{"id":28407,"date":"2012-03-20T09:54:06","date_gmt":"2012-03-20T13:54:06","guid":{"rendered":"http:\/\/countingpips.com\/fx\/2012\/03\/20\/patent-filings-the-next-great-leading-indicator\/"},"modified":"2012-03-20T09:54:06","modified_gmt":"2012-03-20T13:54:06","slug":"patent-filings-the-next-great-leading-indicator","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/fx\/2012\/03\/20\/patent-filings-the-next-great-leading-indicator\/","title":{"rendered":"Patent Filings: The Next Great Leading Indicator"},"content":{"rendered":"<div align=\"left\"><script type=\"text\/javascript\">\ntweetmeme_style = 'compact';\n<\/script><br \/>\n<script type=\"text\/javascript\" src=\"http:\/\/tweetmeme.com\/i\/scripts\/button.js\"><\/script>\n<\/div>\n<div><img loading=\"lazy\" decoding=\"async\" class=\"size-full wp-image-28321 \" title=\"Patent Filings: The Next Great Leading Indicator\" src=\"http:\/\/www.investmentu.com\/wp-content\/uploads\/2012\/03\/patent-filings-leading-indicator.jpg\" alt=\"Patent Filings: The Next Great Leading Indicator\" width=\"220\" height=\"220\" \/><\/p>\n<p>Study after study confirms that stock prices follow growth in earnings, but could patent filings be an even better leading indicator?<\/p>\n<\/div>\n<p>For most of my career, I\u2019ve been a tireless advocate of a single investing principle. That stock prices ultimately follow earnings.<\/p>\n<p>By that I mean, if a company continues to increase its earnings, quarter after quarter, its stock price is bound to trade higher, too. And vice versa.<\/p>\n<p>My faith, mind you, is well founded. Ironclad studies demonstrate that the price performance of the S&amp;P 500 Index does indeed track profit growth.<\/p>\n<p>As a result, I, like Alexander Green, consider earnings growth a reliable <a title=\"Share Buybacks: A Buy Signal You Can\u2019t Ignore\" href=\"http:\/\/www.investmentu.com\/2012\/March\/share-buybacks-buy-signal.html\" target=\"_blank\">leading indicator<\/a> when evaluating stocks. But more and more, I\u2019m becoming convinced that an even better leading indicator may exist \u2013 patent filings.<\/p>\n<p>Here\u2019s why\u2026<\/p>\n<h2><strong>The IP Factor<\/strong><\/h2>\n<p>Before a company can book a single penny in profit, it needs a product to sell. Yet in today\u2019s fiercely competitive global economy, before a company can produce something to sell, it needs to patent the idea. Otherwise, it\u2019s too easy for competitors to knock off the product and steal market share.<\/p>\n<p>In other words, being first to market is no longer enough of a competitive advantage. Companies need to be first to market <em>and<\/em> have patents protecting their products to ensure sales and profit longevity.<\/p>\n<p><strong>Groupon <\/strong>(Nasdaq: <a href=\"http:\/\/finance.yahoo.com\/q?s=GRPN&amp;ql=0\" target=\"_blank\">GRPN<\/a>) and <strong>Apple <\/strong>(Nasdaq: <a href=\"http:\/\/finance.yahoo.com\/q?s=AAPL&amp;ql=1\" target=\"_blank\">AAPL<\/a>) serve as good examples of this new paradigm at work.<\/p>\n<p>As you\u2019re well aware, <a title=\"Groupon\u2019s Long-Awaited IPO is Upon Us\" href=\"http:\/\/www.investmentu.com\/2011\/November\/investing-groupon-ipo.html\" target=\"_blank\">Groupon<\/a> invented the daily deals market in 2008. All it took was a novel idea to connect consumers and businesses in a new way \u2013 via coupons over email. But guess what? Groupon didn\u2019t have even <em>one<\/em> patent protecting its novel business model. And within four years, over 300 competitors emerged. Now, Groupon doesn\u2019t stand a chance to keep booking higher profits, let alone survive.<\/p>\n<p>Contrast Groupon\u2019s experience with the details behind <a title=\"Three Reasons Why You Should Add This Tech Titan to Your Portfolio\" href=\"http:\/\/www.investmentu.com\/2010\/January\/apple-aapl-tech-titan.html\" target=\"_blank\">the meteoric rise of Apple<\/a> and you\u2019ll definitely get the connection between patent filings and stock price performance.<\/p>\n<p>We can all agree that Apple took the world by storm with its iPhone launch in June 2007. Before it sold a single one, though, it secured as many patents as possible. And it continued to do the same thing on every next generation device.<\/p>\n<p>So what happens if we chart Apple\u2019s patent filing activity against its stock price performance? Well, a clear connection emerges.