The Best "Car of the Future" Stock Now Gets You the Best "Car of the Now" Stock, Too

When it comes to tech investing, there's a strategy that almost always works.

When you can, buy the "spin-off" plays.

You know what I mean.

With a spin-off, even a mature, seemingly humdrum business can create windfall profits for investors savvy enough to capitalize.

We've turned corporate spin-offs into wealth for us before here - including PayPal Holdings Inc. (Nasdaq: PYPL) out of eBay Inc. (Nasdaq: EBAY).

Today we're going to do it again. But we're not looking at one of those humdrum businesses.

Instead we're getting a peek at what I think is the single best pick in the "car of the future" space.

We've already made a lot of money with this company.

And this spin-off means we're going to make a whole lot more...

Two for the Price of One

We last spoke about this company back on March 21.

At the time, we considered this storied auto-supply firm a great stock to own because it's looking at a lot of growth in an unstoppable tech trend.

And I went on to predict that we'd see 30% gains over the next 24 to 28 months.

We're already well on our way.

Here's why...

On May 3, the first-quarter report from Delphi Automotive Plc. (Nasdaq: DLPH) crushed it on profits. Full adjusted operating income was 17% higher than a year ago on 9% higher sales, strongly beating forecasts.

Wall Street saw that report and - in a no-duh move - plowed into the stock. Delphi rose nearly 11% that day.

Even better, volume was 10 times its 50-day average. That's an absolutely key sign that investors now believe in this stock.

But we were there first. (In fact, we first spotted this stock in mid-December - and we've made a whopping 24% gain since.)

And this story just keeps getting better. Not only did the firm beat on earnings, but it also made a savvy move that will further improve shareholder value.

To focus on its growth in driverless and other "car of the future" technology, Delphi is spinning off its powertrain unit in a tax-free move. That division has 20,000 engineers and racked up sales of $4.5 billion in 2016.

The breakup will make it possible for Wall Street to more highly value Delphi's core high-tech unit - which has developed industry-leading artificial intelligence computing platforms, self-driving systems, and anti-collision technologies.

So we're getting a two-for-one here: a winner in the "car of the future" and - with the powertrain spin-off - a stake in the "car of the now." That's okay, because 95% of the world's cars will still run on gasoline through 2025.

And we're going to get that spin-off... for free.

We really like spin-offs here - because they work.

A Lehman Bros. study found that spin-off companies beat the market by 40% in the first two years. And a Penn State University study found a three-year return of 76% - enough to beat the market by 31%.

So, if we just made the norm here, my 30% gain forecast from back in March will come true.

But there's more going on here than just the spin-off - meaning there's now even more money to come our way...

To what I'm talking about, let's travel back two years in time - back to when a Delphi "experiment" made automotive history.

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Going Transcontinental

When it comes to autonomous (self-driving) vehicles, it's not a matter of if - only a matter of when.

And Delphi is the company that proved it.

In late March 2015, a Delphi-sponsored and equipped Audi SQ5 SUV left San Francisco to begin a 3,500-mile trip to New York City. This Audi was unique - and so was the journey it was starting.

The auto was packed with technology - including an array of cameras, laser-measuring devices, and 22 sensors.

And there was no driver.

This was first "driverless" auto crossing of the United States.

While Audi provided the basic vehicle, it was Delphi that spent more than $1 million in specialized 3D sensors, software, and engineering services to pull off this miracle.

The only person on board monitored the technology, made observations, and, in an emergency, took control.

This SUV was able to maneuver around bicyclists and pedestrians, navigate four-way intersections, and merge with highway traffic.

Delphi was glad to spend that money. The lessons learned from that historic journey will help refine its tech and cement Delphi's status as the clear leader in the future driverless-tech sector.

The ADAS King

Of course, for buyers of luxury brands, some of that future is here now.

Today's showrooms now feature vehicles that can stay in their lane, make an emergency stop, dial back the cruise control when traffic ahead slows, and, for short stretches, let you put your hands in your lap instead of on the wheel.

This all happens thanks to the emerging field of advanced driver assistance systems (ADAS).

ADAS first showed up on the flagship cars made by Mercedes-Benz, Lexus, and BMW. Now, ADAS is trickling down to lower-end models of those premium firms and also starting to appear in mass-market brands like Chevrolet and Honda.

