Editor's Choice

3 Disruptive Companies that you Must Watch in 2013

Simon is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

"New opinions are always suspected and usually opposed without any other reason but because they are not already common."

- John Locke, 1689

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Disruptive companies are likely the most feared and least understood in the market.

That's quite a statement, but there's a good reason for it.  These companies aim to change the way that the world currently does things (or, at least how it spends money).  That "current" way of doing things normally has been established by large organizations that have significant resources, thousands of employees, and multiple sources of a competitive advantage.  In short, they're up against some pretty high hurdles. 

But if successful, the rewards are incredible

On the other hand, if a disruptive company succeeds in changing the behavior of people en masse, the payout can be huge.  Just look at the outcomes of two of history's most disruptive companies:

Apple (NASDAQ: AAPL) sought to revolutionize the personal computer.  When the Apple I was first developed in 1976 by Steve Wozniak and Steve Jobs, most people hadn't even heard of computers and certainly weren't using them on a regular basis.  But Apple made a habit out of bringing computers to the hands of the mass market.  With the introduction of the iMac in 1998, the iPod in 2001, the iPhone in 2007, and the iPad in 2010, Apple has succeeded in not only changing how we used computer hardware ... but in proving that we need to camp out on Fifth Avenue to buy its newest gadgets.  In doing so, Apple created the largest company in the US stock market, with a market cap today worth half a trillion dollars.

Amazon.com (NASDAQ: AMZN) first hit the web in 1995 as a humble online bookseller.  Founder and CEO Jeff Bezos soon realized that he could sell more and more items on his site and essentially change people's buying behavior toward discretionary items.  Rather than driving to their closest retailer, people could now get the latest Beanie Babies, Furbies, and Justin Bieber dolls delivered directly to their doorstep.  With a laser-focus on customer satisfaction and order fulfillment, Amazon kept its customers coming back and is today threatening bricks-and-mortar retailers of several industries.  Amazon sports a market cap of $120 billion, and Forbes estimates Bezos' personal net worth to be $23 billion.  Not bad for a humble bookseller.

Looking to the future

It's easy to look in the rear-view mirror and see what Apple and Amazon did to be successful.  It's much harder to find the companies that will change the world in the future.  After all, we're fairly accustomed to the way that we do things today, and even the most experienced forecasters have terrible track records.

That said, there are some companies that are certainly showing signs of disruptive behavior and are worth keeping an eye on.  The following three are worthy of your attention in 2013:

<table> <tbody> <tr> <td>Name</td> <td>Ticker</td> <td>Recent Price (as of 1/11/13)</td> <td>Market Cap ($billion)</td> <td>Industry</td> </tr> <tr> <td><strong>NXP Semiconductor</strong></td> <td>NXPI</td> <td> $28.31</td> <td>$7.2 </td> <td>Semiconductors </td> </tr> <tr> <td><strong>Stratasys</strong></td> <td>SSYS</td> <td> $84.82</td> <td>$1.8</td> <td>Manufacturing</td> </tr> <tr> <td>Space-X</td> <td>(n/a)</td> <td> N/A</td> <td>N/A </td> <td>Space Travel (yes, really!)</td> </tr> </tbody> </table>

NXP Semiconductors (NASDAQ: NXPI)

Near-Field Communication (NFC) has the potential to change retail purchasing behavior.  Traditional payment methods of using cash and checks are antiquated, and perhaps even credit cards are at risk of becoming obsolete.  NFC now allows for mobile devices, such as cellphones or tablets, to distribute relevant information over very short distances (i.e. a few inches).  Just think about waving your cell-phone past a terminal to pay for your cartful of groceries, without even slowing in your walk.  This could indeed prove very popular in making private purchase transactions.

NXP makes the chips that go into devices that would use NFC.  They already are suppliers to Nokia and Samsung, and just confirmed last October that their technology would be present in Microsoft's Windows 8 Phone.  Though the company is still not profitable, it is the pioneer in a new market that has a huge potential.  That's something worth communicating.

Stratasys (NASDAQ: SSYS)

Few might have guessed a decade ago that manufacturing would undergo the disruption that it is today.  Stratasys is a leader in additive manufacturing, which allows for the production of specialized parts using proprietary printers and consumables.  This often reduces the need for their customers to carry costly inventory or to spend time and money importing parts from multiple locations.  Products from rare automobile components to medical implants can now be printed just when you need them.

The stock isn't exactly cheap.  At a recent price of $85, shares are trading hands at a P/E north of 50.  But if additive manufacturing truly is the wave of the future, it won't be long before Stratasys is printing money.

Space Explorations Technologies (aka 'SpaceX') is a private contractor that designs and builds rockets.  Their current focus is in bringing payloads to the International Space Station.  Having a private-sector company even bid to take cargo into space is a feat in it of itself, as the missions have traditionally been dominated by NASA and other government-funded organizations.  But SpaceX is clearly showing early signs of success, as it has secured $4 billion of contracts and over 40 missions through 2017.  Even though SpaceX is still a privately held company, Foolish writer John Divine recently put it on his watchlist of companies that could go public in 2013.  I'd make sure to keep an eye on this one ... it's got potential that is out of this world.

Foolish bottom line

David Gardner has made a career out of identifying disruptive companies.  He calls them Rule Breakers.  The trick is to find them early and then hold on as they gain adoption, entrench themselves, and end up changing the whole market.

As investors, there is no way that we can know exactly how the future will shake out.  But incorporating a few small, fast-growing companies into a diversified portfolio could be a great way to accelerate your overall returns.


TXinvestor82 owns shares of Apple and Microsoft.  The Motley Fool recommends Amazon.com, Apple, NXP Semiconductors , and Stratasys. The Motley Fool owns shares of Amazon.com, Apple, Microsoft, and Stratasys. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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