Dear Google Guys: Beat This Tech Whimsy Factor!
BA is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Dear Google (NASDAQ: GOOG) Guys,
I realize Larry is running your humble 50,000+ employee venture, Sergey's cruising the NYC transit system with Google Glass specs, and you're both busy tooling around in driverless cars. But there's no excuse for letting Philadelphia trump you in the tech whimsy factor! As a native East Coaster, I am not surprised, and am feeling a bit smug. If you expect to keep the Whimsy Crown in Silicon Valley turf, you can't let these slip-ups occur too often!
I'm talking about a game of the iconic Pong (!) that will make your beloved Burning Man look like a single-celled amoeba. From an April 4 AP article:
"The classic Atari video game will be re-created later this month on the facade of the 29-story Cira Centre, where hundreds of embedded LED lights will replicate the familiar paddles and ball.
... The players will be standing on the steps of the Philadelphia Museum of Art, a site that offers an unobstructed view of the office building from across the Schuylkill River."
In honor of the upcoming Philly Tech Week, when giant Pong will be played, I checked out the Philly region's tech (or at least kind of techie) stocks to see if any look interesting. Grab some Breyers ice cream (founded in Philly), pull up an Ikea (U.S. headquarters in Philly region) chair, and eat your hearts out guys! These three stocks trumped Google's performance over both the 1-year and 5-year periods. The 5-year chart:
Ametek (NYSE: AME)
Ametek ($10B market cap) manufactures and sells electronic instruments and electromechanical devices. In 2012, its electronic instruments group accounted for 59% of revenue, and electromechanical devices accounted for 41%.
The stock crushed the market over the 5-year period, as shown in the chart. Its 1-year return of 29% also handily beat the S&P's return of 12.4%.
How does it look going forward?
Yahoo! Finance & The Motley Fool; data as of Apr. 5 (all charts)
Overall, the numbers look good. The 5-year PEG suggest the stock's a bit pricey, though that's not unusual for quality stocks. Stocks showing increasing margins (earnings growing faster than revenue) should pique investors' interests. (Caveat: As long as cash flows are in sync with earnings; Foolish investors know 'earnings' is an accounting measure, not 'real' cash.) The 3-year growth rates also look promising: 17.1% revenue and 30.8% EPS.
Its electronic instruments group's performance has been particularly strong. Operating income for this segment increased 16% in Q4 2012, and operating margins expanded 100 basis points to 27.3% (overall operating margin was 22.4%). The company attributed the record performance to continued strength in its higher-margin oil & gas and aerospace businesses.
Interdigital (NASDAQ: IDCC)
Interdigital ($1.8B market cap) designs and develops technologies for wireless communications in the U.S. and internationally. Its technologies are used in various products, including mobile devices, such as cell phones and tablets. It had a portfolio of about 19,000 patents and patent applications, at year-end 2012.
The stock clobbered the market over the 5-year period, as shown. Its 1-year return of 29% also handily beat the S&P's 12.4%.
Those 2011 stock price peaks occurred when the big tech companies were on patent portfolio buying sprees. There was buzz that Apple was interested in Interdigital's patents. The stock price crashed back to earth when Apple didn't come a courtin'.
How does it look going forward?
The margin, ROE, and growth rates are out-sized. The forward P/E and PEG are worrisome. The PEG suggests that analysts don't expect the company to be profitable in five years. Of course, analysts' expectations don't always pan out. As only two analysts cover the stock, there could be opportunity for those who are tech patent savvy.
Triumph Group (NYSE: TGI)
Triumph ($3.9 billion market cap) designs, engineers, manufactures, and repairs aerostructures, aircraft components, and systems. Its business mix for fiscal 2012 (year ended March 31) was 52% commercial, 32% military, 13% business jets, and 3% others.
The stock was the 'top gun' over the 5-year period, as shown. Its 1-year return of 29.6% also handily beat the S&P's return of 12.4%.
How does it look going forward?
The numbers suggest the stock deserves a look. There's much to like about expanding margins (again, investors need to dig into cash flows). Positively, the company should continue to benefit as the airline industry continues to recover from its downturn during the recession. However, Boeing accounted for 47% of the company's fiscal 2012 revenue, so there's a "many eggs in one basket" risk.
Larry! Sergey! Yes, Ikea chairs are cozy, but pay attention!
No intro is needed, so right to the numbers.
Google's margin continues to look great. The 5-year PEG suggests the stock is attractive. Arguably, the most or second most (depending upon whom you ask) innovative consumer tech related company selling at a 20% premium to the market on a five-year projected earnings' basis seems a fair deal. Google's margins have contracted over the 1-year and 3-year periods (28.6% average revenue growth, 16.2% average EPS growth). Google's trailing twelve month free cash flow is about the same as its net income; thus, earnings paint an accurate picture of the margin contraction. Granted, there is some margin to spare, but get stemming this, Google guys!
Two Philly area companies -- Triumph and Ametek -- deserve a closer look. I'd skip Interdigital, unless you're savvy at evaluating wireless technologies.
Though I highlighted Philly, a main point of this piece is universal: stock market winners aren't always (or usually even) the 'darlings' garnering the headlines. Investors should keep in mind that 'most innovative' doesn't necessarily equate to the best stock returns.
That said, in Google's case, that equation looks likely to hold up over the long-term. Google remains an attractive investment: search king, potential driverless vehicles, and Google Glass wrapped up in a reasonably valued stock.
BA McKenna has no position in any stocks mentioned. The Motley Fool recommends Google. The Motley Fool owns shares of Google. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!