Achieving Optimal Asset Allocation

Allocating your investments among different asset classes is a key strategy to help minimize risk and potentially increase gains. Consider it the opposite of "putting all your eggs in one basket." The first step to understanding optimal asset allocation is defining its meaning and purpose, then taking a closer look at how allocation can benefit you, and the right asset mix to achieve and maintain it.

What is Asset Allocation?
Asset allocation is the strategy of dividing your investment portfolio across various asset classes like stocks, bonds and money market securities. Essentially, asset allocation is an organized and effective method of diversification.

Your options typically fall within three classes - stocks, bonds and cash. Within these three classes are subclasses (the variations within each category). Some subclasses and alternatives include:

Large-cap stock - These are shares issued by large companies with a market capitalization generally greater than $10 billion. Mid-cap stock - These are issued by mid-sized companies with a market cap generally between $2 billion and $10 billion. Small-cap stocks - These represent smaller-sized companies with a market cap of less than $2 billion. These types of equities tend to have the highest risk due to lower liquidity. International securities - These types of assets are issued by foreign companies and listed on a foreign exchange. International securities allow an investor to diversify outside of his or her country, but they also have exposure to country risk - the risk that a country will not be able to honor its financial commitments. Emerging markets - This category represents securities from the financial markets of a developing country. Although investments in emerging markets offer a higher potential return, there is also higher risk, often due to political instability, country risk and lower liquidity. Fixed-income securities - The fixed-income asset class comprises debt securities that pay the holder a set amount of interest, periodically or at maturity, as well as the return of principal when the security matures. These securities tend to have lower volatility than equities, and have lower risk because of the steady income they provide. Note that though payment of income is promised by the issuer, there is a risk of default. Fixed-income securities include corporate and government bonds. Money market - Money market securities are debt securities that are extremely liquid investments with maturities of less than one year. Treasury bills (T-bills) make up the majority of these types of securities. Real-estate investment trusts (REITs) - Real estate investment trusts (REITs) trade similarly to equities, except the underlying asset is a share of a pool of mortgages or properties, rather than ownership of a company. Maximizing Return & Minimizing Risk
The main goal of allocating your assets is to minimize risk given a certain expected level of return. Of course to maximize return and minimize risk, you need to know the risk-return characteristics of the various asset classes. Figure 1 compares the risk and potential return of some popular choices:

Figure 1

Equities have the highest potential return, but also the highest risk. On the other hand, Treasury bills have the lowest risk since they are backed by the government, but they also provide the lowest potential return. This is the risk-return tradeoff. Keep in mind that high risk choices are better suited for investors who have a high risk tolerance (can stomach wide fluctuations in value), and who have a longer time horizon to recover from losses.

It's because of the risk-return tradeoff - which says that potential return rises with an increase in risk - that diversification through asset allocation is important. Since different assets have different risks and market fluctuations, proper asset allocation insulates your entire portfolio from the ups and downs of one single class of securities. So, while part of your portfolio may contain more volatile securities - which you've chosen for their potential of higher returns - the other part of your portfolio devoted to other assets remains stable. Because of the protection it offers, asset allocation is the key to maximizing returns while minimizing risk.

Deciding What's Right for You
As each asset class has varying levels of return and risk, investors should consider their risk tolerance, investment objectives, time horizon and available capital as the basis for their asset composition. Investors with a long time horizon and larger sums to invest may feel more comfortable with high risk, high return options. Contrastingly, investors with smaller sums and shorter time spans may feel more comfortable with low risk, low return allocations.

To make the asset allocation process easier for clients, many investment companies create a series of model portfolios, each comprising different proportions of asset classes. These portfolios of different proportions satisfy a particular level of investor risk tolerance. In general, these model portfolios range from conservative to very aggressive:


Conservative Portfolios

Conservative model portfolios generally allocate a large percent of the total portfolio to lower-risk securities such as fixed-income and money market securities. The main goal of a conservative portfolio is to protect the principal value of your portfolio (the money you originally invested). As such, these models are often referred to as "capital preservation portfolios".

