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 Williams Controls (WMCO-NASDAQ)
Williams Controls (WMCO-NASDAQ) has been a long-time Taipan recommendation. The stock has gone absolutely nowhere. However, WMCO has turned around from a distressed value story to an undervalued growth story.
In 1997, CEO Thom Itin made the strategic decision to pursue the emerging automotive electronic throttle control (ETC) market. WMCO owns the ETC market for trucks (60%+ market share). It makes sense for WMCO to apply its expertise to the larger, rapidly- growing automotive market. Pessimists denied that a small cap company like WMCO would win any automotive ETC contracts.
Here's a list of WMCO's recent automotive design wins:
| Date |
Auto company |
Car models |
| May-99 |
General Motors |
Chevrolet; Corvette |
| May-99 |
General Motors |
Various light and medium duty trucks |
| Jun-99 |
General Motors |
Pontiac Grand Prix |
| Jul-99 |
Chrysler |
Dodge Viper |
| Oct-99 |
Ford |
undisclosed |
In my opinion, Thom Itin is as tough as nails--and has what it takes to grab and defend market share. While truck ETC represents a mature, "cash cow" business, automotive ETC is a growth business with explosive sales potential.
The design wins will begin impacting the top line in late 2000-early 2001. In the meantime, WMCO will need to ramp up R&D spending to fulfill the contracts. This will have a short-term depressing effect on earnings--a possible driver behind recent stock price weakness.
I am a big believer in drive-by-wire. Cars and trucks represent one of the last pure vestiges of the industrial age. The mechanical components in cars will be replaced with electronic components. Sensors will be added to nearly every part of the vehicle. I anticipate that the digitalization of driving will become a "hot" Wall Street theme in two to three years. WMCO should be a beneficiary of this trend.
WMCO is dirt cheap by any metric. At 11x trailing earnings, 0.75x sales, and 1.75x book value, the downside is limited. While WMCO is leveraged with US$22 million in debt against US$24 million in equity and US$1.4 million in cash, the company has survived tough times in the past (including the 1997 crash in new truck orders). I am not aware of any negative issues which would warrant WMCO's low valuation relative to the automotive supply industry.
Continued design wins and earnings growth should eventually support the stock in the US$6+ range.
 Exponent (EXPO-NASDAQ)
I may be eating my words on January 1, but I am not anticipating Armageddon. There will be Y2K-triggered inconveniences. Maybe even a few tragedies. But millions of dead won't pile like cordwood on the field of battle...
Of course, my leery view of Y2K paranoia won't keep me from cradling a firearm in an undisclosed cabin in upstate New York (with a wood-burning stove and plenty of scotch for water purification). I'll leave urban warfare to the Times Square tourists...
Whatever happens after Y2K, you can be assured that lawyers will figure out a way to make a fortune in Y2K-related lawsuits. In fact, legal experts project that Y2K will be the single most litigated event in history.
Exponent (EXPO-NASDAQ) is my top play on Y2K. EXPO is the world's leading consultant for man-made disasters. Y2K-related litigation will trigger explosive growth in EXPO's failure analysis division.
EXPO is insanely undervalued. At 10x earnings, 0.5x sales, and 0.78x book value, you can't go wrong. While CEO Mike Gaulke is clearly ineffective at selling his story to Wall Street, he's doing a great job of growing the business and generating quarterly profits.
1999 has been a disappointing year for EXPO's stock price. Y2K should unlock the tremendous value in EXPO's failure analysis franchise. I still rate EXPO as a Strong Buy.
Please read on...
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