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Nov. 21, 2019, 8:27 a.m. EST

Forget Big Tech monopolies — the better stock-market investment is in oligopolies

Look at health care, railroads, utilities and more

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By Jeff Reeves, MarketWatch


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As Silicon Valley icon Peter Thiel famously said, if you’re the founder of a startup “you always want to aim for monopoly and you always want to avoid competition.”

But these days, Big Tech stocks like Google parent Alphabet /zigman2/quotes/205453964/composite GOOG +0.82%   /zigman2/quotes/202490156/composite GOOGL +0.76%  and Facebook /zigman2/quotes/205064656/composite FB +0.70%  are increasingly drawing the ire of politicians and regulators for their scale and power. So while being dominant is great, it also pays to make sure you’re not irritating the wrong people in the wrong places.

And besides, history shows that even deep-pocketed tech companies can still turn out to be disappointing from an investment perspective. Consider dot-com darling Cisco Systems /zigman2/quotes/209509471/composite CSCO +0.97% that boasts some $30 billion in cash and investments lying around but has a share price that chronically underperformed the S&P 500 index /zigman2/quotes/210599714/realtime SPX -0.06%  for several years.

If you really want investments that avoid competition and pay off, it’s worth looking past the rather fashionable monopolies in Big Tech and going old school. Instead of chasing the next internet Unicorn, take a look at boring but oligopolies instead.

Unlike a true monopoly run by a single dominant players, oligopolies are characterized by a small group of entrenched peers who at best compete only theoretically and at worst collude to run a small corner of the economy however they see fit.

However you slice it, it adds up to consistent revenue — and reliable investment returns.

Payments and credit cards

There’s a lot of talk among bros with man buns about how cryptocurrency like bitcoin /zigman2/quotes/31322028/realtime BTCUSD -1.68% will decentralize the money system and allow folks to transact without the big banks. In the meantime, we are all stuck with three payment processing options: Visa /zigman2/quotes/203660239/composite V +0.12% , Mastercard /zigman2/quotes/207581792/composite MA -0.39% and American Express /zigman2/quotes/203805826/composite AXP +0.21% .

Visa operates the largest credit card networks in the U.S., with 2018 payment volume of $1.95 trillion and 336 million Visa credit cards in circulation in the United States. That averages out to a card per person! Mastercard “only” tallied $811 billion in U.S. credit purchase volume with 231 million credit cards, with upscale issuer American Express close behind with $776 billion in 2018 volume despite a comparatively small 54 million cards in circulation.

That adds up to a stunning $3.5 trillion in volume.

As for what the future holds, let’s remember that’s just U.S. data. For instance, there are another 771 million Visa credit cards in circulation that bring the operator’s grand total to 1.1 billion pieces of plastic — enough for 1 out of every 7 people on the planet, and growing. Furthermore, these payments leaders continue to invest heavily in fintech applications such as mobile payments and blockchain — think Visa’s Fintech Fast Track effort to integrate into startups and AXP’s recent acquisition of payment automation platform acompay.

One way or another, all roads lead to these three payment kings. And it’s a pretty nice ride for investors, too: Visa is up more than 220% in the last five years to lap the S&P 500 index more than four times over, with no signs of slowing down.

Telecom

Blockchain proponents may stubbornly stick to the notion that even entrenched financial players can be disrupted by a few good lines of code. So let’s move one step back to all the infrastructure that makes those mobile payments and internet connections possible: Big Telecom.

You can’t just drop out of Harvard and erect a network of wireless towers and fiber-optic cables overnight, which creates a massive barrier to entry for new players.

With the recent approval of a merger between T-Mobile US /zigman2/quotes/204659678/composite TMUS -1.96%  and Sprint /zigman2/quotes/208685669/composite S -3.71% , there’s now theoretically a three-horse race in America; T-Mobile had 66.5 million subscribers as of the third quarter while Sprint had 53.9 million . Combined, that’s around 120 million wireless customers, neck-and-neck with Verizon /zigman2/quotes/204980236/composite VZ -0.23%  Wireless, and only modestly behind the roughly 160 million at AT&T /zigman2/quotes/203165245/composite T +0.38% .

Here’s the thing though: AT&T pulled off an $85 billion acquisition of content king Time Warner in 2018, and Verizon’s Oath unit owns portals AOL, the Huffington Post and Yahoo! Not only will the combined Sprint/T-Mobile have a big hole when it comes to in-house content, it also has the dubious responsibility of financing $33 billion in outstanding debt at Sprint.

Is the best “competition” American consumers can expect in telecom? A merger of also-rans, stuffed to the gills with IOUs?