Even if you are very conservative and prefer to avoid the stock market entirely, some exposure can help offset inflation. You could invest the equity portion in high-quality blue chip companies, or an index fund, since the goal is not to beat the market.



Moderately Conservative Portfolios

A moderately conservative portfolio is ideal for those who wish to preserve a large portion of the portfolio's total value, but are willing to take on a higher amount of risk to get some inflation protection. A common strategy within this risk level is called "current income." With this strategy, you chose securities that pay a high level of dividends or coupon payments.



Moderately Aggressive Portfolios

Moderately aggressive model portfolios are often referred to as "balanced portfolios" since the asset composition is divided almost equally between fixed-income securities and equities in order to provide a balance of growth and income. Since moderately aggressive portfolios have a higher level of risk than conservative portfolios, this strategy is best for investors with a longer time horizon (generally more than five years), and a medium level of risk tolerance.


Aggressive Portfolios

Aggressive portfolios mainly consist of equities, so their value tends to fluctuate widely. If you have an aggressive portfolio, your main goal is to obtain long-term growth of capital. As such, the strategy of an aggressive portfolio is often called a "capital growth" strategy. To provide some diversification, investors with aggressive portfolios usually add some fixed-income securities.



Very Aggressive Portfolios

Very aggressive portfolios consist almost entirely of equities. As such, with a very aggressive portfolio, your main goal is aggressive capital growth over a long time horizon. Since these portfolios carry a considerable amount of risk, the value of the portfolio will vary widely in the short term.




Tailor Your Allocations to Your Needs
Note that the above outline of model portfolios and the associated strategies offer only a loose guideline - you can modify the proportions to suit your own individual investment needs. How you fine tune the models above can depend on your future needs for capital and what kind of investor you are. For instance, if you like to research your own companies and devote time to stock picking, you will likely further divide the equities portion of your portfolio among subclasses of stocks. By doing so, you can achieve a specialized risk-return potential even further within one portion of your portfolio.

Also, the amount of cash and equivalents or money market instruments you place in your portfolio will depend on the amount of liquidity and safety you need. If you need investments that can be liquidated quickly or you would like to maintain the current value of your portfolio, you might consider putting a larger portion of your investment portfolio in money market or short-term fixed-income securities. Those investors who do not have liquidity concerns and have a higher risk tolerance will have a small portion of their portfolio within these instruments.

Asset Allocation Strategies

While you decide how to allocate your portfolio, keep in mind several allocation strategies and their goals. Each one offers a different approach based on the investor's time frame, goals and risk tolerance. The most common strategies include strategic, tactical, constant weighting and systemic asset allocation.

The Importance of Maintaining Your Allocated Portfolio
Once you have chosen your portfolio investment strategy, it's important to conduct periodic portfolio reviews, as the value of various assets will change. This affects the weighting of each asset class, meaning over time, a portfolio can grow from containing primarily one type of asset class to another. For example, if you start with a moderately conservative portfolio, the value of the equity portion may increase significantly during the year, suddenly giving you an equity heavy portfolio. This makes the portfolio more like that of an investor practicing a balanced portfolio strategy, which is higher risk!

In order to reset your portfolio back to its original state, you need to rebalance your portfolio. Rebalancing is the process of selling portions of your portfolio that have increased significantly, and using those funds to purchase additional units of assets that have declined slightly or increased at a lesser rate. This process is also important if your investment strategy or tolerance for risk has changed.

The Bottom Line
Asset allocation is a fundamental investing principle because it helps investors maximize profits while minimizing risk. The different asset allocation strategies described above cover a wide range of investment styles, accommodating varying risk tolerance, time frames and goals. Once you've chosen an appropriate asset allocation strategy, remember to conduct periodic reviews of your portfolio to ensure you're maintaining your intended allocation and are still on track to your long-term investment goals.

