Jason Stutman - Angel Publishing

Rocket Fuel IPO

Two weeks ago, Energy and Capital subscribers were the first to read my advice on how to play the Twitter IPO before the paperwork was even filed.

Within just 10 days of that article being published, Twitter announced its IPO. Those of you who took my words to heart are already counting the extra money in your pockets...

The stock that I recommended gained 8% in premarket alone on news of Twitter's initial public offering.

As far as I know, there was absolutely no one else pushing this play like I was. And while I generally try to be as modest as possible with my accomplishments, the truth is that when it comes to tech stocks, I know what I'm talking about.

You might remember when I told readers to buy TechPrecision (OTC: TPCS) at $0.35. It jumped 85% in less than a month. Or maybe you recall me saying that Facebook (NASDAQ: FB) would reach its initial IPO price back in June.

If you've been listening, congratulations on your profits. If not, that's alright — because I have another tech IPO to share with you today.

I'll tell you exactly why I am so bullish on this company in just a minute, but first, a little history...

Deep Blue

On May 11, 1997, the single most important chess match in the history of mankind was played out.

In a six-game match, Russian world champion Garry Kasparov was defeated by his American opponent. The final score of the match was two wins to one with three draws.

Kasparov was absolutely furious and demanded a rematch on the grounds that his adversary was cheating. But Kasparov's opponent was void of typical human pride, and retired from chess from that day forth.

The match above was incredibly significant — not because it represented the conclusion of some international rivalry, but because it was the first time in history that a computer program was able to beat a world chess champion in match play.

You see, Kasparov's opponent in that 1997 match was Deep Blue, a chess-playing computer developed by International Business Machines Corporation (IBM).

With the ingenuity of computer programming, IBM was finally able to settle a nearly three-decade-long debate over whether or not a computer could outsmart the best chess players in the world.

Up until that point, the implementation of artificial intelligence (AI) was primarily seen by the public as a matter of science fiction. While technology had its place in physical industries and even in storing and transferring information, the art of thinking was left up to the superior human mind... or so everyone thought.

Genuine Intelligence

It's been over 16 years since Deep Blue defeated Kasparov, and yet the concept of computers outperforming humans remains one that many of us are hesitant to accept.

AI has crept on up on us so gradually that we rarely appreciate how much thinking we leave up to our mechanical helpers. Every time we use a search engine, map a route with our GPS, or fly in a plane, we rely on some form of AI. Even our online trading platforms like E*TRADE offer AI for customer support.

The fact is human decision making is flawed in many respects. Our thinking is often slow, and memory is far more unreliable than we might expect.

Computers can process more information and at a much faster rate. For machines, it's only a matter of developing the correct algorithms for each situation.

The company I'm going to tell you about below has developed an AI system that not only offers better performance than human decision making in its field, but can also learn and adapt itself in real time.

This company is currently growing at an exponential rate, and has recently filed its Form S-1 with the SEC.

This is an incoming IPO you aren't going to want to miss.

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Cleared for Takeoff

Founded in 2008, Rocket Fuel is a technology company that has developed an AI and Big Data-driven platform for predictive modeling and automated decision making in digital advertising.

That's a bit of a mouthful, so let's break down what Rocket Fuel does in the most basic terms possible. To do that, we first we need to take a quick look at the way the digital advertising industry works...

In the past, advertisers would purchase space directly from Internet publishers. This was simple and effective at first, but as the volume of digital advertising increased, real-time advertising exchanges have emerged.

These advertising exchanges operate much like stock market exchanges. They work to reduce transactional friction associated with the purchase of digital inventory. The process of purchasing digital advertising inventory on these exchanges is known as real-time bidding (RTB).

In RTB, advertising impressions are sold as they emerge on the market. Every time a Web page is loaded, an impression becomes available, and advertisers bid on those impressions. As you can imagine, the bidding process must be incredibly fast if advertisers want to purchase individual impressions; Web pages load in milliseconds.

Traditionally, packages of these impressions have been purchased in advance, because humans simply cannot respond fast enough to bid in real time. As a result, the value of these impressions are lumped into a single sum.

For instance, if you were running an ad campaign for athletic shoes, you would purchase 10 million banner ads on Footlocker.com under the running section, or 10 million Facebook ads for users who list "running" in their hobbies.

It's a decent way to target your market, but is far from perfect.

Rocket Fuel offers a bidding strategy, dubbed programmatic buying, that absolutely trumps human-based bidding for digital advertising inventory. Programmatic buying offers advertisers in the range of five to six times the traditional return on investment.

The company's data system evaluates millions of features including age, gender, education, purchasing history, income, history, behavior, time of day, and even weather to determine the value of a particular impression.

And because the entire process is automated by an AI program, Rocket Fuel can adapt throughout a campaign to work towards its customers' goals. For instance, if one particular demographic is responding to an ad more than others during the campaign, Rocket Fuel will bid more aggressively on impressions that will reach that kind of consumer.

To Infinity...

Rocket Fuel is situated very well with this technology and is already making a killing in digital advertising, an industry that is set for massive levels of growth over the next several years.

Here are a few stats that bode well for this sector:

MAGNA GLOBAL expects display, mobile, social, and video advertising channels will grow from $42 billion in 2012 to $73 billion in 2016.

Adults in the U.S. spend 255 minutes per day online and on mobile devices — up 50% from 2009.

Total worldwide digital advertising is expected to grow from $72 billion in 2010 to $163 billion in 2016, according to eMarketer.

RTB is expanding faster than any other segment on digital advertising exchanges.

RTB sales are expected to grow from $3 billion in 2012 to $14 billion in 2016.

As for Rocket Fuel's market penetration, the company has been absolutely explosive since its inception in 2008. In just over five years, the company's customer base includes 65 of the Advertising Age 100 leading National Advertisers, and over 40 Fortune 100 companies.

The company's total active customer base has increased from 151 in 2010, to 266 in 2011, to in 2012, to 784 mid-year 2013. Additionally, customer retention rate sits at a healthy 94%.

Alongside its rapidly growing customer base, Rocket Fuel has boosted revenue from $16.5 million in 2010, to $44.7 million in 2011, to $106.6 million in 2012. And for the first half of 2013, Rocket Fuel has already completed $92.6 million in sales.

The company is looking at an incredibly impressive compound annual growth rate of 154%.

With its innovative technology, rapid sales growth, and rising market penetration in a growing industry, there is very little reason not to be bullish on Rocket Fuel.

Turning progress to profits,

Jason Stutman

@JasonStutman on Twitter

Energy and Capital's tech expert, Jason Stutman has worked as an educator in mathematics, technology, and science... Before joining the Energy and Capital team, Jason served on multiple technology development committees, writing and earning grants in educational and behavioral technologies. Jason offers readers keen insights on prominent tech trends while exposing otherwise unnoticed opportunities.

Investing in Police and Body Cams

Police corruption, institutional racism, and the warrior cop — these have been the overriding themes circulating news outlets and social media platforms since the shooting of 18-year-old Michael Brown in Ferguson, Missouri on August 9th.

The events reached a boiling point this week when Missouri Governor Jay Nixon was forced to call in the National Guard, stating it was necessary for “restoring peace and order” to the St. Louis suburb.

The entire situation has been a flat-out embarrassment on far too many fronts.

For the police, it's been an issue of professionalism and respect. Canisters of tear gas were shot indiscriminately into the city streets, gassing journalists and protesters alike.

Officers rocked camo pants, bulletproof vests, and heavy assault rifles, raising many questions about the department's duty to “protect and serve.”

No doubt the heavy militarization of the Ferguson Police Department has accomplished nothing but building further backlash across the U.S.

As for the citizens of Ferguson, it's been matter of civility. Violent riots and rampant looting showed that many of Ferguson's citizens cared little about the underlying issue. Instead, they preferred to take advantage of Brown's death for their own benefit.

It's a similar mentality to the one that arose during the Rodney King Riots in 1992 and ironically did nothing but feed into pre-existing prejudices surrounding black Americans. It's not that people should be making generalizations based on this behavior, but that they inevitably will.

You cannot combat racism in America through violence and theft — it only feeds the flame.

In the iconic words of Dr. Martin Luther King, Jr., “Hate begets hate, violence begets violence, and toughness begets a greater toughness.”

Neither the Ferguson police nor these unruly citizens seemed to take these words to heart.

Police Transparency

Despite this regrettable spiral of violence that took place in Ferguson between both parties over the past few weeks, there's been at least one positive thing to come out of this situation: Michael Brown's death has forced a heavy background dialogue regarding how we monitor interactions involving law enforcement.

One of the defining factors of this case has been a lack of video evidence. Because the Ferguson Police Department has neither installed dash cams in its vehicles nor issued body cams for its officers, there are still (and will continue to be) many unanswered questions surrounding this case.

This lack of evidence has not only resulted in dueling narratives fueled with speculation, but has even invited the Department of Justice to call for an official autopsy of Brown's body. When the federal government needs to step into a local investigation, you know things have gone completely awry.

Of course, the autopsy can only reveal so much about the actual events preceding Michael's death. It may tell us how many times he was shot and from which angle, but as for what words were spoken or whether or not the officer was reasonably threatened — those questions will forever remain in the gray.

The lack of video evidence from the Ferguson Police Department is incredibly troubling. We live in a time when Apple is installing cameras in its mobile devices for less than $15 so people can post selfies on Facebook, but our local law enforcement can't make a similar investment to ensure transparency. It's utter and total nonsense.

It's terribly unfortunate that someone needed to die for this to become a mainstream issue, but it's become more than apparent to the public since Brown's death that there's an overwhelming disparity between technological capability and what police departments are actually doing to monitor their officers.

The issue of police surveillance has gained significant public attention in recent weeks because of these events. St. Louis native Kirk Siefert, for example, recently put forth a White House petition calling for the “Michael Brown Law,” which would require all state, county, and local police to wear cameras to ensure transparency.

Siefert explains:

"Many continue to speculate what happened, and we may never know the truth, but one thing we know for sure is that the officer who killed him did not have a car dash camera or a body cam to record the incident — a camera that could have prevented the incident or given us clear information about what happened.”

Siefert's point that a camera “could have prevented the incident” can't be stressed enough. People tend to be on their best behavior when they know they're being recorded, and cops are certainly not an exception.

This claim isn't just conjecture, though — the benefit of police cams has been well documented since the adoption of dash cams in police cruisers in the 1980s. More recently, research has focused on the effects of body cams, proving that when cops are on record, violence is severely minimized.

In March 2013, Chief Tony Farrar of the Police Foundation completed an extensive study evaluating the effect of body-worn video cameras on police use-of-force. For a 12-month period, cameras were deployed to every patrol officer in the Rialto, California Police Department, ultimately resulting in a dramatic reduction in use-of-force, as well as complaints against officers.

The authors of the study concluded: “The findings suggest more than a 50% reduction in the total number of incidents of use-of-force compared to control-conditions, and nearly ten times more citizens’ complaints in the 12-months prior to the experiment.”

In other words, the benefits of body cams are mutual. These devices help citizens by keeping law enforcement in check, and they also help officers by drastically reducing complaints against them.

Ferguson's police chief Thomas Jackson was quoted by CNN saying the department didn't have cameras installed because they were “too expensive,” but we can be pretty sure he's re-questioning the cost-benefit scenario at this point.

Not only has the lack of video evidence caused a media hell-storm to rain down on Thomas and his department, but it's likely also costing them thousands in overtime, legal fees, and equipment. Tear gas canisters and Taser cartridges aren't cheap, and neither are civil suits.

Is This Billionaire the Modern-Day Messiah?

He's restored hearing to the deaf (and made billions)...

He's given amputees working limbs (and made billions)...

He's revolutionized the treatment of type 1 diabetes (and made billions)...

Now his new company is helping 8 million blind to see again.

