The CEO of a premium stock-picking service says buy these 3 names to invest in the 3 most disruptive technological trends today

• 7investing CEO Simon Erickson thinks that investors should look "outside of the herd."
• He believes that "buy now, pay later," quantum computing, and gene editing are disruptive sectors.

Simon Erickson, CEO of premium stock-picking service 7investing, believes that the biggest opportunities for investors today are found by searching for innovative companies "outside of the herd."

"[Disruptive innovators] can completely topple those existing incumbent players, completely change markets," he told host Nathaniel E. Baker during the November 1 episode of the "Contrarian Investor Podcast." "We've seen it time and time and time again. If you find those early on as an investor, those are the ones who can return 10 or 100 times your initial money."

Erickson shared the top three sectors he believes will be the most transformative for our world today, and within each sector he also revealed his top stock pick.

Buy now, pay later

Erickson's first pick was the "buy now, pay later" (BNPL) sector, which he believes will be extremely disruptive to traditional credit card companies.

According to Erickson, every year in the US credit card companies charge $125 billion in interest, with an additional $15 to $20 billion coming from unexpected late fees.

"A lot of times, those fees are rewarding the credit card companies for giving credit cards to people who then do bad behavior [like] buying things they shouldn't," he said. "Then they can't pay it off, and there's a lot of problems that happen downstream of that."

Erickson believes that BNPL solutions are innovative because they disclose, "right up front, what all of the installments and the interest payments for those are going to look like."

The BNPL model allows customers to pay for an item in installments, oftentimes free of interest and other fees. After paying the first installment at checkout, the customer receives the item immediately, while the rest of the payments are then billed to a debit or credit card later.

"You make a mortgage for a consumer payment of any type, of any amount, and make sure you're finding the right consumers and the people that can responsibly pay it off," Erickson continued.

With only a few personal data points, BNPL companies are able to run a credit check and customize the terms and interest fees for each customer. Upon checkout, BNPL companies pay merchants in full and charge a certain additional percentage for taking on the consumer's credit risk. They're then solely responsible for collecting back payments on the item.

Within the sector, Erickson's favorite company is Affirm (AFRM), which he calls the "quintessential example" of BNPL. He particularly likes the name because cofounder Max Levchin also cofounded PayPal.

"[Levchin's] made a name for himself over decades of finding the needles in haystacks of the outliers," Erickson said. "Now he's on a new quest to figure out who are the outliers that really shouldn't be getting out these kinds of loans."

Besides helping consumers fund purchases, Erickson says that Affirm benefits merchants by giving them access to a new pool of consumers. Affirm also helps retailers make additional offers with the same BNPL system, such as suggesting a nightstand to go along with an already-purchased mattress.

Erickson firmly believes that BNPL systems are here to stay and will evolve over time.

"The disruptive part of this is we're trying to wean ourselves off of interest payments," he stated. "If we're doing installment plans, we can still use credit cards. That's not fixing the fundamental problem that people shouldn't be borrowing that money in the first place. It needs to come directly debited from your bank account, and we need to know that it's a credit-worthy borrower."

Difficult problems, quantum solutions

The second sector that Erickson believes will disrupt modern systems is quantum computing.

Quantum computing is exponentially faster than classical computing and based on a "completely different, fundamental science that's built upon quantum mechanics and quantum physics," he explained.

According to Erickson, quantum computers are used to solve extremely complex problems, such as simulating molecule reactions in drug development and modeling climate change scenarios across the globe. They can even aid in material design, such as solving range anxiety in electric vehicles, by figuring out the perfect storage capacity in a battery.

Firms that specialize in quantum computing have market caps that can exceed their sales by "several hundreds, if not thousands, of times," Erickson stated on the podcast.

"These are companies that maybe will have $10 million in revenue this year if everything goes well, and they're selling at a $2 billion market cap," he said. "That's a head-scratcher for anybody who's a value investor saying, 'how can you possibly pay that much for a company like that?'"

While quantum computing is early enough in its infancy that any kind of prediction is "one of many dart throws," Erickson says these valuations make sense when compared to manufacturers of classical CPUs such as Intel and Nvidia.

"If they crack the code and this actually becomes a standard, you could have $100, $200, $500 billion market caps on these companies," he said. "The contrarian in me recognizes that even if these valuations seem super expensive right now, maybe they really aren't."

Within the sector, Erickson likes the pure play company IonQ (IONQ), which merged with a SPAC in October.

"They believe that their ion trapping technology is completely disruptive to anything else that's going on out there," he stated.

It's in the genes

Finally, Erickson identified the field of gene editing as a potential disruptor.

"The healthcare system that we have traditionally is built around sick care," Erickson explained. "The disruptive angle of that is, what if you could actually go upstream of treating a condition that started manifesting, showing symptoms, and actually fix the fundamental problem itself?"

With gene editing, the idea is to actually go down to the molecular level and repair the DNA causing a certain condition or disease. Use cases are still years out, since many of the potential long-term side effects are still unknown, and there's many regulatory protections and ethical debates surrounding the technology.

While gene editing is still a novel concept, Erickson says that certain breakthroughs have already caught the attention of investors. His top pick in the sector is Intellia Therapeutics (NTLA), which uses the CRISPR technique.

"Gene editing as a whole, it's kind of like in vitro fertilization, which was really controversial decades ago and now is generally accepted by most places," said Erickson.

"Will gene editing follow a similar approach where something that's very controversial today gains societal acceptance to really phase out a lot of diseases and a lot of conditions that are causing a lot of problems and suffering for people out there? To be seen."