Criminy, I definitely couldn’t pick three stocks that I think have the absolute best chance of making you rich over the next six months — but that’s the promise from Louis Navellier in the latest ad for his Emerging Growth newsletter.
And naturally, he says we have “only 48 hours!” So I guess I’d better get on the stick and subscribe to his newsletter for $295 for six months. Quick!
Oh, wait — I mean, I guess I’d better check out his clues, identify the investments for you, and see if the “summer stocks” he’s picking sound interesting. More of a free-ish strategy. That sounds like it’s more in my price range.
So… what’s the story? The basic idea is that Navellier is telling you the “sell in May and go away” chatter is silly — that he’s got stocks that you can buy even if your fingers are a little greasy from all the sunblock…
“Why this summer is the ideal time to own these stocks
“Summer is always a slow time for stock markets. And whether that’s why investors think they should “sell in May and go away,” or if it’s because many investors are simply sitting the summer months out…
“That’s precisely why I recommend you stay invested right now.
“Because a company’s fundamentals don’t change even if nobody’s buying its stock at the moment.
“And a great company is still a great company even if other investors aren’t noticing it right now… Simply because those investors aren’t noticing any companies right now.
“Simply because those investors have turned off CNBC to spend time at the beach, and let opportunity pass them by…
“So that means, when investors like you and me see a company’s potential today, we can scoop up its shares at a potentially discounted rate. Because our fellow investors have pulled their money off the table temporarily.”
I mostly agree with that — if you’re a swing trader or like to get in and out using ETFs and move your money around a lot, then perhaps some of the seasonal factors, like the general tendency of summers to be a little weaker, can help you if you’re very disciplined about buying and selling around those seasonal patterns for many years to give the averages time to work.
But for those of us who are looking at individual stocks and considering them for long-term investments, that kind of seasonal stuff is pretty pointless unless you think of seasonally “weak” periods as times when you might see your favorite stocks get a bit cheaper and give you a buying opportunity. There are a lot of reasons for this, but chief among them for me is the fact that you’re not going to spend the next twenty years routinely selling in May and buying back in October, ignoring everything else — you’re a human being (like I am), and trying to add a timing strategy like that to a long-term stock investment strategy is really just giving you at least twice as many opportunities to screw up. And investors screw up all the time, and are terrible at timing short-term moves in the market, so why give yourself an opportunity to be wrong even more often… and forcing yourself to be out of the market for substantial periods of time when both good and bad things happen to individual stocks? Know yourself — if you sold out in May, would you buy back just as much in October (or whatever you determine the optimal dates are) even if the market had gone up by 10% in the interim? Sometimes it does, you know, and it’s really, really hard for most people to buy something after you sold it cheaper a few months earlier. I’d rather see you using a 15-20% stop loss than trying to do seasonal timing — though frankly, I’m not all that thrilled with stop losses most of the time, either.
But anyway, presuming that you and I are willing to hear Louis Navellier out, and assume that there are plenty of possibly good reasons to buy stocks even when the kids are out of school and the beach beckons, what are the stocks he likes?
That brings us to my favorite part: the clues.
“Here are the 3 summer stocks I believe could build your fortune this year.
“Summer Buy #1
“Our first new buy this summer is a global leader in healthcare technology and innovation.
“In this company’s most recent quarter, earnings and sales results walloped analysts’ estimates. Revenues increased 34% year-over-year to $67.6 million. While earnings surged to $98.9 million, up from a mere $3.6 million last year.
“Earnings adjusted for pretax gains, were $0.28 per share, which beat analysts’ estimates by a stunning 100%.”
This is one where you’re going to have to call in the accountants — the stock is, sez the Thinkolator, Abiomed (ABMD), which is an exact match for all those clues — though the lion’s share of those profits are of the “accounting” (as opposed to “cash”) variety, a result of a freed up tax-loss that they were able to recognize last quarter.
They have blown out analyst estimates for the last three quarters in a row, but analysts are also fairly sanguine (pun!) about the next few years — at least, relative to the stock’s current valuation. The shares are trading in the low-$60s, and have just about tripled in the past year, but analysts see them earning only about 60 cents this year, 80 cents next year, and $1.15 in 2017. That’s pretty good growth, and they expect 20%ish sales growth to be driving that earnings growth, but that means you’re paying about 75X next year’s earnings to buy ABMD today.
Which is way too much for a company that’s only growing at 15-20% a year, all else being equal. So why on earth is the stock so high?
