More than anything else, managers determine returns. They set strategy, hire key team members, oversee operations, and cash paychecks. Every move they make either enhances or destroys shareholder capital.
It pays to know who these men and women are, how they're paid, whether they, too, are owners, and how they perform versus competitors in certain key metrics. In this regular column, I'll examine all that and more with the goal of enhancing our understanding of some of the top stocks in Fooldom.
Next up: NVIDIA
Foolish facts
Metric |
NVIDIA |
---|---|
CAPS stars (out of 5) | **** |
Total ratings | 5,204 |
Percent bulls | 95.4% |
Percent bears | 4.6% |
Bullish pitches | 810 out of 863 |
Highest rated peers | Cypress Semiconductor, Actions Semiconductor, Alpha & Omega Semiconductor |
Data current as of Feb. 23.
For a long while I just didn't get NVIDIA. All that changed when I went to last month's Consumer Electronics Show. So many smartphone and tablet partners were ready to adopt its Tegra mobile processors that I felt compelled to name the stock one of the four best buys coming out of CES.
I've been right so far. Shares of NVIDIA have outpaced the S&P 500 index by 11 percentage points from the day that column went live, thanks mostly to a very strong earnings report. The chipmaker's $0.23 in fourth-quarter profit was 44% higher than Wall Street's consensus estimate.
Investors have good reason to expect further gains. Motorola Mobility's
And that's important. Design wins are everything in the chip business and Motorola is one of the highest-profile Android partners. Tegra's success with Moto could lead to success with others. Just don't expect peers Qualcomm
Advanced Micro Devices
At CES, Microsoft
Management overview
Executive |
Years |
Cash Compensation |
Shares Owned** |
---|---|---|---|
Jen-Hsun Huang, co-founder and CEO | 18 | $7,145 | 307,676 |
David White, chief financial officer | 2 | $675,495 | 25,000 |
Deborah Shoquist, EVP of operations | 4 | $267,946 | 61,832 |
Ajay Puri, EVP of worldwide sales | 6 | $333,671 | 74,311 |
Source: Capital IQ, a division of Standard & Poor's. (Data current as of Feb. 24.)
* As an employee.
** Direct holdings only.
Like shareholders, management has plenty to gain if Project Denver succeeds. CEO and co-founder Jen-Hsun Huang, in particular, since he still owns 3.4% of the business (after considering his holdings in a trust) and receives the majority of his annual compensation in stock options.
Last year, he was awarded $3.475 million worth of options and paid $1 in salary after taxes and benefit contributions. CFO White received $2.2 million in options awards while Shoquist and Puri received $611,700 and $666,225, respectively, in options during 2010.
I've no problem with these sorts of grants, so long as the strike price is fair and management doesn't abuse shareholder capital sopping up options-driven dilution when the stock is priced above fair value.
So far, they haven't. NVIDIA's stock has outperformed the S&P 500 by more than 50 percentage points over the past five years. Buybacks have created value for common shareholders.
Management analysis versus competitors
Company |
Insider Ownership |
Gross Margin |
ROC* |
ROE** |
---|---|---|---|---|
Advanced Micro Devices | 4.16% | 45.6% | 7.1% | 56.7% |
Intel |
0.05% | 65.3% | 20.3% | 25.2% |
MIPS Technologies |
0.63% | 98.2% | 23.6% | 34.7% |
NVIDIA | 4.01% | 39.8% | 4.2% | 8.7% |
Source: Capital IQ, a division of Standard & Poor's. (Data current as of Feb. 24.)
* Return on capital.
** Return on equity.
On the basis of ownership and management efficiency NVIDIA isn't even close to the best buy on this list. MIPS Technologies, on the other hand, looks every bit the Rule Breaker some believe it could be.
I'm a fan of MIPS. I saw the company and its products at CES and I like that it, too, is competing for design wins in Android smartphones for here and abroad. It's a potentially meaningful catalyst for a company that has spent more than two decades designing chip architectures for consumer electronics.
And yet I'm about as enthusiastic about NVIDIA as I am MIPS. Margins are rising right alongside returns on capital, and known catalysts (i.e., Android, Project Denver) should foster massive growth over the next three to five years -- potentially much more than the 17% annual profit gains analysts expect.
Do you agree? Disagree? Let us know what you think about NVIDIA's processors, competitive positioning, valuation, and the likelihood of Project Denver succeeding using the comments box below. You can also rate NVIDIA in Motley Fool CAPS.
Interested in more info on the stocks mentioned in this story? Add Advanced Micro Devices, Intel, MIPS Technologies or NVIDIA to your watchlist.