This piece originally ran on November 18, when Louis first started touting this as a must buy “Almost Perfect” stock. Turns out, it was a prescient call this time around and the stock shot up after they raised their guidance when earnings came out late last week.
So what’s up now? I haven’t re-done my article below, but I thought I’d re-share it with you because Navellier is still sending out aggressive “Small cap buy alert” emails on this one after the guidance raise (the guidance went from $1.50 next year to $1.70-1.90), and he apparently likes it just as much at $35 (he’s now calling this same stock the “Almost perfect $35 Technology company”), and he thinks it will hit $50 in 2014 and make the best gains in the next three months. I saw the latest version of this come from Navellier on Saturday morning, with the hints and clues all the same and clearly teasing the same stock. I don’t know any more about it than I did three weeks ago when I originally covered the pick, but folks have been asking about the tease and the rest of it, beyond the new price, is the same — so what follows is our un-updated article, including the original chain of reader comments. Enjoy!
Louis Navellier has used a similar kind of pitch before, telling us that he’s got the “almost perfect stock” and will share it with you if you sign up for his newsletter — but this time around, the pick is different.
Which is probably a good thing — the last time around Navellier touted a much more expensive (overpriced, even), well-known large-cap stock as his “almost perfect stock” and it turned out to be VMWare (VMW), called “almost perfect in August 2010 when it was around $80 a share, then again “almost perfect” and “grab it now before it takes off again” in March of 2012 when it was around $100 a share. Now it’s right around $80 again, so it’s sure not the worst stock in the world (I’ve certainly had worse losses than that) … but “almost perfect” it ain’t.
Still, this one caught my eye because it’s more reasonably valued and it’s growing (growth is a prerequisite for Navellier picks), and because, unlike VMWare, it’s a small cap company and I actually hadn’t heard of it before. So what is it?
I don’t want to spoil the surprise, so lets just jump through the clues … here’s how he tantalizes us:
“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 40% and whose earnings soared 250% last quarter—ALL while handing investors 159% 12-month gains.
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“Ninety-nine out of 100 investors have never heard of this almost perfect $25 stock and yet its innovative user interface solutions are transforming the computing world just as Microsoft, Apple, and Intel did before it.”
Yes, if you’re paying close attention that bit about the “flaw” being that 99 out of 100 investors haven’t heard of the stock is exactly the same spiel he used with VMWare … though it’s probably closer to accurate this time around.
What else are we told about this “secret” stock by way of clues?
“… 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…. innovative ‘turn on/off and control’ products in automobiles and home appliances, but also in …
- Wind turbines
- Solar panels
- Electric and hybrid vehicles
- Next-generation light rail
- High-efficiency services
- Fighter jet radar systems
“… Fortune 100 customer base including the likes of Boeing, General Motors, Nissan, Volkswagen, and Jaguar.
“Which is also why the company has registered FOUR positive earnings surprises in a row of 8.3%, 350%, 60%, and 71%.”
So … enough clues for you to toss the stock name out for us? No? OK, a couple more:
“… management has upped its earnings per share guidance from $.052 for 2013 to $1.50 for 2014…
“if you can add our $25 Almost Perfect Stock to your holdings before it declares earnings December 5th—and before the pension funds pile in—you could easily grab its next 100% gain by the end of the year.”
So what stock is this that Navellier says has one of his strongest buy ratings, market cap under a billion dollars, and a forward PE ratio of just 13? Thinkolator says he’s teasing and hinting about: Methode Electronics (MEI)
And no, it’s not the first name that comes to mind when you talk about touch screens and user interfaces — that’s probably Immersion (IMMR) or the smaller Synaptics (SYNA), both of which are focused on the much more visible business of touch screen controls for consumer electronics (though they’re also a competitor to at least some degree). Methode is largely a supplier to the automotive and broader transport sectors (including aviation, rail and other mass transit), and they sell a lot of stuff that’s not directly involved with the user interface — the center consoles in cars are a core product of theirs, with touch-sensitive controls and new switches and communications technologies, but they also sell a lot of power management equipment and behind-the-dashboard stuff by way of switches and controls and etc. and they have substantial businesses in data transmission, sensors, and the like. You can check out their latest investor presentation here to get a better idea of the kinds of businesses they’re in.
Here’s how they describe their market:
“We design, manufacture and market devices employing electrical, electronic, wireless, safety radio remote control, sensing and optical technologies to control and convey signals through sensors, interconnections and controls. Our business is managed on a segment basis, with those segments being Automotive, Interconnect, Power Products and Other. Our components are in the primary end markets of the automobile, computer, information processing and networking equipment, voice and data communication systems, consumer electronics, appliances, aerospace vehicles and industrial equipment industries.”
There are certainly other, much larger companies involved in these businesses too — like Johnson Controls (JCI) and Honeywell (HON) and Lear (LEA), though they all offer different kinds of products with different overlap, and most automobile manufacturers seem to end up working with pretty much every supplier to one degree or another, so I can’t tell you much about the competitive landscape based on my few minutes of research this morning.
But Methode is an interesting niche supplier, and they do have a decent valuation given their growth this year and their growth prospects — they trade for about 20X trailing earnings, about 13X forward earnings, with a 1%+ dividend, roughly the same valuation as the much larger Johnson Controls but with dramatically higher recent growth rates and a slightly higher growth forecast from analysts.
This is really where Navellier gets excited about a company, when they’re going through some kind of big burst of earnings and showing 100% or 200% earnings growth, with lots of analyst upgrades and earnings surprises (positive ones, of course) — and those kinds of momentum stocks are often extremely successful investments, particularly in bull markets and particularly when you can buy them at decent-looking prices … but they are also the kinds of situations where you can find yourself attracted to a stock because of a one-time growth spurt that makes you overestimate their future prospects.
So is the growth going to continue to shock us and drive the price higher? I don’t know, but they have been a remarkable story so far this year — in their last quarter they beat earnings expectations by 70% and raised their 2014 guidance by about 50%, so that’s why the stock jumped by about 30% in a day back in September, the third (and biggest) jump up this year following an earnings release (that’s fiscal year guidance — and we’re already in the second quarter of their 2014 fiscal year).
They have continued to get contract wins for center consoles, they produce the MyFord Touch console system and apparently are also going to be in the next wave of GM SUVs and just got another center console design with some unannounced partner for next year, so they appear to be doing quite well and also benefitting from the fact that Europe is recovering (or at least stabilizing) to join what has been a global boom for automobile makers in recent years. Whether that means they’re going to blow out earnings again when they announce their next quarter (for them this will be the second quarter of the 2014 fiscal year), I don’t know — I haven’t seen an official date for the next release but their quarter was announced on December 6 last year, so December 5 may be accurate.
And beyond that, well, I can say it looks interesting but I don’t know a lot about them or about their prospects — if you’ve spent any time taking a gander at Methode or their competitors or have an opinion to share, please shout it out with a comment below. Thanks!