Hold the Champagne, Congress Is Just Getting Started

Stocks finished in the green for a third consecutive day on Monday as hope for a deal that would avert a debt default and reopen the government grew throughout the session.

Things started off a bit on the rocky side however as the DJIA was down more than 100 points two minutes after the opening bell. It turns out that the optimism which had pushed stocks up on Friday had quickly reversed after the politicians failed to make any substantive progress over the weekend.

And before investors could pour that first cup of coffee, there was a sea of red numbers scrolling wildly at the corner of Broad and Wall.

For those keeping score at home, the DJIA has advanced an eye-popping 825 points over the past week. The S&P 500 has moved up by 3.2 percent since last Wednesday's low and the NASDAQ closed out Monday's session just a whisker away from its highest close since the spring of 2000.

And speaking of new highs, both the Russell 2000 (small-caps) and the S&P 400 (mid-caps) indices finished Monday's session at fresh all-time highs. So, it will suffice to say that the fear of what might happen to the country should Congress do the unthinkable isn't sending investors underneath their desks at the present time.

"Hopium" Revisited

Despite all the fear mongering and the doom-and-gloom being espoused by the popular press, word that Senate Majority Leader Harry Reid was "optimistic that a deal would be reached this week" managed to turn traders' frowns upside down around mid-morning on Monday.

Then the reports that the White House was scheduled to meet with Congressional leaders Monday afternoon gave the dip buyers a reason to get busy again and for shorts to continue to cover. In short, the market once again appeared to be running on "hopium."

The Latest Plan

Since the deadline clock continues to tick and time is running out, here's the latest on the debt/budget drama... On Sunday, Senate leaders (Harry Reid and Mitch McConnell) began working on plan in response ! to talks breaking down between White House and House Republicans. It was more of the same as Obama rejected the House proposal that would have raised the debt ceiling for 6 weeks in exchange for immediate negotiations on 2014 spending levels and a long-term deficit reduction deal.

The President's rejection was not terribly surprising since the House bill would not have reopened the government and also restricted the Treasury from using "extraordinary measures" to extend the debt ceiling deadline. However, on Monday, Senate Majority Leader Reid said that he was optimistic about a deal that he and Senate Minority Leader McConnell had been working on.

Perhaps the most encouraging development was the cancellation of a meeting between Obama, Biden, Boehner, Reid, McConnell, and Pelosi. At first, the algos knocked stocks back Monday as the headline that the meeting was being cancelled hit the wires. However, within minutes the indices recovered when it was announced that the reason for the cancellation was the Senators were making progress and needed more time.

Reading The Fine Print

At this stage, the market assumes that Senators Reid and McConnell will be able to broker a deal to raise the debt ceiling and reopen the government. In addition, since the plan is expected to be bipartisan in nature and originates in the Senate, it is further assumed that Speaker Boehner will bring such a measure to a vote in the House - and that it will pass.

However, before the champagne corks start to fly and the celebration begins, investors should read the fine print.

According to reports, the current plan being worked on by Reid and McConnell will be another "kick the can" type of solution and would only provide enough funding for the government to operate until January 15, 2014. The problem is January 15 is also the date when the second round of automatic "sequestration cuts" from the 2011 Budget Control Act kicks in. As such, the "solution" to the current problem actually sets up anoth! er round ! of "sequester" battles.

And given that this Congress can't seem to agree on anything - ever - it would appear that the current mess is likely to stick around for at least a couple more months. So, in short... here we go again.

Mr. David Moenning is a full-time professional money manager and is the President and Chief Investment Strategist at Heritage Capital Management. He focuses on stock market risk management, stock analysis, stock trading, market news and research. Click here to claim a free copy of Dave's Special Report on changes in the current market.

SEI Investments Held at Outperform - Analyst Blog

On Jul 3, 2013, we reiterated our long-term recommendation on SEI Investments Co. (SEIC) at Outperform based on its encouraging capital deployment activities and robust asset inflows. Additionally, significant improvement in its organic revenue generation capacity over the past several quarters is expected to act as a positive catalyst.

