Let Tony Soprano Help You Land a Windfall (No Mafia Membership Required)

An artist friend of mine recently shared an image on Instagram that fascinated me... Not only from an artistic perspective, but also because when I look at that image, I see a windfall of profits ahead for investors like us. Let me explain... Using AI to Create Art You’ve probably heard a lot about a […] You're receiving this email as part of your subscription to Michael Robinson’s Trend Trader Daily [Unsubscribe](. [Trend Trader Daily] Let Tony Soprano Help You Land a Windfall (No Mafia Membership Required) January 12, 2024 An artist friend of mine recently shared an image on Instagram that fascinated me... Not only from an artistic perspective, but also because when I look at that image, I see a windfall of profits ahead for investors like us. Let me explain... Using AI to Create Art You’ve probably heard a lot about a trend known as generative Artificial Intelligence — generative AI, for short. As its name suggests, this involves using AI to generate all manner of sounds, colors, videos, and images. Until last week, I could never have imagined how realistic a generative AI “painting” could be. But holy smokes, I was blown away. Using AI, my friend created a portrait of Tony Soprano, the fictional mob boss from the hit television show “The Sopranos.” Here’s what it looks like: As cool as the painting is for Sopranos lovers, my initial thought was just how much money there is to be made at the intersection of AI and the arts. Using generative AI, graphic artists and designers are able to create realistic and custom content on the fly. And that’s a big reason why creative content is a $140 billion global market. How do we target this market? With an investment in perhaps the leading art-related AI company... Adobe’s Time to Shine I’m referring to Adobe (Nasdaq: ADBE). You might know this company from its popular products like Illustrator, used for creating and editing graphics, or Photoshop, used for managing and editing pictures. But it’s the generative AI tools found in its Firefly platform that will find wide use among Adobe’s customer base — and lure in new users. This potential makes Adobe a powerful “two-fer.” It gives us a hook in the breakout field of generative AI, along with the company’s core strength in high-margin cloud services. Full disclosure: I’ve recommended this company in the past. But today, I’m giving my recommendation a different spin. You see, I’m a rules-based investor at heart. And I like to use a five-rule system to identify only the most promising companies. Let’s run through this system using Adobe as a prime candidate. Rule No. 1: Hire Great Operators We’re looking for well-run firms with top-notch leaders. And Adobe CEO Shantanu Narayen is a home-run hitter. Before joining Adobe, he held product-development roles at Apple and Silicon Graphics. He also led Adobe’s entry into cloud-based offerings where clients pay a monthly subscription for products and services, giving the company massive cash flow. In late 2022, Narayen forged a cloud-services pact with Microsoft (MSFT), giving Adobe access to 180 million commercial customers. At just 5% penetration, that would equal nine million new potential customers. Rule No. 2: Find the Signal To build wealth, you have to ignore the hype and find companies with rock-solid fundamentals. The financial media recently touted the S&P 500’s huge gains last year, and made it sound like 2024 would be a cake walk. As we’ve seen, though, the start to this year has been volatile. You need to cut through the noise and focus on what’s really important. And by acquiring solid stocks like Adobe, you’ll be doing exactly that. Rule No. 3: Swim with the Trend There are times when it pays to go against the majority. Following major trends isn’t one of those times. Stocks in red-hot sectors typically offer the best chance at life-changing gains. And right now, AI and cloud services are both scorching hot. Cloud services, in particular, is a booming sector. According to Grand View Research, this sector was valued at $484 billion in 2022, and projects sales to grow by more than 14% through the end of the decade. Rule No. 4: Focus on Growth Companies with the strongest growth rates almost always offer the highest stock returns. Over the past three years, Adobe has grown its sales an average of 14%, meaning sales are doubling about every five years. Rule No. 5: Look for Doubles Following rule No. 4, this final rule involves analyzing a company’s earnings growth to see how long it’ll take for them to double. Because when earnings rise, stock prices usually do, too. It’s really that simple. Based on my analysis, Adobe’s earnings per share will grow by an average of 20% over the next three years. Now let’s use my doubling calculator, or what mathematicians call the Rule of 72. Essentially, this is a way to estimate how long it might take for an investment to double, based on a given rate of return. By dividing 72 by a given annual return rate, we can get a rough estimate of how many years it will take for an investment to double. In this case, let’s divide Adobe’s growth rate of 20 into 72. When we do that, we see it should take about three-and-a-half years for the company’s earnings to double (72/20 = 3.6). That’s great. The Ideal Generative AI Play You can see how Adobe is an ideal long-term play, and a company that offers stability and attractive profit potential. Moving forward, you can use this five-rule system to screen stocks and ensure you’re only adding true wealth-building winners to your portfolio. Cheers and Good Investing, [Michael Robinson] Michael Robinson Chief Investment Officer Trend Trader Daily   Copyright © Trend Trader Daily, All rights reserved. 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