Today I want to talk about self-driving cars, how close they are to going mainstream, and how to play that revolution with one of the best buy and hold stocks in driver assistance technology. But first, I want to tell you about a recent family trip… (You can jump straight to the autonomous car part here, if you like.)
In the week following the Cabot Investor Conference (which you really should attend next year), I took a week off to relax with some extended family members in the little port of Friendship, Maine, located roughly halfway between Portland and Bar Harbor.
The first time I was in Friendship, I was 17 years old, and just passing through with my cousin Craig on his 13-foot Boston Whaler on a crazy trip from Lubec, Maine to Salem, Massachusetts. That’s a distance of 226 nautical miles—quite an adventure for two boys in a small boat!
But I hadn’t been back to Friendship since and the reason is simple. Friendship is at the end of a peninsula, 10 miles south from Route 1, the road that people take to go down east. (Even though northeast on a map is generally “up,” it’s called “down” because it’s typically downwind for sailors).
Furthermore, Friendship is not a vacation destination. It has only one small inn. It has no facilities for pleasure boaters. And it has no restaurants, not even a bar.
In fact, the only retail establishment in the entire town of 1,152 souls is a general store—which also sells gas.
But Friendship does have a small number of seasonal cottages that for a few months of the year are occupied by their owners—or guests like us.
And it was in one of these that we stayed, with slow cellphone service, no TV and no wifi, but a view that looked like this at dawn.
If you look carefully at the picture above, you’ll note that there are a lot of dinghies out there tied to moorings, as their owners are out in their boats catching lobsters.
It’s these lobstermen that constitute the main industry of Friendship.
And even though it feels inaccurate to call a bunch of independent boat operators an industry, these lobstermen do work industriously, setting out in their boats before dawn, when the sea is typically calmest, and returning by early afternoon, so their lobsters can be offloaded before the truck comes that takes them away—to restaurants, local markets and, above all, the distributors who fly them to distant cities, both in the U.S. and internationally.
Fun facts: Lobster exports to China have more than tripled since 2012. It’s illegal to catch lobster on Sunday in Maine, though it’s okay to bait traps. And the lobster population is shifting slowly toward Canada in response to climate change.
Naturally, we enjoyed a very fresh home-cooked lobster dinner in Friendship, featuring lobsters bought right at the dock. In fact, we ate well every day, thanks to my brother-in-law, who’s a great cook.
We also swam in the ocean every day, enjoyed spotting bald eagles and ospreys and seals, played Pictionary and Mahjongg and read a lot of books, but no newspapers.
In general, the week was relaxing and restorative, just as planned.
But as with any vacation, there were some unplanned highlights.
On the third day, flies invaded the house. After that, we kept the doors closed.
On the fourth day, the well ran dry, a casualty of this summer’s drought and the liberal use of water by six people. To cope, we employed a variety of water-conserving measures: drinking bottled water, washing dishes ultra-efficiently, and filling the toilets with salt water carried from the ocean—which is a great way to understand what 1.6 gallons truly is.
On the fifth day, the Bombay Sapphire Gin ran out. Luckily there was Beefeater as backup.
On the sixth day, the rye whiskey ran out. Luckily there was bourbon as backup.
On the seventh day, I went to the Friendship Museum to get a taste of the town’s history, particularly the evolution of the famous Friendship Sloop, originally used for lobstering but now prized as a classic by pleasure boaters.
The small, one-room Friendship Museum is open from 1:00 to 4:00 until Labor Day, when hours are reduced. I arrived at 3:30, and was the first visitor of the day.
And on our last night, as the moon rose over the trees on Friendship Island to the east, the only sound was the lapping of the waves on the rocks of the shore.
Then, somewhere behind us to the west, a fireworks display began, and while we couldn’t see the fireworks, the night was so utterly still that the echoes from the fireworks could be heard for several seconds bouncing and rolling off the shore of Friendship Island as it stretched into the distance.
All in all, it was the perfect end to a nearly perfect week (the inconvenience of the water troubles had already faded). So, as much as I prefer to travel to new destinations, I’m already hoping to return to Friendship next year!
Two weeks ago in this space, I wrote about self-driving cars—in particular the idea that self-driving cars are widely expected to be available soon.
I am gung-ho on the idea; I love the prospect of dramatically reducing the number of lives lost to vehicle accidents. But as a card-carrying contrarian, I am uncomfortable seeing such a strong consensus. It makes me fear that the majority, once again, is likely to be wrong.
