Thinking big can pay off. High growth companies that grow to dominate a blue-skies space can be immensely profitable. Personally, I’m more likely to invest in a stalwart than a high growth stock; a company with a solid, easy-to-understand business, a growing dividend, been around for at least a few decades, you get the idea. High valuations give me nausea. But reviewing my portfolio, the best gains in the last several years are not from the stalwarts, but instead from a couple high growth companies. If the stalwarts were the keel, these high growers were the sail. They had less solid fundamentals and higher volatility, but their potential was easy to understand. Their annual reports were not sensationalistic, but instead quietly explained why were and would remain leaders in an industry-changing technology. They spelled out the company’s advantages in terms that I could understand. That being said, the companies needed to be profitable and not deep in debt. That line I emotionally could not cross.
One of the first fish reeled in was a great outperformer, but the lesson learned was not that I got it right. I got lucky. Navteq, the leading digital maps company, was beaten up after a couple earnings misses so I jumped in. Digital maps! How could it not be a home run? When Nokia swallowed Navteq (and Leica did the same with a smaller competitor), I felt I’d been robbed of a multi-bagger. Truth is, digital maps were commoditized by applications such as Google Maps quicker than I could have predicted, and the investment returns would like have been subpar if the Finns hadn’t taken it off my hands.
In the dwindling GPS space, Trimble Navigation Limited (NASDAQ:TRMB) has a GPS technology that constitutes a defensible moat. Its precision GPS, ancillary technologies, and specialized hardware are becoming must-have applications in heavy construction, agriculture, and mobile solutions. Trimble Navigation Limited (NASDAQ:TRMB)’s valuation, numerous acquisitions, and liberal stock options have taken me a bit out of my usual comfort zone, but so far holding tight has proven a sound strategy.
Another high growth company is Stratasys, Ltd. (NASDAQ:SSYS). Their annual report made 3-D printing easy to understand as a business necessity, not in a science-fiction or story-stock way. I liked how they targeted higher end side of the market (industrial prototypes rather than DIYers). They listed their advantages, primarily in their printing materials, post-printing processing, and office-friendliness (you don’t have to put the printer in the basement for worker safety). The founder was still the CEO, which I find a plus in these types of companies. On the risk side, 3-D printing company valuations are now sky high, even after a recent drop. They got low enough a couple years ago to make me a buyer. I can’t watch all the volatility, so I’m putting the shares in a drawer for the next ten years.
