It's painful and uprooting, but sometimes companies have to be willing to disrupt their entire operation to stay relevant or even to stay in the game. If they don't, they'll get left behind and end up as roadkill -- living at the mercy of those who bit the bullet and re-imagined their companies in bold, meaningful and even radical ways. And for investors, it's these "disruptors" that figure meaningfully on "up" market days, and that can give your portfolio a huge boost.
You see some of these disruptors rallying on Wall Street practically every day. On Wednesday, it was the disruptive payment processors that rallied once again -- far outpacing the traditional banks. I'm talking about Visa (V) , PayPal (PYPL) , American Express (AXP) , Square (SQ) and Mastercard (MA) .
Yes, the traditional-bank stocks were able to rally on Wednesday, but what we call "fintech" (short for "financial technology") has been winning investors' hearts and minds for months. That's particularly true of PayPal, which has made itself into the de facto online credit card and cash machine for millions of Millennials worldwide via its Venmo business.
Meanwhile, Square takes a backseat to no one, allowing small businesses to get loans against the cash-register receipts. That helps create fabulous brand loyalty, as well as the disintermediation of traditional banks. Banks could have easily snared these small businesses as clients and maybe even creditors, but couldn't possibly have the depths of knowledge that Square has because they don't have access to those receipts.
We know that Facebook (FB) , Alphabet/Google (GOOG) , (GOOGL) and Amazon (AMZN) have disrupted the entire advertising market because (as we hear time and again) these companies allow businesses to post targeted advertising at the place their customers are most likely to shop. Then they give consumers a link that makes it so easy to buy something.
Think about what that's done to traditional advertising. It's been a disaster for all sorts of other ad-supported media, forcing many a publishing company to switch to a subscription model.
Why Apple Should Buy Dexcom and Tandem Diabetes
You want radical disruption? How about what's going on in the business of insulin treatments for diabetics.
We have two companies that have totally upended the old finger-stick-and-pump model. Thanks to them, diabetes sufferers now have access to the G-6 glucose monitor from Dexcom (DXCM) combined with a pump from Tandem Diabetes (TNDM) . This lets patients regulate and administer insulin using a system that's about as perfect and effortless as it could be.
Plus, if it's a young child who's using the combination glucose monitor and pump, the system will send parents real-time data at the same time the kid sees it. As a result, Tandem Diabetes has totally upended the pump world, which had been dominated by Medtronic (MDT) and Johnson & Johnson (JNJ) (although the latter recently dropped out of the competition).
If you don't know how these two devices work together, you need to watch Diabetic Danica, who hosts a very good YouTube show about all things diabetic. That will give you a crystal-clear endorsement of how both devices work.
How good is this combination? Well, after watching Diabetic Danica's videos (which are unprofessionally shot but very informative), I wanted to call CEO Tim Cook of Apple (AAPL) and say: "Eureka! Forget the video-streaming product, buy $13 billion Dexcom and buy $4 billion Tandem Diabetes, paying a 50% premium for both."
That would cost roughly $28 billion -- a fraction of what Apple has bought back in stock over the years. AAPL could make the two companies seamless, then charge diabetics $10 a month to use the devices.
And since the Apple Watch and Apple iPhone can both connect to the glucose monitor, it might pay to just give the hardware away to anyone who needs it -- an act of goodness in itself. Then Apple could charge patients a service fee. That arrangement would be an instant hit ... and make those who feel Apple's service stream isn't growing fast enough have to eat crow.
I can't tell you how often I've seen new drugs disrupt less-effective methods of treating different illnesses. For instance, as a migraine sufferer, I've tried everything from Extra Strength Excedrin (not worth it) to Botox, which was a huge waste of time and expensive as all get-out.
But now, not one or two but three companies -- Amgen (AMGN) , Lilly (LLY) and Teva (TEVA) -- have developed anti-migraine injections that have provided relief for thousands of people. These drugs are each slightly different, but almost all of them beat Botox, according to my doctors. And we aren't even at the ballpark yet with these drugs, let alone in the first inning of their development.
