NVIDIA and SodaStream Just Raised the Bar

Offering earnings guidance above analyst expectations is obviously a bullish sign, as over time earnings growth follows sales growth. And when a company predicts greater sales or profits, we expect its stock price to soon follow.

Sometimes things don't work out as planned, though, so we'll pair up the brighter outlook with the sentiments of more than 180,000 members of Motley Fool CAPS. If the best and brightest stock pickers think a company's long-term potential is outstanding, coupled with the company's own improved sentiment, maybe then investors should take notice, too.

Stock

CAPS Rating (out of 5)

Prior or Consensus Estimate

Current Guidance

Period

NVIDIA (Nasdaq: NVDA  ) **** $1.09 billion $1.15 billion-$1.25 billion Q312 Rev
SodaStream (Nasdaq: SODA  ) ** +50% growth +55% growth FY12 EPS

Don't blindly buy into their heady outlook -- you still need to do some research. Use the announcement as a jumping-off point for additional research.

Chipping away at doubt
Although it's true Apple  (Nasdaq: AAPL  ) will probably continue dominating the tablet market for years to come, having sold 30 million iPads in the U.S. alone since their launch (as revealed in the Samsung patent infringement lawsuit), the Android-based market will remain a growing presence and will probably gnaw away at Apple's lead.

I've argued that bodes well for graphics-chip maker NVIDIA, which -- although it was refused entry into Apple's ecosystem when Apple chose to stay with its internally developed ARM Holdings' (Nasdaq: ARMH  ) processor -- still has an envious lineup of partners for its Tegra family of chips, including Google, which offers the popular Nexus 7 tablet and Microsoft's new Surface tablet. Moreover, the acquisition of Icera allows NVIDIA to market its high speed-low power processors in the mobile arena, where they ought to become a much sought-after commodity.

The Tegra platform achieved record sales while the GPU business continued to grow despite a weakened market such that it's poised to capitalize on the fastest-growing segments of the computing industry.

That was the selling point for CAPS member pantha104, who pointed to the growth of cell phones and tablets that feature NVIDIA's chips as why it should outperform the market averages.

I've had a long-term outperform rating on NVIDIA on CAPS, which I don't plan on changing, but tell me in the comments section below whether you'd sell the spinoff once it hit your portfolio. With all but one of the nearly two dozen Wall Street analysts that CAPS tracks rating the chipmaker to continue beating the indexes, let me know in the comments section below if you think the opportunity is so large for NVIDIA that it's not a chip but rather a gouge.

A bubble bursting
I'll admit to not being bullish on drink maker SodaStream, having previously outlined concerns regarding a lack of moat, distribution, and cost, but I've also got to give it credit that for three quarters running now that the drinks master has raised guidance. I often caution investors not to buy into a single quarter's good fortune (or sell on a bad quarter either) as that doesn't indicate a trend, yet even I need to admit that three quarters of increasing expectations suggests there's more than meets the eye here.

While there's seemingly no moat to its business, as just about anyone can come in and start offering home carbonation machines, Primo Water is proving that while possible, it's not easy. It's already seeking out strategic alternatives that will probably see it sell off the division. And distribution is progressing, albeit slowly, as it won't seek out drug stores and supermarkets for another year, though with Bed Bath & Beyond and Wal-Mart as current outlets it has huge venues already. Cost compared with Coca-Cola or Pepsi can probably never be rivaled, but there is a level of convenience in whipping up a batch at home that its bigger rivals can't match.

I would add taste, too, but SodaStream recently expanded its partnership with Kraft's (NYSE: KFT  ) Kool-Aid brand to initially included Kool-Aid flavors of cherry, grape, and tropical punch.

Even as my doubts about SodaStream wavered in the past, I still worried about whether margins would take a hit, particularly after inking its limited distribution deal with Wal-Mart. That hasn't panned out yet, as gross margins moved up from a year ago to 54.4% because more direct sales were being made (they account for 75% of total revenues), but I think it's worth keeping an eye on.

Even so, I'm going to close out my underperform rating on SodaStream, ending with a slight gain, because it seems the drink maker is getting its financial footing. But tell me in the comments section below if there are other cautionary words I should be abiding by or if its future is as fizzy as its drinks.

Raise your sights
Apple is still the straw that stirs the drink when it comes to mobile communications, and a new premium report from The Motley Fool details the key things investors need to keep an eye on -- and the risks they must not ignore! So sign up now for the new Apple research service and get everything you need to know about the iPhone maker, complete with free quarterly updates. Access this premium research report.

Fool contributor Rich Duprey owns shares of Apple, but he holds no other position in any company mentioned. Check out his holdings and a short bio. The Motley Fool owns shares of Coca-Cola, Microsoft, PepsiCo, SodaStream International, and Apple. Motley Fool newsletter services have recommended buying shares of PepsiCo, Apple, Bed Bath & Beyond, Google, NVIDIA, Microsoft, Coca-Cola, and SodaStream International, creating a bull call spread position in Apple, creating a synthetic covered call position in Microsoft, and writing puts on NVIDIA. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days. The Motley Fool has a disclosure policy.


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  • Report this Comment On September 01, 2012, at 6:15 PM, martinitony wrote:

    It is strange how much effort you have made not to recommend SODA. Every metric tells you to jump in and be positive yet you can't seem to do it. My advice to you and your readers is, as the Nike commercials used to say, just do it.

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