Navellier says “I’ve Broken All My Rules and Fallen in Love with This Stock”

What's the stock that's "Better than Microsoft, Apple and Intel Combined?"

By Travis Johnson, Stock Gumshoe, April 14, 2015

This one has investors everywhere frothing at the mouth — or at least, that’s how it seems from this end of the email queries your friendly neighborhood Gumshoe is receiving about Louis Navellier’s favorite stock.

So at the very least, the copywriters at Investorplace (Navellier’s publisher) are awfully good at catching your eye — they know, in fact, that every pundit says, as they lean back in their chair and throw a thumb in their belt, that you should “never fall in love with a stock.” You can insert your own avuncular “humph” and condescending chuckle sound to complete the image if you like.

But this is, at the very least, the stock Navellier seems most excited about now — so what is it? Is it the same one he’s been enthusing about for several months, or something new? We’ll look into it… and hopefully save you the agony of shelling out $995 for the answer…

Here’s a bit from the ad:

“Every company—from Apple to Google and every one in between—has a flaw built in that could undermine sales and earnings in all markets and in all environments.

“Yet, the biggest flaw our research has uncovered with this $47 technology company is that few people know it or have heard of it—yet millions are using this company’s touch and user interface applications every single time they get into their car, run their dishwasher, or put something into their microwave.

“How can this be?

“Because this company is the 800-lb gorilla of the touch and user interface technologies market—technologies that are now being integrated into virtually every electronic device on the planet.”

Ah. That sounds awfully familiar… I think this is indeed one that Navellier has touted a few times, let’s just check the details a bit more:

“… it’s no surprise the company just registered another earnings surprise of more than 38% on March 5th.

“Or that management has upped its earnings per share guidance from $2.17 per share to $2.50-$2.60 for 2015….

“Twenty of the world’s shrewdest institutional and mutual fund holders see a monster windfall here as well, together owning more than 21 million shares valued at more than half a billion dollars.”

The vast majority of the money in the stock market is controlled by large institutions and their customers, so while Navellier’s ads frequently tout the “shrewd” institutional money invested in these stocks, the fact that a third to a quarter of the market cap is owned by the 20 largest institutional investors doesn’t really mean anything on its own. That’s true of a great many companies, even perhaps most of them that are of middling size ($1-10 billion or so), and, as is pretty close to average, institutional investors and mutual funds own about 90% of the float of this one.

So who is it? Thinkolator confirms that this is, still, Methode Electronics (MEI).

MEI is around $45 now, it was in the process of spurting up from $25 to $35 in a week’s time when Navellier first teased this stock in December of 2013 as a “$25 to $50” doubler and an “almost perfect stock,” and was dipping in the $35 neighborhood back in January of this year when his tease was that this “#1 Tech Stock for 2015” would go from $35 to $70.

He’s still pitching the growth potential, with that $70 price target still touted throughout the ad and the expectation that the high-momentum returns will continue following their most recent “beat and raise” quarter from early March:

“I particularly love that the stock is still trading under $50…

“… it’s set to hit $70 to $90 in 2015…

“… given the company’s 79% earnings growth and 226% 24-month run-up, I’d be disappointed if the company didn’t jump 50% or more in the next 90 days.”

I don’t know if that will come to pass or not, you can never really tell with a “beat and raise” stock because they are so volatile around earnings — but unlike some momentum stocks, MEI is not expensive from a basic fundamental perspective, it’s trading at about 16X expected “next four quarters” earnings. So even though analysts are being quite conservative for their next fiscal year (which ends April 2016) and predicting just 6% earnings growth (following this past year’s earnings growth that will likely come in at better than 40%), the price is, well OK. It’s not a value stock, but if you think their core business of in-car electronics (particularly center consoles) will continue to grow, and perhaps as importantly that vehicle sales volumes will continue to ramp up and their large European customer base won’t depress their revenues too much, then paying a market multiple for above-market growth rate is reasonable. Analyst estimates for the year did come up after their last results announcement, which is a positive sign (and is exactly the kind of thing Navellier’s quantitative system looks for), so things look fairly solid.

In my experience, the risk to a lot of these Navellier picks (assuming that there’s not a broad market crash that punishes growth stocks in general) is generally most pronounced when a company comes out of nowhere and has fantastic growth for a year or two but can’t sustain that growth rate — so that’s what I’d be most wary of for MEI, if investors truly begin to expect no growth the stock can certainly go down even if it’s pretty reasonably priced. The worry might be that 2014 was an outlier year, and they’ll go back to being a much more average company — their average earnings over the past 5-10 years come in at about $1/share, and revenues bounced around from about $375-550 million without a clear growth trend for that decade, so that’s a far cry from the $2.50 earnings blowout in 2014 on a record $770+ million in revenues. Analysts don’t seem worried, but neither do they see the growth of 2014 repeat with another huge step up in 2015… if the growth doesn’t continue to increase and surprise analysts on the upside, the stock certainly won’t be hitting $90, but that doesn’t mean it can’t be decent and profitable.

