it’s a Bonner classic. In fact, it’s one of the best insights into how society… and the economy… really work that I (Chris) have read. And it’s almost diametrically opposed to the mainstream view.
You see, Bill believes government bailouts… quantitative easing (QE)… zero-interest-rate policy (ZIRP)… trade wars… and all other Washington boondoggles are win-lose deals. The remedy for the economy is something different entirely. You can access your free copy here, courtesy of Bill.
When you’ve read it, tell us what you think at feedback@legacyresearch.com.
Like what you’re reading? Send your thoughts to feedback@legacyresearch.com.