Why Outperform?

SEI Investments is a sound asset for yield-seeking investors. Over the past several years, the company has been increasing its dividend every year. In May 2013, the company hiked its semi-annual dividend by 25% to 20 cents per share. It also extended the share repurchase program by $100 million, which increased the total shares to be repurchased to $139 million.

Apart from broad diversification and organic growth prospects, SEI Investments has a strong presence across the globe mainly in North America and Europe. Moreover, the company's diversified products and revenue mix is expected to enable it to adapt easily to the changing needs of the clients and continue to boost its top line.

SEI Investments maintains a robust asset inflow. In the past several years, the company recorded a rising trend in its assets under management and administration. Moreover, due to the current stabilization of the equity markets, asset inflows are expected to significantly contribute to its earnings growth.

Moreover, SEI Investments' first-quarter 2013 earnings surpassed the Zacks Consensus Estimate. Results benefited from top-line growth, partially offset by higher expenses.

For SEI Investments, the Zacks Consensus Estimate for 2013 remained unchanged at $1.44 per share over the last 60 days. For 2014, the Zacks Consensus Estimate advanced 0.6% to $1.75 per share over the same time frame. This company currently carries a Zacks Rank #2 (Buy).

Other Stocks to Consider

Some other banks that are worth considering include Noah Holdings Limited (NOAH) with a Zacks Rank #1 (Strong Buy) and Ameriprise Financial, Inc. (! AMP) and Artisan Partners Asset Management Inc. (APAM) with a Zacks Rank #2 (Buy).

Kite Pharma Inc (KITE): A Winning Small Cap Cancer Stock? BLCM & JUNO

Small cap cancer drug stock Kite Pharma Inc (NASDAQ: KITE) has surged after announcing a strategic research collaboration and license agreement with Amgen, Inc (NASDAQ: AMGN) involving Chimeric Antigen Receptors (CAR) – meaning its worth taking a closer look at the stock, which had an IPO last June, along with potential peers Bellicum Pharmaceuticals Inc (NASDAQ: BLCM) and Juno Therapeutics (NASDAQ: JUNO) which are players in the CAR therapies space and had more recent IPOs.

What is Kite Pharma Inc?

Founded in 2009, small cap Kite Pharma is a clinical-stage biopharmaceutical company involved in the development of novel cancer immunotherapy products, with a primary focus on engineered autologous cell therapy (eACT™) which is designed to restore the immune system's ability to recognize and eradicate tumors. In partnership with the NCI Surgery Branch through a Cooperative Research and Development Agreement (CRADA), the company is advancing a pipeline of proprietary eACT™ product candidates, both CAR (chimeric antigen receptor) and TCR (T cell receptor) products, directed to a wide range of cancer indications.

As for the other recent IPOs in the CAR therapies space, Bellicum Pharmaceuticals Inc is a clinical stage biopharmaceutical company focused on discovering and developing novel cellular immunotherapies for various forms of cancer, including both hematological and solid tumors, as well as orphan inherited blood disorders while Juno Therapeutics is a clinical-stage company developing novel cellular immunotherapies based on CAR and TCR technologies.

What You Need to Know or Be Warned About Kite Pharma Inc

On Monday, Kite Pharma announced a strategic research collaboration and license agreement with Amgen, Inc to develop and commercialize the next generation novel Chimeric Antigen Receptor (CAR) T cell immunotherapies based on the former's eACT platform and Amgen's extensive array of cancer targets. According to the press release:

"Kite will receive from Amgen an upfront payment of $60 million, as well as funding for R&D costs through IND filing. Kite will be eligible to receive up to $525 million in milestone payments per Amgen program based on the successful completion of regulatory and commercialization milestones, plus tiered high single- to double-digit royalties for sales and the license of Kite's intellectual property for CAR T cell products. Amgen is eligible to receive up to $525 million in milestone payments per Kite program, plus tiered single-digit sales royalties.  Further terms of the agreement are not being disclosed."

