The tiny stocks you'll be talking about in ten years' time

Most penny stocks go unnoticed by investors. But if you get in early, says Tom Bulford, you can hitch a ride as the corporate giants of tomorrow knock old industries aside or build new ones from scratch.

I love penny share investing because I know that among those tiny companies, the corporate giants of tomorrow are to be found. Most of these stocks go unnoticed by investors. But if you get in early, you can hitch a ride as these great disruptors knock old industries or build new ones from scratch.

That's why I like to peer into the future. I am not interested in industries that have been around for years. You can be sure that these are highly competitive, that their best days of growth are over, and that any super normal profits have long since been eroded away.

The industries of tomorrow are what interest me. At the MoneyWeek Conference I spoke about some of these: biotechnology; underground coal gasification; and functional foods. And while there is tremendous excitement in oil exploration right now (read my Frontier Oil report here), it's in these three industries that I think you are most likely to make big penny share gains over the next decade.

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Sign up

Today, though, I want to talk about a story that could rival these three big stories. It's one that not many investors will have heard of. But I think it has enormous potential.

How to find these disruptive companies

The big stock market winners of the next decade will not come from the ranks of long established businesses. They are far more likely to be companies that we have barely heard of. Ten years ago, how many of us were familiar with SDL (SDL) and Imagination Technologies (DIA), two of the top performing UK shares of the decade?

To find these future winners, a good place to start is in a growth industry. Irrespective of what is happening in the global economy, there are always industries that are on the up while others are in decline. Let me give you an example. Internet security is a huge growth area at present, as technology experts try to stay ahead of the hackers and scammers. Medical diagnostics is another, especially companion diagnostics, tests that determine whether individual patients might be suited to specific forms of treatment.

So long as we choose to live our lives in different ways, there will be growth sectors. I am not saying that these are a guarantee of stock market success. Growth opportunities attract new competitors like moths to a flame, and plenty of money can be spent and much time can pass before these companies are profitable.

The online payments business is ready for takeoff

But given the choice of investing in an industry of yesterday with an industry of tomorrow, I would take the latter every time. So let me tell you about one of these growth industries. The business is online payments, and a number of factors are simultaneously coming together in its favour.

Most of us these days have a computer, and most of us have a payments card. So more of us are shopping online. Today the online channel represents about 15% of all retail purchases in the USA and its market share is growing relentlessly. We are not only buying books and groceries, we are also buying tickets and hotel rooms; we are placing bets and fixing up dates on dating sites.

For all the scares about internet security, most of us now click to make a payment with barely a second thought. Payments are made and goods are delivered. The system works very well.

Now e-commerce is receiving a new impetus from m-commerce. What this means is that internet commerce is going mobile. This is being driven by the younger generation. I confess that I do not own a smartphone, but my 21 year-old son certainly does and uses it incessantly. Mobile phones are becoming payment devices. They're even capable of receiving payments. Don't be surprised if, someday soon, your plumber asks you to tap your credit card against a small reader attached to his mobile phone.

A massive amount of work is going on to enable us to make transactions with our phones. This can happen in a variety of ways. It might be brushing your phone over the till as you leave the supermarket. It might be a small screen version of the shopping that we do from our home PC. It might be a case of sending a payment to a relative in a distant land, complete with foreign currency exchange. Barclays has recently launched Pingit, an app that enables you to send up to £300 just using a mobile phone number.

It's all about security

But here is the point: behind each transaction is a complex web of connections and security checks that enable these payments to be made successfully. Where payments must be made instantly to play online poker, for instance cash might first be transferred into an e-wallet, adding another layer of complexity. Every stage must be handled successfully, otherwise we will not be able to make online payments. And without online payments there will no such thing as e-commerce.

This is a big growth sector. Global e-commerce, powered by mobile internet access, is growing at double-digit rates. I am sure that some big stock market successes will emerge from here, and in the June edition of Red Hot Penny Shares I have identified one likely candidate.

To find out more about this new growth story, take a trial of my Red Hot Penny Shares letter. You are under no obligation. If you don't like what you see in the portfolio, you can always cancel your trial.

But after some recent developments on some of the most exciting stocks, I suspect that you'll want to stay on.

Click here now to take the Red Hot trial.

This article is taken from Tom Bulford's free twice-weekly small-cap investment email The Penny Sleuth. Sign up to The Penny Sleuth here.

Information in Penny Sleuth is for general information only and is not intended to be relied upon by individual readers in making (or not making) specific investment decisions. Penny Sleuth is an unregulated product published by Fleet Street Publications Ltd.

Tom worked as a fund manager in the City of London and in Hong Kong for over 20 years. As a director with Schroder Investment Management International he was responsible for £2 billion of foreign clients' money, and launched what became Argentina's largest mutual fund. Now working from his home in Oxfordshire, Tom Bulford helps private investors with his premium tipping newsletter, Red Hot Biotech Alert.

Follow Tom on Google+.