Meet George Jetson: The Best Stock for the Self-Driving Car Boom
For decades, science fiction has whetted our appetites for vehicles that don’t need human drivers and transcend conventional boundaries. The future is approaching faster than most analysts expected.
Research consultancy IHS Automotive projects that 21 million self-driving cars will be plying the roads worldwide by 2035. IHS also estimates that global autonomous car production will reach 600,000 units by 2025, at which point production will grow at a compound annual growth rate of 43% for the following 10 years. Goldman Sachs (NYSE: GS) estimates that the autonomous driving systems market is on track to generate $290 billion in revenue by 2035, up from $3 billion in 2015.
The available technology for autonomous cars is starting to match our imaginations and even lawmakers are catching up. So far, legislation has been passed in four U.S. states and Washington, D.C. allowing driverless cars. Soon you’ll be able to text-and-drive to your heart’s content.
Below, I pinpoint an alternative way to profit from the self-driving car boom. It’s not a company that gets much attention from the pompous blowhards on CNBC, who tend to focus on the overvalued Silicon Valley titans and neglect the smaller suppliers that toil in relative obscurity.
Fast lane to the future…
First, let’s tap the level-headed wisdom of Linda McDonough, chief investment strategist of Profit Catalyst Alert.
Linda has 30 years’ experience with hedge funds and as such, she’s no wild-eyed techno-enthusiast. She applies cold logic to every potential investment and she’s excited by the moneymaking opportunities of self-driving cars. As Linda puts it:
“A revolution is taking place in our four wheeled homes. Advances in the speed and intelligence inhabiting ever shrinking chips have helped fuel this sea change. Tiny chips are replacing metal widgets to replicate their function with improved efficiency and lower weight.
LMC Automotive notes that as many as 80 to 100 microcontrollers are included in every car to support advanced features. Recent regulatory changes by the National Highway Traffic and Safety Administration will supply another wave of demand to fuel the geometric growth in this industry.”
Now, you might think you’ve already missed out on the big investment gains from self-driving cars, but you need to look beyond the obvious Wall Street darlings. The best-known play on self-driving cars is Alphabet’s (NSDQ: GOOGL) Google, which is developing an autonomous car that’s electric-powered. The software guiding these self-driving cars is called Google Chauffeur and it processes all of the functions typically handled by human drivers.
Dubbed Waymo, the Google self-driving car doesn’t need the passenger to perform any task except start it and input the destination. You won’t find any steering wheel or pedals, only an emergency brake. The dashboard provides situational awareness that’s created via sensors, cameras and radar.
Sounds pretty cool. Problem is, Alphabet is a technology behemoth (market cap: $643.7 billion) engaged in diverse activities. Another ostensible play is Intel (NSDQ: INTC), which in March announced that it would purchase Mobileye (NYSE: MBLY) for $15.3 billion. Mobileye develops computer vision and machine learning-based sensing solutions. However, acquirer Intel is a vast semiconductor manufacturer (market cap: $158.4 billion) with fingers in many different pies.
With a market cap of $81.7 billion, chipmaker Qualcomm (NSDQ: QCOM) also gets a lot of attention as a self-driving car stock, especially after it announced last October that it would pay $47 billion for NXP Semiconductors (NSDQ: NXPI), a company that designs and manufactures technology for advanced driver assistance systems.
Baby, you can drive this stock…
When technology breakthroughs come along, I prefer to look for unorthodox plays that offer outsized room for growth because they’re smaller, less known and reasonably valued. Which brings me to Delphi Automotive (NYSE: DLPH).
Surprised? It’s true, none of the talking heads on TV mention Delphi and smart cars in the same breath, but that’s why the stock interests me.
With a market cap of $23.1 billion, UK-based Delphi manufactures vehicle components, such as electrical and electronic, powertrain, and safety technology, for automotive and commercial vehicle OEMs worldwide. The company also serves the booming aftermarket.
Delphi is strategically vital to the vast global automobile and truck manufacturing industry, but it gets mostly ignored by Wall Street. And that’s a good thing.
Although the U.S. economy is overdue for a downturn, certain sectors should sustain their positive momentum in 2017. Notably, auto and truck sales have been robust and should stay that way in coming months.
Delphi also is making little-noticed inroads in smart cars. In May, Delphi joined with BMW (OTC: BMWYY), Intel and Mobileye in a partnership to develop the building blocks of autonomous vehicles. I think Delphi is a smarter play on smart cars than the major vehicle OEMs and technology giants, because its diverse client base encompasses a wide range of automakers around the world.
DLPH’s trailing 12-month price-to-earnings ratio (P/E) is 20.1, compared to the trailing P/E of 20.3 for the auto parts industry. DLPH represents a reasonably priced stock in a dangerously overvalued broader market.
The average analyst expectation is that Delphi’s year-over-year earnings growth will reach 4.4% in the current quarter, 4% next quarter, 5.4% in the current year, and 8.9% next year. My own calculations show that Delphi should rack up five-year earnings growth of nearly 13%, on an annualized basis.
Any questions or comments? Drop me a line: firstname.lastname@example.org — John Persinos
The road to wealth…
As you can see, Delphi provides a superb alternative way to play the autonomous vehicle bonanza. But there’s more than one road to wealth.
How would you like a way to make reliable profits, week after week, without having to worry about market ups and downs or economic cycles?
Turn to Jim Fink, chief investment strategist of Options for Income.
Jim has created a proprietary method for making profits that’s powerful yet simple. Think of Jim’s trading system as a “profit calendar.”
This calendar allows you to actually schedule, to the day, gains like $1,100… $1,550… and $2,300. Every single week.
Payouts can range in value from $1,150 to $2,800, but generally average out to $1,692.50. Unlike “buy and hold” strategies most people use, Jim’s approach is virtually immune to what the overall stock market is doing over long stretches.