A few readers have asked about this recent Motley Fool Stock Advisor promotion, so I thought I’d take a quick look-see for you today… apropo for “Apple Week,” it was all about Apple’s next “secret project” and “3 stocks to buy before Apple unveils its next must-have product.”
So what is it? Well, I’ll spare you the loooong lead-in this time around since the topic is a well-covered one: They’re pitching self-driving cars and what was several times rumored as Apple’s “Project Titan” to build a new self-driving car to compete with the likes of Tesla (TSLA).
They still use that “Project Titan” in this ad, though there has been some shift in the rumors of that over the past couple years — the first excitement came in 2015, when rumors circulated that Apple was on the verge of building a car, then Apple was widely reported to have scaled back or even canceled Steve Jobs’ “build an Apple car” ambitions last year, and more recently the talk has mostly been about Apple developing the “guts and brains” of a self-driving car but perhaps not actually building a vehicle themselves.
I have no real idea what will happen, other than the obvious lines that can be drawn by the fact that Apple bought land to test autonomous vehicles, is clearly focused on Artificial Intelligence to at least some degree, and has several times stated its interest in supporting and advancing autonomous vehicles.
Whether or not there’s ever a car with a big Apple logo on the hood is almost beside the point, clearly they’re working on it at least a little bit. Along with Alphabet (GOOG) and Uber and almost every car company and large auto semiconductor or electronics supplier. I’m skeptical that Apple will become a driving force in this area, given the huge lead that several other companies seem to have (including particularly Alphabet with its Waymo division), but Apple is pretty good at being secretive, and almost anything is possible.
But the Fool isn’t hinting at Apple here — it’s teasing a different stock. Who?
This is the lead-in to what they say “is the most important part” of the spiel:
“NOW is the time to take this investment opportunity seriously
“You see, with world-changing technology, the money isn’t made when everyone owns the technology.
“The big money is made somewhere between widespread popular disbelief and when the technology is found in every home.
“Like with Microsoft in ’86… before the home PC revolution took off (and handed early investors a 64,000%+ gain).
“Then with AOL in ’94… before everyone and their grandma were using those shiny “free Internet” CDs (handing early investors a 20,000%+ gain).
“And with Amazon.com in ’97 — when the thought of buying books (along with everything else they sell) from a website still seemed futuristic (then handed investors a 10,000%+ gain).”
OK, so that’s the big picture promise — “get in early for the next revolution”… what other hints do we have about this specific stock?
Here you go:
“…the live-streaming feed of a tech conference from San Jose, California, on March 25 stole my undivided attention.
“The CEO of one of Silicon Valley’s most well-respected companies was giving the keynote address.
“You probably wouldn’t recognize him by name….
“But as he was sharing his company’s latest advancements, he held the audience in the palm of his hands.
“After an hour and a half, the CEO throws a curveball… And introduces the head of product development from one of the world’s elite automakers.
“Together, they walk the audience through a video explaining what the two companies are working on — showing how sensors map out a virtual landscape that allows a car to determine where it should travel.
“Then the automaker VP says, ‘I brought something with me…’
“All eyes dart stage right as a sleek, silver sedan slowly drives toward them… and smoothly parks diagonally next to the two men.
“They go to open the driver-side door… no one is there!”
Now that REALLY sounds familiar. And it’s because this same story was told when the Motley Fool started pitching this stock almost three years ago — that story is from NVIDIA’s presentation at their GPU Conference on March 25, 2014, and the Fool used it when they were pitching self-driving cars as “Warren Buffett’s Worst Nightmare” later that year.
In retrospect, of course, we should have piled on — NVDA was not yet growing, but there was some promise from their new wave of products, including the Tegra system that was (and still is) being used to power self-driving cars with several major manufacturers, including Audi and Tesla. And it seemed expensive at the time, though that was because it hadn’t yet proven that growth would come and was selling at 20X forward earnings, which seems quaint in retrospect (NVDA is now at 45X forward earnings, and what was a $10 billion company has become a $100 billion company).
Progress has continued, NVDA continues to impress — the latest coverage and boost to the stock price has come from the fact that high-power Graphic Processing Units (GPU) like NVIDIA’s GeForce cards are also in high demand for people who are “mining” cryptocurrencies and need maximum computing power, but NVIDIA has also been touted for its role in virtual reality (faster graphics), data center chips, and artificial intelligence beyond autonomous driving, so there’s a lot of ‘story’ there. I don’t know how it will end or if NVIDIA will maintain its lead, but here’s what I wrote to the Irregulars back in May when I finally entered an NVDA position by exercising call options:
“The risk here, of course, is that (like so much of the market) it ‘feels toppy’ — but that’s been true of NVDA stock since it got close to $50 last summer. The stock is obviously expensive at 45X trailing earnings and 34X forward earnings, and it could pretty quickly fall by 50% if growth expectations change, but the earnings estimates have also been ramping up pretty dramatically — estimates for 2018, which is the fiscal year NVDA is currently in, have risen by about 50% just over the past year, and the out years are also seeing rising expectations. The real risk is if those future earnings estimates stop rising, most likely, since the stock has soared in anticipation of future ‘beat and raise’ quarters.