Be early on this one.

Eyes on the Man

Now, you may be wondering what any of this has to do with investing, so I'll skip to my point: Over the next decade, you're going to see a surge in the number of body-mounted cameras used in law enforcement.

This will happen whether or not we see proposed legislation such as Siefert's “Michael Brown Law” come to light, because departments are learning the financial benefits these cameras provide far outweigh the cost of installment.

If you've been following tech IPOs this year, you're well aware that point-of-view (POV) camera maker GoPro (NASDAQ: GPRO) began trading public equity in June.

Up 27% already, many analysts are warning investors that share value is inflated. However, very few of these analysts are considering the true bull case for GoPro: body-mounted cameras for military and law enforcement.

Though GoPro does not offer a specific camera for this market, it does offer a specific camera mount targeted for police and military use. The company's cameras are versatile enough to not require a specific police model at the moment, though GoPro has yet to publicly rule that option out.

The idea of cops wearing GoPro cameras isn't just personal speculation. Officers of Colorado's Lafayette Police Department are already beginning to wear GoPro's Hero camera line.

In fact, these officers want the cameras so badly, they're paying for their own.

That's right; while the department requires an additional $20,000 in funds to outfit its 40 officers, six have already taken the initiative to ensure transparency by bringing their own devices to work.

To the right is a photo of Officer Dan Tipton, taken by Colorado Hometown Weekly's Doug Pike.

GoPro definitely has the name-brand advantage here, but that will matter much less to law enforcement than it does to the consumer market. Police departments will primarily be concerned with cost and capability.

There are several body-cam companies, both private and public, that have already established a strong relationship with law enforcement agencies across the U.S. GoPro will need to begin building relationships with police departments if it wishes to compete on this front.

GoPro would also benefit by adapting its cameras, as its competitors are already providing high-quality devices to departments across the States.

Taken from the Rialto study, which used a GoPro alternative:

“These body-mounted cameras capture video evidence from the officer’s perspective. Weighing 108 grams and small enough to place on the officer’s shirt pocket, the camera systems can be affixed to the hat, collar, shoulder, or specially designed Oakley sunglasses. The unit is water resistant, the video is fullcolor, and the battery life lasts for at least 12 hours, thus making it ideal for the shift patterns of Rialto Police.”

Due to its shape and size, GoPro's Hero line is not versatile enough to be affixed to a hat or pair of sunglasses. Likewise, the camera's battery life is significantly shorter, offering less than three hours of continuous recording. These will be considerable factors for any department making an investment.

On the plus side, a basic GoPro camera is relatively less expensive than competing brands (as much as 50% of the cost). The field-of-view angle on a GoPro is also larger when using certain settings, and the camera films in full 1080p. Additionally, the Hero line offers Wi-Fi capability, which potentially opens the door to live video streaming — an additional motivator for officers to remain professional.

In any case, the aftermath of Ferguson will ultimately benefit GoPro and its POV camera competitors. Following these events, there's little reason not to expect an increased demand for this technology.

A forewarning, though: It would be wise let the hype cool off before buying into any body-cam stocks right now — GPRO and its competition have been rallying all week.

Turning progress to profits,

Jason Stutman

@JasonStutman on Twitter

Investing in the Stem Cell Pipeline

Yoshiki Sasai was once considered an expert in embryonic stem cell research.

Known throughout the scientific community as the “brainmaker” for his ability to successfully grow central nervous system tissue from scratch, Sasai was widely revered as a scientist who was transforming the field.

In January 2014, when the prestigious research journal Nature published two papers on a potentially groundbreaking stem cell method, it was no surprise to see Sasai listed as a co-author. After all, Sasai had already been published on nearly 75 separate occasions.

But this particular research was different — its contents put forth a cutting-edge method for producing highly versatile stem cells capable of becoming just about any cell in the body, with more efficiency than ever before.

The method, known as STAP (stimulus-triggered acquisition of pluripotency), required just a few drops of blood and a mild acidic catalyst and was expected to lead to the cheap production of patient-specific stem cells. At the time, it was trumpeted as "a major scientific discovery that [would open] a new era in stem-cell biology.”

But some things are simply too good to be true.

Mad Science

After just six months, Nature was forced to retract these papers on grounds of fraud and misconduct.

As it turned out, head author Haruko Obokata had manipulated various figures and data, dragging Sasai into a hailstorm of public outrage.

Ultimately, Obokata was the only author of the study charged with misconduct, but Sasai was still highly ridiculed by his peers. According to an investigation by the Riken Center for Developmental Biology in Japan, where the research had taken place, Sasai had “grave responsibility” in the matter.

Though he did not knowingly falsify any information, Sasai was the operating supervisor of Obokata at the time of the study. Not verifying the data was a massive oversight. Swarms of reporters hounded the authors for months, going as far as chasing down Obokata on a motorcycle and injuring her in a scuffle as she attempted to flee.

In the end, the shame and embarrassment proved far too great for Yoshiki Sasai. The scientist was hospitalized for psychological stress in March, only to be found with several suicide notes and a noose around his neck in a Riken stairwell earlier this month.

In one of his notes, Sasai reportedly urges Obokata to “be sure to reproduce STAP cells,” hinting that although the initial study was retracted, there may still be hope for reproducing similar results.

Obokata is now doing just that and is working with other scientists in an attempt to verify the study.

Whether STAP turns out to be fact or fraud will be known in due time, but in any case, we won't be seeing clinical applications anytime soon — therapeutic candidates take upwards of a decade to reach approval starting from initial development.

For now, we can only rely on evidence strongly supported by the scientific community, as well as therapeutics already well into the pipeline.

Good Science. Better Investing.

In the world of stem cells, bad science often gets more attention than legitimate treatment.

In 2010, for instance, 60 Minutes exposed hundreds of online websites selling phony stem cell treatments. These websites promised miraculous cures for diseases like multiple sclerosis, Alzheimer's, and autism, but the therapies had no clinical backing to support the claims.

Many would regard those who fall for this new-age snake oil as gullible, but the reality is they're simply desperate. When you're suffering from an incurable disease, you'll look anywhere for hope.

In the case of those seeking stem cell treatment, that's historically meant dealing with overseas quacks.

As impatient as we might be though, it's actually a good thing that the U.S. has been slow to approve stem cell treatments. By being meticulous, the FDA ensures through clinical trials that only safe and effective products make it to market.

This makes for good science and even better investing.

If it weren't for current safety and efficacy regulations, the pharmaceutical industry would be run down by snake oil merchants. Even the most prominent proponents of a free market can understand the dangers of turning the pharmaceutical industry turn into the Wild West.

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The good news is that these safety procedures are finally paying off for the stem cell industry and its investors. Due to a lack of supply and pent-up demand, approval of stem cell therapies can cause massive jumps in valuation.

Just take the FDA approval of Osiris Therapeutics' Prochymal stem cell therapy, for example:

The trick to making gains on these plays is, of course, getting in before approval and riding them on the way up. That and knowing which therapies are in the running.

If you're interested in getting in on the stem cell market, I'd recommend checking our list of late-stage stem cell and regenerative medicine pipeline candidates below:

Aastrom Biosciences' (NASDAQ: ASTM) REVIVE trial: Ixmyelocel-T (a multicellular therapy targeting critical limb ischemia), currently in Phase III.
Mesoblast Limited's (OTC: MBLTY) AMICI trial: Allogeneic mesenchymal precursors (a therapy targeting myocardial infarction), currently in Phase II.
Baxter International's (NYSE: BAX) RENEW trial: Auto-CD34+ cells (a therapy targeting chronic myocardial ischemia), currently in Phase III.
Bioheart's (OTC: BHRT) MARVEL trial: Autologous myoblasts (a therapy targeting congestive heart failure), currently in Phase II/III.
TiGenix's (OTC: TGXSF) ADMIRE-CD trial: Adipose-derived mesenchymal stem cells (a therapy targeting Crohn's disease), currently in Phase III.
Cytori Therapeutics' (NASDAQ: CYTX) ATHENA trial: Adipose-derived stem and regenerative cells (a two-dose therapy targeting chronic myocardial ischemia), currently in Phase II.

Keep in mind, not all of these candidates will make it. But several will, and when they do, those who had the foresight to invest today will make quick profits.

Turning progress to profits,

Jason Stutman

@JasonStutman on Twitter

The Price of a Person

How much is a human being worth?

The question may come across as rhetorical at first, but I assure you it isn't. I'm looking for an answer — or, better yet, a number — to put my finger on here.

We may not think about it very often, but capitalism forces us to quantify human value all the time. It may be crude, and it may be crass, but that doesn't change the basic reality that we assign numbers to people to establish their worth.

When it comes to corporate America, humans are just another variable in the cost-benefit equation.

Now, I'm not bringing this up to get into a political discussion about wealth distribution or the merits and flaws of our current economic system. I could share my personal opinions on these matters, but that would be totally irrelevant to the intended discussion.

In this forum, I'm concerned only with putting a number on worker value and seeing what that might tell us about the future of employment.

See, when you assign a number to establish a person's worth, you're inherently stating what he or she isn't. If a company pays you $50,000 a year, what they're really saying is that you're not worth $51,000. Likewise, they're saying if they could pay you $49,000 to accomplish the same amount, they would.

This second scenario is really what makes putting a number on human worth so interesting. It raises the question, “At which point does job automation (software and robotics) begin to overtake the human workforce?”

In other words, at which point do humans become monetarily worthless?

Crude Calculations

The most obvious way to figure this out is to look at data on individual incomes.

According to U.S. Census data, the average U.S. individual is worth about $40,500 a year, and half of all people are worth less than $27,000. In other words, most of the population is worth less than a four-door Nissan sedan (annually speaking).

Credit: Townhall Finance, U.S. Census Data

Now, of course humans carry plenty of intrinsic worth outside the workplace. But to corporate America, those things don't really make much of a difference.

All that really matters is getting work done, and getting it done at the lowest possible rate.

If your employer could save money by replacing you with a machine, he would — that's just good business. This is the way it's been since the invention of the printing press, and it's the way it will continue to be until humans can no longer find suitable employment with anything short of a Ph.D.

Let's assume, hypothetically, that there is a robot capable of performing work as well as workers at the bottom half of the distribution above — those valued less than $26,989.

These are your fast-food cooks, counter workers, and servers. They're your cashiers, ticket takers, farm laborers, parking lot attendants, bartenders, meat packers, and so on.

The day our hypothetical robot can be leased at $26,988 is the day this part of America becomes unemployed.

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They Took Our Jobs!

Most people aren't particularly concerned with losing their place in the workforce to a machine anytime soon, but they probably should be. Even with wages as low as they are, machines are approaching cost-effectiveness, rivaling a significant portion of U.S. employees.

Just take the average cost of an industrial robot arm, for example. New robotic arms, complete with a control system, cost from $50,000 to $80,000 and have a lifespan of 12-15 years.

At the most, that's an annual cost of $6,700 a year for a machine that can work all day, every day, with no need for benefits or insurance.

Of course, robotic arms can only perform repetitive physical tasks, but that doesn't mean these machines aren't putting any pressure on job-seekers elsewhere...

By forcing human workers away from physical labor, machines are increasing competition in other fields that require higher levels of education. A robot may not be able to do your job just yet, but it's certainly adding to the pool of those wishing to take it.

Even if this weren't the case, it would still be folly to underestimate the fast-paced progression of robotic capability. If we put some trust into prestigious research institutions such as Stanford University, MIT, and Carnegie Mellon, we can expect robots to have “humanlike dexterous manipulation,” or complex hands with independent joints approaching human capability, within just five to 15 years.

Once this can happen for less than $27,000 a year, the bottom half of America is going to drop out and, quite possibly, take a lot more down with them. Yes, jobs will be created in the process — but not even close to the pace at which they'll be lost.

