Louis Navellier is certainly not shy — he’s sent out several ads telling folks that the recent market turmoil is your opportunity to buy his favorite stocks (he’s a “growth” guy, so his faves are stocks with big revenue growth, earnings growth, momentum and upside surprises).
I thought that might be a nice antidote — after all, most pundits now are fueling the panic about buying gold and hiding in your cellar, or telling us that if you must invest in something, make it something huge and boring that pays a dividend. Heck, even the folks at Cabot, who like Navellier mostly look for momentum growth stocks and generally turn their frowns upside down, are sending out ads this week that “The Worst is Yet to Come.” Ugh.
Not to say that isn’t true, mind you — but let’s dream about riches for a moment instead, shall we? Here’s what Navellier tells us:
“Window of Opportunity Closes at Midnight…
“I just identified a little-known Apple parts supplier that will let you buy into Apple’s historic rise for under $12 a share.
“I realize this may sound hard to believe—especially with Apple shares selling for nearly $385.
“But not when you understand how this behind-the-scenes company has already made investors 1,447% richer in the past three years vs. Apple’s 117% rise….”
Right, so the cat’s out of the bag — you can’t actually “buy Apple for $12 a share” … not that we fell for that ruse, of course. And buying shares that are somehow connected to the Steve Jobs Miracle is a frequent teaser tactic — used by the Motley Fool to convince us to buy cell phone tower owners (they’ve been running more or less this same teaser for a couple years, I just saw it again today), for example, and by Frank Curzio ages ago to push a little chip maker who made it into the iPhone. For what it’s worth, buying and holding either of those ideas from first tease until now would have made you less than buying and holding AAPL, though it’s possible that nimble traders could have done better.
But this time we’re looking at something a little different. Navellier tells us that this stock is connected to Apple because it is the … “world’s No. 1 supplier of scratch resistant screen covers.”
And that, because of that position, this “little-known juggernaut will let you buy directly in to Apple’s continuing rise for just $12 a share and double your money along the way.”
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Sounds exciting, right? Though yes, I know what you’re saying — folks line up around the block to buy the latest iWhatever, but they don’t seem to be doing so for the latest scratch-resistant screen protector. Nor do I remember seeing any iconic branding for screen protectors. But we’ll remain open minded as we listen to the rest of the tease:
“… this little known company manufactures the custom fit scratch-resistant polyurethane film screens that protects Apple’s iPhones, iPads, and iPods from damage.
“As a result, the company has not only been making out like a bandit but also out performing even Apple over the past three years, delivering 1,447% gains vs. 117%!
“All thanks to the company’s 207% sales growth and 318% earnings growth that is trumping even Apple’s great sales (82%) and earnings growth (124%) by nearly $3-to-$1!”
OK, so there are a few fact-y nuggets in there to help the Thinkolator in its cogitationizing. Some more?
“… the company doesn’t just have a chokehold on Apple products, it also has a near monopoly supplying scratch resistant screens for the world’s top smartphone, tablet, E-book, and laptop sellers as well, including Acer, Amazon, Samsung, HTC, Motorola, Nextel, Nokia, Sony/Ericson, and Toshiba—just to name a few.
“That’s why the company’s stock had jumped 331% in the past 12 months vs. Apple’s 52%….
“… it’s earnings jumped again on August 15th with a whopping 58% earnings surprise…
“Plus an incredible 53% sales surprise! Not bad in this economy, huh?”
And since this is Louis Navellier, we know we’ll get the same spiel about the big institutional investors who have already piled in:
“20 BIG NAME institutional investors and mutual fund investors including Vanguard, AIG, Sun America, and others, together have piled millions into this stock as of late.”
No, there isn’t any reason to be excited because specific institutional investors have “piled millions” into the stock — it doesn’t matter if it’s Vanguard and AIG or SunTrust and Bank of America, Louis just uses the familiar sounding names to make us feel comfortable that it’s not a scam. Though the fact that institutional ownership has climbed dramatically in recent quarters — as it has for this particular stock — is sometimes seen as an endorsement or “coming of age” for a small cap company.
