In my book about Baby Boomer investing I highlight what I feel are the five major growth industries going forward. The industries are health care, alternative energy, technology, communications and lifestyle. I also mention 42 companies within those industries that could be the leaders, the game changers. Since the book has been published, five of the 42 stocks I wrote about are being acquired!
As the 42 companies are down to 37, it causes some reflection for the future. Great, emerging companies will always be on the radar screen of larger, well-financed suitors. If growth cannot be internally generated through research and development efforts, larger companies will need to acquire growth and next generation products or technology. With interest rates still historically low, the borrowing necessary to buy these young, up-and-comers is not a significant issue. Investors will reward mature companies if they acquire intelligently and strategically.
Well, there goes another one of our top 25 for the NEXT 25 years! This morning it was announced that giant medical device company Medtronic (NYSE: MDT) will acquireKyphon (NASDAQ: KYPH) for $71 a share in an all cash transaction. Great deal for Medtronic and a great deal for Kyphon shareholders. Unfortunately, that takes our NEXT 25 list down to 22 companies left. Hewlett-Packard is acquiring Opsware and Philips of the Netherlands is acquiring Color Kinetics (NASDAQ:CLRK). Now, I have to find the three replacement companies to complete our list of 25!
Medtronic, I have contended for years, is the premiere medical device company in the world. The company is the franchise player in the cardiac world with a multitude of products. The staple of products ranges from cardiac surgical tools to pacemakers and implantable cardiac defibrillators. Medtronic's spinal franchise has had its share of struggles. The company has been set on working with younger patients with spinal afflictions. Kyphon, on the other hand, is very strong in working with older patients with its products that address osteoporosis. This affliction attacks nearly 700,000 woman annually in the United States alone. Kyphon's minimally invasive surgical devices and patented bone-cement were fast becoming the products of choice by surgeons.
The acquisition by Medtronic puts Kyphon's excellent product suite into the best distribution sales and marketing force the medical device industry has ever seen.
Meanwhile, I will continue my research to provide you with 3 more companies to round out our list of the top25 stocks for the NEXT 25 years.
MOST NOTEWORTHY: Linear Technology Corp (LLTC), Anheuser-Busch (BUD), Best Buy (BBY), Bankrate (RATE) and Ensco International (ESV) were today's more noteworthy downgrades:
Linear Technology Corp (NASDAQ: LLTC) was cut to Sell from Neutral at Merrill citing slowing revenue growth and valuation...
AG Edwards downgraded Anheuser-Busch (NYSE: BUD) to Hold from Buy on valuation...
Goldman said Best Buy's (NYSE: BBY) fundamentals remain at risk after the Q1 report and cut shares to Neutral from Buy...
The first company in my series of the top 25 stocks for the NEXT 25 years is about to be acquired. Color Kinetics (NASDAQ: CLRK) is being pursued by Dutch-based company Philips Lighting for $34 per share. The Dutch company is the world's largest lighting company.
The $34 per share offer represents a $688 million total acquisition price. Color Kinetics management has endorsed the deal and is encouraging shareholders to accept the offer.
Color Kinetics brings a rich portfolio of patents to the marriage. With 64 patents having been granted and another 100+ patents-pending, Color Kinetics brings to Philips the next generation technology of LED lighting products. Color Kinetics had won many high-profile lighting contracts recently, including the dash-board lighting work for Ford Motor Co. (NYSE: F). The new-generation LED-based lighting systems had not yet been economical for residential housing applications, but the market is indeed moving in that direction.
With Philips owning Color Kinetics technology, the residential market will be within its reach in the near future. Color Kinetics is selling to Philips for nearly 7 times revenues, a rich valuation, but certainly not when considering the growth rate of Color Kinetics, 35-40%, and its patent portfolio.
Oh well, we still have 24 companies left on the original list of 25 stocks for the NEXT 25 years...
The third name in my list of the top 25 stocks for the NEXT 25 years (again, in no particular order) is Color Kinetics (NASDAQ: CLRK). This Boston-based company has the opportunity to redefine the world of lighting -- a massive market. Color Kinetics closed at $21.55 and currently sports a market capitalization of $459 million. Color Kinetics has $100 million of cash on its balance sheet. My estimates for this year call for revenues of $85 million and earnings per share of $.44-.47 and for 2008, revenues of $110-112 million and earnings per share of $.65-.67.
Color Kinetics makes intelligent solid-state lighting systems using light emitting diodes (LED). The company has 68 awarded patents in its portfolio with another 100+ applied for. The intellectual capital that Color Kinetics possesses is becoming extremely valuable. Its business model is to directly sell lighting systems, from architectural design to implementation, to licensing its technology, to third party partners.
The world of lighting is undergoing a revolution and Color Kinetics is emerging as one of the de facto leaders. The traditional incandescent light bulb is going the way of the horse and buggy. The incandescent bulb uses far too much energy to operate efficiently, and the lifespan is limited to normally a couple of thousand hours. LED lighting, not yet economical for mainstream homeowners, is winning in the commercial world. Color Kinetics systems are the choice for casinos, theaters, new commercial building projects, and street lighting. The technology included allows the customer to change the color of the lights from pure white to an array of different colors. The physical beauty of the systems are awe-inspiring.
The sloppy market takes every one down . . . shoot first, ask questions later. So the savvy investor gets to go shopping for good stories at a time like this. The patient investor will look back in a year or two and be thankful for the opportunity -- so many good stocks with discounted valuations.
Color Kinetics Inc. (NASDAQ: CLRK) is such a story. This company sports a market cap of only $340 million and is sitting on $100 million in cash. Thirty percent of market cap in cash is a good start to almost any story. Color Kinetics is a leading provider of intelligent solid-state lighting systems utilizing light emitting diodes (LEDs). Color Kinetics has over 60 patents and another 150 patents pending. It sells its leading technology with a direct sales force and leverages its revenues through several OEM relationships.
TIR Systems (TSX: TIR), a Canadian competitor is being acquired by Philips Lighting of Holland. With the valuation Philips is paying for TIR Systems, comparable metrics would put Color Kinetics at a $24 valuation. That is before growth is factored into its future. Color Kinetics is forecasted to generate revenues of $85 million this year with earnings per share of $.50. The numbers for 2008 are revenues of $105 million and earnings per share of $.75. The 2006 actual results were earnings per share of $.28 on revenues of $65 million.
General Dynamics Corp. (NYSE:GD) was the only noteworthy company initiated today; Caris initiated the military equipment-maker with an Average rating based on valuation.
OTHER INITIATIONS:
Merriman initiated Bankrate Inc. (NASDAQ:RATE) with a Buy rating; the firm said Bankrate has a number of attractive assets and competitive strengths that include a high level of direct-to-site traffic, high quality traffic, pricing leverage and strong management.
Deutsche Bank started Color Kinetics Inc. (NASDAQ:CLRK) with a Buy rating and $23 target, as it believes Color Kinetics is an attractive play on the rapid adoption of LEDs.
HSBC initiated Peabody Energy Corp. (NYSE:BTU) and Arch Coal Inc. (NYSE:ACI) with Overweight ratings.
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