Start the conversation
When I telephoned Martin Hutchinson to congratulate him on his latest great market "call" yesterday, that's how the Permanent Wealth Investor editor answered the first question that I asked him.
And I immediately knew it was a comment – and a story – that I wanted to pass along to you … in as-soon-as-possible fashion.
Back on Feb. 20, if you'll recall, we told you that Martin had just put a strong "Buy" on shares of iRobot Corp. (Nasdaq: IRBT) – telling his Merchant Banker Alert subscribers that this tech firm's business was poised for a big surge.
His timing couldn't have been better.
Late Monday, the Bedford, Mass.-based robotic-technology firm issued a stunning forecast for its fiscal first quarter – one that smashed its earlier prediction and that caused the company's shares to spike more than 9% in after-hours trading.
The surge was a bit less dramatic when the market opened yesterday, with the shares moving up about 4.75% in early-afternoon trading.
But that doesn't diminish the dramatic improvement in fortunes that the company is expecting.
The company expects to earn 16 cents to 20 cents per share on revenue of $102 million to $104 million.
But get this: In its earlier forecast, iRobot had said that net income would be between zero and 7 cents per share on revenue of $98 million to $102 million. And analysts were only looking for profits of 2 cents per share on revenue of $100.8 million, according to a survey conducted by FactSet Research.
iRobot said the increase is based on strong results in both its home-robot and defense-and-security business units – part of what Martin had said he expected back in February, when we talked about his upgrade. But iRobot has also moved into the medical-robotics sector, which has yet to pay off but which Martin believes has a massive profit potential.
When I called to congratulate him yesterday, I also asked Martin for his latest view of iRobot shares.
"What it comes down to, Bill, is that – with everything this company has going on, and with all the potential that it has – I just can't bear the thought of not owning this stock" in my Merchant Banker Alert portfolio, Martin told me. "Here you have a really small market cap company in a business … robotics … that's destined to be such an important one in the future. I just can't see how this can't be a 1% of GDP-type of business 10 to 20 years from now. And this company has the skillset and positioning to be a major player in that very important business. That's why I just can't bear to not be in this stock."
Martin initially recommended this stock to you in the May 1 Private Briefing report "Now You Can Cash in on the Patent Portfolio Sweepstakes."
Though the recommendation has been profitable at a number of points since then, it's also been a volatile stock that has whipsawed us between a profit and loss. Yesterday's move has put us back into positive territory … though not by much.
But Wall Street is finally catching on, and is starting to understand just what Martin sees in iRobot.
The guidance increase prompted Needham & Co. to boost its price target on "Buy"-rated iRobot from $25 to $28 – roughly 18% above where the stock was trading in mid-afternoon.
"Given the magnitude of the EPS surprise on relatively modest upside to revenue, we expect gross margins are trending higher than previously expected and op-ex is probably growing at a slower rate than we were modeling," said analyst James Ricchiuti. "We have increased our Q2 EPS estimate as well, albeit modestly."
Needham boosted its earnings estimate for the current fiscal year from 65 cents to 80 cents, though it held steady its fiscal-2014 estimate of 95 cents a share.
iRobot may be best known for its domestic "Roomba" vacuum cleaners that "crawl" about as they clean. But that technology has lots of other applications, which is why the company also makes robots military and intelligence agencies use to safeguard its human personnel, and that police departments are using for the very same reason.
But not a lot of folks seem to be talking about the medical robots, which Martin says could generate huge profits for the company.
In January the U.S. Food and Drug Administration (FDA) approved sales of the RP-Vita Remote Presence Robot, the first telemedicine robot designed for remote doctor-to-patient consults.
"RP-Vita was developed in a joint venture by iRobot and privately held InTouch Health for use in hospitals and clinics, in cardiovascular, neurological, prenatal, psychological, and critical care assessments and examinations," Martin told me. "The robot can be used in emergency rooms, before, during and after surgeries and for patient monitoring. The RP-Vita will cost hospitals about $4,000 to $6,000 a month, which will include the robot itself, the software, networking and communication and installation."
The first units should be shipped during the current quarter.
And we'll be watching.
