Who Knew Drop Protection Could Pay So Well?

The telephone is one classic example. The fax machine, helium, and gasoline are others. Even the Internet’s usefulness was underestimated when it was first developed.

Such advances happened on a nearly unimaginable scale for one innovator that just happened to be based near where I grew up. Back then it was far from any city, yet it attracted the top scientists and drew engineering talent from two top schools just hours away. Today, it employs about 40,000 people around the globe.

In the 1960s, it invented a tougher automobile windshield that limited injury by shattering into small particles when smashed. But this was 1970, a time when there were no mandatory safety requirements, so it wasn’t cost-effective for carmakers. Thus, the technology was shelved

And it languished, forgotten, until a phone call 35 years later.

That’s when Apple’s legendary Steve Jobs called the company’s CEO out of the blue. Jobs wanted the company’s glass for a new product. “Oh, and I want as much as you can pump out in half a year.”

Just one problem: It wasn’t making any and hadn’t since 1971!

The company’s CEO was told not to worry – it was possible. As the CEO recounts, “We did it in under six months. We produced a glass that had never been made.” The first iPhone, released in June 2007, contained the “new” product, and the rest is history.

As I’m sure you know, our phones take daily beatings. Prolonging their life is serious business. This company’s glass technology is so good a shield that Apple competitors like Samsung, Motorola, and HTC now use it to safeguard their products from drops, scratches, and spills as well.

Drop protection, in particular is still the number-one request from consumers, and I’ve heard that you can drop an iPhone from heights four times as high as competitive glass designs without destroying it. Of course, no one plans that kind of a drop, but when it happens, you’re glad you’ve got the strongest stuff around.

So, in 10 years, this specialized glass went from an unrealized idea to a crucial component in 4.5 billion devices – smartphones, tablets, and computers – around the world. And the maker has Apple to thank!

The company I’m talking about is the newest recommendation in my research service Hidden Profits, which, as the name implies, digs into the numbers behind the headlines and find unheralded profit opportunities. Turns out that high-end glass is actually a better business than selling the phone itself. Gross profit margins for the glass’s maker were a fat 43% in the fourth quarter (versus 38% for Apple and less for other phone makers).

This is far from the only change-making innovation from this high-tech outfit. It invented optical fiber in 1970 and is now the largest manufacturer of this critical communications material in the world. (If you didn’t know, optical fiber is made of glass.)

Every year, the company plows about 10% of its sales back into research and development to drive more innovation and protect those juicy margins. Last year, it committed $10 billion in growth opportunities through 2019.

It’s hardly alone in that sense. Many high-tech companies must reinvest aggressively in innovation to keep their products on the cutting edge. Unfortunately, their shareholders get paid last and must rely (or hope) for stock price appreciation to deliver gains.

But not our newest recommendation to the model Hidden Profits portfolio.

This pick has so much spare capital it can fund cutting-edge research and cut us plenty of cash, too. Ultimately, it pays its investors first – and you should be one of them. Find out more here.

Good investing,

 

 

 

 

 

John Del Vecchio
Editor, Hidden Profits

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Categories: Investing

About Author

In 2007, John Del Vecchio managed a short only portfolio for Ranger Alternatives, L.P. which was later converted into the AdvisorShares Ranger Equity Bear ETF in 2011. Mr. Del Vecchio also launched an earnings quality index used for the Forensic Accounting ETF. He is the co-author of What's Behind the Numbers? A Guide to Exposing Financial Chicanery and Avoiding Huge Losses in Your Portfolio. Previously, he worked for renowned forensic accountant Dr. Howard Schilit, as well as short seller David Tice.