Investing Wisely in Magnets

It’s a magnetic idea. The Swedish automobile manufacturer Volvo, known the world over as an innovator of automobile technologies, has applied its innovative prowess to developing several unique self-driving car technologies – the latest one using magnets.

Where most self-driving vehicles in development across the industry use onboard radar that receive signals bouncing off objects all around, Volvo’s latest autonomous driving system takes readings from magnetic sensors embedded in the roadway itself.

Will Volvo’s magnet-driven cars attract or repel government sponsorship? As with any technology, it is not enough simply to design a system that works.

It must also be cost feasible.

Volvo’s Self-Driving Cars

Volvo’s driving passion for autonomous vehicles goes back a few years. Its first concept – the SARTRE Road Train, successfully tested in 2011 – was a car designed to follow a lead vehicle driven by a human driver. The trailing driverless vehicle simply mimicked the lead vehicle’s operation, copying its turns and speed. A series of driverless vehicles could be lined up like an endless train behind the lead vehicle with barely a few feet distance bumper to bumper, perfect for keeping busy freeways moving along.

In 2013, Volvo unveiled a second autonomous system for city driving, using onboard radar that emits a 360 degree signal and reads the echoes bouncing back. The still-active Drive Me Program aims to put 100 such self-driving vehicles onto the streets of Sweden’s capital city of Stockholm by 2017 in an attempt to beat rivals Nissan and Google – both of whom are aggressively developing autonomous vehicles of their own.

But Volvo wants to keep all its options open. For its third concept, the company is experimenting with a sensor system that reads magnetic fields generated by magnets implanted in the roadway.

Early testing used neodymium magnets 0.78 inches in diameter by 0.39 inches thick, and ferrite magnets 1.18 inches in diameter by 0.2 inches thick encased in plastic tubes buried vertically into the roadway close to the surface, spaced about 1 yard apart. Onboard computers could calculate the car’s position to within 4 inches when traveling below 45 mph.

Later tests using magnets glued to the surface of the roadway produced even better results while managing to control the vehicle at speeds exceeding 90 mph. Not only is this system more reliable at higher speeds, it is also much less costly to install and maintain.

Its Un-magnetic Price Tag

Unfortunately, even that cheaper on-surface configuration is likely to be too pricey. By the company’s estimates, upgrading an already existing highway with the quantity of magnets required would cost some $39,275 per mile of roadway just two lanes wide.

To put that in perspective, the International City/County Management Association (ICMA) Center for Performance Measurement informs that road rehabilitation expenditures per paved lane mile average $3,867, or $7,734 for two lanes – just for typical roadway maintenance of basic pothole filling and crack sealing.
Volvo is driving up the wrong street if it believes America is going to buy into its magnet system.

The currently deplorable condition of America’s highway infrastructure has long been publicized, with the underfunding of roadway maintenance long criticized. If the government can’t even allocate a mere $7 to $8 thousand per mile to fixing its crumbling highways, it will definitely not be spending 5 times that amount installing magnets.

Even if the system were installed in only the most congested stretches of highway, any scraping of the road surface by debris from falling objects or a previous vehicle crash could damage or remove long sections of sensors, leaving gaps in important data collection along dozens of yards or roadway. Moreover, motorists are highly unlikely to purchase an entirely new onboard navigation system which would only be used on certain sections of roads and highways.

The Attractive Field of Magnetism

Despite the almost assured failure of a magnet-lined highway system, magnet technology is attracting a lot of interest in other applications. Maglev trains, for instance, use magnets mounted underneath its cars which levitate (hence the term “maglev” – for magnetic levitation) upon electrified rails. As the trains “float” on its rails (held in place with “C” shaped brackets lined with magnets), the lack of friction allows for speeds of over 300 mph.

Yet the greatest use of magnetism is in electronics – from computers to TVs to home appliances to phones – not to mention the magnetic surfaces of digital recording discs and the magnetized strips on credit and debit cards.

On a grander scale, hospital equipment, high tech industrial machinery, weapons systems and communication systems would simply not exist without complex electromagnetic components.

Investors drawn to the field of magnetism and its future possibilities have several sectors they can gravitate toward – ranging from diversified electronics, to semiconductor equipment and materials, to printed circuit boards. But the category that should benefit most from automated equipment such as autos, drones, satellites and weapons is likely the industrial electronic equipment sector. Here are just three samplings from that space.

