Can Baby Say Tata?

04/25/2012 2:23 pm EST


Igor Greenwald

Chief Investment Strategist, MLP Profits

If you’re going to saddle a newborn with stock, at least give her one she can pronounce, writes senior editor Igor Greenwald.

Does anyone give stock to newborns anymore? I confess to have completely overlooked this question until a forward-thinking content partner began soliciting suggestions for such eccentrics.

So: stocks for newborns. I imagine they go into the same storage bin with sharp knives, lead-painted Chinese toys, and options on Florida swampland. After a gut-wrenching decade that was as likely to leave investors broke as to make them rich, you’d think a nice bodysuit from Carter’s (CRI) would be a more sensible present.

But zany souls who wish to expose unsuspecting innocents to their faith in equities must exist, because there’s a site catering to such impulses. Of course, the stock certificate and the frame are likely to exceed the cost of a share of stock, but in this case it’s obviously the thought that counts.

And as a thought experiment, the question is kind of fun. We’ve all grown so used to trading the market’s ups and downs that the old buy-and-hold discipline is definitively dead, replaced by focus on short-term performance and momentum. Computers do most of the trading, and their holding period is measured in microseconds.

Selecting stock for a newborn forces us to try to think decades ahead, an exercise seldom attempted these days in all the confusion about tomorrow. But speculation about the long term does force us to look for the biggest and most persistent trends. And that seems like a useful reality check in an age of flash crashes and fixation on year-to-date performance.

The first question a potential corrupter of youth must address is obvious: why not give Apple (AAPL)? Last night’s earnings report unequivocally answered all the recent handwringing about how long the company can keep winning over new customers. It turns out China is a really big place with a really big hankering for the latest luxury iGizmo that’s not so secret any more, and yet is so very far from being satisfied.

And if we were looking for a stock with a good chance of rising 25% in next year or two, Apple remains an excellent candidate in my mind. But the point of the exercise is to figure out what might inspire a young woman in, say, 2033.

And the notion of today’s world-beater remaining inspirational two decades from now goes against everything we know about the pace of change, especially in the technology industry, as well as the law of large numbers.

Fifteen years ago, Apple was on the brink of extinction, a fate it avoided with help from Microsoft (MSFT). Fifteen years from now, Apple will be fortunate to have transitioned to what Microsoft is today: a mature yet still dominant technology supplier with a decent yield, some growth prospects and a stock that hasn’t cost long-term investors too much money. That’s not so bad, but hardly inspirational.

Two colleagues of mine had better ideas. Kate Stalter nominated a stock that is itself a newborn, Annie's (BNNY), a supplier of healthy packaged foods. Interest in eating healthier definitely seems like a long-term trend, and Annie's certainly has a lot of growth ahead of it.

My editor, Mike McMeans, proposed Stratasys (SSYS), one of the leading players in the fast-growing and hugely promising field of 3D printing. This is replicator technology in its salad days.

He calls Stratasys the next Apple, and my confidence in this recommendation isn’t ironclad only because he adds “like, 70s Apple, not delusion-phase Apple.” In any case, Stratasys seems like it’s far from its delusion phase, though with a trailing price-to-earnings ratio of 53, it’s obviously not without risk.

My own pick for a stock to buy and forget is Tata Motors (TTM), whose inspiring recent past I reviewed here. In the two months since, the stock has rolled to fresh highs, propelled by booming auto sales in India and the growing success of its luxury Range Rover and Jaguar brands in the US, China, and Russia.

It’s a virtual certainty that the Chinese and Indians will need hundreds of millions (a billion?) extra cars as they get richer, and Tata’s low-cost Nano model demonstrates it knows what those emerging markets really prize in a vehicle, and what they can dispense with for the time being.

At the same time, the company’s overhaul of Range Rover and Jaguar, which seemed to be beyond repair previously, showcases operational expertise that, frankly, none of its Western competitors can match.

Tata’s place within Tata Group, a conglomerate run by an extended Indian family, encourages a long-term focus so plainly missing at many US companies managed by extremely well-paid mercenaries. Revenue grew 43% in the most recent quarter, and there’s no telling how much higher it might go should Tata aggressively push its lower-cost cars in the US.

This goodness is on sale for just ten times trailing earnings. Plus, Tata rolls off a young tongue. Try teaching a newborn to say Stratasys.

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