As Silicon Valley Takes Over Detroit, Here’s Where to Put Your Money

3 | By Michael A. Robinson

Imagine this.

You or the manufacturer mount a device on your dashboard.

As the device’s software algorithms “interpret” a video feed in real-time, it detects anything in your car’s path – pedestrians, other vehicles, animals, large debris – and your distance from it.

driverless-car-trafficIf the software interprets what it “sees” as “trouble,” it alerts the driver with a series of beeps and flashing lights.

It can also “read” and interpret traffic signs and signals.

No, this isn’t a driverless car yet – you still need to hit the brakes – but it’s a big part of the advanced driver assistance systems (ADAS) that will get us there.

And to me at least, it’s pretty amazing technology.

Intel Corp. (Nasdaq: INTC) thinks so, too. It picked up the developer of this technology for $15.3 billion last week – catalyzing the much smaller firm’s stock up 30% that day.

And suddenly Wall Street has fallen in love with the “car of the future”?

We know better.

In fact, you’re way ahead of the Street.

We were in this stock years ago – and another “car of the future” company that got acquired recently – and we’ve made a bundle on both.

So let’s go over those two deals today – see what happened and exactly how much money we made.

And then we’ll take a look at what I think is the best pick in the connected and driverless vehicle space right now.

It’ll be good for a very quick 30% pop in your portfolio.

And that’s something you’ll be able to brag about to your friends and family.

Or maybe you’ll save your bragging for the showroom – where you can use those gains to pick up a connected car yourself.

Take a look…

Your Guy on the Inside

I have to admit: We have an unfair advantage over Wall Street when it comes to seeing the worth auto technology. I was an auto analyst in Detroit in the early 1980s and saw firsthand how new tech even back then was reshaping the industry.

Over the years, I’ve combined that deep expertise with my 33-year background as a Silicon Valley insider. That’s why I was able to start sharing the news about “the car of the future” with you folks several years ago.

And it’s why you’ve been able to make quite a bit of money in this sector – before Wall Street really caught wind of it.

Here’s the real story – a point I’ve made several times over the past few years…

The auto sector’s power has shifted from Detroit to Silicon Valley.

The fact that Intel gladly shelled out $15.3 billion, the second-largest deal it has ever made, to buy Mobileye NV (Nasdaq: MBLY) – the developer of that ADAS technology I described above – pretty much proves it. This deal – again, a $15.3 billion deal – demonstrates the huge value created by tech firms that establish a strong foundation in connected and self-driving cars.

The Boston Consulting Group (BCG) forecasts 12 million fully autonomous vehicles leaving factories each year by 2035, with an even larger figure of partially autonomous vehicles doing the same. In dollar terms, we’re talking about a $42 billion market by 2025… and $77 billion by 2035.

To work as promised, these cars will need catlike reflexes and the smarts of a supercomputer. Intel sees its purchase of Mobileye as a foundation to create a “server on wheels.”

Like I showed you, Mobileye’s systems help cars “see” and process all the visual data around them. A lot of this tech is already on the road. Keeping a car in its own lane even if the driver is distracted is just one of the safety payoffs that Mobileye and other ADAS developers provide.

I recommended Mobileye to you folks on March 31, 2015. I noted that many automakers – Audi AG, Ford Motor Co. (NYSE: F), General Motors Co. (NYSE: GM), Tesla Inc. (Nasdaq: TSLA), and Volvo AB among them – had turned over the keys of their driverless vehicle programs to Mobileye.

If you acted on my recommendation, you’re sitting on gains of 44%.

Samsung Pulls out Its Checkbook

Mobileye wasn’t the only big winner I picked in this space. Back in December 2015, we saw how Harman International Industries Inc. had basically pioneered auto tech innovation.

I noted that “3D navigation, multimedia systems, Bluetooth integration, smart apps for mobile users… even cloud-computing services for the car,” were all developed by Harman. And I recommended it as a way to capitalize on this unstoppable trend.

Fast-forward to November 2016 – and Samsung Electronics Co. Ltd. (OTC: SSNLF) moved to buy Harman for $8 billion, handing investors a 28% one-day gain when the deal was announced.

Like Intel, Samsung has no desire to become an automaker. But these firms do want to play a major role in bridging the worlds of transportation and technology – of Detroit and Silicon Valley.

And the fastest way to build a strong presence here is to write a very large check…

The Next Big Play

With those big deals in place – and money in our pocket – let’s turn our focus to the best pick in the connected and driverless vehicle space right now.

Delphi Automotive PLC (Nasdaq: DLPH), which started out as an auto-parts subsidiary of GM, now develops and markets hundreds of small components and systems that work together to seamlessly provide the ADAS tech that is appearing in more and more new cars and trucks.

Delphi also provides a broad range of other systems, including powertrains, dashboards, safety gear, and security devices.

But in a sure sign of this firm’s commitment to the car of the future, it has shifted more than 5,000 engineers – fully one-fourth of its R&D staff – to develop the hardware and software needed to stay on the leading edge of ADAS… the “prologue” to fully autonomous cars.

Delphi’s $16.6 billion sales base makes it perhaps the key tech supplier of the auto industry. It counts just about every major nameplate as a customer.

So if we look at Delphi as an acquisition target, we know it won’t end up in the hands of one of those automakers.

But in the tech sector – where firms like Intel and Samsung are seeking to dominate the “car of the future” space – Delphi represents something of a crown jewel. So don’t be surprised if a Silicon Valley or East Asian tech powerhouse goes after it.

Let’s get one thing clear, though. I’m not suggesting you get caught up in Wall Street’s mergers-and-acquisitions rumor mill.

That’s a lousy strategy almost guaranteed to lose you money. What happens to most retail investors is they pile in on a rumor, and when the expected merger fails to come through, the stock gets pounded.

There’s only one way I know of to pick good merger candidates: Select big winners in breakout tech sectors that promise to hand you market-crushing gains.

Then think of any merger that follows as icing on the cake. But you need good “cake” in the first place.

Delphi has a great deal of current momentum as well. Fourth-quarter profits of $1.83 a share were nearly15% aheadof forecasts. Robust profits helped this firm post a 74% return on equity in 2016, among the highest of any firm in the auto parts industry – or any other industry for that matter.

Delphi Automotive opened today at $81.50, and the firm has a market value of $21.4 billion. Shares trades for less than 12 times projected 2018 profits, a roughly 35% discount from the S&P 500.

I’m projecting 30% gains over the next 24 to 28 months – and that’s a conservative projection.

No, that’s not based on any buyout offer we might see.

Instead, Delphi is a great stock to have in your portfolio, because it’s looking at a lot of growth in an unstoppable tech trend.

It’s good cake.

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3 Responses to As Silicon Valley Takes Over Detroit, Here’s Where to Put Your Money

  1. Lisa Garmon says:

    Michael, how does Delphi compare with StMicroelectronics?
    I missed out on Mobleye because of lack of money. More
    inheritance coming in two weeks… Would it be good to buy Intel?

  2. Jeff Marshall says:

    Thanks for Mobileye! Great analysis of the company, so I bought when you recommended. I know you cannot make individual rec’s, but for your subscribers, what are the pros and cons of continuing to hold, or taking the cash now, and re-invest in other recommendations. Thanks again, Jeff

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