It should be noted that Kite Pharma has no revenues and has reported net losses of $2.57M (2012), $6.37M (2013), $9.05M (3 months ending 2014-09-30), $17.36M (3 months ending 2014-06-30) and $3.14M (3 months ending 2014-03-31). At the end of September, the company had $195.39M in cash and short term investments at the end of September.  

Ironically, Barron's just published a research note from Credit Suisse that was apparently written before Monday's announcement and state:

"We believe Kite (ticker: KITE) will benefit in 2015 from the initiation of multiple trials expected to serve as pivotal studies, and we think a lucrative outside-U.S. partner is likely. We are increasing our target price to $71 from $34. Addition of a partnership and the recent equity offering increase our forward earnings-per-share estimates."

And:

"Our model assumes Kite markets its technology in the U.S. and signs a partnership for outside-U.S. markets. There are currently three companies with significantly advanced CAR-T programs -- Kite, Juno ( JUNO ) and Novartis ( NVS ). We believe other global pharmaeutical firms will likely consider an entry into the field, and Kite is well positioned with significant intellectual properties, promising data in DLBCL, and a move into pivotal trials in 2015."

They also assigned a technology value of $1.5 billion to the company's pipeline and technology.

Otherwise and back in June, Kite Pharma's IPO ended up being increased to 7.5 million shares from 6 million shares and priced above the $12.00 to $14.00 range at $17 a share to raise $128 million.

Share Performance: Kite Pharma Inc vs. BLCM & JUNO

On Monday, small cap Kite Pharma jumped 15.08% to $69.75 (KITE has a 52 week trading range of $21.00 to $70.21 a share) for a market cap of $2.56 billion plus shares are up 140.5% since last June for retail investors. Here is a look at the performance of Kite Pharma along with recent IPOs Bellicum Pharmaceuticals Inc and Juno Therapeutics:

As you can see from the above performance chart, Kite Pharma, Bellicum Pharmaceuticals Inc and Juno Therapeutics are all above their IPO prices.

Finally, here are the latest technical charts for all three Chimeric Antigen Receptor stocks:

The Bottom Line. Small cap Kite Pharma was one of last year's best performing biotech IPOs and IPOs in general but after Monday's announcement, investors and traders might want to speculate on Bellicum Pharmaceuticals Inc and Juno Therapeutics.

3 Things Intel Corporation Dividend Stock Investors Need to Know

Image source: Intel.

Intel (NASDAQ: INTC  ) shares soared 42% higher in 2014. Meanwhile, the semiconductor giant's quarterly dividend checks held firm at $0.225 per share, so Intel's dividend yield sank from 3.9% in February to 2.4% in December.

The company has been a dividend stalwart for many years, but recent developments have made Intel a head-scratcher for many income investors.

Before writing Intel off as a modest dividend payer, or before backing up the truck to load up on income-generating shares, Intel investors should consider these three important facts.

1. Payouts have taken a long pause from rampant growth
Intel is no stranger to putting dividend growth on the back burner when necessary.

Since starting its dividend policy in 1992, the company has delivered a constant stream of quarterly payouts. However, the company hasn't always increased its dividend payouts year over year, which is a favorite feature for dividend investors.

For example, Intel held its payouts unchanged at $0.02 per share for 14 consecutive quarters in the early 2000s. Aching from the dot-com tech crash, the company preferred to conserve its cash over those three-and-a-half years. But then, the quarterly payouts doubled to $0.04 per share in 2004 -- and again to $0.08 per share in 2005.

A shorter lull started in 2008, when the global economy was imploding. Intel's dividend checks stayed put at $0.14 per share for seven consecutive quarters.