No one knows exactly when this price point will be hit, but the day is coming, that's for certain. This is why, after analyzing 702 jobs across various industries, Oxford University found that 47% are currently at risk to automation.

It's also why Brussels-based think tank Bruegel found 51% of jobs in Germany are subject to automation in the next two decades and why British University Minister David Willets believes robots will “take over middle class professions” almost entirely.

Some analysts go even further. Stuart Elliot of the Organisation for Economic Co-operation and Development (OECD), for example, has indicated technology has the potential to replace “workers for 80% of current jobs.”

Unfortunately, dialogue around this issue has so far been too scarce. As a nation, we need to begin addressing the effect of automation on employment, and as individuals, we need to begin protecting our wealth.

These things could mean the difference between a utopian future filled with leisure and a dystopian one where humans are deemed utterly worthless.

Turning progress to profits,

Jason Stutman

@JasonStutman on Twitter

The Next Industrial Revolution

There's no question about it: robots are the future.

Financial institutions are quietly pumping cash into this space, and governments have just recently begun to lay the groundwork for what's being called "the second machine revolution."

Following in the footsteps of leading robotic developers such as the U.S., EU, and Japan, the South Korean government has just unveiled a new plan for developing robotics to ramp up its economy.

The country plans to spend a total of 2.6 trillion won, or $2.5 billion, on the research and development of rescue, health care, and advanced manufacturing robots.

According to reports from Korea Joongang Daily, South Korea's Ministry of Trade, Industry and Energy is calling for “a healthcare town where automated robots assist senior citizens” and a “robot business zone” where manufacturers will test new robot parts and a smart factory system.

Futuristic as that may seem, both districts are expected to be completed as soon as 2019.

The announcement came just two weeks after Japanese Prime Minister Shinzo Abe put forth a policy dubbed the “Robot Revolution,” aimed at reviving the Japanese economy and aggressively growing its manufacturing market by a target of 300%. Using current figures, that's a projection of $24 billion.

Included in Abe's plan, believe it or not, is an actual Robot Olympics, which will take place alongside the 2020 Tokyo Olympic games.

"In 2020, I would like to gather all of the world's robots and aim to hold an Olympics where they compete in technical skills,” Abe reported to the Jiji Press Agency. “We want to make robots a major pillar of our economic growth strategy. We would like to set up a council on making a robotic revolution a reality in order to aid Japan's growth.”

Many throughout Asia are referring to Shinzo Abe's policy announcement as the “New Industrial Revolution” speech. To jump-start that revolution, the Japanese government plans to offer a tax waiver to small and midsized manufacturers purchasing new robotic facilities.

With both the Japanese and South Korean governments making a push on robotics, there are several industrial manufacturers we can expect to expand over the coming years.

Denso Corp., Keyence, Aida Engineering, and SFA Engineering are all poised to benefit from these policies. However, equity can only be purchased through American Depository Receipts (ADRs) and on foreign markets. It's not the ideal investing scenario for those in the States.

Anything You Can Do...

Fortunately, Asia isn't the only region participating heavily in the “New Industrial Revolution.” The U.S. launched the Advanced Manufacturing Partnership plan in 2011, investing $2.2 billion to develop industrial robots and advanced materials. And the EU's Horizon 2020 program is pumping $1 billion into developing “life companion” robots to assist the aging population.

The U.S. stock market in particular has produced some especially profitable robotic plays recently. Adept Technology (NASDAQ: ADEP), for example, recently climbed from $3.11 to $21.90 (a 704% gain) in less than seven months.

Faro Technologies (NASDAQ: FARO) is also up 41% over 12 months. And Forum Energy (NYSE: FET) is up 19%, Lincoln Electric (NASDAQ: LECO) grew 16%, and Measurement Specialties (NASDAQ: MEAS) rose 72%.

To get a wider picture, we can take a look at the Robo-Stox Global Robotics and Automation ETF (NASDAQ: ROBO) as a benchmark. The ETF has been volatile, but it's remained well above the Dow Jones Industrial for the majority of the last 12 months.

Click to Enlarge

Remember, this is at a time when the DJI has been closing at all-time highs. ROBO is performing better than a record-breaking Dow, which certainly says something about the future of the robotics industry.

And if we look at the long-term history, it's even more telling:

Bloomberg, GaveKal Data

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… They Can Do Better

In a recent report titled "A Roadmap for U.S. Robotics", several prestigious research institutions including Stanford University, MIT, and Carnegie Mellon provided an outlook on the future of robots and automation.

In the report, the Department of Commerce analyzed a broad set of companies and their consolidated annual growth rates, finding that the third highest level of growth in the U.S. manufacturing industry is coming from robotics.

At the same time, robotics companies had the second highest growth potential, falling only behind logistics:

The report also predicts robots will have “humanlike dexterous manipulation,” or complex hands with independent joints, approaching human capability within just 5-15 years. Once this happens, human manual labor will become virtually obsolete.

Further, these academics expect nano-manufacturing, organic computers, and even nano-robots for drug delivery, therapeutics, and diagnostics. In line with South Korea's planned “robot town,” they also expect robots to take care of the sick and elderly, acting as both physical and social companions

Robots will be our industrial workforce, our doctors, and perhaps even our friends one day. This will take time, but for investors, that's actually a good thing.

The market has yet to realize the full potential of this industry, keeping equity relatively cheap.

Turning progress to profits,

Jason Stutman

@JasonStutman on Twitter

Amazon (NASDAQ: AMZN) Bets Big on Robotics

Yesterday, while running along the docks of Baltimore's harbor, I heard a familiar hum.

It didn't belong to a bug or a bird or any sort of living creature, and it wasn't being made by any of the AC units lining the newly built waterfront condos of Fells Point.

No, this hum was from something a bit less natural and far more futuristic. It's a sound I've heard several times before, but only at industry conferences and private tech conventions. Hearing it out in public was a first for me, but it certainly won't be the last time that happens.

In just a few more years, you'll begin to hear this humming too. In fact, you're going to start hearing it all the time. It'll probably be annoying at first, but you'll eventually get used to it. Even New York City traffic becomes white noise after a while.

Today, though, this humming should be nothing other than music to your ears. That's because for anyone positioned properly in the tech market, that humming is the sound of money.

It's a Bird! It's a Plane!

Once you see it, you know exactly what it is... Granted, you might find yourself a bit torn on exactly on what to call it.

Those in the field prefer to use the terms unmanned aerial vehicle (UAV) or unmanned aircraft system (UAS), while most of us just stick with the word "drone" for the sake of brevity.

Ultimately, the semantics don't really matter. What we decide to call them won't make a difference — they're coming no matter what, and they're bringing a massive investment opportunity along the way.

Most people have yet to hear the aforementioned hum, not because drones aren't useful or practical machines (they most certainly are) but because current Federal Aviation Administration (FAA) regulations have quite literally kept this industry on the ground.

This sort of thing happens all too often in our world of big government and red tape, but regulations can only halt progress for so long. Despite the FAA's efforts to keep commercial drones out of national airspace, growing pressures from both Congress and the tech industry will soon force the administration to open up the skies.

Resistance is Futile

As part of a complete overhaul of the FAA, Congress passed the FAA Modernization and Reform Act in 2012.

In addition to allocating the entirety of FAA funding, the bill mandates that the administration open the National Airspace System (NAS) to commercial drone flights by the end of September 2015. This means drones will soon be allowed to fly in the same federal airspace as commercial airliners.

At the same time, the world's biggest tech companies are betting big on commercial drone use. Facebook (NASDAQ: FB) dropped $20 million on UK-based aerospace company Ascenta in March, and Google (NASDAQ: GOOG) purchased drone-maker Titan Aerospace for $60 million in April.

When Amazon announced its intentions of building a drone delivery system called Prime Air in December 2013, most people laughed at the idea, thinking it was nothing but a media stunt.

Seven months down the road, however, it's clear the company was dead serious.

In his annual letter to shareholders a few months following the initial Prime Air announcement, Amazon CEO Jeff Bezos stated:

“The Prime Air team is already flight testing our 5th and 6th generation aerial vehicles, and we are in the design phase on generations 7 and 8.”

Then, on July 9th, Amazon (NASDAQ: AMZN) submitted a petition of exemption to FAA administrator Michael Huerta in order to conduct product testing. Language in the document details Amazon's progress:

“We are rapidly experimenting and iterating on Prime Air inside our next generation research and development lab in Seattle. In the past five months, we have made advancements toward the development of highly‐automated aerial vehicles for Prime Air, including:

Testing a range of capabilities for our eighth‐ and ninth‐generation aerial vehicles, including agility, flight duration, redundancy, and sense‐and‐avoid sensors and algorithms;

Developing aerial vehicles that travel over 50 miles per hour, and will carry 5‐pound payloads, which cover 86% of products sold on Amazon;

Attracting a growing team of world‐renowned roboticists, scientists, aeronautical engineers, remote sensing experts, and a former NASA astronaut.”

Amazon's VP Paul Misener goes on to proclaim:

“One day, seeing Amazon Prime Air will be as normal as seeing mail trucks on the road today, resulting in enormous benefits for consumers across the nation.”

If all goes as planned, Misener would certainly be right. Amazon's promise of thirty-minute package delivery would be incredibly convenient to consumers, not to mention highly disruptive to standard delivery firms and brick-and-mortar retail.

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A Second Stroll Around the Block

Those who remain skeptical about Prime Air and commercial drones in general seem to forget what happened with robotics company Kiva Systems in 2012.

At the time, Amazon's $775 million buyout of Kiva seemed a bit audacious to some investors, but just two years later, it's apparent how important Kiva's automated warehousing has become.

Kiva's robots have reportedly increased worker efficiency by as much as 400%, and in Amazon's annual shareholder meeting, Jeff Bezos announced that the company now expects to have 10,000 units deployed throughout its factories by year end.

Amazon's warehouse scale is up to 1 million square feet, and most of that space is crawling with Kiva's drones.

These facilities are so cutting-edge that when Amazon first opened its warehouses to public touring, 14,000 people signed up almost immediately, buying up slots through 2015.

When it comes to robotics and automation, Amazon isn't an amateur — it's a world leader.

Bezos and company understand the value of robots both in and outside the factory. Amazon has the experience and the infrastructure to make this happen — it's just a matter of waiting at this point.

Incessant Humming

With the NAS opening up to commercial drones as soon as next year, and with heavy investments coming from major tech companies like Google, Facebook, and Amazon, analysts are expecting a massive rush of economic opportunity over the next decade.

The Association for Unmanned Vehicle Systems International (AUVSI), for example, estimates that drones will add 100,000 new jobs and $82 billion in additional economic activity between 2015 and 2025. It expects much of this growth to come from robotic agriculture:

“Unmanned aerial systems (UAS) in agriculture have the potential to be a $3 billion market in just the first three years after the FAA opens the commercial airspace. Over the next decade, this number will rise to almost $30 billion.”

Teal Group offers similar projections for the drone market as a whole, predicting $89 billion in sales in the next 10 years in its World Unmanned Aerial Vehicle Systems, Market Profile and Forecast for 2013.

The FAA predicts as many as 30,000 drones will hit American skies as soon as 2020, meaning the hum I heard along the docks of Baltimore yesterday will soon be commonplace. These drones will come from a wide variety of manufacturers, many of which have yet to hit the public markets.

Plenty of investors are placing bets on long-time UAV company AeroVironment (NASDAQ: AVAV) right now, driving shares up to staggering levels. The stock is up 72% since our own recommendation in June 2013, but with a P/E ratio now at 154, investors should err on the side of caution.

The best bets on robotics right now aren't in UAV companies (there aren't many to choose from in the first place), but instead in both ground-based robotics and critical components like computer chips.

Following this kind of investment strategy can allow you to play the growing trend of automation while avoiding the inevitable bubbles that come with well-recognized firms.

