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What’s Tim Cook’s “Please Take My Money” Stock?

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The Motley Fool gets more coverage here at Stock Gumshoe than pretty much any other newsletter publisher, with the possible exception of Stansberry — partly because the Fool has had some very good picks over the years, and partly because they have one of the biggest email lists around and they push a lot of teaser pitches out the door to readers like you.

Who then ask us questions.

Which spurs us to take a look. So … here we go!

The latest pitch is for another growth stock in the Fool’s stable, a recommendation from their Rule Breakers service (that’s the growth-focused letter led by David Gardner, the tech and growth-focused founding brother of the Fool). And it ties in some of the hot topics that almost always get investor attention, like wearable technology (which is a hot topic at the Consumer Electronics Show in Las Vegas this week, too, so it’s generating headlines for “smart watches” and the like) and, of course, it also invokes the name of the most-discussed stock on the planet on any given day, Apple (AAPL).

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They’re not picking Apple here, though several Fool newsletters have suggested AAPL in the past and the Fool owns shares (unlike most publishers, the Fool actually invests some of its own corporate balance sheet), but they are playing off of a much-watched Tim Cook moment last year and saying that he “let something slip” that indicates where Apple’s going and how we’re going to get rich. ( I own Google and Apple shares, too, just for disclosure’s sake).

The “let slip” bit was Tim Cook showing that he was wearing a Nike Fuelband, at the time that everyone was chattering about how likely an “iWatch” might be and when it might come out. At the All Things Digital conference back in May, he talked quite a bit about the Fuelband and the prospects for wearable computing, but his talk then actually was fairly pessimistic about whether a “multi-use” watch or something like Google Glass would catch on in a meaningful way — he mentioned the Fuelband because he liked the simplicity and the single purpose (tracking your physical activity).

There are lots of similar single-purpose wearable mini-computers out there, including Google Glass and the various smart watches and wristbands and smart clothes and health monitoring devices, and the “wearable computing” trend is continuing to be a massive trend according to most prognosticators … it’s just that it’s hard to tell if it will be a big and broad trend with lots of different successful products, or whether it will be a single product (like the smart watch or oft-rumored “iWatch” or Google Glass) that does a lot of things and becomes a blockbuster mass-market hit product like the iPhone.

Here’s the first part of the spiel from Motley Fool Rule Breakers:

“Read between the lines carefully enough…

“… and you’ll realize there are actually two ways to grab the mountain of cash that Apple CEO Tim Cook is waving in front of your face.

“The first way is by investing in Apple directly. And claiming your share of its dividends and capital gains in the years to come.

“But I bet a lot of you are doing that already.

“So I want to tell you the second way….

“Just think back to the spring of 1977…

“Computers were rapidly becoming smaller; a machine that once barely squeezed into a warehouse could now fit onto a desk! And the undisputed king of the mountain was IBM.

“But your best investment at the time was a company that didn’t even sell computers.

“You know this company as Intel.

“And of course you also know that Intel supplied one tiny little component for computers…

“… a component so sophisticated and so essential to manufacturers like IBM (along with Compaq, Hewlett-Packard, Dell, etc.) that every $5,000 invested in Intel stock back then has grown into more than $747,112 today.”

So this is, at least partly, a “buy the Apple supplier” tease — we’ve seen these before, pitching everything from Corning (GLW) to Synaptics (SYNA) to Nuance (NUAN) to TriQuint Semiconductor (TQNT) or Skyworks Solutions (SWKS), the hardware or software providers or chip makers whose products get found inside the latest iWhatever when the first ones come off the production line and get torn apart to see which vendors “won” a spot in the latest hot product.

This pitch isn’t for one of those companies, though — so who is it? More from the Fool:

“SO HERE’S THE $747,112 QUESTION FOR INVESTORS LIKE US TODAY… WHO’S APPLE’S INSIDE SUPPLIER?
It’s actually the same question Apple CEO Tim Cook is asking himself right now, too….

