With the new year quickly approaching I’ve decided to look at an area that I haven’t spent much time writing about; speculative stock ideas. My own ideas on the topic of speculative investing mirror those of famous hedge fund manager and TV personality Jim Cramer. This theory implies that you should hold no more than 10% of your overall assets in speculative material.
Speculative stocks give your portfolio an amount of excitement. They provide the possibility of outstanding returns while increasing the risk level of your holdings. The make up a valuable section of your portfolio and will keep you interest focused on your stock choices. Speculating on stocks is fun, but we need to remember to keep it within reason.
Overview: Based in Monrovia, Calif., AeroVironment designs, tests, and manufactures diversified technological products. These include small, unmanned, remote-control military aircraft and rapid battery-charging stations, though the company's pipeline features many other potential future products. The firm has also been tapped to design and install the in-home charging stations for the upcoming Nissan LEAF automobile.
- Price/ Cash Flow = 15.2
- Price to Earnings (F-TTM) = 19.7
- Debt to Equity vs. Industry Avg. = 0 – 2.9
- Revenue Growth (3 Year Avg.) = 10.2%
- Market Cap = 707.3 Million
- Industry =Aerospace and Defense
Opinion: The United States is in the midst of a huge fiscal crisis. Our countries budjet deficit is out of control and needs to be reined in. One of the major areas in the crosshairs is defense spending. This is where AeroViornment has a distinct advantage. The company is the leading provider of drones to the US government. This is the future of the military as drone growth is only projected to grow. AVAV is well positioned to take advantage of this evolving market. Their products are cost effective and highly successful. The stock is still pretty expensive at a forward multiple of 19.7, however, it no debt and strong revenue growth. I think that AVAV is could be an interesting and effective way to play the evolving defense sector.
Overview: Sirius merged with XM Satellite Radio in July 2008 after a lengthy regulatory review. The company provides a subscription-based digital radio service whose broadcast signals originate from orbiting satellites. Its primary means of distributing satellite radios is through the sale and lease of new vehicles. Sirius has agreements to offer its hardware with every major automaker as factory or dealer-installed equipment.
- Price/ Cash Flow = 20.8
- Price to Earnings (F-TTM) = 25.2
- Debt to Equity vs. Industry Avg. = 4.4
- Revenue Growth (3 Year Avg.) = 45.1%
- Market Cap = 6.6 Billion
- Industry =Broadcasting -Radio
Opinion: It would be hard for you to find a more polarizing stock than SIRI. In recent years Sirius has been on a roller-coaster ride. It bottomed at $0.10 in February of 2009 and peaked in the summer of 2011 at $2.44 before falling back below the $2 mark. There are a large amount of short sellers who bet against Sirius stock which also leads to the amount the large volatility. From a price to earning perspective Sirius still looks expensive. The trailing P/E multiple is 42 while the forward looking metric is down near 25. However, I honestly believe in the product that Sirius is offering; a premium radio service with unmatched content quality. One positive piece of news for Sirius is the improving automotive sales. As many followers of Sirius know this is a very important number to watch. 2012 could be a great year for Sirius.
Ford Motor (F)
Overview: Ford Motor Company manufactures automobiles under its Ford and Lincoln brands. The company has about 17% market share in the United States and about 8.5% share in Europe. Ford, Lincoln, and Mercury brand sales in North America and Europe made up 54% and 25% of 2010 auto revenue, respectively. The company also owns 3.5% of Mazda. Ford has about 166,000 employees and is based in Dearborn, Mich.
- Price/ Cash Flow = 3.8
- Price to Earnings (F-TTM) = 6.4
- Debt to Equity vs. Industry Avg. = 15.9
- Revenue Growth (3 Year Avg.) = -9.2%
- Market Cap = 39 Billion
- Sector =Automotive
Opinion: Ford is one of the most perplexing stocks in the market. Year to date the price of the stock has dropped by 40%. However, at this point I see Ford as a strong buy do to an upward surge in its earnings, positive free cash flow, a reinstatement of its dividend and low valuation metrics. One thing to watch out for is the possible retirement of the CEO who turned Ford around; Alan Mulally. I am sure that Ford is currently looking for a replacement, as it was announced that Mulally will be stepping down at some point during the next 2 years.
The strain that the European crisis is putting on the global economy has also beaten up Ford’s share price this year. Ford is not a traditionally speculative stock. It has a large market cap as well as a long and storied history. If the United States economic picture can continue to strengthen and we can get some sort of resolution on the European crisis, I am of the opinion that Ford share price could start accurately representing the underlying value of the company.