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Smart Car Trio
06/01/2016 9:00 am EST
We recently initiated coverage of autonomous (self-driving) vehicles, based on the belief that acceptance of this technology would occur at a faster pace than projected by most analyst, states Jim Pearce, editor of Breakthrough Tech Profits.
Industry experts predict money spent on this type of technology will swell from current levels of $29 billion to $105 billion over the next five years.
We don’t expect the “Smart Car” stocks in our Special Situations portfolio to move up in a straight line; the road to long-term gains will be bumpy, with many twists and turns along the way.
We have chosen three companies that we believe, taken as a group, represent a smart play on the autonomous vehicle revolution already underway.
NXP Semiconductor (NXPI), which manufacturers the integrated circuitry that is the “brains” of an autonomous vehicle system, released first quarter results in April that included a 50% increase in revenue versus the same period in 2015.
However, the company reported a decline in earnings per share due to costs associated with acquiring Freescale Semiconductor, coming in at $1.14 a share compared to $1.35 last year.
Forward guidance provided by the company included a 10% – 15% jump in earnings for the next quarter as a result of the merger.
Given overall weakness in the semiconductor sector we don’t expect to see significant appreciation in NXP’s share price until the second half of this year, so we recommend buying NXPI up to $97.
High resolution camera manufacturer Mobileye (MBLY) released its quarterly results in May 5th, highlighted by a jump in first quarter revenue from $46 million in 2015 to $75 million this year.
Profitability more than doubled compared to the same period last year, with GAAP Net Income increasing from 4 cents per share to 9 cents.
Mobileye’s share price is about where it was after its IPO nearly two years ago, after peaking above $64 last August. But now that it has established a floor around $35, we feel comfortable owning the stock at current levels. Buy MBLY up to $42.
Cloud provider Covisint (COVS) is the riskiest of our three picks given its very small size (market cap of $62 million), but also offers the highest potential return given its very low share price and strong balance sheet.
The company carries no long-term debt, and is currently trading at less than its book value of $1.75 per share (of which, $0.93 is cash per share).
The company gets very little media attention at all, with only two analysts providing coverage. The company is scheduled to release its next quarterly and full fiscal year earnings report on June 6th.
Considering that its cloud service platform serves two of the biggest projected growth markets over the next decade, the IoT (Internet of things) and autonomous vehicles, it is surprising to see so little attention paid to it.
By Jim Pearce, Editor of Breakthrough Tech Profits
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