<\/p>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"alignnone size-full wp-image-28320 aligncenter\" title=\"As you can see, the number of patent filings increased significantly before Apple\u2019s stock price increased significantly.\" src=\"http:\/\/www.investmentu.com\/wp-content\/uploads\/2012\/03\/stock-prices-follow-patent-filings.jpg\" alt=\"Stock Prices Follow Patent Filings\" width=\"490\" height=\"392\" \/><\/p>\n<p>As you can see, the number of patent filings increased significantly <em>before<\/em> Apple\u2019s stock price increased significantly. Coincidence? Hardly.<\/p>\n<p>The uptick in patent filings signaled an uptick in innovation at <a title=\"Picking High-Growth Companies: How to Find the Next Apple\" href=\"http:\/\/www.investmentu.com\/2012\/February\/high-growth-companies.html\" target=\"_blank\">Apple<\/a>. And the patent filings proved to be a reliable indication of new, potentially game-changing products in development. Once the products hit the market, their market potential was realized, which showed up in increased sales and profits.<\/p>\n<p>Bottom line: While earnings growth remains a reliable indicator, we\u2019d be well served to add patent filings to our repertoire, too. It\u2019s an even earlier indicator of stock price performance.<\/p>\n<p>So much so, it\u2019s the very indicator I used to uncover the newest profit opportunity for <em>WSD Insiders<\/em>. I\u2019m convinced the small caps\u2019 renewed commitment to innovation in 2011 is foreshadowing a major stock price rally. For full details, all you have to do is sign up <a href=\"http:\/\/wsdinsider.com\/video\/wcr\/wcxsecur.php?code=MWCXN306&amp;n=WCXPen4979\">here<\/a>.<\/p>\n<p>Good Investing,<\/p>\n<p>Louis Basenese<\/p>\n<div>\n<a href=\"http:\/\/feeds.feedburner.com\/~ff\/InvestmentU?a=Z4mDfc5t1XI:zHVkFn2Lc-8:yIl2AUoC8zA\"><img decoding=\"async\" src=\"http:\/\/feeds.feedburner.com\/~ff\/InvestmentU?d=yIl2AUoC8zA\" border=\"0\"><\/img><\/a> <a href=\"http:\/\/feeds.feedburner.com\/~ff\/InvestmentU?a=Z4mDfc5t1XI:zHVkFn2Lc-8:V_sGLiPBpWU\"><img decoding=\"async\" src=\"http:\/\/feeds.feedburner.com\/~ff\/InvestmentU?i=Z4mDfc5t1XI:zHVkFn2Lc-8:V_sGLiPBpWU\" border=\"0\"><\/img><\/a> <a href=\"http:\/\/feeds.feedburner.com\/~ff\/InvestmentU?a=Z4mDfc5t1XI:zHVkFn2Lc-8:qj6IDK7rITs\"><img decoding=\"async\" src=\"http:\/\/feeds.feedburner.com\/~ff\/InvestmentU?d=qj6IDK7rITs\" border=\"0\"><\/img><\/a> <a href=\"http:\/\/feeds.feedburner.com\/~ff\/InvestmentU?a=Z4mDfc5t1XI:zHVkFn2Lc-8:gIN9vFwOqvQ\"><img decoding=\"async\" src=\"http:\/\/feeds.feedburner.com\/~ff\/InvestmentU?i=Z4mDfc5t1XI:zHVkFn2Lc-8:gIN9vFwOqvQ\" border=\"0\"><\/img><\/a> <a href=\"http:\/\/feeds.feedburner.com\/~ff\/InvestmentU?a=Z4mDfc5t1XI:zHVkFn2Lc-8:F7zBnMyn0Lo\"><img decoding=\"async\" src=\"http:\/\/feeds.feedburner.com\/~ff\/InvestmentU?i=Z4mDfc5t1XI:zHVkFn2Lc-8:F7zBnMyn0Lo\" border=\"0\"><\/img><\/a>\n<\/div>\n<p><img loading=\"lazy\" decoding=\"async\" src=\"http:\/\/feeds.feedburner.com\/~r\/InvestmentU\/~4\/Z4mDfc5t1XI\" height=\"1\" width=\"1\" \/><\/p>\n<p>Article by <a href=\"http:\/\/www.investmentu.com\/\" target=\"_blank\">Investment U<\/a> <\/p>\n","protected":false},"excerpt":{"rendered":"<p>Study after study confirms that stock prices follow growth in earnings, but could patent filings be an even better leading indicator? For most of my career, I\u2019ve been a tireless advocate of a single investing principle. That stock prices ultimately follow earnings. By that I mean, if a company continues to increase its earnings, quarter &hellip; <\/p>\n<p class=\"link-more\"><a href=\"https:\/\/www.investmacro.com\/fx\/2012\/03\/20\/patent-filings-the-next-great-leading-indicator\/\" class=\"more-link\">Continue reading<span class=\"screen-reader-text\"> &#8220;Patent Filings: The Next Great Leading Indicator&#8221;<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-28407","post","type-post","status-publish","format-standard","hentry"],"_links":{"self":[{"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/posts\/28407","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/comments?post=28407"}],"version-history":[{"count":0,"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/posts\/28407\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/media?parent=28407"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/categories?post=28407"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/tags?post=28407"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}