“Apple has pulled together a team of more than 100 of its best engineers and product designers, to work on a new device that will ‘make the iPhone seem as cutting edge as a horse and buggy.’ (To quote Wall Street Journal reporter Ralph Gardner, Jr. once again.)

“I even checked the classified ads on Apple’s company website! And it turns out these rumors are 100% legit.

“Apple is even hiding away this project team in a top-secret facility offsite from its headquarters in Cupertino, CA. Which means that even Apple’s 80,200 other employees are hearing this story in whispers, too….

“So the smart money says that Apple will sell the lion’s share of these 485 million devices.

“Just multiply that number by $299, $349, $499 or any price that sounds reasonable, and you’ll see why Tim Cook has called this market ‘incredibly interesting’ and ‘ripe for exploration.’ And why that feels like the world’s biggest understatement.

“But meanwhile, the even smarter money says that there’s a way for us to win here regardless of whether Tim Cook is truly ready to fill the shoes of his mentor Steve Jobs.

“How?

“By investing in the supplier that Apple and ALL of its competitors will eventually need to do business with, if they want to fully capitalize on this ‘post-smartphone’ market opportunity.”

So they go into a lot more detail, including the chatter about Apple filing for “iWatch” trademarks, and various newish patents for wearable devices or screens that wrap around your wrist.

We can pretty much sum it up as, “Apple is obviously working on hot new wearable computing devices, whether an iWatch or something else, but we can’t be sure it will come out soon or be a hit so you should buy a great supplier of chips that all the tech companies need for their wearable devices.”

But then we get into the details about which company the Fool is teasing — and no, it’s not the same micro-electro-mechanical sensor stock that we saw teased for much of last year by Michael Robinson (that one was STMicroelectronics, STM), here are some of those clues:

“1. All wearable computers will have motion sensing as their core feature. That’s why they’re a revolutionary advance on smartphones. Why we’ll be able to use them without pecking into a tiny keyboard. And why they’ll eventually replace our TV remote controls, hotel keys, parking meters, ID cards, passwords, tickets… you name it. Literally putting everything in the world at our fingertips faster than you can wave your hand and say ‘Open Sesame.’

“2. The motion sensing microchip in the Nike Fuelband, which is the same one that Apple is currently experimenting with in the iPhone, ISN’T GOOD ENOUGH.

“3. There’s a better one. And odds are, it’s in your kid’s bedroom.

“The European company that makes the microchip in the Fuelband is called STMicroelectronics.

“Half of the management is French, and half is Italian.

“They probably have some great coffee & sandwiches in their lunchroom.

“But I wouldn’t invest in their stock.

“Meanwhile, the company that makes a better motion-sensing microchip is located 10 miles from Apple’s headquarters.

“They recently doubled their office space. Doubled their production capacity. (And more than doubled their stock price, too.)

“And – even though they already do business with Google, Samsung, LG, and Nintendo — a ‘channel check’ researcher at Piper Jaffray is now reporting that they’ve expanded the scale of their design work so rapidly that there’s only one company in Silicon Valley large enough to account for all that activity.”

And we even get a cute little map in the ad, showing how very close this “secret” company is to Apple’s headquarters … just “10 miles of California highway” between them.

So who is it?

Well, it won’t be a new idea for the Irregulars today but this is … Invensense (INVN), which we’ve written about from time to time since I featured them as an “Idea of the Month” stock back in the Summer of 2012.

Invensense specializes in “multi-sensor on one chip” MEMS chips, the ones that have both a compass and an accelerometer and whatever else combined into one chip for maximum efficiency and speed. And the stock has been wildly volatile for several years, both because it’s growing fast and because they’ve been in patent disputes with STMicroelectronics — my read on their patent position is that it shouldn’t be crushingly negative, they’ve already made good progress in fighting off some of the complaints, but I would never bet the house on the outcome of patent litigation and they could certainly take a hit eventually.

