“Water $$: A valve maker with a better idea” Navellier

I think a few readers and some folks in the forum have already called attention to this teaser ad, one in a recent avalanche of teaser ads from Louis Navellier’s various newsletter services — I don’t know about you, but I’m getting a little bit sick of the guy.

On the other hand, during times like this he can be an interesting guy to follow — he generally picks such rapidly growing stocks that you really get a lot of boom and bust picks when the market goes through dramatic changes.

And his picks probably change so fast that I imagine even the copywriters who throw his ads together must have a bit of trouble keeping up — I just recently heard from another reader, for example, that Navellier just sold a stock that he was, only weeks ago, breathlessly predicting would double in a matter of weeks. That was Fuel Systems Solutions — on June 22 he guaranteed that it would double, from $32 to $64, by July 7 … yes, July 7 of this year, which was yesterday.

On July 7, it closed at $28.37. For the math-challenged, yes, that is less than $32. And a lot less than $64. And I don’t subscribe so I can’t tell you for sure what Navellier is saying about it now, but I can tell you that at least one reader passed along word that Navellier recommended his readers sell the stock recently. Suspiciously close to being a pump and dump kind of maneuver, though I don’t think that’s what was intended by Navellier or his publisher — I’d say it was just a bad investing idea, and Navellier cuts losers fairly quickly. (Pump and dump, for those who don’t know, is when stock touters try to push up a stock’s price while they’re selling the shares — not something any established or reputable publisher would try to do.)

But anyway, as I said, Navellier can be fun to watch both when growth bubbles are inflating and when they’re deflating, with his focus on fundamental growth metrics that often cause stocks to get bit up to very high valuations.

So let’s have a look, shall we?

This is the meat of the ad that I’ve seen a few times in the last week or two, and which has been passed along to me by many readers:

The ad is all about the coming water shortage, and the crisis in water supply around the world. The stock he is touting is a company that makes water equipment …

“It’s a VALVE MAKER. A valve maker with a better idea. This is a small Texas outfit with a big idea: approach the job of moving fluids, any fluids, differently.

“The result is a breakthrough that delivers a double-digit increase in efficiency, while reducing maintenance to almost zero. It’s an approach that is producing the first real advances in valves in a hundred years.

“Applied to our water shortage, it’s a giant step towards a solution. Applied to our oil shortage, ditto.

“Applied to hydroelectric power and the steam produced by a nuclear reactor, ditto, ditto.

“Earnings were just released: last year’s 59 cents per share are this year’s $1.52. That’s a triple.

“Two thirds of this company’s business comes from Asia, where efficient irrigation is the difference between life and death.

“Buy the valve company that’s solving the Third Shortage. It could be our next Hansen. As Ben Franklin noted: When the well’s dry, we know the value of water.”

So … in case you’ve not guessed this one, the company is …

Flowserve (FLS)

This one is probably not a big surprise small-cap company according to most of you — it has been talked about with breathless glee on CNBC (particularly as a favorite of Karen Finerman, the token value investor on Fast Money), at least since it was down in the $70-80 range last year. It peaked at around $140 after their last earnings blowout, which was in late April, and has since trended down with the rest of the market, to a price today of about $123 at the close.

FLS has had a huge year, and they have posted amazing earnings growth over the last several quarters — which, undoubtedly, is what made them float to the top of Navellier’s databases. They are a valve and flow control company, though it would be a stretch to call them small (market cap is up to $7 billion now, which most people would consider to be a textook example of a midcap company). They are based in Texas, and the growth last quarter was “near a triple” if you want to round up — the earnings were up 159%, from .59 to 1.53 (we’ll assume that the penny’s worth of error by the copywriter was intended to throw the Gumshoe off the scent … ha!)

What impresses me about Flowserve?

Well, it’s certainly a hot industry — both for water and for oil, since their valves and pumps are also used in the oil patch. And they have been riding it nicely, with consistently growing earnings — they have beaten earnings estimates over and over, and as of their last quarterly report they were managing a nice trifecta: increasing earnings, growing order books, and improving margins.

So, not much to complain about there.

What makes me nervous?

Well, they trade at a significant premium to the market and their broad sector, which is scary for many folks these days — but to be fair, Flowserve has traded at a very high trailing PE for many, many years and I doubt many investors would complain (the price was under $20 five years ago). The stock is trading as if the company will continue to be a strong grower, though not necessarily at the same heady rate we’ve seen in the last couple quarters. Morningstar puts their PEG ration (price/earnings/growth rate) at 1.4, which is perfectly reasonable but arguably not a screaming bargain.

And the shares were just recently upgraded by BMO Capital, which helped bring a small recovery from the pre-holiday selloff last week. Here’s a good article from Kiplinger’s about Flowserve with some quotes from BMO’s analyst, in case you’d like to have a bit more perspective on that.