And the “buy by Midnight” bit? Well, that’s all just a pitch around Navellier’s offer and recommendation — he says that once his buy alert officially goes out in his Emerging Growth newsletter, big hedge funds and institutional investors could drive the share price up by 20-50%. He also, as usual, offers the standard “money back guarantee” …
“If my $12 Apple doubler doesn’t jump another 35-55% on earnings — you won’t pay a dime!”
So what is this stock that he’s pitching? I woke up the Thinkolator from a long weekend’s slumber, kicked it into gear, threw all those clues into the hopper … and our answer comes out the other end — this is:
Zagg Inc. (ZAGG)
Sound familiar? Yep, the very same Zagg that I wrote was being touted as a short candidate just a few months ago — back then Dan Amoss was saying that this was a toxic fad stock that was “headed for the body bag” because they had ties to shady pump-and-dump characters, sell a commodity product with little competitive advantage, depend heavily on one customer (Best Buy), and use “Enron-style accounting.”
So I don’t have to tell you the potential negatives about the company — Amoss took care of that so you can just read that article, even though he hasn’t proven to be right so far. The stock was just under eight bucks a share back when he called it “toxic” in early March, and it has since done very well, as Navellier notes — doubling to above $16 for a few minutes and then coming back down in recent weeks to around $14.
I don’t know about you, but I’d call this an “accessory maker” rather than a “parts supplier” — Apple isn’t dependent on a steady supply of InvisibleSHIELD or ZAGGSkin products to manufacture its iPad or iPhone, though I can see how sales of those products should move in the same trajectory as touchscreen product volume. Zagg does have some branding and they claim to have a product that’s genuinely proprietary and unique, but there are certainly lots and lots and lots of folks selling touchscreen protector films and thousands of different kinds of specialized cases.
Then again, they are sure selling a lot of those cases — they did blow out earnings estimates by 58% in the last quarterly release (that was indeed on August 15, just last week), and that got the attention of lots of folks — Navellier, obviously, whose antennae quiver when a company “beats and raises,” but there were plenty of articles (including this one from the Motley Fool and this from SeekingAlpha, to list a couple) about how this stock is enjoying a “short squeeze” and continuing to post great numbers, largely by selling cases and screen protectors for iPads and iPhones. Back when Amoss was telling us to bet against Zagg, the short sellers were in part betting that Apple’s decision to make it’s own integrated case for the iPad2 would be bad, bad news for Zagg, but if so that impact hasn’t hit just yet.
If you look at Zagg’s numbers they’re clearly priced for growth — they trade at about 30X last year’s earnings, and about 16X 2012 estimated earnings — which ain’t bad if they’re really going to double earnings next year and keep that kind of growth going in future years.
The short interest has come down a little bit since earnings, so clearly a few folks have covered, but it is still incredibly high at about 50% of the outstanding shares (and insiders own 36%, so that means there aren’t many other shares available). That’s an extraordinarily high number, so even though short sellers have been wrong about this one in recent months it’s worth noting that there is quite a lot of money betting that this stock will go down.
That high short interest, and the limited float, means that it wouldn’t be shocking to see the shares move very dramatically in either direction in even a normal market — in today’s crazy bouncing ball of a stock market, I wouldn’t be surprised to wake up one day and see Zagg up by 30% or down by 50% if news or some widely-followed long or short research comes out, the kinds of moves that we’ve more typically seen from bear attacks (and some recoveries) of Chinese reverse-merger stocks over the past year. Not that this is a Chinese company that has the same issues, just that the low free float and high short interest could bring big moves.
So … the two suggestions we’ve seen were to sell it at $8, and to buy it five months later at $16 — so typical of market soothsayers who are just as subject as you and I to selling bottoms and buying tops. Is the growth going to be there for ZAGG as Navellier believes, and do you want to ride along with it? Or do you think the fundamental problems Amoss pointed out months ago might actually hit the stock eventually? Let us know with a comment below.