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.
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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.