That brings us to the most recent pause in Intel's dividend boosts, which happens to be going on right now. Intel's latest dividend increase happened in the summer of 2012, when the payouts increased by 7% year over year to $0.225 per share. The stock has been stuck at that annual payout of $0.90 per share ever since. That's 10 quarters and counting.

So if you're looking for a bona fide dividend aristocrat, which can be expected to raise its dividend payouts without fail for decades on end, Intel isn't for you. Intel's board of directors prefers a flexible approach, so you may run into long dry spells without dividend boosts along the way.

On the other hand, when Intel is raising its payouts, they tend to grow quickly. Quadrupling the dividend checks in two years to make up for over three years of frozen payouts? No problem. Delivering a tenfold total increase since 2003, extended breaks and all? Sure thing:

INTC Dividend data by YCharts

In other words, good things come to those who wait. In Intel's case, dividend investors with a thirst for larger payouts may be left hanging for years and years, but the dividend still grows quickly over the long run.

2. Intel is investing billions in other cash flow targets
When Intel isn't boosting its dividend budgets, the company has a couple of favorite alternative cash-flow destinations.

For one, Intel is buying back its own stock at a dizzying pace. Over the last four reported quarters, the company has invested $5.8 billion in share buybacks. That's up from just $850 million in fiscal year 2013. This sudden splurge has reduced Intel's share count by 1.5% since the spring of 2014.

That's not exactly a new strategy for Intel, either. Despite headwinds from a generous share-based compensation policy, which printed out $1.1 billion worth of new shares over the last year, the diluted share count has trended 21% lower in the past decade and 11% lower in five years.

When share buybacks go beyond simply canceling out the dilutive effects of issuing new shares, it's tantamount to shoveling cash into shareholders' pockets. Buybacks aren't always the right strategy, or the most shareholder-friendly, but it's a popular alternative to raising dividends.

The other alternative on Intel's plate is very simple: Holding back on dividend growth lets the company invest more in growing the actual business.

Intel sports one of America's biggest capital expense accounts. Stopping at $11 billion over the last four quarters, Intel is third behind telecom giants AT&T (NYSE: T  ) and Verizon (NYSE: VZ  ) , with capital expenses that have soared to $22 billion and $17 billion, respectively, according to Capital IQ data .

Verizon and AT&T invest their massive capital budgets in maintaining, improving, and expanding their communications networks. Whether wired or wireless, this is expansive stuff on a national scale.

Intel runs surprisingly close to the telecoms, though. For this company, capital expenses are all about maintaining, expanding, and upgrading its chip-making facilities.

Intel isn't just doing the upkeep on its existing chip factories. The firm has invested $4 billion in brand-new equipment over the last year.

Intel's management and board of directors clearly see growth opportunities on the horizon, big enough to invest $4 billion a year in them. The company is opening up new facilities in places like China and Israel, moving on to the next level of more compact and efficient chip architectures, and betting big on mobile chip designs.

If you think it's a waste of money, better invested into larger dividends, then Intel may not be the stock for you. On the other hand, if you like the growth prospects implied in Intel's big growth investments as a complement to steady dividend checks, you might want to own the stock.

"We believe it is in the best interest of stockholders to reinvest our earnings into the future of the company in research and development," Intel said. I agree wholeheartedly.

3. Dividends nearly doubled Intel's returns over the past decade
Finally, let me point out that the true measure of an effective dividend is how it boosts shareholder returns in the long run.

Let's say you bought some Intel shares 10 years ago. In terms of plain share price gains, you'd be looking back at a 54% gain over 10 years -- behind the S&P 500 (SNPINDEX: ^GSPC  ) and its 70% returns.

But if you had reinvested the dividends in more Intel shares along the way, using Intel's own dividend reinvestment program or a similar solution from your broker, your investment would almost have kept up with the S&P 500's 109% total return:

INTC data by YCharts

In other words, leaning on Intel's dividends through thick and thin with a steady dividend reinvestment strategy would have nearly doubled your decade-long returns. Past performance is no guarantee of future miracles and so forth, but it's safe to say that Intel's dividends make a big difference for its shareholders -- flaws and all.

