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I’d like to say there’s some kind of poetic intent behind the fact that the names of these three companies all start with “T,” but that would be a lie.That’s the reality Teradyne (TER -0.34%), tesla (TSLA -0.43%)and trimble (TRMB -0.37%) are a longtime favorite of Cathie Wood, and her exchange-traded fund (ETF) has recently been buying more shares in all of them. That’s why I’m looking at these stocks right now, and I think that’s a good thing because all three are very attractive growth stocks with long-term earnings tailwinds.
Teradyne for exposure to semiconductors
If you follow Wood into Teradyne, you’ll have to accept that you’re buying into a highly cyclical stock. This involves investing in companies whose main activities are the design, manufacture and sale of semiconductor inspection equipment (accounting for approximately two-thirds of 2022 revenue). taiwan semiconductor manufacturing industry and Qualcomm (two of the world’s three largest semiconductor companies) are important customers of Teradyne.
Image source: Getty Images.
The company’s solutions help customers improve production quality, performance and yield while reducing time to market for semiconductor devices. The company’s other businesses include systems testing (15% of 2022 revenue), robotics (13%), and wireless test systems (6%).
All of these represent attractive end markets in the long term, especially as semiconductors become increasingly integrated into new products. As such, Teradyne will surely recover from the 2023 trough caused by a slowdown in consumer electronics spending. In fact, Wall Street analysts predict that Teradyne’s sales will decline 15% in 2023, but rise 11% in 2024.
That’s fair enough, but it’s still hard to argue that Teradyne is a value stock at this point, even at a cyclical low. For example, now that the lockdown-induced boom in consumer electronics spending is over, Teradyne appears to be back on its long-term earnings trend line, with annualized growth of around 6.5% and 10-year average free cash flow growth. Masu. The (FCF) conversion rate from sales was 19.4%.
TER Revenue (TTM) data by YCharts.
Using this year’s estimated sales of $2.68 billion as a baseline and applying an annualized growth rate of 6.5% and an FCF conversion rate of 19.4%, it would take 10 years for the company to record $1 billion in FCF and price. This means that there is a possibility that this may occur. -FCF ratio at current stock price is 15. It seems like a long time to wait until the stock price appears to be worth a lot.
Tesla is not just an electric car
The same argument could be made for Tesla, but there are fundamental differences between the two. Teradyne operates in an established and competitive market. In contrast, Tesla has a 50% share of the US electric vehicle (EV) market and aims to become the leader in robotaxis.
In fact, Ark Invest’s 2027 “expected value” case for Tesla is based on the assumption that two-thirds of the company’s value is from robotaxis, compared to just 24% from EVs. For reference, Ark’s expected value case predicts that Tesla will be worth $2,000 per share in the same year, compared to $1,400 in the “bear case” and $2,500 in the “bull case.” Current price is $239 per share.
Image source: Getty Images.
Although Ark’s model contains many assumptions about robotaxi development, it shows the potential for growth as market leaders build and create their own markets. Tesla’s continued success with EVs suggests it’s a tough bet to bet on Elon Musk.
Trimble’s recurring revenue growth
This positioning and workflow technology company is a very attractive investment, especially as the company’s market is undergoing evolutionary changes that are reflected in improving operating metrics.
The company’s origins lie in hardware positioning, but thanks to the development of advanced analytics and software capabilities, its products are becoming increasingly important to customers’ daily workflows. Rather than simply deploying customer assets such as transportation or construction vehicles into a project, Trimble’s software, data and analytics capabilities help customers optimize outcomes.
With Trimble’s technology, farmers can make better business decisions about their crops, optimize trucking routes, accurately monitor and plan construction projects to reduce waste, and improve production. You can improve your sexuality.
Image source: Getty Images.
This shift to analytics means Trimble is growing its software sales and recurring revenue streams, which should improve margins and ultimately increase profits and cash flow. is. Although 2023 proved to be a difficult year, Trimble continues to grow annual recurring revenue (ARR) at a mid-teens rate, resulting in significant free cash flow generation over the next few years. may be improved.
What stocks should I buy?
Of these three stocks, Trimble looks like it has the best value, but Teradyne will probably have to drop a bit before it looks like a good value. Tesla could be a good fit for companies looking for out-of-the-blue growth opportunities in robotaxis and significant upside potential from growing EV profitability.
Lee Samaha has no position in any stocks mentioned. The Motley Fool has positions in and recommends Qualcomm, Taiwan Semiconductor Manufacturing, and Tesla. The Motley Fool recommends Teradyne and Trimble. The Motley Fool has a disclosure policy.
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