• Nidec Corporation (NYSE: NJ): This $16.43 billion large-cap headquartered in Tokyo, Japan, manufactures and sells electric motors and related components worldwide – including precision motors for computer hard disk drives, optical disk drives, laser printers, copiers, polygon scanners, electronic cooling fans, refrigerators, mobile phones, digital video recorders, automobiles; as well as automotive electronic controls and motors for power steering, dual-clutch transmission systems, engine and fuel cell cooling systems, seat adjusters, window lifts, door lock actuators, and vehicle traction systems; and control systems for home appliances, digital cameras, and other electronic equipment.

With $10.58 billion in annual revenues at 64.4% of its market cap, the company passes $304.43 million of net income to common stockholders, or 2.88% of its revenues. With quarterly revenue growth of a stellar 27.9%, the current stock price of $29.78 represents good PEG value at 1.56 – which is lower than its price-to-book ratio of 2.47, given its high quarterly growth rate, which the PEG ratio is based on. Analysts rate it a solid buy at 1 out of 5, with a mean target of $37, or 24% higher than it is currently.

• EnerSys (NYSE: ENS): This $3.37 billion mid-cap out of Reading, Pennsylvania, manufactures, markets, and distributes reserve power products for backup power to continuous operation equipment in telecommunications systems, computer and computer-controlled systems, and in security systems; and electrical control systems used in electric utilities, energy pipelines, commercial aircraft, satellites, military aircraft, submarines, ships, and tactical vehicles. It also offers motors and motive power products for manufacturing, warehousing, and other material handling equipment.

With $2.38 billion in annual revenues at 70.6% of its market cap, the company passes $175.22 million of net income to common stockholders, or 7.36% of its revenues, some 2.5 times more than Nidec. With quarterly revenue growth of a solid 15.4%, the current stock price of $71.53 represents good PEG value at 1.18 – which is lower than its price-to-book ratio of 2.65 and better than Nidec’s PEG of 1.56. Analysts rate it a solid buy at 1.8 out of 5, with a mean target of $82.50, or 15.3% higher than it is currently.

• Magnetek Inc. (Nasdaq: MAG): This Menomonee Falls, Wisconsin-based $62.1 million micro-cap provides digital power control systems used in material handling, elevator, and energy delivery applications; overhead material handling applications used aerospace, automotive, steel, aluminum, paper, logging, mining, ship loading, nuclear power plants, and heavy movable structures; and alternating current (AC) and direct current (DC) drive systems used in radio remote controls, push-button pendant stations, brakes, collision avoidance and power delivery subsystems.

Its $103.32 million in annual revenues is an outstanding 166.4% of its market cap, while its net income to common stockholders of $3.76 million equates to some 3.64% of its revenues – somewhere in between its competitors noted above. Yet despite its outstanding annual revenues, its latest quarterly revenue growth year-over-year at -15% is actually a shrinkage. Currently trading at around $19.09, its price-to-book ratio is an elevated 7.51. The stock’s sole analyst gives it a hold rating of 3, with a brutal price target of $2.91 for an anticipated loss of 84.7% of its value. Why the analyst would rate the stock as a “hold” is puzzling to say the least.
MAG’s stock has fallen some 23.6% this month already on a rather downbeat yearly report last week.

President and CEO Peter McCormick revealed, “Our level of business activity throughout fiscal 2013 was lower than during 2012, particularly in material handling and mining markets… We expect these conditions to continue through the first half of 2014, although we have seen our quotation log for larger projects increase over the past couple of months.”

“Our growth initiatives in 2014,” McCormick outlines, “are centered on a combination of innovative product offerings, market share gains, and entry into new markets. Looking ahead, we continue to believe that we have great opportunity to enhance shareholder value through a combination of reliable profitability, consistent cash flow generation, and a further reduction in our pension obligation.” Needless to say, this stock could be a bit of a gamble.

As a final comparison, all three companies are compared to the S&P 500 below in a 1-year and 5-year basis – with all three beating the broader market over the past year.

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Source: BigCharts.com

Click Here to Enlarge

Source: BigCharts.com

Joseph Cafariello