“Regardless of the valuation, NVDA is doing fantastically when it comes to actual operating performance. It remains compellingly positioned with leading products for the most important trends in data centers and in artificial intelligence, to say nothing of their continued strength in the high-end gaming business, which keeps surprising analysts with its growth (and potential exposure to high-end virtual reality, driverless cars, and other currently smaller businesses). I wouldn’t want to commit much more capital to this one unless there’s a meaningful pullback in the share price, and semiconductors in general can be fickle, (both because massive customers like Google or Apple sometimes try to cut out designers and develop their own chips, and because the sector is so price-competitive), but companies that develop truly necessary chips for core work in rising trends, like Intel in the 1980s or Qualcomm in the 1990s, can have scary huge potential if they are able to really hold off the competition either with their brand power or their unique technology. NVIDIA has potential to both strengthen the brand and maintain a technological lead, but neither is guaranteed — so I’ll take this growth bet on NVDA and watch it pretty closely now.”
And there are apparently two other “bonus” stocks as part of this report — though we don’t get much in the way of clues about them. This is what the Fool pitch says:
“As you know by now, many investors are going to be focused on the car manufacturers, when the real story is what is going on inside the cars.
“And when you read this special report, you’ll discover two more ways to take advantage of the self-driving revolution.The average American spends over 39,000 hours in a car in their lifetime.
“Right now, you have to spend that time paying attention to the road.
“When cars drive themselves you’ll be free to do other things like watch your favorite TV shows and movies, or play games.
“This means that demand for content is likely going to continue to explode.
“When you claim your FREE copy of Inside the Car of Tomorrow: How to Invest in the Self-Driving Revolution, you’ll discover one company that is shaping the future of content.”
The knee-jerk response to that hint is “Netflix (NFLX),” but that’s probably at least partly because I know the Motley Fool Stock Advisor folks have been excited about Netlix all along the way, at least since they first started teasing it in their ads ten years ago (it’s up well over 1,000% since then, so I don’t blame them — even though I’ve never owned that stock and gnash my teeth when I think of the missed opportunity). But without more clues, it could obviously be anyone.
“Plus, when you dive into this report, you’ll learn the name of a remarkable under-the-radar company that is already helping Facebook rack up mind-boggling profits.
“Facebook has become one of the hottest stocks in the world because they are able to collect tons of data and then use that information to advertise to their users.
“And that’s one thing I don’t hear anyone talking about.
“These cars are gonna collect an absolute mountain of data.
“And the companies that figure out how to turn that data into cash are primed to shoot through the roof.
“When you rip open your copy of this special report, you’ll discover the company we think is going to be first in line to grab this mountain of cash.”
Here’s another conceptual one without any real clues — who’s good at handling data and making it actionable? Well, advertising companies and big data analytics companies… but Facebook is at least as much of a competitor as it is a boon to many of those. This, again, could be anyone — past Fool recommendations that I’ve heard about that would fit include Splunk (SPLK) and Criteo (CRTO), which I own, though either one is a stretch to really be meaningfully impacted by driverless cars in the next few years (so is Netflix, for that matter, and any other content company).
So I leave you with that — I don’t know for sure who these other “secret” companies are, but the one stock for that “driverless car revolution” is still good ol’ NVIDIA (NVDA), which I have about a 3% position in now after profitably speculating on NVDA options a couple times during its big run. I’ve had to hold my nose with this one a few times, since I’m skeptical of the valuation (as anyone would be at ~45X expected earnings for a stock that had disappointing growth for many years before that, and continues to have relatively low 10-12% earnings growth estimates a few years into the future… though analysts have lowballed NVDA’s future earnings for years), but they’re right in the middle of what analysts believe will be a five-year period when earnings just about quadruple, so if that plays out well, and analyst estimates keep rising, quarter after quarter, then even the current valuation is reasonable.
At this kind of valuation you need a continual feed of optimism and “beat and raise” reports from the company — so if they hit a soft spell or say something bad about major project delays, or if perennial disappointment AMD (AMD), their biggest competitor in graphics chips, actually starts taking real market share, well, it could fall hard and fast.
I am probably too much of a worrier with growth stocks like this, though I try to hold my nose and let them play out, but I don’t want to extend more capital to make them a larger part of my portfolio and increase that risk — so I’m not likely to buy a lot more NVDA anytime soon, but I’m also the guy that used small options speculations to get exposure on the way up because I thought it was worrisomely expensive at $40, $60, $100, $120, $150 all the way up over the past couple years… so your opinion may well differ from mine, and I’m never quick to double down on growth stocks like David Gardner at the Motley Fool is, but I will give it room and let it play out for a while here.
What matters, of course, is your opinion — it is, after all, your money. So whaddya think? NVIDIA still worth a tumble here? Have any guesses about the Fool’s other more tangential autonomous car picks? Let us know with a comment below.
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Disclosure: I own shares of Alphabet, Apple, Criteo, Netflix and NVIDIA of the stocks mentioned above. I will not trade in any stock covered for at least three days, per Stock Gumshoe’s trading rules.