The big driver, as implied by the teaser pitch, is automotive — that’s close to 70% of their revenue. Europe and the euro exposure have been brought up as a concern in the past, and their revenue is about 25% into Europe (I don’t know if that’s all sold in euros or not). They’ve been somewhat levered to larger cars, with sales of “center stacks” (integrated console electronics) into Ford and GM SUVs, and their breakout growth last year came partly from some higher-than-expected volume… they’ve also had years, like 2012, when they had revenue decline because of lower sales at their customers or a gap in “design wins” for new model vehicles. That’s not all of their business, but it seems to be the big part of the business that drives “surprises” of higher or lower revenue, and they do have a few design wins that are going into new lines of automobiles over the next couple years — so I don’t know if the earnings growth will continue at this pace, but as long as the auto market stays solid (and lower gas prices are almost certainly helping more Ford Explorers and Chevy Suburbans, both of which have MEI electronics, move off the lots) it seems likely that they won’t have big drops in revenue in the near future.

I liked the company more back in January than I do at this price, but I didn’t buy it at the time and don’t own it now. They are performing well and the stock is not unreasonably valued. Would this be a stock that you’d “fall in love” with? Think it’s the best tech stock of the year? Let us know with a comment below.


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14 Comments on "Navellier says “I’ve Broken All My Rules and Fallen in Love with This Stock”"

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John Gregory
Guest
0
John Gregory

What is the Sacred Tonic?

FRANKLIN
Guest
0

I HAVE ADDED MEI TO MY WATCH LIST. HAVE NOT MADE UP MY MIND TO BUY AT THIS TIME.

John
Guest
0
John

I use to think this guy was quite a foreseer of the stock market until he predicted gold to go to $3000 and up and the market to crash in 2013. Now I read with caution…

fairmead15
Irregular
29
fairmead15

Have got to within spitting distance of my statutory three score years and ten, I decided some time ago that if the characters who sold investment tips were any good they would be just getting on with it for their own account. The joy of Gumshoe is that a tip sheet it is not.

Vicki
Irregular
94
Vicki

Travis,

When I did a google search for this stock, the top result was your article from January. I’m guessing you don’t have a lot of friends in the investment newsletter business. 🙂

Dave in Sunny FL
Guest
0
Dave in Sunny FL
Travis: I’m glad to say I locked in at $27, after the last time you deciphered a teaser on this company. The thing that “sealed the deal” for me last time isn’t even mentioned this time around: The Dividend! There’s a steady history of payouts, extending back to my law school days (when we made fire using flints, and dinosaurs roamed the earth). The actual payout is no great strokes: one percent yield at my buy-in and less now. Still, “You can fake the books, but you can’t fake cash.” Show me the money!
quincy adams
Guest
0
quincy adams

For $995, I would be expecting him to recommend a stock BEFORE all of the institutional investors pile in. Heck, if he could do that, I’d even throw in a $5 tip.

dcinvest
Irregular
23

MEI was mentioned on this board perhaps a year or more ago in the comment section.
I have invested both in the stock and sold contracts as well as followed its earnings reports. I expect it to do well for several more quarters, subject to some market jitters out of Europe, Asia or the Muslim Countries. It has been a constant winner, but that is usually the right time to become cautious. Thanks, Travis for your take.

ian S
Guest
0
ian S
I bought the stock at $37 in December, so I am pleased with the return to date, more so since I paid for it with Sterling at 1.55 which is now 1.46 so an additional FX gain for me. It has run out of puff in the last few weeks, the price levelling off. A stock-booster continuing to tout it is good news for me. The business earns revenue for every piece of equipment sold, not from a one off sale of the technology, so they do not need to expand their existing auto-makers stable to grow. These auto-makers are… Read more »
jonomalley
Member
86
This has been one of my biggest holdings for a year and a half now. I started buying around high 20’s up to about $40. I just sold $10k worth at $50ish to help pay my 2014 taxes, but I had a 50% gain which I’m good with. It still hurt to sell tho as I see this as a really great company. I’ve either listened to or read all their quarterly conference calls and the leadership of this company is very impressive. Huge focus on constantly improving margins. They’re also getting into medical devices with a new device that… Read more »
Cathy
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0
Cathy
The two T’s (TRAVIS@THIKOLATER) always a pleasure to get yes and I mean get an honest representation of teasers which is a task in itself when one is not getting paid to be honest or not.I prefer the way that these teasers are put on paper explaining the hype and the values of the writer for the teaser good or bad but it is nice to see that the two T’s leave a maybe that lets us make the decision how fair is that. By far it does not get any better than the way the T’s put it on… Read more »
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