Well, Louis Navellier is nothing if not consistent — his ads always promise that a stock with recent huge earnings surprises is going to repeat, grow, and continue to delight investors. That’s the joy of being a trend follower — when you get it right. Of course, when you get it wrong with these fast-growth stocks the ride down the other side of the mountain can be very abrupt, but that’s the price of a ticket.
So what is he promising this time? He’d like you to subscribe to his Emerging Growth newsletter, and in exchange he’ll tell you all about this “politically incorrect doubler” that he thinks will deliver huge results.
Here’s a bit from the ad:
“Flash Alert … Politically Incorrect Doubler to Deliver 500% Earnings Growth
“Grab it now before it declares earnings and it doubles again … YOU HAVE 24 HOURS”
Sounds pretty impressive, right? I see ads with almost exactly this kind of lead-in just about every week from Navellier and his colleagues, but I’m still intrigued. What is this stock?
Well, the clues are limited — clearly, Louis’ copywriters are wise to the Gumshoe, because they supply a limited number of clues (don’t worry — it’s not that easy to beat the mighty Thinkolator).
Here’s what the ad says:
“If you’re a politically incorrect, greenback investor, as I am, then you’re going to love my next politically incorrect stock.
“The reasons are simple: It’s on the verge of another blow-out quarter, shaking up the politically correct establishment, and doubling investors money along the way….
“The company has …
* “Beat earnings expectations by 317%
* “Zero—let me repeat that, ZERO—debt
* “A market cap of under $300 million
* “Doubled since November
* “One of the strongest buy ratings of any of our stocks, and
* “Is about to clobber Wall Street and double investors’ money again.
“Unfortunately, I Can’t Tell You More or Give You This Company’s Name Here!
“You’ll find it only on my private website as an exclusive for my subscribers of record.
1. “Hedge funds and the media follow me too closely,
2. “The stock is too thinly traded, and
3. “Naming it in this email would make it impossible for you to get it at the buy-below price.
“So I can’t even hint at what industry or sector this is in because I DON’T want the rest of Wall Street to bid this one higher until after you get in.”
Your friendly neighborhood Stock Gumshoe, of course, feels no such compunction — and I don’t need a hint at the industry or sector to tell you that this is almost certainly …
Sturm Ruger (RGR)
Yes, for those who don’t know the company, there’s a reason why that “Ruger” part sounds familiar — this is the firearms manufacturer, maker of a variety of long guns and handguns for sportsmen, commercial and government security, the military, and pretty much anyone else who uses guns.
And they have had a hell of a six months, which is what caught the attention of Louis Navellier’s system — they did beat earnings by 317% recently, though that was for the December quarter, the beat for the March quarter was more like 25% or so. That was after coming in well below earnings estimates for the prior quarters, so this one has certainly run hot and cold.
Sturm Ruger has had a huge tailwind for the last six months, but there’s some debate about why — there was clearly a big run on some guns for the civilian and sporting markets when rumors and fear flew about Obama and the Democratic Congress tightening or renewing gun laws, particularly the assault weapons ban … and to a lesser extent, survivalist panic grew during the financial crisis and some folks probably bought guns for that reason, just as they buried gold coins in their back yards. Add that to continuing demand for the military with Afghanistan and Iraq operations, I’d guess, and the revenues have been very solid for Sturm Ruger.
You can also make reasonable valuation arguments about the company — they do have plenty of cash and no debt, so they shouldn’t be squeezed by the credit markets, and they are trading at a premium to the market, but not a massive premium, particularly if you believe, as Navellier seems to, that their growth will continue — the trailing PE is about 19, which if they could continue growth of well over 100% would clearly be a huge bargain, but there’s also some expectation that their profits will stop growing and will, in fact, decline next year.
Now, it’s a small company and those estimates are from only a single analyst, so they shouldn’t carry as much weight as estimates that are an average of dozens of careful analysts, but they do give you some idea of what the market expects. The “story” of gun sales seems to be continuing past trends, at least for civilians — they spike when gun owners fear more government regulation, then they tail off and return to some sort of normal trend based on real demand, which is so far being reflected in the marketplace, according to this article from the Wall Street Journal. RGR is quite near its 52-week high, even after coming off by a dollar or so, and is certainly well above the $4+ low that it hit back in November, and they’ve also gotten a slight boost of attention from their recent addition to the Russell 3000 index. I don’t know the specific date for their next earnings announcement that Navellier hints at, but the 24-hour time limit was for his newsletter deal, not for the earnings announcement … if they stick to their current schedule, earnings will probably come out in two weeks or so, and it would probably be wise to expect that announcement to bring a significant move in the share price … whether up or down, that’s a guess I’ve no confidence in making.
Sturm Ruger carries a decent dividend of near 3% at the moment, and seems to be in reasonable shape financially — I don’t personally want to own a gun company, but if you’re interested in the sector it seems that Sturm Ruger is probably slightly safer than Smith & Wesson (SWHC), which is slightly larger, carries some debt and doesn’t pay a dividend (though analysts do see SWHC continuing to grow next year, with a cheaper forward valuation than RGR). My guess is that both are probably likely to ride up and down on the fluctuating demand cycle of gun purchases by U.S. civilians.
Feel like owning a gunmaker? Think it’s a great buy, or too late, or too early? Let us know with a comment below. And if you’ve ever subscribed to any of Navellier’s newsletters, please share your thoughts with a quick review now by clicking here — this title, Emerging Growth, is currently his top-ranked newsletter according to my readers, but none of his newsletters are in the Top 50 at the moment.