With Amazon trading at $358 a share with a mind-boggling P/E of 561, it's far more profitable to invest in companies providing, say, the proximity sensors that ensure these kinds of drones don't crash.

Turning progress to profits,

Jason Stutman

@JasonStutman on Twitter

Practical Robot Investing

It's a Wednesday morning, and I'm watching the money flow in — $13,572 in crowdsourced funding for an Indiegogo campaign that just launched a few hours earlier.

Not a bad start, but I've seen better. It'll be a while before these guys reach their $100,000 goal.

I walk into to the office kitchen to grab myself an apple, a paring knife, and a glass of ice water. Ken and I trade formalities as he devours whatever Paleolithic meal he's consuming that day.

I make my way back to a comfortable, albeit confusing, Herman Miller chair (there are still several levers and knobs on here that I've yet to figure out).

I slide in tight to my desk and lean in close to my center monitor. Not a good habit for my eyes, I know, but it helps me concentrate nonetheless.

I refresh the Indiegogo page in front of me. It reads as follows:

"JIBO, The World's First Family Robot: Friendly, helpful and intelligent. From social robotics pioneer Dr. Cynthia Breazeal."

Source: TNW

But all I can seem to see is this: JIBO — the adorable social robot that wants your money.

In the time it took me to walk to the kitchen and back, JIBO's campaign had reached $32,145 in total funding.

I notice the majority of this funding is coming from various pre-purchases. For $500, backers are ordering the 2015 Home Edition of JIBO, and for $600, they're purchasing the developer kit.

I find this a bit strange, since the only demo of JIBO provided is a carefully scripted three-minute video. The video shows some basic command and response executions by a device that cannot move across terrain, manipulate objects, or perform any sort of meaningful physical task. The only draw I can see is that it looks a little like the adorable robot EVE from Pixar's WALL-E.

To me, JIBO is just like any mobile device, but in a different shell — a shell with less functionality and minimal market penetration.

Yet for the next few hours, I watch as JIBO makes his way towards the $100,000 goal. There are 31 days left, and he's already a third of the way there just a few hours in.

By the time I leave for lunch, the campaign is at $64,563, and by the time I return, the goal has been met. By business close, the JIBO campaign raised more than double its goal, banking nearly a quarter million dollars in a period of less than eight hours.

Hello, Robo

Users of the Indiegogo website were quick to share their enthusiasm for JIBO that day, not only through financial contributions but also through the campaign's comment section:

“I can't wait to meet Jibo!”

“JIBO is very neat. I Can't wait.”

“I'm 65 years old and I want a JIBO of my own... I can't wait !!!”

Of course, all of these people have no choice but to wait; JIBO, despite already being priced at $500, is an unfinished product that requires not only crowdsourced funding, but crowdsourced development as well.

Despite that fact that JIBO met its funding goal, its future might not be as bright as would seem at first glance. $500 is a lot of money for a robot that serves no real physical function, and without a sustainable community of developers, the platform will likely fall on its face.

JIBO has no wheels, no arms, and no legs. When we consider that the word “robot” comes from the Czech word robota meaning "forced labor," it seems disingenuous to consider JIBO a robot at all.

At best, JIBO is a pseudo-robot. It's a computer in a suit, a mobile device with a mask, a software platform in a shell. JIBO is a gimmick floating on solid marketing and hype. It's a fad — something reminiscent of Furby in 1998.

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Fact Versus Furby

For a robot to become a truly successful product, it needs to complete a physical task with a benefit that outweighs the cost of hardware.

If the benefit isn't physical, it's not really a robot. And if the cost is too high, it's not really worth producing in the first place.

The idea of interactive home robots is certainly exciting, but it's dangerous to overestimate the current state of technological prowess as an investor.

The amount of money backers threw at JIBO does not tell us where we are in terms of capability, but it does paint a vivid picture of how much pent-up demand there is in this space. When people are dropping $500 to purchase a "robot" they don't even know anything about, it becomes obvious why real robots with practical applications are well worth the investment.

In terms of the stereotypical humanoid robots we've seen in sci-fi films and television shows like Star Wars, iRobot, and The Jetsons, we still have a long way to go. Companies like Google (NASDAQ: GOOG) and IBM (NYSE: IBM) are already pumping millions into R&D in this space, but we won't be seeing any profitable ventures in the near term.

For now, robots will continue to thrive with repetitive functions suited for industrial manufacturing and monotonous chores like vacuuming, mowing, and mopping.

We're also beginning to see the rise of practical robotics in energy and mining industries. Deep-sea robots are assisting oil majors like BP (NYSE: BP) in exploration and production, while Caterpillar's (NYSE: CAT) giant autonomous tractors are drilling, hauling, and dozing precious minerals.

These kinds of robots may not be as headline-worthy as JIBO, but they're consistently more profitable.

Don't get me wrong; I think JIBO seems pretty cute. But I'd rather grow $500 by investing it in an actual robotics company than throw it away on a product I'll never actually use.

Turning progress to profits,

Jason Stutman

@JasonStutman on Twitter

Stem Cell Update: Scientists Growing Human Eyeballs

With the exception of the brain, the human eye is the single most complex organ in the human body.

It has 2 million working parts and accounts for an estimated 90% of the information we learn during our lifetimes.

Throughout the average life span, the eyes will transmit nearly 24 billion separate visual images of the world. They will also occupy 65% of the pathways to the brain and 40% of its cells.

As such prominent extensions of our brains, our eyeballs have been considered by many to be the basic foundation of human intelligence. Just about everything we know has started at the eye, so it's no wonder these organs need to be incredibly complex.

The human eye is so intricate that it's often used by creationists as an argument for intelligent design, the idea being that there is simply no way a structure so sophisticated could have been created through natural selection.

English clergyman and philosopher William Paley called the eye a “miracle of design” in 1802, and even Charles Darwin wrote in his Origin of Species that the evolution of the eye seemed, at first glance, to be “absurd in the highest possible degree.”

But I'm not here to argue about evolution — I'm simply highlighting that the construction of the eye was undeniably an incredible feat.

Regardless of whether it is the product of intricate design or the long and arduous process of natural selection, the sophistication of the eye is remarkable.

Perhaps even more extraordinary than the initial construction of the eye, though, are recent advancements in science that have given us the ability to grow parts of it on demand.

Just a few days ago, a BBC headline caught my eye: “Scientists use stem cells to regenerate human corneas.”

The article reported:

“Limbal stem cells (LSC) are crucial for healthy eyesight - these cells work to maintain, repair and completely renew our corneas every few weeks.

Without them the cornea - the transparent outermost layer of the eye - would become cloudy and our vision disrupted.

A deficiency of these cells due to disease or damage through injury to the eye are among the commonest reasons behind blindness worldwide.

But the cells have so far been extremely difficult to identify, buried in a matrix of other structures in the limbal part of the eye - the junction between the cornea and the white of the eye (the sclera).

Now scientists from the Massachusetts Eye and Ear Infirmary, Boston Children's Hospital, Brigham and Women's Hospital and the VA Boston Healthcare System have identified a key tracer molecule - known as ABCB5 - naturally present on the surface of limbal stem cells.

Though ABCB5 has been known about for some time in other parts of the body, this is the first time it has been spotted on LSCs, helping to single out these elusive cells.

Researchers have been able to tag these cells with fluorescent molecular flags.

In their study, the scientists used this tagging technique to instantly identify a pool of LSCs on donated human corneas.

After being transplanted to mice, these cells were able to generate fully functioning human corneas.”

Of course, the cornea is just one part of the eye. What about more sophisticated areas such as the retina?

Well, you might be surprised to hear that stem cells are working wonders on this front as well.

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According to a news release from Johns Hopkins Medicine last month, a group of researchers has successfully used stem cells to create light-sensitive retinas in a petri dish.

Study leader M. Valeria Canto-Soler, Ph.D., explains:

“We have basically created a miniature human retina in a dish that not only has the architectural organization of the retina but also has the ability to sense light.”

Regrowing the retina is a particularly difficult task because the tissue and structure is highly complex. The retina is comprised of six major cell types, including five different kinds of neurons, all organized into precise layers.

The success of the study was so extraordinary that even Canto-Soler and her team were surprised by the results:

"We knew that a 3-D cellular structure was necessary if we wanted to reproduce functional characteristics of the retina, but when we began this work, we didn't think stem cells would be able to build up a retina almost on their own. In our system, somehow the cells knew what to do.”

As the lead researcher also noted, this research “advances opportunities for vision-saving research and may ultimately lead to technologies that restore vision in people with retinal diseases.”

Of course, it will be years before we can regrow entire eyeballs, let alone successfully transplant these man-made organs into the human body.

Biotechnology company Organovo (NYSE: ONVO) is already bio-printing human tissue for research and therapeutic purposes, but it remains focused on much simpler structures such as liver and bone. And even with these less complicated structures, the company is finding it impossible to turn a profit.

In the near term, profitable stem cell ventures will not lie in the full reproduction of organs, but rather in simpler treatments that target specific ailments.

Among these are therapeutics in the pipeline focused on treating paralysis, heart disease, and vision loss.

These treatments won't give you a new heart or spine, but they may very well be the key to many age-related ailments. After all, that's really what regenerative medicine is all about.

Turning progress to profits,

Jason Stutman

@JasonStutman on Twitter

Playing Hyped Up Tech IPOs

Great news, everybody!

There are still plenty of stupid people left in the market.

Now, I know that statement might sound a bit coarse at first, but the fact is it would be incredibly difficult to make money trading securities if it weren't true.

But before we get into why that's the case, I'd like to briefly explain what prompted this rant and why I'm being so brash about it.

On June 25th, Chinese e-commerce company Alibaba Group Inc. made an amendment to its IPO filing, announcing it would list on the New York Stock Exchange (NYSE) under the ticker symbol “BABA.”

No official announcement was made regarding the date of the IPO, but most analysts weren't expecting Alibaba to officially go public until August 8th.

Well, that didn't stop the impatient dunces of Wall Street. Following the announcement, a flood of money began flowing into junior oil and gas exploration company Santa Fe Petroleum, Inc. (OTC: SFPI).

Why? Because Santa Fe Petroleum used to trade under the ticker symbol BABA.

Oops!

Despite the fact that Santa Fe now trades under a completely different ticker symbol and on OTC markets (not the NYSE), people still bought the stock in droves, thinking they were purchasing shares of Alibaba.

This is stupidity and laziness at its finest.

Nothing New

What's most shocking here is that these investors seem to be buying stocks without any consideration for price whatsoever. SFPI trades at $0.0091 a share, which should have been a clear indicator that they weren't in the right place.

But no, some people just wanted to own Alibaba because of the headlines. Screw research, screw valuation, and screw looking at the chart; I'm just gonna buy it.

This is the mentality that creates bubbles. It's the mentality that makes them pop. And it's the mentality that allows others to profit off those mistakes.

What we're talking about here is hype, and there is clearly a ton of it in tech right now. It's nothing new, and it will exist so long as companies trade on public markets.

If you've made it this far into the article, it means you're someone who's on the right side of hype. I know this because you've cared enough to read past the headline and to actually take into consideration what others have to say. You're the kind of investor that doesn't want to take a position unless you have all the information first.

And this is why I write investment commentary for a living. I know that so long as you continue staying informed, you'll be able to come out on the winning side of the market.

In cruder words, I want our readers to profit from stupidity, not be part of it.

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Hype and Profit

Back in October 2013, a very similar situation to occurred with Twitter's IPO.

The company was assigned to the NYSE under the ticker symbol TWTR. Immediately following that announcement, investors began picking up shares of Tweeter Home Entertainment Group Inc. (TWTRQ) — a bankrupt company still trading shares.

Valuation shot up 684% in a matter of minutes.

