☑️ Pocket knife
☑️ Bottled water
☑️ First aid kit
☑️ Duct tape
☑️ Antiseptic wipes
☑️ Non-perishable food
☑️ Solar-powered short-wave radio
I’m thinking about these things because, well… #2020.
The year started with Australia engulfed in flames, and is ending with lots of people sick, lots of people out of work, lots of people out of school, shuttered restaurants and empty ballparks.
What more could go wrong? If #2020 has taught us anything, it’s that it’s prudent to be ready for any type of emergency, including events that previously were unthinkable.
For some useful preparedness tips, go to the U.S. Dept. of Homeland Security’s website, Ready.gov. For an investment idea that’s at the core of emergency preparedness, stay right here.
— Bob Bogda, Editor
P.S. Like what you see? Don’t like what you see? Let me know.
A number of years ago, I met a professor who modeled the spread of infectious diseases. Her conclusion — that a pandemic was due — struck me as mathematically inevitable.
I understood and could accept that a crippling pandemic would someday emerge. Like a lot of others, I skipped to the end and wondered which drug companies would benefit.
The professor, Dr. Anna Mummert, was clearly spot on. But I managed to be wrong about the rest. My mistake was a failure of imagination. I went wrong skipping to the end. I understood how a pandemic would be solved, with some sort of medical treatment. But I had no broader conception of what else a pandemic would do. I worried about the idea of mass death, sure. But I never considered the people who would live through a global health crisis and how it would change them.
To get a sense of how a major vector like the pandemic would change society, one has to imagine what people do all day. They eat. They shop. They go to school. They go to work. Thinking about those four basic human activities positions you to consider effects of the pandemic you might otherwise have not. The trick is to take this sort of thinking from the macro to the micro. By that I mean don’t just imagine what people do during a pandemic. Imagine instead what a single person does.
And the single person I’m choosing to focus on is a Wisconsin-based CEO that I can pretty much bet you’ve never heard of. But I think he’s onto something, and you can bet your boots the market does, too.
Aaron Jagdfeld is not a high-visibility business leader like Jeff Bezos, Elon Musk or Warren Buffett. Rather, he’s the chief executive of a relatively obscure company called Generac (GNRC), an $11.5 billion manufacturer of residential power systems — generators and batteries that hook up to your home and keep things running if the power goes out.
What does he do all day? I don’t know precisely, but I can venture a pretty good guess: He listens to the department heads he supervises. At 10 a.m., he might meet with HR. At 11, it’s the money folks. After lunch, maybe he sits down with his sales staff. They show him numbers. Then he asks, naturally, what the data mean. In the evening, he reads all he can about the Green Bay Packers because, well, that’s what people do in Wisconsin.
Now, while I imagine this happening, some version of this actually took place. Because Jagdfeld, during a recent interview, said so.
“We think that there is a massive change coming real soon in the grid,” Jagdfeld said. “You’re going to see a lot more decentralized, on-site power generation” as battery technology improves. “The demand for our products has been very robust, going all the way back to last fall with the shutoffs in California for fire safety reasons, and it’s really accelerated here with the pandemic,” he said.
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Bank of America says that could lead to a windfall for Generac. It upgraded the stock, despite a recent massive run-up (about 130% since the March 23 low), noting that Generac controls four-fifths of the market for standby generators.
The pandemic has prompted people to think strategically about things that heretofore they’ve probably not considered.
Early on, it was toilet paper. Now, Jagdfeld is telling us that he sees a major change in the reason that people want decentralized power capability in their homes. They’re not so worried about the power going out and losing the ice cream in the freezer. They’re worried about what happens when the people who work at the power plant can’t go to work because of germs and the lights go out for weeks. They want to be prepared to take care of their families rather than be at the mercy of ConEd. And Generac can certainly deliver.
Generac’s stock price seems to bear out its CEO’s assertion: Generac shares’ 52-week range is an astonishing $71.43 to $179.35. That’s a maximum theoretical gain of 151%, one that handily outpaces most of the market.
Generac is a strong company with a leading market position. It’s solidly profitable, and it grows. Right now, that growth is modest: From 2018 to the end of last year, its revenue grew about 10%. The year before it did better, notching about 20% top-line growth, but neither growth rate gels with its current earnings multiple, which, at 45, is leaps and bounds — indeed fully 50% — ahead of the broader market’s 30. That’s because the modest organic growth that Generac has posted for most of its history is likely to give way to white-hot growth as consumer tastes change.
The market expects strong growth from this company. The CEO predicts a sea change in Americans’ power use. This is more than enough tea leaves: Jagdfeld wouldn’t make that claim that without good reason. He knows what his sales teams are hearing from customers. He knows the undercurrents that power demand. And he’s telling us What’s Next.
I think it’s wise to listen.
Aggressive growth investors should consider Generac not for what it has done but for what it can do. Jagdfeld is telling us what that future is going to look like, and I think Generac is going to keep beating the Street.
Action to take: Consider buying Generac up to $200 a share, a target it’s likely to reach before year-end (GNRC closed today at $186.71). Investors, however, need to be both patient and opportunistic here: It may well take several quarters for the current sales trends to manifest meaningfully on the bottom line. If that growth falls short, it’d be a good idea to have some dry powder handy to snap up more shares, lower the cost basis and collect big as Generac exploits the niche it controls. (Expect to see TV commercials introducing the products soon. On that day, I think you’ll be glad to have locked this up!)
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