Monday Mailbag: Air Medical, Wearable Devices, India… and More
Typically every week, I weed out the letters that are political screeds. It seems that truth and accuracy are no obstacles to opinion.
When necessary, of course, I cover legislative action and public policy as they affect your investments. But it’s not our job to trumpet one ideology or viewpoint over another. Job One is to make you money.
When surveying the daily news flow, I always try to remember the wise dictum of the journalist, social critic and all-around curmudgeon H.L. Mencken: “The only way a reporter should look at a politician is down.”
So with those parameters in mind, if you have a question or comment pertaining to investments, I’m easy to reach. Just send me an email: email@example.com.
Now, let’s turn to this week’s mailbag for the latest batch of reader letters.
Vertical earnings growth…
Helicopters and health sector stocks: what could they possibly have in common? Plenty, as this March 23 email from a reader makes clear:
“There seems to be rising demand for air ambulances, a trend that should continue no matter what happens with Obamacare or Trumpcare. Are there any investment opportunities in this fast-growing field? What’s the best air ambulance company?” — Richard A.
Richard, I was inspired to dust off this photo after getting your email. That’s me in the cockpit, getting ready to fly a turbine-powered Schweitzer 330 helicopter. I have direct experience with the many civilian applications of rotorcraft.
From my knowledge of helicopter operators and equity investing, my view is that the best-of-breed air ambulance company is Air Methods (NSDQ: AIRM).
Growing demand from hospitals, bullish expectations on earnings growth, and increasing market dominance are tailwinds for AIRM this year and beyond.
With a market cap of $1.56 billion, Air Methods is the world’s largest emergency medical services (EMS) provider, with over 450 helicopters and fixed-wing aircraft. Airborne EMS doesn’t get a lot of attention from financial pundits, but it’s a booming industry that will only get larger, regardless of what transpires in Congress right now with health care legislation.
Many EMS operators are governmental agencies, especially in Canada and Europe. But for-profit EMS dominates in the U.S., and without question the king of U.S.-based EMS is Air Methods, which operates 300 bases scattered across 48 states. Headquartered in Englewood, Colorado, the company has extended its reach across the country.
Over the years, Air Methods has gobbled up competitors like Pac-Man, making it the most powerful force in EMS consolidation in the U.S.
Every year, Air Methods’ fleet of 400-plus rotary and fixed-wing aircraft flies more than 106,000 missions, for about 140,000 total flight hours. It typically transports about 100,000 patients a year. Supporting these aircraft are 3,150 employees nationwide, including pilots, medical personnel, mechanics, flight controllers, and administrative staff.
Based on revenue, Air Methods today commands a whopping 30% of the U.S. market for EMS transportation services. To sustain its steady annual growth, Air Methods has pursued an aggressive strategy of expansion through the acquisition of rival helicopter operators.
Air Methods has quickly absorbed these companies and leveraged their fleets for greater economies of scale. Companies that purchase smaller operators are able to keep a lid on overhead by regularly replacing aging aircraft with state-of-the-art models that require less maintenance, burn less fuel and entail better safety features.
The average analyst expectation is that Air Methods will rack up year-over-year earnings growth of 8.6% in the next quarter, 15.2% in the current year, 12.2% next year, and 17.5% over the next five years on an annualized basis.
Fitbit loses its footing…
Here’s a reader’s harsh assessment of physical fitness device maker Fitbit (NYSE: FIT):
“I knew the company’s long-term viability was a problem when I started noticing my colleagues who work at Fitbit no longer wore Fitbits to work.
It was easy to see; the internal company leaderboard shows everyone and their weekly steps, including all the people with zero steps.
Fitbit stopped handing out trackers like candy and now everyone has to buy a Fitbit. Hence, you see a lot of older models or nothing on their wrists. Ironically, nobody ever says anything about it. I finally understood that the product is just a fad.” — Christopher B.
Chris, you’ve anecdotally confirmed an empirical trend. Regrettably for Fitbit investors, the wearable device niche is getting crowded and the craze for the company’s gadgets is losing its luster.
In the annals of consumer technology fads, a special place belongs to Fitbit, maker of wearable fitness-tracking devices. The San Francisco-based company’s wristbands and clippable devices monitor fitness activity, such as calories burned or distance covered.
Yep, the company’s gadgets have been all the rage. However, just like the Sony (NYSE: SNE) Walkman of the 1980s, I’m betting that Fitbit gadgets will eventually end up as garage sale items.
I don’t doubt that the wearable tech market is a great opportunity for investors. According to the tech consulting firm Gartner, 274.6 million wearable electronic devices were sold worldwide in 2016, representing a year-over-year increase of 18.4% from 232 million units in 2015. Sales of wearable electronic devices will generate revenue of $28.7 billion in 2016. Of that, $11.5 billion will be from smartwatches.
However, as competition from tech giants such as Apple (NSDQ: AAPL) heats up, Fitbit stock is no longer a Wall Street darling. FIT shares have fallen about 25% year to date and face scant prospects of resurrection.
The Jewel in the Crown…
Ivan D. writes: “I am interested in hearing more about your thoughts on investment opportunities in India. I am now a Canadian citizen who was born in India. Would there be a triple tax that I would be required to pay to the Canadian, American and Indian authorities?”
When foreign investors buy stocks or bonds from a company based overseas, any interest, dividends and capital gains are typically subject to the tax laws of their home country. The government of the firm’s country may also take a slice.
Ivan, for your particular situation, consult a tax advisor. To maximize the earnings potential of any overseas investments, you need to understand all of the tax ramifications, which can get complex.
In my March 22 issue entitled Last BRIC Standing: Why It’s Time to Invest in India, I recommended WisdomTree India Earnings ETF (NYSE: EPI) as a play on India’s fast growth.
Here’s a promising individual India-based stock: Infosys (NYSE: INFY), a major holding of EPI.
Infosys provides consulting, technology and outsourcing services in more than 50 countries. The company’s client roster is diverse, encompassing banking, insurance, manufacturing, energy, telecommunications, utilities, retail, consumer goods, and health care.
Infosys is a proxy for the Indian economy, making it one of the most compelling growth opportunities you can find in a global equity market that appears poised for a correction.
The average analyst expectation is that Infosys will rack up year-over-year earnings growth over the next five years of 11.67% on an annualized basis.
Silver’s shining prospects…
I’ve been writing a lot lately about precious metals, which prompted this email from a reader:
“Would a fund be the best way to invest in silver and if so, can you give me a couple of options?” — Vahl J.
Vahl, the iShares Silver Trust ETF (NYSE: SLV) is a benchmark exchange-traded fund that offers the safest and easiest way to profit from the expected rise in silver prices. Year to date, SLV has generated a total return of about 15%. As silver prices continue to climb this year, buying shares of SLV should pay off handsomely.
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