I remember joking with a colleague at the time that we should start playing big tech IPOs by preemptively buying shares of non-related stocks with similar ticker symbols.

Well, we probably should have taken that a bit more seriously. Santa Fe Petroleum climbed well over 400% on the BABA ticker assignment. Next time you see a high-profile public offering, it could be worth your time to check for a similar ticker somewhere on the market.

Of course, there are far more consistent ways of profiting off this kind of blind hype. Headlines send stocks into overpriced or underpriced territory on a daily basis. The key, of course, is knowing where to look.

One of the most reliable methods of predicting these sudden spikes in volume and hype is playing biotechnology stocks close to pipeline catalysts such as public data releases and FDA decisions. Mapping out a calendar is the first step to making short-term plays in that space.

Turning progress to profits,

Jason Stutman

@JasonStutman on Twitter

Small-Cap Stem Cell Stocks

“If you’re a wealthy guy and haven’t stored your stem cells, I think you’re a total idiot.”

Those are the words of Dr. Lionel Bissoon, a New York City physician who makes a living serving Wall Street's elite.

Bissoon's patients come to him complaining of common ailments of aging such as low energy, body fat, and decreased sex drive. These are wealthy and entrenched men seeking the figurative Fountain of Youth.

Quite often, they're younger than you might expect. Brian Pasalich, Vice President of Emerald Financial, is just 38 and visits Dr. Bissoon twice a week.

As one of Bissoon's services, Pasalich receives a regiment of testosterone injections. The whole practice might seem a bit eccentric at first, but Pasalich is adamant it works.

“I had more energy. I was back to my old self. My mood was better. I was happier my sex drive was back and it helped my attitude... No doubt about it. When I was lower (testosterone), I was easily distracted. I felt drained and my energy was gone. Not as focused. For the first time in my life, I had started to see myself not as the young guy but as the experienced guy. You need energy to deal with things. Now, it’s easier for me to handle because I have the energy and focus to deal with it. This is like how you feel after a cup of coffee — you’re awake and can do anything!”

But Dr. Bissoon only sees these treatments as a short-term solution. The true key to eternal youth, he believes, doesn't lie in testosterone replacement, but rather in stem cell therapy.

As a higher-end service, Bissoon and his team extract stem cells from patients while they're still young — before the cells are irreparably damaged. These stem cells are stored for a monthly fee on top of an initial $15,000 operation that, as you might expect, is not covered by the patient's insurance.

Patients are willing to dish out the cash because they know one day those cells will be useful. Despite what many might think, these aren't nutjobs falling for some bogus treatment — these are powerful and intelligent men, well educated in the field of regenerative medicine.

Self-Healing

The reason Dr. Bissoon thinks you're an idiot if you're not storing your stem cells is quite simple: the modern approach to stem cell therapy is self-pluripotent. In other words, stem cells therapies are now being derived from adult stem cells taken from a patient's own body.

The most commonly touted benefit of pluripotent stem cells is ethics. By separating itself from the quandaries of embryonic research, the adult stem cell industry has removed itself from any legitimate moral concerns.

More important, though, are the medical benefits. Our immune systems are far less likely to reject stem cells derived from our own bodies, much in the way successful organ transplants require matching blood types.

And just like with organ transplants, there's a shortage of stem cell donors due to the invasiveness of the procedure. By allowing patients to use their own cells, self-pluripotent therapies will solve this problem.

This is why Bissoon and his patients are trading huge chunks of cash just for preemptive procedures. It's also why a growing number of development-stage biotechs are banking on entire pipelines of self-pluripotent therapies and why the stem cell market is heating back up.

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Regenerative Market

On June 19, the market took note of yet another recent catalyst for development-stage stem cell companies.

Interim results on a stem cell trial taking place at the Retina Foundation of the Southwest in Dallas, Texas were enough to send StemCells Inc. (NASDAQ: STEM) flying nearly 34% in a single trading session:

The treatment, aimed at curing age-related blindness, showed a 65%-70% reduction in disease progression and no reported safety issues. Likewise, 57% of participants experienced improved vision despite a disease that typically results in progressive visual loss.

To the casual observer, this kind of catalyst would seem highly unpredictable, but it's really just a matter of mapping out a calendar and keeping previous data on hand.

Take one look at the preclinical trials for STEM's drug candidate, and it's clear the company was onto something big:

Rats receiving STEM's neural stem cell candidate maintained nearly as much visual acuity as non-diseased rats and greatly diverged from groups that didn't receive the transplant.

The results were clear enough for us to expect positive Phase I data from the start, but shares remained cheap until there was no question about it. When you consider the one-day 34% gain, it's obvious the market was greatly overestimating the level of risk here.

Turning progress to profits,

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Turning Medical Diagnostics on its Head

In October 2012, Fortune Magazine ran an issue featuring its list of the 50 Most Powerful Women at the time.

Displayed on the front cover was none other than the beautiful, young, and charismatic Marissa Mayer, who had just been appointed as the new CEO of Yahoo! Inc. (NASDAQ: YHOO) three months prior.

Here's the cover:

What followed is what can only be described as Marissa Mayer Mania. Both the media and the market went absolutely gaga, often walking the line between blatant chauvinism and pure stupidity.

The headlines read: "Yahoo's Geek Goddess," "Sexed up and smart: Women debate Marissa Mayer's Vogue photo," "Silicon Valley's Geek Queen," and "Girls Can Be Geeks Too."

When Mayer spoke at International CES in Las Vegas last January, I personally watched as the line to see her extended well outside the air-conditioned Vegas Convention Center.

Across the length of five football fields, Marissa's admirers waited patiently alongside a fleet of dormant shipping containers and forklifts. Most of them didn't even make it in before the venue was at full capacity.

The entire situation was a bit akin to a mob of teenage girls waiting to get a glimpse of Justin Bieber leaving a concert.

As for Wall Street, YHOO rallied nearly 300% in the 15 months following Marissa's sudden launch to stardom.

Amazingly, this rally occurred on essentially zero income growth and minimal changes to the company itself.

Some would point to Yahoo's stake in Alibaba to justify the change in valuation, but a 300% spike is simply absurd for a $35 billion company over such a short period of time.

When we look at the timing, it's more than clear that Marissa's Fortune cover was the spark that revived Yahoo's relevance in the tech world.

(Click to enlarge)

It Only Takes a Drop

Classic American comedian Groucho Marx once said, “Only one man in a thousand is a leader of men — the other 999 follow women.” Humor aside, there's certainly truth to this statement.

Despite living in what many would consider a patriarchal society, women like Marissa Mayer are often far more powerful than the men who surround them.

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Take Fortune's most recent cover girl, Elizabeth Holmes, for example.

In 2003, Holmes dropped out of college (at the age of 19) to start her own biotechnology company. In just over a decade, she's managed to build a medical diagnostics firm currently valued at an astonishing $9 billion.

The company's board already includes three former cabinet secretaries and two former senators. Just like with Mayer, old and powerful men are lining up to hear what she has to say.

Elizabeth's brainchild, dubbed Theranos, isn't very well known today, but it's poised to become a household name by the end of the decade. The public will also become a bit more familiar with this face:

With Holmes at the helm, Theranos has completely revolutionized the way blood tests are taken. By leveraging software and chemistry, this company is turning the entire diagnostics industry on its head.

Standard lab methods require hypodermic needles and entire vials of blood. Theranos, on the other hand, requires as little as 1/1,000th of the typical blood draw and holds up to 30 tests in a single nanotainer.

(Credit: Wired)

Holmes was originally inspired by a fear of having her blood drawn, but the benefits to this platform extend well beyond needle phobia.

In addition to making blood tests less invasive, Theranos has decreased the required laboratory size 10-fold. This allows for lab testing that is faster, cheaper, and more accessible than ever before.

The test window for Theranos is incredibly quick compared to traditional blood draw. Samples are made available to doctors in less than six hours, while typical measurement windows are between one and three days.

In addition to the obvious benefit of being more convenient to the patient, rapid sampling allows Theranos to better capture analytes with advanced decay rates.

As for cost, Theranos services are always 50% of Medicare reimbursement rates or less — and they are reimbursed by major insurance carriers, Medicare, and Medicaid. If you want your cholesterol checked, Theranos can do that for just $2.99, a price point bound to have a massive impact on the health care industry.

For investors looking to play the Marissa Mayer-type hype Holmes is about to receive, the situation is a little trickier than it was with Yahoo.

Theranos, though private, has partnered with publicly traded Walgreens (NYSE: WAG) to open 21 locations throughout California and Arizona. The two companies will be nationalizing these “Wellness Centers” in the near future, and with more than 8,100 locations, Walgreens has the proper infrastructure to make it happen.

Of course, with disruptive innovations such as this, someone's bound to get the short stick. Specifically, companies like medical laboratory giant Quest Diagnostics (NYSE: DGX) are going to have their work cut out for them.

Quest has publicly stated that Theranos is not a threat, citing its infrastructural advantage, but with the Walgreens partnership in place, that can only last so long. If Quest doesn't find a way to keep up in terms of technology, Theranos will bleed it dry one drop at a time.

Turning progress to profits,

Jason Stutman

@JasonStutman on Twitter

The Truth About Stem Cell Stocks

"All truth passes through three stages. First, it is ridiculed. Second, it is violently opposed. Third, it is accepted as being self-evident"
—Arthur Schopenhauer

In the early 20^th century, Russian scientist Alexander Maximow proposed a groundbreaking scientific theory.

For decades, this theory would be laughed at by the medical community. For years, it would be aggressively opposed by politicians and religious activists, sometimes even in violent protests.

Today, the same theory is building fortunes...

In 1908, Maximow became the first to coin the term “stem cell,” theorizing that all blood cells came from a common parent cell found in bone marrow. In 1924, he discovered those very cells...

But his success was short-lived.

Maximow died just four years later — before any other scientists were willing to accept his findings as truth. Like Pythagoras's claim that the Earth is round or Galileo's finding that the Sun is the center of the solar system, it would take years before others were willing to fully embrace this knowledge.

A Short-Lived Dogma

It wasn't until 1963 that a man by the name of James Edgar Till was able to validate Maximow's work by identifying self-regenerating bone marrow cells in animal models. Following this research, a slew of stem cell studies hit the academic scene, sparking the beginning of the end of stem cell ridicule.

But just like Maximow's 1924 discovery, Till's victory was short-lived. A wave of aggressive opposition, the height of which hit in the early 2000s, would obscure the benefits of stem cell research for decades to come.

A gross misunderstanding of stem cells allowed politicians and religious activists to misdirect the public for their own personal gain. This 2005 cartoon from the Pittsburgh Post-Gazette sums up the history quite nicely:

As you're likely already aware, the opposition to stem cell research has since drastically faded. Bush-era restrictions were lifted in 2009, and just last month, the European Commission rejected pleas to block stem cell research funding.

Today, we're at Schopenhauer's third stage of truth: where the benefits of stem cell treatments are becoming self-evident. Research claims are no longer ridiculed by academics, and political quarrels have been reduced to a whimper.

This is what happens when study after study continues to show the benefits of any new science.

The Regenerative Generation

Late last month, dentist and researcher Praveen Arany of the National Institutes of Health (NIH) released yet another study showing the futuristic applications of stem cell therapy.

Arany and his team drilled holes into the teeth of rats, only to regrow parts of the tooth through stem cell activation. Unlike most stem cell therapies that require doctors to harvest cells beforehand, these researchers were able to activate cells already present in rats' teeth using energy from a laser.

The study took place at Harvard's Wyss Institute and raises the possibility that conventional dental procedures may completely be avoided in the future. Specifically, root canals and standard fillings may become a thing of the past thanks to this advance in regenerative medicine.

Of course, teeth are just the tip of the iceberg when it comes to stem cell applications.

In February, for example, Mitsutoshi Yamada of the New York Stem Cell Foundation successfully turned cells from a woman with type 1 diabetes into insulin-producing cells normally lost to the disease.