Gold Surges: Gold futures touched $1,600 an ounce yesterday, before ending the day at $1,591.70 an ounce on the Comex division of the New York Mercantile Exchange (NYMEX). That close, fueled by a $13.70 (0.91%) gain, was the highest settlement since Feb. 27, reports FactSet Research.
Analysts attributed the surge to short-covering by traders, reports MarketWatch.com.
"The trading phenomenon on days where there is no major economic releases is technical and demand [driven]," Chintan Karnani, an independent bullion analyst in New Delhi, told MarketWatch. "Technicals were showing a mildly bullish divergence after gold managed to trade over $1,560 last week."
Also yesterday, Real Asset Returns Editor Peter Krauth told Private Briefing subscribers about a junior miner whose shares could potentially quadruple in price.
Reaction to our "Missiles "R' Us" Column: You folks are great about responding to our columns – posting comments, sending in questions, and even offering constructive critiques of what we write about here at Private Briefing.
Every so often, we get a note that's just so well-crafted that I have to share it with everyone.
After reading our Monday column "What You Need to Know About Missiles "R" Us" – which focuses on the crisis on the Korean peninsula – reader Greg C. had this to say:
"Hi guys: Nice editorial as usual about North Korea. I like your articles, but you missed a really big point on this one.
In my opinion here is ourbiggest threat:A nuclear detonation over the U.S. West Coast. They don't need to have re-entry and targeting technology to do that, and it would knock us back to the Stone Age for five to 10 years. There are estimates that it would take that long to replace the transformers inthe powergridthat are not shielded and all the other electronics.
I read several good articles about this after the last nuclear test, including one that said Iran could do something similarand with possibly even more damageusing a 40-year-old nuclear-tippedSCUD missile fired off the East Coast of the United States from the hold of an oldfreighter in the Atlantic. In my opinion this kind of attack is the greater risk we face, yet our leaders in Washington just keep playing their fiddles.
As for your dad's advice … "when I was growing up, my Dad used to tell me that "things never get as bad as you think they could" … he should ask the Brits about that in the middle of WWII or the soldiers tasked with invading the beaches of Normandy, or fighting the Japanese in the Pacific!!!
And why? Because Neville Chamberlain thought he could "make a deal" with Hitler. Didn't work then, won't work now.
But other than those two small points, I liked your editorial. – Greg C.
Dear Greg … a first-rate note. Thanks for the comments, for the thought you put into it and for taking the time to send it.
Let me offer a couple of thoughts.
First, it's tough to cover every point in a piece. Still, you raised some great ones, and I wanted to take the time to address each one.
As to your West Coast and Iran threats, I'd hoped I'd covered those non-North Korea threats by citing Prof. Allison's warning that "if terrorists explode a single nuclear bomb in an American city in the near future, there is a serious possibility that the core of the weapon will have come from North Korea." Given your comments, however, it's possible that I didn't express that possibility quite strongly enough.
In terms of your thoughts on my Dad's advice about things "never getting as bad as you fear," don't forget that he also said to never take things for granted – meaning you can't be too trusting or gullible.
Your historical points about how bad things got during World War II are also well taken. Had my Dad been reflecting on those points, I think he would counter by saying: "True, but think of how bad things could have been had Hitler successfully executed his planned "Operation Sea Lion" invasion of England (meaning we would have had to invade Brighton, Portsmouth and Dover before we even thought about going to Normandy)."
And with the War in the Pacific, what if the attack on Pearl Harbor had been followed by an air raid on Los Angeles, as was widely feared? And, at the end of the war, think about just how high experts say the casualties would have been had the U.S. been forced to invade Mainland Japan.
That's what I think he would reply (but since you raise such great points, I'll ask him when my son and I meet him for breakfast this weekend … even now, I never go more than a few days without a visit. I think he's going to enjoy this conversation – and your thoughts – very much).
Of all your points, Greg, it was the one you made about the futility of accommodating deals, and the lessons we should have learned from Neville Chamberlain's miscues, that may have been the best of all.
Like so many of the comments that I get from Private Briefing subscribers, Greg, your arguments were well-articulated and clearly were the result of a lot of thought. Let's hear from you again …
Well done …
[Editor's Note: Unless otherwise specified, we typically advise investors to employ a 25% "trailing stop" on all holdings. On iRobot, Martin says investors can go as high as 30%. Be sure to observe position-sizing limits.]