So … my sense is that if you think the buildout of water and energy infrastructure will continue apace, Flowserve is probably nicely situated for that … they certainly have a strong niche in those industries, and they have clearly been doing something right over the past four years. If there’s a slowdown in those hot areas, though, it wouldn’t be surprising to see FLS growth tail off — and I expect that any slowdown in growth would bring their valuation down a little bit. I know that Navellier was recommending this one to his readers as recently as May (it was about the same price then that it is now), beyond this teaser ad that has been circulating for a month or so, but don’t know where it stands on his official recommendations list today.

I’d guess that you’re going to think either that this is a growth story that’s breaking down after a huge run and should be avoided, or that the latest dip is just a momentary lapse of market logic that has placed a great growth story on sale. I don’t have a lot of conviction either way on this stock, so you could probably talk me into believing either one depending on which way the wind is blowing.

The author will always disclose any direct long or short equity, debt or option position in any stocks written about as of the day of publication, and will not trade in any stocks mentioned for three days (72 hours) after publication. Full disclaimer is at the bottom of the page.

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"The water stock to own if you’re only buying one"

1. Gummie there are always ways to beat these guys at their own game…with Hsu pay close attention to the monday edition of Investors Business Daily…look for companies in the top 100 or better yet top 50 stocks that just might …one way or another fit the Asia Edge motiff. With the Navster check out his free web-site.look around,read his blog, sign up for the portfolio grader service. That gives you intro to more information than just that service. There is a section in that area that a smart sleuth type will be able to find stock picks that match his teases. I would give more info and I’m sure lazier people will say, “If you have something to say…say it” But like third grade teachers used to say…you’ll learn more if you look it up yourselves. Follow the yellow brick road below.

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   A.Nony Mouse Reply:
   July 8th, 2008 at 11:07 pm

   http://navelliergrowth.investorplace.com/

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   StockGumshoe Reply:
   July 9th, 2008 at 8:58 am

   Thanks Mouse, I do check up on sites like this on occasion, too — they mix some useful information in with the marketing. Navellier got very aggressive about sharing his portfolio grader database for free when his book came out (and more aggressive in marketing at the same time — you’ll note that to get access to the database you have to register, and that he’ll send you email after email after email following that until he can talk you into subscribing).

   I think his book is a snooze, by the way — that’s the one in the “Little Book” series about investing that puts you to sleep, the others I’ve read have been actually quite good.

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   A.Nony Mouse Reply:
   July 9th, 2008 at 9:50 am

   I agree that registering for the Portfolio Grader opens you up to a considerable e-mail from Louis but the hotlist section (accessible when yo register for Portfolio Grader) is quite useful as an aide in confirming his teaser picks. It also reveals a considerable amount of “idea sharing” among Investorplace newletter writers. Example in Navillier’ “building, Construction and Engineering” group, Flour is his top pick. It was also a recent pick by Hsu (no doubt soon to be teased) based on their involvement in the Middle East due to infra-structure boom there (Dubai among other places) because of the vast transfer of wealth, to that areas benefit, currently taking place.

   Posted by A.Nony Mouse | July 8, 2008, 11:04 pm

2. and to anyone wondering why I suggest IBD as the key to Hsu’s picks. I suggest you turn to page 252, in his book, CHINA FIREWORKS, last paragraph,where he states he finds it to be an “invaluable source of information” and indeed he does, heh…heh..heh

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   Posted by A.Nony Mouse | July 8, 2008, 11:28 pm

3. Navelliers picture reminds me of the guy on the commercial doing the job interview while having a flatulence problem, ‘your son Rip is on line toot’

   I do like to look at the free stock analyzer on his site though so he’s not all that bad.

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   Posted by Mxlplytz | July 9, 2008, 9:51 am

4. TYPO ABOVE. Obviously FLUOR is an infra-structure play. FLOUR on the other hand is back door commodity play .

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   Posted by A.Nony Mouse | July 9, 2008, 9:53 am

5. i do not always believe louis about his percentages. it seems he has lost some integrity in the last few months. for asia i like andy carpenter better than hsu. he does not give much away. i think his service is under $100. the best service is still the gumshoe. cabot puts out a free letter that i believe is very good. HEY GUMSHOE WHO SHOULD THE CHECK BE MADE OUT TO? i will check here tonight.

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   Posted by fireball | July 9, 2008, 10:29 am

6. ‘This site is run by Travis Johnson’, Checks made out to Travis are appreciated.

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   StockGumshoe Reply:
   July 9th, 2008 at 12:00 pm

   Thanks Rich. For those who enjoy sending me money (and I do love you for it), checks to either Stock Gumshoe or Travis Johnson are A-OK. Address is
   Stock Gumshoe, PO Box 9751, Washington, DC 20016-9751. Details of what you get, if you want to call it that are under the “donate” tab at the top of this page.

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   Posted by RICH | July 9, 2008, 10:57 am

7. Fortunately, my wife works at FlowServe, so I’ve been able to keep up with the comapny quite easily. All I can tell you is this is one VERY GOOD company. They know how to treat their employees very well, and the results are in the earnings. There was no earthly reason for FLS to lose over 15 points in one day — not one, unless you count profit taking. And they all got so greedy taking profits that some got a lot less in profits than others. I’m convinced that Wall Street is full of idiots that call themselves “analysts”. For an analyst to think he knows more about the earnings than the company officers is ludicrous.

