Patent Portfolio Analysis Provides Powerful Insight for Buying Stocks

For many investors, buying stocks seems like a science of its own. So many elements have to be considered when deciding which stocks to invest in. Some of the common elements that investors consider include a company’s earnings and dividends, the type of products offered, the state of the current market, and the price-to-book ratio. For instance, is a new product or an essential one the best investment? Is there a recession or is the market rising? Does a long-term or a short-term investment make sense? After deciding which stocks to purchase, the investor’s task is not over. Investors should analyze how the market is doing to view which products and services are consistently thriving. Based on the results, investors should re-evaluate their investments occasionally to see if they’d still purchase a particular stock after some time has lapsed. In other words, does the investment still make sense years after the initial purchase?

One important element that investors may not realize is the state of a company’s patent portfolio. Companies with large patent portfolios tend to thrive better in the market than their competitors. Patents give companies the ability to stop competitors from selling similar inventions in the market. They also give companies the ability to price products higher than their competitors, positioning them favorably in the market. Furthermore, patents protect them in the event of a lawsuit and can arm them when necessary to stop others from infringing on their products. Patents are also important for start-up companies that are looking for investors to fund their ideas. Since start-up companies are new to the market, investors like to know what they paying for. Therefore, it is ideal for start-up companies to invest in patent valuations so they can provide some indication to investors of what a patent is worth.

While understanding the size of a patent portfolio is important, it is also important for investors to analyze those portfolios to gain insight on individual patents. For instance, are the patents close to expiring? If so, this can put pressure on a company’s market stance. The life of a patent doesn’t last forever, which means that a company will have to compensate when a patent is close to expiration. How will the company make up for the expiration? Does the company have new inventions in place to make up for the expiration? For instance, Pfizer and Lilly stocks plummeted when patents expired for Lipitor, Zyprexa, and other drugs. This left the door wide open for generic counterparts to take the place of those drugs at a lower price. While Pfizer and Lilly have rebounded, they’ve had to compensate in other ways – like cost cutting. They still had to pay a price. Investors must take such instances into consideration to protect their investments.

As you can see, investors can learn a lot about the potential success of a company in the market based on its patent portfolio. Patent portfolios give tremendous insight into a company’s marketability, future potential, and ability to compete. With an increased focus on intellectual property, patents are becoming increasingly important to any successful business. Even big name companies like Google, Apple, and others have purchased large amounts of patents in the last few years to strengthen their portfolios and market position. Therefore, when investors analyze a company’s patent portfolio, they have a good grasp on where they stand with their investments.