If you think the state of U.S. telecom competition is ugly, however, take a look at China Mobile /zigman2/quotes/204514293/composite CHL +0.93%   /zigman2/quotes/200868736/delayed HK:941 +1.18% . The firm is the largest mobile telecom play in the world with more than 900 million subscribers and effectively has the blessing of Beijing to stay as big as it likes.

/zigman2/quotes/205453964/composite
US : U.S.: Nasdaq
$ 1,351.56
+10.94 +0.82%
Volume: 512,635
Dec. 9, 2019 11:39a
P/E Ratio
28.97
Dividend Yield
N/A
Market Cap
$862.26 billion
Rev. per Employee
$1.39M
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/zigman2/quotes/202490156/composite
US : U.S.: Nasdaq
$ 1,349.52
+10.13 +0.76%
Volume: 602,276
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P/E Ratio
28.92
Dividend Yield
N/A
Market Cap
$861.47 billion
Rev. per Employee
$1.39M
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/zigman2/quotes/205064656/composite
US : U.S.: Nasdaq
$ 202.45
+1.40 +0.70%
Volume: 4.85M
Dec. 9, 2019 11:39a
P/E Ratio
32.38
Dividend Yield
N/A
Market Cap
$573.49 billion
Rev. per Employee
$1.57M
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/zigman2/quotes/209509471/composite
US : U.S.: Nasdaq
$ 44.27
+0.42 +0.97%
Volume: 4.73M
Dec. 9, 2019 11:39a
P/E Ratio
17.64
Dividend Yield
3.16%
Market Cap
$185.98 billion
Rev. per Employee
$684,933
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/zigman2/quotes/210599714/realtime
US : S&P US
3,144.11
-1.80 -0.06%
Volume: 475.04M
Dec. 9, 2019 11:39a
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/zigman2/quotes/31322028/realtime
US : CoinDesk
7,436.89
-127.17 -1.68%
Volume: 0.00
Dec. 9, 2019 11:38a
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/zigman2/quotes/203660239/composite
US : U.S.: NYSE
$ 182.38
+0.21 +0.12%
Volume: 1.51M
Dec. 9, 2019 11:39a
P/E Ratio
35.52
Dividend Yield
0.66%
Market Cap
$392.69 billion
Rev. per Employee
$1.25M
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/zigman2/quotes/207581792/composite
US : U.S.: NYSE
$ 289.27
-1.13 -0.39%
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Dec. 9, 2019 11:39a
P/E Ratio
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Dividend Yield
0.55%
Market Cap
$292.85 billion
Rev. per Employee
$1.01M
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/zigman2/quotes/203805826/composite
US : U.S.: NYSE
$ 120.86
+0.25 +0.21%
Volume: 708,687
Dec. 9, 2019 11:39a
P/E Ratio
14.63
Dividend Yield
1.42%
Market Cap
$98.69 billion
Rev. per Employee
$733,559
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/zigman2/quotes/204659678/composite
US : U.S.: Nasdaq
$ 76.22
-1.52 -1.96%
Volume: 1.27M
Dec. 9, 2019 11:39a
P/E Ratio
19.50
Dividend Yield
N/A
Market Cap
$66.51 billion
Rev. per Employee
$832,885
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/zigman2/quotes/208685669/composite
US : U.S.: NYSE
$ 5.33
-0.21 -3.71%
Volume: 10.19M
Dec. 9, 2019 11:39a
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$22.71 billion
Rev. per Employee
$1.11M
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/zigman2/quotes/204980236/composite
US : U.S.: NYSE
$ 61.05
-0.14 -0.23%
Volume: 1.79M
Dec. 9, 2019 11:39a
P/E Ratio
15.66
Dividend Yield
4.04%
Market Cap
$253.07 billion
Rev. per Employee
$905,626
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/zigman2/quotes/203165245/composite
US : U.S.: NYSE
$ 38.35
+0.15 +0.38%
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Dec. 9, 2019 11:39a
P/E Ratio
17.13
Dividend Yield
5.33%
Market Cap
$279.05 billion
Rev. per Employee
$637,332
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/zigman2/quotes/204514293/composite
US : U.S.: NYSE
$ 38.06
+0.35 +0.93%
Volume: 300,561
Dec. 9, 2019 11:39a
P/E Ratio
9.84
Dividend Yield
4.40%
Market Cap
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Rev. per Employee
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HK : Hong Kong
HK$ 60.00
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Dec. 9, 2019 4:08p
P/E Ratio
9.88
Dividend Yield
4.86%
Market Cap
HK$1214.20 billion
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HK$1.88M
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