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Two Good Buys in Tech and Energy

06/24/2009 1:00 pm EST


Mark Skousen

Editor, Forecasts & Strategies, High-Income Alert

Mark Skousen, editor of High Income and Turnaround Trader, finds one attractive technology stock and one natural gas play, both cheap and paying big dividends.

Garmin (Nasdaq: GRMN) is the world’s second largest maker of GPS systems (next to Dutch company TomTom). But unlike TomTom, Garmin is booking 19% on its sales, while TomTom is booking losses.  
Garmin, with headquarters in the Cayman Islands, is a highly innovative company, offering navigational systems for automobiles, boats, aircraft, and smart phones. It also offers fitness devices.

For example, keeping track of your indoor workouts can be a lot easier, thanks to new wireless gear form—the Garman fitness watch that communicates directly with compatible equipment, such as rowing machines, bikes, and treadmills. The watch gathers data about heart rate, calories burned, and (when used with an optional foot device) speed and distance. Amazing!  

Granted, it’s been a tough business for communications systems during the financial crisis. Garmin’s revenues are down 34% to $3.3 billion, and earnings are off a whopping 67% to $633 million. Not surprisingly, the stock has fallen from $100 a share in late 2007 to around $22 a share today.  
Today, Garmin is selling for a bargain price of only seven times earnings. With profit margins exceeding 19%, no debt, and nearly $1 billion in cash, it looks like a good entry point.  
I also see some insider buying for Garmin. Let’s join them, and buy Garmin at market today and set a protective stop of $19 a share. For those willing to be more aggressive, consider picking up some October $35 calls, symbol GQRJG. They’re cheap (about 18 cents Tuesday—Editor).

Now, here’s a new commodity recommendation. How would you like to buy a company that offers a high dividend yield (6%), a low payout ratio of 58%, and positive free cash flow—all the criteria you need to know that it will continue to pay a solid, high dividend?  
That’s what Spectra Energy (NYSE: SE), the Houston-based natural gas distributor, enjoys, at a time when natural gas prices are near their all-time lows. Two years ago, gas was selling for more than $10 per MMBtu. Now it’s around $4. When demand returns, watch out—the price will recover sharply and so will Spectra Energy.
Spectra Energy hasn’t been hurt that much by the drop in gas prices. Revenues are down 13% to $4.8 billion, and earnings are down by 18% to $1.1 billion. But Spectra still enjoys a 21% profit margin and is selling for less than ten times earnings. Spectra has a rising dividend policy, and its current 25-cent a quarter dividend is secure.
Let’s buy Spectra Energy at market today and set a protective stop of $14 here. (It closed above $16 Tuesday—Editor.) For those more adventuresome, consider buying the September $17.50 calls, symbol SEIW.

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