Monday Mailbag: The Navy’s Laser Gun, Teva’s Tumble, Brazil’s Chaos… and More
The often cynical Ernest Hemingway had this to say about letter writing: “It’s such a swell way to keep from working and yet feel you’ve done something.”
Well, I wouldn’t go that far, but I will assert that answering your letters is one of the most enjoyable aspects of my job. Providing informative replies to your queries still constitutes serious work, but it’s also a pleasure.
I’m always eager to discover and share what’s on your minds, so let’s get to it.
The U.S. Navy’s futuristic weapon…
“Which stock will benefit from the U.S. Navy’s new laser gun?” — Walter B.
Cue Dr. Evil’s finger quotes: a “laser” to shoot down enemy aircraft is under development by the U.S. Navy, in conjunction with Kratos Defense & Security Solutions (NSDQ: KTOS). Kratos has a contract to support the U.S. Naval Surface Warfare Center in the building of a shipboard laser gun (aka, Directed Energy and Electric Weapon System).
This powerful, cutting-edge weapon is right out of a sci-fi movie, but I wouldn’t get too excited over Kratos. Although the aerospace/defense sector is thriving, you still need to weigh the individual merits of each company. And you should avoid Kratos.
Kratos is a small-cap stock that’s been getting a lot of attention because it’s in the booming field of drones and communications security. The stock has soared about 45% year to date, as analysts recommend the stock and investors pile in, largely because the investment herd expects President Trump’s defense largesse to lift the company.
However, on closer examination, there are better palaces for you to put your money. As Kratos shows, not all defense stocks are equal.
With a market cap of $924.4 million, Kratos provides safety and security products in the areas of communications and surveillance, for government and commercial customers. The company operates through three segments: Kratos Government Solutions, Unmanned Systems, and Public Safety & Security.
Kratos’ jet-powered drones should be in big demand, as military planners put increasing emphasis on pilot-less aircraft. However, other than the sea-based laser, the company has reported scant contract wins.
The average analyst expectation is that year-over-year earnings growth in the current quarter will come in at -200%. That’s hardly encouraging.
If you’re looking for a solid play on aerospace/defense technology, see my June 2 issue on drone maker AeroVironment (NSDQ: AVAV).
Brazil’s slide into chaos…
“Your recent article about the Brazilian fund BZQ interested me. As this is my first exposure to your service I have a question: Will you give me notice of when to sell, so as to receive maximum benefit from this stock purchase?” — Philip K.
Philip is referring to my May 26 issue, Make a Quick Killing From Brazil’s Epic Folly, in which I recommend the ProShares UltraShort MSCI Brazil Capped (NYSE: BZQ), an inverse exchange-traded fund (ETF) that seeks daily investment results that correspond to two times the inverse of the daily performance of the MSCI Brazil 25/50 Index.
Trying to precisely time the markets is typically a foolhardy endeavor, but yes, I will continue to follow Brazil’s political disintegration and indicate when it might be a good time to exit any position in BZQ.
On a related note, this reader asks:
“Do you believe that the overall days of corruption in Brazil are over? PBR was a serious cause of loss. Do you believe that, especially with the price of oil rising, PBR will recover in the near future?” — Zuni E.
Quite frankly, corruption is so entrenched in Brazil that I doubt we’ll see it rooted out in my lifetime. Brazil’s countrywide fundamentals continue to augur for short positions in national large-cap stocks, especially indebted and scandal-plagued oil giant Petroleo Brasileiro SA Petrobras (NYSE: PBR), which still faces significant downside risk, despite rising oil prices.
As the daily headlines attest, many of Brazil’s political and financial skeletons (in the closet) are yet to be exposed. Outraged citizens are taking to the streets in violent protest, with no end in sight.
“Please comment on TEVA and its future. It was doing well not long ago and then it has continually decreased.” — Lucille L.
With a market cap of $29.6 billion, Israel-based Teva Pharmaceutical Industries (NYSE: TEVA) is the world’s biggest manufacturer and marketer of generic drugs.
Once a high-flier, the company has seen better days. Year to date, the stock is down about 20%, although it recently has ticked back up as investors start to realize that this inherently strong stock has been unfairly punished.
Teva owns a global patent portfolio of more than 1,000 molecules. The company’s biggest selling products include Copaxone for the treatment of multiple sclerosis; Provigil and Nuvigil for narcolepsy and other sleep disorders; and Azilect for Parkinson’s disease.
Teva’s proven ability to produce new and successful drugs for a vast customer base prompts analysts to estimate earnings growth of nearly 5% over the next five years on an annualized basis, compared to 0.19% for the generic drug industry.
Federal investigations into generic drug price fixing and political rhetoric about high prices are weighing on drug maker stocks, including Teva. But I think the white noise will eventually pass and Teva should resume its winning ways. Now may be a good time to scoop up shares, while they trade at a bargain.
Virtual reality: looking for real profits…
I’ve received lots of mail about my recent analysis of the virtual, augmented and mixed reality (VR/AR/MR) industry:
“You forgot to mention Spectra7 Microsystems (TSE: SEV), which supplies all the VR/AR/MR tethered headset manufacturers with the interconnect technology.” — Eric O.
And on the same topic:
“Loved your VR/AR/MR article. I like what you are doing with your newsletter.” — Thomas D.
These readers are referring to my May 25 issue, Welcome to The Matrix: VR/AR/MR Has Reached The Tipping Point, in which I recommended smart glasses maker Vuzix (NSDQ: VUZI) and semiconductor manufacturer Himax Technologies (NSDQ: HIMX). The latter stock is a member of the Personal Finance Growth Portfolio.
Eric, I didn’t “forget” Spectra7 Microsystems. But the fact is, the company has a tiny market cap of only $66 million and it trades as a penny stock. I typically avoid this particularly volatile breed of investment, unless the potential is extraordinary and the risks within reason. I appreciate your feedback, though.
Got any questions or comments? Drop me a line: email@example.com. I reserve the right to edit any letter for the sake of concision and/or clarity. — John Persinos
The Rapid Profits Matrix
I now turn your attention to a different kind of matrix…
Jim Pearce, chief investment strategist of our flagship publication Personal Finance, recently put his team to work testing a system called Rapid Profits Matrix. After crunching the numbers, they discovered that this trading system has outperformed buy and hold up to 4.9 times in direct competition.
Rapid Profits Matrix is an algorithmic trading system that generates outsized returns without day trading or complicated options. For more than 10 years, the system has averaged at least 12 triple-digit annualized returns each year.
Jim has put together a brief demonstration on how it works. For the full details click here.