Friday, August 17, 2012
The world's greatest investor, Warren Buffett, gets a lot of press for avoiding technology stocks...
You see, Warren is famous for buying the "basics," companies that make everyday products like soda or razors. He's always steered clear of early-stage investments in tech companies like Google, Apple, and Facebook. It's difficult to successfully pick technology stocks. One day, a company is on top... the next day, it's toast because a competitor has invented a better technology.
But there's a trend taking place in technology that is so big, even Warren can't ignore it. In fact, he just invested $10 billion into it. It's an unusual move, given that the legendary investor has avoided the sector for the past four decades.
The trend is called Big Data.
Over the past 12 months, tech giants IBM, Microsoft, Intel, EMC, and Oracle have been on an acquisition spree... They've spent billions of dollars acquiring companies with Big Data technology.
"Big Data" refers to the volume of digital data being collected around the world. Companies right now are analyzing this data using algorithms to predict future behavior patterns. For industries like health care and retail, it could save companies hundreds of billions of dollars each year.
You see, over the past two years, we've seen an explosion in data with the massive growth in social networking, smartphone, and tablet use. Billions of people every day are posting new information to their Facebook, YouTube, and Twitter accounts.
To put this in perspective, more than 750 million photos were uploaded to Facebook on New Year's Eve alone. About 300 million people post on Twitter each day. In the past 60 seconds, over 700,000 people just searched for something on Google.
The "offline" world is also full of useful data. Cameras on traffic lights, highway tollbooths, and security systems capture pictures and video constantly. Most delivery companies (including transportation giants UPS and FedEx) have GPS systems on their trucks that transmit data back to the company's tech department.
Because of this trend, data is piling up at an unbelievable rate. According to tech giant IBM, 90% of all data is less than two years old. Put another way, 10 times as much data is in storage today as existed two years ago. That's a 900% surge!
Even more shocking, IBM expects data to grow by another 800% over the next five years.
This data is constantly being analyzed, which could lead to more sales for retailers who will be able to predict future spending patterns. It could also mean huge cost savings for utility companies tracking energy usage during peak hours.
Tens of thousands of companies all over the world are making Big Data their top priority for 2012 and beyond. Venture capitalists are also pouring huge money into tech start-ups trying to get an edge on this megatrend.
IBM is on the forefront. That's probably one of the reasons Warren Buffett made the company one of his three largest stock positions nine months ago.
Other large players in the Big Data trend – like Teradata and Oracle – are trading near 52-week highs.
Despite strong performances this year, I see these three stocks trading much higher over the long term as this trend grows stronger. I suggest buying these stocks on any pullbacks.
Next Wednesday, Frank is interviewing Vivek Ranadive on S&A Investor Radio. Ranadive is the founder and CEO of Tibco Software, a $4 billion Big Data company. He'll give a real-time update on the huge potential of this megatrend.
Tech giant Cisco soars... shares are up nearly 10% after raising its dividend 75%.
Pressure is building in gold... prices have been forming a "triangle" for more than three months.
Housing recovery continues... fresh multiyear highs for homebuilder funds XHB and ITB.
The market is betting on job growth... payroll service companies Automatic Data Processing and Paychex are sitting at 52-week highs.