So I asked my readers to take a survey, guessing when the following features would be available—not in Silicon Valley but in Wisconsin, or Iowa or Arkansas.
1. You can get in your own car, say, “Take me to work.” And then proceed to get some work done—or update your Facebook page—while the car drives you there.
The average guess was in 2028, with the soonest being 2021 (the five years that Ford Motors is promising) and the latest being 2040.
2. You can get in your own car that evening, after a night on the town (even drunk as a skunk), and say, “Take me home.”
The average guess was in 2030, with the soonest being 2021 and the latest being 2040.
3. You can summon an autonomous vehicle in an Uber fleet using an app on your smartphone, and have it take you to your destination without dealing with a single human being.
The average guess was in 2031, with the soonest being 2022 and the latest being 2040.
4. You can sit at home and let your car go out and make money for you all by itself—call it auto-Uber.
The average guess was in 2031 with the soonest being 2022 and the latest being 2041.
“Technically it could be done in less than five years but safety rules and regulations of all sorts will delay operationalization of all four capabilities listed until 2035.”
“Not-Going-To-Happen unless Amazon (AMZN) can really deliver my package to my front door by using their self flying drones.”
“Hope the software understands slurred speech.”
“HOPEFULLY NEVER. My daughter is a lawyer specializing in insurance defense law. What a perfect scenario for all the rip-off artists out there. I foresee a tsunami of lawsuits from malfunctions, which of course can’t be avoided (even aircraft malfunction) and from human stupidity, like the Tesla idiot driver who obviously paid no attention to the instructions . . . which said he needed to keep paying attention. It all sounds like a scenario from a horror movie. Remember Stephen King’s whatsername car?”
“Sooner when car thieves figure out how to override the app’s controls.”
“Please put this printed email on the side of your refrigerator. When I win, send me your refrigerator.”
There you have it. The averages are now stuck on our refrigerator, and we’ll see how it goes!
In the meantime, when it comes to investing in the technology behind self-driving cars, there is one stock that stands head-and-shoulders above the rest, fundamentally, if not technically. Despite an underwhelming chart, I think it’s the best buy and hold stock in the industry.
Mobileye (MBLY), based in Israel, is the leading provider of driver-assistance software for vehicles. Its chips and algorithms have been integrated into new car models since 2007, providing features like forward collision warning, forward collision avoidance (when integrated with braking), lane centering and lane departure warning, pedestrian detection, general object detection and traffic sign detection.
Mobileye’s unique capability in the field is that its algorithms are all based on the inputs from a single monocular camera, a feature that makes the systems less complex and more affordable.
As a result, the company’s systems are already standard on over 20 auto brands worldwide, and Mobileye is now partnering with giants Intel and Delphi to enable a fully autonomous car that can be sold to consumers by 2021.
There have been a few bumps along the way, of course; the Tesla that was involved in a fatal collision with a semi in May had Mobileye technology on board, and Tesla Motors (TSLA) has now parted company with Mobileye. But Tesla, which is now refining its own proprietary systems, accounted for only a small portion of Mobileye’s revenue, so it’s no big loss.
In fact, Mobileye is growing rapidly! The company enjoyed 68% revenue growth in 2015, 65% in Q1 2016, and 58% in Q2 2016, with after-tax profit margins of nearly 50%. Earnings growth is estimated at 48% in 2016 and 49% in 2017. And if Mobileye truly becomes the dominant provider of autonomous vehicle software, there’s no telling how big this company could be!
The stock’s P/E ratio, for those who care about such things, is now 77, which actually seems reasonable considering the company’s rate of growth and its high probability.
But as I hinted earlier, the stock has a ways to go technically.
Since coming public two years ago, the stock has been up and down and up and down and now we’re in another up cycle. Last week the stock hit a new high for the year.
But the stock’s old highs of 2014 and 2015 still stand, meaning the long-term trend of MBLY is basically sideways.
Additionally, while the stock’s relative performance line has been strong for most of this year, the more recent action shows the stock lagging the market slightly, suggesting that the stock may be cooling off (short-term) as public perception of self-driving cars reaches a fever peak.
In the end, the chart will tell the story, and I urge you to keep an eye on it. I think it’s the best buy and hold stock in driver assistance technology, and a great way to play the self-driving car revolution.
Even better, become a regular reader of Mike Cintolo’s Cabot Top Ten Trader. Mike recommended MBLY to his readers a couple of weeks ago—with suggested buy range and loss limits—and if you become a regular reader you can get the same, for 10 high-potential stocks every week.