An article today, over at MSN’s Top Stocks Blog, claiming to reflect a Buffet-like stock picking model, suggests Garmin (ticker: GRMN) as a strong buy. I had actually been considering an article on Garmin for awhile, so I thought now would be a good time to discuss.
I have not had a chance to do thorough financial research on Garmin, so I can’t fully recommend it. I have not done the research to find out of it is doing anything funny in its financial statements, or if its leadership seems open, honest, and capable. With that caveat, my sense is that Garmin is likely a smart buy.
Financials
I will not go through all of the ratios that I usually do, because the article does a decent job of that. In short, Garmin makes a lot of money, and does so very efficiently. The stock is also valued very cheaply. Why?
The Smart Phone Threat – A Fallacy
Apple’s iPhone, Palm’s Pre, and RIM’s Blackberry are all seen as potential Garmin killers. As a result, investors have panicked from Garmin’s shares expecting its long-term demise. This is a classic example of the market’s extreme short-term stupidity.
The GPS market is growing. There are billions of people who have not yet touched a GPS device or benefited from its substantial society-changing effects. It is true that the smart phone makers stand to profit enormously from this growth, but so does Garmin. Not everyone will get a smart phone, and even if they do, Garmin’s devices are far more powerful than a smart phone GPS. GPS devices are also not just used by regular joe’s. GPS devices are integral to aviation, and all forms of commercial and freight transport. These applications require specialty devices with robust capabilities that Garmin makes.
Garmin stands to benefit enormously over the long-term from this trend, and Garmin is the name in GPS.
Ignore Panicky Idiots
The idiotic punishment of stocks in favor of hot companies is nothing new. Recall 1999 when insurers and other traditional companies lagged and even declined behind dot-com and tech stocks rising to meteoric heights. The old economy was dead, remember? The dot coms tanked the following year, and the traditional companies rallied. This situation is slightly different in that Apple et all are profitable and sustainable companies, but it is the same in that Garmin has been unfairly punished by the markets because of a false threat.
Do your research–I know I plan to–and consider buying Garmin while the market is stupidly planning its never-to-come demise.
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