Thanks to years of R&D - the stuff it showed off on that cross-country trek - Delphi is making the choice easy for automakers. Rather than spend years and hundreds of millions of dollars building their own systems, they can just buy plug-and-play ADAS units from Delphi.

To cement the value it can bring to the sector, Delphi needs to ensure that it controls the best tech.

And it does.

Check this out: In recent quarters, Delphi has...

  • Bought a minority stake in Israel-based Valens Semiconductor Ltd., which makes chips that can quickly transmit large volumes of data
  • Taken a minority stake in Otonomo, another Israeli company, which has a platform that can track and process the data that vehicles produce
  • Struck a strategic pact with Germany-based Rosenberger, which builds systems that enable automated vehicle systems to work better

The Driverless Future

Back in 2010, Delphi laid out a 15-year roadmap for the era of truly connected cars using the most advanced ADAS.

Back then, we were just coming to see how rapid advances in chips and sensors would pave the way. Today, these specialized devices are asked to perform about 8 billion computer instructions each second.

A decade from now, these chips will combine to perform 1 trillion instructions.

Said another way, your car now transfers around 65 MB of data to its central processing unit (CPU) each second. A decade from now, that will figure will rise by a factor of 100, to 6 GB per second.

Best of all, those highly advanced systems will cost 30% less than they do today.

In addition to ADAS, Delphi's auto tech will allow you to make changes to your sound system through gestures, deliver 3D displays, and make your car's engine run far more efficiently.

This will all be controlled by Delphi's Active Safety Multi-Domain Controller (MDC), which is being launched this summer. Carmakers can install new MDCs now and, as the tech develops further, car owners will be able to get on-the-road system updates that keep these cars on the leading edge.

Delphi is so excited about this mega-trend that it wants to focus the whole firm on ADAS and connected cars. More than 5,000 of the firm's engineers are solely focused on this emerging tech platform.

And it's part of the reason why Delphi is spinning off its powertrain unit into a standalone firm. The $5 billion outfit brings in more than $600 million in profits each year. So, the powertrain company's shares - and its investors - should enjoy a nice pop when it starts trading in 2018's first quarter.

Delphi Automotive is already getting quick traction.

First-quarter profits of $1.59 a share were nearly 10% ahead of forecasts, and 2017 and 2018 profit forecasts are moving higher. Shares opened today at $85.61, giving Delphi a market value of $22.96 billion.

Delphi is at the very heart of the most profound changes in the auto industry since the advent of the combustion engine.

So our investment here gives us a ground-floor window from which we can watch the driverless vehicle mega-trend take shape.

And it will be a very profitable view for years and years to come.

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About the Author

Michael A. Robinson is a 36-year Silicon Valley veteran and one of the top tech and biotech financial analysts working today. That's because, as a consultant, senior adviser, and board member for Silicon Valley venture capital firms, Michael enjoys privileged access to pioneering CEOs, scientists, and high-profile players. And he brings this entire world of Silicon Valley "insiders" right to you...

  • He was one of five people involved in early meetings for the $160 billion "cloud" computing phenomenon.
  • He was there as Lee Iacocca and Roger Smith, the CEOs of Chrysler and GM, led the robotics revolution that saved the U.S. automotive industry.
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This all means the entire world is constantly seeking Michael's insight.

In addition to being a regular guest and panelist on CNBC and Fox Business, he is also a Pulitzer Prize-nominated writer and reporter. His first book Overdrawn: The Bailout of American Savings warned people about the coming financial collapse - years before the word "bailout" became a household word.

Silicon Valley defense publications vie for his analysis. He's worked for Defense Media Network and Signal Magazine, as well as The New York Times, American Enterprise, and The Wall Street Journal.

And even with decades of experience, Michael believes there has never been a moment in time quite like this.

Right now, medical breakthroughs that once took years to develop are moving at a record speed. And that means we are going to see highly lucrative biotech investment opportunities come in fast and furious.

To help you navigate the historic opportunity in biotech, Michael launched the Bio-Tech Profit Alliance.

His other publications include: Strategic Tech Investor, The Nova-X Report, Bio-Technology Profit Alliance and Nexus-9 Network.

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