Newsletter ads always sound a little familiar — the same cabal of copywriters are putting together most of these spiels, and they all copy from each other when some new “hook” is found that seems to work to reel in new subscribers. But sometimes it’s a stronger feeling of deja vu than others… and that’s the case today, for good reason.
Louis Navellier is touting his “No. 1 Technology Pick” as an “almost perfect stock” … and that’s nothing new, his “almost perfect” designation hits stocks pretty often when he’s trolling for subs to the $995 Emerging Growth letter.
And the P.S. of his ad makes the case pretty aggressively…
“My No. 1 Technology Stock has already handed investors 253% gains in 24 months on 31% earnings growth. With the whole world adding touch screen technologies to their product lines, we can only see their sales, earnings, and profits skyrocket over the next few years.
“If the stock’s past performance is any indication of what is headed your way, now is NOT the time to sit on your hands.”
But it turns out that what Louis Navellier is doing this time around is not just re-using the “No. 1 Technology Pick” and the “Almost Perfect Stock” to sell this idea… it looks like he’s actually re-teasing the same stock he similarly sold to us just over a year ago. Shall we look at the details to confirm? Here’s the intro:
“Imagine… an integrated technology company whose products are not only found in virtually every Ford, Chrysler, Mazda, BMW, Mitsubishi, Nissan, Mazda, and Aston Martin sold around the world…
“…but also found in Electrolux dishwashers, KitchenAid refrigerators, and Jenn-Air wall ovens as well as locomotives, railcars, trains, construction, welding, and mining equipment…
“…a company whose revenues jumped 20% and whose earnings grew 31% last quarter—ALL while handing investors 253% two-year gains.
“So what, exactly, is the flaw here?
“Ninety-nine out of 100 investors have never heard of this almost perfect $35 stock and yet its innovative user interface solutions are transforming the computing world just as Microsoft, Apple, and Intel did before it.”
So far so good, still matching up with last year’s idea…
“… 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…..
“it’s no surprise the company just registered another earnings surprise of more than 20% on December 11th.
“Or that management has upped its earnings per share guidance from $2.17 per share to $2.20-$2.30 for 2015…”
And yep, this is still the same company Navellier was calling the “Almost Perfect $35 Technology Company” back in December of 2013… Methode Electronics (MEI).
To be fair, he also called it “almost perfect” and teased it heavily a month before that, when it was in the mid-$20s before a blowout quarter that spiked the stock up to $35. He touted the stock has having the potential to double “before the end of next year” each time, the same thing he’s promising now as he predicts a $70 share price for Methode.
And yes, they did increase their guidance for the year and “beat” on earnings during that same quarter this year, too, which was released on December 11… but it didn’t go over as well and the stock fell about 15% from its highs, which brought it back down to, yes, about $35, where it trades now ($36 and change today, if you want to be more precise).
I noted last time around that this was an interesting stock because of their exposure to the automotive market, which was and is booming, but that it was a little disappointing that they weren’t boosting the dividend or otherwise trying to reward shareholders after a good year. They then did go and increase the dividend last Spring for the first time in several years, which was encouraging — it’s still a tiny dividend, the yield is about 1%, but if this leads to a consistently rising dividend or to buybacks that would definitely be a good thing (I wouldn’t bank on it just yet, they have raised the dividend just three times in 15 years).
Methode is primarily, but not entirely, a supplier of electronic components for automobiles — that’s about 2/3 of their business, with the biggest part of that being integrated center console electronics (the video touch screen, phone interface, etc.). They also sell lots of other sensors and controls into cars, like transmission sensors, and battery buses for electric cars. and they have a pretty big business in touch-pad controls for appliances and industrial machines, but the car business is where they have the most potential to impact the bottom line significantly in any given quarter with new business wins (getting designed into new models) or volume increases.
It’s a global company, with plants in the US as well as in Europe in Asia, so although the name sounds French and they do have a substantial amount of business with European carmakers (their US auto business is much larger), they’re not really a “euro” story in any direct way (in case you were wondering) except insomuch as Ford’s sales in Europe falter… though I don’t know if that’s a big part of their higher-margin businesses or not, the majority of their current consoles business seems largely to be in big SUVs or higher-end Fords and Chevrolets (though they have Fiat and Renault business launching over the next year or two).
And for whatever reason, it’s also highly volatile around earnings — I don’t think the stock has moved less than 10% around earnings releases for the past four quarters at least, so if you decide to test the waters on MEI be aware that those big moves can happen. That might be exacerbated by the fact that it’s a fairly small company given its global reach (market cap only about a billion dollars) and competes with some giants around the world, including Alpine Electronics, Delphi and Panasonic (who, to be fair, in many cases also have pretty volatile stock prices of late). Next earnings date, and the next dividend announcement that will give us an idea as to whether last year’s dividend increase was a one-time thing, will come in mid-March.
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I think this one has some promise, still, though I’m certainly not expert enough in the assessment of their end markets to tell you they’ll double this year as Navellier is touting — that would mean pretty consistent surprises on the good side, which hasn’t been the long-term pattern for MEI. In the big picture, the underlying trends of rising vehicle sales should certainly be good for them… but it’s hard to know (for me, at least), whether the fall in gas prices will hit their revenue on the Nissan Leaf and Tesla more, for example, than it helps the revenue on the Chevrolet full-size SUV business. You can get a little bit better picture of the company’s business from their recent presentation to auto industry analysts here.
On the numbers side, am encouraged that for the last several years their profit margin and return on equity have been gradually improving (on an annual basis — as you can tell from the quarterly volatility, it bounces around a lot throughout the year), and by the strength of the balance sheet. Insiders are pretty consistent sellers at MEI, as with most companies, so that doesn’t indicate any great positives (or negatives), and institutional investors aren’t either loading up or dumping shares in recent quarters — so they don’t necessarily know where it’s going any better than you or I do. It’s been improving of late, it’s volatile but relatively inexpensive (PE in the 12-14 range, both trailing and forward), and, well, that’s about all I can tell you. I don’t own the shares, and Louis Navellier wasn’t quite right about the stock hitting $70 last year… but maybe this year? It’s your money, so you can make the call… let us know what you think with a comment below.