Most recently the stock took a tumble after preannouncing slower growth and not getting built into the new iPad last Fall, but has since recovered mightily on the strength of general chatter about “wearable computing”, new design wins and new chip releases, and the perception, at least, that they’re out in front of their competitors on making these motion sensing chips better, smaller, and more suitable for more and more consumer devices. INVN made their name and their first stock market impact thanks to being built into the controllers for the first Wii from Nintendo, and falling sales of that product helped drag the shares down in recent years, but they are a major Samsung supplier and are showing good prospects for revenue growth with or without selling into some new Apple device, so I’m pretty pleased with the stock (and wish I’d bought it personally 18 months ago, not just written about it for you) … but it’s no longer cheap, and it’s getting quite a bit more attention from the Motley Fool and others than it was a couple years back.

That means there’s less margin for error, I’d say, with the stock trading at about 40X current-year earnings and 28X next year’s earnings estimates … but if you think the market will continue to look for and highly value growth stocks, then Invensense is likely to still do pretty well. The chatter about wearable computers from the CES in Las Vegas this week has been hot and heavy, for sure, and Invensense seems to have a solid presence at the show and has released new products this week, and also popped recently on a positive analyst report. Often when the only real negative for a growth stock is “it’s kind of expensive” it keeps moving up and getting more and more expensive — they’ve increased capacity, they’re building out for the wearable sensor market in all kinds of ways, and perhaps we’ll all have our temperature-sensing clothes, step-sensing shoes and belt-mounted video cameras run by Invensense chips in five years (the “Internet of things” and wearable computing trends are driving quite a few stocks and quite a few newsletter teases — the Fool has also been pitching Sierra Wireless, SWIR, for the “Internet of things” recently). The company is growing nicely, it’s not cheap or without risks but is trading at a fair price as long as that growth is as good as analysts think it will be … so I haven’t gotten around to buying it myself, but certainly don’t see any solid reason to sell it at the moment.

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14 Responses to What’s Tim Cook’s “Please Take My Money” Stock?

  1. Do you know anything about Leeb’s latest tease on Drones and 3D “practically supported by the government”? I believe this is in his “Real World” investments tease. Thanks, Emory

  2. I looked up Invensense and it is a little over $20. It went up by 10 cents today. I use TDAmeritrade and the Analyst Reports they show on the sidebar say “Avoid or Hold.” I like futuristic, high tech products because they are the ones that make millionaires, if you pick the right one. I believe wearable computing will be very big in the next few years. Can you suggest other investments in this potential market space?

    Roz

    • Hi Roz,
      If you go to the Motley Fool’s homepage you should get a pop up pitch for their Supernova service. This will take you to some free reports, including info on four wearable technology stocks.
      Dan

  3. A lot of the single-product wearable makers will become acquisition targets. Buyers like Google (et alia) will have trouble integrating them if the wearables’ APIs aren’t already in the buyer’s mobile ecosystem. These picks don’t always play out the way the rumors indicate.

  4. Not to get off the subject..but what do u think of gecko softwares…trackntrade stock picker & automated stock bot…please get back to me asap….im trying to not make a mistake…but i am i desperate need of a good thing at this moment for my familly…would luv & appreciate your expert opinion…thx u

    • Have never heard of it myself, but please be careful — “desperate” sounds like someone who thinks they need to swing for the fences and make wild bets, which is a common feeling, but that very often is the opposite of what people should do when they’re trying to recover financially or build up some savings.

      • KUDOS for the sage advice, Travis. Anyone who is desperate should not be in the Hot stocks that we are looking at here. (Typing this as the market is down over 100 pts on the Dow!).

      • TRAVIS . Could you look at the Motley Fools SUPERNOVA 2014 HYPE and tell us what stocks besides DDD, AVAV, ISRG, IRBT & INVN they are teasing?