1 great stock to buy for 2015 and beyond
2015 is shaping up to be another great year for stocks. But if you want to make sure that 2015 is your best investing year ever, you need to know where to start. That's why The Motley Fool's chief investment officer just published a brand-new research report that reveals his top stock for the year ahead. To get the full story on this year's stock -- completely free -- simply click here.

Stocks Hitting 52-Week Highs

Related VIMC Morning Market Movers Benzinga's Top #PreMarket Gainers Related MOVE US Stock Futures Surge Ahead Of Walgreen Earnings, Economic Data Benzinga's M&A Chatter for Thursday September 4, 2014

Vimicro International (NASDAQ: VIMC) shares reached a new 52-week high of $11.70 after the company announced a $12.4 million contract win in Taiyuan City of Shanxi Province. The company's joint venture, Shanxi Zhongtianxin Science and Technology Co, secured a $65 million revolving line of credit.

Move (NASDAQ: MOVE) shares jumped 36.82% to touch a new 52-week high of $20.92 after the company agreed to be acquired by News Corp (NASDAQ: NWSA) for $21 per share, or $950 million.

Cintas (NASDAQ: CTAS) shares jumped 5.96% to touch a new 52-week high of $69.88 after the company reported upbeat fiscal first-quarter earnings and issued a strong fiscal 2015 earnings outlook. The company also reported it is evaluating strategic options for Document Storage and Imaging unit.

Teekay (NYSE: TK) shares rose 13.26% to reach a new 52-week high of $66.10 after the company adopted a new dividend policy and announced its plans to increase dividend by 75%-80%.

Posted-In: 52-Week HighsNews Intraday Update Markets Movers

© 2014 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.

  Related Articles (CTAS + MOVE) Stocks Hitting 52-Week Highs Morning Market Movers UPDATE: Bank Of America Reiterates On Cintas Corporation As Improving Trends Are Reflected In Shares Benzinga's Top #PreMarket Gainers #PreMarket Primer: Tuesday, September 30: Hong Kong Protests Continue Despite Efforts To Disperse US Stock Futures Surge Ahead Of Walgreen Earnings, Economic Data Around the Web, We're Loving... We're Now Hiring Journalists for our Newsdesk! Better Manage Your Persona

The Best Way to Invest in Google's (Nasdaq: GOOG) 3D Printing Breakthrough

The 3D printing field has been around for many years now, yet it remains relatively young in its potential for handing tech investors outsized gains.

This is one of the tech sector's most exciting fields, one I believe offers plenty of long-term upside.

Indeed, I believe there is one company poised for a fresh breakout.

Its cutting-edge technology and management team are so strong that it led to a formidable new alliance with a technology player whose name is synonymous with growth and profits.

This company's stock is heading higher, so let's get right to its story and profit...

This Marriage of Tech Companies Will Produce a Profit Surge

If there is one thing I've learned over the course of my long career analyzing tech companies, it's how to discover the hidden plays with a bona fide tech giant like Google Inc. (Nasdaq: GOOG) that most investors miss.

You'd be hard pressed to find a company that knows more about sophisticated technology than Google.

After all, this is the company that hired the most noted futurist on the planet and prominent inventor, Ray Kurzweil. He was enlisted to help with Google X, the secretive R&D house that has now spawned projects like the driverless car and Project Glass, the state of the art in wearable tech.

It just shows the range of projects Google has backed from home automation to contact lenses with important medical uses for diabetics. Not to mention the Android operating system for smartphones.

But many of its partners are not yet publicly traded.

All the more reason why savvy tech investors need to take a close look at one of its partners, a 3D printing company.

You see, Google sees 3D printing as an innovative and cost-effective way to build parts to support their many businesses.

For example, for more than a year now, Google has been heavily investing in a 3D printing endeavor called Project Ara.

It is a complex idea, but basically it boils down to one thing: the marriage of innovative 3D printing technology with the mobile revolution.