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   Mark Reply:
   July 9th, 2008 at 11:40 am

   I’m a FLS bull, but I dare say, kcpilot, that given your wife works for the company, anything you say would be quickly dismissed to the Round File.

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   ponto Reply:
   July 9th, 2008 at 2:36 pm

   Navellier recommended to his Quantum Growth (his $5000 per year premium service) subscribers 7-7-08 to sell FLS (along with 6 other stocks).

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   StockGumshoe Reply:
   July 9th, 2008 at 2:42 pm

   Man, it seems like there has been a lot of that from Navellier lately — selling a stock while his publisher is still using it as marketing fodder. That must make those new subscribers a little bit crazy.

   If he’s selling it, maybe it will soon drop from the growth stock charts and show up as a value stock again. We’ll see.

   

   lorenzo Reply:
   July 10th, 2008 at 11:04 am

   ponto, interesting to note as you say that Navellier is recommending a sell to Quantum subscribers. His Portfolio grader still says strong buy as of the same date. Makes one wonder what is going on over there.

   

   Linda Hoffman Reply:
   July 13th, 2008 at 5:16 pm

   so what were the other 6 sell stocks? I’m a long time subscriber to Lou’s blue chip, but his incessant marketing letters (puff puff puff pieces) are a rankle. when he hits one, it’s all you hear about and when he blows bunches, it’s all quiet on the louis front. When I ran the calculations in May, he was significantly down in most of the stocks he’s recommended in the last nine months. But you’d never know it to read his self-serving subscriber letters.

   Posted by kcpilot | July 9, 2008, 11:00 am

8. Check out this website, which contains a new presentation to the Congressional Water Caucus, written by the Ground Water Protection Council. It is called “Ground Water Report to The Nation: A Call To Action”, and illustrates many signs of distress, including the Ogallala Aquifer in the High Plains, San Fernando Aquifer, and issues in Florida concerning overdraft.
   The website is http://www.gwpc.org/calltoaction
   I believe that water/infrastructure could become as big a problem as energy without an intelligent national plan. I am looking at Tetra Tech and Northwest Pipe.

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   Posted by Elissa Stein | July 9, 2008, 12:18 pm

9. http://finance.yahoo.com/q/ta?s=FLS&t=2y&l=on&z=m&q=l&p=m50,m200&a=m26-12-9&c=

   Karen Finerman had this beauty over 50 pts. lower, what’s the rush to buy now about? Are some of Louie’s premium clients seeing the MACD rolling over & perhaps a retest of the $80. level again?

   This is a Bear MRKT that’s heading lower, even the S & P is in bear market territory now. No doubt that water, water maintenance & the like w/b even more important than energy one day soon.

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   Posted by SageNot | July 9, 2008, 2:15 pm

10. A Nony and Others.
    I have three e-mail accounts.
    1 for business
    1 for personal
    and
    1 to register for stuff from. Keeps my important
    information from being flooded.

    david

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    Posted by David Hathaway | July 9, 2008, 9:01 pm

11. Now where’s the fun in that? Are you saying Louis’ missives aren’t the highlight of your day?

    Perhaps I need to get out more.

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    Posted by StockGumshoe | July 9, 2008, 10:11 pm

12. You’re abolutely right about Navellier. I subscribed to his Blue Chip Growth last year and sent them numerous emails asking for advice. Got nothing, yet the teaser emails kept coming – “buy my xxx and I’ll tell you…
    Well, this year I got sick and tired of his methods and asked to be removed from all mail lists after I followed his BCG advice and had bought 100 shares of his top 5 Apple, Baxter and Union Pacic in September ‘08 and later Activision Blizzard. After seeing these investments lose over $20k in my IRA, I didn’t know how to even get my money back to even, doubt if I ever will. When I asked to be unsubscribed from their lists, they replied that it would take 7 days. I continued to get his teaser garbage and last week informed them that if I received one more email I’d file a formal complaint with the S.E.C., the PMG and the FCC. Guess what? Got another one on 4/19, so I AM FILING THE FORMAL COMPLAINTS TODAY. Only this I can say about Navellier’s advice is – if you want to lose your money, get no service and be harassed by emails that want you to spend more money for bad investment advice, he’s your guy!

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    Posted by Mike | April 20, 2009, 11:05 am

13. Most of these water stocks are rising, ever so slowly, but an uptrend is an uptrend!

    http://finance.yahoo.com/q/ta?s=FLS&t=1y&l=on&z=m&q=l&p=m50,m200&a=m26-12-9&c=

    http://finance.yahoo.com/q/ta?s=SYNL&t=1y&l=on&z=m&q=l&p=m50,m200&a=m26-12-9&c=

    http://finance.yahoo.com/q/ta?s=VE&t=1y&l=on&z=m&q=l&p=m50,m200&a=m26-12-9&c=

    Considering how bummed the market is today, I’d say WAIT until you invest your $$!

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    Posted by SageNot | April 20, 2009, 3:02 pm