The findings are a major breakthrough because current methods of cell transplantation usually result in rejection from the immune system. But when stem cells from a patient's own body are used, the immune system is far less likely to attack the intruding cells.

Further, just last week, researchers from Johns Hopkins University announced they have successfully grown a human retina — perhaps the single most complicated biological structure — using a type of stem cell taken from nothing more than a piece of skin.

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Advancements like these are near-miracles for those suffering from age-related disease. As we get older, our regenerative capabilities slow, but stem cells have the potential to completely reverse many aging processes we previously thought were inevitable.

Hearing loss and macular degeneration (age-related blindness), for instance, are two areas that receive a heavy amount of focus from the stem cell community. Scientists have recently restored hearing to deaf rodents using stem cells, and several human clinical studies are currently underway for the treatment of vision loss.

For every release of positive data and every step into the next clinical stage, the companies running these kinds of studies experience a new rally in share price.

Just take Osiris Therapeutics' (NASDAQ: OSIR) Prochymal, for example — a treatment for an obscure condition known as graft-versus-host disease.

Sparked by marketing approval in Canadian and New Zealand markets, this stem cell treatment rallied nearly 400% within less than two years.

With movement like that on international approvals, you can only imagine how the market would react to a positive PDUFA decision from the FDA. Likewise, we can expect an even bigger rally from stem cell therapies targeting less obscure markets.

Turning progress to profits,

Jason Stutman

@JasonStutman on Twitter

Investing in Stem Cell Research

"Once you reach this stage of heart disease, you don't get better.
You can go down slowly, or go down quickly...
... but you're going to go down."

These were the grim words of Dr. Roberto Bolli regarding patients like 39-year-old Ken M. in 2009.

Following a massive heart attack, one-third of Ken's heart tissue was destroyed resulting in what conventional medicine could only consider at the time to be “irreversible cardiovascular damage.”

As far as Ken was concerned, he would never get better. This condition would affect him for the rest of his life, and sooner or later, his heart would fail, and he would die.

It's a sad story, but it's certainly not something we're unaccustomed to.

Heart disease kills upward of 600,000 Americans each year and accounts for nearly one out of every three deaths within our borders. If there was ever an epidemic in this country, this is it.

Yet for some reason or another, the American public would rather gripe over gun control as if that's what's really plaguing our nation. Personally, I don't get it... but perhaps medical issues just aren't media worthy.

Or maybe heart disease has simply become so common that we've begun to accept it as an inevitable part of our lives. We bow our heads when doctors throw out words like “irreversible,” when that's not at all the reality of the situation.

The truth of the matter is there's no such thing as irreversible heart disease — at least, not anymore.

Healing the Heart

If biology bores you at all, you're going to have to grit your teeth here for second — there's a significant moneymaking opportunity to make it worth your while.

When you suffer from a heart attack, your coronary blood flow and oxygen are restricted, causing a condition known as myocardial infarction. If an attack is severe enough, this infarct region causes damage to surrounding heart muscle, reducing its ability to pump efficiently.

The result is a snowball effect: decreased blood flow causes muscle cells to die, which causes a further decrease in blood flow, continuing the cycle. This effect is known as ischemia, and it expands outward over time depending on the initial severity of damage.

Stents are used as temporary methods of opening arteries to increase blood flow, but that's about as far as conventional medicine takes us. In modern practice, infarct regions do not shrink — they continue to expand until the day you die.

But more recently Dr. Bolli, as well as researchers at one of the most respected medical centers in Los Angeles have released groundbreaking studies showing that damaged heart tissue can, in fact, be repaired.

Ken M. (the man with "irreversible heart damage") and 16 other participants with similar conditions underwent a cutting-edge treatment for about four months and saw a reduction in scar tissue between 30% and 47%. But scar tissue didn't just retreat — patients were actually able to regrow new cells.

The medical community was dumbfounded.

On average, these patients were able to grow about 600 million new heart cells. During a major heart attack, you lose about 1 billion.

The implications of such treatments are incredibly profound and will revolutionize the way we treat cardiovascular disease — one of the largest medical markets in the United States.

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Coming of Age

As for the means used to accomplish this feat, we can only thank stem cell research.

Since scientists first derived stem cells from animal models in 1981 we've come quite a long way.

Once an unfamiliar and controversial subset of science, stem cell therapy has rapidly matured into a pragmatic and widely accepted form of medicine. In just a few decades, we've graduated from the surreal practice of growing human ears on the backs of mice to an age of both practical and ethical applications.

To clear up any potential ethical dilemmas, no longer do we rely on the destruction of embryos to derive cells; rather, we can use our own adult bodies.

In the study described above, scientists extracted stem cells from patients' own hearts to be grown in a lab and implanted at a later date. The procedure is painless, but Milles also described it as unsettling. During extraction, he could feel the surgeon poking around his heart.

To avoid this, researchers from one publicly traded microcap have devised a way to accomplish a similar effect with stem cells derived from bone marrow — a far less invasive (and equally promising) method of reversing ischemia.

This treatment is so groundbreaking that it has even received a $1 million investment from the Vatican, which is why it's being hailed by industry experts as the “Papal Cure.”

As for efficacy, Phase I/II data is looking incredibly promising.

The “Papal Cure” mitigated blood flow decrease by as much as 36.4% and completely shut down any deceases in left ventricle function — a standard measure for heart strength.

In other words, zero patients showed a decrease in the volume of blood ejected from the heart following treatment.

Additionally, the study showed a reduction in infarct area size by 10%-15% at full dose — and the greater the dose, the greater the impact:

To date, there's only been one stem cell therapy approved for commercialization, which is why this market floundered after a massive bull market in the early 2000s.

Today, the landscape is entirely different. The science has drastically advanced, and federal regulations have been lifted and denied in the United States and Europe, respectively.

Quite simply, we're on the cusp of a new bull market for stem cells, and the company described above is without a doubt our number one play.

Turning progress to profits,

Jason Stutman

@JasonStutman on Twitter

The Zero-Dollar Premium

I don't mean to offend you, but you're an absolutely terrible driver.

If it's any condolence, though, so am I — along with just about every other human being who has ever sat down behind the wheel.

According to the International Organization for Road Accident Prevention, 90% of road accidents are a product of human error. This fact shouldn't be too surprising considering how commonly we change lanes without signaling, fail to check our blind spots, and even drive under the influence of alcohol.

Adding to these lapses in judgment, we pass on the right, ride the hard shoulder, and consistently break the speed limit. We tailgate, race through yellows, and, of course, commit the infamous “rolling-stop” at those pesky red octagons.

If you do happen to be innocent of such reckless behavior, you're certainly in the minority. The Federal Highway Administration has sponsored numerous studies on driver behavior over the last decade, finding that as little as 3% of drivers remain in compliance with basic traffic laws on a given trip.

Of course, no one ever wants to admit this — we tend to think of ourselves as guiltless champions of the road, while everyone else happens to be a good for nothing *insert preferred expletive here* — but the fact is the world would be a much safer place without us behind the wheel.

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Each year, there are over 10 million reported traffic accidents in the U.S. alone, resulting in more than 30,000 human casualties and approximately $300 billion in damages. Human traffic errors aren't just dangerous — they're incredibly expensive.

We're fortunate enough that throughout the last several decades, improved vehicle safety features have drastically cut down on fatality rates, but monetary costs have regrettably moved in the opposite direction. While we've done an excellent job of making accidents safer, we've made essentially zero progress in terms of accident reduction.

As for who foots the bill, private insurance companies cover nearly half, while the remaining majority is paid for by individual crash victims and government revenue. No matter how you categorize it, though, it's all ultimately coming out of your pocket.

Now, you probably don't need me to sit here and tell you that insurance is expensive. American drivers spend an average of $1,500 annually for each vehicle, and you're likely somewhere in that ballpark.

But what if I told you there's a way to get rid of car insurance altogether and to bring that average premium down to virtually nothing?

It might sound unrealistic, but it's certainly a possibility with today's technology. And rest assured, I'm not talking about relying on public transportation or switching to Geico — I'm talking about the inevitable impact of fully robotic, driverless vehicles.

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Robo-Chauffeur

Chances are you've heard about Google's self-driving car project. If you haven't, it's pretty much exactly what it sounds like — Google engineers have developed a robotic vehicle capable of navigating through public roads without the assistance of a human driver.

What you may not be aware of is that the company's robotic vehicle fleet has already driven 700,000 miles on public highways and urban roadways with no more than a minor fender-bender. For context, that's the equivalent of 58 years, or virtually an entire lifetime's worth, of human driving.

In other words, safe and effective robotic cars aren't just a pipe dream — they exist today and are primed to become the standard of tomorrow.

Unlike human drivers, robots lack emotion, never get tired, and can pay attention to everything around them all at once. You might have two eyes and three mirrors, but Google's robo-chauffeur has 360 degrees of constant vision.

This vision is made entirely possible by a remote sensing technology known as LIDAR (Light Detection And Ranging). By firing a collection of lasers out at different angles, Google is able to map the surrounding environment in real time and create an image that looks like this:

Specifically, Google's robotic cars use a unique LIDAR system known as HDL-64, produced by a small electronics company out of Silicon Valley.

The system sits on top of the driverless vehicle with 64 lasers rotating at up to 1,200 rpms, providing the vehicle with enough information to respond appropriately to traffic lights, construction zones, and even bicyclist hand signals.

Now, it might look a little fuzzy to you, but the fact is robotic imaging is actually far more efficient than human sight. Humans tend to only pay attention to one thing at a time. A robot doesn't have those kinds of limitations.

And robotic imaging isn't just limited to public roads. These systems are already being used for industrial, military, and mining purposes as well. Caterpillar Inc. (NYSE: CAT), for example, has outfitted these systems atop a fleet of autonomous and semi-autonomous mining equipment.

In a world where robotics can see everything at once and can make decisions within fractions of a second, human error will be removed from the equation. When it comes to car crashes, roadway accidents will be reduced as much as 90%. Google's robotic cars can already attest to this fact.

If you read between the lines, you know exactly what this means for the car insurance industry. No driver-caused accidents means no need for insurance claims, so you can say goodbye to your provider and say hello to the zero-dollar premium.

Don't forget to thank the robots while you're at it.

Turning progress to profits,

Jason Stutman

@JasonStutman on Twitter

Sex With a Robot?

Would you have sex with a robot?

This was one of the questions posed to 2,000 members of the British public in a study being performed by researchers at the University of Middlesex.

The aim of the study was to gain insight into the common attitudes of humans towards technology.

Participants answered questions regarding a wide range of subjects from military drones to robotic pets, but the concept of robotic sex slaves is admittedly what stood out the most.

Extraordinarily, one in every six respondents admitted they would choose to “have sex with an android” if given the opportunity. For a comparable reference, that's more than double the prevalence of homosexuality in today's society.

If that weirds you out a bit, you're not alone. Nearly 41% of respondents felt that the concept of having sex with a robot is “creepy,” and 14% felt it wasn't appropriate to make robots for this purpose at all.

Naturally, this raises questions about whether or not it's even possible for robotics to fill such a role. Sexual intercourse is one of the most (if not the single most) intimate experiences humans can have. Could technology really have that much influence over our lives?

And if so, what does this say about the role of robotics in future society?

Cupid's Arrow

In some sense, we've already reached this point of integration. Last year, telecommunication experts found that 15% of adults were having less sex as a result of extended Internet use.

Like it or not, we're developing a love affair with technology, and it's proving enough to subdue even the most powerful of human instincts.

This love affair extends well beyond our sexual desires, though — it's become part of our everyday lives. Robotics are especially being integrated into the grocery store, the workplace, and even our homes.

And the more we make use of these technologies, the more reliant on them we will become.