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I don’t know, frankly. Presumably, investors are seeing a huge long-term growth curve coming — otherwise you wouldn’t want to pay that kind of premium. I can’t tell you whether Abiomed’s core product, the short-term heart pump Impella (which is inserted percutaneously, kind of like a stent, and can be used for up to six hours to support a heart in crisis), has a huge market opportunity, or whether they have competition, but the company does have a strong specialization in heart-support technology (including the development of Abiocor, the first totally artificial implantable heart that got limited FDA approval a decade or so ago). The latest quarterly earnings press release is here, you can see that they are increasing their revenue guidance and that sales growth for the Impella system is pretty impressive — with close to 1,000 sites using the Impella system that should create a decent ongoing revenue stream, with hospitals continuing to upgrade to new systems and, presumably, buy new implantable pumps for each use (I assume the actual pumps are single-use, but I don’t actually know).
So… looks interesting, but I have a hard time seeing why they’re so expensive — it’s not just the big accounting gain last quarter, so investors aren’t being totally irrational and bidding the shares up for that reason, so it must be optimism about continuing Impella revenue growth and strengthening, with volume, what are already pretty impressive margins. Let us know if you’ve got an opinion on that one, that’s pretty much where my understanding of the stock ends.
“Summer Buy #2
“Wireless charging is going to become increasingly important for everything from smart phones to electric cars—and our next company is poised to profit from this coming boom.
“This company already has strong top- and bottom-line growth. Sales rose 33.6% to $158.4 million, while earnings soared 107.1% in the most recent quarter.
“Looking to this quarter, this company is expected to report earnings of $0.29 per share, which translates to a solid 70.6% annual earnings growth.”
This one is Integrated Device Technology (IDTI), with most of those clues coming straight out of last month’s quarterly earnings press release.
Looks a lot safer (though, of course, less revolutionary) than the wireless charging stock that was teased by the Angel Publishing folks back in February — that was Energous (WATT), you can see that note here if you’re curious. IDTI actually makes money and has commercial products. They’ve even got their technology built into Ikea’s new charging pads, in case you want to add a NORDMÄRKE to your BODBEN.
The shares are trading at about 20X expected earnings for the coming twelve months, and analysts think they’ll only boost earnings by about 10% in the year following — so it’s not cheap, but nor is it ridiculous (and, really, Navellier stocks never actually look “cheap”).
One more to ID for you…
“Summer Buy #3
“The biotech industry continues to be red-hot. And our third summer buy develops biomaterials and bio-implants from medical waste.
“In the first quarter of this year, this company’s sales soared 108.2%. Earnings increased to $4.1 million. And these numbers beat analysts’ expectations of earnings per share by 33.3%.
“For the second quarter, analysts are projecting a massive 400% annual earnings growth and 76.1% annual sales growth.”
Well, I guess I’d quibble with hyping “400% annual earnings growth” just because a company is expected to earn four cents a share versus zero cents in the same quarter a year ago, but the numbers do match up with Navellier’s tease and the Thinkolator sez this is: MiMedx (MDXG).
Never heard of it before, frankly. Here’s how they describe themselves:
“MiMedx® is the global premier processor, marketer, and distributor of human amniotic tissue. MiMedx® has distributed over 400,000 amniotic tissue grafts worldwide and achieved profound clinical outcomes in multiple therapeutic areas including ophthalmology, spine, chronic wounds, dental, orthopedic surgery, sports medicine, and urology. With this groundbreaking human tissue offering that promotes bioactive healing, MiMedx® believes its unmatched knowledge and superior processing of amniotic tissue strategically positions the Company to become the leader in regenerative medicine.”
They are in the midst of some pretty rapid growth, as you would expect from a Navellier stock — revenue has roughly doubled each of the last two years, and they became profitable late in 2014. Analysts see them growing revenue a bit more slowly this year, tapering to 60% growth in 2015 and 30-40% revenue growth in 2016, with earnings growing dramatically this year (as should be expected, since they’re starting from almost zero) and still growing nicely at about 30% next year — the stock is trading at a forward PE (2016) of about 36, according to those numbers, so your valuation question really comes down to how long they can keep growing earnings rapidly… analysts predict 15% annual earnings growth for the next five years, on average, but they are, of course, doing a lot of guessing to get that number.
I don’t know what the size is of the market for their regenerative graft products, but there seems to be a pretty large opportunity if they take a substantial part of the market — their products are used in sports medicine and in chronic wounds as well as in surgery and plastic surgery, all of which could be huge markets if their product is better than other approved materials and gets heavy usage. If you’d like the company’s perspective (which is, naturally, optimistic), you can check out their latest investor presentation here from last week.
So… whaddya think? Want to buy these during the summer doldrums? Let us know with a comment below.