Rip Van Winkle Dream Stocks
AnnaLisa is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Editor's Note: Per a TIAA-CREF spokesperson, TIAA-CREF should be referenced as a financial services organization, not a pension fund. This version has been corrected.
After a rip roaring night of bowling and booze in the 1700's, Rip Van Winkle fell asleep for 20 years. So the Washington Irving story goes. Twenty years is a long time, considered a generation or in the Gettysburg Address a score. Let's say you snoozed for two decades which stocks would give you pleasant dreams; which stocks should you score for a score?
A Generation of Generators
One name that is powering forward is Generac Holdings (NYSE: GNRC). The National Weather Service has frequently stated that weather events going forward will continue to grow more extreme. As people become ever more dependent on computers, tablets, etc. they will also be more dependent on power to keep them and their internet service providers working 24/7. Generac is not solely a play on the weather over the coming decades, but also the increasing reliance on our devices.
Another good reason to buy Generac is that it has a history of paying special dividends which aren't listed on finance sites as a yield, but average over 5% over the last few years. As more people every year are affected by weather events they'll resolve, "Never again," and pony up for a generator and they will have to pay up even more for the stronger models that can also run electronic devices. The profit margin is also a pleasant 36.35%.
The company's CEO Aaron Jadgfeld has spoken frequently of their international expansion plans, but on November 20 they walked the talk with a deal to buy all the divisions of Ottomotores, a generator company mainly doing business in Latin America, which earned $81.6 million last year alone. Generac is paying some $46 million in the deal which should be accretive when the deal closes in early 2013.
Generac's P/E is 6.71 and analysts expect 12.67% growth per year for the next five years. Some caveats: debt now stands at $573.65 million. The company just withdrew a proposed secondary offering last week due to "market conditions." Also, corporate governance risk is high on compensation and shareholder rights. Still, businesses and individuals will likely be buying more generators over the coming years and the international market is wide open for the foreseeable future.
A New Generation For Amazon
Amazon.com (NASDAQ: AMZN) has virtually destroyed two of the three businesses on my Rip Van Winkle nightmare stocks, Best Buy and Barnes & Noble. The P/E is the big issue in this name over 3,000 but the forward P/E drops to 145. Too rich for my blood, you say but Amazon just debuted a new service called Kindle Free Time Unlimited which offers content for kids that are ad free and feature popular games and shows for $2.99 a month. A new generation will be growing up with Kindle and brand loyalty is best imprinted while they're young as well as familiarity.
Other areas where Amazon will enjoy future success is proved by the yearly National Retail Federation numbers which are raised every year for e-commerce purchases during the holiday season. Amazon has absolutely anything a person could need available somewhere on their site. Agoraphobics, rejoice! They are also ramping up streaming video with the Prime service and are originating content themselves.
Then they have the cloud and in an earlier post their Web Services division which has only been up and running for 7 years has the possibility of being Amazon's biggest money maker, saving corporations, research facilities, universities, and governments millions, if not billions. Yes, they are in a cloud storage pricing war with Google (NASDAQ: GOOG), but Amazon was a first mover in cloud and also has a retail experience advantage.
As much as I admire Apple, Amazon has been really thinking outside the box as it's morphed from a small online bookseller to the $115 billion market cap tech titan it is today. Analysts see 35.36% growth per annum for the next five years. It is a volatile name and value investors aren't having any of it, but in 20 years I think they may be sorry.
No, it's not GE but it is electric and the most speculative of these Rip Van Winkle stocks. Tesla Motors (NASDAQ: TSLA) expects to have 20,000 cars out and about by year end 2013. Tesla, which makes electric cars and electric powertrain components, is almost ten years old now. It still has a negative EPS of -$3.69 with a forward P/E of 210.69. And the negative percentages for profit margins and return on equity are in triple digits. The short interest stands at 59.50%. Why would anyone want to buy and hold this name?
Analysts expect 105.20% in growth next year. It does have institutional proponents with FMR LLC owning a 14.86% stake worth almost $500 million. Even a fairly conservative financial services organization like TIAA-CREF owns $63 million worth of Tesla.
Then, there is the backstory of founder and CEO Elon Musk who founded and then sold PayPal, but always wanted to create this company. Just lately, the Tesla Model S was named 2013 Car of the Year by Automobile Magazine and Motor Trend. The Tesla Model S is finally a practical driving alternative, able to run 265 miles on a single charge. A cheaper iteration can go some 160 miles and costs 20K less.
Just on Dec. 5 an Auto Week reporter had a faulty charger in his press car, the Model S, and techs flew out to fix it. Will Tesla be able to create a reputation for customer service like Lexus did in its early days? As Warren Buffett says," It takes 20 years to build a reputation. It takes five minutes to ruin it." They have the opportunity here to build an enduring franchise.. let's hope they don't blow it.
The Final Takeaway
Three names here have to power to let Rip sleep easy over the next 20 years. Just ease into these generational game changers, especially Tesla. Sleep tight and don't let the bed bugs bite.
leglamp has no positions in the stocks mentioned above. The Motley Fool owns shares of Amazon.com, Google, and Tesla Motors. Motley Fool newsletter services recommend Amazon.com, Google, and Tesla Motors . 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!