    • Very good thought. The wearables are already in heavy use by the military, such as night-vision projection goggles. I’m sure there’s a lot already being used that we don’t know about. What is DARPA?

  5. Hi. I have an iPhone 5S, I have a Pebble Smartwatch, and I’m a Google Glass Explorer. Google just announced their line of Smartwatches, Android Wear. Nothing from Apple about a potential iWatch. They’re getting stomped in the wearables market.

    Tonight, I watched the movie Ali again. I’m a film student @ NYU, and I gotta say, I love that movie. And I got a text on my watch during the final Rumble in the Jungle and I realized, Apple is Muhammed Ali. Everything from the loss of investor confidence following Steve Jobs’ death has been part of their plan. They’re doing the rope-a-dope.

    I have a Smartwatch, like I said. I can tell you without a doubt that it has staying power. Once people start with one they will never want to not have one again. But they’re absolutely a niche product, because they seem unnecessary. Just like Google Glass, which is overcomplicated and difficult to use. And unlike with phones, Smartwatches have to compete for your wrist with Rolex, and Omega, and whatever else is a legitimate sign of good class. Just like Google Glass has to duke it out with Ray-Bans and Oakleys. And that whole gimmick that Apple and Google are always pulling, where they build in a million tiny little subroutines to punish you for using the other’s product — not going to fly in the wearable industry. If Google Glass launches with the version I have, it will fold like a cheap tent.

    Pebble knows what’s good. Pebble knows that wearables aren’t intended to add a computer to your body, or do what your smartphone already does. Wearables need to be an extension of the smartphone experience, nothing more. And yet Pebble, the world’s most successful Kickstarter campaign ever, won’t move out of the niche market without the power of a name brand. Nobody wants a computer watch.

    So let’s switch gears for a second.

    Only a couple details have been released about the iPhone 6 and iOS 8. One of them is a feature called Healthbook, which is an extensive fitness tracking element — pedometer, calories burned, etc. But a lot of apps that do that already exist. How’s Apple raising the bar there? Jawbone Up. FitBit. Nike Fuelband. These are fitness trackers, wearable monitors that track heart rate, steps, calories burned, etc. they’re pretty popular. The point in the Motley Fool bit about the Fuelband as the iWatch prototype, plus the announcement of Healthbook, plus all the information on the connections between Apple and Nike…

    I’m thinking Healthbook is promising to provide information on fitness attributes on par with what the Fuelband can provide, heart rate, pulse, calories, and all that. Healthbook will be a part of iOS 8. Which will come with the iPhone 6. And the iPhone, unlike Android phones, is a specific numbered brand. Every year, the new iPhone launch is the single biggest event in consumer electronics, bar none.

    You see what I’m getting at? Apple is going to combine the Smartwatch with the Fuelband. It’s how they’re going to bring the Smartwatch to the mainstream. By piggybacking on the drones who just buy the new iPhone and launching it in conjunction. The iWatch is going to be integrated with the iPhone 6 and iOS 8. The Fuelband is low-key the iWatch prototype. And if they really have balls, they’ll ship the iWatch with the iPhone 6 (or offer it at a deep discount if they’re bought together) so people will realize how cool it is (I own a Pebble – they’re cool and they have serious staying power) before they have a chance. Thus outstripping the niche market that will hamstring Google Glass and even Android Wear.

    So right now, all the ‘haunted empire’ stuff being heaped on the Jobs-less Apple – that’s just what Muhammed Ali did his entire career. They look like they’re losing, and the competitor feels like they’re accomplishing something, EVEN THOUGH Apple and Ali both have a long career of winning with exactly this strategy. Exactly what they did before they released the iPod, the iPad, the iPhone. The technology already existed, but Apple bided their time and waited to make the sexiest, simplest, most efficient version.

    This is the float like a butterfly phase. iOS 8, the iPhone 6, and the iWatch are going to sting like a bee.

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