Conceptually, Project Ara's focus is to create modular smartphones with parts made from 3D printers. It is also an open hardware platform free for developers to design and manufacture modular smartphones of their own.

This sort of platform will shrink the market's dependence on larger smartphone manufacturers that rely on the Android operating system. In turn, it will create a breeding ground for thousands of independent developers to create phone hardware with a lower cost of entry.

Project Ara is specifically focused on the modular aspect of smartphones (that is, the combining of components), which is where 3D printing becomes especially integral. Here's why:

3D printers are being used to make the module enclosures for Project Ara smartphones. This allows users to replace specific modules in order to update the device's features in lieu of buying an entirely new phone.  

And that's where 3D Systems (NYSE:DDD) comes into play. The company has not only partnered with Google on Project Ara, but in its own right 3D Systems has made quite a name for itself, and it's value is about to climb...

Here's Why Google Chose 3D Systems

3D Systems is a leading provider of 3D printing solutions including printers, materials, and custom parts to industry, small business, and consumers.

But in order to truly understand the future potential of this company, you must go back to its roots.

3D Systems was co-founded by visionary innovator Chuck Hull. He invented and patented much of the groundwork that the 3D printing industry uses today, including the idea of rapid prototyping. This idea has become the foundation for Project Ara.

In all, 3D Systems has more than 400 patents, and many are branches of Hull's work. In the 1980s, Hull first wrote software that enabled the 3D printer to communicate with the desktop computer.

The original software code he wrote for 3D Systems is still used and expanded on throughout the industry.

More importantly here, Hull invented the stereolithography process of producing layer-by-layer models, parts, and rapid prototypes. This additive manufacturing technology is the basis for much of how the 3D printing world operates today.

Stereolithography is being tried on a spectrum of different projects, from producing replacement bicycle parts and accessories, to now creating modular smartphones.

And that is where Google and 3D Systems come together on Project Ara. Google had its pick to work with any company in 3D printing but it chose 3D Systems.

As is often the case, Google is such a powerful and far-flung empire that it can choose the very best partners in any given field.

Earlier this year Google valued work done by Nest Labs Inc. so much, it bought the maker of "smart thermostats" and smoke detectors for $3.2 billion. Google has also invested in Uber, the revolutionary new way to hail a chauffeur on a mobile device. Google has partnered with these smaller niche companies to expand its ever-growing stable of innovative projects.

Both companies see it as the perfect union of two rapidly advancing, consumer-driven industries.

In fact, Chuck Hull put it best when he said, "The combination of exponential creation technology with exponential information technology translates to unprecedented capability and adaptability for the consumer."

How prescient, indeed - the first modular smartphone with 3D printed parts is expected to cost around $50 and be released early next year. The timing couldn't be better for this profit opportunity...

The "Hidden" Play to Make Right Now Is DDD

Google is an excellent company in its own right. But I have found that a savvy way to "invest" in a juggernaut of this nature is to find the hidden plays that most investors miss.

Google is undoubtedly looking to more actively use 3D printing concepts for other areas of its empire which will increase the potential for 3D Systems' applications in its Google alliance.

The cards are lining up here for 3D Systems as a potential takeover candidate.

Now, I never recommend investing as a potential takeover candidate purely out of speculation. However, we know that Google is an acquisitive firm that loves to buy smaller companies to further its growth.

In other words, there is the long-term opportunity for Google to increase its relationship with 3D Systems either to buy more products or to buy the company outright.  

3D Systems currently trades at around $53.50, and the price is likely to jump considerably if Project Ara is as big a smash hit next year as I fully expect it to be.

And after that, the profits will continue rolling in...

We're going to take some great profits from 3D printing's potential. But that's not the only trend Michael's looking at right now. In fact, he's about to pull the trigger on some exciting new technologies that are going to play an increasingly powerful role in our lives - and the markets. To get all of Michael's latest tech stock picks, click here.