Just the other week, I was enjoying the company of friends at a barbecue when a small green robotic lawn mower glided right past my feet. Our host bragged that this was the “Rolls-Royce of robot lawn mowers,” and he wasn't kidding, either.

Dubbed the “Robomow,” this little bot was both efficient and quiet. It even knew how to navigate around us all as we moved about the lawn.

Of course, the price tag wasn't cheap — the Robomow retails at around $2,000. For some, that might seem like a lot to spend, but when you put it into perspective, it's well worth the investment.

My friend was quick to point out that he'll never have to mow his lawn again, nor will he have to pay someone to do it for him.

It's not uncommon for a household to spend upwards of $1,000 dollars a year on bare-bones landscaping, so a robotic mower could pay itself off in as little as two years.

Of course, we'll have to wait for a bush-trimming robot before our yard maintenance is completely automated — but I can assure you that, too, is on its way.

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Getting Screwed... By a Robot

The breadth of robotic capability today is far greater than many people know. We've developed machines capable of playing table tennis, solving Rubik's cubes, washing floors, serving food, and even performing emergency rescue.

In a not-too-distant future, automated software and robotics will be used to accomplish nearly any task you can think of. Household chores, driving, and yes, even sex, will be performed by machines.

At this point, our reliance on automation has become nearly irreversible. Recent research coming from Oxford this month predicts that as much as 45% of American jobs will be automated within the next 20 years.

The frightening reality is that politicians can legislate recovery acts all they want, but there's no bill capable of reversing technological processes. Unemployment will rise, and the economy will suffer.

Perhaps the most legitimate concern surrounding increased automation is that wealth will become even more concentrated into the hands of a select group of individuals — specifically those who control the machines.

Economist Noah Smith recently wrote a compelling piece for Quartz magazine, arguing that robots will soon bring about “social upheaval on a scale not seen since the invention of the musket.”

Smith argues that as robots become more and more sophisticated, the average person will begin to fade into insignificance. Eventually, he sees the financial elite using automated drones to exercise complete control over the masses.

Now, I'll hold my tongue as to the likelihood of this dystopian vision ever becoming a reality, but I am willing to say that now, more than ever before, the financial stability of the American working class is at risk.

You can forget being outsourced overseas — you're about to be replaced right here at home. And while it's ultimately not my intention to scare you, it's important you know these events will sneak up on us a lot sooner than you might think.

Turning progress to profits,

Jason Stutman

@JasonStutman on Twitter

Recent Advancements in Stem Cell Research

At two years of age, the average child has a vocabulary of about 100 words. By two and a half, they will know close to 300 — and will likely be talking nonstop.

This sudden acquisition of new words is what experts call the “naming explosion.” And despite the common complaint from parents during this time that they can never seem to get a moment of peace, it's something to remain incredibly appreciative of.

The fact is, if your child isn't able to spit out this many words by age three, chances are high there's an underlying medical issue at hand.

Take Alex Denworth, for example. At 20 months, Alex could speak only four words: "Mama," "Dada," "hello," and "up."

At first glance, this may have seemed like an issue of intelligence. But Alex wasn't mentally disabled by any means. In fact, he was fully engaged and competent with his toy trucks, building blocks, and just about every other typical toddler activity you could think of.

The medical issue Alex was suffering from actually had nothing to do with his mental wit, but was rather an issue of hearing: Alex suffered from a deformity in his inner ear known as Mondini dysplasia alongside a separate and progressive condition, Enlarged Vestibular Aqueduct.

In short, this meant Alex was profoundly deaf in his right ear and moderately deaf in the left. More alarmingly, it meant that a simple bump on the head or sudden change in pressure would cause even further hearing loss.

To the dismay of his parents, Alex couldn't ride on a plane, swim, or even step into an elevator without the risk of going completely deaf.

“A Miracle of Biblical Proportions”

Upon being diagnosed, Alex immediately became a candidate for a cochlear implant, a small but complex electronic device that provides direct stimulation to the auditory nerves of a patient's inner ear.

Unlike standard hearing aids, which only amplify sound, cochlear implants turn sound waves into electrical waves the brain can interpret.

Cochlear implants in their crudest form have been around since the 1960s, but it was only recently that they became precise enough for patients to identify individual words or even enjoy the sounds of music.

Today, these implants are advanced enough to completely change a patient's way of life. In the case of Alex Denworth, the procedure was described by his father as “a miracle of biblical proportions.”

And if those words are not enough, here's an image of a child hearing for the very first time:

If that's not absolutely precious, I'm not quite sure what is.

Still, cochlear implants are by no means perfect. While it's enough to make most patients completely elated, what's actually heard is largely distorted — regular speech ends up sounding something like the Dalek robots from Doctor Who.

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Putting the 'Bio' in Biotech

If the above reference isn't familiar, neuroscientist Gary Housley puts the issue into clear, scientific terms: “Cochlear implants are very effective for picking up speech, but they struggle to reproduce pitch, spectral range, and dynamics.”

To tackle this hurdle, researchers are finding new and exciting ways to regrow the natural mechanisms of the inner ear. In particular, Housley and fellow researchers are currently investigating the use of cochlear implants for gene therapy.

The group has recently made a breakthrough by demonstrating how to successfully regenerate auditory nerves using a combination of electrode stimulation and gene vectors.

Without getting too technical, Housley and company were able to regenerate nerves and show a better response to sound in guinea pigs, an animal with both a similar cochlea size and structure to humans.

Ultimately, the study suggests the ability to use cochlear implants to naturally improve the hearing of human patients in the near future and quite possibly bring about a cure for deafness.

Perhaps even more exciting is the fact that the world's first human gene therapy trial will take place just two months from now. The trial, led by Kansas Medical Center's Hinrich Staecker, takes a more conventional approach than Housley's electrode stimulation method, using a harmless virus to deliver gene therapy.

In Staecker's own words: "The holy grail is to give people natural hearing back. That's what we hope to do — we are essentially repairing the ear rather than artificially imitating what it does."

The trials follow successful results from last year when Staecker's team was able to use the same virus to deliver a gene called Atoh1 to improve the hearing of mice by 20 decibels. That's about the difference between cupping your hands over your ears and then taking them off again.

Incredibly enough, deafness is just the tip of the iceberg when it comes to regenerative medicine. At this very moment, there are several small companies we're aware of working with similar methods to cure blindness and even regrow tissue damaged from heart attacks.

The Biggest Defense Deal in Years

Two weekends ago, I took a spontaneous road trip down to the Florida shore with an old friend of mine.

I'd like to be able to say we were there for the sand and sun, but our time was limited, and we had more important matters to deal with.

Rather than lounging on the beach with margaritas, we decided instead to grab a few bottles of brew and witness a piece of history: the first ever launch of a reusable space rocket:

If you've yet to view a rocket launch in your lifetime, I highly recommend it. Neither words nor photos can express the experience, though I met a few spectators who likened it to watching every firework display you've ever seen all at once.

I've met a few naysayers before, too — people who didn't believe it was worth wasting their time to see a launch. Yet whenever I end up dragging any of these folks along, they can't seem to shut up about how amazing the experience was the entire ride back home.

50 years ago, catching a rocket launch up close wasn't nearly as convenient, but today it's actually rather easy — Florida's “Space Coast” has become a hot spot for public and private viewing, with as many as three rockets launching from the state in any given month.

This year, the number of global orbital launches will reach 89. That figure is the highest since the beginning of the millennium and close to the record launch numbers seen in the mid '60s. At the same time, the U.S. is taking back a larger piece of the pie, accounting for more than 30% of 2014 launches compared to just 17% in 2012.

This time, though, it's not NASA at the helm, but rather commercial companies leading this American space resurgence.

So even if you're not interested in watching a rocket launch into orbit with 500 tonnes of ground-shaking thrust, there's still plenty of reason to be excited about this industry as an investor.

Flying High

Across 2013, I recommended a total of six different space plays, from fuel providers all the way to the rocket manufacturers themselves. Despite the recently shaky macro market, all but one of these space stocks are trading up.

One of these plays, Astrotech Corporation (NASDAQ: ASTC), even hit gains as high as 296% within just three months.

Then there's Orbital Sciences (NYSE: ORB), which recently hit a 62% gain from our initial recommendation, in part due to a 14% rally last Tuesday that led shares to a five-year high.

The rally came following the announcement of a $5 billion merger with aerospace and defense company Alliant Techsystems (NYSE: ATK) to form the newly named Orbital ATK.

Expected to close later this year, the merger should run quite smoothly. Orbital and ATK have been working closely together for the last two decades and are familiar with each other's operations and work culture.

The move is being hailed by the mainstream media as the “biggest defense deal in years,” and for Orbital Sciences, this is certainly true. Combined revenue for Orbital ATK will be about $4.5 billion, of which ATK will contribute $3.2 billion.

In other words, the merger increases Orbital's top line more than three-fold. With ORB shareholders expected to own 46.2% of the newly formed entity, the move certainly seems to be working in Orbital's favor.

In addition to immediate revenue growth, Orbital ATK is expecting $585 million on the bottom line and up to $100 million annual in cost reduction synergies from the merger by 2016.

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A Whole Different Planet

Perhaps a more important consideration than any of these figures, though, is how investors will now view Orbital's role in industry. The move to join with ATK is undoubtedly beneficial in terms of image because it allows the company to separate itself from Elon Musk's SpaceX, once a significant threat to Orbital's business model and even the stock itself.

When SpaceX first docked with the International Space Station in 2012, investor sentiment sent Orbital shares down to a five-year low. Musk's ambitions to create reusable rockets and drastically cut down on launch costs made the market reasonably wary of Orbital's future.

Up until now, any positive news for SpaceX was viewed by the market as a negative for Orbital. The effect was enough to put a dent in shares anytime SpaceX received media praise — something that's become quite the common occurrence.

The move to merge with ATK effectively removes Orbital from SpaceX's shadow. It diversifies the company's revenue stream and allows it to throw around more weight where it pleases.

Further, it increases Orbital's space and defense capabilities by bringing ATK's rocket propulsion systems into play and potentially removing the company's reliance on expensive Russian engines.

Most importantly, the merger pushes Orbital out of SpaceX's league and one step closer to industry giants like Lockheed Martin (NYSE: LMT) and Boeing (NYSE: BA).

2014 will continue to be a strong year, not only for Orbital but also for many lesser-known space companies trading on the public market.

Turning progress to profits,

Jason Stutman

@JasonStutman on Twitter

How to Kill a Password

At some point or another, I've lost count of my many online identities.

There's my personal email, company email, online banking, online brokerage, HSA, 401(k), live trading software, Facebook, LinkedIn, Netflix, HBO Go, Reddit, Twitter, company devices, personal devices, multiple Wi-Fi access points... you get the idea.

Each day, I type in a dozen different usernames and passwords to access a dozen different services. For accounts I don't use often, I will sometimes forget which password belongs where, and I am forced into guess-hacking my own account.

At the same time, each account represents a constant and substantial threat to my personal identity. A successful hack would grant an intruder the ability to pose as me in public and private forums, reroute my finances, or even worse — pervert my cherished Netflix “recommended” list.

Of course I'm kidding about the last part, but all jokes aside, the process is tedious, outdated, and in drastic need of improvement.

Some people choose to avoid the confusion by using one username and password for all of their online accounts. The danger, of course, is that if one account is successfully broken into, then so are all the others. It is much safer to have your online accounts completely disconnected from each other.

Unfortunately, this is virtually impossible to do now that most online services require your email address to sign up.

Others choose to write all their passwords down and carry the information around with them. This may be a good method to minimize online attacks, but it puts you at high risk of offline password-cracking methods such as shoulder surfing.

There's also the option of storing your passwords into your web browser, which is probably the least secure. Web developer Elliot Kember found that anyone with physical access to your computer would have immediate access to any passwords stored on your browser this way.