Does that mean you sell Allergan (AGN) , which makes Botox? No, but this is one more reason not to like that name.
Or consider Regeneron (REGN) . Mad Money has been on TV for ages, but one of the things I always remember is that our first guest was Regeneron's Len Schleifer. He talked at the time about his Eylea macular-degeneration treatment being far more effective than another company's drug.
When I asked Len how he knew this, he said that it was pretty simple -- every month, a doctor would shoot you in the eye with Eyelea. I said that sounded pretty awful, but he noted that a competitor's drug had to be administered into the eye every week.
So, consumers had a choice between a delivery system of 12 shots in the eye per year rather than 52 shots in the eye per year. Was it hard, then, to recommend that stock at $5? No - and now it's at $409.
Why Kraft Heinz Should Buy a Cannabis Company
Finally, let's talk about what happens if you don't disrupt or innovate. In that case, you get Kraft Heinz (KHC) .
Looking at KHC's product lineup is like stepping into a Wayback machine. It's like something from Rocky and Bullwinkle. In fact, I've often marveled at how effective Kraft Heinz foods would be in the event of thermonuclear war.
KHC was propped up for the longest time by analysts who kept thinking that you're being "paid to wait" via Kraft Heinz's hefty dividend while management figured out whom to buy and whom to then lay off to make more money. KHC fired so many people that they practically needed a fire department there.
But that's not how to organically grow a business. Never.
Is there a better way out of this dilemma? Can Kraft Heinz be saved, or will it be part of the food-company road kill that is Campbell Soup (CPB) , Conagra (CAG) , Kellogg (K) and Dean Foods (DF) ?
Well, because I like to be constructive -- even about Kraft-Heinz -- I have an idea for them. I think they should buy a cannabis company.
How do I know to do this? Because this very Wednesday, billionaire investor Nelson Peltz became a strategic adviser for Aurora Cannabis (ACB) , one of the world's fastest-growing marijuana companies, in exchange for options on a minimum of 20 million shares.
The famed Peltz is on the board of Procter & Gamble (PG) and was previously on the boards of candy-and-snack company Mondelez (MDLZ) and Kraft Heinz's predecessor Heinz. When I last caught up with him, Peltz told me he thought that cannabis is the next frontier.
I agree. It can be used for snacking, drinking, medicine and for a host of other functions. I told Nelson that I think cannabis could end up disrupting as much as $500 billion in commerce -- everything from pernicious opioid drugs to animal health, analgesics, tobacco and of course, alcohol.
The vice companies already know this. Tobacco giant Altria (MO) last year bought a big position in Cronos (CRON) -- a very solid, well-run cannabis firm -- for $1.8 billion. Meanwhile, beermaker Constellation Brands (STZ) has invested $4 billion in Canopy Growth Corp. (CGC) , the world's largest cannabis company.
The CGC deal has given Constellation the keys to anything with cannabis that can be eaten or drunk (the latter being a nice hedge to slowing beer sales). Canopy Growth is also testing a myriad of health-care opportunities involving cannabis.
My prediction: The alcohol companies are all going to get into the cannabis business, while the tobacco companies are also obvious players. But it's urgent for Kraft Heinz to sell not only the Breakstone brand, but also Maxwell House (a brand that KHC hasn't managed to starve or obviate) and use the proceeds to move aggressively into cannabis. That would prove without doubt that KHC is a growth company with a forward-thinking agenda.
And do you want to know something really crazy but also really right? If I were running Kraft Heinz, I would buy Constellation Brands itself in a cash and stock-swap. Or I would go take Cronos away from Altria. Or I would scoop up some of Aurora in exchange for big cash.
Now, I know that the likelihood of my suggestions being taken -- whether by Apple or Kraft Heinz -- seems slim. But If Apple doesn't buy Dexcom and Tandem Diabetes, then Alphabet should. And if Kraft Heinz doesn't take my advice on a cannabis gambit, then Mondelez should before another packaged-goods or liquor company does.
But to stand still is to be disrupted. And the companies that are standing still are often the most dicey of investments around.
