Yesterday we looked at Louis Navellier’s pitch about his “bulletproof” stocks to buy — mostly pretty reasonable growth stocks that are priced like growth stocks, but not the crazy hyper-momentum valuations that scare people. Today I thought we’d take a quick moment to ID a couple of the other ideas in his ad.
The big picture stuff in his pitch is pretty reasonable and optimistic — and he thinks it will be a good year for the stocks he’s pitching (of course), here’s the bold-face bit:
“In fact, all of my analysis, all of my indicators and all of my 30 years of hard-won experience tells me that 2015 will be another fantastic year to make money.
“The bull market will continue. BUT it won’t be the same kind of broad market rally we’ve seen the last few years. That rising tide lifted all boats—including a lot of weak stocks that have no business trading at the levels they are today”
Why so optimistic? The same reasons other folks are optimistic, or at least not as pessimistic as you might normally be with stocks at these historically lofty valuations… an easy Federal Reserve, low interest rates that won’t rise quickly, higher consumer confidence, US stability compared to much of the investable world, low energy prices from the US energy production boom, nothing you haven’t heard before.
But what are the other “secret” stocks that he’s teasing? Well, he doesn’t hint at all 11 of them, but we got three yesterday (McKesson, Actavis and Kroger), and we’ll get a few more today…
One of them is a freebie, CVS Health (CVS), the pharmacy benefit manager and drugstore chain operator. Here’s what he says about them:
“My next blue-chip gem is made waves when it pulled all tobacco products from its shelves. CVS Health Corp. (CVS) provides integrated pharmacy health care services in the U.S. The company is best known for operating over 7,700 CVS pharmacies and Longs Drug stores throughout the U.S. CVS pharmacies are stocked up with prescription and over-the-counter drugs, beauty products, seasonal merchandise, greeting cards and a limited selection of convenience foods. And CVS Health’s retail division is just one out of four main businesses. The other three businesses are: CVS Caremark, CVS MinuteClinic and CVS Specialty Pharmacy….
“The drugstore chain announced that same-store sales rose 1.2% year-on-year. In addition, pharmacy services revenues jumped 18.2% over last year….
“… net earnings rose 8% year-on-year to $1.22 billion, or $1.07 per share. Excluding special items, adjusted net earnings were $1.14 per share. Analysts were calling for $1.08 EPS, so CVS posted a 5.5% earnings surprise.”
CVS Health, which for a while was called CVS Caremark, has been a fantastic investment for the past several years, though the stock certainly flattened out a bit this year (as did the market, and CVS has continued to do better than the S&P in 2015). Great company, fantastic business, analyst estimates are rising, but Man Oh Man it’s awfully expensive for a $100+ billion retailer that has 1.2% same store sales growth. Part of that’s because the pharmacy benefit business is doing so well and growing nicely — and analysts are quite optimistic, so it does still have a pretty reasonable PEG ratio of just 1.3 or so, but something about the valuation at CVS just rubs me the wrong way. Haven’t spent a lot of time with the stock, so feel free to try to talk me out of my light bout of pessimism on this one, maybe I’m missing something about the upside potential for revenue growth.
And on to the “secret” ones…
“As consumer demand for financing explodes, businesses and individuals are turning to this service provider in droves.
“Shares rallied after the credit services company trounced expectations for the first quarter. Total revenues increased 12% year-on-year above the consensus estimate. Meanwhile, net income climbed 5%. Adjusted earnings, which exclude special items, amounted to $1.07 per share. Analysts were expecting just $1.02 EPS, so the company posted a 5% earnings surprise.
“Looking ahead to FY 2015, management expects revenue in a range of $2.585 billion to $2.635 billion and adjusted EPS from $4.28 billion to $4.35. This is on the higher end of the Street view, which calls for revenue of $2.59 billion and $4.27 EPS. This was a very strong report!”