Perhaps an even more important issue is the recent revelation surrounding the infamous Heartbleed bug, a flaw in open-source encryption. For the last two years, Heartbleed has allowed hackers to access countless amounts of “protected” online information such as Facebook and Gmail accounts. Even users' credit card information has been at risk for the last two years.

The harsh reality is that the passwords we use are not nearly as secure as we once thought, nor are they in any way convenient.

Fortunately enough, there's a hit squad of powerful tech companies ready to bury the password for good — and, of course, make some money in the process.

Technology's Greatest Alliance

In July 2012, a non-profit industry consortium known as the FIDO (Fast IDentity Online) Alliance was formed to address the issue of secure online authentication. In less than two years, the Alliance has attracted 18 different companies to its board.

The list includes heavyweight tech players such as Microsoft, Google, and Samsung, as well as influential banking and credit institutions such as Bank of America, Discover, and MasterCard.

The ultimate goal of the FIDO Alliance is to allow for easy and secure online authentication through two primary means: physical authentication and a standardized authentication protocol.

Physical authentication means biometric measures (fingerprints, iris scanning, voice recognition, etc.) and electronic security tokens similar to the key fobs we use for our cars. The obvious benefit of this is that your physical presence is required to access an account.

As for a standardized protocol, FIDO is simply establishing a set of common guidelines to ensure that authentication is secure, simple, and inter-operable. This means one key for all of your online accounts — or at least those which meet FIDO standards.

At this point, the widespread adoption of FIDO is nearly certain. With Google on board, the Alliance immediately captures over one-third of the online community (37% of people now use Gmail). Add in the user base of Microsoft, Bank of America, and MasterCard, and you realize just how many online accounts will be affected by FIDO protocol.

In addition to the online accounts we use, FIDO's adoption will also be driven by our choice in mobile devices. Samsung's recent release of its flagship Galaxy S5 phone marks the first FIDO-certified device to enter the market.

Using fingerprint scanning — and through an exclusive partnership with PayPal — Samsung's S5 allows users to make online payments in a way that is both faster and more secure than consumers have ever seen before.

With Lenovo and Samsung on board, FIDO touches 36.1% of the mobile device market. Additionally, the Alliance has already seen support from Netflix, LG Electronics, Goldman Sachs, and a total of over 100 other certified partners.

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Dog Days are Coming

FIDO is likely to have profound effects on much of the tech industry, both good and bad.

Starting with the bad first, FIDO may end up hurting the bottom line of non-adopters such as Apple. The convenience and security provided by FIDO protocol will make the process of typing in a password seem ancient and outdated. This would be especially bad news for the iPhone if Apple doesn't get on board fast.

As for the good, FIDO provides a strong boost for a few companies in particular, the majority of which fall under the biometric umbrella. This includes companies dealing in facial recognition, voice identification, and fingerprint-secured key fobs or security tokens.

Of course, the greatest benefit of FIDO goes to online-focused banking firm PayPal. The company's chief information security officer Michael Barrett serves as president of the consortium.

We can expect Barrett to have a significant influence across FIDO and, of course, for its protocol to be tailored in PayPal's favor.

Turning progress to profits,

Jason Stutman

@JasonStutman on Twitter

Drone Wars

A great war is coming, and it cannot be stopped.

Opposing armies of autonomous drones will take to the skies and battle it out to determine the victor. The impact of these events will be momentous and far-reaching... but fortunately not catastrophic.

This, of course, is because the war I'm referring to will be fought not between conflicting nations with guns and missiles, but rather between competing corporations with news headlines and quarterly earnings reports. This is a war over an emerging industry in the United States — a war over commercial drones.

Amazon (NASDAQ: AMZN) was the first to strike last December when the company revealed it was testing drones for a potential delivery service called Prime Air. The story was picked up by countless media outlets and even earned CEO Jeff Bezos a slot on 60 Minutes.

Many were quick to criticize the company's ambitious vision and blew it off as nothing more than a publicity stunt, but four months later, Amazon doesn't seem to be backing down. In his annual letter to shareholders last week, Bezos shared the following:

“The Prime Air team is already flight testing our 5th and 6th generation aerial vehicles, and we are in the design phase on generations 7 and 8.”

The statement comes at an exciting time. Just last month, a $10,000 FAA fine levied against drone operator Raphael Pirker was shot down by the National Transportation Safety Board. In short, the decision established that before the government poses restrictions on new technologies such as commercial model drones, it must first consult with and obtain comments from the public.

In other words, the FAA doesn't have the authority to enforce regulations that don't yet exist.

Of course, Amazon won't immediately begin launching Prime Air, even if the technology was already in place. The FAA is currently operating under congressional order to formally enact rules governing commercial drone use by September 30, 2015.

These rules likely won't be open for public debate until year-end, so it would be unwise for Amazon to undergo a premature launch. The company will need to wait for official legislation before making final adjustments to Prime Air.

Putting aside any natural disdain for red tape, these incoming regulations are actually excellent news for the drone industry. Congress has made it clear through its deadline that it wants to open U.S. airspace to commercial drones as soon as possible.

Like any other form of government regulation, this legislation won't be perfect, but it will undoubtedly remove the paralyzing uncertainty surrounding drone use in a commercial setting. Once the rules are on paper, drone makers will start coming out of the woodworks.

Humanitarian Capitalism

Of course, we know by now that Amazon isn't the only technology giant making preemptive moves to establish air superiority. Many were surprised by Facebook's (NASDAQ: FB) $20 million purchase of U.K.-based aerospace company Ascenta in March, as well as Google's (NASDAQ: GOOG) $60 million buyout of drone-maker Titan Aerospace just last week.

The willingness of these players to throw around that kind of weight certainly shows strong bullish sentiment in the commercial drone industry — but what could a social media site and a search engine possibly want with drones?

Admittedly, this all sounds pretty intrusive at first glance, but unlike Amazon's in-your-face delivery strategy, Google and Facebook will be operating primarily out of sight.

Both companies plan to use high-altitude drones to expand Internet access to developing nations — a plan with both charitable effects and capitalist incentives.

Facebook calls its initiative the Connectivity Lab, while Google is said to be implementing Titan Aerospace into its previously announced Project Loon. Both plans operate under a similar concept: using a network of low-orbiting drones/satellites to relay signals down to earth.

If successful, Google and Facebook could connect billions of additional users to the Internet. Surprisingly, 5 billion people still remain unconnected to the web, meaning there are plenty of eyes left for tech companies to capture.

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Estimates have Project Loon increasing Google's user base by as much as 200%. With the vast majority of the company's revenue coming from Internet advertisements, increased worldwide Internet access would have a substantial impact on the bottom line.

As for the safety and privacy concerns that naturally surround drone use, commercial applications hardly seem to be of any real threat right now. Neither Google nor Facebook will be peeking into your backyard, and Amazon's Prime Air will be no less obtrusive than a deliveryman at your doorstep.

Of course, there is also the concern of drones losing control and getting into accidents. Many are worried these objects could potentially damage property or even injure a person standing in the wrong spot.

However, drones have become far more physically adept than many people realize and can operate with a significant margin of safety.

In a recent TED talk, Raffaello D'Andrea showed off the athletic prowess of quad helicopters. The talk featured drones equipped with algorithms that allowed them to perform multiple back-flips, balance glasses of water, and even play a game of catch with a human participant.

If you have any doubts about how proficient drones have become, check out this video:

With the FAA predicting as many as 30,000 drones in American skies by 2020, it will be much better to embrace this technology rather than to fear it.

As for where to look in the market, manufacturers Boeing Co. (NYSE: BA) and Textron Inc. (NYSE: TXT) are already testing drone-based agriculture non-commercially.

For a pure play, continue looking to AeroVironment (NASDAQ: AVAV), a leading producer focused specifically on small drones. The company is up 75% since our initial recommendation last June, and we expect it to continue outperforming the market leading up to the September 30, 2015 FAA regulations.

Turning progress to profits,

Jason Stutman

@JasonStutman on Twitter

Welcoming the New Cold War

I'd like to offer my sincerest thanks to none other than Vladimir Putin. Despite what you may have been told, he's actually done this great nation a favor.

Recent media coverage has caused many Americans to worry about the coming of a new Cold War, but the truth is we should be welcoming it with open arms. After all, there's nothing that drives this country more than the spirit of competition.

The Cold War once gave Americans a simple sense of purpose: to be better than the Soviets at anything and everything. And it was with this sense of purpose that our nation was able to accomplish so many great triumphs.

Part of this purpose meant containing Soviet political influence across the globe. Another meant supporting capitalism through heavy consumerism. Most importantly, though, it meant building strong cultural competition in the arts and sciences.

"I believe that this nation should commit itself to achieving the goal, before this decade is out, of landing a man on the Moon and returning him safely to the Earth."

Would John F. Kennedy have said these words if not for the Cold War? Probably not.

But it's not just about sending a man to the moon — if Eisenhower hadn't signed the Space Act in 1958, NASA as we know it wouldn't even exist.

To some, that might not seem like a big deal, but deleting NASA from history would mean saying goodbye to your memory-foam mattress, your Brita water filter, cordless power tools, shoe insoles, and even long-distance telecommunications (a.k.a. all of your mobile devices).

The fact is, the world today would look entirely different (most likely for the worse) if not for the many technological advances that arose from the competitive culture of the Cold War.

Without the threat of a common foe, America has become far too comfortable lately. Don't you find it strange that we declared the Cold War won yet now rely on Russian rockets to get American astronauts to orbit?

After years of American politicians naively treating Russia as a non-competitor, national math and science programs have practically gone down the drain.

And it's for this reason that I say thank you to Vladimir Putin. America needed a swift kick in the butt, and Russia's actions in Crimea have undoubtedly served as the steel-toed boot.

On April 2, in a leaked email, NASA Associate Administrator for International and Interagency Relations Michael O’Brien wrote the following to undisclosed colleagues:

“Given Russia’s ongoing violation of Ukraine’s sovereignty and territorial integrity, until further notice, the U.S. government has determined that all NASA contacts with Russian government representatives are suspended, unless the activity has been specifically excepted.”

This means no more visits by Russian government representatives to NASA facilities, no more bilateral meetings, and even no communication by email.

As for excepted activities, ISS relations are sound, and American astronauts will still be hitching rides on Russian Souyez rockets until 2017.

NASA has made it clear, however, that the Agency is now heavily focused on bringing back domestic launches for astronaut transport. According to agency spokesperson Allard Beutel:

"NASA is laser focused on a plan to return human spaceflight launches to American soil, and end our reliance on Russia to get into space... We’re now looking at launching from U.S. soil in 2017... The choice here is between fully funding the plan to bring space launches back to America or continuing to send millions of dollars to the Russians. It’s that simple."

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Aside from this being a point of nationalism, the degrading relations between American and Russian space agencies is excellent news for commercial space companies such as Orbital Sciences (NASDAQ: ORB) and SpaceX. With both of these companies now having successfully completed cargo resupply missions to the ISS, we can expect contracts for human launch missions in the near future.

NASA's space-taxi contract with the Russia's Federal Space agency is putting up nearly $70 million every time the Agency sends an astronaut to space. So in addition to political pressures, there is a huge financial incentive for the agency to award contracts to space companies operating in the capitalist landscape.

Right now, Orbital and SpaceX are the only two companies capable of filling this void. In the most likely of scenarios, NASA will split human launch contracts between both Orbital and SpaceX, just as it has done with cargo resupply missions over the past few years.

NASA has certainly warmed up to SpaceX since its inception, but the agency's most recent contract to launch eight science satellites went to Orbital's Pegasus rocket.

In either case, NASA will experience the benefits of the free market, and America can finally begin climbing back into a position of global space leadership.

Turning progress to profits,

Jason Stutman

@JasonStutman on Twitter