Last year, cryptocurrencies were unstoppable. And while sheer momentum can be partly responsible for that strength, much of it was due to the emergence of blockchain technology.
Put simply, blockchain offers a brand-new way of transmitting money without using traditional banking networks, as well as a means to securely store and access data. This means blockchain could transform the speed at which money moves from Point A to Point B, and could be a transparent but secure log for things like medical records or personal identification. Though it’s a relatively new technology that still has some kinks to work out, it’s clearly shown a lot of potential in small-scale testing.
With that being said, we asked three of our Foolish contributors to name one blockchain stock that they think should be on your radar this September. Interestingly, all three chose relatively “safe” businesses that have steady and profitable core operations, with burgeoning blockchain projects on the side. These companies are Dow stalwart IBM (NYSE:IBM), exchange giant Nasdaq (NASDAQ:NDAQ), and storage kingpin Seagate Technology (NASDAQ:STX).
Leading the charge in a new tech trend (for once)
Sean Williams (IBM): Though it’s easily the stodgiest of the three selections, I believe investors who are looking to gain blockchain exposure would be wise to consider Big Blue.
The intrigue about IBM’s approach to blockchain is twofold. First, the company is ensuring that it won’t be late to the game, as it was when legacy hardware and software sales began to decline as enterprises moved into the cloud. These legacy sales have been a drag on IBM for some years now, and if or when blockchain does catch on with big businesses, IBM should be at the leading edge of that adoption rather than trying to hang on by the coattails.
Second, IBM is approaching its blockchain strategy from both ends of the spectrum (i.e., in terms of financial and nonfinancial products). The company’s proprietary blockchain is currently being tested in the South Pacific with roughly a dozen large banks as a means of securely expediting transaction and settlement times.
Meanwhile, it formed a joint venture earlier this year with shipping giant A.P. Moller-Maersk (known best as just Maersk) to create blockchain-based shipping solutions that would eliminate paper trails and expedite the transportation of goods through the use of smart contracts. Though blockchains’ financial aspects are typically what people focus on, the potential disruption this new technology could yield to supply chains is far bigger, in my opinion.
Best of all, a bet on IBM means dipping your toes in the water rather than diving into the deep end. As noted, the company is still generating a significant amount of legacy sales and profits, as well as taking advantage of relatively strong cloud-computing growth. While IBM isn’t exactly a growth company anymore, it also isn’t going to disappear. This makes it a smart way to bet on blockchain without taking on an exorbitant amount of risk.
Taking stock of blockchain
Keith Speights (Nasdaq): Nasdaq is the second-largest stock exchange in the world in terms of the combined market cap of listed stocks. It’s also one of the greatest innovators for using blockchain technology.
The company sees blockchain as so important that it has an entire department focused on the technology. Fredrik Voss, vice president of blockchain innovation for Nasdaq, stated that the company has “taken it upon ourselves to be a leader in terms of encouraging people and companies to explore this technology and understand it better.”
There have been several successes already from Nasdaq’s blockchain efforts. The company launched Linq, which uses blockchain to enable private companies to digitally represent share ownership. In June, Nasdaq, along with ABN AMRO Clearing, EuroCCP, and Euroclear, announced the completion of a proof-of-concept test that used blockchain technology to resolve margin calls through a distributed network of collateral givers, takers, and intermediaries within a matter of minutes.
Nasdaq CEO Adena Friedman hinted earlier this year that the stock exchange could even support trading of cryptocurrencies based on blockchain in the future. Such a move would make Nasdaq arguably the most visible face of blockchain.
Analysts think that Nasdaq should be able to increase its earnings by more than 12% annually over the next five years. How the company uses blockchain could be key in whether it delivers on those expectations. Nasdaq is definitely a blockchain stock to watch.
Truckloads of data
Todd Campbell (Seagate): Blockchain offers a lot of transparency and security advantages over prior-generation ledgers, but those advantages require a lot of computing power and memory storage.
Seagate, a Goliath data storage company, was one of the earliest companies to embrace blockchain’s potential to improve corporate finance. As a result, it stands to benefit not only from storage demand but also from the efficiencies that blockchain offers.
Seagate also has the potential to profit from its decision early on to back Ripple Labs, a cryptocurrency and blockchain solution that’s being positioned as a better alternative to the technology that’s currently being used in cross-border transactions.
What I like most about Seagate is that it’s a backdoor blockchain stock with real fundamentals behind it. In its recently reported fiscal 2018, the company’s sales were $11.2 billion, up 4% year over year, and its non-GAAP earnings per share were $5.51, up 34% year over year. The storage market is volatile, but with $2.1 billion in cash flow, it should have the financial flexibility to support its dividend, and with shares yielding 5.2% and the blockchain upside, I think buying a little of it in portfolios could pay off long term.