Louis Navellier is never shy about making promises — here’s how his latest ad for his Blue Chip Growth newsletter opens:
“Why a tiny office in suburban Israel is our best bet — for repelling the attack — and turning a $7,500
investment into $22,500 by May 2012.
“I don’t make this prediction lightly… you have ONE final opportunity to DOUBLE (and triple) YOUR MONEY even as investors flee bank stocks… abandon tech shares… and scramble to save their IRAs and 401k’s…
“In fact, this gem may be the only ‘Sure Thing’ on the NASDAQ today. For the next 48 hours only, I invite you to escape the wrath & fury and score your biggest win of the year.”
Sounds exciting, right? Cybersecurity has been a hot target for investment newsletters over the past year or two, with several different stocks teased by different letters.
And yes, Navellier also promised a cybersecurity double about a year and a half ago — that was SourceFire (FIRE), a different firm than the one being teased here, and it ain’t exactly doubled so far … so perhaps we oughtn’t immediately believe his prediction of a triple in the next nine months, but even a fraction of that performance might be nice, no?
Let’s find out who he’s teasing then, shall we?
He tosses out some more clues:
- Products installed at 100% of Fortune 100… and 98% of Fortune 500 companies!
- Industry’s Highest Profit Margin 54%, with 20% considered very solid
- Soaring stock price up a blistering 66% — so far in 2011!
And the promotion continues:
“I’ve been closely tracking one leading company in the sector for more than a year. I just upped it to a grade of A… my Strongest Buy… and added it to my Blue Chip Growth Buy List as well.
“This ‘Pearl Harbor’ play has shown incredible resilience in the face of market volatility.
“Trust me. It makes a perfect addition to your mid- to large-cap portfolio.
“I’m talking spectacular growth potential… and a fatter operating margin than Microsoft, Oracle or Computer Associates…”
There’s also quite a bit about the tailwind that this company is experiencing — the increasing cost of fighting cyber crime for US companies, the focus on cyber attack defense by the military, the evolving face of “cyber terror,” and the “boatload” of money flowing to leading cybersecurity companies.
And this stock is apparently the big boy in the space:
“I’m going to introduce you to a near-certain way to profit from cyber terror.
“Firewall, antivirus, VPN, identity fraud… my ‘Pearl Harbor’ play has all the bases covered. It’s grown over the past 18 years to be the largest pure-play security vendor in the industry.”
And yes, there’s a catalyst of sorts to move the share price higher, we’re told:
“Here’s the key… our ‘Pearl Harbor’ play just made a powerful move into PORTABLE ENCRYPTION… for mobile devices! …
“Their Q2 earnings exceeded expectations… but bucket loads of revenue from portable encryption have yet to hit the balance sheet. That’s just around the corner…
“I predict this will trigger the first of many, many jumps in share price over the next 12 months…
“So today is your chance — perhaps only chance — to get in on the GROUND FLOOR of a solid, safe and well-run company with a secret application up their sleeve.”
So who is it? Well, we toss all that info into the mighty, mighty Thinkolator … add in a few other clues that I didn’t bother to reproduce for you here (there’s only so much blather you can take, I know), and we find our answer: This is …
Check Point Software (CHKP)
Yes, this is an Israeli company, though much of their operation is in California and they are very much a cybersecurity multinational.
And yes, it’s a big player in cybersecurity — Check Point and Symantec (SYMC) are the large caps in the sector, both have market caps between $10-15 billion.
And it’s not surprising that Navellier would prefer CHKP over SYMC — they’ve got much higher profit margins and a much better stock performance (up about 60% over the past year, vs. 20% for SYMC). It does indeed get an “A” grade from Navellier’s system while SYMC has been bouncing back and forth between B and C in that grading.
Interestingly enough, both companies have roughly similar projected earnings growth rates (10%ish, CHKP a bit higher than SYMC) and have beaten earnings almost every quarter by a modest amount, but CHKP is priced at a much more substantial premium to forecasted earnings (forward PE of 18, versus forward PE of 9 for SYMC). So if Navellier’s right and CheckPoint is about to make a big splash in mobile security, perhaps that’s already being priced in.
Symantec is certainly active in many aspects of the business, too, including protecting mobile devices — they have a big consumer business as well, with the Norton software that many of us are familiar with (they’re also trying to launch a consumer-focused “protect all the devices in your house” service called Norton One next year). Check Point’s consumer brand is ZoneAlarm, which is also pretty big, but as far as I can tell they are much more focused on their big firewall business and network appliances for internet security in large enterprises.
Navellier and Investor’s Business Daily often like the same stocks, thanks to the similarities of their growth-focused quantitative screening systems, and this is no different — CHKP is their top-rated stock in the group, too, and they had an article on its impressive growth just a few days ago.
Does that mean CHKP is going to triple by next May? Well, it would be a surprise to me — that would require either some huge earnings surprises, which they haven’t done recently (they’ve beaten earnings estimates each quarter, but by just a few percent), or it would require folks to up their growth expectations. CHKP is expected to grow earnings at about 11% a year for the next five years, according to analysts (and yes, that number is almost certainly going to be wrong — but it’s a number the market uses, so it’s worth looking at) … that’s pretty fast growth for a $10 billion company, but it’s growth that most folks would expect to pay perhaps 20X earnings for … and yes, that’s about where CHKP is trading now.
So it’s possible CHKP will break out with great news or a fabulous new product, but it’s hard to boost earnings dramatically and surprise people when you’re a $10 billion company. That doesn’t mean CHKP won’t continue to outperform the market — they’re in a hot sector, they have some momentum, and they’re doing better than most, so that’s certainly a reasonable guess and it’s a guess many investors are currently making … it just means that expecting a triple by the Spring is, well, ambitious.
What do you think? Want a piece of Navellier’s Check Point Software, or do you have another favorite in the cybersecurity space? Let us know with a comment below.