This one, my Gumshoe friends, is Equifax (EFX), the financial data company that’s expanding beyond the credit reporting service that most of us are probably familiar with — you can get a pretty good idea of what the company is doing (and trying to do) from their most recent investor presentation, and confirm all those numbers from Navellier’s tease in their last quarterly press release in case you want to double check.
I don’t know how it will work out for EFX — their core business is certainly a nice, high margin operation even after the evolution of consumer credit reporting (with all those “free credit report” folks), and they have a fair amount of proprietary data and analytics about consumer finances and behavior that should be valuable to the government, insurance companies, other financial firms outside of their core consumer lending and mortgage customers, etc., so I can see why a soothsayer would see bright blue skies ahead. I would hope they’re bright, given the huge move the stock has made in the last few years and the pretty steep valuation it now trades at — but there aren’t a lot of other options for investors if you like this particular niche, Experian and Trans-Union, the other core credit reporting companies are both private. Growth is good, earnings are good, estimates are rising, margins are great in this business — but it’s still trading at a PEG ratio of well over two so it gets harder to say this is “growth at a reasonable price” even if they are indeed growing pretty nicely.
Don’t have a strong opinion on this one, partly because I don’t really have a handle on what kind of traction they’re getting (and what margins are like) in their non-mortgage businesses and overseas, where much of the growth should be coming from.
So… one more?
“Red Hot (and Dirt Cheap) Mobile Technology Gem
“This analog semiconductor manufacturer has been an impressive holding for us in the past 11 months, with shares more than doubling. But its run is far from over, as the company continues to post robust earnings and sales results.
“In the first quarter, which was released at the end of April, the company reported that revenues surged 58% year-over-year, and adjusted operating income soared 99% year-over-year. Not only did this beat analysts’ estimates, it topped the company’s own guidance.
“Looking forward to the third quarter, the company is headed towards 54% annual earnings growth and 36.5% annual sales growth.”
Ah, another one for the Gumshoe “regret” pile — Thinkolator sez this is Skyworks Solutions (SWKS), the analog chipmaker best known as an “internet of things” play and a hot Apple (AAPL) supplier. And yes, they have more than doubled over the past year, and they did post revenue growth of 58% (which is ludicrous) and earnings growth of well over 100% (which is crazy) in the last quarter. Pretty much every exciting story — chips for cars, mobile computing, more capable phones, more internet connected stuff — can be tied at least partly to Skyworks Solutions. And no, they’re not the only ones making these chips — but man, they sure have been selling a helluva lot of them in the last couple years.
And yes, this is one I’ve looked at several times along the way and always thought, “no, it’s just a weeeee bit too expensive.” Sometimes if you’re cranky like that, you miss these tremendous growth stories that never seem to have real “dips” in the stock price (SWKS hasn’t taken a genuine beating since 2012), that’s just a price you pay for being a grouch.
Part of the problem for a fundamental investor who really wants to understand a company in some detail, of course, is that these small chipmakers are so volatile around design wins and advances by their competitors and, especially, around design “wins” (rumored or actual) in the iPhone, which remains the premium-priced volume leader that everyone wants to be part of (SWKS is no longer tiny, but the market cap is still only $20 billion) — so it’s just difficult to assess when it’s worth “paying up” for a chip company and when you should be worried about the competitive positioning and wait to buy cheap when there’s perhaps a touch of bad news. Especially when you hear about five more hot new chip designers every month who sound like they’re wound up to take Skyworks’ lunch money (or Broadcom’s, or NXPI’s, or Invensense’s, you get the idea). Will it be SWKS that we’re still all talking about in a year? Or Avago? Or Qorvo? Or one of the hundreds of tiny sub-$1 billion chip designers? Man, I wish I knew.
Or hey, maybe you know! Whaddya think, would you go for the established fantastic growth at Skyworks? Think they’re going to continue to have that special sauce that keeps them rolling faster than their competitors? Or do you see brighter things ahead for other players in the mobile/internet of things/smart car areas where chip companies seem to be setting their sights these days? Let us know with a comment below.
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